TAISEI ONCHO CO.,LTD. Q2 FY2026 earnings call

Long-term and Mid-term Strategy Positioning

• The 10-year long-term vision LIVZON DREAM 2030 aims to become a "comprehensive building services company" providing diversified added-value to meet evolving social needs. The current LIVZON DREAM 2030 1st half! (the first 5-year mid-term plan) is in its final fiscal year, with two core goals: improving core business profitability and building a foundation for future growth. Sustainability is integrated into all planning and will be the core of the upcoming 2nd half! mid-term plan.
• All KPI targets (operating margin ≥5%, ROE ≥8%, EPS ≥250 yen per share, DOE ≥2.5%) were almost achieved one year ahead of schedule, though low PBR remains a key challenge.

Core Strategic Initiatives

• Deepening Core Business: Focus on prioritizing high-value-added projects, shifting focus from medical projects to high-technology next-generation industrial projects including data center air conditioning systems and high-precision clean rooms for semiconductor factories. Improve productivity via off-site prefabrication (riser and unit construction methods) to cut on-site labor hours.
• Investment for Growth: Allocate cash flow from core operations to M&A (completed the acquisition of Woodtech) and large-scale digital transformation. The LIVZON Cyber Platform integration project (new core ERP, departmental system integration, unified data connectivity layer) is in its final phase, and will enable data-driven management once completed. An Azure OpenAI environment is currently under construction to enable secure enterprise-wide use of generative AI for knowledge sharing, quality improvement, and productivity gains.
• Strengthening Management Foundation: Prioritize human capital investment to address industry-wide labor shortages. Recent initiatives include certification as a 2025 Excellent Health Management Corporation, the LIVZON Yell Project (up to 1 million yen in childbirth grants, industry-first full student loan repayment for new employees), and ongoing wage increases that have significantly raised starting salary levels.

Capital Allocation and Shareholder Returns

• The company holds ~14 billion yen in cash and expects ~9 billion yen in cumulative operating cash flow over the next 5 years. A 6 billion yen growth investment envelope is allocated for DX expansion, domestic/overseas M&A, and human capital investment, with ~3 billion yen remaining for shareholder returns after maintaining current cash levels.
• DOE was raised to 3.8% to diversify the shareholder base and attract more institutional investors. The 2026 fiscal year full-year dividend is forecast at 174 yen per share (87 yen interim, 87 yen final), a 42 yen increase from the prior year. Quo Card shareholder benefit amounts were cut in half to offset rising program costs, with no negative impact to total combined return from dividends and benefits.

Upcoming Next Mid-term Plan (2nd half!)

• The new plan will be announced around May 2026 after the current plan concludes. Its core theme is "Leveraging equipment construction strengths to solve environmental challenges and create customer value": this includes cutting CO2 emissions via building energy efficiency solutions, expanding solutions for climate change adaptation (extreme heat countermeasures, disaster-resilient BCP infrastructure), and capturing growing next-generation demand for data center and semiconductor-related facility construction. The plan will be supported by initiatives to build a resilient workforce, stable supply chain, robust risk management (including cybersecurity), and improved governance and capital efficiency.

1. Japan Segment: Revenue of 23.632 billion yen, up 5.7% YoY; accounting for 79.7% of total consolidated revenue. Operating profit of 1.52 billion yen, up 30.5% YoY, driven by improved project margin, larger project sizes, more completed projects in H1, and strong performance from acquired Woodtech Co., Ltd.
2. US Segment: Revenue of 5.644 billion yen, down 6.2% YoY; accounting for 19.0% of total consolidated revenue. Operating profit of 0.284 billion yen, up 2.9% YoY. The segment is in a lull between large condominium projects but underlying real estate and construction demand remains solid, and management expects to maintain current profit levels.
3. China Segment: Revenue down 49.1% YoY, with an 81 million yen YoY decrease in operating profit. Weakened performance reflects slowing Chinese economic growth and continued postponement of new investment by Japanese clients.
4. Australia Segment: Generates profit from dividend income from real estate asset management, with no equipment construction operations.

• Consolidated full-year 2026 (March ending) guidance anticipates lower revenue and profit year-over-year. This reflects the expected decrease in completed projects in the second half for the Japan segment, the ongoing slowdown in the US and China segments, and the impact of ~1 billion yen in additional investments for future growth (including human capital investment).
• The ~4 billion yen expected gain from the sale of the company's current headquarters building is not included in the current guidance, as the transfer date is still to be confirmed. Guidance will be updated if needed once the transfer date is finalized. The proceeds from the sale will be used for future growth investments, including M&A, DX, and high-value project capability building.
• Right after the end of the reporting period (October 2025), the company won a 15 billion yen joint venture contract for the new Shinagawa Ward general government building equipment project, which is not included in the interim period results.

• Slowing economic growth in China and continued postponement of new investment by Japanese companies have created severe revenue and profit pressure for the China segment, resulting in a 49.1% YoY revenue decline and 81 million yen operating profit decrease in the interim period.
• Industry-wide labor shortages persist in core construction markets, requiring sustained investment in human capital recruitment and retention.
• Supply chain stability remains a key long-term challenge that needs proactive management.
• Evolving cybersecurity threats require ongoing investment to manage the growing risk of cyber incidents.

Q: The year-over-year decrease in interim order value is noted. Is this due to project timing, or are market competition and price declines impacting results? / A: Management confirmed the overall order environment remains strong. The interim decrease reflects the advanced progress of large ongoing projects and high existing carry-over order backlog, not weak demand. The large 15 billion yen Shinagawa Ward government project won in October 2025 after the period close confirms the ongoing strength of the market.

Q: Given the strong first half performance, is an upward revision to full-year guidance needed? / A: Construction industry inherently recognizes more revenue and profit when projects are completed, and the first half did see a higher number of large completed projects driving strong results. A decrease in completed projects is already expected for the second half, along with ongoing weakness in the US and China segments. Management judges no change to the current full-year guidance is needed at this time, and will announce any necessary revisions publicly if conditions change.

Q: What is the differentiation strategy for expanding data center and semiconductor-related project orders, and are any projects already secured? / A: Management notes competitive advantages cannot be publicly disclosed for competitive reasons, but emphasizes that industry experience and specialized technical talent are the most critical success factors. The company already has extensive experience building high-precision clean rooms and data center facilities in overseas markets. The current priority is to build a dedicated domestic team while completing existing backlogged projects, leveraging the company's existing overseas experience to enter this growing market, and adapt to the growing diversity of data center project types.

Q: Will all of the headquarters sale gain be used for growth investment? / A: The full ~4 billion yen gain is earmarked for future growth investment, including M&A, DX expansion, capability building for high-value projects, and talent recruitment (including strategic headhunting). If funds are not immediately deployed, they will be held in liquid general assets until suitable investment opportunities arise.