ASAHI KOGYOSHA CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The key takeaway for the quarter was higher revenue and earnings, with profitability improving mainly in the core Facility Construction Business. Revenue was ¥19.48B (¥17.68B in the prior year, YoY +10.2%), Operating Income was ¥2.21B (¥1.89B, YoY +16.8%), Ordinary Income was ¥2.33B (¥2.07B, YoY +12.8%), and Net Income attributable to owners of the parent was ¥1.55B (¥1.39B, YoY +11.2%), all exceeding the prior-year levels. The primary driver of earnings growth was an improvement in the gross profit margin (22.1%→23.3%, +1.2pt), although the fact that SG&A expenses increased at a faster pace than revenue (YoY +15.0%) warrants some attention as a leading indicator.

Factors Affecting Results

【Revenue】Revenue was ¥19.48B, up YoY +10.2%. The Facility Construction Business led company-wide growth with revenue of ¥18.67B (95.8% of total, YoY +14.1%), while the Equipment Manufacturing and Sales Business recorded a substantial decline in revenue to ¥0.81B (4.2% of total, YoY -38.4%), weighing on overall growth. Advances received on construction contracts in progress increased significantly from ¥4.51B to ¥10.53B, or +133.4%, securing room for front-loaded revenue recognition as construction progresses.

【Profit and Loss】Operating Income was ¥2.21B, up YoY +16.8%, and the Operating Income margin improved by +0.6pt from 10.7% to 11.3%. The primary factor was an improvement in the gross profit margin from 22.1% to 23.3%, suggesting improved project profitability and cost management. However, SG&A expenses increased to ¥2.33B, or YoY +15.0%, exceeding the pace of revenue growth (+10.2%), making the sustainability of operating leverage an area to monitor. Ordinary Income was ¥2.33B (YoY +12.8%), supported by non-operating income primarily consisting of dividend income of ¥0.16B. No extraordinary gains or losses were recorded, and Net Income of ¥1.55B (YoY +11.2%) reflects the level after an effective tax rate of 33.8%. Overall, the company delivered higher revenue and earnings.

Segment Analysis

The Facility Construction Business recorded revenue of ¥18.67B (95.8% of total, YoY +14.1%), Operating Income of ¥2.24B (YoY +17.3%), and a profit margin of 12.0% (up +0.3pt from 11.7% in the prior year), demonstrating improved profitability. This business generated the entirety of company-wide Operating Income. The Equipment Manufacturing and Sales Business recorded revenue of ¥0.81B (4.2% of total, YoY -38.4%) and an Operating Loss of ¥0.04B, with the loss widening from ¥0.03B in the prior year; its profit margin deteriorated from -1.9% to -4.5%. Overall earnings growth was largely attributable to improved profitability in the Facility Construction Business, while declining profitability in the Equipment Manufacturing and Sales Business acted as an offsetting factor.

Key Financial Indicators

【Profitability】The Operating Income margin was 11.3%, improving by +0.6pt from 10.7% in the prior year. The Net Profit margin was 7.9%, essentially unchanged from 7.9% in the prior year. ROE was 3.0%. 【Cash Quality】Accounts receivable for completed construction contracts decreased by -33.1% to ¥23.55B from ¥35.21B in the prior year, indicating progress in collections. Advances received on construction contracts in progress increased by +133.4% to ¥10.53B from ¥4.51B, creating a structure in which accumulated advance payments support cash flow. 【Investment Efficiency】Total assets contracted by -8.7% to ¥91.92B from ¥100.70B in the prior year, primarily due to the reduction in accounts receivable for completed construction contracts, which has had a positive impact on asset efficiency. 【Financial Soundness】The Equity Ratio rose by +5.1pt to 55.6% from 50.5% in the prior year. Short-term borrowings decreased by -33.4% to ¥2.13B from ¥3.20B, while long-term borrowings also declined to ¥3.49B from ¥3.75B, further strengthening the conservative capital structure.

Cash Flow Analysis

Although individual data from the statement of cash flows were not disclosed for the quarter, cash flow trends can be assessed based on changes in the balance sheet. Accounts receivable for completed construction contracts declined by -33.1% from ¥35.21B to ¥23.55B, while advances received on construction contracts in progress increased by +133.4% from ¥4.51B to ¥10.53B, indicating that cash collection from operating activities and the accumulation of advance payments progressed in parallel. Meanwhile, cash and deposits declined slightly to ¥25.19B from ¥26.39B in the prior year. Repayment of debt, including the -33.4% decrease in short-term borrowings and the reduction in long-term borrowings, is considered a potential factor that absorbed cash. The simultaneous improvement in cash generation through working capital and maintenance of a conservative capital structure is a useful observation point in assessing cash flow quality.

Quality of Earnings

The quarter’s earnings were generated from core operations without extraordinary gains or losses. Ordinary Income of ¥2.33B was supplemented only modestly by ¥0.19B in non-operating income, primarily consisting of dividend income of ¥0.16B. Comprehensive Income of ¥2.65B exceeded Net Income of ¥1.55B by ¥1.10B, mainly due to a ¥1.10B valuation difference on investment securities. As this represents a market-linked, one-off factor, it should be evaluated separately from the earnings power of the core business. The effective tax rate was 33.8% (¥0.79B in income taxes / ¥2.33B in Ordinary Income), a standard level with no unusual tax-related factors identified. From an accrual perspective, the simultaneous decrease in accounts receivable for completed construction contracts and increase in advances received on construction contracts in progress indicate that cash collection is leading or progressing in parallel with revenue recognition. Accordingly, the quality of cash generation supporting earnings appears sound.

Earnings Forecast and Guidance

Progress against the full-year plan was 17.3% for Revenue (¥19.48B/¥112.50B), 18.1% for Operating Income (¥2.21B/¥12.20B), 18.8% for Ordinary Income (¥2.33B/¥12.40B), and 16.7% for Net Income (¥1.55B/¥9.25B), all below the simple 25% quarterly benchmark. However, construction companies tend to have earnings weighted toward the second half due to the seasonality of construction progress, and the level of progress as of Q1 cannot be considered unusually delayed. No revisions were made to the earnings or dividend forecasts during the quarter.

Shareholder Returns

The annual dividend forecast for the fiscal year ending March 2027 is ¥144 (interim ¥72, year-end ¥72), with an increase planned from the interim dividend of ¥50 in the prior fiscal year. The Payout Ratio against forecast EPS of ¥357.49 is approximately 40.3%. Considering cash and deposits of ¥25.19B and the low Debt/Capital ratio (total short-term and long-term borrowings are approximately 11% of equity), the financial foundation supporting dividend sustainability is well established. The number of treasury shares (1,325 thousand shares) was unchanged from the prior year, and no share repurchases were conducted during the quarter; therefore, shareholder returns are centered on dividends.

Risk Factors

1. Construction Project Profitability Risk: The provision for losses on construction contracts declined by -63.3% to ¥0.02B from ¥0.05B in the prior year. However, if material and labor costs rise or construction schedules are delayed, deterioration in project-level profitability could affect the Operating Income margin.

2. Segment Concentration Risk: The Facility Construction Business accounts for 95.8% of Revenue and the entirety of Operating Income, leaving the business portfolio heavily dependent on a single business. The order intake and operating trends of this business directly influence company-wide performance.

3. Profitability Risk in the Equipment Manufacturing and Sales Business: Revenue in this business declined to ¥0.81B (YoY -38.4%), while its Operating Income margin deteriorated to -4.5% from -1.9% in the prior year. The widening loss confirms a continuing decline in profitability and represents a dilution factor for company-wide earnings.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

The Company’s Operating Income margin and Net Profit margin both substantially exceed the industry median, placing the Company among the top performers in the industry.

Growth and Capital Efficiency

The Revenue growth rate also exceeds the industry median, placing the Company in the industry’s upper group.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The gross profit margin improved from 22.1% to 23.3%, and the Operating Income margin rose to 11.3%. However, the rate of increase in SG&A expenses (+15.0%) exceeded the Revenue growth rate (+10.2%), and whether this gap persists will be an important factor in assessing the sustainability of operating leverage.

2. Advances received on construction contracts in progress increased substantially by +133.4%, while accounts receivable for completed construction contracts declined by -33.1%. The simultaneous accumulation of advance payments and progress in receivables collection represent a positive structural change from the perspective of cash recovery and earnings quality.

3. The Equipment Manufacturing and Sales Business continues to deteriorate in both revenue and profit. Its role within company-wide earnings and the potential for future profitability improvement are key points identifiable from the results data.

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). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,533–¥2,682 at cost of equity ±1%, and ¥2,590–¥2,629 at ω±0.1.

Note:

• Net assets as of the quarter-end were used (there is a time lag relative to the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / 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 based on 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, and you should consult a professional as necessary.

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