Kawagishi Bridge Works (5921) FY2026 Q1 Earnings Report

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Executive Summary

In FY2026 Q1, the Company fell into an operating loss due to a sharp decline in the gross profit margin on completed construction contracts, resulting in substantial declines in both ordinary income and net income. Revenue (completed construction revenue) was ¥57.9B (down -2.8% year on year), operating income was ¥-0.7B (deteriorating from ¥5.2B in the prior-year period), ordinary income was ¥0.1B (down -97.7%), and net income was ¥0.1B (down -98.0%). Non-operating income of ¥0.9B (including dividends received, among other items) offset the operating loss and secured a surplus in ordinary income; however, investment income remains the primary earnings source, making a recovery in core business profitability the key focus going forward.

Factors Affecting Performance

【Revenue】Completed construction revenue was ¥57.9B, down 2.8% year on year. Progress toward the full-year forecast of ¥220.0B was 26.3%, slightly above the standard 25%; however, project activity was weaker than in the prior year.

【Profit and Loss】The gross profit margin on completed construction contracts was 3.2%, down 964bp from 12.9% in the same period last year, while gross profit declined by ¥5.8B year on year to ¥1.9B. SG&A expenses were ¥2.5B, up 4.7% year on year, and the SG&A expense ratio to completed construction revenue rose to 4.4% from 4.1% in the prior-year period. As a result, operating income deteriorated significantly to ¥-0.7B from ¥5.2B in the prior year. Non-operating income of ¥0.9B (including ¥0.3B in dividends received) provided support, securing ordinary income of ¥0.1B, while net income remained at ¥0.1B. This was a decline in both revenue and earnings, driven by lower revenue and worsening profitability, with the decline in the gross profit margin being the largest adverse factor.

Key Financial Indicators

【Profitability】The operating margin was -1.1%, a significant deterioration of 992bp from 8.8% in the same period last year, while the net profit margin remained at 0.1%. Annualized ROE was 0.1% and annualized ROIC was negative 0.6%, indicating a marked decline in capital efficiency during the period.【Cash Flow Quality】Accounts receivable from completed construction contracts of ¥229.9B accounted for 67.7% of total assets. As the Company offsets its operating loss with non-operating income, the quality of accounting earnings depends on core business profitability.【Investment Efficiency】Annualized total asset turnover remained at 0.681x, with the large balance of accounts receivable from completed construction contracts constraining asset efficiency.【Financial Soundness】The Company maintained a highly conservative financial base, with an equity ratio of 84.6%, a current ratio of 539.7%, and a debt-to-equity ratio of 0.18x, all at high levels.

Cash Flow Analysis

Cash and deposits declined 74.2% to ¥8.2B from ¥31.8B in the same period last year, while accounts receivable from completed construction contracts increased 5.6% year on year to ¥229.9B, indicating that working capital expanded despite the decline in revenue. Current assets of ¥245.4B substantially exceeded current liabilities of ¥45.5B, resulting in a high current ratio of 539.7%; however, the composition is heavily weighted toward receivables rather than cash. With net income remaining at only ¥0.1B, the conversion of earnings into cash depends heavily on the collection schedule for construction proceeds, and future cash generation will depend on the progress of collections.

Earnings Quality

Current-period ordinary income of ¥0.1B was supported by factors outside the core business, as non-operating income of ¥0.9B (including ¥0.3B in dividends received) exceeded the operating loss of ¥0.7B. Non-operating income primarily consists of dividend and interest income backed by ¥22.6B in investment securities. Although this income is recurring in nature, it merely serves to offset deteriorating profitability in the core business. No extraordinary gains or losses were recorded. Corporate income taxes of ¥0.1B were recorded against pretax income of ¥0.1B, resulting in a high effective tax rate of approximately 38.8% and limiting the conversion to net income. The increase in accounts receivable from completed construction contracts suggests an expansion in accruals without corresponding cash support for recognized revenue, making it important to monitor collection trends when assessing earnings quality.

Earnings Forecast and Guidance

The full-year forecasts are revenue of ¥220.0B (down -9.2% year on year), operating income of ¥10.0B (down -46.6%), ordinary income of ¥11.5B (down -46.4%), and net income of ¥8.0B (down -44.7%), indicating that management itself expects declines in both revenue and earnings for the full year. While Q1 progress toward the revenue forecast was generally steady at 26.3%, progress for operating income was negative, and progress for ordinary income and net income was substantially weaker at 1.1% and 1.0%, respectively. The full-year operating margin forecast is 4.5%, presupposing a turnaround from Q1’s negative 1.1%; therefore, an improvement in construction project profitability from Q2 onward is a prerequisite for achieving the plan.

Shareholder Returns

The full-year dividend forecast is ¥140.00 per share. Based on the average number of shares outstanding during the period of 2,743,604 shares, the estimated annual dividend total is approximately ¥3.8B, resulting in a payout ratio of approximately 48.0% against the full-year net income forecast of ¥8.0B. The financial base of net assets of ¥287.5B, retained earnings of ¥268.5B, and a debt-to-equity ratio of 0.18x supports dividends; however, Q1 net income was only ¥0.1B, representing progress of 1.0% against the full-year forecast, and the realization of the forecast dividend depends on an earnings recovery from Q2 onward. No new share repurchase program has been indicated.

Risk Factors

1. Construction project profitability risk: The gross profit margin on completed construction contracts declined by 964bp from 12.9% in the same period last year to 3.2%. If increases in steel, subcontracting, and labor costs or an adverse project mix continue, achieving full-year operating income of ¥10.0B will become difficult.

2. Working capital and collection risk: Accounts receivable from completed construction contracts totaled ¥229.9B, accounting for 67.7% of total assets and increasing 5.6% year on year. Meanwhile, cash and deposits declined 74.2% to ¥8.2B, and delays in collections could place pressure on liquidity.

3. Revenue decline and fixed-cost burden risk: Completed construction revenue declined 2.8% year on year, and the full-year plan assumes a 9.2% decline in revenue. A decline in order volume could increase the fixed-cost burden and, together with the increase in the SG&A expense ratio (4.1%→4.4%), make it difficult to restore profit margins.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin were substantially below the industry median, placing the Company among the lower performers in the industry in the current quarter.

Growth and Capital Efficiency

The revenue growth rate was below the industry median, with the declining revenue trend particularly notable relative to the industry average.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. In Q1, the Company shifted to an operating loss due to a sharp decline in the gross profit margin on completed construction contracts; however, its financial base remains solid, with an equity ratio of 84.6%, a current ratio of 539.7%, and a debt-to-equity ratio of 0.18x, providing substantial resilience against deterioration in earnings.

2. The surplus in ordinary income was supported by non-operating income, including dividends received, requiring separate assessments of core business earnings and investment income. An improvement in construction project profitability from Q2 onward is essential to achieving the full-year operating income forecast.

3. The increase in accounts receivable from completed construction contracts to ¥229.9B coincided with a 74.2% decline in cash and deposits. Trends in collections will be an important area to monitor from the perspectives of asset efficiency and cash conversion.

Theoretical Share Price (Reference Value)

Sensitivity: ¥8,156–¥8,613 at ±1% for the cost of equity, and ¥8,317–¥8,421 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 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 (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 predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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, and you should consult a professional as necessary.

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