CTI Engineering Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

For the cumulative Q2 of the fiscal year ending December 2026, both the domestic and overseas construction consulting businesses recorded higher revenue, resulting in increased revenue and profits. Revenue was ¥550.0B (¥507.9B in the same period of the previous year, +8.3%), Operating Income was ¥66.2B (¥59.8B, +10.7%), Ordinary Income was ¥67.0B (¥60.3B, +11.0%), and interim Net Income attributable to owners of the parent was ¥44.3B (¥37.9B, +17.3%). The growth rate of Operating Income exceeded the revenue growth rate, indicating operating leverage from higher revenue. In addition, the reduction in impairment losses recorded in the previous year supported the growth in Net Income.

Factors Affecting Performance

【Revenue】Revenue was ¥550.0B, representing an increase of +8.3% YoY. The domestic construction consulting business, which accounted for 68.7% of revenue, generated ¥377.8B, up +5.4%, while the overseas construction consulting business, which accounted for 31.4%, generated ¥172.8B, up +15.4%. The overseas business therefore posted the higher growth rate.

【Profit and Loss】Operating Income was ¥66.2B (+10.7%), Ordinary Income was ¥67.0B (+11.0%), and Net Income was ¥44.4B (+17.3%), with profit growth exceeding revenue growth in each case. The gross profit margin improved to 31.8% (31.4% in the previous year). Although the SG&A ratio increased slightly to 19.7%, this was absorbed by the improvement in gross profit. In extraordinary gains and losses, the impairment loss recorded in the same period of the previous year decreased from 4.3B to 0.6B in the current period, while gains on sales of investment securities declined from 3.3B to 0.5B. However, the net deterioration in extraordinary gains and losses had a limited impact on Profit Before Tax and contributed to the higher growth rate of Net Income. While the domestic business accounts for approximately 95% of segment profit, the overseas business’s segment profit margin improved from 0.3% to 1.9%, indicating a qualitative improvement in the increase in revenue and profits. In conclusion, revenue and profits increased.

Segment Analysis

The domestic construction consulting business generated Revenue of ¥377.8B (+5.4%), segment profit of ¥63.0B (+6.1%), and a profit margin of 16.7% (16.6% in the previous year), making it the core business that accounts for the majority of consolidated Operating Income. The overseas construction consulting business generated Revenue of ¥172.8B (+15.4%), segment profit of ¥3.2B (a significant increase from 0.4B in the previous year), and a profit margin of 1.9% (0.3% in the previous year). Although the overseas business is growing faster than the domestic business in terms of revenue, its profit margin remains significantly below that of the domestic business, and its contribution to consolidated profit is limited.

Key Financial Indicators

【Profitability】The Operating Income margin was 12.0%, improving from 11.8% in the same period of the previous year, while the Net Income margin was 8.1%, improving from 7.4%. The gross profit margin was 31.8%, up from 31.4% in the same period of the previous year.【Cash Quality】Cash and deposits were ¥326.7B, an increase of +104.4% YoY. With Current Assets of ¥655.5B and Current Liabilities of ¥239.8B, the Current Ratio reached approximately 273%.【Investment Efficiency】ROE (Annualized) was 13.0%, shaped by the balance among the Net Income margin, total asset turnover, and financial leverage. EPS was ¥161.93, an increase of +19.0% from ¥136.11 in the same period of the previous year.【Financial Soundness】The Equity Ratio remained high at 68.7%, while interest-bearing debt was limited to ¥12.5B, indicating a conservative capital structure. At the same time, the majority of total liabilities consists of Current Liabilities, warranting ongoing monitoring of liquidity management.

Cash Flow Analysis

Although this report does not include detailed cash flow statements, the balance sheet trends suggest an expansion in financial capacity. Cash and deposits increased by +166.8B (+104.4%) YoY to ¥326.7B, equivalent to approximately 27 times short-term borrowings of ¥11.9B. Retained earnings increased to ¥555.5B from ¥533.9B in the same period of the previous year, with Net Income for the current period contributing to the accumulation of internal reserves. Meanwhile, treasury stock increased by +7.9B YoY to ¥22.7B, indicating that part of the capital allocation was directed toward shareholder returns. Contract liabilities increased by +29.1% YoY to ¥53.8B, suggesting that cash inflows associated with advance payments for projects may have contributed to some extent to the higher cash balance.

Quality of Earnings

Profit growth for the current period was supported by higher operating profit, and the overall quality of earnings is favorable. Non-operating income of ¥2.5B mainly consisted of dividend income of ¥1.3B, equivalent to 0.5% of revenue, indicating a low dependence on sources outside the core business. Extraordinary gains and losses comprised extraordinary gains of 0.5B (gain on sales of investment securities) and extraordinary losses of 0.8B (impairment loss of 0.6B), resulting in a net loss of 0.3B. However, the deterioration was limited compared with the net extraordinary loss of 0.6B in the same period of the previous year, and the impact on Net Income was limited. The reduction in the impairment loss recorded in the same period of the previous year from 4.3B to 0.6B in the current period was one of the primary factors behind the improvement in Net Income attributable to the reduction of a temporary factor. Comprehensive income was 44.4B, almost equal to Net Income of 44.4B. Foreign currency translation adjustments of +2.2B and valuation differences on securities of +1.7B offset retirement benefit adjustments of -4.0B, resulting in only a small divergence between Net Income and comprehensive income.

Earnings Forecast and Guidance

The first-half progress rates against the full-year earnings forecasts (Revenue of ¥1050.0B, Operating Income of ¥105.0B, and Ordinary Income of ¥105.0B) were 52.4% for Revenue, 63.0% for Operating Income, and 63.8% for Ordinary Income. These figures exceed the standard first-half progress rate of 50% by approximately 13 points on a profit basis, indicating solid progress toward the full-year plan as of the first half. No revisions were made to the earnings or dividend forecasts during the current quarter.

Shareholder Returns

As of the end of Q2, the interim dividend was ¥0 per share, while the annual dividend forecast for the fiscal year ending December 2026 is ¥110 per share (revised from the previous forecast of ¥78). The Payout Ratio against forecast EPS of ¥257.41 is approximately 42.7%, below the 60% level generally regarded as an indication of sustainability. The substantial cash position, including Retained Earnings of ¥555.5B and Cash and Deposits of ¥326.7B, provides financial support for the payment of the forecast dividend. Treasury stock increased by +7.9B YoY to ¥22.7B. However, because the acquisition results for the current period are not separately disclosed, the Total Return Ratio combining dividends and share repurchases has not been calculated.

Risk Factors

1. Concentration of profit in the domestic business: The domestic construction consulting business generated segment profit of ¥63.0B, accounting for the majority of consolidated Operating Income of ¥66.2B. Trends in public investment and the availability of engineers therefore have a significant impact on consolidated performance.

2. Low profitability of the overseas business: The overseas business posted high revenue growth of +15.4%, but its profit margin of 1.9% was significantly below the domestic business’s 16.7%. Its profit structure is susceptible to fluctuations in project profitability and foreign exchange rates.

3. Pace of increase in SG&A expenses: SG&A expenses increased +8.8% YoY, slightly exceeding the revenue growth rate of +8.3%. Rising costs such as personnel expenses may constrain the potential for further improvement in profit margins.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability is below the industry median but falls within the middle range of the industry IQR.

Growth and Capital Efficiency

The revenue growth rate is below both the industry median and the lower bound of the IQR, indicating relatively moderate growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Revenue increased +8.3%, while Operating Income rose +10.7% and Net Income increased +17.3%, indicating profit growth exceeding revenue growth as a result of both operating leverage and a temporary factor, namely the reduction in impairment losses.

2. First-half profit progress against the full-year forecast was approximately 63%, exceeding the standard level. Trends in SG&A expenses during the second half and improved profitability in the overseas business will be key to achieving the full-year plan.

3. The conservative financial structure, consisting of an Equity Ratio of 68.7% and interest-bearing debt of ¥12.5B, indicates broad options for investment and shareholder returns. At the same time, the concentration of the majority of total liabilities in Current Liabilities is a structural monitoring point.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,539–¥2,685 for Cost of Equity ±1%, and ¥2,608–¥2,614 for ω±0.1.

Notes:

• Because Net Income progress against the full-year forecast (63%) exceeds the standard level (50%), Forecast EPS has been adjusted upward within a range of +10% (because companies ahead of schedule in terms of progress tend to outperform their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net assets as of 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 (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, and does 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 release 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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