Quick View
| Metric | Current Period | Same Period of Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥388.3B | ¥357.5B | +8.6% |
| Operating Income | ¥12.3B | ¥10.2B | +20.3% |
| Ordinary Income | ¥13.7B | ¥11.6B | +18.9% |
| Net Income | ¥7.1B | ¥5.5B | +30.5% |
| ROE | 0.8% | 0.6% | - |
Executive Summary
Revenue and earnings increased, primarily due to an improvement in the gross profit margin on completed construction contracts; however, profitability remains below the industry median. Revenue was ¥388.3B (+8.6% YoY), Operating Income was ¥12.3B (+20.3%), Ordinary Income was ¥13.7B (+18.9%), and Net Income was ¥7.1B (+30.5%), securing earnings growth above the rate of revenue growth. The improvement in the gross profit margin on completed construction contracts from 8.9% to 9.8% was the primary driver of the higher profit margins. Meanwhile, the SG&A expense ratio rose to 6.6%, partially offsetting the earnings increase.
Factors Affecting Business Performance
【Revenue】Revenue was ¥388.3B, representing an 8.6% increase YoY. The Company has a single segment, Engineering Business, while Other Businesses (including the personnel dispatch business, etc.) are not disclosed due to their immateriality. The increase in revenue was attributable to growth in completed construction revenue, apparently supported by the acceleration of project progress.
【Profit and Loss】Operating Income was ¥12.3B (+20.3% YoY), Ordinary Income was ¥13.7B (+18.9%), and Net Income was ¥7.1B (+30.5%). The 95bp improvement in the gross profit margin on completed construction contracts, from 8.9% to 9.8%, was the primary driver of the increase in Operating Income, apparently reflecting an improved project mix and progress in passing through higher prices. Meanwhile, SG&A expenses increased rapidly to ¥25.8B (6.6% of revenue, compared with 6.0% in the previous year), partially offsetting operating leverage. In non-operating income, dividend income of ¥1.3B boosted Ordinary Income. However, extraordinary income and losses were affected by the absence of the ¥0.6B gain on the sale of investment securities recorded in the previous year, meaning that the increase in Net Income was primarily attributable to improved profitability in the core business. The effective tax rate was high at 48.1%; the increase in Net Income of +30.5% compared with the +14.0% increase in profit before tax was affected by a decline in profit attributable to non-controlling interests in the previous year and fluctuations in the tax burden. In conclusion, both revenue and earnings increased.
Segment Analysis
The reported segment is limited to the Engineering Business, and detailed segment disclosures have been omitted because Other Businesses (including the personnel dispatch business, etc.) are not material to overall performance.
Key Financial Metrics
【Profitability】The Operating Income margin was 3.2% (2.9% in the previous year), while the Net Income margin was 1.8% (1.5% in the previous year), with both showing modest improvement. The gross profit margin on completed construction contracts improved by +95bp to 9.8% (8.9% in the previous year), making improved project profitability the central factor behind the improvement in profitability.【Cash Flow Quality】Cash and deposits were ¥64.3B, an increase of +11% from ¥57.9B at the end of the previous year, indicating an accumulation of liquidity on hand. Meanwhile, costs on uncompleted construction contracts increased substantially to ¥14.0B (+92.2% from the end of the previous year), indicating an absorption of working capital associated with the accelerated progress of projects in progress.【Investment Efficiency】ROE was 0.8% (quarterly result), and the Equity Ratio was 76.1%, a slight decline from 75.5% at the end of the previous year but still at a high level. Total assets decreased by -2.9% YoY to ¥117.63B, while net assets also declined by -3.4% to ¥89.46B. The contraction in assets and capital may reflect the temporary collection of funds, dividend payments, and other factors.【Financial Soundness】The Company maintains substantial liquidity, with current assets of ¥83.65B against current liabilities of ¥25.31B. Interest-bearing debt consists solely of short-term borrowings of ¥5.50B, keeping financial leverage low.
Cash Flow Analysis
Although detailed disclosure of the statement of cash flows is unavailable, movements in funds can be inferred from changes in the balance sheet. Cash and deposits increased by +¥6.5B from ¥57.9B at the end of the previous year to ¥64.3B, indicating an accumulation of liquidity on hand. Meanwhile, costs on uncompleted construction contracts increased by +¥6.7B (+92.2%), while construction-related accounts payable decreased from the end of the previous year, indicating an absorption of working capital associated with project progress and cash outflows resulting from the progress of payments. Corporate taxes payable (included in current liabilities) also declined substantially from the end of the previous year, making progress in tax payments since the beginning of the period a short-term source of cash outflow. Property, plant and equipment increased by +4% from the end of the previous year, suggesting that capital investment is continuing. Overall, although cash increased, the expansion of working capital is weighing on cash flow, and the progress of collections will be a key factor in future fund movements.
Quality of Earnings
Q1 had no extraordinary gains or losses and consisted of profit generated from recurring business activities, indicating favorable earnings quality. In the same period of the previous year, a ¥0.6B gain on the sale of investment securities was recorded as extraordinary income. The Company nevertheless secured earnings growth in the current period without this positive comparison effect, supporting the view that profitability in the core business improved. Dividend income accounted for ¥1.3B of the ¥1.6B in non-operating income and was only 0.4% of revenue, indicating limited dependence on non-operating income for Ordinary Income. The improvement in the gross profit margin on completed construction contracts directly supported Operating Income. From an accrual perspective, the increase in costs on uncompleted construction contracts suggests the acceleration of future revenue and profit recognition. At the same time, the decline in corporate taxes and the reduction in the provision for construction losses (¥1.8B, compared with ¥3.7B in the previous year) are points to consider when assessing earnings quality. The effective tax rate of 48.1% was high relative to profit before tax and is a factor suppressing the increase in the Net Income margin.
Earnings Forecasts and Guidance
Progress against the full-year forecast was 22.2% for revenue (¥388.3B/¥1750B), 9.4% for Operating Income (¥12.3B/¥130B), and 10.4% for Ordinary Income (¥13.7B/¥132.5B), all below the 25% benchmark implied by simple linear progress. The full-year forecast calls for declines of -11.6% in Operating Income and -11.2% in Ordinary Income YoY, contrasting with the earnings growth trend in Q1. This divergence apparently reflects the concentration of project recognition in the second half and the seasonality of the construction industry. The reliable recognition of large projects and maintenance of the gross profit margin over the remaining three quarters will be prerequisites for achieving full-year results. As of this quarter, there have been no revisions to either the earnings forecast or the dividend forecast.
Shareholder Returns
At a Board of Directors meeting held on July 30, 2026, a 3-for-1 stock split was resolved, with the split scheduled to take effect on October 1, 2026. Accordingly, the dividend forecast and earnings forecast for FY2027 have been revised to reflect the impact of the stock split on EPS and other metrics. Without taking the stock split into account, the dividend forecast for the period would be ¥60 per share at year-end and the EPS forecast would be ¥166.67, resulting in a Payout Ratio of approximately 36.0% (¥60÷¥166.67). The dividend is presented only as a year-end dividend, and the materials do not indicate whether it is distinguished from an interim dividend. The low level of interest-bearing debt and substantial cash on hand (cash and deposits of ¥64.3B) support the sustainability of dividends.
Risk Factors
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Risk of working capital expansion: Costs on uncompleted construction contracts increased substantially by +92.2% from the end of the previous year (¥14.0B), while construction-related accounts payable declined. The absorption of funds associated with the accelerated progress of projects in progress could lead to short-term weakness in Operating Cash Flow.
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Risk of continued high tax burden: The effective tax rate was high at 48.1% (corporate taxes of ¥6.6B/profit before tax of ¥13.7B), and the +30.5% increase in Net Income relative to the +14.0% increase in profit before tax was partly dependent on the comparison base from the previous year. The degree to which the tax burden normalizes will affect future Net Income growth.
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Risk of second-half concentration in full-year progress: Revenue progress of 22.2% and Operating Income progress of 9.4% were below the simple progress benchmark of 25%, suggesting that the full-year plan depends on the recognition of large projects in the second half. If the timing of project recognition is delayed, the gap from the full-year forecast could widen.
Industry Benchmark (For Reference; Company Research)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income Margin | 3.2% | 4.5% (2.7%–6.6%) | −1.3pt |
| Net Income Margin | 1.8% | 3.8% (-1.1%–4.4%) | −1.9pt |
Both the Operating Income margin and Net Income margin are below the industry median, indicating relatively low profitability within the industry.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 8.6% | 4.8% (3.4%–10.1%) | +3.8pt |
The Revenue growth rate exceeds the industry median, indicating that top-line growth is relatively strong within the industry.
※Source: Company research
Key Points from the Earnings Results
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The improvement in the gross profit margin on completed construction contracts from 8.9% to 9.8% by +95bp, and the achievement of earnings growth (Operating Income +20.3%) exceeding revenue growth (+8.6%), indicate progress in improving project profitability.
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The SG&A expense ratio increased (6.0%→6.6%), while the Operating Income margin remained at 3.2%, below the industry median of 4.5%, indicating room for improvement in the cost structure.
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Although the full-year forecast calls for a decline in earnings YoY (Operating Income -11.6%), Q1 was characterized by earnings growth. The earnings data indicate that the plan is weighted toward the second half. Maintaining the gross profit margin and the timing of project recognition are key structural points to monitor for full-year performance.
Theoretical Share Price (Reference Value)
This is a reference range mechanically calculated solely from publicly disclosed 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 of any specific investment action.
| Scenario | Theoretical Share Price |
|---|---|
| bear | ¥1,369 |
| base | ¥1,385 |
| bull | ¥1,397 |
| Calculation Assumption | Value |
|---|---|
| Book Value per Share (BPS) | ¥1,657 |
| Adjusted Forecast EPS | ¥62.0 |
| Cost of Equity r | 9.77% (10-year Japanese government bond 2.77% + equity risk premium 6.00% + size premium 1.00%) |
| Residual Income Persistence Coefficient ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 30.0% |
| Forecast EPS Confidence Adjustment | ×1.117 (based on the historical guidance achievement rate of comparable companies) |
| implied PBR / PER | 0.84x / 22.3x |
Sensitivity: ¥1,347–¥1,425 at ±1% for the cost of equity, and ¥1,377–¥1,391 at ±0.1 for ω.
Notes:
- Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
- Net assets at the end of the quarter are used (there is a timing difference relative to the full-year forecast).
- Because 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)
This report is an earnings analysis document automatically generated by AI based on XBRL earnings flash report 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.
---End of Report---
AI Financial Analysis
Executive Summary
Raise Next delivered a solid FY2027 Q1 earnings result, with revenue growth and operating-profit growth both exceeding the prior-year pace. Completed construction revenue increased 8.6% year on year to ¥38.83bn. Operating income rose 20.3% to ¥1.23bn, materially outpacing revenue growth. Ordinary income increased 18.9% to ¥1.37bn. Profit attributable to owners of parent increased 31.9% to ¥708m, equivalent to EPS of ¥13.11. The gross margin improved to 9.8% from 8.9% in the prior-year quarter, an expansion of approximately 95 basis points. The operating margin rose to 3.2% from 2.9%, an improvement of approximately 30 basis points. This indicates that the improvement in construction contract profitability more than offset higher overhead absorption. However, SG&A expenses increased 20.2% to ¥2.58bn, substantially faster than the 8.6% revenue increase. The quarter's operating leverage was therefore positive at gross-profit level but partly diluted by elevated SG&A growth. Ordinary income included ¥134m of dividend income, representing a meaningful contribution to the ¥155m of non-operating income. Net-income growth also benefited from the absence of the prior-year net extraordinary gain from investment-security sales. The effective tax rate was high at 48.1%, reducing the tax burden factor to 0.516 and limiting conversion of pre-tax profit into net profit. The balance sheet remains conservatively financed, with equity of ¥89.47bn, a 75.1% capital adequacy ratio, and interest-bearing debt of ¥5.50bn. Liquidity is ample, with a current ratio of 330.5% and cash exceeding short-term borrowings by 1.17x. Management maintained its full-year guidance, but Q1 progress is below a standard seasonal 25% run rate: revenue progress is 22.2%, operating-income progress is 9.4%, and profit-attributable-to-owners progress is 7.9%. The investment focus is therefore on whether profitability can accelerate materially in subsequent quarters while SG&A growth normalizes and project-loss provisions remain contained.
Profitability Analysis
The supplied annualized DuPont analysis shows ROE of 3.2%, decomposed into a 1.8% net profit margin, 1.321x asset turnover, and 1.31x financial leverage. The principal constraint on annualized ROE is low profitability rather than insufficient turnover or aggressive leverage. EBIT margin was 3.2%, below the 5% efficiency benchmark, while the net margin was 1.8%. Gross profit on completed construction contracts increased 20.2% to ¥3.81bn, faster than revenue, lifting gross margin by approximately 95bp to 9.8%. Operating income also grew 20.3%, producing an approximately 30bp operating-margin expansion to 3.2%. The smaller operating-margin expansion relative to gross-margin expansion reflects SG&A expense growth of 20.2%, versus 8.6% revenue growth. This SG&A/revenue divergence is a key issue because recurring overhead growth could reduce the durability of margin improvement if revenue growth slows. The interest burden is favorable: interest expense was only ¥8m and interest coverage was a very strong 153.5x. Financial leverage is modest in economic terms, as interest-bearing debt represents only 5.8% of total capital. The tax burden is the weakest element of the five-factor decomposition, with a 48.1% effective tax rate and a tax-burden factor of 0.516. Dividend income of ¥134m supported ordinary income, but it is non-operating and should not be treated as a substitute for sustainable project-level margin expansion. The core business is engineering, as it is the sole reportable segment; other activities, including personnel dispatch, are not quantitatively material. The ¥180m provision for loss on construction contracts, while down materially from ¥366m a year earlier, remains an important indicator of fixed-price project execution risk.
Growth Assessment
Revenue growth of 8.6% to ¥38.83bn demonstrates favorable near-term activity in the engineering business. Gross profit grew at more than twice the revenue rate, indicating improved contract profitability and/or better cost recovery during the quarter. The reduction in the provision for loss on construction contracts to ¥180m from ¥366m in the prior-year quarter supports the improvement in gross-profit conversion. Profit attributable to owners rose 31.9%, although comparison is affected by the prior-year extraordinary gain on investment-security sales and related accounting effects. Full-year guidance calls for revenue of ¥175.0bn, up only 0.3% year on year, operating income of ¥13.0bn, down 11.6%, and ordinary income of ¥13.25bn, down 11.2%. Q1 revenue represents 22.2% of full-year guidance, 2.8 percentage points below a standard 25% Q1 progress rate. Q1 operating income represents 9.4% of full-year guidance, 15.6 percentage points below the standard progress rate. Q1 profit attributable to owners represents 7.9% of the ¥9.0bn forecast, 17.1 percentage points below the standard progress rate. The low profit progress rate implies that management expects a substantial concentration of earnings in later quarters, potentially due to project completion timing and normal construction-business seasonality. The unchanged guidance indicates that management currently views the Q1 shortfall versus a linear run rate as manageable. Still, the forecast implies a significant sequential improvement in operating profitability from the Q1 3.2% operating margin. Sustainability will depend on conversion of uncompleted-contract costs of ¥1.40bn into profitable completed construction, labor and material-cost control, and avoidance of additional loss-making contracts.
Financial Health
Financial health is strong. Current assets of ¥83.65bn exceeded current liabilities of ¥25.31bn by ¥58.34bn, producing a current ratio and quick ratio of 330.5%. This provides a substantial liquidity buffer for project working-capital volatility. Cash and deposits totaled ¥6.43bn, compared with ¥5.50bn of short-term loans, resulting in a cash-to-short-term-debt ratio of 1.17x. Interest-bearing debt is confined to short-term loans, and the short-term debt ratio is therefore 100.0%. This is a refinancing-risk flag because all reported borrowings mature within one year rather than being laddered over longer maturities. The practical risk is mitigated by cash coverage, exceptional liquidity, low debt/capital of 5.8%, and interest coverage of 153.5x. Total liabilities accounted for only 23.9% of assets, while total equity was ¥89.47bn and the capital adequacy ratio was 75.1%. The reported debt-to-equity ratio of 0.31x remains below the 1.0x conservative benchmark, and debt/capital is particularly low. Noncurrent liabilities included a ¥2.40bn net defined-benefit liability, which is a relevant long-duration obligation but is manageable relative to equity. Contract-related obligations included ¥11.36bn of construction payables, while advances received on uncompleted construction contracts were ¥933m. The company also carries ¥6.54bn of investment securities, including ¥2.995bn of valuation gains on securities within equity, creating some exposure of book value and comprehensive income to market-price movements.
Notable B/S Changes
Costs on uncompleted construction contracts: +¥6.70bn (+92%) to ¥13.97bn - materially higher project work in progress; execution, billing, and cost-control discipline are key. Provision for loss on construction contracts: -¥1.86bn (-51%) to ¥1.80bn - favorable reduction in expected loss-making project exposure, supporting gross-profit improvement; monitor for reversals. Construction payables: -¥2.10bn (-16%) to ¥11.36bn - lower supplier/subcontractor financing may consume working capital if not offset by collections or customer advances. Current assets: -¥4.65bn (-5%) to ¥83.65bn - liquidity remains very strong despite the decline. Total equity: -¥5.76bn (-6%) to ¥89.47bn - the equity base remains substantial, but lower equity contributes to the need to improve capital efficiency. Property, plant and equipment: +¥896m (+4%) to ¥23.01bn - a modest increase in the operating asset base. Cash and deposits: +¥637m (+11%) to ¥6.43bn - cash now exceeds short-term loans of ¥5.50bn.
Cash Flow Quality
Cash-flow quality cannot be assessed from operating cash flow, investing cash flow, financing cash flow, free cash flow, capital expenditure, or depreciation because these figures were not reported for the period. Accordingly, no OCF-to-net-income conversion or free-cash-flow coverage conclusion is drawn. Balance-sheet working-capital indicators are nevertheless constructive in several respects. Construction payables declined to ¥11.36bn from ¥13.46bn, while electronically recorded monetary claims increased to ¥1.76bn from ¥1.29bn. Costs on uncompleted construction contracts increased sharply to ¥1.40bn from ¥727m, which indicates greater capital committed to projects in progress and raises the importance of timely billing and project completion. Advances received on uncompleted construction contracts increased modestly to ¥933m from ¥903m, providing partial customer funding of work in progress. The decline in the provision for loss on construction contracts to ¥180m from ¥366m is favorable for current profitability, but subsequent changes in this provision should be monitored as an indicator of project-cost pressure. There is no reported evidence from cash-flow data of earnings being converted into cash at a weak rate, but neither is there sufficient evidence to validate cash conversion.
Dividend Sustainability
A dividend sustainability assessment is not calculated because current-period dividend payments, forecast DPS, and cash-flow figures were not reported in comparable form. The company has indicated a pre-stock-split FY2027 year-end dividend forecast of ¥60.00 per share and full-year EPS guidance of ¥166.67 before reflecting the three-for-one stock split. On that pre-split basis, the indicated dividend payout ratio is approximately 36%, which is below the 60% sustainability benchmark. The planned three-for-one stock split takes effect on 1 October 2026, so per-share dividend figures must be interpreted on a split-adjusted basis for comparison. The low debt/capital ratio of 5.8%, large working-capital surplus, and strong interest coverage support financial capacity for shareholder distributions. Dividend affordability should ultimately be validated against full-year operating cash flow and capital expenditure once disclosed.
Risk Assessment
Business risks include Project execution and fixed-price contract risk: the ¥180m provision for loss on construction contracts shows that unfavorable cost estimates can still affect earnings, even though the provision declined from ¥366m a year earlier., Labor and material-cost inflation: engineering and construction activity is exposed to skilled-labor shortages, subcontractor cost inflation, and input-price volatility, which can erode margins on contracts that cannot be repriced., Margin sustainability risk: Q1 gross margin improved to 9.8%, but SG&A increased 20.2%, faster than revenue growth, making sustained operating-margin expansion dependent on higher revenue absorption and continued project profitability., Order timing and completion concentration risk: Q1 operating-income progress was only 9.4% versus full-year guidance, requiring a substantial second-half earnings contribution., Construction-cycle risk: customer maintenance and capital-investment budgets, including refinery, petrochemical, and industrial-facility spending, can be delayed by macroeconomic conditions or customer project reprioritization., Market-value risk in investment securities: ¥6.54bn of investment securities and ¥2.995bn of unrealized valuation gains expose comprehensive income and equity to securities-market fluctuations..
Financial risks include Refinancing risk: 100% of reported interest-bearing debt is short term. While cash covers short-term loans by 1.17x and leverage is low, continued access to bank funding remains relevant., High tax burden: the 48.1% effective tax rate reduced net-profit conversion, with the tax-burden factor at 0.516 versus a normal benchmark above 0.70., Low capital efficiency: annualized ROE was 3.2% and ROIC was 2.9%, below 5%, indicating that a large equity base is generating modest current returns..
Key concerns include Likelihood: medium; impact: high — the unchanged full-year operating-income forecast requires earnings acceleration despite Q1 progress of only 9.4%., Likelihood: medium; impact: medium — SG&A growth materially exceeded revenue growth and could reverse the benefit of improved gross margin if it persists., Likelihood: medium; impact: medium — construction-in-progress costs nearly doubled year on year, increasing the importance of collection discipline, project completion, and avoidance of cost overruns., Likelihood: medium; impact: medium — the high effective tax rate may continue to constrain EPS growth unless it normalizes in later quarters..
Investment Implications
Key takeaways include Q1 revenue, operating income, and net income grew 8.6%, 20.3%, and 31.9%, respectively, with gross-margin expansion driving the operating improvement., The core engineering business generated a 9.8% gross margin but only a 3.2% operating margin, underscoring the importance of SG&A control., The balance sheet is robust, with a 330.5% current ratio, 75.1% capital adequacy ratio, 5.8% debt/capital, and 153.5x interest coverage., Profitability and capital efficiency remain modest, with annualized ROE of 3.2%, ROIC of 2.9%, and a 1.8% net margin., Full-year guidance is unchanged, but Q1 operating-profit and net-profit progress rates are well below a standard seasonal run rate..
Metrics to watch include Quarterly operating margin and gross margin, particularly whether the Q1 3.2% operating margin can rise toward the level implied by full-year guidance., SG&A growth relative to revenue growth., Provision for loss on construction contracts and warranty provisions., Costs on uncompleted construction contracts, advances received, receivables, and construction payables as measures of project working-capital discipline., Order intake, order backlog, and the backlog-to-annual-revenue ratio once disclosed., Effective tax rate and the contribution of dividend income to ordinary income., Short-term loan balance, cash-to-short-term-debt coverage, and refinancing terms..
Regarding relative positioning, Raise Next combines a conservative balance sheet and strong liquidity with comparatively low operating and capital efficiency. Relative performance will be determined less by leverage capacity and more by its ability to convert engineering activity into higher-margin, cash-generative contract completion while controlling corporate overhead and project-loss exposure.