Quick View
| Metric | Current | Prior Year | YoY |
|---|---|---|---|
| Revenue | ¥77.1B | ¥75.0B | +2.8% |
| Operating Income | ¥5.4B | ¥5.3B | +3.3% |
| Ordinary Income | ¥5.2B | ¥5.3B | −1.6% |
| Net Income | ¥3.4B | ¥3.6B | −4.9% |
| ROE | 3.1% | 3.1% | - |
Executive Summary
In FY2026 Q1, Revenue was ¥77.1B (¥75.0B in the prior-year period, +¥2.1B, +2.8%), Operating Income was ¥5.4B (¥5.3B, +¥0.2B, +3.3%), Ordinary Income was ¥5.2B (¥5.3B, -¥0.1B, -1.6%), and Net Income was ¥3.4B (¥3.6B, -¥0.2B, -4.9%). While operating-stage results showed higher revenue and operating profit, increases in non-operating expenses led to declines in ordinary and net income. Cost of goods sold ratio improved by 1.5pt year-on-year to 76.7%, expanding gross margin to 23.3% (21.8%). Conversely, SG&A ratio rose to 16.2% (14.8%) up 1.4pt, offsetting most of the gross margin improvement. Operating margin remained roughly flat at 7.0% (7.0%). In non-operating items, interest expense increased from ¥0.1B to ¥0.2B, compressing ordinary margin to 6.8% (7.1%) by 0.3pt. Net margin fell to 4.4% (4.8%) down 0.4pt, influenced by a persistently high effective tax rate of 34.4%. Progress against full-year guidance stands at Revenue 20.8%, Operating Income 18.7%, and Net Income 17.3%, below the standard 25% quarterly run-rate; this reflects seasonality in construction/residential businesses where Q1 activity and volumes are relatively low.
Drivers of Performance
[Revenue] Revenue was ¥77.1B (¥75.0B, +2.8%), a slight increase. Segment detail is not disclosed, but given the construction/residential nature of the business, Q1 typically sees fewer housing starts and public works orders, with revenues accumulating in the latter half of the fiscal year. Year-on-year revenue growth likely reflects the pass-through of price revisions and progress on backlog from the prior year. Notes and accounts receivable declined to ¥69.3B (¥79.8B), and inventories were compressed to ¥26.0B (¥28.9B), indicating improved asset-side efficiency; however, accounts payable also fell substantially to ¥62.4B (¥75.3B), suggesting changes in payment terms or shifts in procurement timing.
[Profitability] Cost of goods sold was ¥59.1B, improving the COGS ratio to 76.7% (78.2%) by 1.5pt. Gross profit was ¥18.0B (¥16.3B, +10.1%), and gross margin expanded to 23.3% (21.8%). Cost improvements appear driven by stabilizing material prices, price pass-through, and improved construction efficiency. SG&A increased to ¥12.5B (¥11.1B, +13.0%), raising the SG&A ratio to 16.2% (14.8%) by 1.4pt. The SG&A increase is attributed to higher personnel and logistics costs and upfront investment to strengthen sales channels. Operating Income was ¥5.4B (¥5.3B, +3.3%), with operating margin at 7.0% (7.0%) essentially flat. Non-operating items increased to a net ¥0.5B expense (¥0.2B prior), with interest expense rising from ¥0.1B to ¥0.2B, affected by higher short-term borrowings of ¥51.0B (¥48.0B) and rising rates. Ordinary Income was ¥5.2B (¥5.3B, -1.6%). Extraordinary items were negligible, with Extraordinary Loss ¥0.0B (Impairment on fixed assets ¥0.0B). Pre-tax income was ¥5.2B, from which income taxes of ¥1.8B (effective tax rate 34.4%) were deducted, resulting in Net Income of ¥3.4B (¥3.6B, -4.9%), and a net margin of 4.4% (4.8%). In summary, operating-stage revenue and operating income increased slightly, but higher non-operating expenses turned ordinary and net income into declines.
Key Financial Metrics
[Profitability] Operating margin is 7.0%, unchanged from the prior year. Improvement in gross margin to 23.3% (21.8%, +1.5pt) reflects price revisions and cost control, but the rise in SG&A ratio to 16.2% (14.8%, +1.4pt) offsets operating-level margin gains. Ordinary margin is 6.8% (7.1%, -0.3pt) and net margin is 4.4% (4.8%, -0.4pt), indicating compression in downstream profitability. ROE is 3.1%, low and indicating constrained capital efficiency. EPS of 10.60円 (11.25円, -5.8%) tracks the decline in net income. [Cash Quality] Working capital decreased to ¥51.8B year-on-year. Days Sales Outstanding (DSO) is 328 days, and Days Inventory Outstanding (DIO) is 161 days, both long and reflective of extended lead times from order to recognition and collection in the construction/residential business. The reduction in accounts payable limits the working capital compression effect. [Investment Efficiency] Total asset turnover is 0.33x (annualized 1.30x), low and indicating room for asset efficiency improvement. Tangible fixed assets are ¥44.5B (18.8% of total assets) and intangible assets ¥1.2B (0.5%), indicating a relatively light asset base and good asset quality. [Financial Soundness] Equity Ratio is 45.7% (45.1%, +0.6pt), a mid-level stable position. Current ratio is 140.5% (142.0%), and quick ratio is 120.1% (121.6%), indicating acceptable short-term liquidity. Interest-bearing debt consists solely of short-term borrowings of ¥51.0B, with debt/equity multiple 1.19x, Debt/Equity 47.0%, and Debt/Capital 32.0%. Interest coverage is 36.4x (Operating Income / Interest Expense), indicating high interest tolerance, but 100% short-term debt concentration flags refinancing risk. Cash and deposits are ¥26.9B (¥24.2B prior), with cash/short-term debt ratio at 21.0%; given the maturity concentration of short-term borrowings, on-hand liquidity is not clearly sufficient.
Cash Flow Analysis
As the cash flow statement is not disclosed, funding flows are inferred from balance sheet movements. Cash and deposits increased to ¥26.9B (¥24.2B, +¥2.8B). Working capital tightened to ¥51.8B year-on-year, with receivables down to ¥69.3B (¥79.8B, -¥10.5B) and inventories down to ¥26.0B (¥28.9B, -¥2.9B). Conversely, accounts payable fell sharply to ¥62.4B (¥75.3B, -¥12.9B), offsetting working capital improvements due to payment progress on procurement liabilities. Short-term borrowings rose to ¥51.0B (¥48.0B, +¥3.0B), indicating reliance on financing to fund working capital. Accrued corporate taxes decreased to ¥2.3B (¥6.9B, -¥4.6B), reflecting tax outflows for prior periods. Tangible fixed assets were flat at ¥44.5B (¥44.8B), signaling restrained major capital expenditure. Retained earnings declined to ¥83.8B (¥91.7B, -¥7.9B); the reduction exceeding the ¥3.4B net income suggests dividends in the prior period or other equity transactions. Overall, receivable and inventory compression progressed, but decreases in payables combined with higher short-term borrowings mean free cash flow generation is limited and the financing structure remains dependent on short-term debt.
Quality of Earnings
Operating Income of ¥5.4B is adjusted by non-operating income of ¥0.3B (including interest income ¥0.2B) and non-operating expense of ¥0.5B (including interest expense ¥0.2B) to arrive at Ordinary Income of ¥5.2B. The ¥0.2B gap between ordinary income and operating income is small, indicating high dependence on core business. Extraordinary items are negligible: Extraordinary Gain ¥0.0B (gain on sale of fixed assets ¥0.0B) and Extraordinary Loss ¥0.0B (impairment/asset retirement ¥0.0B). Pre-tax income of ¥5.2B is taxed at ¥1.8B (current tax ¥2.1B, deferred tax -¥0.3B), yielding an effective tax rate of 34.4%. Recurring earnings account for the majority of profit, and cash backing is partially secured through receivable and inventory compression; however, the reduction in payables constrains cash generation from operations. Direct calculation of accrual (profit minus Operating Cash Flow) is not possible here, but working capital movements and increased short-term borrowings suggest a standard cash conversion rate. Comprehensive income is not disclosed; other comprehensive income cumulative amount is ¥0.1B (valuation differences ¥0.1B), so divergence between net income and comprehensive income is minimal.
Forecasts & Guidance
Full-year guidance is Revenue ¥370.0B (+9.9% YoY), Operating Income ¥29.0B (+4.5%), Ordinary Income ¥29.1B (+4.1%), and Net Income ¥19.7B (+4.1%). Q1 progress rates against full-year guidance are Revenue 20.8%, Operating Income 18.7%, Ordinary Income 17.9%, and Net Income 17.3%, below a standard 25% quarterly pace. The seasonal nature of construction/residential operations, with volumes accumulating in H2, means order fulfillment and construction progress from Q2 onward are key to achieving the full-year targets. Continued improvement in gross margin could provide upside to operating income, but persistence of an elevated SG&A ratio poses a downside risk to margin improvement. No revisions to the initial full-year forecast have been announced; the guidance remains unchanged. Key assumptions for achieving guidance include H2 housing starts, public works order flow, and trends in materials and labor costs.
Shareholder Returns
At the end of Q1, the dividend forecast is ¥0 (¥0 in the prior-year period). Payout Ratio is 0%, reflecting a policy to prioritize retaining earnings to maintain the financial base and reallocate to growth investments. Short-term borrowings of ¥51.0B constitute all interest-bearing debt, and compared with cash on hand of ¥26.9B, the liquidity buffer is limited. Given seasonal working capital swings and reliance on short-term debt, resumption of dividends would require stabilization of operating cash flow and improvements in working capital efficiency. No share buybacks have been confirmed; shareholder returns remain minimal at this time.
Risk Factors
-
Short-term debt concentration risk: 100% of interest-bearing debt (¥51.0B) is short-term borrowings, creating refinancing risk from maturity concentration. While interest coverage is high at 36.4x, sensitivity to rising interest rates increases. With cash and deposits of ¥26.9B versus short-term borrowings of ¥51.0B, the on-hand liquidity covers 52.7% of short-term debt; seasonal increases in working capital could thin the liquidity buffer. Extending debt maturities or diversifying repayment schedules is a priority.
-
Low working capital efficiency: DSO 328 days and DIO 161 days are long, reflecting extended lead times from order to completion and collection. Although days payable outstanding is also long at 384 days, the ¥12.9B year-on-year reduction in payables weakens the financing function of payables. Improving the cash conversion cycle will require strengthened credit management, shortened construction schedules, and SKU rationalization. Working capital expansion increases dependence on short-term borrowings and amplifies liquidity risk.
-
SG&A ratio pressure on margins: SG&A ratio rose to 16.2% (14.8%, +1.4pt), with SG&A growth of +13.0% substantially outpacing revenue growth of +2.8%, hindering margin improvements. Increases in personnel and logistics costs and upfront investments in sales channels are cited drivers; if this level becomes persistent, operating leverage will be difficult to realize. Even with sustained gross margin improvement, without SG&A efficiency gains, expansion of operating margin will be limited.
Industry Benchmark (Reference; Company Compilation)
Profitability & Return
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 7.0% | – | – |
| Net Margin | 4.4% | – | – |
Industry median data are insufficient; relative evaluation is pending.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 2.8% | – | – |
Industry median data are insufficient; relative evaluation is pending.
※Source: Company compilation
Earnings Focus Points
-
The trend of improving gross margin is attributable to price revisions and cost management, but the rise in SG&A ratio is offsetting gains in operating margin. If SG&A growth of +13.0% continues to far exceed revenue growth of +2.8%, operating leverage will be difficult to achieve. Achieving full-year results will depend on SG&A efficiency improvements in H2 alongside maintaining gross margin improvements.
-
The 100% concentration of short-term borrowings of ¥51.0B versus cash and deposits of ¥26.9B indicates a limited liquidity buffer. Lengthening of working capital days (DSO 328, DIO 161) suggests collection delays risk, and the reduction in payables decreases the working-capital financing function. Refinancing risk and working capital efficiency improvement are key to strengthening financial stability.
-
Q1 progress vs full-year guidance (Revenue 20.8%, Operating Income 18.7%) is below a standard 25%, but is acceptable given construction/residential seasonality. Achievement of guidance depends on backlog digestion and construction progress from Q2 onward, penetration of price pass-through, and constraint of SG&A; quarterly monitoring of progress is important.
This report was automatically generated by AI analyzing XBRL earnings release data to produce a financial analysis. It is not a recommendation to invest in any specific security. Industry benchmarks are compiled by the company from public financial statements for reference. Investment decisions are your responsibility; consult a professional advisor as needed.
AI Financial Analysis
Executive Summary
FY2026 Q1 was a mixed start: revenue and operating profit increased modestly, but ordinary profit and net income declined. Revenue rose 2.8% YoY to ¥7.71bn. Operating income increased 3.3% to ¥543m. The operating margin was broadly stable at 7.0%, up approximately 3bp from 7.0% in the prior-year quarter. Gross profit grew 9.9% to ¥1.80bn, materially outpacing revenue growth. Accordingly, gross margin expanded by approximately 150bp to 23.3% from 21.8%. This gross-margin improvement indicates that the company absorbed its cost base more effectively at the gross-profit level. However, SG&A expenses rose 13.0% YoY to ¥1.25bn, faster than revenue growth. The SG&A-to-sales ratio consequently increased by about 147bp to 16.2%. This cost increase largely offset the gross-margin gain and limited operating-margin expansion. Ordinary income fell 1.6% to ¥521m as non-operating expenses increased substantially, including higher interest expense. Net income declined 4.9% to ¥341m, and the net margin compressed by roughly 37bp to 4.4%. The effective tax rate was 34.4%, producing a tax burden of 0.655 and reducing the conversion of pre-tax income into net income. Annualized ROE was 12.6%, a good level under the stated benchmark, supported by 2.19x financial leverage rather than a high net margin. The balance sheet remains liquid, with a 140.5% current ratio and a 120.1% quick ratio, although liquidity is below the 1.5x current-ratio healthy benchmark. The principal near-term financial issue is the ¥5.10bn short-term borrowing balance, as 100% of interest-bearing debt is short term. Management maintained its FY2026 forecast, and Q1 progress is below the standard 25% seasonal run rate but not by more than 10 percentage points. Full-year delivery will require acceleration in subsequent quarters, particularly in ordinary income and net income. The forecast dividend of ¥35.00 per share implies a 56.6% payout ratio against forecast EPS of ¥61.84, which appears supportable on the earnings forecast.
Profitability Analysis
The reported annualized DuPont ROE of 12.6% decomposes into a 4.4% net profit margin, 1.300x asset turnover, and 2.19x financial leverage. The largest structural constraint on returns is the modest net margin, which is below the 5-10% benchmark range despite the solid annualized ROE. Gross margin improved to 23.3% from approximately 21.8%, an expansion of about 150bp, demonstrating favorable gross-profit conversion. By contrast, SG&A grew 13.0% YoY versus 2.8% revenue growth, lifting the SG&A ratio to 16.2% from 14.8%. This SG&A deleverage absorbed nearly all of the gross-margin improvement, leaving operating margin nearly unchanged at 7.0%. The 7.0% operating margin is below the 8% threshold characterized as good in the supplied benchmark framework. Non-operating expenses rose to ¥52m from ¥17m, while interest expense increased to ¥15m from ¥10m, causing ordinary income to decline despite higher operating income. The interest burden remained healthy at 0.959, and interest coverage was strong at 36.36x, so financing costs are presently manageable. The tax burden of 0.655 was below the 0.70 normal benchmark, reflecting a relatively high effective tax rate of 34.4%. The gap between operating profit and net profit therefore reflects both increased below-operating costs and taxation rather than a deterioration in the core gross-profit performance. The small ¥6m net extraordinary loss was immaterial to the quarter's earnings profile. Sustainability of margin improvement depends on maintaining project pricing and material-cost discipline while preventing SG&A growth from continuing to outpace sales.
Growth Assessment
Q1 revenue growth of 2.8% was below the full-year revenue growth forecast of 9.9%, indicating that the company must build momentum over the remaining nine months. Q1 revenue represents 20.8% of the ¥37.0bn full-year forecast, 4.2 percentage points below the standard Q1 progress rate of 25%. Operating income represents 18.7% of the ¥2.90bn forecast, 6.3 percentage points below the standard rate. Ordinary income progress was 17.9% against the ¥2.91bn forecast, 7.1 percentage points below standard. Net income progress was 17.3% against the ¥1.972bn forecast, 7.7 percentage points below standard. None of these deviations exceeds 10 percentage points, so the quarterly run rate does not by itself establish a material forecast shortfall. Gross-profit growth of 9.9% is constructive and demonstrates better profitability at the direct-cost level. Nevertheless, operating-income growth of only 3.3% shows that overhead absorption remains the limiting factor. The decline in net income despite revenue growth also means that forecast achievement depends on lower non-operating cost pressure and better conversion from operating profit to net income. For an insulation and building-materials supplier, demand is exposed to Japanese housing starts, renovation activity, construction schedules, and the pace of energy-efficiency investment. Input-cost movements for insulation materials, logistics, and subcontracted installation can affect project profitability, particularly where pricing adjustments lag costs. Management has not revised its dividend outlook.
Financial Health
The company recorded total assets of ¥23.72bn and equity of ¥10.85bn, resulting in an equity ratio of 45.7%. Current assets of ¥17.97bn exceeded current liabilities of ¥12.79bn, producing working capital of ¥5.18bn. The 140.5% current ratio is above 1.0x and therefore does not indicate an immediate current-liability coverage shortfall, but it is below the 1.5x healthy benchmark. The quick ratio of 120.1% indicates that cash and near-cash receivables provide coverage of current liabilities without depending solely on inventory realization. Cash and deposits were ¥2.69bn, equivalent to 0.53x short-term loans. Short-term loans were ¥5.10bn and accounted for 100% of interest-bearing debt. This creates a refinancing-risk alert because the company is dependent on continued access to short-term funding and must regularly roll over its debt. The refinancing profile is more material because short-term loans equal 21.5% of total assets and exceed cash balances by ¥2.41bn. The reported debt-to-equity ratio was 1.19x, below the 2.0x aggressive-leverage warning threshold, while debt-to-capital was 32.0%, within the sub-40% investment-grade benchmark. Interest coverage of 36.36x indicates that current operating earnings can comfortably service the reported interest expense. Trade receivables were ¥6.93bn and electronically recorded monetary claims were ¥1.23bn, making collection discipline important to working-capital management. The high-receivable-days alert of 82 days exceeds the 60-day threshold and is a material concern: it raises the risk that earnings growth may not translate promptly into cash collection and increases exposure to customer payment delays. This receivables profile can be common in construction-related supply and installation businesses because billing and settlement follow project milestones, but it remains material given the reliance on short-term borrowing. Inventories declined to ¥2.60bn from ¥2.89bn, which is favorable for working-capital discipline, while trade receivables also declined from ¥7.98bn. Trade payables decreased to ¥6.24bn from ¥7.53bn, partly offsetting the cash benefit from lower receivables and inventories. Intangible assets increased 32.0% YoY to ¥117m, but remain only 0.5% of total assets; the increase is not material to solvency or impairment risk. Property, plant and equipment represented 18.7% of total assets, with land of ¥2.06bn and buildings of ¥2.18bn forming the main tangible fixed-asset base.
Notable B/S Changes
Intangible assets: +¥0.28bn (+32.0%) to ¥1.17bn - the increase is notable by percentage but remains only 0.5% of total assets, limiting balance-sheet concentration and impairment significance.
Cash Flow Quality
Dividend Sustainability
The full-year dividend forecast is ¥35.00 per share. Against forecast EPS of ¥61.84, this implies a dividend payout ratio of 56.6%. This is below the 60% sustainability benchmark and leaves a forecast earnings retention buffer of approximately ¥26.84 per share. The unchanged dividend outlook is consistent with management maintaining confidence in the full-year earnings plan. Dividend sustainability is supported by a 45.7% equity ratio, strong 36.36x interest coverage, and debt-to-capital of 32.0%. However, the short-term funding structure and 82-day receivables profile make liquidity conversion an important consideration for capital returns. Maintaining the forecast payout will depend on achieving the second-half earnings acceleration embedded in the FY2026 plan and managing working capital without increasing reliance on short-term borrowings.
Risk Assessment
Business risks include Construction and housing-market sensitivity: insulation-material sales and installation activity are exposed to housing starts, renovation demand, public and private construction schedules, and energy-efficiency investment trends., Input-cost and pricing risk: movements in raw materials, energy, logistics, and labor costs can pressure gross margin if selling-price revisions or contract pass-throughs lag., Execution risk: Q1 sales progress was 20.8% of the full-year forecast and operating-income progress was 18.7%, requiring stronger subsequent-quarter execution to achieve the unchanged plan., Receivables collection risk: the 82-day DSO alert indicates elevated collection-cycle exposure, which can be amplified by construction-project milestone billing and customer credit conditions..
Financial risks include Refinancing risk: ¥5.10bn of short-term loans represent 100% of interest-bearing debt, requiring continued access to rollover financing., Liquidity conversion risk: cash covers only 0.53x of short-term loans, although current and quick ratios remain above 1.0x., Earnings-conversion risk: higher non-operating expenses and a 34.4% effective tax rate reduced conversion of operating income into net income., Cost-structure risk: SG&A increased 13.0% YoY, substantially faster than 2.8% revenue growth, limiting operating leverage..
Key concerns include Highest priority is the combination of short-term debt dependence and elevated receivable days; delayed collections could increase refinancing reliance even though current liquidity ratios remain above 1.0x., Gross margin improved strongly, but this benefit was largely absorbed by SG&A growth; sustained operating-margin improvement requires tighter overhead growth., Net income fell 4.9% YoY despite operating-income growth, so investors should monitor whether below-operating costs normalize during the remaining quarters., The company operates in a construction-linked market where labor shortages, material inflation, weather-related disruption, and changes in housing activity can affect installation volumes and project profitability..
Investment Implications
Key takeaways include Revenue increased 2.8% YoY and operating income increased 3.3% YoY, supported by approximately 150bp gross-margin expansion., SG&A growth of 13.0% YoY materially exceeded sales growth and prevented meaningful operating-margin expansion., Annualized ROE of 12.6% is solid, but it is supported by 2.19x leverage while the net margin remains modest at 4.4%., The unchanged FY2026 plan remains attainable based on Q1 progress, but requires a clear pickup in sales and earnings conversion over the remaining quarters., The funding profile and receivables cycle are the principal balance-sheet items requiring ongoing monitoring..
Metrics to watch include Revenue and operating-income progress versus the ¥37.0bn and ¥2.90bn FY2026 forecasts, Gross margin and SG&A-to-sales ratio, Ordinary-income conversion from operating income and interest expense, Receivable days, trade receivables, and electronically recorded monetary claims, Short-term loans, cash-to-short-term-debt coverage, and debt rollover conditions, Dividend payout ratio relative to FY2026 EPS delivery.
Regarding relative positioning, The company combines a solid annualized ROE, healthy interest coverage, and an equity ratio of 45.7% with a sub-benchmark operating margin and a concentrated short-term debt profile. Its Q1 gross-margin recovery is favorable, but relative financial quality will depend on converting this improvement into operating leverage, controlling receivables, and reducing dependence on short-term funding.