Civil engineering-led profit improvement continues, while recovery in the building business is the focus for FY2027-H1

In FY2027-Q1, construction-business revenue from civil engineering was ¥106.21 billion, up 13.3% year on year, while segment profit was ¥15.29 billion, up 56.8%. By contrast, the building business reported revenue of ¥226.16 billion, down 15.2%, and segment profit of ¥12.30 billion, down 24.0%. With consolidated revenue down just 1.5% year on year, higher civil engineering profit is offsetting lower revenue and profit in the building business.

In FY2026, the previous fiscal year, civil engineering revenue was ¥430.7 billion and segment profit was ¥76.7 billion, up 6.6% and 114.9% year on year, respectively. The building business also achieved higher revenue and profit for the full year, with revenue of ¥1,182.9 billion and segment profit of ¥83.2 billion, up 12.3% and 62.6%, respectively. Accordingly, the building business’s lower revenue and profit in FY2027-Q1 may reflect a pullback from the previous fiscal year’s high base and differences in construction timing, but the current disclosure does not allow us to determine whether this is merely a timing difference or involves deteriorating project profitability.

Past disclosures have cited the shift of major projects in hand into their peak construction phase, increases in contract amounts from additions and design changes, responses to rising construction costs, and cost reductions as factors behind civil engineering’s profit improvement. In FY2027-H1, it will be necessary to determine whether these improvement factors have spread across multiple projects rather than being temporary effects concentrated in specific projects. In particular, whether civil engineering’s profit growth continues to materially outpace revenue growth is important in assessing the likelihood of achieving the ¥200.0 billion full-year operating profit forecast.

In the building business, both revenue and profit declined as of Q1, making the extent to which projects progressed from the early construction phase to completion or peak construction phase in H1 a key issue. In the next earnings release, we will review completed-construction revenue, segment profit, completed-construction gross margin, the impact of higher construction costs, and the status of additional and change-order contracts. The assessed Q1 figures do not provide order backlog or completed-construction gross margins by business, so whether supplementary disclosure is provided in H1 will also be important in assessing a recovery in the building business.