ASANUMA CORPORATION Q4 FY2026 earnings call

• Company Overview

  • Founded in 1892, Asanuma Corporation is a general construction company with 134 years of operating history, headquartered in Osaka, Japan, with business coverage from Hokkaido to Okinawa, and overseas operations centered in Singapore. It has approximately 1,800 employees, with reported consolidated sales of 167.05 billion yen as of the latest period. The company follows the founding philosophy of "Spirit of Harmony" and "Sincerity, Enthusiasm, Creativity", focusing on building safe social infrastructure including disaster prevention and mitigation.
  • The company is executing a 3-year medium-term management plan starting from fiscal 2024, with fiscal 2025 as the second year of the plan, and has set 6 core strategic themes.

• Strengthening of Domestic Core Business

  • The core initiative is strengthened selective order acceptance. The company sets a hurdle rate for order profit margin, which has been raised continuously over the past two years in line with construction price changes, leading to an improvement in actual order profit margin.
  • It also prioritizes projects with sufficient flexible scheduling to avoid rushed construction that increases cost risks and accident risks, and checks whether sufficient staffing for employees and partner companies can be secured at the order stage to address current industry labor shortages.
  • The company maintains a balanced order portfolio: it accepts efficient steel structure projects (mostly factories and warehouses, with high sales per employee) while also taking on higher-difficulty reinforced concrete projects (residential, schools) to support technical capability improvement and skills transfer to younger employees, balancing profitability, constructability and technical development.
  • Selective order acceptance has become feasible due to current industry supply-demand imbalance (supply cannot meet demand due to labor shortages) and the company's accumulated long-term experience and track record, which has led to a significant increase in direct negotiated (non-bid) orders from customers.

• Strengthening of Renewal Business

  • Four years ago, the company positioned renewal business as a key strategic business and launched a dedicated renewal brand. The business is prioritized for three reasons: it meets growing social demand for environmental protection by retaining existing building structures; it secures long-term demand amid population decline, as approximately half of all existing buildings in Japan were built before 1990, most of which are medium-sized buildings that match the company's scale; and it delivers stable profitability, as complex renewal projects require strong on-site technical expertise that gives established general contractors an advantage over specialized renewal firms.
  • The company aims to gradually increase the proportion of renewal business in its overall portfolio, leveraging its advantages: small-to-medium scale renewal projects are more accessible for the company's size compared to large general contractors, and it has strong accumulated technical know-how. To strengthen branding, the company fully renovated its own Nagoya branch building as a flagship demonstration project integrating circular construction and human-centric design, which has won 18 domestic and international awards and received over 2,000 visitor visits to date.
  • The company has developed two patented environment-friendly earth-based technologies: Kantsuchi Block (recycling on-site construction soil) and 3D Wood-Frame Earthen Wall. Kantsuchi Block won the Soil and Green Innovation Award in the resource recycling category at Soil EXPO 2025 OSAKA, and the commercial facility project using 3D Wood-Frame Earthen Wall won the Good Design Award.

• Talent Acquisition, Retention and Development

  • The company ranks 1st among 23 major general contractors in average employee tenure, at 22 years, reflecting high employee satisfaction. It maintains competitive employee benefits: it raised starting monthly salary to 300,000 yen, has implemented base pay increases for 4 consecutive years, and introduced a student loan repayment support program.
  • The company will continue to improve its corporate culture and working environment for employees and partner companies, and invest in systematic training to improve overall personnel capability. Current hiring is progressing smoothly, and the company supports industry-wide efforts by the Ministry of Land, Infrastructure, Transport and Tourism to improve working conditions and compensation to attract more workers to the construction industry.

• Digital Transformation (DX) Promotion

  • The company is advancing DX to improve productivity amid declining working-age population, rolling out multiple DX initiatives and integrating AI utilization into its processes.

• Strengthened Governance, Compliance and Risk Management

  • A key initiative is the grant of Restricted Stock (RS) to all executives and approximately 1,300 employees, which has been implemented for 3 consecutive years for all employees. This program has increased employee awareness of share price performance and serves as an employee benefit.

• Contribution to Environment and Society

  • The company's greenhouse gas emission reduction target has obtained SBT certification, and it is steadily advancing GHG reduction efforts. The company participated in the construction of the Netherlands Pavilion at Osaka-Kansai Expo, and is now working on the relocation of the pavilion to Awaji Island, Hyogo Prefecture, a rare modern building relocation project that aligns with the company's circular construction goals.

• Medium-Term Plan Progress

  • The company tracks KPIs annually, and 2024 full-year results show that all KPIs are progressing on track. For example, customer satisfaction score, calculated based on post-handover customer surveys and government client performance evaluations, has been increasing steadily.

1. Domestic Construction Business: Accounts for 86% of total revenue. New construction projects account for just over 80% of segment revenue, while renewal projects account for just under 20%. Profit margin declined slightly due to recent soaring material and labor prices, but improved significantly last year after the implementation of strengthened selective order acceptance. The segment has a high volume of factory and warehouse projects, followed by residential and office projects.
2. Domestic Civil Engineering Business: Accounts for 14% of total revenue along with other businesses. It undertakes a wide range of projects, including water supply and sewerage projects.
3. Overseas Business: Centered on two acquired renewal-focused subsidiaries in Singapore, with operations across the ASEAN region. The Singapore subsidiaries have delivered steady performance and contributed positively to consolidated results.

• 2025 Fiscal Year Full-Year Consolidated Guidance (Upward Revision announced on February 10):
  • Order received: Revised upward to 197.5 billion yen, a 30.4% increase from the initial forecast.
  • Sales: Revised upward to 174.6 billion yen, a 2.5% increase from the initial forecast.
  • Operating profit: Revised upward 7.4% from the initial forecast.
  • Ordinary profit: Revised upward 8.1% from the initial forecast.
  • Net income: Revised upward 4.8% from the initial forecast.
  • The upward revision is driven by better-than-expected performance through the third quarter: large high-quality orders were secured across all categories (construction, civil engineering, new construction, renewal), projects progressed smoothly, and selective order acceptance boosted profitability. Through the first three quarters of fiscal 2025, net income increased 38.6% year-on-year, and carried-forward work in hand increased 19.7% year-on-year, providing a strong base for future performance.
• 3-Year Medium-Term Plan (2024-2026):
  • 2024 (first year) delivered both revenue and profit growth with improved profit margin, meeting expectations. 2025 (second year) is on track to deliver growth in both revenue and profit. The original plan for 2026 (third year) projects a lower revenue but higher profit, as the plan was prepared when economic uncertainty was higher, and the company prioritizes profit margin and high-quality order volume over large revenue growth. The 2026 plan is maintained unchanged for now; after full-year 2025 results are finalized, the company will review the plan based on carried-forward work volume and revise it if necessary, with public disclosure if any change is made.
• Dividend Guidance (Upward Revision):
  • The company maintains a target consolidated payout ratio of 70% or higher under the medium-term plan. The year-end dividend forecast was raised by 2 yen per share, bringing the full-year 2025 annual dividend to 43.5 yen per share, which represents an increase of 2.5 yen per share from the previous year's full-year dividend and marks the 8th consecutive year of dividend increase.
  • Market capitalization as of March 6, 2026 is 85.1 billion yen, and the company targets reaching a 100 billion yen market capitalization through continued IR activities and corporate growth.

• No specific operational failures were discussed. The main risk factors mentioned are:
  • Industry-wide labor shortage: While Asanuma's own hiring is progressing smoothly and the tight labor market has created a favorable environment for selective order acceptance, the company acknowledges that industry-wide labor shortage is a structural challenge, and the company is working to improve working environment for its own employees and partner companies to support stable staffing.
  • Geopolitical risks: The question of the impact of Iran situation and other geopolitical risks was listed as a scheduled topic, but the full answer was not included in the available transcript.
  • The recent temporary decline in equity ratio is a one-off effect from the full acquisition of the Singapore subsidiary Evergreen and the introduction of interim dividends, and the company maintains that its capital structure is sufficiently sound.

Q: Other firms also want to select high profit margin orders. What conditions allow Asanuma to implement this strategy successfully?

A: The main contributing factors are changes in market supply-demand balance: the industry overall faces supply shortages relative to demand due to labor shortages, creating an environment where it is easier to negotiate terms with customers. Additionally, the company's long accumulated experience and track record have led to a large increase in the number of clients that directly award projects to Asanuma without competitive bidding, creating a positive cycle that makes selective order acceptance possible.

Q: Do you plan to expand the proportion of renewal business going forward, or maintain the current share?

A: We plan to focus on renewal business and aim to expand its share. While it is difficult to shift entirely to renewal because the average project size is just one-fifth that of new construction projects, we do aim to increase its proportion gradually.

Q: Even with the top-ranked average tenure, what areas do you still aim to improve for talent management?

A: We see employees as our core strength, so we will continue to improve our corporate culture, working atmosphere, and employee-friendly systems. We also aim to improve working conditions for partner company workers and train personnel to meet the expectations of all stakeholders, and will continue to steadily invest in training to improve overall capability across the organization.

Q: Does industry-wide labor shortage represent an opportunity or a risk for Asanuma?

A: Our hiring is currently progressing smoothly, so this is a positive opportunity and trend for us. We support industry-wide efforts led by the Ministry of Land, Infrastructure, Transport and Tourism to improve working conditions and compensation for construction workers, as growing the overall industry labor pool is important for all participants. We also aim to create an environment where partner company workers want to work with us on an ongoing basis.

Q: What is the background for the much larger-than-expected order growth in this quarter?

A: The strong market environment is a major factor: after the COVID-19 pandemic, economic recovery has improved the capital investment environment, leading to abundant project opportunities, and the industry's tight labor market supports our selective order strategy. On top of that, our accumulated long-term efforts in customer outreach and quality delivery have created a positive cycle of more direct awarded orders, which drove the better-than-expected order results.

Q: How does your decarbonization effort connect to order competitiveness and profitability? Can you share a concrete example?

A: We position decarbonization as a core priority and included environmental contribution as a theme in our medium-term plan. Societal awareness of environmental issues is rising, and decarbonization-related regulations are expected to tighten in the future even for existing buildings. By developing and proposing our own unique environment-friendly technologies, we can meet this growing demand, which we believe will definitely improve our competitiveness and profitability.

Q: Can you tell more about the texture and characteristics of your patented Kantsuchi Block technology?

A: When you see it in person, it is very aesthetically pleasing and has a wonderful atmosphere. In addition to its appearance, it has natural humidity control properties, which creates a very comfortable space. Most people have an innate positive connection to soil, so this inherent quality really comes through in finished applications.

Q: Is the recent temporary decrease in equity capital ratio expected to return to near 40% range? Do you aim to reach 50%?

A: We consider it healthy to maintain a stable equity ratio in the 40% to 50% range, allowing for temporary fluctuations. We will aim to maintain a stable capital structure, balancing financial soundness and capital efficiency (such as ROE) with growth investment.

Q: What measures do you take to secure on-site managers and partner companies?

A: For our own on-site manager employees, we have implemented multiple measures: we raised starting salary to 300,000 yen, implemented base pay increases for 4 consecutive years, introduced new benefit programs, restructured our training system, and advanced work style reform. We see our comfortable working atmosphere and corporate culture as our most important advantage. For partner companies, we focus on building long-term collaborative relationships through stable order placement and improved payment terms. We also implement multiple initiatives to improve on-site working conditions including safety, which makes us a preferred partner for contractors.

Q: What are the specific criteria you consider when evaluating order acceptability?

A: We evaluate multiple core criteria for every order: securing sufficient profit margin matching current construction prices; ensuring sufficient staffing capacity for both our employees and partner companies; scheduling projects based on the 4-weeks 8-closure standard to support work style reform; and maintaining a balanced portfolio of different project types. We consider all these factors when making order decisions.

Q: Is the renovated Nagoya branch building intended to serve as a model showroom for your renewal business?

A: Yes, as part of our branding for renewal business strengthening, we fully renovated our own Nagoya branch building as a flagship that incorporates all our know-how and environment-friendly technologies. We currently host visits from customers and industry stakeholders to showcase our capabilities.

Q: How much direct profit contribution do your patents generate?

A: In the construction industry, patents rarely generate direct revenue on their own. Instead, they serve as objective proof of our technical capability, which improves our corporate credibility and technical reputation. This helps us become the preferred choice for customers, so it delivers value indirectly by supporting our competitiveness.

Q: What is your stance on shareholder returns, given your high payout ratio?

A: We view shareholder return as one of our highest priorities, which is why we maintain a high payout ratio. The 2026 dividend plan is still the same as when we created the medium-term plan, but we will review it after 2025 full-year results are finalized, as we do every year, and adjust it if needed. When we set our cash allocation plan for the 3-year medium-term period, we first accounted for 7 billion yen in planned growth investment before allocating the remaining cash to dividends, so our high dividend policy is implemented after securing sufficient funding for growth-focused investment.

Q: How much progress have you made in project selection and price pass-through to improve order quality?

A: We conduct project selection for every single order we receive. As a result of this intensified effort, we have seen an improvement in profit margin, which demonstrates that both project selection and price pass-through are progressing as planned, with results showing in our bottom line.

Q: What is the growth outlook for the renewal business, what is driving demand, and what areas will you prioritize going forward?

A: Demand is driven by multiple factors: according to building stock statistics, approximately half of all existing buildings were built 30 to 40 years ago, all of which are potential renewal targets. Most of these are medium-sized buildings, which are well suited to our company's scale. Long-term, domestic population decline will also drive growth in renewal versus new construction. Recently, rising construction prices have also made renewal more financially attractive for many clients compared to new construction, which is boosting near-term demand. Going forward, we will prioritize high value-added environment-friendly renewal projects. We plan to renovate our own technical research institute into an environment-focused facility to further develop our know-how in this area.

Q: What is your policy on dividend level and stable dividends?

A: We position shareholder return as one of our most important strategic initiatives, with a core policy of maintaining a consolidated payout ratio of 70% or higher, returning the majority of profits to shareholders. Since the start of the current medium-term plan, we have disclosed dividend plans for the full 3-year period to deliver stable dividends to shareholders. Including the planned 2025 dividend, this will be our 8th consecutive year of dividend increases.