Nikko Co., Ltd. FY2027 Q1 Earnings Deep Dive

Nikko Co., Ltd. (Securities Code: 6306), the domestic market leader in asphalt plants for road construction and batcher plants for ready-mixed concrete, delivered a robust start to the fiscal year ending March 2027 (FY2027 Q1). The company achieved significant year-on-year growth in both sales and orders, successfully turning an operating loss from the same period last year into a profit.

This report provides an in-depth analysis of the business trends across segments—supported by strong replacement demand and progress in price pass-throughs—the profitability improvement mechanism set to accelerate in the second half, and the newly announced shareholder return policy (including a dividend floor), based on detailed data from the earnings briefing and Q&A session.

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1. FY2027 Q1 Earnings Summary

Nikko’s consolidated financial results for the first quarter were as follows: Net sales of 11.822 billion yen (+42.5% YoY) , operating profit of 274 million yen (compared to a 54 million yen loss in the same period last year) , ordinary profit of 459 million yen (+575.0% YoY) , and quarterly net profit attributable to owners of the parent of 203 million yen (compared to a 61 million yen loss in the same period last year) , marking a significant increase in revenue and a return to profitability.

Context and Drivers of Performance

As shown in the slide above, of particular note is the high level of order accumulation, with orders received reaching 14.005 billion yen (+34.6% YoY) and order backlog standing at 35.609 billion yen (+41.6% YoY) .

Due to the nature of Nikko’s business, there is a clear seasonal bias where sales tend to be concentrated in the second and fourth quarters, aligning with the progress of public works and construction investment. Consequently, the first quarter typically sees lower profit levels due to upfront fixed costs. However, this term, the company secured an operating profit in Q1, driven by the planned digestion of a substantial opening order backlog and the contribution of projects carried over from the previous period.

Progress against the full-year plan (Net sales: 55 billion yen, Operating profit: 3.8 billion yen, Ordinary profit: 3.83 billion yen, Net profit: 2.65 billion yen) stands at 21.5% for sales and 7.2% for operating profit. The company maintains that performance is "on track" with its initial projections.

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2. Analysis of Segment Performance

Contrasting trends in profitability and demand environments were observed between the core AP (Asphalt Plant) and BP (Batcher Plant) businesses.

① BP-Related Business (Batcher Plants)

• Net Sales: 4.879 billion yen (+101.2% YoY)
• Operating Profit: 676 million yen (+144.0% YoY)
• Operating Profit Margin: 13.9% (+2.5pt YoY)
• Orders Received: 4.806 billion yen (+75.7% YoY)

The BP business was a powerful driver of company-wide performance, with sales doubling and operating profit increasing 2.4-fold. Although total shipments of ready-mixed concrete remain at low levels, the ready-mixed concrete industry has successfully passed on costs to product prices, restoring investment capacity among customers (concrete manufacturers). This has led to robust demand for equipment replacement and maintenance of aging plants , resulting in high levels of both orders and sales.

② AP-Related Business (Asphalt Plants)

• Net Sales: 4.13 billion yen (+33.8% YoY)
• Operating Profit: -179 million yen (loss widened from -123 million yen in the same period last year)
• Operating Profit Margin: -4.3%
• Orders Received: 5.612 billion yen (+27.6% YoY)
• Order Backlog: 18.704 billion yen (+81.3% YoY)

While the top line for the AP business grew steadily and the order backlog increased by over 80% YoY, the widening operating loss was primarily due to a timing lag between the recognition of "old-price projects" and "fair-price projects."

Asphalt plants require a lead time of approximately 2 to 2.5 years from inquiry to final delivery and revenue recognition. The first quarter saw a concentration of sales from projects quoted before the sharp rise in raw material and subcontracting costs, leading to a temporary deterioration in the cost-of-sales ratio. The company explains that these old-price projects will be largely cleared by the second quarter, and from the third quarter onward, they will be replaced by fair-price projects that account for inflation. Consequently, the operating profit margin is expected to recover rapidly toward the second half (targeting 7.1% for the full year).

③ Environmental & Conveyor Business and Others

• Environmental & Conveyor Business : Net sales of 699 million yen (-11.9% YoY) and operating profit of 208 million yen (-1.4%), while maintaining an exceptionally high operating profit margin of 29.8% . The core portable conveyor business remains steady, functioning as a reliable cash generator.
• Other Businesses (Crushers, Manufacturing Contracting, etc.) : Net sales of 2.112 billion yen (+6.3% YoY) and operating profit of 157 million yen (+58.6%). The company is strengthening its business structure by introducing domestically developed products to mitigate the impact of the strong Euro and weak Yen on imported crushers.

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3. Profit Variance Factors and the H2 Profitability Recovery Story

In the breakdown of the Q1 ordinary profit increase (+391 million yen YoY), the expansion of gross profit due to higher sales (contributing +686 million yen via sales volume and cost-of-sales factors) absorbed the increase in labor costs (-195 million yen due to base pay hikes and bonuses) and transportation costs (-117 million yen).

Although the cost-of-sales ratio (excluding labor) rose from 52.53% to 60.89%, this is a temporary phenomenon caused by the mix of old-price projects in the AP business, as mentioned above.

To achieve the full-year forecast, the following three points are critical improvement drivers:

1. Transition to AP Fair-Price Projects : Normalization of the gross profit margin through a full transition to contracts that include price escalation clauses and account for high material costs.
2. H2-Weighted Revenue Recognition : Reduction of fixed cost burdens through the delivery of large-scale projects in the second and fourth quarters.
3. Profitability Improvement in Overseas Business : Inventory digestion and the introduction of new strategic models at the Thai base, and addressing demand for highway construction in China (Nikko Shanghai).

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4. Capital Policy and Significant Enhancement of Shareholder Returns

In this fiscal year, Nikko announced a major revision to its return policy aimed at improving medium-to-long-term capital efficiency and shareholder value.

New Dividend Policy (Setting a 42-yen Floor)

As shown in the slide above, the company has resolved to set a minimum annual dividend of 42 yen per share during the period of its medium-term management plan (FY2027 and FY2028).

• FY2027 : Forecast annual dividend of 42 yen (21 yen interim, 21 yen year-end; 61.1% payout ratio). A guaranteed floor ensuring dividends will not fall below 42 yen even if performance underperforms.
• FY2028 : Aiming to achieve the medium-term plan target of 50 yen per year , while committing to the 42-yen floor.
• Basic Policy : Maintaining a payout ratio of 60% or higher .

Redesign of Shareholder Benefit Program

The program has been redesigned to target "500 shares or more" instead of the previous "100 shares or more." The number of shareholding tiers has been subdivided from three to seven, and long-term holding incentives have been applied to all tiers, shifting the design to reward shareholders who hold the stock for the medium-to-long term more generously.

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5. Medium-to-Long-Term Growth Themes from Q&A

During the Q&A session, key points regarding future growth scenarios were discussed:

1. Expansion of Warm-Mix Asphalt Plants In regional areas where asphalt mixture shipments are sluggish, there is growing interest in "warm-mix construction technology," which allows for manufacturing and paving at lower temperatures than usual. By suppressing the temperature drop of the mixture, it extends the transportable distance , making it a solution for the consolidation of mixture plants and meeting wide-area supply needs.

2. Overseas Strategy (Focus on LTV and New Models) In response to fierce price competition with Chinese manufacturers in the Thai market, the company is promoting a sales strategy that emphasizes Lifetime Value (LTV: total cost benefits including durability, maintenance systems, and fuel efficiency) rather than just price. The company plans to complete inventory optimization at the Thai base within this fiscal year and launch new models with enhanced cost competitiveness.

3. Human Capital Investment and AI Utilization While positioning the recruitment and development of personnel—the backbone of plant engineering—as the top priority, the company is simultaneously advancing the use of AI in routine tasks and design standardization to build a highly efficient production and engineering system capable of handling the surge in order backlog.

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6. Summary

Nikko’s FY2027 Q1 results were driven by strong demand and price pass-throughs in the BP business, pushing the order backlog to a record high of 35.6 billion yen. With the old-price projects in the AP business—which caused temporary profit pressure—expected to be cleared by the second quarter, the path to profitability recovery from the second half onward is clear.

Furthermore, with increased transparency and stability in capital policy, such as the 42-yen dividend floor and the commitment to a 60%+ payout ratio, the company’s business development toward achieving its medium-term plan targets warrants close attention.