| Metric | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥1829.4B | ¥2780.9B | -34.2% |
| Operating Income / Operating Profit | ¥-190.0B | ¥25.9B | -93.8% |
| Ordinary Income | ¥-114.0B | ¥64.6B | -7.7% |
| Net Income / Net Profit | ¥-137.0B | ¥16.7B | -89.4% |
| ROE | -31.3% | 2.8% | - |
The FY2026 results showed Revenue of ¥1,829.4B (YoY -¥951.5B, -34.2%), an Operating loss of ¥190.0B (YoY -¥215.9B), an Ordinary loss of ¥114.0B (YoY -¥178.6B, -276.5%), and a Net loss attributable to owners of the parent of ¥137.0B (YoY -¥153.7B, -920.0%), resulting in a severe decline in sales and a swing to large losses. Gross profit on completed construction contracts was compressed to ¥6.45B (gross margin 3.5%, deteriorating 5.9pt from 9.4% in the prior year), far below SG&A of ¥25.45B. Non-operating results were supported by equity-method investment income of ¥8.39B, but interest expense of ¥3.13B and foreign exchange losses of ¥0.58B eroded profits and widened the ordinary loss.
[Revenue] Revenue on completed construction contracts was ¥1,829.4B (YoY -34.2%), a significant decline. Gross profit on completed construction contracts was ¥6.45B, with a gross margin of 3.5% (down 5.9pt from 9.4% prior year). The company could not fully pass through higher raw material prices, subcontracting costs, and labor costs to contract prices, substantially worsening project profitability. Provision for construction losses increased to ¥3.26B (prior year ¥2.34B, +39.2%), highlighting issues in project-level profitability management. Advances received on uncompleted construction contracts stood at ¥56.81B (prior year-end ¥53.16B, +6.9%), maintaining an advance receipt structure, but accounts receivable on completed construction contracts decreased to ¥76.86B (prior year ¥113.52B, -32.3%), indicating reduced revenue scale and progress in collections.
[Profitability] With gross profit on completed construction contracts of ¥6.45B versus SG&A of ¥25.45B (prior year ¥23.496B, +8.3%), fixed-cost absorption under declining sales was insufficient. This resulted in an Operating loss of ¥190.0B, a swing from Operating income of ¥25.9B in the prior year. In non-operating items, equity-method investment income of ¥8.39B (prior year ¥4.11B, +104.2%) and interest income of ¥1.33B boosted earnings, but interest expense of ¥3.13B (prior year ¥1.27B, +146.5%) and foreign exchange losses of ¥0.58B (prior year ¥0.65B) weighed heavily, expanding the Ordinary loss to ¥114.0B. Extraordinary income included step-acquisition gains of ¥4.15B, while extraordinary losses of ¥5.54B resulted in a net negative contribution. A pre-tax loss of ¥114.0B was recorded along with income taxes of ¥3.53B, leading to a Net loss attributable to owners of the parent of ¥137.0B (prior year Net profit ¥16.7B), marking a substantial decline in sales and a major loss for the period.
[Profitability] Operating margin -10.4%, Net margin -7.5%, ROE -31.3% — profitability deteriorated significantly into large deficits. Gross margin on completed construction contracts was 3.5% (prior year 9.4%), reflecting higher costs and inadequate price pass-through, well below the SG&A ratio of 13.9%. Dependence on equity-method investment income of ¥8.39B is high, indicating weak underlying earnings power in the EPC business. EBITDA was ¥-160.1B (before depreciation & amortization of ¥29.9B), impairing operating cash generation. [Cash Quality] Operating Cash Flow (OCF) was ¥9.30B (positive), but relative to a Net loss of ¥137.0B, OCF/Net Income was -0.62x, indicating quality issues. OCF/EBITDA was -0.58x, showing weak cash conversion and reliance on working capital release (collection of accounts receivable on completed construction contracts -¥36.65B, decrease in trade payables -¥29.85B, increase in advances received +¥3.65B). Free Cash Flow was positive ¥9.46B, but with CapEx of ¥0.57B versus D&A of ¥2.99B, CapEx/D&A was 0.19x, indicating substantial capex restraint and concerns about future growth capacity. [Investment Efficiency] Total asset turnover was 0.70x and trending down, indicating room to improve asset efficiency. Financial leverage was high at 5.97x (Total Assets ¥2,611.4B / Equity ¥437.1B), and the leverage amplification effect on ROE is working in the negative direction. [Financial Soundness] Equity Ratio was 16.7% (down 4.3pt from 21.0% prior year), D/E ratio 4.97x, Debt/Capital 57.9% — leverage remains high and Net loss reduced Equity to ¥437.1B (prior year ¥602.4B, -27.4%). Retained earnings fell significantly to ¥125.0B (prior year ¥290.8B, -57.0%). Interest-bearing debt comprised short-term borrowings ¥36.26B (prior year ¥17.00B, +113.3%) and long-term borrowings ¥23.94B (prior year ¥34.04B, -29.7%), with a short-term debt ratio of 60.2%, indicating a shift toward short-term funding and heightened refinancing risk. Cash and deposits were ample at ¥105.25B (prior year ¥90.32B, +16.5%), with a cash/short-term debt ratio of 2.90x, securing near-term liquidity. Interest coverage was -6.07x (EBIT -¥190.0B / interest expense ¥3.13B), raising concerns about debt servicing ability; the interest burden ratio was 0.60 (interest expense ¥3.13B / non-operating expenses ¥4.20B), indicating roughly 60% of non-operating expenses are interest.
OCF was ¥9.30B (a large improvement from prior year -¥23.09B) and positive, but relative to a Net loss of ¥137.0B, OCF/Net Income was -0.62x, showing a significant divergence between profit and cash and signaling revenue quality issues. OCF before working capital changes was ¥5.06B, adjusted for D&A ¥2.99B, equity-method investment income -¥8.39B, and add-backs such as interest paid ¥3.13B. In working capital, decreases in accounts receivable on completed construction contracts of ¥37.21B contributed to inflows, while decreases in trade payables -¥29.85B, increases in advances received ¥3.85B, and other asset/liability changes offset; after interest & dividends received ¥9.00B and corporate taxes paid -¥2.71B, OCF of ¥9.30B was secured. Investing Cash Flow was positive ¥0.16B, with capital expenditures -¥0.57B and intangible asset purchases -¥0.95B offset by proceeds from sale of investment securities ¥1.08B and other investing activities ¥0.04B. As a result, Free Cash Flow was positive ¥9.46B, but capital investment was only 19% of D&A (CapEx/D&A 0.19x), implying limited sustainability of cash generation due to investment restraint. Financing Cash Flow was positive ¥6.26B, driven by net increase in short-term borrowings ¥23.69B and long-term borrowings raised ¥9.80B, which exceeded long-term borrowings repayments -¥3.796B, dividend payments -¥1.46B, and lease liability repayments -¥0.61B. Cash and deposits increased by ¥14.92B from opening balance ¥90.32B to closing ¥105.25B, including FX impact -¥1.25B and consolidation scope change ¥5.31B. OCF/EBITDA was -0.58x (OCF ¥9.30B / EBITDA -¥160.1B), indicating weak cash conversion and that positive cash was a one-off reliant on working capital release and investment restraint.
Separating recurring income from one-off items shows an Operating loss of ¥190.0B as the fundamental deficit, indicating weak core earnings power. Non-operating income was ¥11.80B (6.5% of Revenue), primarily equity-method investment income ¥8.39B and interest income ¥1.33B, showing high dependence on equity-method gains and accompanying volatility risk. Non-operating expenses of ¥4.20B were mainly interest expense ¥3.13B, with interest costs compressing ordinary profit. Extraordinary items comprised step-acquisition gains ¥4.15B and extraordinary losses ¥5.54B, netting to a negative ¥1.39B — limited one-off impact. A pre-tax loss of ¥114.0B was recorded with income taxes of ¥3.53B (effective tax rate -31.0%), influenced by recoverability of deferred tax assets and tax effect adjustments. Comprehensive income was -¥14.86B, with Net loss -¥137.0B offset by foreign currency translation adjustments -¥2.16B and deferred hedge losses -¥0.84B as negative contributors, while retirement benefit adjustments ¥2.87B and valuation differences on available-for-sale securities ¥0.08B were positive. OCF ¥9.30B exceeded Net loss -¥137.0B, but this depended on working capital release (collection of accounts receivable on completed construction contracts ¥37.21B, increases in advances received ¥3.85B, etc.), indicating low accrual quality.
The company’s full-year forecast assumes Revenue ¥1900.0B (YoY +3.9%), Operating Income ¥3.0B (Operating margin 1.6%), Ordinary Income ¥7.5B, Net income attributable to owners of the parent ¥6.0B (EPS ¥102.39), and dividend ¥0. First-half results were Revenue ¥1,829.4B (96.3% of full-year forecast), Operating loss ¥190.0B, Ordinary loss ¥114.0B, and Net loss ¥137.0B — a significant shortfall, so full-year profitability relies on a substantial recovery in the second half. Second-half Revenue implied by guidance is ¥7.06B (Full-year ¥1,900B - First-half ¥1,829.4B), an extremely small amount, implying required Operating income of ¥220.0B, Ordinary income ¥189.0B, and Net income ¥197.0B to achieve the annual targets. Achievement would require (1) a large improvement in gross margin on completed construction contracts (first-half 3.5% → target for second half), (2) significant SG&A reductions, (3) continued expansion of equity-method investment income, and (4) stabilization of interest and FX impacts — a very high hurdle. Progress rate on an operating-income basis is in negative territory, and full-year assumes sharp turnaround and large recovery in the second half.
Dividends on common stock are ¥0 for both interim and year-end, continuing a dividend suspension. The payout ratio of 72.5% including the Net loss of ¥137.0B likely reflects dividend payments to preferred shares, and no returns have been made to common shareholders. Treasury stock acquisition amounted to ¥0.4M, negligible, so substantive shareholder returns are zero. Free Cash Flow ¥9.46B is positive but driven by working capital release and investment restraint and is therefore not evaluated as a sustainable source for shareholder returns. The full-year forecast also assumes dividend ¥0, with financial stabilization and return to profitability as top priorities. Given the erosion of retained earnings to ¥125.0B (from ¥290.8B prior year), continuing no dividend until equity reconstruction is confirmed is reasonable.
Risk of deteriorating project profitability / inadequate cost pass-through: Gross margin on completed construction contracts at 3.5% (down 5.9pt from 9.4%) indicates inability to pass through increases in raw materials, subcontracting, and labor costs. Provision for construction losses ¥3.26B (prior year ¥2.34B, +39.2%) reflects profitability deterioration on large projects and raises the possibility of further provisions. If fixed-price contracts comprise a high ratio, cost variability may not be absorbed and profit pressure could continue.
High leverage & interest burden risk: D/E ratio 4.97x and Debt/Capital 57.9% indicate high financial leverage; Interest coverage -6.07x shows vulnerability in debt servicing capacity. Short-term borrowings ¥36.26B exceed long-term borrowings ¥23.94B, with a short-term debt ratio of 60.2%, indicating a shift to short-term funding and elevated refinancing risk and exposure to rising rates. There is also the risk of covenant breaches under continued losses.
Dependence on equity-method investment income and volatility risk: Equity-method investment income ¥8.39B (prior year ¥4.11B, +104.2%) materially supported ordinary income but is subject to resource prices and affiliate performance and lacks sustainability and stability. With weak underlying EPC earnings, a reduction in equity-method gains could drive a renewed deterioration in ordinary profit.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | -10.4% | 5.5% (3.5%–7.2%) | -15.9pt |
| Net Margin | -7.5% | 3.5% (2.5%–4.4%) | -11.0pt |
Operating margin is 15.9pt below the industry median of 5.5%, and Net margin is 11.0pt below the median of 3.5%. Profitability is significantly lagging peers, and structural improvement in project profitability is urgently required.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | -34.2% | 9.8% (-2.1%–15.1%) | -44.0pt |
Revenue growth was down 34.2% YoY, 44.0pt below the industry median of +9.8%, representing a substantial decline and indicating deterioration in order environment and project progress.
※Source: Company aggregation
Certainty of profitability recovery is critical. The company expects Operating Income ¥3.0B and Net Income ¥6.0B for the full year, but first-half results were a large loss and assume a sharp recovery in the second half. Improvement in gross margin on completed construction contracts (from first-half 3.5%), SG&A compression, and continued growth in equity-method investment income will be key; monitor execution on contract price revisions, shift to cost-plus contracts, and stricter project progress management.
Improving financial leverage and funding structure is important. With D/E ratio 4.97x and short-term debt ratio 60.2%, high leverage and short-term funding dependence are evident; Interest coverage -6.07x indicates vulnerability in debt servicing. Cash and deposits ¥105.25B secure near-term liquidity, but under continued losses refinancing terms may deteriorate and covenant breach risk rises. Watch for capital reinforcement, shift to long-term borrowings, and strengthening of interest hedges.
This report was automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the firm based on public financial statements. Investment decisions are your own responsibility; consult a professional advisor as needed.