Will margin improvement continue to outpace the decline in revenue in FY2027-H1?

FY2027-Q1 revenue was ¥3,736.9 million, down ¥533.7 million, or 12.5%, from ¥4,270.7 million in the year-earlier period. Operating profit, however, rose 51.7% to ¥168.7 million from ¥111.2 million, an increase of ¥57.5 million, while net profit attributable to owners of the parent also rose 59.8% to ¥113.8 million. As profit increased despite the decline in revenue, the operating margin rose by approximately 1.9 percentage points, from approximately 2.6% in the year-earlier period to 4.5%.

The improvement in profit resulted from a ¥41.6 million year-on-year increase in gross profit and a ¥15.9 million decline in SG&A expenses. The gross margin rose 2.4 percentage points year on year to 11.8%, while the gross profit margin on completed construction contracts improved by 2.5 percentage points to 11.5%. The company explained that revenue declined because of the impact of the completion of a major warehouse construction project in the year-earlier period, but gross profit increased owing to the improvement in the gross profit margin on completed construction contracts, while SG&A expenses declined because of lower costs including provision for allowance for doubtful accounts.

By segment, revenue from building construction fell 15.4% year on year to ¥2,999.9 million, while segment profit rose 12.1% to ¥343.9 million. Civil engineering revenue declined just 0.1% to ¥648.9 million, and segment profit rose 8.8% to ¥75.8 million. Thus, profit improvement was common to both the building construction and civil engineering segments, but the simultaneous decline in revenue and increase in profit in the larger building construction segment needs to be assessed by separating the effects of project profitability from those of construction progress.

For FY2026, revenue was ¥17,529.4 million, gross profit was ¥1,959.2 million and operating profit was ¥721.1 million, resulting in a gross margin of approximately 11.2% and an operating margin of 4.1%. While the FY2027-Q1 gross margin of 11.8% exceeded the FY2026 full-year level, quarterly results are more susceptible to the timing of construction completions. In FY2027-H1, the key points are whether the gross profit margin on completed construction contracts can remain in the 11% range, whether revenue will recover as the impact of the major warehouse project fades, and whether the increase in profit resulted from project profitability or lower SG&A expenses.