NISSHIN GROUP HOLDINGS Company,Limited FY2027 Q1 Earnings Report

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Executive Summary

For Q1 of the fiscal year ending March 2027, the Company reported lower revenue and lower earnings, as higher interest expenses and a decline in the gross profit margin pressured profitability. Revenue was ¥136.3B (¥144.0B in the previous year, -5.3%), Operating Income was ¥7.2B (¥7.6B in the previous year, -6.0%), Ordinary Income was ¥5.4B (¥6.5B in the previous year, -17.2%), and Net Income attributable to owners of the parent was ¥3.1B (¥4.4B in the previous year, -29.4%). The significant decline at the Ordinary Income level was primarily due to an increase in non-operating expenses, centered on interest expenses of ¥2.6B, while Net Income was further compressed by an effective tax rate burden of approximately 41%.

Factors Affecting Performance

【Revenue】Revenue was ¥136.3B, representing a 5.3% year-on-year decline. By segment, the Construction Business remained the largest contributor at ¥78.6B (57.4% of total revenue, YoY -15.2%) but contracted, while the Real Estate Management Business also declined significantly to ¥25.8B (YoY -38.2%). In contrast, the Real Estate Business expanded substantially to ¥32.4B (YoY +224.7%), but this was insufficient to offset the decline in consolidated revenue.

【Profit and Loss】Operating Income was ¥7.2B (YoY -6.0%). While the gross profit margin remained under cost pressure at 17.8%, selling, general and administrative expenses were contained at 12.5%. Ordinary Income declined to ¥5.4B (YoY -17.2%), primarily because non-operating expenses of ¥2.7B, centered on interest expenses of ¥2.6B, exceeded non-operating income of ¥0.9B. Net Income was ¥3.1B (YoY -29.4%), with the high tax burden of approximately 41% widening the decline from Ordinary Income. Despite the presence of growth segments, the Company as a whole reported lower revenue and lower earnings, with increased interest expenses and a decline in the gross profit margin structurally weighing on profitability.

Segment Analysis

The Construction Business secured higher earnings despite revenue of ¥78.6B (YoY -15.2%), reporting Operating Income of ¥8.1B (YoY +24.0%) and a profit margin of 10.3%, thereby driving consolidated profit. The Real Estate Business recorded substantial revenue growth to ¥32.4B (YoY +224.7%), but its operating loss was -¥1.9B, representing a 46.3% reduction in the loss from the previous year, indicating continued profitability challenges. The Real Estate Management Business contracted in both scale and profit, with revenue of ¥25.8B (YoY -38.2%), Operating Income of ¥3.1B (YoY -43.8%), and a profit margin of 12.0%. The difference in profit margins between the Construction Business and the Real Estate Management Business was approximately 1.7pt; although the Construction Business is larger in scale, the Real Estate Management Business is relatively more profitable. The expansion in the volume of the Real Estate Business has not translated into improved profitability, diluting the consolidated profit margin.

Key Financial Indicators

【Profitability】The Operating Income margin was 5.3%, broadly unchanged from the previous year, while the Net Income margin declined to 2.3% from approximately 3.1% in the previous year. Although the gross profit margin improved slightly to 17.8% from 16.6% in the previous year, the absolute level remained low.【Cash Flow Quality】Accounts receivable from completed construction contracts of ¥127.0B and real estate for sale of ¥151.4B indicate substantial working capital tied up in the business, creating a structure in which the timing of recognized earnings and cash generation is prone to diverge.【Investment Efficiency】ROE was extremely low at 0.4%. A DuPont decomposition of a Net Income margin of 2.3%, total asset turnover of 0.097x, and financial leverage of 1.97x indicates that low turnover and weak Net Income margins were the primary causes of the low ROE.【Financial Soundness】The Equity Ratio improved to 50.7% from 49.4% in the previous year. Cash and deposits of ¥476.0B were equivalent to 13.3 times short-term borrowings of ¥35.7B, indicating ample short-term liquidity. However, coverage of interest expenses of ¥2.6B by Operating Income of ¥7.2B was limited, necessitating monitoring of interest expense burdens.

Cash Flow Analysis

Although explicit classification data from the statement of cash flows was unavailable, trends in the balance sheet provide insight into cash movements. Cash and deposits were ¥476.0B, down ¥104.8B (-18.0%) from ¥580.8B in the previous year. Short-term borrowings declined substantially to ¥35.7B (¥61.1B in the previous year, -41.6%), indicating that the Company reduced short-term liabilities against a substantial cash position. Real estate for sale declined to ¥151.4B from ¥178.1B in the previous year, suggesting that inventory was reduced through progress in deliveries and sales. Meanwhile, accounts receivable from completed construction contracts increased to ¥127.0B from ¥120.3B in the previous year, indicating that funds remain significantly tied up in operating activities. Long-term borrowings were maintained at ¥347.8B, broadly unchanged, with no major change in the financing structure.

Earnings Quality

The core source of recurring earnings was Operating Income of ¥7.2B. Non-operating income of ¥0.9B consisted of relatively small and largely non-recurring items, including dividend income of ¥0.2B and gains on sales of securities of ¥0.3B, indicating a low degree of reliance on temporary factors. On the other hand, non-operating expenses of ¥2.7B consisted almost entirely of interest expenses of ¥2.6B, with higher financial expenses weighing on Ordinary Income. The decline from Ordinary Income of ¥5.4B to Net Income of ¥3.1B was primarily attributable to the high tax burden, with an effective tax rate of approximately 41%. The relatively heavy burden of income taxes in relation to profit before tax is an important consideration in assessing earnings quality. Including the fact that non-operating income was small at less than 1% of revenue, the earnings structure is highly dependent on the core business, while increased interest expenses are reducing the quality of Net Income.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year plan (Revenue of ¥880.0B, Operating Income of ¥60.0B, and Ordinary Income of ¥50.0B) were 15.5% for Revenue, 12.0% for Operating Income, and 10.7% for Ordinary Income, all substantially below the simple 25% progress benchmark. This appears to reflect seasonality, with deliveries and the recognition of acceptance revenue in the Construction and Real Estate Businesses concentrated in the second half. While the full-year plan assumes revenue will be broadly in line with the previous year (YoY +0.2%), it forecasts lower Operating Income (YoY -10.2%) and lower Ordinary Income (YoY -16.7%). Therefore, the decline in earnings as of Q1 is broadly consistent with the direction of the Company’s plan. No revisions were made to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The Company’s annual dividend forecast is ¥37 per share, implying a Payout Ratio of approximately 49% based on the full-year EPS forecast of ¥74.93. No revision was made to the dividend forecast during the quarter. Although the Company maintains ample liquidity, with cash and deposits of ¥476.0B, the sustainability of dividend resources is partly dependent on the recovery of earnings from the second half onward because Ordinary Income is highly sensitive to interest expenses.

Risk Factors

1. Interest expense risk: Operating Income of ¥7.2B against interest expenses of ¥2.6B results in interest coverage of only approximately 2.7x. Given the interest-bearing debt structure centered on long-term borrowings of ¥347.8B, changes in the interest rate environment could have a relatively significant impact on Ordinary Income.

2. Variability in segment profitability: While the Construction Business secured an Operating Income margin of 10.3%, the Real Estate Business continued to post a loss, with operating results of -¥1.9B against revenue of ¥32.4B. The fact that revenue growth has not directly translated into improved profitability represents a structural challenge.

3. Working capital constraints: The large amounts recorded as accounts receivable from completed construction contracts of ¥127.0B and real estate for sale of ¥151.4B mean that quarterly fluctuations in cash flow and earnings are likely depending on the timing of collections and deliveries.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (real_estate)

Profitability and Returns

Both the Operating Income margin and Net Income margin were below the industry median, indicating that profitability was relatively low within the industry.

Growth and Capital Efficiency

The Revenue growth rate was substantially below the industry median, indicating low growth compared with industry companies on an upward revenue trend.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. While the Construction Business drove consolidated profit with an Operating Income margin of 10.3%, the Real Estate Business remained in the red despite revenue expanding by more than threefold. The lack of a link between revenue growth and improved profitability diluted the consolidated profit margin.

2. The decline from Ordinary Income to Net Income was attributable to the high tax burden, with an effective tax rate of approximately 41%. Together with the increase in financial expenses centered on interest expenses of ¥2.6B, this is an important point when assessing earnings quality.

3. The Q1 progress rates against the full-year plan were 15.5% for Revenue and 12.0% for Operating Income, below the simple progress benchmark. However, the business structure is characterized by seasonality weighted toward the second half, and progress in processing the Construction Business order backlog and improving the profitability of the Real Estate Business from Q2 onward will be closely watched with respect to achievement of the full-year plan.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly available data using a residual income model (Ohlson type, explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,287–¥1,360 at ±1% for the cost of equity, and ¥1,317–¥1,327 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, creating a timing difference relative to the full-year forecast.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not predict 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 release 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 professionals as necessary.

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