JGC HOLDINGS CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Although revenue declined 16.1%, Operating Income, Ordinary Income, and Net Income all increased significantly, making the quality of profitability improvement the central theme of the results. Revenue was ¥1593.0B (¥1898.2B in the same period of the previous year, -16.1%), Operating Income was ¥123.5B (+56.4% YoY), Ordinary Income was ¥213.8B (+132.3% YoY), and Net Income was ¥116.2B (+107.9% YoY). In addition to the improvement in the gross profit margin to 12.8%, the boost from non-operating income, including interest income and foreign exchange gains, amplified the increase at the ordinary income level.

Factors Affecting Performance

【Revenue】Revenue was ¥1593.0B, down -16.1% YoY, with the core Integrated Engineering Business, which accounted for 89.6% of the revenue mix, leading the decline with a -18.1% decrease. Meanwhile, Functional Materials Manufacturing generated revenue of ¥155.9B (+6.9%), and Other Businesses generated ¥18.8B (+1.4%), securing revenue growth despite their smaller scale. The decline in revenue from the Engineering Business is believed to have been significantly affected by the timing of project progress and completion. The increase in contract liabilities to ¥1746.7B (¥1484.4B in the previous year, +17.7%) indicates that the breadth of orders received is expanding.

【Profit and Loss】Despite the decline in revenue, the cost of sales decreased by -20.3%, exceeding the decline in revenue, resulting in an improvement in the gross profit margin to 12.8% (+465bp from 8.1% in the previous year) and Operating Income of ¥123.5B (+56.4%). SG&A expenses increased by +6.0%, raising the SG&A ratio to 5.0%, but the improvement in the gross profit margin absorbed this increase. Ordinary Income increased significantly to ¥213.8B (+132.3%), boosted by non-operating income of ¥93.8B (interest income of ¥41.1B and foreign exchange gains of ¥38.8B). However, the high effective tax rate of 45.5% constrained the growth in Net Income, which amounted to ¥116.2B (+107.9%). In conclusion, the company achieved higher profit despite lower revenue.

Segment Analysis

The Integrated Engineering Business generated revenue of ¥1426.7B (89.6% of the mix, YoY -18.1%) and Operating Income of ¥115.8B (YoY +55.4%, operating margin of 8.1%). It is the largest segment by scale, but its operating margin is relatively low. Functional Materials Manufacturing generated revenue of ¥155.9B (9.8% of the mix, YoY +6.9%) and Operating Income of ¥23.8B (YoY +29.4%, operating margin of 15.3%), making it a highly profitable segment. Other Businesses generated revenue of ¥18.8B and Operating Income of ¥2.9B (operating margin of 15.3%), securing a stable profit margin despite its small scale. The impact on consolidated profit is dominated by fluctuations in the profitability of the Engineering Business.

Key Financial Indicators

【Profitability】The Operating Income margin was 7.8%, improving by +360bp from 4.2% in the previous year, while the gross profit margin also improved by +465bp to 12.8%. The Net Income margin was 7.3%, a significant increase from 2.9% in the previous year.【Cash Flow Quality】Non-operating income was ¥93.8B, representing 5.9% of revenue. Of this amount, foreign exchange gains of ¥38.8B and interest income of ¥41.1B boosted Ordinary Income. This component entails volatility linked to market conditions and the interest-rate environment.【Investment Efficiency】ROE was 2.7%, driven by the improvement in the Net Income margin. However, the total asset turnover ratio remained low at 0.19x, indicating limited asset efficiency.【Financial Soundness】The Equity Ratio was 50.2%, and cash and deposits were substantial at ¥4140.6B. The company maintains a financial structure close to being debt-free in substance, with cash substantially exceeding long-term borrowings of ¥143.2B and bonds of ¥200.0B.

Cash Flow Analysis

Although the statement of cash flows has not been disclosed, an analysis of funding trends based on balance sheet movements indicates that contract liabilities increased by +17.7%, from ¥1484.4B to ¥1746.7B, and the accumulation of advance receipts is believed to have contributed to cash generation through working capital. Cash and deposits increased from ¥4004.8B to ¥4140.6B, while the increase in interest income of ¥41.1B reflects the high cash balance and the interest-rate environment. Costs on uncompleted construction contracts increased from ¥108.8B to ¥126.4B, indicating funding needs associated with project progress; however, the increase in contract liabilities effectively offset this. Overall, changes in working capital appear to have functioned positively from a cash flow perspective.

Quality of Earnings

The core of recurring earnings was Operating Income of ¥123.5B, while extraordinary losses were limited to ¥0.5B (loss on disposal of fixed assets), indicating a limited impact from one-time factors. Meanwhile, non-operating income of ¥93.8B reached 5.9% of revenue and consisted of interest income of ¥41.1B, foreign exchange gains of ¥38.8B, and dividend income of ¥6.2B. Of these, foreign exchange gains are a volatile element linked to market fluctuations, and the ¥213.8B Ordinary Income should be evaluated after normalizing their boosting effect. The gap between Ordinary Income and Net Income (¥213.8B → ¥116.2B, approximately -45.6%) was primarily attributable to the heavy tax burden from income taxes of ¥97.0B (effective tax rate of 45.5%). The increase in contract liabilities and the reduction in the provision for losses on construction contracts (¥368.8B → ¥360.6B) suggest a conservative approach to profit recognition, with no evidence of excessive accumulation of accruals.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year company forecasts were 23.8% for revenue (company forecast: ¥6700.0B), 30.9% for Operating Income (same: ¥400.0B), 46.5% for Ordinary Income (same: ¥460.0B), and 25.3% for Net Income (same: ¥460.0B). Progress for revenue and Net Income was close to the standard pace (approximately 25%), while Operating Income showed solid progress at +5.9pt. Ordinary Income, however, was somewhat overheated at +21.5pt, primarily due to the boost from non-operating income such as interest income and foreign exchange gains; it should therefore be evaluated on a normalized basis. The company forecasts full-year Ordinary Income to decline by -20.9% YoY, and the upside from non-operating factors in Q1 may reverse over the full year.

Shareholder Returns

The annual dividend forecast is ¥52.00, unchanged from the previous year’s dividend. Based on the company’s forecast Net Income of ¥46.0B attributable to owners of the parent, the annual total dividend calculated using the average number of shares outstanding during the period of approximately 2.4185億 shares is approximately ¥125.8B, resulting in a Payout Ratio of approximately 27.3%. There has been no revision to the dividend forecast for the quarter. The substantial cash and deposits balance of ¥4140.6B and the conservative financial structure, reflected in an Equity Ratio of 50.2%, provide a foundation supporting dividend sustainability.

Risk Factors

1. Foreign Exchange and Interest Rate Sensitivity Risk: Foreign exchange gains of ¥38.8B and interest income of ¥41.1B, which boosted Ordinary Income, account for approximately 85% of non-operating income of ¥93.8B. Market fluctuations may therefore increase volatility at the ordinary income level.

2. Business Concentration Risk: The Integrated Engineering Business accounts for 89.6% of the revenue mix, creating a structure in which fluctuations in the profitability of this business—the improvement in the gross profit margin contributed during the current period—have a significant impact on consolidated performance.

3. High Tax Burden Risk: The effective tax rate was high at 45.5% (income taxes of ¥97.0B / pretax income of ¥213.3B), and the structure in which growth in Ordinary Income is not fully reflected in growth in Net Income continues.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Return

Profitability exceeds the industry median and is relatively high within the construction industry.

Growth and Capital Efficiency

The revenue growth rate is significantly below the industry median, and top-line performance is lagging within the industry.

※Source: Company analysis

Key Takeaways from the Results

1. Improvement in profitability despite declining revenue has been confirmed. The gross profit margin improved by +465bp and the Operating Income margin by +360bp, indicating that progress in project mix and cost management is producing a qualitative change in the earnings structure.

2. The 46.5% progress rate for Ordinary Income was primarily driven by the boost from non-operating income such as foreign exchange gains and interest income. The results indicate that these factors should be evaluated on a normalized basis when assessing full-year performance.

3. While contract liabilities increased by +17.7% YoY, the provision for losses on construction contracts decreased by -2.2%, suggesting that the accumulation of orders and the reduction in risks associated with legacy projects are progressing in parallel.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,855–¥1,966 at ±1% for the cost of equity, and ¥1,906–¥1,915 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end have been 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 / Interest Rate Reference Month: 2026-07 / This value does not predict 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 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 responsibility, after consulting professionals as necessary.

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