GECOSS CORPORATION Q4 FY2026 earnings call

• Strategic Shift & New Vision

  • Shifted planning focus from historical sales-centric growth to profit-centric, long-term growth foundation building, responding to major environmental changes including prolonged COVID-19, rising cost inflation, and capital market demands for capital cost and share price awareness.
  • Launched a new corporate purpose: "Opening up the future with the power to support", updated the corporate logo, and redefined the company's role from a quiet supporting player to an active contributor to future social and urban development.

• Portfolio Diversification Strategy

  • Core domestic heavy temporary construction: Maintain current scale, target 15% profit growth vs FY2024 by FY2027; temporary construction targets 25% profit growth vs FY2024 by FY2027, partnering with civil engineering subsidiary Otowa Koiei to expand civil works order volume.
  • Existing construction machinery business: Restructure the underperforming business by reducing saturated low-margin assets (e.g. aerial work platforms), leverage collaboration with Mizuho Leasing to double current ordinary profit (300-400 million yen) by FY2027.
  • Growth: Steel structure processing/bridges: Driven by national resilience and infrastructure renewal demand, target 30% profit growth vs FY2024 by FY2027, and secure external processing partners to expand into the Western Japanese market.
  • Growth: Retaining wall adjacent services (water treatment, ground improvement, measurement management): Newly established the Geo Engineering Department, will use M&A to acquire expertise and expand this adjacent business complementary to existing underground construction work.
  • Growth: Overseas business: Aim to increase the 30% minority stake in Singapore's FUCHI to a majority stake to accelerate business expansion in strong Singaporean construction demand; refocus GECOSS VIETNAM on design outsourcing service for domestic Japanese operations, as heavy temporary demand has concluded after ODA projects wrapped up.

• Operational Efficiency & Organizational Changes

  • Established the Business Reform Promotion Department in April 2025, targeting a 10% increase in labor productivity vs FY2024 by FY2027 to address labor shortages and free up resources for growth investment.

• Capital & Shareholder Return Policy

  • Allowed maximum D/E ratio of 0.4x to use leverage for growth investment, moving from the historical near-zero debt, profit-for-debt-repayment strategy.
  • Formalized dividend policy: 40% payout ratio with a 2.5% minimum DOE as a downside buffer, with total planned shareholder return of 6 billion yen over the 3-year plan period.

• Sustainability & Transparency

  • Set KPIs for all sustainability initiatives, will expand non-financial disclosure; expanded segment reporting to split heavy temporary business into three sub-segments (temporary steel, temporary construction, steel processing/bridges) for greater investor transparency.

• Collaboration with Mizuho Leasing

  • Already implemented: Lease financing for construction machinery to level cash flow, reduce obsolescence risk, accepted one seconded employee, and began joint development of automated steel counting technology for inventory operations.

No current period absolute financial results are reported in this IR seminar transcript. Current revenue contribution: domestic heavy temporary construction business (temporary steel + temporary construction) accounts for over 75% of total corporate profit. The remaining profit is split across construction machinery, steel structure processing/bridge, retaining wall adjacent, and overseas business segments.

• 2027 fiscal year targets: 8.5 billion yen consolidated operating profit, which would be a new all-time high for the company, 8% ROE, and 0.8x PBR.
  • Long-term targets: Achieve ROE of 10%+ and PBR of 1x+ as early as possible, ahead of the original 2030 timeline.
  • Total available capital allocation over the 3-year plan is approximately 40 billion yen, with 25 billion yen allocated to growth investment, majority for M&A in retaining adjacent and steel structure/bridge segments, plus investment in the majorization of the FUCHI stake in Singapore, DX, technology development, and employee growth initiatives.
  • The mid-term plan was developed over one year of cross-functional discussion to address the underperformance of the prior mid-term plan, and management views the plan's targets as achievable with clear implementation roadmaps.

• Long-term industry risk: Japanese total construction investment is projected to decline after 2030 due to population decrease, with private residential and private non-residential demand expected to gradually decrease; the company's high dependence on heavy temporary construction (over 75% of current profit) exposes it to concentration risk from sector downturns.
  • Labor shortage risk: Tight labor markets and limited availability of on-site supervision engineers limit the company's ability to meet existing strong demand for temporary construction services.
  • Topix exclusion risk: The company has low free float market capitalization, and recognizes the risk of exclusion from the TOPIX index, which would reduce passive buying demand and trading liquidity.
  • Geographical coverage risk: The company's only owned steel processing factory is in Chiba Prefecture, limiting its ability to serve growing Western Japanese demand.

Q: Why is Gecos' PBR currently low at less than 0.6x? / A: Management recognizes the stock is undervalued. Key factors are current ROE of 6.4% which is below the 7% cost of equity, and a current PER of 8-9x, reflecting low market recognition and insufficient investor expectations for sustained future growth. / A: The company plans to improve PBR by raising ROE via leveraged growth investment, increasing PER through stronger IR and improved growth expectations, targeting 0.8x by FY2027 and 1x+ as early as possible.

Q: Is the M&A investment planned in the mid-term plan funded within borrowing limits, or will the company use equity financing? / A: All planned M&A and growth investment will be funded within the approved 0.4x maximum D/E leverage limit, no new equity issuance for funding is planned at this time.

Q: What is the progress of collaboration with Mizuho Leasing, and have any tangible benefits been achieved already? / A: Mizuho Leasing's financing tools are already being used for construction equipment procurement to level profit streams, avoid upfront depreciation volatility, and reduce obsolescence risk. A Mizuho Leasing employee has been seconded to Gecos, and the two companies are jointly exploring automation for manual steel inventory counting, with additional joint investments and overseas collaboration under discussion. / A: These initiatives have already delivered tangible operational and financial benefits to the construction machinery business.

Q: What is the company's response to the TOPIX exclusion risk from low free float, and the parent listing governance question? / A: The parent listing structure was already resolved when Mizuho Leasing took a 20% stake from JFE Steel, so the parent listing issue is no longer applicable. / A: Management recognizes the TOPIX exclusion risk, and will address it via stronger IR to improve market recognition and consistent execution of the mid-term plan to grow corporate value. With respect to the historical pattern of JFE出身 CEOs, management noted that the priority is selecting the most qualified candidate regardless of origin, and is focused on developing internal leadership talent for the future.