| Metric | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue | ¥1392.5B | ¥1382.6B | +0.7% |
| Operating Income | ¥69.1B | ¥64.3B | +7.5% |
| Ordinary Income | ¥59.7B | ¥57.3B | +4.2% |
| Net Income | ¥48.4B | ¥37.0B | +30.9% |
| ROE | 8.9% | 7.3% | - |
The fiscal year ended March 2026 (FY2026) results were Revenue ¥1,392.5B (YoY +¥9.9B +0.7%), Operating Income ¥69.1B (YoY +¥4.8B +7.5%), Ordinary Income ¥59.7B (YoY +¥2.4B +4.2%), and Net Income ¥48.4B (YoY +¥11.4B +30.9%). While revenue increased only marginally, all profit levels improved, with Net Income showing a particularly large increase. Gross margin improved to 12.2% (prior year 11.4%) up 0.7pt, and Operating Margin improved to 5.0% (prior year 4.6%) up 0.4pt, indicating an improvement in profitability. The strong profit performance was driven by a substantial profit increase in the Architectural Business (Operating Income +55.3%) and expansion of the Growth & Other Businesses (Revenue +24.4%), while the Civil Engineering Business decelerated with Revenue -12.3%. Note that a special gain from negative goodwill of ¥5.0B was recorded, which boosted the bottom-line profit.
[Revenue] Revenue was ¥1,392.5B (YoY +0.7%), a slight increase. By segment, Architectural Business ¥515.4B (+0.8%), Civil Engineering Business ¥602.3B (-12.3%), and Growth & Other Businesses ¥437.1B (+24.4%). The Architectural Business maintained near prior-year levels, while the Civil Engineering Business declined due to changes in the composition of contracted projects. The Growth & Other Businesses achieved significant growth driven by expansion in construction-related businesses and construction DX support, and by new consolidation of Kyowaseisan and Tachi Kensetsu (6 companies) resulting in a large increase in Revenue. By customer type, government-related Revenue was ¥575.0B (prior year ¥635.9B) and private-sector Revenue was ¥817.5B (prior year ¥735.7B), raising the private-sector ratio to 58.7%.
[Profitability] Cost of sales ratio improved to 87.8% (prior year 88.6%) improving by 0.8pt, and gross margin rose to 12.2% (prior year 11.4%). SG&A increased to ¥100.2B (prior year ¥93.7B) up 6.9%, and SG&A ratio rose to 7.2% (prior year 6.8%) up 0.4pt, but the improvement in gross margin outweighed this and Operating Income rose to ¥69.1B (+7.5%). In non-operating items, interest expense increased to ¥6.0B (prior year ¥4.5B) increasing interest burden, but foreign exchange gains ¥0.5B and investment partnership operating gains ¥0.3B contributed, resulting in Ordinary Income ¥59.7B (+4.2%). Special gains included negative goodwill ¥5.0B (related to acquisition of two subsidiaries) and gain on sale of fixed assets ¥1.8B, expanding profit before tax to ¥65.0B (+13.6%). Corporate taxes were ¥16.6B (effective tax rate 25.5%), leaving Net Income ¥48.4B (+30.9%). In conclusion, the company achieved revenue and profit growth, but revenue growth was limited and profit growth was supported by margin improvement and one-off factors.
The Civil Engineering Business recorded Revenue ¥602.3B (-12.3%), Operating Income ¥43.7B (-20.6%), and margin 7.3%. Profits declined with Revenue, but the margin only fell 0.7pt from 8.0% last year, maintaining a certain profitability level. The Architectural Business recorded Revenue ¥515.4B (+0.8%), Operating Income ¥39.9B (+55.3%), and margin 7.7%. Despite flat Revenue, Operating Income increased substantially and margin improved 2.7pt from 5.0% the prior year, reflecting notable improvement in project profitability. Growth & Other Businesses recorded Revenue ¥437.1B (+24.4%), Operating Income ¥24.6B (+18.6%), and margin 5.6%. Revenue and Operating Income increased thanks to the new consolidations and expansion of existing businesses, but margin slipped 0.3pt from 5.9% last year, suggesting efficiency challenges associated with scale-up. Corporate expenses were ¥38.0B (prior year ¥36.2B) slightly higher, and consolidated Operating Income was ¥69.1B.
[Profitability] Operating Margin 5.0% (prior year 4.6%), Net Margin 3.5% (prior year 2.7%) improved at each stage. ROE was 8.9%, decomposed as Net Margin 3.5% × Total Asset Turnover 0.85 × Financial Leverage 3.00. ROE improved 1.4pt from prior year 7.5%, mainly due to the increase in Net Margin (+0.8pt). Total Asset Turnover fell from 0.88 to 0.85, diluted by an increase in tangible fixed assets (+¥69.3B), reducing efficiency. [Cash Quality] Operating Cash Flow / Net Income was 0.73x, and Operating Cash Flow / EBITDA (Operating Income + Depreciation ¥81.9B) was 0.43x, both well below 1x, indicating weak cash conversion of earnings. The main causes were an increase in inventory for sale (-¥46.5B CF impact) and a decrease in advances received for construction in progress (-¥15.8B), worsening working capital. [Investment Efficiency] Total Asset Turnover 0.85x (Revenue ¥1,392.5B / Total Assets ¥1,631B), and capital expenditure ¥18.9B was 1.48x depreciation ¥12.8B, indicating moderate growth investment. [Financial Soundness] Equity Ratio 33.4% (prior year 32.0%), Current Ratio 124.5%, interest-bearing debt ¥359.5B (short-term ¥304.5B, long-term ¥55.0B) with a short-term debt ratio of 84.7% showing a marked short-term bias. Debt/EBITDA 4.39x indicates leverage, and Interest Coverage 11.6x (EBITDA / Interest Expense) is healthy, but rising interest rates would increase the burden.
Operating Cash Flow was ¥35.3B (YoY +25.8%), but Operating Cash Flow / Net Income was low at 0.73x against Net Income ¥48.4B. Operating cash flow subtotal (before working capital changes) was ¥65.8B, adjusted by depreciation ¥12.8B, goodwill amortization ¥0.7B, and negative goodwill -¥5.0B among other items. In working capital changes, decrease in trade receivables +¥25.4B contributed, while increase in inventory for sale was -¥46.5B, decrease in accounts payable was -¥16.9B, and advances received for construction in progress decreased by -¥15.8B, resulting in significant cash outflows. Corporate tax payments -¥25.1B also pressured operating cash flow. Investing Cash Flow was -¥46.5B, mainly due to capital expenditure -¥18.9B and acquisition of subsidiary shares -¥36.4B (new consolidation of 6 companies). Financing Cash Flow was -¥40.2B, with net increase in short-term borrowings +¥34.0B and proceeds from long-term borrowings +¥77.3B on the inflow side, versus repayment of long-term borrowings -¥65.7B and dividend payments -¥17.3B on the outflow side. As a result, a shift from long-term to short-term borrowings progressed and Cash & Deposits declined by ¥49.7B to ¥208.7B (prior year ¥258.4B). Free Cash Flow was negative ¥11.2B, highlighting weak cash generation.
Operating Income ¥69.1B vs Ordinary Income ¥59.7B indicates non-operating items were a net expense of -¥9.4B. Non-operating income totaled ¥2.0B including dividend income received ¥0.4B, foreign exchange gains ¥0.5B, and investment partnership operating gains ¥0.3B, while non-operating expenses totaled ¥11.4B led by interest expense ¥6.0B. While the ordinary profit stage reflects business performance, special gains ¥7.3B (negative goodwill ¥5.0B, gain on sale of fixed assets ¥1.8B) pushed profit before tax to ¥65.0B. Special losses were minor at ¥2.0B (loss on disposal of fixed assets). Comprehensive income was ¥56.8B, ¥8.4B higher than Net Income ¥48.4B, including other comprehensive income such as valuation differences on available-for-sale securities ¥4.9B and actuarial adjustments related to retirement benefits ¥3.5B. The large divergence between Operating Cash Flow and Net Income, and the high proportion of accrual (non-cash earnings), are concerns for earnings quality. Although earnings power at the ordinary income level is stable, approximately 10% of Net Income depends on one-off special gains, so assessing underlying earnings strength is important.
Full Year guidance is Revenue ¥1,500.0B (YoY +7.7%), Operating Income ¥80.0B (+15.8%), and Ordinary Income ¥70.0B (+17.3%). Compared with this period’s results, Revenue progress rate is 92.8%, Operating Income progress rate is 86.4%, and Ordinary Income progress rate is 85.3%, indicating underperformance against the plan at each stage. Net Income, however, was ¥48.4B versus the full-year forecast of ¥48.0B, a progress rate of 100.9% and thus achieved, due to the contribution of special gains (negative goodwill ¥5.0B etc.). Yet operating-level profits fell short. Actual EPS was ¥253.01 versus the full-year forecast EPS ¥250.11, exceeding guidance. The shortfall in Revenue was ¥107.5B, likely mainly due to deceleration in the Civil Engineering Business. The shortfall in Operating Income was ¥10.9B, where despite gross margin improvement, higher SG&A and the Revenue shortfall had an impact. Achieving the full-year forecast requires order accumulation and maintaining margins in the remaining period, presenting a risk of backloaded (second-half weighted) performance.
Year-end dividend was ¥105, up ¥15 from ¥90 in the prior year. Annual payout ratio was 46.3%, unchanged from the prior year. Total dividends were ¥17.3B (weighted average shares outstanding during the period 19,153 thousand shares). However, Free Cash Flow was negative ¥11.2B and dividend payments were not covered by FCF. Notes to the financial results state that the FY2026 dividend will be funded entirely from Other Capital Surplus, understood as a transitional measure under the new structure established by the sole-share transfer. While a payout ratio of 46.3% is at a sustainable level, if weak Operating Cash Flow and negative FCF persist, securing future dividend resources will require normalization of working capital and stabilization of earnings. No share buybacks were executed, and Total Return Ratio equals the payout ratio at 46.3%. The sustainability of the shareholder return policy depends on improvement in cash generation and capital efficiency.
Working Capital Risk: Contract assets and completed-construction receivables total approximately ¥1,401B (Completed-construction receivables ¥801.4B and Contract assets ¥599.8B), accounting for 85.9% of total assets. Prolonged collection cycles or changes in contract terms could cause liquidity stress. Inventory for sale was increased from ¥60.6B, embedding inventory risk. Advances received for construction in progress decreased to ¥76.4B (prior year ¥89.1B), thinning the advance buffer, which is a concern. Continued weakness in Operating Cash Flow (OCF / Net Income 0.73x) would impair funding flexibility.
Short-term Debt Concentration Risk: Of interest-bearing debt ¥359.5B, short-term borrowings are ¥304.5B (84.7%), showing a marked short-term bias; long-term borrowings fell substantially from ¥143.2B to ¥55.0B. Reliance on short-term borrowings increases refinancing risk and sensitivity to rising interest rates, making the company vulnerable to changes in the funding environment. With Cash & Deposits ¥208.7B vs short-term interest-bearing debt ¥304.5B, the liquidity coverage ratio is 0.69x, leaving limited headroom. At a leverage level of Debt/EBITDA 4.39x, prolonged interest rate increases would raise financing costs.
Project Profitability Deterioration Risk: Although gross margin improved to 12.2%, in the construction industry with a high proportion of fixed-price contracts, rising material and labor costs could compress margins. Provision for construction loss allowances declined to ¥1.2B (prior year ¥2.6B), but unexpected cost increases on future projects could necessitate higher provisions. Continued decline in Civil Engineering Revenue (-12.3%) would increase fixed cost burden and could reduce margins. The Growth & Other Businesses’ margin of 5.6% declined from 5.9% last year, and delays in realizing synergies from newly consolidated subsidiaries could further pressure profitability.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 5.0% | 5.5% (3.5%–7.2%) | -0.6pt |
| Net Margin | 3.5% | 3.5% (2.5%–4.4%) | -0.0pt |
Operating Margin is 0.6pt below the industry median, placing the company slightly below peers, while Net Margin is in line with the median, indicating average performance at the bottom-line stage.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 0.7% | 9.8% (-2.1%–15.1%) | -9.2pt |
Revenue growth is 9.2pt below the industry median, underperforming peers in growth. The company’s overall growth was constrained by a decline in the Civil Engineering Business offsetting expansion in Growth & Other Businesses.
※ Source: Company compilation
Profit growth was driven by improved profitability in the Architectural Business and expansion of the Growth & Other Businesses, indicating that changes in segment mix are improving the revenue structure. Architectural Business improved Operating Margin to 7.7% (prior year 5.0%) up 2.7pt, showing tangible results of project margin management. Growth & Other Businesses sustained high growth with Revenue +24.4%, and realization of synergies from the construction DX support business and the integration of 6 newly consolidated companies will be key going forward. Civil Engineering Business Revenue fell -12.3%, reducing its share from 49.7% to 43.2%, suggesting a portfolio reshaping process.
Weak cash generation and short-term debt concentration are the primary financial issues. Operating Cash Flow / Net Income 0.73x and OCF/EBITDA 0.43x show low cash conversion, and increases in inventory for sale and decreases in advances received worsened working capital. Short-term borrowings at 84.7% exceed industry norms, with a shift from long-term to short-term funding underway. At a leverage level of Debt/EBITDA 4.39x, the company is vulnerable to rising interest rates, making optimization of capital structure and normalization of working capital urgent priorities.
This report is an AI-generated financial analysis document created by analyzing XBRL financial statement data. It is not a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the Company from publicly disclosed financial data. Investment decisions are your own responsibility; please consult a professional as needed.