NICHIREKI GROUP CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The key highlight of this earnings period was the turnaround from an operating loss in the same period last year to operating profitability, confirming an improvement in the earnings structure. Revenue was ¥142.2B (+3.8% YoY), Operating Income was ¥1.4B (a turnaround from ¥-3.2B in the previous year), Ordinary Income was ¥3.3B (a turnaround from ¥-1.1B in the previous year), and Net Income was ¥2.5B (compared with ¥0.0B in the previous year). An improvement in the gross margin and non-operating income, including equity-method income and dividend income, contributed to the increase in Ordinary Income, while the earning power at the operating level remains low.

Factors Affecting Earnings

【Revenue】Revenue was ¥142.2B, representing a 3.8% YoY increase. By segment, the Asphalt Applied Processing Products Business grew significantly to ¥76.3B (+12.0%), generating Operating Income of ¥8.2B (+113.8% YoY) and driving overall profit. Meanwhile, the Road Paving Business was nearly flat at ¥84.5B (+0.9%), and due to seasonality, construction progress was limited in the first half, resulting in an operating loss of ¥-0.7B. The revenue mix was approximately 59% for road paving and approximately 54% for asphalt applied processing (before intersegment transaction adjustments), indicating a high degree of dependence on road paving.

【Profit and Loss】The cost of sales ratio improved to 76.7% (from 80.7% in the previous year), while the gross margin rose to 23.3% (+4.0pt from 19.3% in the previous year). Meanwhile, SG&A expenses increased 7.1% YoY to ¥31.7B, and the SG&A ratio rose to 22.3% (+0.7pt from 21.6% in the previous year), increasing at a pace exceeding revenue growth. As a result, Operating Income turned profitable at ¥1.4B (compared with ¥-3.2B in the previous year), although the operating margin remained at 1.0%. Ordinary Income was ¥3.3B, with non-operating income—including dividend income of ¥1.9B and equity-method income of ¥0.4B—making a contribution substantially exceeding Operating Income and supporting improvement at the ordinary-income level. Net Income was ¥2.5B (compared with ¥0.0B in the previous year). Although the company posted higher revenue and profit, the primary drivers of the profit increase were the improvement in the cost ratio and non-operating income, while the standalone improvement in operating earnings remains limited.

Segment Analysis

The Asphalt Applied Processing Products Business generated Revenue of ¥76.3B (+12.0% YoY) and Operating Income of ¥8.2B (+113.8% YoY), with a profit margin of 10.7%, serving as the core contributor to company-wide profit through higher revenue and earnings. The Road Paving Business was nearly flat at ¥84.5B (+0.9% YoY), while Operating Income fell into the red at ¥-0.7B, compared with ¥+1.9B in the previous year, resulting in a profit margin of -0.8%. Seasonality, namely delays in construction progress during the first half, appears to be the primary factor, making earnings recovery in the second half a key focus going forward. Other Businesses, including the real estate leasing business, generated Revenue of ¥2.8B (+34.8% YoY) and Operating Income of ¥1.4B (+94.6% YoY), with a high profit margin of 52.4%, although the segment remains small. The substantial disparity in profit margins between segments means that the recovery of profitability in the Road Paving Business is directly linked to the stability of overall company performance.

Key Financial Indicators

【Profitability】The operating margin improved to 1.0% (from -2.3% in the previous year), but the absolute level remains low, while the net profit margin remained at 1.7% (compared with 0.0% in the previous year). The gross margin was 23.3%, improving by +4.0pt compared with the previous year’s 23.3%, with the decline in the cost ratio serving as the primary driver of improved profitability.【Cash Flow Quality】Of Ordinary Income of ¥3.3B, non-operating income made a substantial contribution at ¥2.7B. Dividend income of ¥1.9B and equity-method income of ¥0.4B were key contributors, while earning power at the operating level remained limited.【Investment Efficiency】ROE was low at 0.3%, primarily because Net Assets of ¥791.3B are large relative to Net Income of ¥2.5B.【Financial Soundness】The Equity Ratio was high at 71.1% (compared with 64.9% in the previous year). With Net Assets of ¥791.3B against Total Assets of ¥1112.6B, the company maintains a conservative financial structure.

Cash Flow Analysis

Although cash flow statement data was not disclosed, an analysis of fund movements based on changes in the balance sheet shows that cash and deposits were ¥192.4B, down from ¥247.5B in the previous year. Accounts receivable and notes receivable declined substantially YoY to ¥112.0B, while costs on uncompleted construction contracts and contract liabilities increased instead, suggesting a shift in funds corresponding to construction progress. Current liabilities were ¥132.5B, significantly lower than in the previous year, reducing short-term payment obligations. Long-term borrowings were ¥144.0B, maintaining the same level as in the previous year, and the funding structure remained stable. Cash substantially exceeded current liabilities, indicating ample liquidity for the foreseeable future.

Earnings Quality

Of Ordinary Income of ¥3.3B, non-operating income—including dividend income of ¥1.9B and equity-method income of ¥0.4B—made a substantial contribution, boosting Ordinary Income by an amount exceeding Operating Income of ¥1.4B. Non-operating income was not large at approximately 1.9% of Revenue, but its contribution to Ordinary Income was high, indicating dependence on non-operating factors in the earnings mix. Extraordinary items were minor, consisting of extraordinary income of ¥0.1B and extraordinary losses of ¥0.1B, and the impact of one-time factors was limited. Corporate income taxes and other taxes were ¥0.8B against Profit Before Tax of ¥3.3B, representing an approximately normal effective tax burden, while the gap between Ordinary Income and Net Income was not significant. Comprehensive Income was ¥6.0B, exceeding Net Income of ¥2.5B, primarily due to a ¥3.1B increase in the valuation difference on securities.

Earnings Forecast and Guidance

The full-year plan calls for Revenue of ¥800.0B (+5.5% YoY), Operating Income of ¥60.0B (+1.3% YoY), and Ordinary Income of ¥63.0B (+3.7% YoY), with no revisions to either the earnings forecast or dividend forecast. Q1 progress rates were approximately 17.8% for Revenue, 2.4% for Operating Income, and 5.2% for Ordinary Income, below the simple one-quarter progress benchmark of 25%. The Road Paving Business tends to generate limited earnings in the first half due to its seasonal characteristics. Given the back-loaded structure toward the second half, the execution of projects and margin improvement from Q2 onward will be prerequisites for achieving the plan.

Shareholder Returns

The annual dividend forecast is ¥85.00, with no revision to the earnings forecast. The Payout Ratio against the company’s forecast EPS of ¥151.11 is approximately 56%. There is no disclosure regarding any new purchases of treasury shares, and shareholder returns are centered on dividends. Given the substantial cash and deposits of ¥192.4B, the company appears to have sufficient capacity to maintain dividends for the time being.

Risk Factors

1. Profitability of the Road Paving Business: Against Revenue of ¥84.5B (+0.9% YoY), Operating Income fell into the red at ¥-0.7B. Delays in construction progress during the first half due to seasonality appear to be the cause, and a return to profitability in the second half will affect the stability of overall company performance.

2. Dependence on Non-Operating Income: Of Ordinary Income of ¥3.3B, non-operating income of ¥2.7B—including dividend income of ¥1.9B—made a substantial contribution, while Operating Income of ¥1.4B on a standalone basis remained low. Dividend income and equity-method income are affected by market conditions and the performance of investee companies, requiring monitoring from the perspective of earnings-mix stability.

3. Pace of SG&A Expense Growth: SG&A expenses increased 7.1% YoY, exceeding revenue growth of +3.8%. If expenses continue to increase faster than revenue, the pace of improvement in the operating margin may slow.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin are substantially below the industry median, placing profitability at a low level within the industry.

Growth and Capital Efficiency

The revenue growth rate also fell below the industry median, indicating relatively moderate growth within the industry.

Source: Compiled by the Company

Key Takeaways from the Earnings

1. Operating earnings turned profitable from a loss in the previous year, and the gross margin also improved to 23.3% (+4.0pt YoY). The decline in the cost ratio was the primary driver of improved profitability, indicating the early stage of a structural improvement.

2. There is a substantial disparity in profitability between segments. The Asphalt Applied Processing Products Business, with a profit margin of 10.7%, drove company-wide profit, while the Road Paving Business, with a profit margin of -0.8%, was loss-making. The linkage between the profitability of the two businesses may become a factor affecting earnings volatility going forward.

3. Q1 progress against the full-year plan was 17.8% for Revenue and 2.4% for Operating Income, below the simple progress benchmark of 25%. Given the plan’s back-loaded structure toward the second half, reflecting the seasonality of the Road Paving Business, performance in the second half will be a key point in evaluating results.

Theoretical Stock Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson type; explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,448–¥2,587 at ±1% for the cost of equity, and ¥2,508–¥2,522 at ±0.1 for ω.

Notes:

• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net Assets as of the quarter-end were used (there is a time lag relative to the full-year forecast).
• Since 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 does not predict or guarantee the future stock 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 disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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