NIPPON DENSETSU KOGYO (1950) FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, the Company reported higher revenue and significantly higher profit, driven by growth in completed construction revenue and improved project profitability. Revenue was ¥2292.1B (+5.7% YoY), Operating Income was ¥235.6B (+31.4%), Ordinary Income was ¥252.8B (+30.3%), and Net Income (consolidated, including the portion attributable to non-controlling interests) was ¥188.5B (+50.5%). The reason profit growth substantially exceeded revenue growth was the improvement in the gross profit margin on completed construction from 15.8% to 17.9%, with cost control and improved order profitability driving performance.

Factors Affecting Performance

【Revenue】Completed construction revenue increased 5.7% YoY to ¥2292.1B. The Company operates as a single segment in the equipment construction industry, and the expansion in construction volume was the primary driver of revenue growth. Completed construction costs increased 5.3% YoY, below the rate of revenue growth.

【Profit and Loss】Gross profit on completed construction increased 19.3% YoY to ¥409.2B, while the gross profit margin improved to 17.9% from 15.8% in the previous year, an improvement of approximately 2.0pt. SG&A expenses were ¥173.6B (+6.6% YoY), remaining broadly unchanged as a percentage of revenue at 7.6%, and the improvement in gross profit translated directly into higher Operating Income. The Operating Income margin expanded to 10.3% from 8.3%, an improvement of approximately 2.0pt. Ordinary Income increased 30.3% YoY to ¥252.8B, aided by higher non-operating income, primarily dividend income of ¥11.8B. Profit Before Tax of ¥270.9B included extraordinary income of ¥23.1B, reflecting a ¥22.8B gain on the sale of investment securities; thus, temporary factors also contributed to the growth in final profit. In conclusion, the Company achieved higher revenue and profit, with the primary driver of profit growth being improved profitability in its core business.

Segment Analysis

The Group operates as a single segment in the equipment construction industry and does not disclose segment-level information.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 10.3% from 8.3% in the previous year, while the Net Profit margin, based on Net Income attributable to owners of the parent, rose to 7.9% from 6.1%. ROE was 8.2%, based on Net Income divided by shareholders’ equity. Under DuPont analysis, ROE comprises Net Profit margin × total asset turnover of 0.69x × financial leverage of 1.45x, with the low asset turnover ratio constraining the level of ROE.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥105.2B, representing a return to positive cash flow from an outflow of △¥43.4B in the previous year. However, OCF/Net Income attributable to owners of the parent was 0.58x and OCF/EBITDA was 0.37x, indicating that cash conversion relative to earnings remains weak.【Investment Efficiency】Capital expenditures were ¥58.5B, or 1.15x depreciation and amortization of ¥51.1B, representing an investment level above maintenance and replacement requirements. Investment securities increased to ¥518.5B, equivalent to 15.5% of total assets, and serve as a source of income through dividend income and gains on sales.【Financial Soundness】The Equity Ratio was 69.1%, representing net assets as a percentage of total assets, and the current ratio was approximately 232%, indicating a conservative financial foundation. Meanwhile, short-term borrowings increased 197.6% YoY to ¥122.0B, with all interest-bearing debt becoming short-term.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥105.2B, a significant improvement from △¥43.4B in the previous year. Although the subtotal before changes in working capital was ¥161.4B, an increase in trade receivables, primarily completed construction receivables, resulted in a cash outflow of ¥141.2B, partly offset by a ¥42.9B increase in trade payables. Investing Cash Flow was △¥47.0B, with capital expenditures of ¥58.5B and the acquisition of investment securities of ¥18.0B representing the primary sources of outflow. Free Cash Flow (OCF + Investing Cash Flow) was ¥58.2B. Financing Cash Flow was an inflow of ¥19.4B, as the ¥81.0B increase in short-term borrowings provided a source of funds exceeding dividend payments of ¥5.4B and the acquisition of treasury shares of ¥6.4B. The return to positive OCF is an improvement; however, the pace of cash generation relative to earnings growth remains comparatively slow, and containing the increase in trade receivables will be a key issue to monitor going forward.

Quality of Earnings

Recurring earning power is reflected in Operating Income of ¥235.6B and Ordinary Income of ¥252.8B. Dividend income of ¥11.8B accounted for 65.5% of non-operating income of ¥18.0B, providing a stable earnings contribution from holdings of investment securities. Meanwhile, Profit Before Tax of ¥270.9B included extraordinary income of ¥23.1B, primarily consisting of a ¥22.8B gain on the sale of investment securities, while extraordinary losses, including impairment losses of ¥3.8B and other items, totaled ¥5.0B. The resulting net extraordinary gain of ¥18.1B boosted final profit. Accordingly, the 36.9% YoY growth in Net Income attributable to owners of the parent, which was ¥180.6B, included a certain contribution from temporary factors. When assessing recurring earning power, it is appropriate to use Ordinary Income of ¥252.8B as the benchmark. Comprehensive Income was ¥269.1B, and the difference from Net Income of ¥188.5B was attributable to changes in the valuation of other securities, including valuation differences on securities of ¥66.3B; market price fluctuations therefore represent a driver of changes in Comprehensive Income.

Earnings Forecasts and Guidance

Progress against the full-year Company forecasts—Revenue of ¥2423.1B, Operating Income of ¥238.9B, Ordinary Income of ¥257.1B, and Net Income of ¥172.4B—was equivalent to 94.6% for Revenue, 98.6% for Operating Income, and 98.3% for Ordinary Income, respectively. Progress for Operating Income and Ordinary Income exceeded that for Revenue, suggesting that the Company’s plan does not assume a significant decline in profit margins during the remaining period.

Shareholder Returns

The year-end dividend was ¥124 per share, an increase of ¥34 from ¥90 in the previous year. The Company’s forecast for the annual dividend is ¥127, indicating that its dividend increase policy remains in place. The Payout Ratio was 40.1%, within a sustainable range relative to earnings. The Company also repurchased ¥6.4B of treasury shares, which should be viewed as a shareholder return measure separate from dividends. Dividend coverage relative to Free Cash Flow of ¥58.2B was approximately 1.08x, indicating that the dividend for the current period was broadly covered by cash generated from operating activities.

Risk Factors

1. Increase in trade receivables and delayed cash conversion: Completed construction receivables reached ¥1501.8B, and the increase in trade receivables reduced OCF by ¥141.2B. OCF/Net Income attributable to owners of the parent remained at 0.58x, making the speed of earnings conversion into cash a key issue.

2. Sharp increase in short-term borrowings: Short-term borrowings increased 197.6% YoY to ¥122.0B, with all interest-bearing debt concentrated in short-term borrowings. Cash and deposits of ¥123.6B almost cover short-term borrowings, and the current ratio is also high at approximately 232%; therefore, the impact on funding and liquidity at present is limited.

3. Concentration risk from a single business segment: As the Company operates as a single segment in the equipment construction industry, it is difficult to offset cyclical fluctuations in construction investment and private-sector capital expenditure through other businesses. Provision for losses on construction contracts was ¥1.2B, down from ¥5.1B in the previous year, and profitability management for individual projects will remain an ongoing monitoring point.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Profit margin significantly exceeded the industry median, placing the Company in a strong position in terms of profitability within the industry.

Growth and Capital Efficiency

The Revenue growth rate was below the industry median, indicating that the pace of revenue growth was relatively moderate within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The gross profit margin on completed construction improved from 15.8% to 17.9%, while the Operating Income margin expanded from 8.3% to 10.3%. The 31.4% increase in Operating Income compared with revenue growth of 5.7% indicates that cost improvements progressed at a faster pace than the increase in SG&A expenses.

2. OCF turned positive at ¥105.2B from an outflow in the previous year, while the cash conversion ratio relative to Net Income remained at 0.58x. This difference was caused by the increase in completed construction receivables, resulting in a timing gap between earnings growth and cash generation.

3. Short-term borrowings increased 197.6% YoY, resulting in a structure in which interest-bearing debt is concentrated in the short term. This change occurred against a conservative financial foundation, with an Equity Ratio of 69.1% and a current ratio of approximately 232%; whether the change in the funding structure is temporary or structural will be confirmed through future developments.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,573–¥3,780 at a cost of equity of ±1%, and ¥3,673–¥3,674 at ω of ±0.1.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on 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 the future share price.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 responsibility, after consulting a professional as necessary.

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