TOA CORPORATION Q2 FY2026 earnings call

• Mid-Long Term Growth Strategy by Segment

  • Domestic civil engineering: Japan's national land resilience budget has grown to over 20 trillion yen (up 5 trillion yen from the prior plan), with high government budget allocation for port-related climate change adaptation projects such as embankment heightening for flood protection. Toa Construction's national land resilience-related orders have consistently held ~10% market share, with expected steady future demand.
  • Cross-segment defense-related business: Government budget for defense facility resilience is growing sharply, as 40% of Self-Defense Force bases are built under old seismic codes and require reconstruction. The company already has ongoing orders for base consolidation and reconstruction projects, with a total projected 40-50 billion yen pipeline to be delivered over 4-5 years.
  • Domestic construction warehouse business: Logistics warehouses accounted for over 60% of prior-year domestic construction revenue. The company is a top-tier player in coastal frozen/cold storage warehouse construction with over 1 million tons of completed capacity, and is expanding from single-tenant to multi-tenant dry and frozen/cold storage warehouses to leverage its core expertise.
  • Domestic construction real estate and renovation: New large-scale redevelopment in the Tokyo metropolitan area faces headwinds from rising construction costs and labor shortages, so the company is focusing on growing renovation demand by integrating two existing real estate subsidiaries into its core construction business to build out this new segment.
  • Overseas business: The company is progressing existing large-scale ODA port projects in Southeast Asia and Africa, established a local subsidiary in Indonesia in 2023 to pursue local government projects in addition to supporting ODA work, and won a new seismic-isolated government building project in Bangladesh to expand its non-construction business footprint overseas.

• Growth Investment and Human Capital Management

  • Total planned investment of ~30 billion yen over the mid-term plan, including 10 billion yen allocated for business area expansion (targeted M&A to accelerate this target), with other investments in technology development, human resources, and equipment progressing as planned.
  • 45% of frontline employees are now in their 20s as a result of aggressive hiring. A structured "skill map" system has been launched to support early promotion of young employees by clarifying competency gaps and providing targeted support. The company is also converting female general staff to limited-location career-track positions, introducing career support for senior employees, and improving accessibility for workers with disabilities to meet the rising statutory employment rate target.

• DX Initiatives

  • The company's DX strategy aligns business and human capital strategy to support sustainability and innovation, with priorities including building internal data infrastructure to improve productivity, advancing construction DX (such as robotics and AI), improving employee digital literacy, and strengthening information security. A 4-legged walking robot for autonomous site safety monitoring and surveying will be introduced soon, with the goal of achieving robot-supported site supervision by 2035.

1. Domestic Civil Engineering:
   • Order received: 76.3 billion yen, +20.9% YoY; Revenue: 67 billion yen, +5.3% YoY; Gross profit: 10.4 billion yen, +15.6% YoY. Revenue contribution (to total standalone revenue of 159.6 billion yen): ~42%.
2. Domestic Construction:
   • Order received: 69.1 billion yen, +14.4% YoY; Revenue: 48.8 billion yen, -5.6% YoY; Gross profit: 5.3 billion yen, +36.9% YoY. Revenue contribution: ~30.6%.
3. Overseas Business:
   • Order received: 9.8 billion yen, -77.5% YoY; Revenue: 40.7 billion yen, +56.6% YoY; Gross profit: 3.9 billion yen, +210.1% YoY. After a 2.2 billion yen negative cost variance from provisions for project losses on 2 projects, consolidated segment profit decreased YoY. Revenue contribution: ~25.5%.

Consolidated results for the half-year: Total revenue 164.8 billion yen (+10% YoY), operating profit 11.1 billion yen (+18.1% YoY), net profit 7.6 billion yen (+15% YoY), all hitting 3rd consecutive record high for the first half.

• Full-year 2026 (ending March 2026) guidance is revised upward across all core metrics: Consolidated revenue lifted from 335 billion yen to 342 billion yen; consolidated operating profit lifted from 18 billion yen to 21.5 billion yen (projected to hit a new all-time high); consolidated net profit lifted from 12.5 billion yen to 15 billion yen, which will exceed prior-year net profit of 14.9 billion yen.
• Standalone total order received guidance is revised upward by 35 billion yen to 265 billion yen: Domestic civil engineering is lifted 22.5 billion yen, domestic construction is lifted 12 billion yen, and overseas business guidance is unchanged. The 88 billion yen decrease vs prior-year full-year orders is a planned result aligned with the company's construction capacity, as carried-forward orders already increased to 509 billion yen (up from 500 billion yen year-over-year).
• Standalone full-year revenue guidance is revised upward by 7 billion yen to 327 billion yen, with only overseas business seeing an upward revision (domestic segments unchanged). Total gross profit guidance is revised upward 3.9 billion yen to 35.6 billion yen, driven by design changes and profit improvement across all three segments, especially margin improvement in domestic construction. Uncertainty from unannounced design changes on large projects is not included in guidance, and management expects further upside potential from additional design change negotiations in the second half.
• Annual dividend guidance is increased by 1 yen per share to 77 yen per share (interim 38 yen, year-end 39 yen), bringing the payout ratio above the 40% target. The company's previously announced 4 billion yen share buyback program was completed in October 2025.

• A fatality accident occurred at a condominium construction site in November 2025, resulting in one worker death. The company apologized for the incident and the disruption caused to stakeholders.
• Two overseas projects required 2.2 billion yen in construction loss provisions, leading to a year-over-year decline in overseas consolidated segment profit, despite strong gross profit growth from other large ongoing projects. Management plans to negotiate with clients to improve profit outcomes for these two projects.
• New large-scale real estate redevelopment projects in the Tokyo metropolitan area face headwinds from rising construction costs, high real estate prices, and labor shortages, creating uncertainty for new development growth.
• Large increases in carried-forward orders beyond the company's construction capacity could risk deteriorating construction management quality, so the company actively manages order intake to align with capacity constraints.
• New shipyard construction projects involve complex, interrelated barriers including dock design and land securing, making near-term project opportunities uncertain.

Q: The analyst asks if first-half margin upside for domestic civil engineering and domestic construction is driven by temporary one-time factors like design change gains, and whether margins will decline in the second half, or if further upside remains possible. / A: Management states that only visible design change gains have been included in current guidance, with negotiations for additional design changes with clients set to intensify in the second half. The company will target further profit growth through coordinated efforts between site and sales teams, and aims to exceed the current guided margin level, though only foreseeable gains are included in the current full-year forecast.

Q: The analyst asks what growth areas for defense-related construction will emerge from rising defense budgets, what Toa's approach is, and whether there are opportunities in new shipyard construction. / A: Management confirms that the main growth area is base facility consolidation and reconstruction, with a 40-50 billion yen total pipeline to be delivered over 4-5 years; civil engineering works for defense are expected to move forward faster than equipment procurement. For shipyard construction, Toa has prior experience, but new projects face multiple complex barriers, so no near-term timelines are set, but the company will evaluate any opportunities that arise.

Q: The analyst asks about Toa's stance on offshore wind power, following the high-profile Mitsubishi Project issue earlier. / A: Management notes that the Japanese government is currently revising offshore wind rules following the incident. Toa co-owns a small-to-medium size service vessel for offshore wind with 1,250 ton lifting capacity, and since only a limited number of domestic firms can support this work, the company expects to secure partial project work. It will continue pursuing opportunities, with a current focus on operation and maintenance work for existing smaller 5MW-class projects, where it sees solid demand.

Q: The analyst asks what areas the 10 billion yen business expansion investment allocation targets, and what sectors Toa is targeting for M&A. / A: Management says M&A will focus on targets that can deliver synergy and help secure talent to grow the core civil engineering and construction business. There have been exploratory discussions but no completed deals to date, and the company prefers to progress step-by-step (such as through JV collaboration) rather than rushing into transactions. In addition to M&A, the investment also covers plans for new local subsidiaries in other Asian markets, and renewable energy facility upgrades for group-owned factories.