NIPPON RIETEC CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In Q1 of the fiscal year ending March 2027, operating income turned profitable against the backdrop of higher revenue from the core Electrical Equipment Construction business, while Ordinary Income and Net Income also increased significantly. Revenue was ¥140.2B (¥121.7B in the same period of the previous year, YoY +15.2%), Operating Income was ¥4.2B (a return to profitability from a loss of ¥-0.5B in the previous year), Ordinary Income was ¥6.5B (¥1.1B in the previous year, YoY +475.7%), and Net Income (net income attributable to owners of the parent) was ¥4.1B (¥0.2B in the previous year, YoY +2128.3%). The primary factors behind the earnings increase were improved profitability and progress in fixed-cost absorption accompanying higher revenue in the Electrical Equipment Construction segment. At the Ordinary Income level, non-operating income, including ¥2.1B in dividend income, also contributed.

Factors Affecting Business Performance

【Revenue】Revenue was ¥140.2B (YoY +15.2%), led by Electrical Equipment Construction, which accounts for 93.2% of sales to external customers, with revenue of ¥130.6B (YoY +14.1%). Ancillary Businesses continued to achieve double-digit growth, with revenue of ¥14.7B (YoY +26.2%), while Real Estate Leasing was nearly flat at ¥1.1B (YoY △0.4%).

【Profit and Loss】The gross profit margin improved to 13.1% from 10.6% in the previous year, an improvement of +253bp, while the SG&A expense ratio remained contained at 10.1% relative to revenue growth. As a result, Operating Income turned profitable, increasing from ¥-0.5B in the previous year to ¥4.2B. Ordinary Income amounted to ¥6.5B, comprising Operating Income of ¥4.2B plus ¥3.3B in non-operating income, primarily including ¥2.1B in dividend income, less ¥1.0B in non-operating expenses, including ¥0.8B in equity-method investment losses. Extraordinary income and expenses were limited, consisting of a ¥0.02B gain on the sale of fixed assets. After deducting income taxes and other taxes of ¥2.4B (effective tax rate of 37.4%) from Profit Before Tax of ¥6.5B, Net Income was ¥4.1B. This was an increase in both revenue and earnings, driven by progress in the absorption of costs and fixed expenses accompanying higher revenue, together with the contribution from non-operating income.

Segment Analysis

Electrical Equipment Construction generated revenue of ¥130.6B (YoY +14.1%), segment profit of ¥11.2B (YoY +55.3%), and a profit margin of 8.6%, making it the core contributor to consolidated earnings. Ancillary Businesses generated revenue of ¥14.7B (YoY +26.2%), segment profit of ¥1.6B (YoY +270.6%), and a profit margin of 10.9%, continuing to achieve high growth with profitability exceeding that of the core business. Real Estate Leasing generated revenue of ¥1.1B (YoY △0.4%), segment profit of ¥0.2B (YoY +4.6%), and a profit margin of 14.6%. It maintained the highest profitability among the three segments, although its scale remains limited. Consolidated Operating Income was ¥4.3B after deducting ¥8.8B in adjustments, including unallocated corporate expenses, from total segment profit of ¥13.0B. The scale of corporate expenses therefore has a considerable impact on the earnings level.

Key Financial Indicators

【Profitability】The Operating Income margin was 3.0%, turning profitable from △0.4% in the previous year, while the Net Income margin recovered to 2.9% (0.15% in the previous year). The gross profit margin improved to 13.1% from 10.6% in the previous year, and the restrained growth in SG&A expenses relative to revenue growth is producing operating leverage.【Cash Flow Quality】Cash and deposits were ¥93.8B (¥83.9B in the previous year), indicating ample liquidity. Accounts receivable from completed construction contracts declined to ¥365.3B from ¥482.2B in the previous year, suggesting progress in receivables collection.【Investment Efficiency】ROE was 0.6% (Net Income margin of 2.9% × total asset turnover of 0.152 × financial leverage of 1.37). While business profitability is improving, asset efficiency remains low. Total assets declined to ¥924.8B from ¥1,013.4B in the previous year, and asset turnover is trending upward.【Financial Soundness】The Equity Ratio rose to 73.2% from 68.4% in the previous year. Interest-bearing debt was limited to ¥5.0B, and interest coverage based on Operating Income was approximately 53.5x, indicating extremely ample debt-servicing capacity. The current ratio was 277.9% (current assets of ¥497.5B / current liabilities of ¥179.0B), indicating little concern regarding short-term payment capacity.

Cash Flow Analysis

As no cash flow statement has been disclosed, cash movements are assessed based on changes in the balance sheet. Accounts receivable from completed construction contracts declined substantially to ¥365.3B from ¥482.2B in the previous year, suggesting that collection of construction proceeds progressed and contributed to stable cash management. Meanwhile, costs on uncompleted construction contracts increased to ¥19.2B (¥10.7B in the previous year, +79.1%), indicating increased upfront expenditures for ongoing projects. On the current liabilities side, the provision for bonuses declined significantly to ¥5.3B from ¥28.4B in the previous year, while electronically recorded obligations increased to ¥18.2B from ¥13.7B. As a result, cash and deposits increased to ¥93.8B from ¥83.9B in the previous year, suggesting that cash generation through operating activities was strong. Investment securities were ¥199.6B, nearly unchanged from ¥200.6B in the previous year, and no significant investment or financing activity was identified.

Earnings Quality

Against Operating Income of ¥4.2B, which represents recurring business earning power, non-operating income of ¥3.3B, including ¥2.1B in dividend income, was added to produce Ordinary Income of ¥6.5B. The contribution from non-operating income is therefore relatively significant. Non-operating expenses included ¥0.8B in equity-method investment losses and totaled ¥1.0B together with ¥0.1B in interest expenses. Extraordinary income and expenses consisted solely of a ¥0.02B gain on the sale of fixed assets, so distortion from temporary factors was limited. After deducting income taxes and other taxes of ¥2.4B from Profit Before Tax of ¥6.5B, Net Income was ¥4.1B. The difference between Ordinary Income and Net Income was attributable to the tax burden and is not unusual. Comprehensive income was ¥4.6B, approximately at the same level as Net Income of ¥4.1B. The primary factors behind the difference were a +¥1.1B valuation difference on securities and a △¥0.4B adjustment related to retirement benefits. Although dividend income is recurring in nature, it should be evaluated separately from the improvement in the profitability of the core business, as reflected in the higher gross profit margin and Operating Income margin.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year company forecasts (Revenue of ¥753.0B, Operating Income of ¥73.5B, and Ordinary Income of ¥83.6B) were 18.6% for Revenue, 5.8% for Operating Income, 7.7% for Ordinary Income, and 6.6% for Net Income (against the company forecast of ¥61.4B). Because the construction industry has seasonality weighted toward the latter half of the fiscal year as projects progress, the figures may appear low compared with a simple one-fourth (25%) benchmark. Taking this factor into account, however, progress appears to be within expectations. No revisions were made to the earnings forecast or dividend forecast during the current quarter. Going forward, maintaining project profitability in Electrical Equipment Construction and controlling fixed expenses will be key points for monitoring progress toward achieving the full-year plan.

Shareholder Returns

The annual dividend forecast announced by the company is ¥97, representing an expected increase from the previous fiscal year's actual dividend of ¥82. The Payout Ratio against the company forecast EPS of ¥247.42 is calculated at approximately 39.2% (¥97 ÷ ¥247.42). The dividend is supported by a strong financial base, including cash and deposits of ¥93.8B and investment securities of ¥199.6B against interest-bearing debt of ¥5.0B. No disclosure regarding share repurchases was identified.

Risk Factors

1. Segment concentration risk: Electrical Equipment Construction accounts for 93.2% of sales to external customers, increasing the sensitivity of overall business performance to project profitability and fluctuations in material and labor costs in this business.

2. Profitability volatility risk: Although the gross profit margin improved to 13.1% from 10.6% in the previous year, the company's Operating Income margin of 3.0% remains below the industry median of 4.5% on an Operating Income margin basis, leaving room for profit pressure if outsourcing and labor costs rise.

3. Dependence of Ordinary Income on non-operating income: Dividend income of ¥2.1B made a meaningful contribution to Ordinary Income of ¥6.5B. The dividend policy and valuation fluctuations of investment securities could affect the stability of earnings at the Ordinary Income level.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin are below the industry median. Although the company achieved a return to profitability, its profitability remains relatively low within the industry.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeds the industry median, representing a high pace of revenue growth within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Operating Income turned from a loss in the previous year to a profit of ¥4.2B, while the gross profit margin also improved to 13.1% (+253bp). The results confirm simultaneous progress in revenue growth and the absorption of costs and fixed expenses.

2. Dividend income of ¥2.1B made a significant contribution to Ordinary Income of ¥6.5B, while the earning power of the core business, reflected in the Operating Income margin of 3.0%, remains below the industry median of 4.5%. Improvement in profitability at the operating level will be a key point to monitor going forward.

3. Progress toward the full-year plan was relatively low at 5.8% for Operating Income, but this is considered consistent with the seasonality of the construction industry, which is weighted toward the latter half of the fiscal year. The financial structure also improved from the previous year, as evidenced by the reduction in accounts receivable from completed construction contracts and the increase in the Equity Ratio to 73.2%.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥2,682–¥2,838 at ±1% for the Cost of Equity, and ¥2,758–¥2,759 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings flash report data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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