RAIZNEXT Corporation FY2027 Q1 Earnings Report

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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

1. 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.

2. 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.

3. 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

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

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

1. 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.

2. 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.

3. 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.

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)

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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.

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