NOMURA - Maeda (1824 JP) (Buy) Focus on sales growth, concessions

FULL REPORT

Pulling away from rivals by ending its dependence on contracting work

Maeda performed well in 17/3 Q1, generating a gross margin of 9.9% on building construction projects and overall operating profit growth of 26% y-y. We raise our profit forecasts, having lifted our outlook for the gross margin on building construction projects. While some investors may be concerned that the gross margin on building construction projects is high in historical terms and offers only limited scope for improvement from 18/3 onwards, we note that the order book has been rising and that sales growth from 18/3 onwards is likely to lend further impetus to profit growth. Maeda has also established a subsidiary to operate a toll road concession in Aichi Prefecture, and it will be interesting to see how it contributes to earnings. We have raised our target price to reflect upward revisions to our profit forecasts and a rise in the benchmark P/E.