Can the third-quarter earnings decline be reversed through project sales in the fourth quarter?

Revenue for the nine months ended FY2026 Q3 was ¥88,476 million, up 75.0% from ¥50,549 million in the same period of the previous year. Operating profit, however, fell 12.5% to ¥8,202 million from ¥9,370 million. As revenue increased substantially while operating profit declined, the operating margin fell from approximately 18.5% to approximately 9.3%, a decline of approximately 9.3 percentage points. The operating margin also declined in Q1, from approximately 19.5% in the same period of the previous year to approximately 9.9%. It is therefore necessary to assess whether profit recognition is lagging behind revenue growth.

The company attributed the decline in profit in Q3 alone mainly to the business characteristic that revenue from property sales and handovers is concentrated in Q4. It also said that the decline in the gross profit margin in Q3 was driven more by the mix of projects monetized, including their asset types and locations, than by increases in construction costs or interest rates. Accordingly, at the next earnings release, the focus should be not simply on an upside in revenue, but on the types of projects monetized in Q4, their selling prices and gross margins, and the extent to which these factors offset the low margin through Q3.

Following the revision to the earnings forecast on 17 September, the FY2026 full-year forecast was ¥163.7 billion in revenue, ¥27.6 billion in operating profit and ¥16.6 billion in net profit attributable to owners of the parent. Calculated from the nine-month results, meeting the full-year forecast requires Q4 revenue of ¥75,224 million, operating profit of ¥19,398 million and net profit of ¥12,045 million. This means that approximately 46.0% of full-year revenue and approximately 70.3% of full-year operating profit would be generated in the final quarter, indicating that profit is more dependent on Q4 than revenue is.

The Q2 earnings presentation showed progress rates against the full-year forecast of 40.7% for revenue, 30.4% for operating profit, 31.0% for ordinary profit and 30.0% for net profit. Subsequently, operating profit for the nine months reached only approximately 30.9% of the pre-revision forecast, although the company said that projects scheduled for sale and monetization in Q4 were generally progressing as planned. At the next earnings release, it will be important to distinguish between the number of projects under sales contracts as of the period-end, the number already handed over and the amount of projects not yet handed over that will be carried forward to the following period.

In particular, if the upward revision to the full-year forecast reflects higher project earnings in the hotel business or earlier sales, the quality of earnings will differ depending on whether the eventual upside consists of one-off success fees and sales gains or recurring revenue such as asset management and project management fees. As the reported segment at the Q3 results was a single segment and revenue and profit by segment were not disclosed, the consolidated figures do not show which hotel, logistics, healthcare or overseas projects will support the ¥27.6 billion operating profit.