Nippon Densetsu Q2 FY2027: Operating profit surges 174.8% as orders rise

Nippon Densetsu’s revenue rose 14.9% year on year to ¥90.067 billion in the six months ended September, while operating profit surged 174.8% to ¥7.480 billion and net income attributable to owners of the parent increased 93.2% to ¥5.472 billion. Earnings growth far outpaced sales growth, and basic earnings per share rose to ¥94.31 from ¥48.47.

• Revenue: Up 14.9% year on year to ¥90.067 billion, supported by an increase in completed construction work.
• Operating profit: Up 174.8% to ¥7.480 billion. Gross profit on completed construction work increased to ¥16.210 billion from ¥10.405 billion a year earlier.
• Ordinary profit: Up 136.4% to ¥8.527 billion, with non-operating income, including dividend income, also contributing.
• Orders: Up 47.9% to ¥142.673 billion. The year-end order backlog rose 37% to ¥277.9 billion.

The company attributed the profit increase to steady progress on higher-margin projects. The increase in gross profit on completed construction work was particularly strong, lifting the operating margin to about 8.3% from about 3.5% a year earlier. Growing orders and improving project profitability are advancing together, putting the focus on how much profit Nippon Densetsu can generate from its enlarged backlog.

Completed construction revenue increased year on year in the main business lines, with environmental and energy engineering the only segment to decline. The company did not disclose operating profit by segment, so the table below compares year-on-year changes in completed construction revenue and orders.

Railway electrical engineering revenue from completed work increased. Nippon Densetsu pursued business with JR Group companies and public and private railway operators, capturing demand for investment and equipment upgrades to support safe, reliable transport. Orders were broadly flat year on year, leaving the acquisition of large projects in focus.

General electrical engineering saw growth in completed work and a sharp rise in orders. The company won several large projects, particularly for redevelopment around stations, data center construction and upgrades to aging equipment, reflecting solid private-sector capital investment.

Orders and completed construction revenue both increased in information and communications engineering. Environmental and energy engineering secured more orders, but completed revenue fell short of the year-earlier level. Related businesses, which include property leasing, equipment maintenance and materials sales, recorded higher completed revenue.

Nippon Densetsu left its FY2027 forecast, announced on April 30, 2026, unchanged. It did not raise guidance after the sharp first-half profit increase, maintaining its plan in light of the seasonal concentration of project completions and handovers in the fourth quarter.

First-half progress against the full-year forecast was about 37.2% for revenue, 31.3% for operating profit and 29.6% for net income. The company said fixed costs accrue throughout the year, while a larger share of project completions and handovers falls in the fourth quarter. Investors should therefore look beyond first-half progress rates and track construction progress and project profitability in the second half.

Total assets declined from the end of the previous fiscal year, while the equity ratio rose to 71.3% from 64.6%. Nippon Densetsu also plans to increase its annual dividend and has bought back and canceled treasury shares.

The decline in total assets was mainly due to the collection of notes receivable and completed construction receivables recorded at the prior year-end. Liabilities also fell as the company paid construction-related accounts payable. Nippon Densetsu did not report a figure for cash flow from operating activities in this earnings release. After buying back shares, it also canceled the acquired shares. Its plan to raise the annual dividend by ¥3 from the previous year signals a focus on shareholder returns and capital efficiency.

Demand remains solid, supported by railway equipment upgrades and private-sector investment, but Nippon Densetsu also cited uncertainty in the domestic economy and financial markets. The challenge is to execute its backlog while protecting margins and meeting its full-year plan.

• Materials costs and inflation: Further increases in raw material prices and broader inflation could raise construction costs and squeeze project profitability.
• Middle East tensions and natural disasters: Geopolitical tensions or disasters could disrupt materials procurement and construction schedules.
• Financial market volatility: Changes in market conditions could affect companies’ investment decisions and, in turn, demand for construction work.
• Project progress and seasonality: With completions and handovers concentrated in the fourth quarter, construction delays or weaker project margins could have a significant impact on full-year results.

Orders and the backlog grew in the first half, but construction earnings depend not only on the value of orders, but also on completion timing and the profitability of individual projects. Investors will be watching whether the company can manage large projects and costs effectively while sustaining margins in the second half.