7057.T

Company Overview and Mission

• NCN was founded in 1996 following the 1995 Great Hanshin-Awaji Earthquake, with two core missions: popularizing safe, reliable wooden structures across Japan, and creating systems to deliver wood homes with long-term retained asset value.
• The company developed the proprietary SE Construction Method, which mandates full structural calculation, uses strength-verified materials and specialized SE hardware to deliver high strength and greater design freedom for wooden buildings. To improve asset value, the company also provides documented energy saving performance and stores 3D BIM data to pass to future owners.
• NCN operates a one-of-a-kind wooden construction platform with a network of 9 group companies across technology, lifestyle, and asset business segments, including joint ventures like MUJI HOUSE (with Ryohin Keikaku for MUJI-branded homes), N&S Development (with Sanu for wooden accommodation development), and SE Housing Loan Services.

Operational Update

• The April 2025 amendment to the Building Standard Act changed the rules for small wooden homes: previously, structural drawings were not required for confirmation inspections, but now they follow the same rules as steel and reinforced concrete buildings. Legally, inspection periods were extended by 30 days, but labor shortages and increased paperwork have pushed average inspection times to 60 days at NCN, creating larger-than-expected delays in revenue recognition.
• The first quarter of the fiscal year fell into deficit due to the lost revenue from the delayed process, but performance gradually recovered starting in the second quarter.
• Multiple new premium model homes using the SE Construction Method opened in major high land-value areas including central Tokyo and Kyoto's Momoyama district, reflecting recovering demand for single-family homes among high-income households driven by skyrocketing condominium prices in Tokyo and Osaka.

Segment Growth Strategy

• Residential Segment: The April 2026 amendment to structural standards will mandate stricter wall quantity requirements for conventional wood construction methods (Zairai Method and Two-by-Four Method), which will reduce available window space and limit design freedom. NCN has already upgraded SE Construction Method to Version 3, adopting high-strength G-BOARD shear walls to reduce total required wall count, enabling larger windows and greater design flexibility, which creates a major competitive advantage. Management will run campaigns to boost SE adoption rate among the 515 independent registered contractors (who build 9,600 total homes annually with low current SE adoption) and capitalize on the regulatory change.
• Large-scale Non-residential Wooden Construction Segment: The market is expanding rapidly driven by decarbonization and SDGs trends that are shifting demand from steel and concrete to wood. NCN has developed high-strength versions of SE Construction Method that support 6+ meter spans and large columns, partnered with 14 specialized factories across Japan that can process large wooden materials, and built a specialized construction network. The segment added a new processing partnership with major Nagoya-based pre-cut factory Yamanishi Co., Ltd. to expand its national supply network, and now provides end-to-end solutions including structural design, energy saving/environmental design, 3D BIM data management, and construction network coordination to capture share from the steel construction market.
• Environmental Design Segment: Management will expand the service scope beyond new residential construction to non-residential buildings and the fast-growing used condominium renovation market, providing energy saving performance simulation for renovation projects to support improved performance and access to preferential housing loan terms. NCN is focusing on system investments and DX to improve operational efficiency rather than raising prices to retain competitive advantage.

• Full-year 2026 March fiscal year guidance has been downward revised: full-year net sales is cut by approximately 0.4 billion yen, and operating income is cut by approximately 0.1 billion yen. The main driver of the revision is larger-than-expected decline in the residential segment, driven by prolonged confirmation inspection delays and a sharp drop in customer visitor numbers and inquiries in 3Q that reduces expected SE Construction Method shipments in 4Q.
• The 4.4% full-year net sales decline projection leads to a larger decline in profit because: the 0.4 billion yen decline in residential structural material sales reduces gross profit by approximately 70 million to 75 million yen (at an 18% gross margin), and rising material prices add an additional 20 million yen in negative impact, for a total gross profit decline of approximately 90 million yen.
• Despite the downward guidance revision, the company will maintain its committed full-year dividend of 31 yen per share, in line with its policy of targeting a 40% payout ratio based on consolidated results, as approved by the board of directors.

For the cumulative 9 months (3Q) of the 2026 March fiscal year, overall consolidated net sales totaled 6.141 billion yen, operating income totaled 89 million yen, and ordinary income totaled 67 million yen, all of which declined significantly year-over-year. The performance of each segment is as follows: 1. Residential segment: Net sales decreased 3.2% year-over-year. The decline was driven by prolonged confirmation inspection procedures from recent Building Standard Act amendments, worsening customer acquisition conditions for registered contractors and home builders due to increased inflation concerns and rising interest rates, and a sharp drop in structural calculation shipment volumes in 3Q after a V-shaped recovery through 2Q. Total registered contractors still grew net overall despite 17 withdrawals in the period. 2. Large-scale wooden (non-residential) construction segment: Net sales decreased 9.8% year-over-year. This decline is partially due to lapping the strong extraordinary demand the group's subsidiary Suiho received for the 2025 Osaka-Kansai Expo in the prior year period; structural calculation and shipment progress are broadly on track in the current period, with structural calculation volume continuing an upward trend started in 3Q of the prior fiscal year. There is no impact from prolonged confirmation procedures, as 500 square meters and larger buildings already required full structural checks and confirmation inspections prior to the legal amendment. A new 5-story wooden construction project using SE Construction Method broke ground in the quarter, and the segment participated in a large non-residential wooden construction fair in Osaka that drew strong visitor attendance. 3. Environmental design segment: Net sales increased 42.5% year-over-year, growing to 1.4x the prior year's size. Growth was driven by the mandatory energy saving calculation requirement that took effect in April 2025, which created new demand across new residential, new non-residential/ large building, and newly entered condominium renovation categories. Volume and revenue both grew sharply across all sub-segments. 4. DX & Others segment: Net sales increased 7.7% year-over-year. A core BIM-focused subsidiary previously named MAKE HOUSE was renamed KINO BIM to more clearly reflect its business focus on wooden building 3D BIM data services.

• Prolonged confirmation inspection procedures from the Building Standard Act amendment have created larger-than-expected delays in revenue recognition, with average inspection times extending to 60 days versus the 30-day extension that was initially expected, leading to lower-than-planned shipment and revenue in the first nine months of the fiscal year.
• Widespread inflation concerns and rising interest rates have driven a 20%+ year-over-year decline in visitor numbers to home builders and contractors, which has reduced demand for residential construction projects and led to lower-than-expected shipments in the residential segment.
• The SE Construction Method currently has a lower-than-target adoption rate among independent registered contractors, partially due to the need for additional training for contractors and a still-existing price gap with conventional construction methods, which is a core barrier to faster growth in the residential segment.
• Industry-wide labor shortages in construction and administrative inspection have led to longer processing times and occasional suspension of confirmation inspection acceptance, exacerbating revenue recognition delays.
• Aging ownership of small construction firms leads to a steady 3% to 5% annual exit rate of registered contractors, which requires consistent new contractor recruitment to maintain net growth.

Q: What specific impact has the prolonged confirmation inspection process had on operations, versus initial expectations?

A: Previously, inspections took 7 days, and the legal amendment allowed up to 35 days, but increased workload and labor shortages have pushed average times to 60 days for NCN. This has created larger-than-expected time lags for revenue recognition that were not anticipated when the fiscal year started.

Q: What is causing the deviation between full-year guidance and the initial projection, and is the decline driven by lower SE adoption or broader housing market weakness?

A: It is a combination of both factors. Industry data from the Japan Housing Research Institute shows a 20%+ year-over-year decline in visitor numbers to home builders, which matches the 3Q decline the company saw, so broader market weakness is the main factor. However, management also acknowledged that its sales efforts to increase SE adoption ahead of the legal amendment were not sufficient, which contributed to the shortfall.

Q: Why is the profit decline larger than the sales decline percentage?

A: The 400 million yen sales decline is concentrated in residential structural material sales, which carry an 18% gross margin, leading to 70-75 million yen in lost gross profit. Combined with an additional 20 million yen negative impact from rising material prices, total gross profit declines by approximately 90 million yen, which explains the larger proportional decline in profit.

Q: With soaring condominium prices, is demand for single-family homes recovering, and how would a more active used single-family market impact NCN?

A: In Tokyo and Osaka, high condominium prices have driven a modest recovery in single-family demand, particularly for higher-priced homes targeting high-income households. A more active used single-family market is NCN's long-held goal: the company has built approximately 30,000 SE Construction Method homes to date, and expects that if these homes maintain high resale value (as NCN's methodology is designed to enable), NCN and its partner contractors will see growing popularity, similar to how vehicles that retain resale value become more popular with buyers. Management hopes Japan will develop a market like the U.S., where well-built used homes can trade at prices higher than new construction, creating a healthy economic cycle.

Q: What impact does the Building Standard Act amendment have on large-scale non-residential construction?

A: There is no impact, because all buildings over 500 square meters already required full structural calculation and confirmation inspection before the amendment, so the review process has not changed at all.

Q: Looking back at 3Q results, what factor had the largest impact on year-over-year sales and profit differences?

A: Management initially planned for 11 months of revenue recognition and targeted 10% growth in the residential segment, but the combination of lower customer traffic and longer confirmation delays led to full-year results expected to be roughly flat with the prior year. The other factor is the large-scale non-residential segment: last year, subsidiary Suiho had strong extraordinary demand from Osaka-Kansai Expo projects, so this year's return to normal operations creates a year-over-year decline that is expected.

Q: What is the trend for registered contractor count, and what is your approach to growth and attrition?

A: Management targets adding approximately 50 new registered contractors per year, which has been maintained consistently, as contractor growth is the core driver of long-term growth. 17 contractors withdrew in the first nine months of this fiscal year, primarily due to owner aging, labor shortages, business closures or pivots, which is a steady 3-5% annual attrition rate that is expected. Management expects this trend to continue and will keep adding new contractors to deliver net growth.

Q: What impact does the increasing strictness of the Building Standard Act have on NCN's business?

A: The regulatory trend toward stricter safety standards is a positive long-term driver for NCN. NCN has always required full structural calculation for all its projects, which is now becoming the industry standard, so the company's decades of experience align with the new regulatory environment, creating positive tailwinds.

Q: What other profit pillars outside the core SE Construction Method is NCN targeting, and what is their competitive advantage?

A: The operating environment for wooden construction is creating growing demand for services beyond core SE structural calculation, including energy saving design and construction support for a wider range of methods including conventional Zairai, Two-by-Four, and CLT construction. NCN is leveraging its platform to provide engineering services for all types of wooden projects through its subsidiary Mokuzo Kozo Design, to capture this growing demand.

Q: What is the biggest bottleneck for NCN's future growth strategy?

A: For the non-residential segment, the only bottleneck is production capacity, which the company is addressing by expanding its factory and construction network. For the residential segment, the core bottleneck is low SE Construction Method adoption rate among partner contractors, and the existing price gap with conventional methods. Management is working to improve pricing and expand service offerings to close this gap and increase adoption, which would drive significant growth even in a slower overall housing market.

Q: Has the price gap between SE Construction Method and conventional methods narrowed, and will that help drive adoption?

A: The main barrier to adoption historically has not just been price, but the need for additional contractor training to use the SE method. However, recent regulatory changes have increased costs for conventional methods, because the new stricter wall requirements add material and labor costs, and conventional methods now also require external structural calculation that previously was not needed, bringing their total cost much closer to the SE Construction Method. Once prices are aligned, management expects adoption to move close to 100% among partner contractors, and is focused on improving production efficiency to reach parity.

Q: How much has the structural calculation cost gap narrowed after the regulatory amendment?

A: The current market rate for structural design is approximately 2,000 yen per square meter, so roughly 200,000 yen for a 100 square meter home. Previously, conventional wood construction did not require this cost, but after the amendment they now need to incur it, which eliminates the cost gap that previously existed versus SE Construction. Most small wood builders do not have in-house structural calculation capabilities, so they will need to outsource this work, which creates a major tailwind for NCN, since NCN has decades of experience in this area and already has integrated systems to match structural calculation with material supply. Management expects this benefit to become visible starting in April 2026.

Q: How will the strategic positioning of each segment change, given that residential and non-residential shipments are stagnant while environmental design and DX are growing?

A: The April 2025 mandate for energy saving design turned a market that had almost no mandatory requirement into one where all 200,000+ annual custom ordered homes need energy design, which is why demand has surged and the segment is growing faster than residential. The mandate has also been extended to the renovation sector, where energy calculation enables preferential loan terms for renovations, which is further boosting demand. The 2026 amendment is focused on structural standards, so it will not create major new demand for environmental design. While demand is high, NCN is focusing on system investments to improve operational efficiency rather than raising prices, to maintain competitive advantage.

Q: What is the priority for growth among NCN's different group companies and new businesses?

A: MUJI HOUSE, the joint venture with Ryohin Keikaku, has a larger current business scale and has upcoming projects in partnership with the Urban Renaissance Agency, so it is expected to grow steadily and will contribute more to profit. Sanu, the subscription-based accommodation business, is growing very quickly and has high growth potential. Management will continue to support both, prioritizing MUJI HOUSE for near-term profit growth while supporting Sanu as a higher-growth venture investment.

Q: When does NCN recognize revenue?

A: Revenue is recognized when the structural calculation report is shipped, and when the specialized SE Construction Method materials (columns, hardware) are delivered to the construction site.

Q: How is NCN positioning for the long term amid rapid regulatory change for wooden construction?

A: Previously, structural calculation, BIM support, and energy saving calculation operated as separate services. Going forward, NCN will integrate these into a single comprehensive wooden construction platform to provide end-to-end support for contractors and design firms working with wood.

Q: Will generative AI replace structural calculation and energy design work in the future?

A: Structural calculation is the final safety guardrail to protect lives in earthquakes. AI can generate answers based on past patterns, but it cannot take legal responsibility for calculation errors or unexpected site conditions. The final sign-off and safety guarantee will always require a qualified professional structural designer, so NCN will use AI to improve efficiency while keeping professional designers in charge of all final work to maintain safety.