EXEO Group (1951) FY2026 Q3 Earnings Report

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Executive Summary

Operating income increased 45.7%, significantly outpacing the 18.6% increase in revenue, resulting in higher revenue and earnings accompanied by improved profitability. Revenue was ¥5,209.9B (¥4,392.7B in the previous year), operating income was ¥288.1B (¥197.8B), ordinary income was ¥293.9B (¥209.2B), and net income was ¥194.6B (¥117.4B, +65.7%). Operating leverage was achieved as the increase in SG&A expenses (+9.9%) lagged revenue growth, and the operating margin improved to 5.5% from the previous year.

Factors Affecting Performance

【Revenue】Revenue increased 18.6% year on year to ¥5,209.9B. By segment, Systems Solutions generated ¥1,867.8B (35.9% of total), Telecommunications Carriers generated ¥1,750.0B (33.6%), and Urban Infrastructure generated ¥1,592.2B (30.6%). The increases from the previous year were ¥305.4B for Urban Infrastructure and ¥493.2B for Systems Solutions, with these two segments driving revenue growth.

【Profit and Loss】Operating income increased 45.7% year on year to ¥288.1B. The gross margin was 14.1% (13.7% in the previous year), while the SG&A ratio was 8.6%; efficiency improvements in both costs and SG&A expenses drove operating income higher. Ordinary income increased 40.5% to ¥293.9B, with non-operating income and expenses remaining broadly in line with the previous year and in net income territory. Net income increased 65.7% to ¥194.6B, but was supported by extraordinary gains of ¥16.8B on the sale of investment securities and ¥8.1B on the sale of fixed assets (total extraordinary gains of ¥24.8B); accordingly, part of the net income growth was attributable to temporary factors. In conclusion, the Company achieved higher revenue and earnings.

Segment Analysis

Segment profit was ¥158.6B for Telecommunications Carriers (9.1% margin), ¥64.8B for Systems Solutions (3.5%), and ¥64.8B for Urban Infrastructure (4.1%). Although Telecommunications Carriers accounted for 33.6% of revenue, it represented 55.1% of total operating income of ¥288.1B and served as the core source of profitability. The Urban Infrastructure margin improved from 1.5% in the previous year to 4.1%, while the Systems Solutions margin improved from 3.1% to 3.5%. The key focus going forward will be whether the profitability improvements in the two segments leading in terms of revenue scale can be sustained.

Key Financial Metrics

【Profitability】The operating margin of 5.5% (4.5% in the previous year) and net profit margin of 3.8% (2.6%) both improved, although neither metric has reached double digits in absolute terms. 【Cash Quality】Accounts receivable from completed construction contracts decreased 19.0% year on year to ¥2,261.8B. This decline occurred despite an 18.6% increase in revenue, and annualized days sales outstanding shortened from approximately 174 days to approximately 119 days. Advances received on construction contracts in progress increased to ¥204.0B (+28.2%), confirming an increase in customer advances. 【Investment Efficiency】Annualized ROE was 7.8%, comprising a net profit margin of 3.8%, total asset turnover of approximately 1.05x, and financial leverage of approximately 1.99x. Basic EPS was ¥94.96 (¥55.03 in the previous year, +72.6%), and BPS was ¥1,600.02 (¥1,551.71). 【Financial Soundness】The equity ratio was 50.3%, and the current ratio was favorable at approximately 198%, calculated as current assets of ¥3,914.9B divided by current liabilities of ¥1,974.3B. While long-term borrowings increased significantly by 68.7% year on year to ¥962.4B, cash and deposits also increased to ¥568.2B (+42.0%), indicating stable short-term liquidity.

Cash Flow Analysis

As cash flow statement items are not included in the disclosed data, cash trends are assessed based on movements in the balance sheet. Accounts receivable from completed construction contracts decreased by ¥530.8B year on year, while advances received on construction contracts in progress increased by ¥44.9B, indicating that working capital was not under pressure despite the period of revenue growth. Cash and deposits increased by ¥168.1B from the previous year to ¥568.2B; however, long-term borrowings increased by ¥391.8B at the same time, so the increase in cash cannot simply be assessed as being generated solely by operating activities. Short-term borrowings decreased by ¥107.9B, indicating a shift in the debt structure from short-term to long-term borrowings.

Quality of Earnings

Although the improvement in recurring earnings power is clear, the growth in net income includes temporary factors. Non-operating income amounted to ¥28.9B, including dividend income of ¥7.0B and foreign exchange gains of ¥7.1B, while non-operating expenses totaled ¥23.1B, including interest expense of ¥8.9B. The resulting net non-operating gain of ¥5.8B supported ordinary income. Extraordinary gains of ¥24.8B (gain on the sale of investment securities of ¥16.8B and gain on the sale of fixed assets of ¥8.1B) are non-recurring items, and a certain portion of net income of ¥194.6B depends on these extraordinary factors. Comprehensive income was ¥236.3B, exceeding net income of ¥194.6B. Valuation differences on securities of +¥38.8B and adjustments related to retirement benefits of +¥30.4B made positive contributions, while foreign currency translation adjustments of ▲¥27.5B had a negative impact.

Earnings Forecast and Guidance

Progress toward the full-year company forecast was 68.6% for revenue (forecast: ¥7,600.0B), 54.4% for operating income (forecast: ¥530.0B), and 54.4% for ordinary income (forecast: ¥540.0B). Revenue progress was only slightly below the standard quarterly progress rate of approximately 75%, but progress for profit metrics was significantly below that level, presupposing a concentration of profit recognition in Q4. To achieve the full-year forecast, operating income of approximately ¥241.9B, equivalent to an operating margin of approximately 10.1%, will be required in Q4 alone, significantly higher than the cumulative margin of 5.5%. As this depends on the timing of project acceptance and completion, the degree to which progress is realized will be a key focus going forward.

Shareholder Returns

The Q2 dividend was ¥33.00 per share, exactly half of the full-year forecast dividend of ¥66.00. Based on forecast full-year EPS of ¥155.86 and an annual dividend forecast of ¥66.00, the forecast payout ratio is approximately 42.3%, which is not excessive. Treasury shares increased by ¥4.3B year on year; however, as details regarding the timing and amount of acquisitions are not included in the disclosed data, the total return ratio including share repurchases has not been calculated.

Risk Factors

1. Profitability Level Risk: The gross margin remains at 14.1%, and increases in material, labor, and subcontracting costs could pressure project profitability. The operating margin of 5.5% is also still in the process of improving.

2. Full-Year Plan Achievement Risk: Progress toward the operating income and ordinary income forecasts remains at 54.4%, and the operating margin required in Q4 is approximately 10.1%, significantly above the cumulative actual margin. Delays in project completion or acceptance could result in failure to meet the plan.

3. Changes in Capital Structure: Long-term borrowings increased substantially by 68.7% year on year to ¥962.4B. Although the current ratio of approximately 198% and interest coverage are currently at high levels, ensuring sufficient debt-servicing capacity, the increase in total interest-bearing debt requires continued monitoring in terms of the cost of capital and investment recovery.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

As median data was not provided, the Company’s relative position within the industry cannot be determined.

Growth and Capital Efficiency

As median data was not provided, the Company’s relative position within the industry cannot be determined.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Operating income increased 45.7%, outpacing the 18.6% increase in revenue, with operating leverage resulting from control of the SG&A ratio being the primary driver of earnings improvement. The gross margin of 14.1% remains low, and the sustainability of cost control will be a key focus going forward.

2. Progress toward the full-year company forecast for operating income was 54.4%, and the operating margin required in Q4 is approximately 10.1%, a plan that exceeds the cumulative actual margin. Q4 project progress and acceptance status will determine the degree to which the full-year results are achieved.

3. A decrease in accounts receivable from completed construction contracts occurred simultaneously with an increase in advances received on construction contracts in progress, indicating a positive trend in working capital efficiency during a period of revenue growth. Meanwhile, long-term borrowings increased 68.7%, and the use of funds and trend in interest-bearing debt require continued monitoring.

Theoretical Stock Price (Reference Values)

Sensitivity: ¥1,627–¥1,722 at ±1% for the cost of equity, and ¥1,672–¥1,676 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type with explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of market prices or recommendations of specific investment actions and do not predict or guarantee future stock prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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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