ASAHI KOGYOSHA (1975) FY2027 Q1 Earnings Report

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Executive Summary

For Q1 of the fiscal year ending March 2027, the Company recorded higher revenue and earnings, driven by increased revenue and improved profitability in its core Facility Construction Business. Revenue was ¥194.8B (+10.2% year on year), Operating Income was ¥22.1B (+16.8%), Ordinary Income was ¥23.3B (+12.8%), and Net Income attributable to owners of the parent was ¥15.5B (+11.2%). In each case, the earnings growth rate exceeded the revenue growth rate. The Operating Income margin improved to 11.3%, from 10.7% in the same period of the previous year, mainly due to an increase in the gross margin to 23.3%, from 22.1%. Meanwhile, declining revenue and widening losses in the Equipment Manufacturing and Sales Business are limiting the breadth of consolidated growth.

Factors Driving Earnings Changes

【Revenue】Revenue was ¥194.8B (+10.2% year on year). The Facility Construction Business led the performance, with revenue of ¥186.7B (+14.1%), accounting for 95.8% of consolidated revenue. In contrast, the Equipment Manufacturing and Sales Business posted a substantial revenue decline to ¥8.1B (-38.4%), resulting in a significant disparity in growth rates between the businesses.

【Profit and Loss】Operating Income was ¥22.1B (+16.8%), achieving earnings growth above the revenue growth rate. Segment profit in the Facility Construction Business was ¥22.4B (+17.3%), with a margin of 12.0%, improving from 11.7% in the previous year. The Equipment Manufacturing and Sales Business recorded a segment loss of ¥0.4B, widening from -¥0.25B in the previous year. Ordinary Income was ¥23.3B (+12.8%), while non-operating income was ¥1.9B, primarily consisting of ¥1.6B in dividend income. There were no extraordinary gains or losses, and Profit Before Tax was therefore equal to Ordinary Income. Net Income was ¥15.5B (+11.2%), with growth below the Operating Income growth rate due to an increase in the effective tax rate to 33.8%, from 32.4% in the previous year. In conclusion, the Company achieved higher revenue and earnings.

Segment Analysis

The Facility Construction Business (revenue of ¥186.7B, +14.1% year on year; segment profit of ¥22.4B, +17.3%; margin of 12.0%) generated virtually all of consolidated Operating Income. The Equipment Manufacturing and Sales Business (revenue of ¥8.1B, -38.4%; segment loss of ¥0.4B) recorded a wider loss than in the previous year (-¥0.25B), representing a negative factor for the improvement in the consolidated profit margin. The improvement in the consolidated profit margin is highly dependent on the Facility Construction Business, indicating an imbalance in the business portfolio.

Key Financial Indicators

【Profitability】The Operating Income margin of 11.3% and Net Income margin of 7.9% reflect improvement at the operating level from the same period of the previous year (10.7% and 7.9%, respectively). Annualized ROE was 12.1%, decomposed into a Net Income margin of 7.9%, total asset turnover of 0.848x, and financial leverage of 1.80x.【Cash Flow Quality】Interest coverage was robust at 73.5x. Non-operating income, primarily dividend income, remained at 1.0% of revenue, indicating that Ordinary Income is supported by the Company’s core earnings power.【Investment Efficiency】EPS was ¥59.78 (+10.7% year on year), while BPS was ¥1,974.10. Although the gross margin improved to 23.3%, from 22.1%, the SG&A ratio increased to 12.0%, from 11.5%, offsetting part of the benefit from higher revenue.【Financial Soundness】With an Equity Ratio of 55.6%, a current ratio of 178.2%, and a Debt/Capital ratio of 9.9%, short-term borrowings were reduced by 33.4% year on year to ¥21.3B, leaving financial safety at a sound level.

Cash Flow Analysis

Although individual data from the cash flow statement are unavailable, cash flow trends can be analyzed based on changes in the balance sheet. Accounts receivable for completed construction contracts amounted to ¥235.5B, down 33.1% from the same period of the previous year, indicating improved liquidity through the reduction of trade receivables. Meanwhile, electronically recorded monetary claims increased to ¥82.1B (+76.6% year on year), requiring an assessment of collection periods that incorporates changes in the receivables composition. Advances received on construction contracts in progress increased substantially to ¥105.3B (+133.4%), contributing to a reduction in working capital requirements through customer prepayments. Costs on construction contracts in progress were ¥19.5B (+11.4%), substantially below the pace of increase in advances received. Cash and deposits were ¥251.9B, accounting for 27.4% of total assets and equivalent to 11.8 times short-term borrowings, indicating ample on-hand liquidity.

Quality of Earnings

Extraordinary gains and losses were effectively zero both in the same period of the previous year and in the current period, resulting in Ordinary Income of ¥23.3B being equal to Profit Before Tax of ¥23.3B. Non-operating income of ¥1.9B primarily comprised ¥1.6B in dividend income and did not include temporary factors. The main reason that Net Income growth was limited to 11.2%, compared with Operating Income growth of 16.8%, was the increase in the effective tax rate to 33.8%, from 32.4%; this was not a temporary factor impairing earnings quality. Comprehensive Income was ¥26.5B, exceeding Net Income of ¥15.5B by ¥11.1B, mainly due to an increase in the valuation difference on available-for-sale securities. This divergence reflects valuation differences caused by market fluctuations and should be distinguished from recurring earnings, which represent the underlying earning power of the core business.

Earnings Forecast and Guidance

The Company’s full-year forecast is revenue of ¥1,125.0B (+7.3% year on year), Operating Income of ¥122.0B (+4.4%), Ordinary Income of ¥124.0B (+3.1%), and EPS of ¥357.49. Q1 progress rates were 17.3% for revenue, 18.1% for Operating Income, and 18.8% for Ordinary Income. Although all were below the 25% implied by even progress, the construction industry has seasonality in which revenue and earnings are concentrated around the timing of project completion and acceptance; therefore, this does not indicate a shortfall at this stage. Q1 Operating Income growth of +16.8% represents a stronger initial pace than the full-year plan of +4.4%. No revisions have been made to either the earnings forecast or the dividend forecast.

Shareholder Returns

The Company’s full-year dividend forecast is ¥144 per share (¥72 at the end of Q2 and ¥72 at year-end), maintaining the same level as the previous year’s actual dividend (¥50 interim, ¥94 year-end, ¥144 total). Based on the full-year forecast EPS of ¥357.49, the expected Payout Ratio is 40.3%, below the 60% guideline for sustainability based solely on dividends. Based on the average number of shares outstanding during the period of 25,875,312 shares, the annual dividend payout is estimated at approximately ¥37.3B. Given retained earnings of ¥365.0B and cash and deposits of ¥251.9B, the Company has a reasonable dividend capacity. No data on share repurchases are available.

Risk Factors

1. Profitability volatility risk in Facility Construction projects: Since the Facility Construction Business generates the majority of consolidated Operating Income (segment profit of ¥22.4B and a margin of 12.0%), increases in material, labor, or subcontracting costs, as well as project delays, could have a significant impact on consolidated earnings.

2. Demand and fixed-cost risks in the Equipment Manufacturing and Sales Business: Revenue in this business declined 38.4%, while the segment loss widened to ¥0.4B (from -¥0.25B in the previous year). Delays in demand recovery or fixed-cost absorption could offset improvements in the consolidated profit margin.

3. Work-in-process accumulation and valuation risk: Work in process was ¥17.0B (+23.5% year on year). Together with the widening loss in the Equipment Manufacturing and Sales Business, this requires monitoring for slower inventory turnover and the potential recognition of valuation losses.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin were substantially above the industry median, placing the Company’s profitability in the upper tier of the industry.

Growth and Capital Efficiency

The revenue growth rate also exceeded the industry median, placing the Company’s growth rate in the upper range of the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Operating Income increased by +16.8%, exceeding the +10.2% revenue growth rate, with improvement in the gross margin of the Facility Construction Business (23.3%, compared with 22.1% in the previous year) being the primary factor. A trend toward improvement in the Operating Income margin was observed.

2. Advances received on construction contracts in progress increased substantially by +133.4% year on year, and the expansion of construction advances is supporting working capital. Meanwhile, work in process increased by +23.5%, requiring attention to changes in inventory-related indicators in conjunction with the widening loss in the Equipment Manufacturing and Sales Business.

3. Full-year progress rates were 17.3% for revenue and 18.1% for Operating Income, below the even-progress benchmark. However, given the seasonality specific to the construction industry, the fact that Q1 Operating Income growth exceeded the full-year plan warrants attention.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,524–¥2,673 at ±1% for the cost of equity, and ¥2,582–¥2,620 at ±0.1 for ω.

Note:

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

(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; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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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 available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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