DAI-DAN CO.,LTD. Q2 FY2026 earnings call

• Consolidated Financial Results

  • The quarter achieved all-time record high order received, completed construction, and operating profit for the second quarter, with top-line and profit growth year-over-year.
  • Opening carried-forward construction was 258.4 billion yen, up 7.7% year-over-year. Total order received was 182.87 billion yen, up 32.6% year-over-year. Completed construction was 118.359 billion yen, up 12.1% year-over-year. Gross profit on completed construction was 27.47 billion yen, up 84.9% year-over-year. Operating profit was 17.583 billion yen, up 159.2% year-over-year. Net income attributable to parent shareholders was 12.52 billion yen, up 129.5% year-over-year.
  • Net assets totaled 118.386 billion yen, up 8.4% from the prior fiscal year end. Total assets were 199.26 billion yen, down 7.5% from the prior fiscal year end. Cash and cash equivalents ended the half-year at 68.681 billion yen, up 17.987 billion yen from the start of the fiscal year, driven by strong operating cash flow from accounts receivable collection that offset outflows for regenerative medicine investment and debt repayment.

• Mid-Term Management Plan "Migaku Stage" (Polishing Stage) Progress

  • The plan's core focus is enhancing human capital as the foundation of corporate value growth, with on-track progress across all priority initiatives. Full year 2026 projected operating profit of 28 billion yen and projected ROE of 18.3% are on track to meet plan targets, and 2027 final year targets will be updated after full-year 2026 results are finalized.
  • Human capital initiatives: Continued strong hiring growth, expanded role-based training programs, began renovation of the Yatsugi Training Center, implemented another base salary increase, introduced share-based incentives for employee stock ownership plans, and earned recognition as a White 500 Excellent Health Management Corporation 2025.
  • Air conditioning and sanitary construction capability: Expanded and scaled up off-site prefabrication facilities, which was selected as a model project by Japan's Ministry of Land, Infrastructure, Transport and Tourism for work reform. The company continues flexible deployment of temporary off-site facilities near large project sites to improve productivity.
  • Partner collaboration: Moving to 100% cash payments to all suppliers starting January 2026, implements fair price-setting via consultation with partners, supports partner recruiting, and operates a Meister recognition program for skilled partner workers to strengthen collaboration.
  • Overseas business: Continued steady expansion, with the addition of Presico driving sharp order growth. The company focuses on stabilizing the business base centered on Singapore to grow the segment's importance to the group.
  • Regenerative medicine business: Pursues commercialization via two core pillars: equipment sales for cell culture environments, and contract manufacturing for cell therapy investigational drugs. The company recently launched a combined investigational drug manufacturing support service to expand its business scope.
  • Sustainability: Implements concrete initiatives across environmental, social, and governance dimensions to drive sustainable corporate value growth and address social challenges.

• Capital Return and Share Structure Initiatives

  • Implemented a 3-for-1 stock split effective December 31, 2025 to lower per-unit investment cost, improve liquidity, and expand the investor base.
  • Updated dividend policy starting fiscal 2026 to a minimum 40% payout ratio and minimum 4.8% return on equity, and increased the pre-split full year dividend from 165 yen to 193 yen per share.

By business segment (all in yen):

1. Air Conditioning and Sanitary Works: Both order received, completed construction, and carried-forward construction volume increased year-over-year. Full segment breakdown is available in the November 7, 2025 published report.
2. Electrical Works: Both order received, completed construction, and carried-forward construction volume increased year-over-year. Full segment breakdown is available in the November 7, 2025 published report.
3. Industrial Facility Works: First half order received was 60.905 billion yen, a 25% decrease year-over-year. The company expects full year orders to match prior year levels.
4. Overseas Business: Order received was 43.175 billion yen, a 326.3% increase year-over-year. Growth was driven by large research and healthcare projects in Singapore and the consolidation of Presico as a subsidiary. Overseas business currently accounts for approximately 15-20% of Daidan's total revenue.
5. Renewal Works: Second quarter order received hit a record high of 76.84 billion yen, a 48.8% increase year-over-year, with strong performance across all project sizes.
6. New Construction Works: Order received was 106.029 billion yen, a 22.9% increase year-over-year, driven by large overseas healthcare facility projects.
7. Direct Orders: Order received was 98.122 billion yen, a 33.9% increase year-over-year, with direct order accounting for 53.7% of total orders. Completed construction volume hit a record 118.359 billion yen, a 12.1% increase year-over-year, with growth across industrial facility, overseas, and renewal segments, particularly strong growth for industrial facilities. Ending carried-forward construction volume was a record 322.91 billion yen, an 18.7% increase year-over-year, led by large industrial, healthcare, and overseas projects.

• Full-year 2026 (March fiscal year) guidance was updated with upward revisions for profitability and orders:
  • Order received was revised upward from 283 billion yen to 320 billion yen (+37 billion yen). The order increase is for projects that will progress in future fiscal years, so completed construction guidance remains unchanged from prior guidance.
  • Gross profit on completed construction was revised upward from 46.5 billion yen to 51 billion yen (+4.5 billion yen), driven by better-than-expected profit improvement on backlog projects.
  • Operating profit was revised upward from 23.5 billion yen to 28 billion yen (+4.5 billion yen), driven by the gross profit increase.
• For 2027 (March fiscal year, the final year of the current mid-term plan), management expects a slight increase in completed construction to 270 billion yen, which represents a planned plateau period aligned with the company's long-term Stage 2030 vision, before accelerated growth in the next mid-term plan "Kagayaku Stage" (Shining Stage). The 2027 full-year numerical target will be published after fiscal 2026 full-year results are finalized.
• Management expects backlog to remain at high levels, led by large industrial, healthcare, and overseas projects, and projects full-year 2026 industrial facility orders to match prior year levels despite the first half decline.

• Large overseas projects carry lower profit margins than domestic projects, and there is risk of a order decline (reactionary drop) after large Singapore projects are awarded. While management is strengthening sales in Thailand and Vietnam to offset this risk, it remains a concern.
• Large carried-forward backlog is concentrated on large multi-year projects, which creates risk of project schedule delays that shift revenue recognition to future periods.
• Current M&A targets carry high valuation premiums, and pure size-focused domestic M&A is unlikely to deliver sufficient synergy, creating risk of failed value creation from poorly targeted acquisitions.
• The high first half 2026 gross margin is partially driven by one-time factors related to large project completion and追加 order negotiations, so the same margin level is not expected to be maintained in the second half.

Q: What is your outlook for 2027 March fiscal year (final year of the current mid-term plan), and how will you update mid-term targets? / A: Management expects 2027 completed construction of 270 billion yen, a small increase that represents a pre-planned plateau aligned with the long-term Stage 2030 vision. Most current backlog will be recognized in the next mid-term plan (Shining Stage), so 270 billion yen is a reasonable projection. The 2027 profit outlook is positive: the company has accumulated large project expertise, improved staffing timing, implemented internal cross-site personnel sharing (Share Kouban system), and refined off-site operations, all of which will gradually lift margin. Final 2027 targets will be released after 2026 full-year results are finalized, accounting for economic conditions.

Q: Will increased cash from the upward revised guidance change growth investment plans, and what is your approach to M&A amid industry consolidation? / A: While higher profits increase cash inflow, large project prepayments and the upcoming 100% cash payment policy for all suppliers will increase working capital requirements, so the current 3-year 43 billion yen growth investment plan remains unchanged. Growth investment prioritizes human capital first, followed by DX investment to complement human capabilities, with any remaining capital allocated to M&A. For M&A, management avoids high-premium pure size expansion in domestic construction, and instead targets deals that improve construction productivity in Japan. Overseas, the company pursues M&A of industry/adjacent players in Southeast Asia centered on Singapore to scale stably. In regenerative medicine, the company will pursue investments and alliances with startups that support its commercialization efforts, leveraging 10+ years of industry networks and expertise. Management will only pursue high-synergy opportunities decisively.

Q: Is the sharp recent increase in gross margin driven by one-time large project completion impacts, and can the high margin be maintained in the second half? / A: The elevated first half margin is indeed driven mostly by one-time factors, particularly追加 orders negotiated at large project completion, which is a common industry dynamic. The strong construction demand environment led to favorable outcomes on these追加 order negotiations, creating larger than expected spread that lifted margin. There are no similarly large super projects scheduled for completion in the second half, but the company expects mid/small projects to maintain steady performance, resulting in a full second half margin of ~16%, matching prior year levels. Management will continue efforts to gradually lift margin over time.

Q: What is the outlook for overall company gross margin as overseas work grows? / A: While overseas margins are lower than domestic margins, the acquisition of Presico has created an opportunity to improve profitability via synergy. Daidan targets keeping overseas revenue between 15-20% of total revenue, which management views as the safest range. Within this range, the company will work to improve overseas profit margins leveraging Presico's expertise, and does not expect overall company gross margin to decline at this time.