WATANABE SATO CO., LTD.

Business Details

The Group operates a single construction business segment comprising the contracting of paving and civil engineering works, etc. (Construction Division) and the manufacture and sale of asphalt mixture, etc. (Products Sales Division). Major customers include the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), expressway companies and other public-sector entities, as well as private-sector clients. The Construction Division accounts for approximately 84.9% of net sales, while the Products Sales Division makes up the remainder (approximately 15.1%). In FY2026 (ending March 2026), orders received and net sales in the Construction Division declined significantly due to the impact of a 120-day business suspension order issued by MLIT's Kanto Regional Development Bureau.

Recent Overview

Sales fell 16.6% due to the business suspension order, but ordinary profit rose on improved profitability and price pass-through

Due to the impact of a 120-day business suspension order (from April 9, 2025 to August 6, 2025) issued by MLIT's Kanto Regional Development Bureau on March 25, 2025, based on Article 28, Paragraph 3 of the Construction Business Act, orders received and net sales in the Construction Division fell significantly below the prior-year period, resulting in consolidated net sales of ¥33,704 million (down 16.6% year on year). Meanwhile, gross profit on completed construction contracts was maintained at the prior-year level owing to improved profitability, and the Products Sales Division also achieved higher profit through price pass-through and a review of manufacturing costs. Ordinary profit increased to ¥1,369 million (up 3.1% year on year). In addition, a significant decrease in trade receivables (a cash inflow of ¥5,375 million) led to a substantial improvement in operating cash flow to ¥5,095 million, enabling full repayment of ¥2,800 million in short-term borrowings. The equity ratio improved from 60.2% to 69.8%. For FY2027 (ending March 2027), the company forecasts net sales of ¥38,000 million (up 12.7% year on year) and operating profit of ¥1,100 million, and is currently reviewing its medium-term management plan.

Key Products

Growth Drivers

• Steady public investment supported by the government's promotion of national resilience and the extension of infrastructure service life
• Securing orders for large-scale paving and repair works commissioned by MLIT, expressway companies, and port authorities (Tokyo Port Terminal Corporation, East Nippon Expressway Company, West Nippon Expressway Company, etc.)
• Improved gross profit margin on completed construction contracts through better profitability (maintaining the prior-year level even amid the business suspension order)
• Improved profitability in the Products Sales Division through appropriate price pass-through and review of manufacturing costs
• Capturing private-sector construction demand driven by increased capital investment amid expanding AI-related demand
• Improving profitability, strengthening capital and financial strategy, and promoting ESG management under the medium-term management plan (FY2024–FY2026)
• Supplementing sales through orders for disaster recovery works (Suzu and Wajima areas of Ishikawa Prefecture, etc.)

Risks

• Impact on orders and sales from the 120-day business suspension order issued by MLIT's Kanto Regional Development Bureau (the main cause of the 16.6% decline in FY2026 net sales) and the risk of recurrence
• Pressure on Products Division profitability from a nationwide decline in demand for asphalt mixture and persistently high raw material prices (crude oil and asphalt)
• Risk of higher crude oil prices and supply constraints stemming from geopolitical risks such as U.S. tariff policy under the Trump administration and the situation in the Middle East
• Continued risk of rising costs due to ongoing upward pressure on construction material and labor costs
• Intensifying order competition and challenges in complying with overtime work caps and addressing worsening labor shortages
• Risk of recording provisions for construction contract losses (increases in expected loss amounts due to deteriorating construction conditions and contract changes, etc.)
• Downward pressure on next-period sales from a decline in backlog carried forward (¥14,546 million, down ¥2,373 million year on year)
• Increase in provision for doubtful accounts (from ¥9 million in the prior period to ¥72 million in the current period) and an increase in bankruptcy and reorganization claims, etc.