3423.T

Strategic Positioning & Long-Term Vision

• The current mid-term management plan (2023-2025) is the final three-year period of "preparation", focused on solidifying the foundation of existing businesses while planting seeds for future growth to achieve the 2030 Vision, after the prior 2020-2022 plan was under-executed due to the COVID-19 pandemic.
• 2030 Vision goal: Become a company that leverages its core technology and engineering to solve major social challenges including climate change, natural disasters, aging infrastructure, aging population, and regional inequality, while contributing to building a sustainable social foundation through resilient infrastructure development. Stable growth of existing businesses is prioritized, with new growth fields (power generation, etc.) targeted for expansion starting in the next mid-term plan period (2026-2028).

Sustainability Initiative A (New Growth Business "Seeding")

• Power generation business: Developing CO2-free power generation using domestically sourced metal fuel. A bench-scale test plant has been constructed and started operations on company-owned land in Kanagawa Prefecture for data collection and analysis. Overall schedule is slightly delayed due to unforeseen operational issues, but significant empirical data and experience have been accumulated. A dedicated operating company was established in summer 2025, and preparation for IPP business participation is ongoing; commercialization and partnership development are targeted for completion within the next mid-term plan period.
• ESCON Business (ultra-high strength synthetic fiber reinforced concrete): Secondary products are already in widespread adoption, and development has focused on on-site delivery applications including bridge deck slabs and surface thickening. The project has fallen behind schedule: all expected contracted construction projects are now scheduled to be recognized in fiscal 2026 or later, so full-year 2026 revenue is projected to fall from the initial 400 million yen forecast to ~40 million yen. Design integration for future expansion is progressing steadily.
• BIM design support & BIM transformation outsourcing: Targeting small and medium regional construction consultants and manufacturers with digital transformation solutions, leveraging the company's Vietnamese subsidiary VJEC for capacity. Completed large complex BIM/CIM projects for domestic highways and landslide hazard modeling in fiscal 2025, which received high industry praise. This business addresses the long-term challenge of declining construction workforce in Japan, and will continue to be prioritized.
• New business incubation: 180 potential new business concepts have been generated, 5 of which are undergoing hypothesis testing, prototyping, and customer interviews. Project scoping is taking longer than initially expected, so most commercialization will be carried over to the next mid-term plan; the company will advance the initiative steadily to expand its engineering capabilities to address new social challenges.

Sustainability Initiative B (Internal Foundation Strengthening)

• Operational efficiency and technology transfer: Progressing digitalization of receiving inspections, official inspections, quoting, and delivery coordination, to adapt to industry DX requirements and build a more attractive workplace for young employees.
• Human resource reform: Implementing fundamental overhauls of education, evaluation, compensation, and recruitment systems to improve hiring and retention. This is seen as an ongoing core sustainability priority for the company, and will continue to be resourced heavily in the current and next mid-term plans.

Capital Cost & Share Price Awareness Initiatives

• After multiple downward forecast revisions, PBR has stayed below 1x (recently around 0.7x), and daily trading volume remains low, which management attributes to insufficient market understanding and low confidence in the company's strategy.
• Management has increased IR activity, including its first ever participation in the Nikkei/TSE IR Fair 2025, and gradual growth in the number of shareholders has been observed. The company will continue expanding IR to build market confidence ahead of the next mid-term plan launch.

• Full-year 2026 (ending March 2026) consolidated guidance remains unchanged: consolidated revenue of 26.5 billion yen, ordinary profit of 438 million yen. This is a downward revision from the initial mid-term plan target, implemented in May 2025, driven by higher planned R&D investment and larger-than-expected volatility in construction segment profits.
• Excluding R&D department personnel and expenses, full-year ordinary profit is forecast at 1.537 billion yen, with 1.099 billion yen allocated to R&D department costs.
• Dividend guidance remains unchanged at 13 yen per share, maintaining the target dividend on equity (DOE) of ≥3.5%, which is projected to hit 3.67% for the full year based on current forecasts.
• ROE is targeted at ≥0.5% for the full year, or 6.5% excluding R&D investment.
• Management confirms that full-year profit targets are still achievable despite H1 revenue headwinds, and will continue working toward the full-year forecast.

1. Construction machinery and materials manufacturing & sales: Year-over-year (YoY) decrease in both revenue and profit. Gross profit decreased by 225 million yen due to an off-season for large projects following the prior fiscal year H2, winding down of post-disaster recovery projects, and construction delays/shipment reductions from extreme heat. While management maintained full-year public forecasts, it expects slight headwinds for H2 revenue, and notes sufficient room to cut SG&A to hit full-year profit targets. No revenue contribution percentage was explicitly provided for this segment.
2. Architectural materials manufacturing & sales: YoY decrease in both revenue and profit. Weakness stems from sustained low demand for interior construction products, reduced construction volume from extreme heat and working hour regulations, and widespread project delays across all sub-segments (hardware, temporary construction materials, steel structure works). Full-year forecasts are unchanged, and management will pursue selective order-taking including passing through price increases to hit targets. No revenue contribution percentage was explicitly provided for this segment.
3. Construction consulting: Slight YoY revenue decrease, with a shift from a YoY operating loss to a small profit, driven by contributions from high-margin projects after a strong Q1 that slowed in Q2 due to extended project durations. Management has targeted full-year net profit as a mandatory goal, though contribution from new non-JICA and overseas collaboration projects remains uncertain this year. No revenue contribution percentage was explicitly provided for this segment.
4. Repair and reinforcement construction: YoY increase in both revenue and profit, supported by strong demand from national land resilience policies. Profit margin declined slightly due to smaller average project size and intensified competition. Full-year forecasts initially projected YoY lower revenue and profit (driven by fewer and smaller projects in western Japan centered on Kyushu), and management still considers the forecast achievable. No revenue contribution percentage was explicitly provided for this segment.

• H1 revenue performance is behind full-year forecast, with high uncertainty tied to H2 construction progress, ESCON project delays, and the pace of Noto Peninsula earthquake recovery work.
• The construction materials and equipment segment faces large inherent profit volatility year-over-year, driven by the timing of large projects, disaster recovery work, and client construction progress, which has caused the current mid-term plan to miss its original higher profit targets.
• Project delays from industry-wide labor shortages, working hour regulations, and extreme weather have negatively impacted revenue and profit across most core construction-related segments.
• Intense competition in architectural materials and repair/construction segments is putting downward pressure on pricing and profit margins.
• Growth initiatives (power generation, ESCON, new business incubation) are all facing slower progress than initially planned, pushing revenue recognition out to future fiscal years.
• The company's PBR remains below 1x, daily trading volume is low, and the company has not yet earned sufficient market confidence in its strategy, creating equity valuation and liquidity risk.
• Construction consulting has not yet succeeded in expanding non-JICA and overseas projects, so its full-year contribution remains uncertain.

Q: Under the current mid-term plan, the company has invested heavily in R&D as part of its "seeding for the future" strategy. Based on current progress, will R&D investment stay at the same level, or increase further, in the next mid-term plan? What is the expected scale of R&D spending? / A: The full-year forecast for this year's R&D personnel and expenses is approximately 1.1 billion yen, with the power generation business accounting for a large share of this spending. It is unclear if the full budget will be spent this year due to project delays, but the company will maintain investment at this current scale for the remainder of the fiscal year. Management expects that R&D spending will need to stay at least at current levels for the next mid-term plan, though final plans are still being compiled. The power generation business will be the main driver of R&D spending size, and the full next mid-term plan covering the entire group will be announced publicly next spring. No more specific details are available at this stage.