KINDEN (1944) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for FY2026 Q3 increased in both revenue and income, driven by the expansion of completed construction revenue and a significant improvement in construction profitability. Revenue was ¥4,992.7B (+7.5% YoY), Operating Income was ¥519.6B (+69.2%), Ordinary Income was ¥558.5B (+65.1%), and Net Income was ¥401.0B (attributable to owners of the parent, up from ¥243.2B in the same period of the previous year). The gross profit margin on completed construction improved by approximately 5pt to 22.3%, from 17.4% in the same period of the previous year, while the Operating Income margin rose to 10.4% from 6.6%. The growth rate in income significantly exceeded the growth rate in revenue, indicating that qualitative improvement in construction profitability was the central driver of performance this fiscal year.

Factors Affecting Performance

【Revenue】Completed construction revenue increased 7.5% YoY to ¥4,992.7B. Advances received on uncompleted construction contracts increased significantly to ¥679.1B (¥373.2B at the end of the previous fiscal year, +81.9%), while costs on uncompleted construction contracts also rose substantially to ¥359.6B (+86.4%), suggesting progress on construction projects on hand and future revenue progression.

【Profit and Loss】Gross profit on completed construction increased 38.4% to ¥1,115.8B from ¥806.4B in the same period of the previous year, and the gross profit margin improved to 22.3% from 17.4%. The cost of completed construction increased only +1.0% YoY, below revenue growth of +7.5%, which was the primary factor behind the improvement in margins. Meanwhile, SG&A expenses increased 19.4% YoY to ¥596.2B, expanding at a faster pace than revenue growth. Attention is therefore warranted regarding the risk of a reversal in Operating leverage if the improvement in gross profit slows. Extraordinary income of ¥22.9B, including a ¥22.0B gain on the sale of investment securities, and extraordinary losses of ¥10.2B, including impairment losses of ¥10.0B, largely offset each other, limiting their net impact on Net Income. The provision for losses on construction contracts increased to ¥90.5B (¥72.8B in the previous year, +24.3%), indicating that cost and schedule risks remain in individual projects even amid improving profitability. Overall, the company achieved increases in both revenue and income, with the increase in income supported by structural improvement in construction profitability.

Key Financial Indicators

【Profitability】The Operating Income margin improved by approximately 3.8pt to 10.4% from 6.6% in the same period of the previous year, while the Net Income margin also rose to 8.1% from 5.3%. The improvement in the gross profit margin on completed construction to 22.3% from 17.4% was the central factor behind enhanced profitability.【Cash Quality】Against Profit Before Tax of ¥571.2B, the net amount of extraordinary income of ¥22.9B and extraordinary losses of ¥10.2B was approximately ¥12.7B. Non-recurring factors accounted for a small proportion of Net Income of ¥402.6B, indicating that profit generation at the operating and ordinary income levels was the primary source of earnings.【Investment Efficiency】Annualized ROE was 8.5%, with the improvement in the Net Income margin serving as a positive factor. However, the total asset turnover ratio remained low, with the asset composition, including construction in progress, constraining turnover.【Financial Soundness】The Equity Ratio remained high at 74.1% (72.9% in the previous year), while interest-bearing debt was extremely small, consisting only of short-term borrowings of ¥158.9B. Cash and deposits were ¥619.2B, and immediately available assets, including short-term securities of ¥1,085.0B, substantially exceeded short-term borrowings.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, changes in the balance sheet provide insight into fund movements. Cash and deposits were ¥619.2B, down ¥422.4B from ¥1,041.6B in the same period of the previous year. This is believed to reflect the allocation of funds toward the ¥399.1B increase in property, plant and equipment, including ¥858.9B in construction in progress, as well as the ¥165.1B increase in short-term securities. The increase in advances received on uncompleted construction contracts (+¥305.8B) supports liquidity as advance funds associated with construction progress. Meanwhile, accounts receivable from completed construction contracts remained substantial at ¥2,064.5B, and trends in the collection cycle will affect the company’s underlying cash-generation capacity. Overall, the expansion of fund uses associated with investment and construction progress appears to have been the primary cause of the decline in cash balances, while the high Equity Ratio supports flexibility in funding.

Earnings Quality

The increase in income during the current period was primarily attributable to recurring improvement in construction profitability, and earnings quality was generally high. Non-operating income of ¥44.9B included dividend income of ¥26.3B and interest income of ¥8.2B, both of which are stable sources of income. Extraordinary income of ¥22.9B, mainly the ¥22.0B gain on the sale of investment securities, and extraordinary losses of ¥10.2B, mainly the ¥10.0B impairment loss, largely offset each other. Their net amount represented only approximately 3% of Net Income of ¥402.6B, indicating a low dependence on non-recurring factors. However, the increase in the provision for losses on construction contracts to ¥90.5B (+24.3% YoY) warrants attention from an accrual perspective, as future deterioration in the profitability of individual projects could affect the sustainability of earnings.

Earnings Forecast and Guidance

The full-year company forecast calls for Revenue of ¥7,500.0B (+6.4% YoY), Operating Income of ¥840.0B (+37.8%), and Ordinary Income of ¥875.0B (+35.6%). Cumulative progress rates were 66.6% for Revenue, 61.9% for Operating Income, and 63.8% for Ordinary Income, all below the standard quarterly progress rate of 75%. Operating Income of approximately ¥147.2B is required in Q4, implying an Operating Income margin of 5.9%, well below the cumulative actual margin of 10.4%. This difference may reflect a conservative plan incorporating normalization of construction profitability, expense recognition, and changes in project mix toward the end of the fiscal year.

Shareholder Returns

The Q2 dividend was ¥60 per share, and the full-year dividend forecast is ¥125 per share. The forecast Payout Ratio against full-year forecast EPS of ¥330.60 is approximately 37.8%, below the general sustainability benchmark of approximately 60%. Retained earnings of ¥4,951.7B and net assets of ¥6,299.3B provide substantial balance-sheet capacity to support dividend payments. Treasury stock increased compared with the same period of the previous year, but the Total Return Ratio, combining dividends and share repurchases, has not been calculated because details regarding the purchase amount and timing could not be confirmed.

Risk Factors

1. Sustainability of construction profitability: The gross profit margin on completed construction improved significantly from the previous year to 22.3%, but SG&A expenses increased +19.4%, faster than revenue growth. If the gross profit margin normalizes, there could be significant downward pressure on the Operating Income margin.

2. Increase in the provision for losses on construction contracts: The provision for losses on construction contracts increased to ¥90.5B, up +24.3% YoY. Cost overruns, design changes, and construction delays on individual large-scale projects could weigh on future earnings.

3. Utilization and monetization risk associated with construction in progress: Construction in progress amounted to ¥858.9B, representing 44.8% of property, plant and equipment, and increased significantly from the previous year. Delays in completing investment projects or failure to generate earnings after commencement of operations could affect capital efficiency and future impairment risk.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

The company’s Operating Income margin and Net Income margin are positioned above the construction industry average.

Growth and Capital Efficiency

The Revenue growth rate is at a solid level within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The gross profit margin on completed construction improved by approximately 5pt YoY, and the Operating Income margin rose to 10.4%. This improvement resulted from construction costs increasing more slowly than revenue, representing a structural change that is important in assessing the quality of the increase in both revenue and income.

2. Progress toward the full-year company forecast was 66.6% for Revenue and 61.9% for Operating Income, below the standard progress rate of 75%. The Operating Income margin required in Q4 is based on an assumption below the cumulative actual margin. Profitability trends toward the end of the fiscal year will determine the extent to which the full-year forecast is achieved.

3. Construction in progress amounted to ¥858.9B, representing 44.8% of property, plant and equipment, while goodwill and intangible assets also increased significantly from the previous year. The progress of investments and their monetization after commencement of operations are key points in evaluating future capital efficiency.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥3,301–¥3,495 at ±1% for the Cost of Equity, and ¥3,391–¥3,403 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

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