NAGAWA CO.,Ltd FY2027 Q1 Earnings Report

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Executive Summary

Revenue and earnings increased, with Operating Income growing substantially faster than revenue, clearly demonstrating improved profitability. Revenue was ¥8.58B (+7.1% YoY), Operating Income was ¥0.98B (+31.9%), Ordinary Income was ¥1.41B (+25.6%), and Net Income was ¥0.92B (+23.6%). The Operating Margin improved by +2.2pt to 11.5%, from 9.3% in the same period of the previous year, supported by the maintenance of a 39.8% gross margin and the control of SG&A expenses (¥2.43B, -0.9% YoY). At the Ordinary Income level, non-operating income of ¥0.43B, primarily consisting of dividend income of ¥0.42B, provided an additional boost, expanding the Ordinary Income Margin to 16.4%.

Factors Affecting Results

【Revenue】Revenue was ¥8.58B (+7.1% YoY). By segment, the core ModularBuilding business, which accounted for 83.0% of total revenue, generated ¥7.12B (+6.0%); Prefabricated Building & System Buildings generated ¥1.29B (+16.2%); and Construction Machinery generated ¥0.17B (-9.1%). In addition to the steady growth of the core Modular business, strong growth in Prefabricated drove the overall revenue increase.

【Profit and Loss】Operating Income was ¥0.98B (+31.9%), and the Operating Margin improved to 11.5% from 9.3% in the previous year, an improvement of +2.2pt. While maintaining a 39.8% gross margin, SG&A expenses remained approximately flat year on year (¥2.43B, -0.9%), resulting in favorable operating leverage, with the revenue increase translating directly into Operating Income. Ordinary Income was ¥1.41B (+25.6%), further boosted by ¥0.43B in non-operating income, including ¥0.42B in dividend income. After recording ¥0.02B in extraordinary losses, including losses on disposal of fixed assets, Net Income was ¥0.92B (+23.6%). The period ended with increases in both revenue and earnings.

Segment Analysis

ModularBuilding generated revenue of ¥7.12B (+6.0%) and Operating Income of ¥0.81B (+21.8%), with an Operating Margin of 11.3%, driving results as the core business accounting for 83.0% of total company revenue. Prefabricated Building & System Buildings generated revenue of ¥1.29B (+16.2%) and Operating Income of ¥0.17B (+94.2%), with a margin of 13.0%, demonstrating the highest profitability among the three segments and posting substantial earnings growth. Construction Machinery recorded lower revenue of ¥0.17B (-9.1%), but Operating Income improved to ¥0.02B (+110.0%), with a margin of 12.4%, indicating an improvement in profitability and a change in project mix despite its small scale.

Key Financial Indicators

【Profitability】The Operating Margin improved to 11.5% (9.3% in the previous year, +2.2pt), while the Net Profit Margin was 10.7% (9.3% in the previous year, +1.4pt). The gross margin remained broadly flat year on year at 39.8%, confirming stable control over pricing and costs.【Cash Flow Quality】Based on quarterly revenue and cost data, days sales outstanding were approximately 41 days (approximately 52 days in the previous year), inventory days were approximately 77 days (approximately 79 days in the previous year), and the cash conversion cycle was approximately 74 days (approximately 80 days in the previous year). All three measures shortened from the previous year, indicating a slight improvement in working capital efficiency.【Investment Efficiency】ROE was 1.4%, while the total asset turnover ratio (quarterly revenue ÷ total assets) remained low at 0.11x. The asset composition, including substantial cash and deposits of ¥14.01B and investment securities of ¥21.20B, is weighing down the turnover ratio.【Financial Soundness】The Equity Ratio was 88.1% (87.3% in the previous year), total assets were ¥76.65B (-3.4% YoY), and net assets were ¥67.51B (-2.5% YoY), with the capital structure remaining conservative.

Cash Flow Analysis

As cash flow statement data has not been disclosed, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥14.01B, down -5.8% from ¥14.88B in the previous year, while investment securities were ¥21.20B, down -6.9% from ¥22.76B in the previous year. Meanwhile, inventories increased to ¥4.38B (+5.1% YoY), and contract assets increased to ¥0.55B (+69.8% YoY), suggesting that the accumulation of assets accompanying project progress absorbed funds during the period. Income taxes payable decreased -66.1%, from ¥1.27B in the previous year to ¥0.43B, indicating cash outflows associated with tax payments. Net assets were ¥67.51B, down -2.5% from ¥69.25B in the previous year. This was primarily attributable to a reduction in the valuation difference on available-for-sale securities to ¥7.59B from ¥8.70B in the previous year, while retained earnings declined slightly to ¥51.37B from ¥52.00B.

Quality of Earnings

Non-operating income of ¥0.43B was equivalent to 5.0% of revenue, with dividend income of ¥0.42B accounting for the majority. While this represents relatively recurring income generated from the ¥21.20B holding of investment securities, it does not arise from the Company’s core operating activities, creating a structure in which the Ordinary Income Margin of 16.4% substantially exceeds the Operating Margin of 11.5%. Extraordinary losses were minor at ¥0.02B, and the difference between Ordinary Income and Net Income was primarily attributable to income taxes of ¥0.47B. The increases in inventories (¥4.38B, +5.1% YoY) and contract assets (¥0.55B, +69.8% YoY) represent accruals toward future revenue recognition. Attention should be paid to the possibility that the timing of cash conversion may lag somewhat behind the pace of earnings growth.

Earnings Forecast and Guidance

Q1 progress against the full-year Company plan was 22.6% for revenue (2.4pt below the simple 25% progress benchmark), 21.8% for Operating Income (-3.2pt), 27.6% for Ordinary Income (+2.6pt), and 27.8% for Net Income (+2.8pt). While revenue and Operating Income are slightly behind schedule, Ordinary Income and Net Income are ahead, reflecting the timing of recognition of non-operating income, primarily dividend income. The full-year Company plan calls for revenue of ¥38.00B (+7.4%), Operating Income of ¥4.50B (+2.7%), and Ordinary Income of ¥5.10B (+1.9%), while Net Income is planned to decline to ¥3.30B (-25.6%), which is a notable feature of the guidance.

Shareholder Returns

The year-end dividend for the previous fiscal year (FY ended March 2026) totaled ¥100 per share, comprising an ordinary dividend of ¥60 per share and a 60th-anniversary commemorative dividend of ¥40. No revisions have been made to the dividend forecast for the current fiscal year as of this point. The financial base, including cash and deposits of ¥14.01B and an Equity Ratio of 88.1%, supports the Company’s capacity to pay dividends.

Risk Factors

1. Segment concentration risk: ModularBuilding accounts for 83.0% of revenue, and its Operating Income of ¥0.81B represents a substantial portion of total company Operating Income of ¥0.98B. Consequently, fluctuations in demand and capacity utilization in this business are likely to have a relatively significant impact on overall results.

2. Working capital fluctuations: Inventories increased to ¥4.38B (+5.1% YoY), and contract assets increased to ¥0.55B (+69.8% YoY). The accumulation of assets accompanying project progress could affect the timing of cash conversion.

3. Securities price fluctuation risk: Investment securities of ¥21.20B account for 27.7% of total assets. Market fluctuations could affect the valuation difference on available-for-sale securities (¥7.59B) and the level of dividend income recorded as non-operating income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Operating Margin and Net Profit Margin exceed the industry median, indicating that profitability is relatively high within the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median, indicating that growth remains at an average level relative to the Company’s high profitability.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Margin improved by +2.2pt to 11.5% (9.3% in the previous year), and the maintenance of a 39.8% gross margin and control of SG&A expenses enabled earnings growth of +31.9%, exceeding revenue growth of +7.1%.

2. The Ordinary Income Margin of 16.4% substantially exceeds the Operating Margin of 11.5%, resulting in an earnings structure with relatively high dependence on non-operating income, primarily dividend income of ¥0.42B.

3. While full-year progress for revenue and Operating Income is slightly behind schedule (22.6% and 21.8%, respectively), Ordinary Income and Net Income are ahead (27.6% and 27.8%, respectively). Consistency with the full-year Net Income plan (-25.6%) will be a point to monitor as quarterly results progress.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥3,691–¥3,913 at ±1% for the cost of equity, and ¥3,780–¥3,812 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 end of the quarter are used (there is a timing difference relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model / Interest Rate Reference Month: 2026-06 / 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 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 with professionals as necessary.

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