Shin Nippon Air Technologies (1952) FY2026 Q3 Earnings Report

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Executive Summary

For the nine months ended Q3 of the fiscal year ending March 2026, the Company reported higher revenue and earnings, primarily due to the expansion of completed construction revenue and improved construction profitability. Revenue was ¥1,046.74B (+18.2% YoY), Operating Income was ¥88.44B (+68.1%), Ordinary Income was ¥95.41B (+64.1%), and Net Income attributable to owners of the parent was ¥70.41B (+81.5%). The increase in earnings, which significantly exceeded the revenue growth rate, was attributable to the improvement in the gross profit margin on completed construction to 16.9% from 14.3% in the same period of the previous year. The fact that Operating Income growth slightly undershot Net Income growth is due to extraordinary gains, including a ¥6.37B gain on the sale of investment securities, also contributing to Net Income; therefore, recurring earnings power should appropriately be evaluated based on Operating Income and the gross profit margin on completed construction.

Factors Affecting Performance

【Revenue】Revenue was ¥1,046.74B, up +18.2% YoY. The Company operates in a single business segment, the Facilities Construction Business, and does not disclose a breakdown by segment. The increase in completed construction revenue was the primary driver of higher revenue.

【Profit and Loss】Gross profit on completed construction was ¥177.44B (¥126.30B in the previous year, +40.5%), and the gross profit margin improved to 16.9% from 14.3% in the previous year. SG&A expenses were ¥89.00B, up +20.8% YoY, slightly exceeding the revenue growth rate; however, the SG&A ratio was 8.5% (8.3% in the previous year), remaining broadly flat and not materially eroding the benefit of the improved gross margin. As a result, Operating Income was ¥88.44B (+68.1%). Non-operating income of ¥7.30B (including ¥5.89B in dividend income) and extraordinary gains of ¥6.83B (including ¥6.37B in gains on the sale of investment securities) further increased Ordinary Income and Net Income, resulting in Net Income of ¥70.41B (+81.5%). The key characteristic is that the Company achieved higher revenue and earnings, with earnings growth significantly exceeding revenue growth.

Segment Analysis

The Company operates in a single segment, the Facilities Construction Business, and has omitted the disclosure of segment information.

Key Financial Indicators

【Profitability】The Operating Income margin was 8.4%, improving by approximately 2.5pt from 5.9% in the same period of the previous year, while the Net Income margin also improved by approximately 2.4pt to 6.7% from 4.4% in the previous year. The increase in the gross profit margin on completed construction to 16.9% from 14.3% was the starting point, and improved construction profitability, in addition to higher revenue, supported the improvement in profitability.【Cash Quality】The difference between Ordinary Income and Net Income is primarily attributable to taxes and profit or loss attributable to non-controlling interests, with no significant divergence. However, extraordinary gains of ¥6.83B (including ¥6.37B in gains on the sale of investment securities) boosted Net Income, and this portion should be distinguished as a non-recurring factor.【Investment Efficiency】Annualized ROE was 12.3%, with Net Income margin, total asset turnover, and financial leverage each contributing without excessive concentration in any one factor. BPS increased to ¥1,679.37 (¥1,527.53 in the previous year).【Financial Soundness】The Equity Ratio was 64.2%, improving from 58.6% in the previous year. Interest-bearing debt was limited to ¥25.32B against cash and deposits of ¥210.42B, placing the Company in a net cash position.

Cash Flow Analysis

Although individual data from the cash flow statement have not been disclosed, trends in the balance sheet indicate an expansion in financial capacity. Cash and deposits were ¥210.42B, increasing slightly from ¥202.71B in the same period of the previous year, while short-term borrowings declined 40.6% from ¥37.33B to ¥22.16B. While interest-bearing debt is being reduced, investment securities increased 27.4% YoY to ¥285.91B, indicating that a portion of cash holdings and cash flow has been allocated to securities investments. The increase in costs on uncompleted construction contracts from ¥2.31B to ¥4.35B indicates an increase in advance expenditures associated with construction progress, consistent with the Company being in a phase of expanding construction orders.

Earnings Quality

The current-period earnings growth was centered on a substantive improvement in earnings power at the operating level, supported by the improvement in the gross profit margin on completed construction; earnings quality is therefore favorable in this respect. Meanwhile, a portion of Ordinary Income consisted of ¥7.30B in non-operating income, including ¥5.89B in dividend income, while Profit Before Tax and Net Income included ¥6.83B in extraordinary gains, including ¥6.37B in gains on the sale of investment securities. Even excluding these non-recurring items, improvements in Operating Income and the gross profit margin on completed construction are evident, indicating that the primary driver of earnings growth was improved profitability in the core business. However, the Net Income growth rate (+81.5%) slightly exceeded the Operating Income growth rate (+68.1%), and this difference can be interpreted as being mainly attributable to the boost from gains on the sale of securities. Comprehensive Income was ¥108.74B, ¥38.33B higher than Net Income of ¥70.41B, primarily due to the ¥4.05B increase in valuation difference on other securities; fluctuations in the market value of the Company’s shareholdings therefore represent a significant driver of changes in Comprehensive Income.

Earnings Forecasts and Guidance

The progress rates for the nine-month cumulative results against the full-year Company forecasts (Revenue of ¥1,500.00B, Operating Income of ¥137.00B, and Ordinary Income of ¥145.00B) were 69.8% for Revenue, 64.6% for Operating Income, and 65.8% for Ordinary Income. Compared with the standard progress rate of 75%, Operating Income was 10.4pt below the benchmark, while Revenue was also 5.2pt below it. Based on this calculation, the fourth quarter will require Revenue of ¥453.26B and Operating Income of ¥48.56B, implying a required Operating Income margin of 10.7%, above the cumulative actual result of 8.4%. The Company has not revised either its earnings forecasts or dividend forecasts and, as of this quarter, continues to assume achievement of its plan.

Shareholder Returns

The dividend for Q2 of the fiscal year ended March 2025 was ¥40.00 per share (an amount not adjusted for the impact of the stock split). The full-year dividend forecast is ¥110.00, resulting in a forecast Payout Ratio of 47.6% against forecast full-year EPS of ¥231.31. This is a Payout Ratio using dividends alone as the numerator and remains within the generally regarded sustainable level of below 60%. The financial foundation of cash and deposits of ¥210.42B, an Equity Ratio of 64.2%, and interest-bearing debt of ¥25.32B indicates sufficient capacity to pay dividends. In addition, a 2-for-1 stock split was implemented effective January 1, 2025, resulting in an annual dividend total of ¥80.00 after adjusting for the stock split (interim dividend of ¥30.00 and year-end dividend of ¥50.00).

Risk Factors

1. Ensuring the profit margin required to achieve the full-year plan: The progress rate for Operating Income is 64.6%, 10.4pt below the standard progress rate of 75%, requiring an Operating Income margin of 10.7% in the fourth quarter. If construction completion is delayed or profitability deteriorates, achievement of the full-year plan may become difficult.

2. Maintaining construction profitability: Although the gross profit margin on completed construction improved to 16.9%, maintaining this margin will be a challenge if increases in material prices, labor costs, and subcontracting expenses continue. A provision for construction losses of ¥1.34B (¥2.0B in the previous year) has been recorded, and the risk of cost overruns on individual projects remains.

3. Fluctuations in investment securities prices and dependence on non-recurring income: Investment securities increased 27.4% YoY to ¥285.91B, and the valuation difference on other securities reached ¥13.532B. Dividend income of ¥5.89B and gains on the sale of investment securities of ¥6.37B boosted Net Income, but these should be distinguished from the underlying earnings power of the construction business, and the sustainability of these items at the same level is not guaranteed.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

As comparative data for the construction industry average are not yet available, the Company’s Operating Income margin and Net Income margin are evaluated only in terms of their absolute levels.

Growth and Capital Efficiency

The Revenue growth rate of 18.2% indicates strong growth from the previous year, but comparative data against the industry median are not currently available.

※Source: Compiled by the Company

Key Points in the Financial Results

1. The gross profit margin on completed construction improved by approximately 2.6pt from 14.3% in the same period of the previous year to 16.9%, driving the expansion of the Operating Income margin to 8.4% from 5.9% in the previous year. The simultaneous progress of higher revenue and improved profitability is a core feature of the current-period performance.

2. The progress rate for cumulative Q3 Operating Income against the full-year plan was 64.6%, below the standard level of 75%; the concentration of construction completions and the securing of profitability in the fourth quarter will be the focal points for achieving the full-year plan.

3. Net Income growth (+81.5%) exceeded Operating Income growth (+68.1%), with extraordinary gains including ¥6.37B in gains on the sale of investment securities contributing to the difference. When evaluating the recurring earnings power of the construction business, this non-recurring factor must be considered separately.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,897–¥2,006 at ±1% for the cost of equity capital, and ¥1,944–¥1,960 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these do not constitute forecasts of the market share price or recommendations for specific investment actions, and do not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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 a professional as necessary.

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