S E (3423) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of FY2026, the Company posted a substantial decline in earnings, as the decrease in revenue was compounded by a sharp deterioration in profit margins. Revenue was ¥175.1B (down -5.3% YoY), Operating Income was ¥1.8B (down -70.5%), Ordinary Income was ¥1.8B (down -71.7%), and Net Income attributable to owners of the parent was ¥0.6B (down -83.9%). Declines in revenue from the core Construction Equipment Materials Business and Building Materials Business, deterioration in operating leverage due to a lower gross margin and higher SG&A ratio, and an increase in corporate expenses (including R&D expenses) put pressure on earnings.

Factors Affecting Earnings

【Revenue】Revenue was ¥175.1B, down 5.3% YoY. The Construction Equipment Materials Manufacturing and Sales Business declined to ¥80.1B (down -9.5% YoY), while the Building Materials Manufacturing and Sales Business declined to ¥73.0B (down -5.1%). As these two core businesses account for more than 87% of total Company revenue, they drove the overall decline. Meanwhile, the Construction Consulting Business increased revenue to ¥5.3B (up +14.8%), and the Repair and Reinforcement Construction Business increased revenue to ¥16.9B (up +12.9%); however, their smaller scale was insufficient to offset the revenue declines in the two core businesses.

【Profit and Loss】Gross profit was ¥47.2B (gross margin of 26.9%, down from 27.3% in the previous year), while SG&A expenses increased 2.2% YoY to ¥45.4B, raising the SG&A ratio to 25.9% from 24.0% in the previous year. As a result, Operating Income contracted to ¥1.8B (operating margin of 1.0%, compared with 3.3% in the previous year). While total segment profit remained at ¥8.5B (down -19.1% YoY), adjustments for corporate expenses, including R&D expenses, expanded from ¥4.3B to ¥6.6B, placing significant pressure on consolidated Operating Income. Despite Ordinary Income of ¥1.8B, Net Income contracted to ¥0.6B due to the high effective tax burden of 67.0%. The Company therefore posted lower revenue and lower earnings.

Segment Analysis

The Building Materials Manufacturing and Sales Business maintained its position as the largest contributor to segment profit at ¥4.5B (profit margin of 6.2%, down -10.4% YoY), although profit declined. The Construction Equipment Materials Manufacturing and Sales Business posted a significant decline in profit to ¥2.8B (profit margin of 3.4%, down -46.3%), reflecting simultaneous declines in revenue and profitability. The Repair and Reinforcement Construction Business increased revenue and generated segment profit of ¥1.0B (profit margin of 5.9%), but profit was down -21.5% YoY, indicating that the increase in revenue was not converted into profit. The Construction Consulting Business returned to profitability with segment profit of ¥0.2B (profit margin of 3.0%). Against combined profit of ¥8.5B from the four businesses, adjustments for corporate expenses, primarily R&D expenses, amounted to a negative ¥6.6B, offsetting approximately 78% of combined profit and resulting in consolidated Operating Income of ¥1.8B.

Key Financial Indicators

【Profitability】The Operating Margin was 1.0%, down 2.3pt from 3.3% in the same period of the previous year, while the Net Profit Margin also contracted to 0.3% from 2.0% in the previous year. The gross margin was 26.9% (27.3% in the previous year), and the SG&A ratio was 25.9% (24.0% in the previous year). Maintaining fixed costs without revenue growth amplified the deterioration in profitability. 【Cash Quality】The effective tax rate was high at 67.0% (equivalent to 41.5% in the previous year), significantly reducing the conversion of Profit Before Tax of ¥1.8B into Net Income of ¥0.6B. 【Investment Efficiency】Annualized ROE was 0.7%, and total asset turnover was approximately 0.95x, indicating that the primary constraint on capital efficiency is profitability rather than asset efficiency. 【Financial Soundness】The Equity Ratio improved slightly to 44.4% from 44.0% in the previous year, while cash and deposits totaled ¥41.5B. Short-term borrowings increased from ¥2.0B in the previous year to ¥7.0B, whereas long-term borrowings declined from ¥35.9B to ¥30.8B, indicating an ongoing change in the borrowing mix.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is limited, movements in the balance sheet indicate that cash and deposits declined to ¥41.5B from ¥51.2B in the previous year, while short-term borrowings increased from ¥2.0B to ¥7.0B. Long-term borrowings declined from ¥35.9B to ¥30.8B, indicating a shortening of the interest-bearing debt maturity structure. Inventories increased from the previous year, mainly due to increases in work-in-process and raw materials, potentially placing some pressure on working capital. In addition to the significant contraction in Operating Income, interest expenses increased 23.6% YoY, suggesting that the Company’s ability to generate internal funds declined compared with the previous year.

Quality of Earnings

Ordinary Income of ¥1.8B for the current quarter comprised non-operating income of ¥0.6B (including ¥0.1B in dividends received) and non-operating expenses of ¥0.7B (including ¥0.4B in interest expenses and ¥0.1B in foreign exchange losses), which largely offset each other. Accordingly, non-operating income and expenses did not provide significant support to Ordinary Income. Extraordinary items were small, consisting of a gain on the sale of property, plant and equipment of ¥0.04B and a loss on the disposal of property, plant and equipment of ¥0.01B, and therefore had a limited impact on Net Income. The decline in earnings for the current period is consequently considered to have resulted not from temporary factors but from structural deterioration in the profitability of the core business. Income taxes and other taxes of ¥1.2B were recorded against Profit Before Tax of ¥1.8B, resulting in a high effective tax rate of 67.0% and significantly pressuring the conversion into Net Income of ¥0.6B. Comprehensive income was ¥1.1B, exceeding Net Income of ¥0.6B, primarily due to a ¥0.5B increase in valuation difference on securities.

Earnings Forecast and Guidance

The full-year Company forecast calls for Revenue of ¥265.0B (up +2.4% YoY), Operating Income of ¥4.7B (down -44.4%), and Ordinary Income of ¥4.4B (down -50.5%), indicating that the Company’s plan itself incorporates lower earnings. Revenue progress was 66.1%, below the standard progress rate of 75%, requiring Revenue of ¥89.9B in Q4 to achieve the full-year target. Operating Income progress was 38.3%, and Ordinary Income progress was 40.4%, both more than 35pt below the standard progress rate. Achieving the full-year Operating Income forecast requires approximately ¥2.9B of Operating Income in Q4 alone, making a sharp recovery in profitability a prerequisite for the plan. The full-year forecast EPS of ¥1.91 is approximately the same as cumulative Q3 EPS of ¥1.89, indicating a plan that assumes almost no additional earnings in Q4.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year Company forecast dividend is ¥13.0 per share. Based on forecast full-year EPS of ¥1.91, the Payout Ratio is approximately 681%, a level at which dividends cannot be covered by current-period earnings. Even relative to cumulative Q3 Net Income of ¥0.6B, a dividend of ¥13.0 per share substantially exceeds the earnings level. The source of dividends is considered to depend not on current-period earnings but on accumulated retained earnings of ¥86.5B and cash and deposits of ¥41.5B, as well as the Company’s ability to recover earnings from Q4 onward. The high Payout Ratio therefore requires monitoring, including the progress of earnings recovery.

Risk Factors

1. Declines in revenue and earnings in the core businesses: Revenue in the Construction Equipment Materials Manufacturing and Sales Business declined 9.5% YoY, while segment profit fell 46.3% YoY to ¥2.8B. Revenue in the Building Materials Manufacturing and Sales Business also declined 5.1% YoY, while profit fell 10.4% to ¥4.5B. A recovery in demand and improvement in profitability in both core businesses are prerequisites for an improvement in Company-wide earnings.

2. Increase in corporate expenses and high tax burden: Adjustments for corporate expenses, including R&D expenses, increased from ¥4.3B in the previous year to ¥6.6B, offsetting approximately 78% of combined segment profit of ¥8.5B. In addition, the effective tax rate was high at 67.0%, significantly reducing the conversion of Profit Before Tax into Net Income.

3. Changes in borrowing mix and interest burden: Short-term borrowings increased 250.0% YoY to ¥7.0B, while interest expenses increased 23.6% YoY to ¥0.4B. Interest coverage declined to 4.48x, and if the recovery in Operating Income is delayed, the Company’s capacity to absorb financial expenses may contract further.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability is substantially below the industry median, placing both its Operating Margin and Net Profit Margin in the lower tier of the industry.

Growth and Capital Efficiency

While many companies in the industry are achieving revenue growth, the Company recorded a decline in revenue and ranks in the lower tier of the industry in terms of growth.

※Source: Company analysis

Key Takeaways from the Earnings Results

1. The core issue behind the deterioration in profitability is the contraction of the Operating Margin to 1.0%, resulting from the combined effects of declines in revenue from the two core businesses, a lower gross margin, and a higher SG&A ratio. The return to profitability of the Construction Consulting Business and revenue growth in the Repair and Reinforcement Construction Business are supporting the business portfolio, but their scale is insufficient to offset the earnings declines in the core businesses.

2. Cumulative Q3 progress against the full-year Company plan was 38.3% for Operating Income and 40.4% for Ordinary Income, substantially below the standard level of 75%. A recovery in Q4 profitability is therefore a structural prerequisite for achieving the full-year forecast.

3. The forecast Payout Ratio based on the full-year forecast dividend of ¥13.0 is approximately 681%, substantially exceeding current-period earnings, indicating that dividends depend on retained earnings and other internal reserves. Although financial soundness is being maintained (Equity Ratio of 44.4% and an equivalent current ratio of 168.5%), the consistency between earnings and dividend levels requires ongoing monitoring.

Theoretical Share Price (Reference Value)

Sensitivity: ¥261–¥275 at Cost of Equity ±1%, and ¥265–¥270 at ω±0.1.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burdens, acquisition-related expenses, and non-controlling interests (Net Income ÷ Operating Income 12%). This value reflects that compression at face value; if these factors are temporary, the underlying earnings power may be higher.
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the end of the quarter 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; this 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 based on 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 with a professional as necessary.

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