NISSHIN GROUP HOLDINGS (8881) FY2027 Q1 Earnings Report

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Executive Summary

For Q1 of the fiscal year ending March 2027, the improvement in profitability in the Construction Business was insufficient to offset the decline in income from the Real Estate Management Business and the increase in financial expenses, resulting in lower revenue and earnings. Revenue was ¥136.3B (¥144.0B in the same period of the previous year, YoY -5.3%), Operating Income was ¥7.2B (¥7.6B, YoY -6.0%), Ordinary Income was ¥5.4B (¥6.5B, YoY -17.2%), and Net Income was ¥3.2B (¥4.5B, YoY -28.8%). The gross profit margin improved to 17.8% from 16.6% in the same period of the previous year; however, the increase in the SG&A expense ratio and the 64.8% increase in interest expense widened the decline in earnings from the Ordinary Income stage onward.

Factors Affecting Performance

【Revenue】Revenue was ¥136.3B, down 5.3% year on year. By segment, the two core businesses declined, with the Construction Business at ¥78.6B (YoY -15.2%) and the Real Estate Management Business at ¥25.8B (YoY -38.2%), while the Real Estate Business grew significantly to ¥32.4B (YoY +224.7%). However, the growth of the Real Estate Business made a negative contribution at the operating income level and did not translate into an increase in overall corporate earnings.

【Profit and Loss】Operating Income was ¥7.2B (YoY -6.0%). Although the gross profit margin improved to 17.8% from 16.6% in the previous year, the SG&A expense ratio rose to 12.5% from 11.3%, offsetting the improvement. Ordinary Income was ¥5.4B (YoY -17.2%), representing a larger decline than Operating Income, primarily because interest expense increased to ¥2.6B (¥1.6B in the previous year, YoY +64.8%). Net Income was ¥3.2B (YoY -28.8%), with the effective tax rate also increasing from the previous year and placing pressure on bottom-line earnings. Operating Income in the Construction Business improved to ¥8.1B (YoY +24.0%) as profitability improved, while the Real Estate Management Business posted lower earnings of ¥3.1B (YoY -43.8%), and the Real Estate Business recorded an operating loss of ¥1.8B (improved from a loss of ¥3.4B in the previous year). Overall, the company posted lower revenue and earnings.

Segment Analysis

The Construction Business generated Revenue of ¥78.6B (YoY -15.2%), Operating Income of ¥8.1B (YoY +24.0%), and a profit margin of 10.3% (7.0% in the previous year), demonstrating improved profitability despite lower revenue and serving as the primary contributor to company-wide earnings. The Real Estate Business recorded a substantial increase in Revenue to ¥32.4B (YoY +224.7%), but remained loss-making, with an operating loss of ¥1.8B (a loss of ¥3.4B in the previous year); the increase in recognized project revenue has not directly translated into improved earnings. The Real Estate Management Business posted Revenue of ¥25.8B (YoY -38.2%), Operating Income of ¥3.1B (YoY -43.8%), and a profit margin of 12.0% (13.3% in the previous year), resulting in lower revenue and earnings and somewhat weakening its resilience as a stable earnings source. The Construction Business accounts for a high proportion of total segment income, creating a structure in which its profitability trends determine consolidated performance.

Key Financial Indicators

【Profitability】The Operating Income margin was 5.3%, approximately unchanged from the same period of the previous year (5.3% in the previous year), while the Net Income margin declined to 2.3% from 3.1% in the previous year. The gross profit margin improved to 17.8% from 16.6% in the previous year, but the increase in the SG&A expense ratio to 12.5% from 11.3% offset the improvement in profitability.【Cash Flow Quality】Interest expense increased to a level equivalent to 36.7% of Operating Income (20.9% in the previous year), representing a factor weighing on Ordinary Income.【Investment Efficiency】Annualized ROE was low at 1.8%, making improvements in asset efficiency and capital efficiency key issues.【Financial Soundness】The Equity Ratio rose to 50.7% from 48.7% in the previous year, and current assets of ¥120.72B substantially exceeded current liabilities of ¥32.33B. Interest-bearing debt was primarily comprised of long-term borrowings of ¥34.78B, while short-term borrowings decreased year on year, indicating lower reliance on short-term funding.

Cash Flow Analysis

Although a separate cash flow statement has not been disclosed, funding trends can be assessed from changes in the balance sheet. Cash and deposits were ¥47.60B, down ¥10.48B from ¥58.08B in the same period of the previous year, while total assets also decreased to ¥140.75B from ¥147.40B in the previous year. Real estate for sale decreased to ¥15.14B from ¥17.81B in the previous year, suggesting that cash recovery through the reduction of real estate inventories may be progressing. Meanwhile, short-term borrowings declined significantly to ¥3.57B from ¥6.11B in the previous year, reducing reliance on short-term funding. Long-term borrowings were ¥34.78B, approximately unchanged, and the funding structure remained centered on long-term liabilities. Overall, although cash levels have declined, liquidity remains ample, while asset reduction and adjustments to the liability composition appear to be progressing simultaneously.

Quality of Earnings

The earnings structure for the current period reflects the coexistence of a recurring factor—an improvement in the gross profit margin at the operating level—and a structural pressure factor in the form of higher financial expenses. Non-operating income was small at ¥0.9B and primarily consisted of recurring income, centered on dividend income of ¥0.2B; no temporary extraordinary gains or losses were identified. Meanwhile, interest expense accounted for ¥2.6B of non-operating expenses of ¥2.7B, increasing 64.8% from the same period of the previous year. This increase in expenses was the primary reason why the decline in Ordinary Income exceeded the decline in Operating Income. Comprehensive Income was ¥2.4B, below Net Income of ¥3.2B, as negative valuation differences on securities and adjustments related to retirement benefits reduced other comprehensive income. The divergence between Net Income and Comprehensive Income indicates that adjustments in asset valuations are having a suppressive effect on earnings.

Earnings Forecast and Guidance

The full-year forecasts are Revenue of ¥880.0B (YoY +0.2%), Operating Income of ¥60.0B (YoY -10.2%), and Ordinary Income of ¥50.0B (YoY -16.7%). Progress in Q1 was 15.5% for Revenue, 12.0% for Operating Income, and 10.7% for Ordinary Income, all below the simple 25% benchmark. Progress on profit-related indicators was particularly slow, with the actual Operating Income margin for the quarter at 5.3%, compared with the full-year plan of 6.8%. No revisions have been made to the earnings or dividend forecasts, and management has maintained its current plans. Achieving the full-year plan will depend on maintaining profitability in the Construction Business, recovering the Real Estate Management Business, and curbing financial expenses from the second half onward.

Shareholder Returns

The full-year dividend forecast is ¥37.00 per share, and the Payout Ratio based on forecast EPS of ¥74.93 is 49.4%. No revision was made to the dividend forecast for the quarter, and the existing plan has been maintained. Profit attributable to owners of the parent for the quarter was ¥3.2B, only 8.9% of the full-year plan of ¥35.0B, making profit progress from the second half onward, which will support the dividend plan, a key focus. No information on share repurchases has been disclosed, and this report evaluates the Payout Ratio based solely on dividends.

Risk Factors

1. Increase in interest burden: Interest expense was ¥2.6B, up 64.8% year on year, increasing to a level equivalent to 36.7% of Operating Income (20.9% in the previous year). Interest coverage remained at approximately 2.7x, creating a structure in which higher interest rates and changes in refinancing terms could readily place direct pressure on Ordinary Income.

2. Continued losses in the Real Estate Business: Although Revenue in the Real Estate Business increased 224.7% year on year, it recorded an operating loss of ¥1.8B (a loss of ¥3.4B in the previous year), and higher revenue has not directly translated into improved earnings. Fluctuations in project costs, selling prices, and delivery timing may create earnings volatility.

3. Decline in earnings from the Real Estate Management Business: Revenue declined 38.2% year on year and Operating Income declined 43.8%. Changes in the number of managed units and occupancy rates could weaken the relatively stable earnings base.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (real_estate)

Profitability and Returns

The company’s profitability is below the industry median, with both its Operating Income margin and Net Income margin at relatively low levels within the industry.

Growth and Capital Efficiency

The Revenue growth rate also falls significantly below the industry median, positioning the company among those reporting notable revenue declines within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Although the gross profit margin improved year on year, the increase in the SG&A expense ratio and interest expense left the Operating Income margin approximately flat, while the Ordinary Income margin and Net Income margin deteriorated. In terms of the qualitative change in the earnings structure, pressure from costs and financial expenses has emerged as a bottleneck to profitability.

2. By business, improved profitability in the Construction Business supported overall performance, while continued losses in the Real Estate Business and lower earnings from the Real Estate Management Business constrained the recovery in overall profits. Differences in profitability among the core businesses represent a structural factor driving fluctuations in consolidated performance.

3. Q1 progress toward the full-year plan was 12.0% for Operating Income and 8.9% for profit attributable to owners of the parent, below Revenue progress of 15.5%. Achievement of the full-year plan is structured to depend on the pace of profitability improvement in the second half.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,287–¥1,360 at ±1% for the cost of equity, and ¥1,317–¥1,327 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 quarter-end are used (there is a timing mismatch with the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of the market share price or recommendations for specific investment actions, and do not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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, after consulting professionals as necessary.

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