DAISAN (4750) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative Q3 results showed higher revenue but lower earnings, with the key issue being the deterioration in profit margins as revenue growth failed to absorb the increase in SG&A expenses. Revenue increased slightly to ¥82.2B (+1.7% YoY), while Operating Income declined sharply to ¥2.3B (-20.4% YoY). Ordinary Income was ¥2.6B (-6.3% YoY), and Net Income was ¥2.4B (-4.8% YoY), indicating that the deterioration at the operating level was partially mitigated below that level. This mitigation was attributable to the one-time gain on the sale of fixed assets of ¥0.6B, and the profitability of the core business remains weak, as indicated by the decline in Operating Income.

Factors Affecting Results

【Revenue】Revenue was ¥82.2B (+1.7% YoY). By segment, Construction Sales amounted to ¥56.2B (+4.0%), accounting for 68.4% of total revenue and driving the increase in revenue. The Overseas Business remained solid at ¥17.6B (+1.1%), while Product Sales contracted to ¥7.9B (-10.7%).

【Profit and Loss】Gross Profit was ¥24.0B, essentially unchanged from ¥24.0B in the previous year, while SG&A expenses increased to ¥21.6B (up from ¥21.0B in the previous year), resulting in Operating Income declining to ¥2.3B (-20.4%). The Operating Margin was 2.8%, indicating that the cost structure is pressuring profitability. Ordinary Income declined by a narrower margin to ¥2.6B (-6.3%) due to an improvement in non-operating income and expenses, including higher interest income and lower interest expenses. Net Income declined by an even narrower margin to ¥2.4B (-4.8%) due to the recognition of a ¥0.6B gain on the sale of fixed assets. In conclusion, the Company recorded higher revenue but lower earnings, with a one-time factor partially offsetting the deterioration in the profitability of the core business.

Segment Analysis

The Construction Sales Business recorded revenue of ¥56.2B (+4.0% YoY) and Gross Profit of ¥15.8B (-1.2% YoY), with its profit margin declining slightly to 28.0%. The Overseas Business recorded revenue of ¥17.6B (+1.1%) and Gross Profit of ¥5.6B (+6.4%), improving its profit margin to 31.6% and becoming a segment with both revenue and profit growth. The Product Sales Business contracted, recording revenue of ¥7.9B (-10.7%) and Gross Profit of ¥2.2B (-7.3%). Consolidated Gross Profit was virtually unchanged YoY (¥23.97B→¥23.97B), and the slight decline in the profit margin of Construction Sales, which drove revenue growth, was one factor behind the deterioration in the overall Operating Margin.

Key Financial Indicators

【Profitability】The Operating Margin was 2.8% (deteriorating from approximately 3.6% in the previous year), while the Net Profit Margin was approximately 2.9%; both indicators are trending downward.【Cash Flow Quality】Cash and deposits amounted to ¥25.0B, with a Current Ratio of 169.5% and a Quick Ratio of 148.4%, securing short-term payment capacity. However, working capital has accumulated, with Accounts Receivable of ¥18.5B and Inventories of ¥8.1B, making trends in the collection cycle an area requiring monitoring.【Investment Efficiency】ROE (annualized) was 5.5%, explained by the product of the Net Profit Margin, Total Asset Turnover (approximately 0.83x), and Financial Leverage (approximately 1.75x), indicating that capital efficiency remains limited.【Financial Soundness】The Equity Ratio was 57.0% (improving from 54.6% in the previous year), indicating a conservative capital structure. However, Long-Term Borrowings declined by approximately 39% YoY, resulting in a structure centered on Short-Term Borrowings (¥17.4B), and the relative dependence on short-term funding has increased.

Cash Flow Analysis

As details of the statement of cash flows have not been disclosed, funding trends are examined based on changes in the balance sheet. Cash and deposits amounted to ¥25.0B, increasing from ¥22.2B in the same period of the previous year, indicating greater near-term financial capacity. Meanwhile, Long-Term Borrowings declined by approximately 39% YoY to ¥2.3B, indicating progress in reducing long-term debt. Short-Term Borrowings were ¥17.4B and remained nearly flat, with the funding structure continuing to show a relatively high dependence on short-term borrowings. The recognition of a ¥0.6B gain on the sale of fixed assets may have been accompanied by cash inflows from the sale of certain assets, and this is considered one factor contributing to the increase in the cash balance.

Quality of Earnings

Of Current Net Income of ¥2.4B, the ¥0.6B gain on the sale of fixed assets recognized as extraordinary income was a non-recurring item, accounting for approximately 25% of Net Income; this point requires attention when assessing earnings quality. Non-operating income was ¥0.8B, aided by an increase in interest income, while non-operating expenses were ¥0.5B, with interest expenses declining from the previous year. The improvement in these net items worked to narrow the decline in Ordinary Income (-6.3%) relative to the sharp decline in Operating Income (-20.4%). Comprehensive Income was ¥2.7B, broadly in line with Net Income of ¥2.4B, with Foreign Currency Translation Adjustments (+¥0.3B) providing an additional contribution, while Valuation Difference on Available-for-Sale Securities was slightly negative. Accordingly, the divergence between Net Income and Comprehensive Income was not significant.

Earnings Forecasts and Guidance

The Company has provided full-year forecasts of Revenue of ¥115.0B (+6.1% YoY), Operating Income of ¥4.2B (+13.3% YoY), and Ordinary Income of ¥4.1B (+18.5% YoY), with no revisions to either its earnings forecasts or dividend forecasts. Cumulative Q3 Revenue of ¥82.2B represents 71.5% progress against the full-year forecast, while Operating Income of ¥2.3B represents 55.7% progress, indicating that Operating Income is progressing somewhat slowly. Improvement in profitability during Q4 will be necessary to achieve the full-year earnings growth plan.

Shareholder Returns

The final dividend for the same period of the previous year consisted of a regular dividend of ¥11 plus a commemorative dividend of ¥2, and the full-year dividend forecast remains unchanged at ¥22 (equivalent to the previous year's actual dividend). There has been no revision to the dividend forecast as of the current quarter. Based on the forecast EPS of ¥51.46 and the forecast dividend of ¥22, the Payout Ratio is approximately 42.8%. In light of earnings trends, there are no signs of a sharp increase or decrease in shareholder returns, and a stable dividend policy is being maintained.

Risk Factors

1. Business concentration risk: The Construction Sales Business accounts for 68.4% of revenue, creating a structure in which fluctuations in demand or deterioration in profitability in this business directly affect consolidated results.

2. Short-term debt dependence risk: Short-Term Borrowings account for ¥17.4B of total interest-bearing debt of ¥19.7B, resulting in a high short-term debt ratio. Long-Term Borrowings have declined by approximately 39% YoY, and the funding structure has become more short-term.

3. Profitability decline risk: The Operating Margin was 2.8%, deteriorating from the previous year, while SG&A expenses (¥21.6B) increased at a faster pace than Gross Profit. If this trend continues, it may affect progress toward the full-year earnings plan.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability is below the industry median, with both the Operating Margin and Net Profit Margin ranking toward the lower end of the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is also significantly below the industry median, placing the Company toward the lower end of the industry in terms of growth.

※Source: Company analysis

Key Points from the Earnings Results

1. The fact that Operating Income declined by -20.4% despite higher revenue was attributable to SG&A expenses increasing faster than Gross Profit. The change in the cost structure is the central point of attention in these earnings results.

2. Of Net Income of ¥2.4B, the ¥0.6B gain on the sale of fixed assets made a non-recurring contribution. Excluding this one-time factor, the Company's underlying earnings power can be interpreted as weaker than the reported Net Income.

3. Cumulative Q3 progress against the full-year plan was 71.5% for Revenue versus 55.7% for Operating Income, indicating that profit is lagging. Improvement in profitability during Q4 is a prerequisite for achieving the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥754〜¥797 at Cost of Equity ±1%, and ¥771〜¥777 at ω±0.1.

Notes:

• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast 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 discretion and responsibility, after consulting with professionals as necessary.

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