NIPPON CONCRETE INDUSTRIES CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In addition to higher revenue, operating income turned profitable during the quarter, confirming an improvement trend away from a low-margin earnings structure. Revenue was ¥123.4B (+13.2% YoY), operating income was ¥3.1B (turning profitable from ¥-1.3B in the same period of the previous year), ordinary income was ¥8.2B (+154.2%), and net income attributable to owners of the parent was ¥4.5B (+77.8%). The primary driver of revenue growth was expanding demand in the Foundation Business. The return to operating profitability was attributable to an improved gross margin and restrained SG&A expenses, while the increase at the ordinary income level was driven by higher dividend income and equity-method investment income.

Factors Affecting Earnings

【Revenue】Revenue of ¥123.4B represented a 13.2% YoY increase. By segment, Foundation (Foundation Business, representing 53.7% of the revenue mix) increased significantly to ¥66.3B (+38.9%), leading company-wide revenue growth. Meanwhile, ConcreteSecondaryProduct (Concrete Secondary Products, representing 45.6% of the revenue mix) declined to ¥56.2B (-7.2%). LeaseAndSolarLight (representing 0.7% of the revenue mix) was ¥0.9B (+12.9%).

【Profit and Loss】Operating income was ¥3.1B, turning profitable from ¥-1.3B in the previous year, and the operating margin improved to 2.5% from -1.2% in the previous year. The gross margin improved by approximately +1.0pt YoY to 18.1%, while SG&A expenses of ¥19.2B declined YoY. By segment, ConcreteSecondaryProduct was the largest earnings contributor, with segment profit of ¥6.1B and a profit margin of 10.8%. Foundation generated ¥1.8B of profit, with a profit margin of 2.7%, remaining low relative to its revenue growth. Ordinary income of ¥8.2B was boosted by dividend income of ¥4.3B and equity-method investment income of ¥1.3B in addition to operating income. Gains on sales of investment securities, a one-time factor recorded in the previous year, were almost absent in the current period, and the impact of extraordinary gains and losses was minor (extraordinary gains of ¥0.0B and extraordinary losses of ¥0.4B). Net income of ¥4.9B increased 71.6% YoY due to higher revenue, the return to operating profitability, and increased non-operating income. In conclusion, the company achieved higher revenue and earnings.

Segment Analysis

The earnings pillar was ConcreteSecondaryProduct (Concrete Secondary Products Business), which secured the highest profitability company-wide, with operating income of ¥6.1B and a profit margin of 10.8%. The revenue pillar was Foundation (Foundation Business), which accounted for 53.7% of the revenue mix; however, its profit margin was low at 2.7%, structurally diluting the company-wide operating margin of 2.5%. LeaseAndSolarLight (Real Estate and Solar Power Generation Business) was small in terms of revenue scale but had an exceptionally high profit margin of 61.3%, giving it a distinctive position from a profitability perspective. The division of roles between Foundation, which drives revenue growth, and ConcreteSecondaryProduct, which generates profits, is clear. Improving the profitability of Foundation will be the key to raising the company-wide margin going forward.

Key Financial Metrics

【Profitability】The operating margin of 2.5% (previous year: -1.2%) and net profit margin of 3.7% (previous year: 2.6%) both improved, although their absolute levels remained low. The gross margin improved by approximately +1.0pt YoY to 18.1%. 【Cash Quality】Non-operating income made a substantial contribution to ordinary income of ¥8.2B, including dividend income of ¥4.3B and equity-method investment income of ¥1.3B. The difference between ordinary income and net income was primarily attributable to income taxes and other taxes of ¥2.8B, representing an effective tax rate of approximately 36.7%. 【Capital Efficiency】ROE remained low at 1.0%. Based on a decomposition into net profit margin × total asset turnover × financial leverage, low total asset turnover was the primary factor suppressing ROE. 【Financial Soundness】The equity ratio declined slightly to 54.1% from approximately 55.3% in the previous year but remained high, indicating a conservative financial foundation. Current assets of ¥293.6B compared with current liabilities of ¥233.8B resulted in a current ratio of 125.6%, which is within an acceptable range.

Cash Flow Analysis

As the cash flow statement has not been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥76.3B, increasing from ¥70.2B in the previous year, indicating an increase in available liquidity. Meanwhile, inventories increased to ¥71.5B from ¥63.4B in the previous year, suggesting that a portion of cash generated from operating activities may have been absorbed by inventory. Notes and accounts receivable were ¥76.1B, down from ¥79.4B in the previous year, indicating progress in collections. Current liabilities increased to ¥233.8B from ¥215.2B in the previous year, with current maturities of long-term borrowings showing a notable increase. On the asset side, investment securities decreased to ¥226.5B from ¥240.3B in the previous year, consistent with a deterioration in the valuation difference on securities. Overall, while improvement at the operating level was confirmed, elevated inventory remains a point of concern from a capital efficiency perspective.

Quality of Earnings

The improvement in earnings this period was centered on the return to operating profitability and an increase in non-operating income, including dividend income and equity-method investment income. The limited impact of extraordinary gains and losses (extraordinary gains of ¥0.0B and extraordinary losses of ¥0.4B) supports an assessment of qualitative improvement. In contrast, in the same period of the previous year, a one-time gain on sales of investment securities of ¥3.1B increased extraordinary gains. Accordingly, a simple YoY comparison of net income must take into account the differences in earnings composition between the two periods. Non-operating income of ¥6.3B represented 5.1% of revenue, a meaningful level. Its breakdown included dividend income of ¥4.3B (3.5% of revenue) and equity-method investment income of ¥1.3B, indicating a high degree of reliance on non-operating income. The gap between ordinary income of ¥8.2B and net income of ¥4.9B was primarily attributable to income taxes and other taxes of ¥2.8B, which restrained the increase in the post-tax profit margin. Comprehensive income was ¥-5.0B, a significant divergence from net income of ¥4.9B. The primary cause was a ¥-9.3B deterioration in the valuation difference on other securities, making fluctuations in the market value of investment securities a source of volatility in net assets.

Earnings Forecast and Guidance

Q1 progress toward the full-year plan was 22.4% for revenue (△2.6pt versus standard quarterly progress of 25%), 16.5% for operating income (△8.5pt), and 34.0% for ordinary income (+9.0pt). The delay in operating income progress appears to assume seasonality in construction progress and a back-half contribution from price pass-through, while the high ordinary income progress rate is attributable to the timing of recording dividend income and equity-method investment income. The full-year operating income forecast of ¥19.0B (+488.7% YoY) implies an improvement in the operating margin to approximately 3.5%, making profitability improvement in the Foundation Business the focal point for achieving the plan. Neither the earnings forecast nor the dividend forecast was revised during the quarter.

Shareholder Returns

The company’s announced full-year dividend forecast is ¥10 per share, an increase from the previous year’s dividend of ¥4. Based on the full-year EPS forecast of ¥47.88, the payout ratio is approximately 20.9%. Given the sound financial foundation indicated by an equity ratio of 54.1%, this represents a sustainable level. As details regarding the allocation between the interim and year-end dividends have not been disclosed, this discussion is limited to the annual forecast. No information on share repurchases is available; therefore, shareholder returns are evaluated based on the payout ratio.

Risk Factors

1. Product mix risk: Foundation (Foundation Business), which accounts for 53.7% of the revenue mix, has a low operating margin of 2.7%, diluting the company-wide operating margin of 2.5%. Even if revenue growth continues, profit growth will remain limited unless it is accompanied by improved profitability.

2. Working capital and liquidity risk: Inventories remained elevated at ¥71.5B (+12.7% from ¥63.4B in the previous year). Within current liabilities of ¥233.8B, current maturities of long-term borrowings increased by approximately +77% YoY. A higher proportion of short-term liabilities increases sensitivity to refinancing conditions.

3. Securities valuation risk: Investment securities of ¥226.5B account for a significant portion of assets, while the valuation difference on other securities deteriorated by ¥-9.3B, reducing comprehensive income to ¥-5.0B. Market fluctuations may affect the stability of net assets and dividend income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin were below the industry median, placing the company’s profitability at a low level within the industry.

Growth and Capital Efficiency

The revenue growth rate exceeded the industry median, placing the company’s growth profile relatively high within the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. In addition to higher revenue, operating income turned profitable. However, the operating margin of 2.5% remained below the industry median of 8.7%, making the company’s ongoing improvement away from a low-margin earnings structure a key point of focus.

2. The structure separating the earnings pillar (ConcreteSecondaryProduct, with a profit margin of 10.8%) from the revenue pillar (Foundation, with a profit margin of 2.7%) was confirmed. The potential for improving the company-wide margin depends on restoring the profitability of Foundation.

3. The growth in ordinary income and net income was substantially supported by non-operating income, such as dividend income and equity-method investment income, while comprehensive income was ¥-5.0B due to deterioration in the valuation difference on securities. The sensitivity of earnings support factors to market fluctuations requires monitoring.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥767–¥812 at ±1% for the cost of equity, and ¥786–¥791 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 quarter-end are used; there is a timing difference relative to 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 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 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, with consultation with professionals as necessary.

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