New Constructor's Network Co.,Ltd. Q1 FY2026 earnings call

• Company Overview & Core Mission

  • NCN is a platform company solving industry challenges for wood construction, not a homebuilder, with two core founding missions:普及 safe, earthquake-resistant wooden structures in Japan, and create a system for long-term asset value retention for Japanese wooden homes.
  • The company operates a 9-company group, including joint ventures MUJI HOUSE (with Ryohin Keikaku), majority-owned subsidiary Suiho (specialized wood construction processing), and N&S Development (subscriptions-based second home accommodation development), with a unique open platform model for the Japanese wood construction industry.

• Key Product Update: SE Method Ver.3

  • The updated SE Method Ver.3 officially received approval on April 1, 2025, with major performance improvements: load-bearing wall strength increased 1.57x to 11.7x wall magnification (≈4x the strength of walls in standard construction), the highest certified strength for any wooden construction currently.
  • Updated capabilities allow maximum ceiling heights up from 4.5m to 6m, and support 360mm square columns, enabling SE Method use for larger construction projects and opening competition with steel frame construction.
  • The improvement drove a new sales partnership with Mitsui Home for facility construction, and generated strong industry interest at recent wood construction trade fairs.

• Regulatory Change Advantage

  • The 2025 and upcoming 2026 revisions to the Building Standard Law will reduce the size threshold for mandatory structural calculations and tighten specification rules, increasing required structural material volumes by 1.4x for conventional construction methods.
  • The revisions expand differentiation between SE Method (full structural calculation for every member, like steel/concrete construction) and conventional methods (rule-of-thumb counting of braces/walls, no full structural calculation), creating a major growth tailwind for SE Method adoption.
  • The company formed a 4-party consortium with Cosmos Inishia, YKK AP, and u.company to expand energy efficiency services for condominium renovation, expanding the environmental design segment's service scope beyond wooden detached homes.

• Strategic Expansion for Non-residential Construction

  • The non-residential large-scale wood construction market is growing overall, with projects increasing in average size even as total start units decline, driven by CO2 reduction policy trends.
  • NCN established the Large-scale Wood Construction Network, selecting 36 qualified registered construction shops from its 600+ network to deliver large non-residential projects, creating a full turnkey solution platform for large wood construction that did not exist previously in Japan.
  • NCN has a network of 13 partner factories nationwide with capability to process large cross-section laminated wood, to support growing large project demand.

• Shareholder Return

  • The company maintains a long-term policy of a 40% payout ratio for dividends, and maintains this target for the full 2026 March fiscal year.

1. Residential Segment: Revenue of 1.141 billion yen, +11.7% year-over-year. It contributes 63.8% of total consolidated revenue. Structural calculation shipments declined 14.6% YoY due to prolonged confirmation application periods after regulatory changes, while SE Method shipments grew 2% YoY; OEM structural calculation shipments remained sluggish. 10 new registered construction shops joined in the quarter, with 6 withdrawals, bringing the total to 625 registered shops. 2. Large-scale Non-residential Wood Construction Segment: Revenue declined 10.4% YoY. Structural calculation shipments remained on track, but the decline was driven by the absence of a large building handover from subsidiary Suiho that occurred in the prior year quarter. No material impact from recent Building Standard Law revisions (which only apply to buildings under 500 sqm). 3. Environmental Design Segment: Revenue grew 36.8% YoY, driven by the April 2025 mandatory requirement for energy conservation calculations during confirmation applications, which created strong new demand for the segment's services. Energy conservation calculation volumes grew ~50% YoY. 4. DX & Other Segment: Small absolute revenue size, with a 19.5% YoY decline in revenue.

• Full-year consolidated guidance is maintained, as the Q1 and Q2 revenue slowdown from prolonged confirmation processing was already anticipated and incorporated into full-year projections. The company expects to deliver 17% full-year growth for the residential segment, with sufficient growth in H2 to offset the first half slowdown.
  • The company targets adding 40 new registered construction shops annually (10 per quarter), driven by demand for the new SE Method Ver.3 and regulatory change tailwinds.
  • Energy conservation calculation demand is expected to continue growing at a double-digit annual rate going forward, with growth sustained by increasing mandatory requirements across residential and non-residential construction, and the company will continue expanding capacity to support this growth.
  • The company's medium-term target for SE Method is to reach 3% market share of the Japanese wooden housing market, up from the current 0.3%, to establish SE Method as a de facto standard for structural calculation in wooden construction. Near-term, the company expects double-digit percentage growth in SE Method adoption from regulatory changes.
  • Current annual supply capacity is equivalent to ~2,500 residential units, which is sufficient for current expected demand growth, and the company is actively expanding partner factory capacity to support larger non-residential projects.

• New competitors may enter the structural calculation and energy efficiency service market driven by new regulatory requirements, which could pressure NCN's market share and margins.
  • Logistics costs have increased ~10% recently, pushing up overall construction prices by ~0.6%, though the company passes through all logistics cost increases to customers on a per-job basis to preserve margins.
  • Prolonged confirmation application periods have shifted Q1 revenue recognition to later quarters, creating temporary near-term revenue volatility, though this is expected to resolve as the market adjusts to the new regulatory timeline.
  • While SE Method gains market share from conventional methods in residential construction and competes with steel frame in large non-residential construction, steel frame still retains advantages in fire safety for very large buildings, and has a larger existing skilled labor pool, which could limit near-term penetration.

Q: Is the growth tailwind from Building Standard Law revisions temporary, and what long-term initiatives is NCN pursuing to drive sustained growth? / A: Management notes the regulatory change is permanent, not one-time: the stricter structural standards will not be reversed, as the government is unlikely to loosen earthquake safety requirements after recent high-profile earthquake disasters. While new competitors may enter the market, NCN’s 30-year track record of over 30,000 structural calculations gives it an unmatchable first-mover advantage that will support sustained share growth.

Q: What is NCN’s medium-term numerical market share target for SE Method? / A: NCN has long targeted 1% market share (equal to 3,000 units annually), and now aims for 3% market share as a long-term goal. Reaching 3% share would establish SE Method as a de facto industry standard, and encourage widespread adoption of structural calculation across all wooden construction, aligning with the company’s core mission of universal earthquake safety for wooden homes in Japan.

Q: How is NCN preparing for the expected surge in demand for structural and energy efficiency calculations from regulatory changes? / A: Management has already pre-hired and expanded staff to handle expected demand growth, and is leveraging its 30,000+ existing calculation projects to train AI for process automation, which will improve efficiency to handle higher volumes. The company already has the largest energy calculation team outside of major homebuilders, and is continuing aggressive hiring to support ongoing growth.

Q: How does NCN plan to use its excess cash and free cash flow going forward? / A: NCN has operated debt-free historically, and plans to use its ~2.5 billion yen cash holdings for strategic M&A to add complementary capabilities (similar to the acquisition of Suiho), invest in software development and R&D for new SE Method iterations and testing facilities, and expand production and processing capacity to support growing demand.

Q: Will SE Method compete with steel frame construction, and what is NCN’s competitive position in that market? / A: Management confirms steel frame will be a key competitor for large non-residential projects, and NCN is differentiating SE Method by its lower lifecycle carbon emissions, aligned with global decarbonization trends. Steel still retains advantages in fire safety for very large buildings, so competition will continue, but low-rise large-area buildings can be built cheaper with SE Method than steel, and often qualify for green construction subsidies, giving SE Method a clear cost advantage in that segment.