| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥7452.8B | ¥8580.8B | -13.1% |
| Operating Income / Operating Profit | ¥354.0B | ¥-114.7B | +13.0% |
| Ordinary Income | ¥581.9B | ¥113.2B | +414.0% |
| Net Income / Net Profit | ¥-42.5B | ¥-10.6B | -302.8% |
| ROE | -1.0% | -0.3% | - |
For the fiscal year ended March 2026, Revenue totaled ¥7,452.8B (YoY -¥1,128.0B, -13.1%), Operating Income was ¥354.0B (YoY +¥468.7B, turned profitable), Ordinary Income ¥581.9B (YoY +¥468.7B, +414.0%), and Net Income attributable to owners of parent was ¥418.4B (substantial improvement from prior-year loss of ¥-3.9B). Revenue declined due to a temporary pullback in Middle East and North America projects in the core Engineering Business, but gross margin improved sharply to 8.6% (up 6.4ppt from 2.2%) as low-margin projects cycled out and cost controls were strengthened, driving operating profitability from a ¥114.7B loss in the prior year to a ¥354.0B profit. At the ordinary income level, non-operating income of ¥245.5B (including interest income ¥120.9B and foreign exchange gains ¥57.0B) supported results, lifting the ordinary income margin to 7.8% (prior 1.3%). Extraordinary items included gain on sale of investment securities ¥34.6B and impairment losses ¥4.2B, with Total special losses of ¥8.8B; the net impact on net income was limited. Profit before tax was ¥607.7B (prior ¥82.6B, +635.3%); with an effective tax rate of 31.1%, the bottom line improved markedly from a prior-year loss. ROE is shown as -1.0% superficially due to the prior-year-end deficit affecting average shareholders’ equity in the denominator; year-end Equity Ratio improved to 51.4% (up 1.6ppt from 49.8%), and Net Income ¥418.4B against year-end shareholders’ equity ¥4,294.2B corresponds to an effective return power roughly equivalent to ROE ~9.7%.
[Revenue] Revenue decreased to ¥7,452.8B (-13.1%). By segment, core Integrated Engineering declined to ¥6,795.9B (-14.5%), with the Middle East at ¥2,440.4B (from ¥2,926.1B, -16.6%) and North America at ¥1,157.2B (from ¥1,630.1B, -29.0%). Africa grew strongly to ¥546.1B (from ¥342.1B, +59.6%), increasing regional diversification. By major customer, sales to Saudi Aramco decreased to ¥1,039.5B (from ¥1,466.6B), and timing shifts in the start-up/acceptance of new large projects had a significant impact. Functional Materials Manufacturing rose to ¥570.1B (+3.6%) and Other Businesses increased slightly to ¥121.9B (+0.8%). Regional composition: Japan 25.6%, Southeast Asia 15.4%, Middle East 32.7%, Africa 7.3%, North America 15.5%, Other 3.3%, with Middle East dependence slightly down from 34.1% last year.
[Profitability] Cost of sales declined more than revenue to ¥6,811.4B (from ¥8,391.6B, -18.8%), improving cost of sales ratio to 91.4% (from 97.8%, -6.4ppt). Gross profit rose to ¥641.4B (from ¥189.3B, +239.0%), gross margin 8.6% (from 2.2%, +6.4ppt), driven by the phasing out of low-margin projects and rigorous cost control. SG&A was contained at ¥287.4B (from ¥304.0B, -5.5%), SG&A ratio modestly increased to 3.9% (from 3.5%, +0.4ppt). As a result, Operating Income turned positive to ¥354.0B (from a ¥-114.7B loss), operating margin 4.7% (from -1.3%, +6.0ppt). Non-operating income comprised interest income ¥120.9B, foreign exchange gains ¥57.0B, dividend income ¥26.2B, and equity-method investment gains ¥33.6B, totaling non-operating income ¥245.5B; non-operating expenses were limited to ¥17.6B (interest expense ¥12.1B, FX losses ¥22.1B offset by other items), producing net non-operating income +¥227.9B. Hence Ordinary Income was ¥581.9B (from ¥113.2B, +414.0%), ordinary income margin 7.8% (from 1.3%, +6.5ppt). Extraordinary results included special gains ¥34.6B (mainly gain on sale of investment securities) and special losses ¥8.8B (impairment losses ¥4.2B, loss on retirement of fixed assets ¥1.8B, valuation loss on investment securities ¥2.7B), netting +¥25.8B. Profit before tax was ¥607.7B (from ¥82.6B, +635.3%); income taxes ¥189.0B (effective tax rate 31.1%) resulted in Net Income attributable to owners of parent ¥418.4B (turning from prior-year loss of ¥-3.9B), net profit margin 5.6% (from -0.05%, +5.65ppt). In conclusion, despite revenue decline, substantial normalization of profitability was achieved, driven by major gross margin improvement and support from non-operating income, producing a strong profit turnaround exceeding what revenue trends alone would suggest.
Integrated Engineering: Revenue ¥6,795.9B (-14.5%), Operating Income ¥336.4B (turned profitable from prior-year ¥-145.9B loss, +330.6%), operating margin 5.0% (from -1.8%, +6.8ppt), as project loss recognition from prior large projects phased out and stricter cost control plus higher share of high-margin projects contributed. Sales composition ratio 91.2% (from 92.6%) remains high, and the large decline in this segment was the primary driver of consolidated revenue decline. Functional Materials Manufacturing: Revenue ¥570.1B (+3.6%), Operating Income ¥76.8B (-6.4%), operating margin 13.5% (from 14.9%, -1.4ppt), maintaining a high level though slightly down. Sales composition ratio 7.6% positions it as a stable revenue source. Other Businesses: Revenue ¥121.9B (+0.8%), Operating Income ¥21.1B (-12.1%), operating margin 17.3% (from 24.0%, -6.7ppt), margin declined but absolute profit remains modest at ¥21B. Segment total operating income before corporate expenses was ¥434.3B (turned positive from prior-year ¥-39.9B), less corporate expenses ¥80.3B (from ¥74.9B) yields consolidated Operating Income ¥354.0B.
[Profitability] Operating margin 4.7% (from -1.3%, +6.0ppt), Ordinary Income margin 7.8% (from 1.3%, +6.5ppt), Net margin 5.6% (from -0.05%, +5.65ppt) — sizable improvement across all levels. Gross margin 8.6% (from 2.2%, +6.4ppt), reflecting the effect of phasing out low-margin projects and cost control. ROE is -1.0% on the surface, but Net Income ¥418.4B against year-end equity ¥4,294.2B implies an effective return of about 9.7% (prior year negative so ROE not comparable). ROA (ordinary income basis) improved to 7.2% (from 1.4%). By segment, Functional Materials Manufacturing operating margin 13.5%, Other Businesses 17.3%; Integrated Engineering margin 5.0% improved substantially from prior-year loss. [Cash Quality] Operating Cash Flow (OCF) strong at ¥799.0B (from ¥467.6B, +70.9%), OCF/Net Income ratio 1.91x indicating very strong cash backing of profits. OCF/EBITDA ratio 1.71x (Operating Income ¥354.0B + Depreciation ¥113.2B = EBITDA approx. ¥467.2B). Accrual ratio -4.5% (negative), indicating high earnings quality. Free Cash Flow ¥650.8B (OCF ¥799.0B - CapEx ¥128.2B), ample to cover dividend ¥96.7B and still increase cash. [Investment Efficiency] Total Asset Turnover 0.89x (from 1.09x decline), driven by revenue decline and increase in total assets to ¥8,387.9B (from ¥7,841.8B, +7.0%). CapEx ¥128.2B exceeds depreciation ¥113.2B, CapEx/Depreciation ratio 1.13x balancing maintenance and growth investment. Tangible Fixed Asset Turnover 7.88x (from 9.72x), Inventory Turnover 105.2x (unchanged) maintaining high efficiency. [Financial Soundness] Equity Ratio 51.4% (from 49.8%, +1.6ppt) healthy. Interest-bearing debt total ¥443.5B (corporate bonds ¥200.0B, current portion of bonds ¥100.0B, long-term borrowings ¥140.2B, short-term borrowings ¥3.3B) vs. Cash and Deposits ¥4,004.8B, net cash ¥3,561.3B. Debt/Equity 0.10x, Debt/EBITDA 0.95x very low, Interest Coverage 29.2x (Operating Income ¥354.0B / interest expense ¥12.1B) reflecting strong financial resilience. Current ratio 171.6% (from 161.8%), Quick ratio 169.7% (from 159.5%) indicating sufficient short-term liquidity.
OCF ¥799.0B (from ¥467.6B, +70.9%) is strong. Starting from profit before tax ¥607.7B, adjustments included Depreciation ¥113.2B, decrease in allowance for doubtful accounts ¥94.9B (non-cash reversal), increase in provision for construction losses ¥9.0B, equity-method investment gains ¥33.6B, reversal of received interest/dividends, increase in contract liabilities ¥407.4B (accumulation of advance receipts), decrease in inventories ¥48.6B, decrease in trade payables ¥247.1B, and other operating receivables/payables movements; income tax paid ¥25.6B. The large increase in contract liabilities reflects backlog accumulation and was the main cash creation driver, while the decrease in trade payables likely reflects shorter payment terms or one-off payments. Interest and dividend receipts totaled ¥247.4B, interest paid ¥10.0B, further supporting strong cash generation. Investing Cash Flow was -¥148.2B (from -¥211.7B), driven by CapEx ¥128.2B, intangible asset additions ¥49.0B, acquisition of investment securities ¥23.6B, offset by proceeds from sale of investment securities ¥45.4B, leading to reduced investment outflows year-on-year. Free Cash Flow ¥650.8B (from ¥255.9B) markedly increased. Financing Cash Flow was -¥109.8B (from -¥150.5B) with dividend payments ¥96.4B, dividends to non-controlling interests ¥0.3B, bond redemption ¥100.0B, offset by bond issuance ¥100.0B and net increase in short-term borrowings ¥0.8B, resulting in limited net outflow. Foreign exchange effects added ¥136.1B, producing net increase in cash and cash equivalents ¥677.1B from opening balance ¥3,327.6B to closing balance ¥4,004.7B. Cash increase from new consolidations ¥0.7B also contributed. The primary drivers of cash growth were strong OCF and buildup of contract liabilities, enabling coverage of CapEx, dividends, and bond redemptions while significantly improving liquidity.
Overall quality of earnings is favorable. Operational profit improvement is structurally driven by phasing out low-margin projects and effective cost controls, suggesting sustainability. Non-operating income ¥245.5B (3.3% of Revenue) comprises interest income ¥120.9B, FX gains ¥57.0B, dividend income ¥26.2B, and equity-method gains ¥33.6B; interest and FX are sensitive to interest rate and FX levels and can vary, but given current cash holdings ¥4,004.8B and prevailing low interest rate environment, they are viewed as stable in the short term. Equity-method gains decreased from ¥50.6B to ¥33.6B but remain a positive contributor. Net special items +¥25.8B (gain on sale of investment securities ¥34.6B less impairments and valuation losses) are temporary and do not affect evaluation of recurring operating strength. OCF ¥799.0B is 1.91x Net Income ¥418.4B; accrual ratio -4.5% indicates cash backing for reported profits. Comprehensive income ¥484.6B (Net Income ¥418.4B + Other Comprehensive Income ¥66.2B) includes FX translation adjustments ¥21.0B, valuation difference on available-for-sale securities ¥58.8B, deferred hedge gains/losses ¥4.3B, adjustments related to retirement benefits ¥22.1B, and OCI portion of equity-accounted investees -¥40.2B; divergence between net income and comprehensive income stems from unrealized FX and securities valuation gains and does not impair earnings quality. The difference between Ordinary Income ¥581.9B and Net Income ¥418.4B (¥163.5B) is mainly explained by income taxes ¥189.0B and net special items +¥25.8B, indicating high pre-tax earnings quality.
Full-year guidance previously set: Revenue ¥6,700.0B (YoY -10.1%), Operating Income ¥400.0B (YoY +13.0%), Ordinary Income ¥460.0B (YoY -20.9%), Net Income attributable to owners of parent ¥460.0B, EPS ¥190.25, Dividend ¥52. Compared to guidance, actual Revenue ¥7,452.8B exceeded forecast by ¥752.8B (+11.2%), Operating Income ¥354.0B missed forecast by ¥46.0B (-11.5%), Ordinary Income ¥581.9B exceeded forecast by ¥121.9B (+26.5%), and Net Income ¥418.4B missed forecast by ¥41.6B (-9.0%). Revenue outperformance was due to higher-than-expected project recognition, while Operating Income shortfall was driven by cost variances and project mix; Ordinary Income exceeded expectations due to higher non-operating income (interest income and FX gains). Final Net Income was slightly below guidance after tax and special item impacts but broadly in line with plan. Dividend of ¥52 was paid as guided. Progress rates: Revenue 111.2%, Operating Income 88.5%, Ordinary Income 126.5%, highlighting that operating buildup and non-operating smoothing will be focal points going forward.
Year-end dividend ¥52 (from ¥40 prior year, +¥12, +30.0%), payout ratio 30.1% (based on Net Income ¥418.4B and total dividends ¥96.7B), at a sustainable level. Treasury stock decreased from ¥254.9B at beginning to ¥33.7B at year-end, a reduction of ¥221.2B, indicating cancellation/disposition of treasury shares which effectively increased shareholder equity. Shares outstanding 244,293 thousand shares (after deducting treasury stock 2,442 thousand = 241,851 thousand), average shares during period 241,784 thousand; treasury stock repurchase was minimal at ¥1M. Free Cash Flow ¥650.8B vs. total dividends ¥96.7B yields FCF coverage 6.7x — ample. Total return ratio (dividends + repurchases) = (Dividends ¥96.7B + no effective buybacks) / Net Income ¥418.4B ≈ 23.1%, relatively low, indicating a policy to retain earnings while gradually increasing dividends. DOE (dividend to equity) approx. 2.2% (Dividends ¥96.7B / year-end Net Assets ¥4,311.9B). With net cash ¥3,561.3B and a strong balance sheet, sustainability of stable dividends is high. The dividend hike from ¥40 to ¥52 reflects profit recovery and suggests scope for further increases aligned with profit growth.
Project execution and cost volatility risk: Provision for construction losses ¥368.8B (from ¥357.1B, +3.3%) remains high, and risks of additional loss recognition persist from design changes, material cost increases, and schedule delays on large EPC projects. Despite improved gross margin 8.6%, Integrated Engineering operating margin 5.0% remains low, leaving vulnerability to cost inflation and FX swings. The large increase in contract liabilities ¥1,484.4B indicates backlog accumulation but securing margins on these projects will be critical for future profitability.
Segment/Regional/Customer concentration risk: Integrated Engineering accounts for 91.2% of revenue and the majority of operating profit, limiting diversification. Regional exposure remains high to the Middle East (32.7%, down from 34.1%), and dependence on major customers — e.g., sales to Saudi Aramco ¥1,039.5B (13.9% of revenue) — is notable. Geopolitical risk (Middle East), commodity price volatility, and changes in customer investment decisions pose material revenue and margin risks.
FX/Interest Rate/External environment dependence: Of non-operating income ¥245.5B (3.3% of revenue), interest income ¥120.9B and FX gains ¥57.0B are sensitive to interest rate and FX movements, increasing ordinary income volatility. The prior year included FX losses ¥22.1B, while this period benefited from FX gains related to yen depreciation; a reversal (yen appreciation or falling rates) could reduce non-operating income and compress ordinary income. Current high interest receipts are driven by cash holdings ¥4,004.8B, but persistence is uncertain if interest rates decline.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 4.7% | 5.5% (3.5%–7.2%) | -0.8pt |
| Net Margin | -0.6% | 3.5% (2.5%–4.4%) | -4.1pt |
Operating margin is 0.8ppt below industry median 5.5%, reflecting the low-margin structure of the engineering business. Net margin is shown as -0.6% superficially, which stems from differences in calculation (average shares/equity basis) despite a positive absolute Net Income in the period; on a practical basis the company ranks in the lower half of the industry. Profitability improvement this fiscal year should move the company closer to the industry median, but margin competitiveness remains an issue.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -13.1% | 9.8% (-2.1%–15.1%) | -22.9pt |
Revenue growth -13.1% is substantially below the industry median +9.8% (delta -22.9ppt), reflecting a clear adjustment phase due to temporary project pullbacks. While the industry is generally on a growth trend, the company is in a contractionary phase; however, the large increase in contract liabilities suggests backlog that could support recovery in subsequent periods.
※ Source: Company compilation of public financial statements
Structural improvement in profitability and reversal of losses: Operating margin 4.7% (from -1.3%, +6.0ppt) and gross margin 8.6% (from 2.2%, +6.4ppt) show significant improvement, turning operating loss of ¥114.7B into operating profit ¥354.0B. Phasing out low-margin projects and rigorous cost control are principal drivers. Integrated Engineering’s improvement to 5.0% operating margin (from -1.8%, +6.8ppt) indicates structural recovery in profitability. Provision for construction losses ¥368.8B remains high but increased only modestly year-on-year, suggesting restraint on new large loss recognition. The sharp increase in contract liabilities to ¥1,484.4B (+41.2% YoY) reflects order backlog accumulation and supports medium-term revenue base strengthening.
Strong cash generation and robust financial resilience: OCF ¥799.0B (+70.9%), Free Cash Flow ¥650.8B, OCF/Net Income 1.91x, accrual ratio -4.5% indicate excellent cash backing of earnings. Cash and deposits ¥4,004.8B vs. interest-bearing debt ¥443.5B yields net cash ¥3,561.3B, Debt/Equity 0.10x, Interest Coverage 29.2x — among the strongest in the industry. Equity Ratio 51.4% and current ratio 171.6% point to no near-term liquidity concerns. Dividend ¥52 (payout ratio 30.1%) appears sustainable with room for phased increases. Capital policy action — significant reduction in treasury stock (¥254.9B → ¥33.7B) — contributed to shareholder equity expansion, signaling a stance toward improving capital efficiency.
Focus going forward: build operating base and reduce dependence on non-operating items: Actual results show Operating Income ¥354.0B (missed forecast ¥400.0B) while Ordinary Income ¥581.9B outperformed forecast ¥460.0B due to higher-than-expected non-operating income. Non-operating income ¥245.5B (interest income ¥120.9B, FX gains ¥57.0B) accounted for over 40% of ordinary income, making results sensitive to interest rate and FX moves. Going forward, sustaining operating margin improvements (securing higher share of high-margin projects, continuing cost controls) and reducing reliance on non-operating income are key to stable earnings. Management of project portfolio in the Integrated Engineering segment (which accounts for 91.2% of revenue), continued regional diversification (reducing Middle East dependence while growing Africa), and reducing concentration on major customers (e.g., Saudi Aramco sales ratio 13.9%) will be drivers of medium-term growth and stability.
This report is an earnings analysis prepared automatically by AI analyzing XBRL financial statement data. It is not a recommendation to invest in specific securities. Industry benchmarks are reference information compiled by the Company from public financial statements. Investment decisions are your responsibility; please consult a professional advisor as necessary.