MIYAJI ENGINEERING GROUP,INC. FY2027 Q1 Earnings Report

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Executive Summary

The quarter saw a significant decline in both revenue and earnings, as slower construction progress in the core businesses coincided with deteriorating construction profitability. Revenue was ¥114.3B (¥147.3B in the previous year, YoY -22.4%), Operating Income was ¥3.4B (¥14.4B in the previous year, YoY -76.3%), and Ordinary Income was ¥4.7B (¥15.3B in the previous year, YoY -69.7%). Consolidated Net Income was ¥4.7B (¥10.5B in the previous year, YoY -55.4%), while Net Income attributable to owners of the parent was ¥4.3B (¥9.2B in the previous year, YoY -53.2%), indicating that the rate of earnings decline narrowed compared with the operating level. This was because extraordinary gains, including a gain on the sale of investment securities of ¥2.9B, and dividend income of ¥1.1B partially offset the decline in core earnings.

Factors Affecting Performance

【Revenue】The core MIYAJIENGINEERING business was the largest contributor to the revenue decline, with revenue of ¥75.1B (YoY -28.1%, composition ratio 57.5%). MMBRIDGE recorded revenue of ¥41.9B (YoY -5.4%), representing a relatively smaller decline, while Other (holding company classification) recorded ¥13.5B (YoY -36.7%). All three segments posted lower revenue, suggesting that construction progress is weighted toward the second half of the fiscal year.

【Profitability】The gross profit margin on completed construction contracts declined by approximately 360bp to 14.4% from 18.0% in the previous year, as rising material and subcontracting costs and the project mix compressed construction profitability. The SG&A ratio increased to 11.4% from 8.3% in the previous year, and the resulting insufficient absorption of fixed costs due to lower revenue (deleverage) caused the Operating Income margin to decline by approximately 680bp to 3.0% from 9.8% in the previous year. Ordinary Income was modestly lifted by non-operating income, including dividend income of ¥1.1B, while Net Income was supported by extraordinary gains, including a ¥2.9B gain on the sale of investment securities. In conclusion, the quarter recorded lower revenue and lower earnings.

Segment Analysis

Segment profit margins fell into the 3% range for both MIYAJIENGINEERING, at 3.3% (profit of ¥2.5B, YoY -76.5%), and MMBRIDGE, at 3.1% (profit of ¥1.3B, YoY -66.5%), representing substantial declines from the previous year. For both segments, the decrease in profit exceeded the decline in revenue, reflecting the common impact of insufficient fixed-cost absorption and deteriorating construction profitability. The Other (holding company) classification recorded a disproportionately high profit of ¥11.9B and a profit margin of 88.2%; however, this is a special classification that includes the elimination of intersegment transactions and adjustments for corporate expenses. Consolidated Operating Income declined to ¥3.4B after intersegment eliminations and corporate expenses (△¥12.3B). Improving the profitability of the two core segments is essential for a recovery in overall Company earnings.

Key Financial Indicators

【Profitability】The Operating Income margin declined significantly to 3.0% from 9.8% in the previous year, while the consolidated Net Income margin was 4.1%, below 7.1% in the previous year. The primary factors were deteriorating construction profitability and an increase in the SG&A ratio to 11.4% from 8.3% in the previous year, clearly indicating worsening operating leverage.【Cash Quality】Cash and deposits increased 38.1% year on year to ¥170.8B, while accounts receivable from completed construction contracts declined 23.1% to ¥310.1B from ¥403.2B in the previous year, indicating progress in receivables collection.【Investment Efficiency】ROE remained low at 1.0%, and the total asset turnover ratio was also low at 0.147, making a recovery in earnings power a prerequisite for improving capital efficiency.【Financial Soundness】The Equity Ratio remained high at 62.8% (equivalent to 60.9% in the previous year), while current assets of ¥494.8B significantly exceeded current liabilities of ¥243.6B, indicating a stable financial base.

Cash Flow Analysis

Although the cash flow statement has not been disclosed, changes in the balance sheet provide insight into cash trends. Cash and deposits increased 38.1% year on year to ¥170.8B, primarily due to progress in collecting accounts receivable from completed construction contracts. Accounts receivable from completed construction contracts decreased by ¥9.31B to ¥310.1B from ¥403.2B in the previous year, indicating progress in working capital reduction. Meanwhile, advances received on construction contracts in progress remained at approximately the previous year’s level at ¥133.2B, providing a certain funding cushion as customer advances. The provision for construction contract losses declined slightly to ¥21.8B from ¥23.9B in the previous year, but remained high and warrants attention as a potential source of future cash outflows.

Quality of Earnings

Recurring earnings power remained weak, with non-operating income of ¥1.3B, primarily dividend income of ¥1.1B, lifting Ordinary Income from Operating Income of ¥3.4B. Although non-operating income represented 1.1% of revenue and was not excessive, it partially compensated for the weakness of core earnings. The extraordinary gain of ¥2.9B, consisting of a gain on the sale of investment securities, represented 38% of Profit Before Tax of ¥7.5B and approximately 62% of consolidated Net Income of ¥4.7B, indicating a substantial contribution from temporary factors. The Company continues to recognize a provision for construction contract losses of ¥21.8B, incorporating a future risk of earnings pressure from an accrual perspective. The difference between Ordinary Income and Net Income arose from the recognition of extraordinary gains, and it will be necessary to monitor whether earnings return to normal levels.

Earnings Forecast and Guidance

The Full-Year plan calls for Revenue of ¥550.0B (YoY -2.9%), Operating Income of ¥23.0B (YoY -49.2%), and Ordinary Income of ¥24.0B (YoY -50.3%). Q1 progress rates were 20.8% for Revenue, 14.8% for Operating Income, and 19.4% for Ordinary Income (¥4.65B/¥24.0B), all below the simple progress benchmark of 25%. The delay was particularly significant at the Operating Income level, reflecting the impact of deteriorating construction profitability. Progress toward the Full-Year forecast of ¥20.0B in Net Income attributable to owners of the parent was 21.6% (¥4.3B/¥20.0B), although the progress appears relatively favorable due to the recognition of extraordinary gains and non-operating income; this point warrants attention. Recovery in the gross profit margin and cost management in the second half will be key to achieving the Full-Year plan. As of the end of the quarter, no revisions had been made to the earnings forecast or dividend forecast.

Shareholder Returns

The Full-Year dividend forecast remains unchanged at ¥75 (¥42.5 in the previous year). The Payout Ratio against forecast Full-Year EPS of ¥76.18, based on Net Income attributable to owners of the parent, is approximately 98.5%, an extremely high level. Based on the average number of shares outstanding during the period, excluding treasury shares, of 26,519 thousand shares, the estimated annual dividend payment totals approximately ¥1.99B, nearly equivalent to the Full-Year Net Income forecast of ¥20.0B. Retained earnings of ¥282.3B and cash and deposits of ¥170.8B support the Company’s short-term dividend-paying capacity; however, the earnings cushion against performance volatility is limited, and recovery in core earnings is a prerequisite for maintaining the high dividend.

Risk Factors

1. Construction profitability deterioration risk: The gross profit margin on completed construction contracts declined by approximately 360bp to 14.4% from 18.0% in the previous year. Rising material and subcontracting costs and schedule delays appear to be the primary factors, while the high level of the provision for construction contract losses at ¥21.8B suggests low profitability on certain projects.

2. Dependence on temporary earnings factors: Of Profit Before Tax of ¥7.5B, extraordinary gains, consisting of a gain on the sale of investment securities, accounted for ¥2.9B, or 38%, and also made a substantial contribution to consolidated Net Income of ¥4.7B. Non-operating income also included dividend income of ¥1.1B, creating a structure in which temporary factors supplement weak core earnings.

3. Constraints on financial flexibility due to the high Payout Ratio: The Full-Year Payout Ratio is forecast at approximately 98.5%, an extremely high level, raising concerns about the risk of a dividend reduction and lower financial flexibility if performance falls short. Cash and deposits of ¥170.8B and retained earnings of ¥282.3B support short-term payment capacity, but recovery in core earnings is a prerequisite over the medium term.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin were below the industry median, indicating that profitability was low relative to peers.

Growth and Capital Efficiency

The Revenue growth rate was significantly below the industry median, with the Company in a revenue decline phase while other industry participants were generally recording revenue growth.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. During the quarter, the gross profit margin on completed construction contracts declined by approximately 360bp from the previous year, while the SG&A ratio also increased, resulting in a 680bp contraction in the Operating Income margin. The fact that deteriorating construction profitability and insufficient fixed-cost absorption are structural factors behind the downside in performance should be monitored in subsequent quarterly results.

2. Both consolidated Net Income and Net Income attributable to owners of the parent were supported to a certain extent by non-recurring factors such as gains on the sale of investment securities and dividend income, creating a divergence from recurring earnings power. Extraordinary gains accounted for 38% of Profit Before Tax, and it should be noted that this is a factor with low sustainability when assessing earnings quality.

3. Cash and deposits increased 38.1% year on year, while accounts receivable from completed construction contracts declined 23.1%, indicating progress in working capital improvement. Financial soundness, as measured by the Equity Ratio of 62.8%, remained high, and short-term liquidity concerns are limited.

Theoretical Stock Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

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

Notes:

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

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value is not a forecast or guarantee of the future share price)

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

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