MIYAJI ENGINEERING GROUP (3431) FY2027 Q1 Earnings Report

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Executive Summary

Q1 FY2027 was a challenging quarter, with Operating Income declining substantially as a result of both lower revenue from completed construction contracts and deteriorating project profitability. Revenue was ¥114.3B (-22.4% YoY), Operating Income was ¥3.4B (-76.3%), Ordinary Income was ¥4.7B (-69.7%), and Net Income was ¥4.7B (-55.4%; Net Income attributable to owners of the parent was ¥4.31B, down -53.2% YoY). The primary factors were lower revenue in the core Miyaji Engineering Business and declining profit margins in both segments, while final profit was supported by a ¥2.9B gain on the sale of investment securities.

Factors Affecting Earnings

【Revenue】Revenue was ¥114.3B, down -22.4% YoY. Miyaji Engineering recorded ¥75.1B (-28.1% YoY, 65.6% composition ratio), while M.M. Bridge recorded ¥41.9B (-5.4% YoY, 36.6% composition ratio). The decline in the core Miyaji Engineering Business was the main contributor to the decrease in consolidated revenue.

【Profit and Loss】Operating Income was ¥3.4B (-76.3% YoY), and the Operating Income margin fell sharply to 3.0% from 9.8% in the same period of the previous year. In addition to lower revenue, SG&A expenses increased 7.6%, weakening fixed-cost absorption and causing profit margins in both segments to decline to the 3% range. Ordinary Income was ¥4.7B (-69.7% YoY), supported by non-operating income, including ¥1.1B in dividend income. Profit Before Tax of ¥7.5B exceeded Ordinary Income by ¥2.9B, due to the one-time gain of ¥2.9B on the sale of investment securities. Excluding this extraordinary gain, Profit Before Tax would have been almost in line with Ordinary Income. Approximately 67% of Net Income attributable to owners of the parent of ¥4.31B depended on this one-time gain, indicating that the underlying operating performance involved lower revenue and lower profit.

Segment Analysis

Miyaji Engineering recorded Revenue of ¥75.1B (-28.1% YoY), segment profit of ¥2.5B (-76.5% YoY), and a profit margin of 3.3%, down substantially from 10.0% in the previous year. M.M. Bridge recorded Revenue of ¥41.9B (-5.4% YoY), segment profit of ¥1.3B (-66.5% YoY), and a profit margin of 3.1%, with the profit margin deteriorating to a similar level despite the relatively small decline in revenue. The holding company division (Other) recorded segment profit of ¥11.9B (-41.7% YoY), continuing to make a significant contribution to consolidated profit, although this was lower than in the previous year. Both reportable segments experienced deteriorating project profitability, which should be viewed as a structural decline in profitability rather than a temporary phenomenon.

Key Financial Indicators

【Profitability】The Operating Income margin of 3.0% declined 6.8pt from 9.8% in the same period of the previous year, while the gross profit margin on completed construction contracts also fell 3.6pt from 18.0% to 14.4%. The Net Income margin was 3.8% (6.3% in the previous year). Annualized ROE remained at 3.8%. 【Cash Quality】Profit Before Tax of ¥7.5B, excluding the ¥2.9B gain on the sale of investment securities, was ¥4.6B, almost in line with Ordinary Income of ¥4.7B. The quality of final profit depended on a one-time gain, and recurring earning power must be evaluated based on Operating Income and Ordinary Income. 【Investment Efficiency】Operating Income was low relative to total assets of ¥778.6B, and capital efficiency remained limited. 【Financial Soundness】The Equity Ratio was 62.8%, while cash and deposits were ¥170.8B. Current assets of ¥494.8B substantially exceeded current liabilities of ¥243.6B. Debt levels were contained, and the financial foundation was generally solid.

Cash Flow Analysis

Because figures from the cash flow statement were not disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased by ¥47.1B YoY to ¥170.8B, indicating improved short-term liquidity. Total assets were ¥778.6B, having contracted from the previous year, suggesting that cash holdings were accumulated alongside asset compression. The collection of receivables related to completed construction contracts is a key factor affecting cash efficiency, while the one-time cash inflow associated with the ¥2.9B gain on the sale of investment securities also contributed to the increase in cash. Although cash inflows and outflows, including capital expenditures and dividend payments, cannot be identified from the available data, the improvement in the Equity Ratio from the previous year suggests that the financial structure has strengthened alongside debt reduction.

Quality of Earnings

Attention is required regarding the quality of earnings for the current period. Profit Before Tax of ¥7.5B exceeded Ordinary Income of ¥4.7B by ¥2.9B, with the difference attributable to the non-recurring gain on the sale of investment securities rather than profit generated by the core construction business. Approximately 67% of Net Income attributable to owners of the parent of ¥4.31B depended on this one-time factor, and the underlying profit level excluding this factor declined significantly from the same period of the previous year. Dividend income of ¥1.1B accounted for ¥1.1B of non-operating income of ¥1.3B. Although this is relatively stable as a recurring source of income, its scale is small. The 7.6% increase in SG&A expenses amid declining revenue, resulting in a higher SG&A ratio, indicates rigidity in the cost structure. The pace of margin recovery during any future revenue growth phase will therefore require close monitoring.

Earnings Forecast and Guidance

The full-year company plan calls for Revenue of ¥550.0B (-2.9% YoY), Operating Income of ¥23.0B (-49.2%), and Ordinary Income of ¥24.0B (-50.3%), indicating that management has incorporated lower earnings power compared with the previous fiscal year. Progress rates based on Q1 results were 20.8% for Revenue, 14.8% for Operating Income, and 19.4% for Ordinary Income. The progress rate for Operating Income was 10.2pt below the simple quarterly even-progress benchmark of 25%. The full-year plan assumes an Operating Income margin of 4.2%, above the Q1 result of 3.0%; achieving the full-year plan will therefore require improved project profitability and SG&A absorption from Q2 onward. No revisions were made to the earnings forecast during the quarter.

Shareholder Returns

The company’s forecast annual dividend is ¥75.0 per share, while forecast EPS is ¥76.18. Based on these figures, the forecast Payout Ratio is approximately 98.4%, a high level. No revision was made to the dividend forecast during the quarter. The high Payout Ratio means that dividend sustainability depends heavily on the achievement of the full-year profit plan and available liquidity. The financial foundation, including cash and deposits of ¥170.8B and an Equity Ratio of 62.8%, supports short-term payment capacity. However, Q1 Net Income attributable to owners of the parent included a one-time gain on the sale of investment securities, and caution is required when evaluating the source of dividends based on recurring profit levels. No data on share repurchases is available; accordingly, this section evaluates shareholder returns based solely on the Payout Ratio for dividends.

Risk Factors

1. Deteriorating project profitability: The gross profit margin on completed construction contracts declined 3.6pt YoY to 14.4%. Segment profit margins at both Miyaji Engineering and M.M. Bridge declined to the 3% range, confirming deteriorating profitability common to both businesses.

2. Dependence on non-recurring profit: Approximately 67% of Net Income attributable to owners of the parent of ¥4.31B depended on the ¥2.9B gain on the sale of investment securities. Excluding this one-time gain, Profit Before Tax would have been almost in line with Ordinary Income, making the decline in recurring earning power more evident.

3. Delayed progress toward achieving the full-year plan: The progress rate for Operating Income was 14.8%, 10.2pt below the benchmark for even quarterly progress. Achieving full-year Operating Income of ¥23.0B will require recovery in the gross profit margin from Q2 onward.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin are below the industry median, indicating that profitability is relatively low within the industry.

Growth and Capital Efficiency

While many companies in the industry maintained revenue growth, the Company experienced a substantial decline in revenue and diverged from the industry average in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Core Q1 profitability was weak: the Operating Income margin of 3.0% declined 6.8pt YoY and was also below the industry median of 8.7%. Segment profit margins at both Miyaji Engineering and M.M. Bridge declined to the 3% range, making the recovery of profitability in both businesses a key focus going forward.

2. Final profit was supported by the ¥2.9B gain on the sale of investment securities, and Operating Income and Ordinary Income should be used to evaluate recurring profit levels. Cash and deposits of ¥170.8B and an Equity Ratio of 62.8% support financial resilience against earnings volatility.

3. The company’s forecast Payout Ratio is high at approximately 98.4%, creating a structure in which the sustainability of shareholder returns depends on the achievement of the full-year Operating Income plan, currently at a progress rate of 14.8%.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,555–¥1,640 for a ±1% change in the cost of equity, and ¥1,589–¥1,601 for a ±0.1 change in ω.

Notes:

• 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).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a 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 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, after consulting a professional as necessary.

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