Quick View
| Metric | Current Period | Same Period Last Year | YoY |
|---|---|---|---|
| Revenue | ¥142.2B | ¥137.0B | +3.8% |
| Operating Income | ¥1.4B | −¥3.2B | +145.1% |
| Ordinary Income | ¥3.3B | −¥1.1B | +388.6% |
| Net Income | ¥2.5B | ¥0.0B | +8166.7% |
| ROE | 0.3% | 0.0% | - |
Executive Summary
In addition to higher revenue, the most significant point this quarter was the turnaround from an operating loss in the same period of the previous year to operating profitability. Revenue was ¥142.2B (+3.8% YoY), Operating Income was ¥1.4B (recovering from ¥-3.2B in the same period of the previous year), Ordinary Income was ¥3.3B (+388.6%), and Net Income was ¥2.5B (up from ¥0.0B in the same period of the previous year). The increase in revenue was led by growth in the Asphalt Applied Processing Products Business. The reduction in company-wide expense adjustments also contributed to the improvement in Operating Income; however, attention is warranted as the Road Paving Business turned to a segment loss.
Factors Behind Earnings Fluctuations
【Revenue】Revenue increased 3.8% YoY to ¥142.2B. By segment, the Asphalt Applied Processing Products Business grew to ¥76.3B (+12.0%), driving the overall performance, while the Road Paving Business was largely flat at ¥84.5B (+0.9%). Other Businesses also posted higher revenue of ¥2.8B (+34.8%).
【Profit and Loss】Operating Income was ¥1.4B, turning profitable from ¥-3.2B in the same period of the previous year, and the Operating Margin improved to 1.0% from the negative level recorded in the same period of the previous year. Segment profit in the Asphalt Applied Processing Products Business improved substantially to ¥8.2B (+113.8%, margin of 10.7%), while the Road Paving Business fell into a segment loss of ¥-0.7B, indicating that higher revenue has not directly translated into improved profitability. Ordinary Income increased to ¥3.3B (+388.6%), largely due to the contribution of ¥2.7B in non-operating income, including ¥1.9B in dividend income, and thus the earnings structure is more dependent on investment income than on improvement in core business profit. Net Income was ¥2.5B, up from ¥0.0B in the same period of the previous year; however, the extremely small comparison base should be noted. Extraordinary gains and losses were ¥0.1B in gains and ¥0.1B in losses, respectively, indicating that the impact of temporary factors was minimal. Overall, the results showed higher revenue and profit, but the substance of the profit increase is highly dependent on investment income.
Segment Analysis
The Asphalt Applied Processing Products Business posted higher revenue and profit, with revenue of ¥76.3B (+12.0%) and segment profit of ¥8.2B (+113.8%, margin of 10.7%), making it the primary contributor to consolidated profit. Although revenue in the Road Paving Business was largely flat at ¥84.5B (+0.9%), segment results deteriorated from a profit of ¥1.9B in the same period of the previous year to a loss of ¥-0.7B, apparently due to the progress of public works projects and deteriorating project profitability. Other Businesses generated revenue of ¥2.8B (+34.8%) and profit of ¥1.4B (+94.6%, margin of 52.4%), representing high profitability but on a small scale. The adjustment for company-wide expenses and other items improved from ¥-9.7B in the same period of the previous year to ¥-7.5B, contributing to the turnaround to consolidated operating profitability.
Key Financial Indicators
【Profitability】The Operating Margin improved to 1.0% from a negative level in the same period of the previous year, but remains low. The Net Profit Margin was approximately 1.7%, while the Ordinary Income Margin was approximately 2.3%; the ¥2.7B contribution from non-operating income, including ¥1.9B in dividend income, was a major factor behind the increase in Ordinary Income.【Cash Quality】Cash and deposits were ¥192.4B, accounting for 17.3% of total assets. Current assets of ¥375.8B versus current liabilities of ¥132.5B resulted in a robust current ratio of approximately 283.6%.【Investment Efficiency】ROE remained at 0.3% (on a Q1 cumulative basis), indicating limited earnings generation as of Q1 relative to the substantial invested capital comprising ¥485.2B in property, plant and equipment and ¥128.2B in investment securities.【Financial Soundness】The Equity Ratio was high at 71.1%, and the interest-bearing debt structure, centered on ¥144.0B in long-term borrowings, was conservative. Overall, the financial foundation remains stable.
Cash Flow Analysis
As the cash flow statement is not disclosed in this report, funding trends are analyzed based on changes in the balance sheet. Cash and deposits declined to ¥192.4B from ¥247.5B in the same period of the previous year, while current assets as a whole contracted to ¥375.8B from ¥499.5B. Meanwhile, accounts payable and notes payable were ¥45.5B, and total current liabilities, including other current liabilities, were ¥132.5B, sharply down from ¥243.5B in the same period of the previous year, indicating a change in the working capital structure. Property, plant and equipment stood at ¥485.2B, while investment securities stood at ¥128.2B; both increased slightly from the same period of the previous year, indicating continued allocation of funds to operating and investment assets. Net assets were ¥791.3B, accounting for 71.1% of total assets, and the Company maintains financial flexibility supported by the stability of its financial foundation.
Earnings Quality
Of the ¥3.3B in Ordinary Income, Operating Income accounted for only ¥1.4B, with the remaining uplift attributable to ¥2.7B in non-operating income. Dividend income of ¥1.9B was the main component of non-operating income, equivalent to approximately 58% of Ordinary Income. This represents returns from investment securities and must be evaluated separately from the earnings power of the core business. Extraordinary gains and losses were both limited to approximately ¥0.1B, and temporary factors were not responsible for the divergence between Ordinary Income and Net Income. Comprehensive Income was ¥6.0B, exceeding Net Income of ¥2.5B, primarily due to ¥3.1B in valuation differences on securities. These valuation differences have a strong character as unrealized gains arising from market fluctuations and should be distinguished from recurring earnings. Overall, the improvement in earnings this quarter depended to a considerable extent not only on the recovery in Operating Income but also on non-recurring and non-core factors such as investment income and valuation gains.
Earnings Forecast and Guidance
The full-year forecast is revenue of ¥800.0B (+5.5% YoY), Operating Income of ¥60.0B (+1.3%), Ordinary Income of ¥63.0B (+3.7%), and EPS of ¥151.11. No revisions were made to either the earnings forecast or the dividend forecast this time. Q1 progress rates were 17.8% for revenue, 2.4% for Operating Income, and 5.2% for Ordinary Income, all significantly below the standard quarterly progress rate of 25%. Although the seasonality of paving and construction-related operations must be taken into account, achieving the full-year Operating Income plan requires an additional ¥58.6B in Operating Income over the remaining three quarters, making the recovery of profitability in the Road Paving Business a key focus.
Shareholder Returns
The full-year dividend forecast is ¥85.0 per share, unchanged this time. Based on forecast EPS of ¥151.11, the Payout Ratio is approximately 56.2%, within a generally standard range when considering dividends alone. The Company holds ¥55.1B in treasury shares, but no treasury share repurchase activity for the current period has been disclosed; therefore, the Total Return Ratio has not been calculated. The financial foundation, including cash and deposits of ¥192.4B and an Equity Ratio of 71.1%, supports dividend payments. However, the full-year progress rate for profit attributable to owners of the parent was only 5.6% as of Q1, making earnings accumulation from Q2 onward important for maintaining the dividend level.
Risk Factors
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Deterioration in the profitability of the Road Paving Business: The Road Paving Business, the largest segment with revenue of ¥84.5B, turned to a segment loss of ¥0.7B. Fluctuations in the ordering and construction timing of public works projects and in project profitability will determine whether the full-year profit plan can be achieved.
-
Limited interest payment capacity due to the low level of Operating Income: Interest expenses were ¥0.7B compared with Operating Income of ¥1.4B, leaving interest coverage at approximately 2 times. Although the D/E Ratio is controlled at 0.41 times, the relative burden of interest payments is likely to attract attention when core earnings power is weak.
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Volatility risk in non-operating income and investment assets: Dividend income of ¥1.9B accounted for approximately 58% of Ordinary Income, while investment securities of ¥128.2B represented 11.5% of total assets. Changes in the dividend policies of investee companies and fluctuations in the equity markets could affect Ordinary Income and Comprehensive Income, including the ¥3.1B recorded in valuation differences on securities.
Industry Benchmark (For Reference; Compiled by the Company)
Industry Benchmark (manufacturing)
Profitability and Return
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 1.0% | 8.7% (4.2%–14.3%) | −7.7pt |
| Net Profit Margin | 1.7% | 7.1% (3.2%–10.6%) | −5.4pt |
The Company's profitability is substantially 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
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 3.8% | 6.2% (-1.1%–14.6%) | −2.4pt |
The Revenue Growth Rate also slightly trailed the industry median, and growth remained below the average level.
※Source: Compiled by the Company
Key Takeaways from the Results
-
Operating Income increased +145.1% YoY and turned profitable, but the Operating Margin remained at 1.0%, leaving considerable room for improvement in the absolute level of earnings. While the Asphalt Applied Processing Products Business expanded segment profit to ¥8.2B as the primary contributor on the profit side, the ¥0.7B segment loss in the Road Paving Business restrained overall profitability.
-
The improvement in Ordinary Income was largely driven by non-operating income centered on dividend income. Core business earnings improvement and investment income should therefore be evaluated separately.
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Q1 progress rates against the full-year plan were 2.4% for Operating Income and 5.2% for Ordinary Income, below standard levels. Even taking seasonality into account, the recovery of profitability in the Road Paving Business from Q2 onward will be the key to achieving the full-year plan.
Theoretical Share Price (Reference Value)
| Scenario | Theoretical Share Price |
|---|---|
| bear (Bearish) | ¥2,456 |
| base (Base) | ¥2,516 |
| bull (Bullish) | ¥2,536 |
| Calculation Assumption | Value |
|---|---|
| Book Value Per Share (BPS) | ¥2,781 |
| Adjusted Forecast EPS | ¥173.8 |
| Cost of Equity r | 9.77% (10-year government bond 2.77% + equity risk premium 6.00% + size premium 1.00%) |
| Persistence Coefficient of Residual Income ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 56.2% |
| Forecast EPS Reliability Adjustment | ×1.150 (based on the historical guidance achievement rate for the same industry) |
| Implied PBR / PER | 0.90x / 14.5x |
Sensitivity: ¥2,448–¥2,587 at Cost of Equity ±1%; ¥2,508–¥2,522 at ω±0.1.
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.)
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 discretion and responsibility, after consulting with a professional as necessary.
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AI Financial Analysis
Executive Summary
FY2027 Q1 represented a clear year-on-year earnings recovery, although underlying consolidated operating profitability remains thin. Revenue rose 3.8% YoY to ¥14.23bn. Operating income improved to ¥0.14bn from a ¥0.32bn operating loss in the prior-year quarter. The operating margin consequently improved by 340bp YoY, from -2.3% to 1.0%. Gross profit increased 25.4% to ¥3.31bn, and the gross margin expanded by 410bp to 23.3%. This gross-profit improvement more than offset a 7.1% rise in SG&A expenses to ¥3.17bn. Ordinary income increased to ¥0.33bn from a ¥0.11bn loss. Profit attributable to owners of parent reached ¥0.24bn, compared with ¥0.003bn in the prior-year quarter. The very high percentage growth in net income is therefore primarily a low-base effect rather than evidence of mature earnings scale. The asphalt applied-and-processed products segment was the principal earnings driver, with segment profit rising to ¥0.82bn from ¥0.38bn. Road paving revenue was broadly stable, but its segment result changed to a ¥0.07bn loss from a ¥0.19bn profit. Consolidated operating profit was also supported by a smaller net headquarters and consolidation adjustment, although unallocated corporate expenses increased. Non-operating income of ¥0.27bn exceeded operating income and included ¥0.19bn of dividend income, meaning ordinary profit remains materially dependent on investment income. The balance sheet is conservatively capitalized, with a 71.1% equity ratio, a 283.6% current ratio and debt-to-equity of 0.41x. Interest coverage of 1.99x is nevertheless weak because the current quarter's EBIT is modest relative to ¥0.72bn of interest expense. Receivables fell sharply YoY, but reported annualized DSO remains elevated at 72 days and requires monitoring in this project-driven business. Full-year guidance implies a substantial seasonal concentration of earnings after Q1, with only 2.4% progress against operating-income guidance. The FY2027 forecast dividend of ¥85 per share implies a 56.2% payout ratio against forecast EPS of ¥151.11, which appears balanced if the full-year earnings plan is achieved.
Profitability Analysis
Annualized DuPont ROE is 1.2%, comprising a 1.7% net profit margin, 0.511x asset turnover and 1.41x financial leverage. The low ROE is principally a profitability and capital-efficiency issue rather than a balance-sheet leverage issue: leverage is restrained, while the operating margin is only 1.0% and ROIC is 0.6%. The most significant YoY improvement was in operating margin, which moved from -2.3% to 1.0%, reflecting gross-margin expansion to 23.3% from 19.3%. Revenue growth of 3.8% was slower than SG&A growth of 7.1%, indicating that the Q1 operating turnaround was driven by gross-profit recovery rather than favorable operating leverage below gross profit. Segment performance was uneven. The asphalt applied-and-processed products business is the core business by segment-profit contribution: external revenue rose 8.4% YoY to ¥5.70bn and segment profit increased 113.8% to ¥0.82bn, lifting its segment margin to 14.4% from 7.3%. Road paving generated the largest external revenue, ¥8.45bn, up 0.9% YoY, but recorded a ¥0.07bn segment loss against ¥0.19bn profit a year earlier. Other businesses recorded external revenue of ¥0.08bn and segment profit of ¥0.14bn, versus ¥0.07bn and ¥0.07bn respectively. The consolidated adjustment improved to -¥0.75bn from -¥0.97bn, but unallocated corporate costs increased to ¥0.86bn from ¥0.79bn. The five-factor decomposition further shows a normal tax burden of 0.728, while the interest-burden ratio of 2.315 reflects non-operating income exceeding interest expense and EBIT. This is not a substitute for stronger operating returns, since dividend income alone represented 13.5% of quarterly revenue and 58.4% of ordinary income. The sustainability of the recovery therefore depends on converting product-segment profitability and road-paving volume into a more durable consolidated operating margin.
Growth Assessment
Revenue growth was modest at 3.8% YoY, but the composition favored the higher-profit asphalt applied-and-processed products business, whose external revenue grew 8.4%. The road paving business expanded revenue only 0.9% and moved into a segment loss, making its margin recovery central to the earnings outlook. Gross profit increased by ¥0.67bn, substantially ahead of the ¥0.21bn increase in SG&A, which explains the return to positive operating income. Ordinary income growth also benefited from dividend income rising to ¥0.19bn from ¥0.15bn. The current quarter contained only minor extraordinary income of ¥0.07bn and extraordinary loss of ¥0.05bn; net extraordinary gains were therefore immaterial to ¥0.24bn profit attributable to owners. Full-year guidance calls for revenue of ¥80.0bn, operating income of ¥6.0bn, ordinary income of ¥6.3bn and profit attributable to owners of ¥4.3bn. Q1 progress is 17.8% for revenue, 2.4% for operating income, 5.2% for ordinary income and 5.6% for profit attributable to owners, versus a simple 25% quarterly benchmark. The revenue shortfall versus the benchmark is 7.2 percentage points, while the operating-income shortfall is 22.6 points, consistent with pronounced seasonality and/or a need for substantial margin improvement during the remaining quarters. Management has not revised either earnings or dividend guidance. Execution in road paving, pricing and input-cost control, and the continuity of product-segment margins are the main determinants of whether the full-year target can be delivered.
Financial Health
Liquidity is strong. Current assets of ¥37.58bn cover current liabilities of ¥13.25bn, producing a current ratio of 283.6% and a quick ratio of 273.0%. Cash and deposits of ¥19.25bn equal 9.62x short-term loans of ¥2.0bn, limiting near-term refinancing pressure. Working capital totals ¥24.33bn. Interest-bearing debt is ¥16.40bn, comprising ¥2.0bn of short-term loans and ¥14.40bn of long-term loans; the 12.2% short-term-debt ratio indicates limited maturity mismatch. Debt-to-equity is a conservative 0.41x, debt-to-capital is 17.2%, and total equity represents 71.1% of total assets. The principal credit concern is debt service rather than liquidity: interest coverage is 1.99x, marginally below the 2.0x warning threshold, because EBIT was only ¥0.14bn in Q1. Annualized DSO of 72 days exceeds the 60-day warning level. Accounts receivable declined ¥6.39bn, or 36.3% YoY, to ¥11.20bn, while electronically recorded monetary claims were ¥1.74bn; continued collection discipline remains important given the long project and customer-payment cycle typical of road construction. Accounts payable declined ¥1.60bn, or 26.0% YoY, to ¥4.55bn, reducing supplier financing. Asset retirement obligations were ¥0.22bn, equivalent to approximately 0.7% of total liabilities, a limited environmental-obligation burden. Investment securities of ¥12.82bn account for 11.5% of assets and generate meaningful dividend income, but also expose comprehensive income and equity to market-value movements.
Notable B/S Changes
Total assets: -¥11.36bn (-9.3%) YoY to ¥111.26bn, led by lower current assets and indicating a smaller working-capital base. Cash and deposits: -¥5.51bn (-22.2%) YoY to ¥19.25bn; liquidity remains strong but the cash movement should be considered alongside future construction-in-progress funding. Accounts receivable: -¥6.39bn (-36.3%) YoY to ¥11.20bn, supportive of working-capital release, although annualized DSO remains elevated at 72 days. Accounts payable: -¥1.60bn (-26.0%) YoY to ¥4.55bn, reducing supplier-credit funding and partly offsetting the liquidity benefit of receivable reduction. Total liabilities: -¥10.81bn (-25.2%) YoY to ¥32.13bn, strengthening capitalization; interest-bearing debt was unchanged at ¥16.40bn. Construction in progress: +¥0.06bn (+0.8%) YoY to ¥7.01bn, representing 14.4% of PPE and indicating a meaningful investment pipeline. Investment securities: +¥0.46bn (+3.7%) YoY to ¥12.82bn, remaining material at 11.5% of assets and relevant to dividend income and valuation sensitivity.
Cash Flow Quality
Quarterly operating cash flow, investing cash flow, financing cash flow and capital expenditure figures are not reported in the supplied financial data. Earnings quality can therefore be assessed from profit composition and balance-sheet movements. Operating income was ¥0.14bn, whereas dividend income was ¥0.19bn and total non-operating income was ¥0.27bn; ordinary income of ¥0.33bn was thus supported more by non-operating income than by core EBIT. Profit before tax of ¥0.33bn and profit attributable to owners of ¥0.24bn were not materially affected by extraordinary items, as the net extraordinary gain was only ¥0.02bn. The sharp YoY reduction in trade receivables is favorable for potential cash conversion, although the reported annualized DSO of 72 days remains high. The concurrent reduction in trade payables means that part of the cash benefit from receivable collection may be offset by lower supplier credit. Construction in progress was ¥7.01bn, or 14.4% of PPE, indicating an active fixed-asset investment pipeline whose cash demands should be monitored alongside operating cash generation. Cash and deposits declined ¥5.51bn YoY to ¥19.25bn, while remaining ample relative to short-term debt.
Dividend Sustainability
The full-year dividend forecast is ¥85 per share, unchanged from management's prior guidance. Against forecast EPS of ¥151.11, the implied dividend payout ratio is 56.2%, below the 60% sustainability benchmark. This leaves a forecast earnings retention buffer of approximately ¥66 per share. The projected dividend is supported by a strong equity base of ¥79.13bn, cash and deposits of ¥19.25bn, and a low 0.41x debt-to-equity ratio. Q1 EPS of ¥8.50 represents only 5.6% of full-year forecast EPS, underscoring that dividend coverage relies on a large back-end earnings contribution. The payout profile is therefore reasonable on the stated annual forecast, but its resilience depends on recovery in road paving profitability, expansion of consolidated operating margin, and continued debt-service capacity.
Risk Assessment
Business risks include Road paving generated a ¥0.07bn segment loss despite ¥8.45bn of revenue; further weakness in project mix, tender pricing, labor availability or construction-material costs would pressure group profitability., The 1.0% EBIT margin is below the 5% concern threshold, leaving earnings highly sensitive to modest cost inflation or lower construction volumes., Annualized DSO of 72 days exceeds the 60-day warning threshold. Long collection cycles are a material working-capital risk in the road construction and public-works supply chain., The asphalt applied-and-processed products segment supplied the majority of reported segment profit; a reversal in its 14.4% segment margin would materially weaken consolidated results., Road construction and asphalt-related operations face industry-specific exposure to bitumen, energy, aggregate and logistics costs, public-works demand timing, weather disruption, and competitive tendering..
Financial risks include Interest coverage of 1.99x is below the 2.0x warning threshold. Although leverage is modest, sustained low EBIT would constrain debt-service headroom., ROIC of 0.6% and annualized ROE of 1.2% indicate weak returns on a sizeable asset base, including PPE of ¥48.52bn and construction in progress of ¥7.01bn., Investment securities of ¥12.82bn are material relative to assets, and valuation gains contributed to other comprehensive income; market-price declines could reduce equity and comprehensive income., Dividend income of ¥0.19bn exceeds Q1 operating income of ¥0.14bn, increasing dependence on portfolio income to support ordinary profit..
Key concerns include Highest priority: conversion of the road paving segment from loss to profit, given its ¥8.45bn revenue base and importance to full-year earnings execution., High priority: restoration of interest coverage through a sustained improvement in EBIT rather than reliance on non-operating income., High priority: improvement in capital efficiency, as the 0.6% ROIC is materially below the 5% warning threshold., Medium priority: receivable collection discipline and the interaction of lower receivables with declining supplier payables., Medium priority: delivery of full-year guidance, as Q1 operating-income progress of 2.4% is 22.6 percentage points below the simple 25% quarterly benchmark..
Investment Implications
Key takeaways include Q1 returned to operating profitability, with operating income improving by ¥0.46bn YoY to ¥0.14bn and gross margin expanding 410bp to 23.3%., The asphalt applied-and-processed products business was the core earnings contributor, while road paving became loss-making., Core operating returns remain weak: EBIT margin was 1.0%, annualized ROE was 1.2%, and ROIC was 0.6%., The balance sheet provides substantial liquidity protection, but 1.99x interest coverage leaves limited tolerance for a renewed EBIT decline., The ¥85 forecast dividend implies a 56.2% payout ratio on forecast EPS and is aligned with the stated full-year earnings plan..
Metrics to watch include Road paving segment profit and margin, Consolidated operating margin and gross-margin retention, Interest coverage relative to the 2.0x warning threshold, Annualized DSO and receivable collection, Operating-income progress against the ¥6.0bn full-year forecast, ROIC improvement from the current 0.6%, Construction-in-progress conversion into productive assets and returns.
Regarding relative positioning, The company combines a strong liquidity position, low balance-sheet leverage and substantial tangible-asset backing with currently substandard operating and capital efficiency. Relative financial resilience is strong, but relative earnings quality is constrained by thin EBIT margins, weak interest coverage and a material contribution from dividend income.