JGC HOLDINGS (1963) FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, revenue declined, while operating income shifted from a loss to a substantial profit as profitability improved in the Integrated Engineering Business. Revenue was ¥7452.8B (-13.1% YoY, -¥1128.0B), operating income was ¥354.0B (an improvement of ¥468.7B from the previous year’s ¥-114.7B), ordinary income was ¥581.9B (+414.0% YoY), and net income was ¥418.7B (turning profitable from the previous year’s ¥-4.6B). The primary drivers of earnings growth were the reduction of loss-making projects and improved project profitability in the Integrated Engineering Business. As earnings increased despite lower revenue, the year can be viewed as a period of structural transformation.

Factors Affecting Performance

【Revenue】Revenue was ¥7452.8B, representing a -13.1% YoY decline. The primary factor was a 14.5% decline in revenue from the Integrated Engineering Business, the largest segment, to ¥6795.9B. As this business accounts for 91.2% of revenue, it significantly reduced consolidated revenue. Meanwhile, the Functional Materials Manufacturing Business recorded a +4.3% increase in revenue to ¥570.0B, while Other Businesses grew revenue by +2.8% to ¥87.0B, with non-engineering businesses maintaining revenue growth.

【Profit and Loss】Operating income was ¥354.0B, improving by ¥468.7B from the previous year’s ¥114.7B loss, while the operating margin recovered from -1.3% in the previous year to 4.7%. The core of the improvement was the turnaround in operating income for the Integrated Engineering Business to ¥336.4B (+330.6% YoY), resulting in a segment margin of 5.0%. The Functional Materials Manufacturing Business posted operating income of ¥76.8B (-6.4%), representing a decline in earnings; the contraction of this business, which has a high margin of 13.5%, remains a challenge going forward. Ordinary income of ¥581.9B exceeded operating income by ¥227.9B, supported by non-operating income including interest income of ¥120.9B, foreign exchange gains of ¥57.0B, and dividend income of ¥26.2B. Special gains and losses resulted in a net gain of ¥25.8B, including a ¥34.6B gain on the sale of investment securities, and represented a temporary factor that increased profit before tax to ¥607.7B. In conclusion, the company reported higher earnings despite lower revenue.

Segment Analysis

The Integrated Engineering Business recorded revenue of ¥679.6B (-14.5% YoY), operating income of ¥336.4B (+330.6% YoY), and a margin of 5.0%, achieving a substantial turnaround from the operating loss recorded in the previous fiscal year. This business is the core business, accounting for 91.2% of consolidated revenue and the majority of reportable segment profit, and the improvement in consolidated performance depended on the restoration of its profitability. The Functional Materials Manufacturing Business recorded revenue of ¥570.0B (+4.3%), operating income of ¥76.8B (-6.4%), and a margin of 13.5%. Although it had the highest margin within the consolidated group, its earnings declined. Other Businesses recorded revenue of ¥87.0B (+2.8%) and operating income of ¥21.1B (-12.1%). By region, the Middle East was the largest region, with revenue of ¥2440.4B, accounting for 32.7% of consolidated revenue, followed by Japan at ¥1909.3B, Southeast Asia at ¥1150.6B, North America at ¥1157.2B, and Africa at ¥546.1B. Revenue from the Middle East declined -16.6% YoY, indicating that regional concentration and its fluctuations have a significant impact on consolidated performance.

Key Financial Metrics

【Profitability】The operating margin was 4.7% and the net profit margin was 5.6%, with both normalizing from negative levels in the previous fiscal year. The gross margin was low at 8.6%; given the characteristics of the EPC business, earnings remain highly sensitive to fluctuations in material and outsourcing costs.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥799.0B, approximately 1.9 times net income of ¥418.7B, indicating strong cash conversion. While the ¥407.4B increase in contract liabilities boosted OCF, the ¥247.1B decrease in trade payables and the increase in trade receivables were sources of cash outflow.【Investment Efficiency】ROE was 9.7%, decomposed into a net profit margin of 5.6%, total asset turnover of 0.89x, and financial leverage of 1.95x. This level was primarily attributable to the recovery from a net loss in the previous fiscal year and depended more on the normalization of the profit margin than on an improvement in asset efficiency.【Financial Soundness】The equity ratio was 51.4%, and cash and deposits of ¥4004.8B exceeded current liabilities of ¥3572.8B, indicating strong short-term payment capacity. Interest-bearing debt was limited to long-term borrowings of ¥140.2B and bonds of ¥200.0B. The large proportion of contract liabilities of ¥1484.4B within the liability structure is characteristic of the EPC business.

Cash Flow Analysis

OCF was ¥799.0B, up +70.9% YoY, demonstrating cash generation of approximately 1.9 times net income of ¥418.7B. The primary driver of the increase was the ¥407.4B increase in contract liabilities. While increases in advance payments and performance obligations for EPC projects improved working capital, the ¥247.1B decrease in trade payables and adjustments for interest income and other items exerted downward pressure on cash flow. Investing Cash Flow (ICF) was an outflow of ¥148.2B, of which capital expenditures accounted for ¥128.2B. Capital expenditures exceeded depreciation and amortization of ¥113.2B, indicating continued investment in addition to maintenance and replacement spending. Financing Cash Flow (FCF) was an outflow of ¥109.8B, including dividend payments and debt repayments. Free cash flow, calculated as OCF plus ICF, was a substantial positive ¥650.8B, securing sufficient financial capacity to fund dividends and capital expenditures. As the company’s cash generation structure is highly dependent on contract liabilities, the potential reversal of working capital due to changes in project progress and billing terms requires continued monitoring.

Earnings Quality

Ordinary income of ¥581.9B exceeded operating income of ¥354.0B by ¥227.9B. The primary reason was non-operating income of ¥245.5B, including interest income of ¥120.9B, foreign exchange gains of ¥57.0B, and dividend income of ¥26.2B. Non-operating income was equivalent to 64.5% of operating income, meaning that the level of ordinary income cannot be explained solely by improved profitability in the core business. Special gains included a ¥34.6B gain on the sale of investment securities, while special losses totaled ¥8.8B, including impairment losses of ¥4.2B, resulting in a net gain of ¥25.8B that increased profit before tax. These were temporary factors, and assessment of sustainable earnings power should focus primarily on operating income of ¥354.0B and the continuity of project profitability in the core business. Meanwhile, OCF reached approximately 1.9 times net income, indicating a small divergence between accounting earnings and cash, and earnings quality can therefore be assessed as sound. Comprehensive income was ¥484.6B, exceeding net income attributable to owners of the parent of ¥418.4B, with other comprehensive income items including valuation differences on securities of ¥58.8B and adjustments related to retirement benefits of ¥22.1B providing additional gains.

Earnings Forecasts and Guidance

The forecast for the next fiscal year is revenue of ¥6700.0B (-10.1% YoY), operating income of ¥400.0B (+13.0%), and ordinary income of ¥460.0B (-20.9%). The company plans for higher operating income despite an expected decline in revenue, implying a planned operating margin of approximately 6.0%. As this assumes an improvement from the current period’s operating margin of 4.7%, the key to achieving the plan will be the reproducibility of profitability improvements in the Integrated Engineering Business and the maintenance of the project mix. The forecast for ordinary income is below the operating income forecast, possibly reflecting a conservative view of non-operating factors such as interest income, foreign exchange gains, and gains on the sale of investment securities, which made significant contributions in the current period.

Shareholder Returns

The dividend forecast is ¥52.00 per share, representing a +30.0% increase from the previous fiscal year’s ¥40.00. The payout ratio is 30.1%, a level with ample room from the perspective of sustainability, based on a guideline of 60%. Total dividends are approximately ¥125.8B, and the proportion allocated from free cash flow of ¥650.8B is limited; the current period’s dividend is supported by OCF and the cash balance. A dividend of ¥52.00 per share is also planned for the next fiscal year, resulting in an expected payout ratio of approximately 27.3% against forecast EPS of ¥190.25.

Risk Factors

1. Business Concentration Risk: The Integrated Engineering Business accounts for 91.2% of revenue, creating significant exposure of consolidated performance to cost overruns and schedule delays on large-scale projects. The business has a low operating margin of 5.0%, while the consolidated gross margin is 8.6%, indicating high sensitivity to cost fluctuations.

2. Regional and Customer Concentration Risk: Revenue from the Middle East was ¥2440.4B, accounting for 32.7% of consolidated revenue, resulting in high sensitivity to resource prices, customers’ capital expenditure plans, and geopolitical risks. Provisions for construction losses were ¥368.8B, while costs on uncompleted construction contracts were ¥108.8B; changes in estimates of future costs could therefore become a factor in earnings volatility.

3. Dependence on Temporary and Non-Operating Factors: The ¥227.9B difference between ordinary income and operating income was primarily attributable to non-operating factors such as interest income, foreign exchange gains, and dividend income. Special gains and losses, including the ¥34.6B gain on the sale of investment securities, were also temporary. Sustainable earnings power in the core business should therefore be assessed based on operating income of ¥354.0B, representing a margin of 4.7%.

Industry Benchmark (Reference; Company Analysis)

Key Points from the Financial Results

1. The shift from an operating loss in the previous fiscal year to operating income of ¥354.0B resulted from an improvement of approximately 6.4pt in the gross margin and approximately 6.0pt in the operating margin. This can be observed as a structural change led by the restoration of project profitability in the Integrated Engineering Business.

2. OCF reached approximately 1.9 times net income, while free cash flow reached ¥650.8B. The financial foundation of cash and deposits of ¥4004.8B and an equity ratio of 51.4% functions as resilience against project execution risks associated with contract liabilities of ¥1484.4B.

3. The next fiscal year’s plan assumes higher operating income despite declining revenue, with an improvement in the margin to approximately 6.0%. The continued quality of project selection and construction management in the Integrated Engineering Business will be the key factor to monitor in assessing achievement of the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,862–¥1,973 at ±1% for the cost of equity, and ¥1,913–¥1,922 at ±0.1 for ω.

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

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This report is an earnings analysis document automatically generated by AI based on XBRL financial results 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 financial results data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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