1433.T

• 2026 January Fiscal Year Core Results

  • Total sales hit an all-time record high, driven by core business momentum and growth from group companies. The revised full-year sales target of 12 billion yen was not met, but operating income of 741 million yen exceeded the revised target of 700 million yen. Ending order backlog reached an all-time high of 8.5 billion yen.
  • Gross profit margin reached 20.1%, near the company's historical high of ~21%. Operating margin came in at 6.7%, against the long-term target of 10% for sales-based operating margin.
  • The company has achieved compliance with the Tokyo Stock Exchange Prime Market maintenance criteria, after implementing a series of initiatives including improving gross profit margin, optimizing the business portfolio, executing share buybacks, and converting founder-held shares to tradable circulating shares. Clearance this period was a close result, but management expects to meet requirements with more headroom in future periods.

• Operational Initiatives

  • Selective order strategy: The company is focused on taking only profitable projects, which led to the mid-year downward revision for 2026 January fiscal year after lower-margin projects were rejected and replacement orders did not materialize in the same period. Prime contractor profit margin improved from 19.3% in the third quarter to 25.8% in the fourth quarter, showing a clear recovery trend.
  • Personnel strategy: Consolidated total headcount decreased from 258 to 203 year-over-year due to the sale of two non-core group companies. The company targeted 15 new construction supervisors and hired 10, with the difference explained by intentional expansion of back-office support teams including planning, health and safety, and a newly established construction planning department. 3D measurement teams were reorganized into the construction planning department to refocus on core construction use (after previously focusing on independent third-party revenue generation). Headcount is being proactively increased in preparation for larger project volumes in future periods, which has temporarily lowered per-employee completed construction revenue as new hires receive on-site training from senior staff. New graduate salary levels have been adjusted, with improvements expected to show up in 2027 April hiring. West Japan regional growth has created a personnel allocation challenge, as recruiting is centered in Tokyo and reallocating Tokyo-based staff to the region is difficult.
  • Cost management: A profit improvement of 379 million yen came from proper cost estimation at order intake via estimation system reforms and on-site cost reduction efforts. There remains room for further improvement, as the company has not yet implemented full competitive bidding for subcontracting costs (which represent the largest share of total project cost).
  • Technology partnerships: A joint AI project with HEROZ Inc. (a firm with existing AI experience in construction industry projects) has been launched. The initiative focuses on converting the tacit knowledge of demolition craftspeople into formal, documented data to build a demolition knowledge database, starting with oral knowledge capture for AI training.
  • 3D measurement technology: After reorganization, 3D measurement is now directly applied to core construction planning, use cases include simulating wind turbine demolition fall trajectories, improving demolition accuracy, pre-planning scaffolding for blade removal, and pre-checking for heavy equipment and building interference to improve planning efficiency.
  • Social initiatives: The company is working on regional revitalization, supporting the renewal of local regional plants that are core community employers as part of decarbonization and circular economy transitions. It is also focused on labor-saving and workforce reduction adjustments to address the declining labor population, with a focus on safe demolition methods that reduce the number of workers needed on-site.
  • Financial position: The company operates with zero debt, driven by strict receivables collection process improvements that have stabilized cash flow. It sold a portion of its policy holdings of TRE Holdings shares, generating just over 200 million yen in capital gains and increasing cash on hand. Proceeds from asset sales have been used to repay outstanding debt. The company has no historical bad debt, maintains strong access to bank financing at favorable terms, and holds cash in reserve for M&A opportunities while prioritizing internal talent development as the core current growth driver.

• For 2027 January fiscal year, management revised down the previous mid-term plan targets: the original plan of 14 billion yen in sales, 1.2 billion yen in operating income, and 800 million yen in net income attributable to parent shareholders was adjusted to a more conservative, realistic forecast, incorporating more accurate timing assumptions (such as pushing back the expected start of percentage-of-completion revenue recognition from August to October) and eliminating overly optimistic assumptions about in-period order intake.
• The downward revision comes in response to investor feedback asking for more credible forecasts after a history of high targets that were not met, and the new forecast accounts for the potential for project timing delays. The new forecast is conservative but intentionally not excessively low.
• 2027 January fiscal year full year dividend will be maintained at the prior period level (excluding any special dividend from the prior year, all will be ordinary dividend), no dividend cut will be implemented, even though this will result in a slightly higher payout ratio. Dividend policy and existing shareholder benefit programs will continue as currently structured.
• 2027 January fiscal year ending order backlog is expected to be roughly flat with the 2026 January fiscal year level. A large increase in project volume is expected for periods after the 2027 January fiscal year, and management is currently focused on preparing to handle a larger volume of projects, focusing on securing sufficient capacity and executing projects efficiently.
• Quantitative targets for 2028 January fiscal year and beyond in the 2030 mid-term management plan remain unchanged, as multiple large promising projects are already in the pipeline, even though formal purchase orders have not yet been issued. Inquiry volume is very strong, particularly in the Kanto and West Japan regions, with significant growth potential in Kinki, Shikoku, and Kyushu.

By industry segment (based on completed construction revenue):

• Iron and Steel: Revenue share and absolute amount has grown, driven by ongoing plant renewal and decommissioning linked to the shift from blast furnaces to electric furnaces and broader domestic production facility reduction trends in Japan. This segment accounts for the largest share of ending backlog due to the prevalence of long-duration projects.
• Oil and Petrochemical: Revenue has remained at a high level, driven by industry restructuring and significantly lowered operating rates for ethylene production facilities. Management expects this segment to contribute strongly to revenue growth in future periods starting after 2027 January fiscal year.
• Electric Power: Revenue share has declined, which is the result of Bestella's selective order-taking strategy due to extremely tight price competition across the power sector, particularly at coal-fired power plants. While overall inquiry volume remains strong, Bestella withdraws from bidding when bids fall below acceptable price thresholds. There is no plan to exit the power segment: wind power projects are expected to grow in volume long-term, and hydropower, substation, and nuclear-related projects maintain stable order flow. By geographic segment (completed construction revenue 2026 January fiscal year):
• West Japan and Kyushu region: Total completed construction revenue was 5.672 billion yen, of which approximately 1.5 billion yen comes from group company Oda Corporation. The region is showing steady strong growth, with rapidly increasing order volume that has outpaced Bestella's ability to allocate sufficient personnel to the region.

• Project timing risk: Construction projects face common risks of delayed start due to customer requirements, delayed closing of additional work, which leads to "period shift" of revenue recognition that can cause full-year results to come in below forecast if these shifts are not fully incorporated into initial projections.
• Industry competition risk: A large number of new demolition companies have entered the market, with many competing purely on price. Companies that have not historically served the plant demolition sector are increasingly entering the lower-difficulty plant project market, driving down margins across the industry. Price cutting by inexperienced competitors also creates significant safety risks.
• Cost inflation risk: While material cost inflation has not been severe to date, fuel costs and labor costs (including labor costs for subcontractor partners) have been rising. Passing these cost increases through to project prices is an ongoing industry-wide challenge, with some negative impact already realized.
• Personnel allocation risk: Rapid order growth in the West Japan and Kyushu region has outpaced the company's ability to recruit and reallocate sufficient personnel to the region, as recruiting is centered in Tokyo and reallocating staff to the region is logistically and culturally difficult.
• Subcontracting cost risk: The company has not yet implemented full competitive bidding for the largest cost category (subcontractor costs), leaving identifiable room for cost improvement that has not yet been captured.

Q: Does management believe maintaining organic profit performance to remain on the Tokyo Stock Exchange Prime Market is appropriate? If adjustments are needed, how much would dividend need to be increased, and is there any possibility of voluntarily moving to the Standard market to focus on growth investment rather than short-term performance?

A: Management believes that proper profit generation will lead to proper share price formation and adequate market capitalization, so the company will not use any gimmicky methods to meet maintenance criteria. Management expects the circulating market capitalization at year-end to remain around current levels. Even if circulating market capitalization misses the threshold, the company already met maintenance criteria this period, so there is a one-year grace period for further improvement. Management has a strong desire to maintain Prime Market listing, as it allows the company to act as a leading industry player to pursue industry-wide goals including advancing the circular economy transition and consolidating the fragmented demolition industry, and attracting strong talent to the industry overall. While business operations would not change significantly and the impact on hiring would be limited if the company moved to the Standard market, management intends to continue meeting maintenance criteria and fulfill its industry leadership role if it is able to do so.

Q: What factors have driven the recent improvement in prime contractor profit margin, what plans are in place to reach the 30% target, and when can the 30% target be achieved?

A: The main driver of recent improvement is reduced contracting for low-margin projects, as the selective order policy has allowed the company to secure more appropriate profit margins per project. It is very difficult to name a specific timeline for reaching the 30% target, as industry dynamics are currently pushing against margin improvement: a growing number of competitors are competing purely on price, including new entrants that were not previously active in the plant demolition space. While low-complexity projects are seeing a lot of new entry, high-complexity work like blast furnace demolition remains limited to experienced players. Price cutting by inexperienced competitors also creates major safety risks, and management expects that future accidents will change market perceptions of 'low price = good', leading to industry consolidation and naturally higher margins over time. Bestella intends to use profits not just for corporate growth, but also to improve average wages in the demolition industry (which are currently far lower than in general construction and civil engineering) to support long-term industry development. Clear improvement trends are already visible, but no definitive timeline for hitting the 30% target can be provided at this stage.