Makoto Construction (8995) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period, the Company reported lower revenue and earnings, primarily due to a decline in deliveries in its core Detached Housing Subdivision Business. The key point is that operating results turned from a profit in the prior year to a loss. Revenue was ¥1.85B (¥2.43B in the prior year, YoY -23.7%), Operating Income was ¥-0.02B (¥0.01B in the prior year, YoY -333.3%), Ordinary Income was ¥-0.02B (¥0.01B in the prior year, YoY -355.6%), and Net Income was ¥-0.02B (¥0.04B in the prior year, YoY -136.1%). SG&A expenses were not reduced sufficiently relative to the decline in revenue, resulting in deterioration in profitability.

Factors Affecting Performance

【Revenue】Revenue was ¥1.85B, a 23.7% year-on-year decline. By segment, the core Spec-Built Housing Business generated ¥1.79B (-23.7%), while the Contract-Built Housing Business generated ¥0.04B (-39.8%), resulting in a substantial 24.1% decline to ¥1.83B for the Detached Housing Subdivision Business as a whole. The Real Estate Leasing Business grew to ¥0.02B (+32.9%), but its scale was small and it was insufficient to support the overall business. The Real Estate Brokerage Business also declined to ¥0.01B (-15.7%).

【Profit and Loss】Gross profit was ¥0.26B (gross margin of 14.1%, nearly flat compared with 14.2% in the prior year), indicating that underlying profitability has not deteriorated materially. However, SG&A expenses were ¥0.28B (SG&A ratio of 15.3%), and could not be reduced sufficiently in response to the decline in revenue, causing Operating Income to fall to ¥-0.02B (¥0.01B in the prior year). Non-operating expenses included ¥0.02B in interest expense, which weighed on results, and Ordinary Income also deteriorated to ¥-0.02B. Net Income was ¥-0.02B (¥0.04B in the prior year), reflecting the decline in revenue and earnings.

Segment Analysis

Segment profit is disclosed on a gross-profit basis. The Spec-Built Housing Business accounted for the majority of the portfolio, with revenue of ¥1.79B and profit of ¥0.24B (profit margin of 13.6%), although both revenue and profit contracted by approximately 23.7% year on year. The Contract-Built Housing Business generated revenue of ¥0.04B and profit of ¥0.004B (profit margin of 9.7%), representing a significant 39.8% year-on-year decline. The Real Estate Brokerage Business was small in terms of revenue at ¥0.01B, but recorded profit of ¥0.06B (profit margin of 801.6%, an unusual figure resulting from the composition of internal sales and brokerage commissions), representing a 28.1% year-on-year decline in profit. The Real Estate Leasing Business generated revenue of ¥0.02B and profit of ¥0.02B (profit margin of 82.0%), making it the only improved segment, with profit up 17.7% year on year. Overall, the contraction of the Detached Housing Subdivision Business was the primary cause of the deterioration in performance, while the scale of the other businesses remains limited.

Key Financial Indicators

【Profitability】The Operating Income margin was -1.1% (versus approximately 0.4% in the prior year), while the Net Income margin was -0.8% (versus approximately 1.8% in the prior year); both deteriorated from the prior year and shifted into loss territory. The gross margin was 14.1%, nearly unchanged from the prior year, indicating that the deterioration in profitability was attributable to a relative increase in the burden of SG&A expenses and non-operating interest expense.【Cash Flow Quality】Comprehensive Income was positive at ¥0.08B, but this was attributable to an increase of ¥0.10B in valuation gains on investment securities and differs in quality from profit generated by operating activities. Comprehensive Income was positive despite negative Net Income, indicating a divergence from recurring earnings power.【Investment Efficiency】Annualized ROE was -0.5%, consistent with an approximate calculation of Net Income margin of -0.8% × total asset turnover of 0.28x × financial leverage of 1.66x, indicating a decline in capital efficiency.【Financial Soundness】The Equity Ratio rose to 60.1% (57.3% in the prior year), indicating that the Company has maintained a solid capital base. Cash and deposits were ¥0.80B, half the ¥1.64B recorded in the prior year, while long-term borrowings were reduced to ¥1.36B (¥1.93B in the prior year), indicating a reduction in both cash and debt.

Cash Flow Analysis

As detailed disclosure of the statement of cash flows is not available, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥0.80B, down ¥0.84B from ¥1.64B in the same period of the prior year, indicating substantial cash outflows during the period. During this period, short-term borrowings declined to ¥0.13B (¥0.30B in the prior year) and long-term borrowings to ¥1.36B (¥1.93B in the prior year), representing a combined reduction of approximately ¥0.84B. Accordingly, much of the decline in cash is believed to have been used for debt repayment. Meanwhile, investment securities increased to ¥0.62B (¥0.48B in the prior year), suggesting that part of the asset composition was shifted toward securities, together with the increase in valuation gains. It should be noted that debt reduction was undertaken while operating results were negative, in a situation where the Company’s ability to generate cash from operating activities was limited.

Quality of Earnings

Comprehensive Income of ¥0.08B for the current period was boosted by ¥0.10B in valuation gains on investment securities against Net Income of ¥-0.02B, making it different in nature from recurring business earnings. Non-operating income included ¥0.02B in dividend income, which has a certain degree of recurring potential as a stable source of earnings, although its scale is small. Non-operating expenses consisted of ¥0.02B in interest expense, and the reduction in borrowings may contribute to lower interest burdens going forward. In the same period of the prior year, a gain on the sale of investment securities of ¥0.05B was recorded as extraordinary income; this one-off factor was absent in the current period, so caution is required when making a simple comparison of profit with the prior year. Overall, the current period’s results reflect deterioration in the underlying operating business, while positive Comprehensive Income was supported by the non-recurring element of valuation gains.

Earnings Forecast and Guidance

The full-year earnings forecast consists of Revenue of ¥3.22B (YoY -1.6%), Operating Income of ¥0.11B (YoY +450.0%), and Ordinary Income of ¥0.09B (YoY +500.0%). Relative to the cumulative Q3 results (Revenue of ¥1.85B and Operating Income of ¥-0.02B), the plan assumes a rapid recovery in profitability during the remaining quarter. Cumulative revenue progress is only approximately 57.6% of the full-year forecast, and operating results are currently negative; therefore, achieving full-year profitability will require a concentration of deliveries in Q4 and control of SG&A expenses. Although no revisions to the earnings forecast or dividend forecast have been announced, the gap between current progress and the plan is substantial.

Shareholder Returns

The full-year dividend forecast is ¥25.00 per share, while the interim dividend was ¥0. Since cumulative Q3 Net Income is negative, the Payout Ratio calculated against actual Net Income at this point would not be meaningful. Although the Company has not revised its dividend forecast, the Payout Ratio based on the full-year Net Income forecast of ¥0.06B would represent a certain level of burden assuming only a year-end dividend. No disclosure regarding share repurchases has been made.

Risk Factors

1. Risk of fluctuations in order intake and delivery timing: Revenue from the Detached Housing Subdivision Business fluctuated substantially, declining 24.1% year on year, indicating a structure in which performance is susceptible to seasonality and delivery timing.

2. Interest burden risk: Interest expense was ¥0.02B against Operating Income of ¥-0.02B, meaning that interest expense cannot be covered by operating earnings. Although long-term borrowings have been reduced to ¥1.36B, the reduction in the interest payment burden remains incomplete.

3. Risk of declining cash balances: Cash and deposits were ¥0.80B, half the ¥1.64B recorded in the prior year, as cash resources have been reduced through debt repayment and other factors. The current ratio remains high at current assets of ¥5.19B/current liabilities of ¥1.21B, but the cash balance itself has become less substantial.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Profitability is substantially below the industry median, with both Operating Income margin and Net Income margin ranking low within the industry.

Growth and Capital Efficiency

Revenue growth significantly lagged the industry, with the Company reporting a decline in revenue while many peers achieved revenue growth.

※Source: Compiled by the Company

Key Points in the Financial Results

1. Cumulative Q3 results showed lower revenue and earnings due to the contraction of the core Detached Housing Subdivision Business, with both Operating Income and Ordinary Income turning from profits in the prior year to losses. The gross margin itself was 14.1%, nearly in line with the prior year, and the primary cause of deterioration was the relative increase in SG&A expenses and interest burdens against the decline in revenue.

2. Comprehensive Income of ¥0.08B resulted from an increase in valuation gains on investment securities and differs in nature from profit generated by operating activities. In assessing recurring earnings power, this non-recurring element must be considered separately.

3. Cash and deposits halved from the prior year, and much of the decrease is believed to have been used for debt repayment. The full-year forecast assumes a substantial improvement in profitability during the remaining quarter, and there is a significant gap between cumulative progress and the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,489–¥1,570 at ±1% for the cost of equity, and ¥1,516–¥1,538 at ±0.1 for ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burdens, acquisition-related expenses, non-controlling interests, and other factors (Net Income ÷ Operating Income 55%). This figure reflects that compression at face value; if the factors are temporary, normalized earnings power may be higher.
• Since 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 difference relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, nor does it 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 summary 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 discretion and responsibility, after consulting professionals as necessary.

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