New Constructor's Network Co.,Ltd. Q2 FY2026 earnings call

• Core business overview
  • NCN is not a homebuilder, but a platform provider that solves structural and value preservation problems for wooden construction, operating a unique platform supporting 628 registered construction shops/homebuilders across Japan with digital transformation, structural design, energy saving design, and safe material supply
  • The company has 9 group companies, including joint ventures MUJI HOUSE (with Ryohin Keikaku), a partnership with UR Urban Renaissance for rental housing renovation, and specialized group companies for large-scale wooden construction processing
  • NCN's two core missions are: 1) popularizing safe and earthquake-resistant wooden structures in Japan, 2) creating a system for preserving the asset value of wooden homes
• Residential segment operational updates
  • Registered construction shops grew by a net 7 companies in the first half to 628 total, continuing a steady multi-year growth trend
  • Structural calculation shipment volumes stagnated in Q1 due to longer confirmation application periods after regulatory changes, but recovered to 276 units in Q2 (up from 272 units year-over-year), with backlogged work shifting to later quarters
  • As of end-Q2, order backlog grew to ~400 units from the usual ~300 units, with incoming inquiries increasing steadily driven by regulatory changes
  • NCN launched SE構法 Ver.3 with new high-strength G-BOARD shear walls that have 1.5x the strength of previous versions, requiring only 2/3 as many walls for the same performance, increasing design flexibility with almost no change in base material pricing and a slight reduction in total cost
• Large-scale non-residential wooden construction segment operational updates
  • Structural calculation shipment volumes followed the same Q1 stagnation/Q2 recovery trend as residential, while SE構法 shipment volumes remained stagnant in Q2
  • NCN established the Large-scale Wooden Construction Network in July, selecting 36 experienced registered construction companies to pursue large-scale non-residential projects that are typically out of reach for individual smaller contractors, responding to growing market demand for large wooden buildings
  • Added a new partnership with major processor Yamanishi in the Aichi region to expand pre-cut component supply capacity for large-scale projects
  • SE構法 Ver.3 now allows 6-meter first floor heights (suitable for almost all retail stores) and removes span limits via structural calculation, improving competitiveness against steel frame construction
• Environmental design segment operational updates
  • Energy saving calculation volumes grew steadily quarter-over-quarter in H1, driven by new regulatory requirements mandating energy efficiency disclosure for all wooden homes, with demand continuing to rise
  • Expanded into energy efficiency upgrades for existing condominiums, launched a partnership with Mitsubishi Estate Residence to upgrade existing condos to ZEH energy standards, which won a Good Design Award, and already has a partnership with Cosmos Initia for similar projects, with 4,000-5,000 completed projects to date
• Shareholder return
  • Maintains a long-term target 40% payout ratio, which will remain the policy going forward

1. Wood earthquake-resistant design business (core segment covering SE構法): 3.532 billion yen, down 3.2% year-over-year, accounting for ~92.9% of total revenue. Breakdown:

• Residential segment: 2.335 billion yen, down 0.3% year-over-year, ~61.4% of total revenue
• Large-scale non-residential wooden construction segment: 1.197 billion yen, down 8.5% year-over-year, ~31.5% of total revenue

1. Environmental design segment: grew 35.5% year-over-year
2. DX & other segment: grew 26.8% year-over-year Total consolidated revenue for the first half was 3.8 billion yen, with gross profit of 1.081 billion yen, operating profit of 12 million yen, and a net operating loss of 12 million yen (the loss came from derivative valuation losses for foreign exchange hedging of imported goods, which management expects to gradually reverse when derivatives settle, with no material long-term impact).

• Management expects incoming inquiry growth to accelerate after the second round of building code revisions take effect in April 2026, which will further increase adoption rates of SE構法 among registered construction partners, driving revenue growth in the second half of the fiscal year
  • For the residential segment, NCN will focus on increasing SE構法 adoption among existing registered partners rather than rapid expansion of registered partner count, targeting moderate growth of ~50 new registered partners per year
  • For the large-scale non-residential segment, NCN will continue expanding its construction partner network, supply capacity, and end-to-end solution capabilities to capture growing market demand for large wooden buildings replacing steel construction
  • For the environmental design segment, NCN will expand service coverage beyond new residential construction to non-residential buildings and existing condominium renovation to capture growing market demand for energy efficiency upgrades
  • Management confirmed current order growth is in line with original budget forecasts, and expects gradual steady growth in inquiries, with faster growth expected after April 2026 regulatory changes

• Longer than expected confirmation application processing periods after regulatory changes caused shipment volume timing lags in the first half, pushing revenue recognition to later quarters
• Rising overall home prices reduce the total number of potential home buyers, which could act as a downward pressure on total unit sales even as SE構法 adoption rates increase
• The main supply bottleneck for scaling SE構法 is the number of qualified processing lines, though NCN notes that weak overall housing starts make it easier to onboard new processing partners
• Competitors may eventually catch up to SE構法's technical advantages, requiring sustained ongoing investment in R&D to maintain competitive advantage
• Sustained institutional delays in regulatory implementation or longer processing times could continue to cause shipment timing disruptions

Q: Can SE構法 maintain its competitive advantage over other wooden construction methods over the long term? / A: Management expects competitors to eventually catch up on core capabilities, so sustained R&D investment is critical to maintaining advantage. NCN is one of the only players in the industry with its own testing facility, giving it a long-term edge in developing new higher performance, lower cost solutions. NCN’s 30 years of accumulated operational capability is also difficult for competitors to replicate, and the company sees growing industry adoption of SE構法-like approaches as aligned with its core mission of improving earthquake safety for Japanese homes.

Q: What is NCN’s strategy for growing SE構法 — will it focus on rapid expansion of registered construction partners or increasing adoption among existing partners? / A: NCN does not plan to aggressively expand registered partner count across the country for rapid unit growth. Instead, it will focus on increasing SE構法 adoption among the existing 628 registered partners, growing together with existing partners and sharing expertise. The company still targets adding approximately 50 new registered partners per year as part of moderate steady growth.

Q: Can NCN handle a 20% increase in demand next year, and where is the biggest bottleneck? / A: NCN is currently upgrading infrastructure to support an annual capacity of 3,000 units, so a 20% demand increase is fully manageable with existing capacity. The main long-term bottleneck is the number of qualified processing lines. Weak overall housing starts make it easier to onboard existing underutilized processing factories, so NCN expects continued steady progress expanding processing capacity.

Q: How does rising home unit pricing impact NCN’s business? / A: Rising home prices reduce the absolute price premium of SE構法 compared to conventional methods, which helps increase SE構法 adoption rates. However, rising overall home prices also reduce the total number of consumers who can afford to buy a new home, which creates downward pressure on total unit volume that cannot be offset by higher adoption rates alone, so it is too early to call it a pure tailwind.