NIKKO CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

During the quarter, the Company achieved substantial revenue growth and returned to profitability at both the operating and net income levels, indicating a favorable start to the fiscal year. Revenue was ¥118.2B (¥82.9B in the previous year, +42.5%), Operating Income was ¥2.7B (¥-0.5B in the previous year), Ordinary Income was ¥4.6B (¥0.7B in the previous year, +569.1%), and Net Income was ¥2.0B (¥-0.6B in the previous year). The primary driver of revenue growth was the rapid expansion of the Concrete-Related Business, while deteriorating profitability in the Asphalt-Related Business continues to weigh on the Company-wide profit margin.

Factors Affecting Performance

【Revenue】Revenue increased 42.5% YoY to ¥118.2B. By segment, the core Concrete-Related Business led Company-wide growth, with revenue of ¥48.8B (+101.2%), while the Asphalt-Related Business also expanded to ¥41.3B (+33.8%). In contrast, the Environmental and Transport-Related Business declined to ¥7.0B (-12.7%), and the Manufacturing Contracting-Related Business decreased to ¥5.0B (-26.1%), resulting in divergent performance across businesses.

【Profit and Loss】Cost of sales increased to ¥84.2B, rising more rapidly than revenue, and the gross margin declined by 509bp to 28.7% (33.8% in the previous year). However, the SG&A expense ratio improved significantly to 26.4% (34.5% in the previous year), enabling Operating Income to return to profitability at ¥2.7B. By segment, the Concrete-Related Business became the main pillar of Company-wide earnings, generating ¥6.8B (13.9% margin), while the Asphalt-Related Business remained loss-making at ¥-1.8B, diluting the Company-wide margin. Ordinary Income (¥4.6B) exceeded Operating Income due to ¥2.2B in non-operating income, including ¥1.6B in dividend income. However, Net Income remained at ¥2.0B because the effective tax rate was high at approximately 53.9%. Overall, the Company reported higher revenue and higher profit.

Segment Analysis

The Concrete-Related Business generated revenue of ¥48.8B (+101.2%) and Operating Income of ¥6.8B (+144.0%, 13.9% margin), making it the largest driver of Company-wide earnings. The Asphalt-Related Business increased revenue to ¥41.3B (+33.8%), but continued to post an Operating Loss of ¥-1.8B (-4.3% margin), making it a factor diluting the Company-wide margin. The Environmental and Transport-Related Business maintained high profitability, generating Operating Income of ¥2.1B (29.7% margin) on revenue of ¥7.0B (-12.7%), thereby contributing to earnings diversification. The Manufacturing Contracting-Related Business recorded revenue of ¥5.0B (-26.1%) and Operating Income of ¥0.9B (17.2% margin), while the Crushing Machinery-Related Business recorded revenue of ¥3.5B (+25.7%) and an Operating Loss of ¥-0.2B (-6.5% margin). The significant margin disparity among businesses means that restoring profitability in the Asphalt-Related Business will be key to improving the Company-wide profit margin.

Key Financial Indicators

【Profitability】The Operating Income margin improved by +297pt to 2.3% (-0.7% in the previous year), returning to profitability, while the Net Income margin improved to 1.7% (-0.7% in the previous year). Meanwhile, the gross margin declined to 28.7% from 33.8% in the previous year, a decrease of 509bp, indicating continued cost pressure.【Cash Quality】Current assets of ¥396.1B versus current liabilities of ¥223.8B resulted in a current ratio of approximately 176.9%. Cash and deposits of ¥141.7B substantially exceeded short-term borrowings of ¥37.3B, indicating ample liquidity for the foreseeable future.【Investment Efficiency】ROE remained low at 0.5%, and the low total asset turnover ratio is constraining capital efficiency despite the improvement in the Net Income margin.【Financial Soundness】The Equity Ratio declined slightly to 56.4% (58.0% in the previous year) but remained high. Cash and deposits substantially exceeded long-term borrowings of ¥41.3B, indicating a conservative financial foundation.

Cash Flow Analysis

Although the cash flow statement has not been disclosed, an analysis of funding trends based on changes in the balance sheet indicates that cash and deposits increased by +¥26.9B to ¥141.7B from approximately ¥124.8B in the previous year, with funds generally accumulating. Contract liabilities (advance payments) increased substantially to ¥90.3B, and the collection of advance payments associated with orders contributed to cash inflows. At the same time, work in process remained elevated at ¥105.8B, suggesting that cash conversion will require time until project acceptance and revenue recognition progress. Accounts receivable and notes receivable declined from the previous year to ¥64.0B, indicating some progress in collections. Overall, the accumulation of advance payments is supporting the funding base, while improving work-in-process turnover will determine the Company’s future cash-generation capacity.

Quality of Earnings

The structure in which Ordinary Income (¥4.6B) exceeds Operating Income (¥2.7B) reflects the contribution of ¥2.2B in non-operating income, primarily comprising ¥1.6B in dividend income, with non-core income supporting quarterly earnings. Extraordinary losses consisted solely of an impairment loss on investment securities of ¥0.2B, having a limited impact on earnings. Meanwhile, income taxes and other taxes amounted to ¥2.4B against Profit Before Tax of ¥4.4B, resulting in an effective tax rate of approximately 53.9% and constituting the primary reason for the approximately 56% gap between Ordinary Income and Net Income. Whether this high tax burden is temporary or structural will need to be assessed over subsequent quarters. If the tax burden normalizes, there may be upside potential for Net Income.

Earnings Forecast and Guidance

Progress against the Full-Year forecast was 21.5% for Revenue, at ¥118.2B/¥550.0B; 7.2% for Operating Income, at ¥2.7B/¥38.0B; and 12.0% for Ordinary Income, at ¥4.6B/¥38.3B. Compared with the simple one-quarter benchmark of 25%, progress in both revenue and profit is somewhat behind schedule. However, the accumulation of ¥90.3B in contract liabilities indicates a substantial base for future revenue recognition. The delay in profit progress is primarily attributable to continued losses in the Asphalt-Related Business, and profitability improvement toward the second half of the fiscal year is a prerequisite for achieving the plan. No revisions were made to either the earnings forecast or the dividend forecast on this occasion.

Shareholder Returns

The Company’s full-year dividend forecast is ¥42, representing an planned increase from the previous year’s dividend of ¥17 (actual dividend at that time, interim data). The Payout Ratio against the Company’s forecast EPS of ¥68.79 is approximately 61.1%, somewhat higher than standard levels. However, the Company’s near-net-cash position, in which cash and deposits of ¥141.7B exceed total interest-bearing debt (short-term borrowings of ¥37.3B and long-term borrowings of ¥41.3B), supports the sustainability of dividend payments. There is no disclosure regarding share buybacks; therefore, this assessment is based solely on the Payout Ratio.

Risk Factors

1. Deteriorating profitability in the Asphalt-Related Business: Against revenue of ¥41.3B (+33.8%), Operating Income was ¥-1.8B (-4.3% margin, -45.5% YoY), with losses expanding and diluting the Company-wide Operating Income margin of 2.3%.

2. Working capital tied up: Work in process remained elevated at ¥105.8B. Although accounts receivable and notes receivable have been reduced to ¥64.0B, there is a risk of delayed cash conversion due to the dependence on acceptance timing characteristic of project-based businesses.

3. Net Income pressure from the high tax burden: Income taxes and other taxes amounted to ¥2.4B against Profit Before Tax of ¥4.4B, resulting in an effective tax rate of approximately 53.9% and contributing to the gap between Ordinary Income and Net Income. If the tax burden remains elevated, it could constrain Net Income growth.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability is below the industry median, with both the Operating Income and Net Income margins ranking in the lower range.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeds the industry median, placing the Company’s top-line growth in a favorable position within the industry.

※Source: Company analysis

Key Takeaways from the Earnings Results

1. Revenue growth of +42.5% YoY substantially exceeded the industry average, while the rapid expansion of the Concrete-Related Business and the accumulation of ¥90.3B in contract liabilities indicate room for future revenue recognition.

2. Operating results returned to profitability from a loss in the previous year. However, the Operating Income margin of 2.3% remains below the industry median of 8.7%, with continued losses in the Asphalt-Related Business and the 53.9% effective tax rate observed as structural factors constraining earnings.

3. The financial foundation is sound, with an Equity Ratio of 56.4% and cash and deposits of ¥141.7B. Improving working capital efficiency, particularly the persistently high work-in-process balance, will be a key point to monitor for future margin improvement and cash conversion.

Theoretical Share Price (Reference Value)

Sensitivity: ¥882–¥931 at Cost of Equity ±1%; ¥904–¥907 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 quarter-end are used (there is a time lag 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 value based solely on publicly available 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 summary data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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