MEISEI INDUSTRIAL Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Although revenue declined due to a downturn in the Boiler Business, net income increased as a result of higher revenue and improved profit margins in the Construction Works Business. Revenue was ¥131.1B (down -5.3% YoY), Operating Income was ¥10.8B (down -1.3%), and Ordinary Income was ¥12.9B (up +0.1%), all finishing roughly in line with the prior year. Net income attributable to owners of the parent was ¥8.56B (¥8.02B in the prior year, up +6.7%), supported by non-operating income and the tax burden. The primary reason for the revenue decline was the substantial -47.8% YoY drop in Boiler Business revenue, while the core Construction Works Business maintained revenue growth of +2.0%.

Factors Affecting Performance

【Revenue】Revenue was ¥131.1B, a decline of -5.3% YoY. By segment, the Construction Works Business maintained revenue growth at ¥121.6B (92.1% composition ratio, YoY+2.0%), while the Boiler Business fell substantially to ¥10.4B (7.9% composition ratio, YoY-47.8%), becoming a drag on overall performance. By region, Japan recorded ¥123.9B (YoY-3.4%) and Asia recorded ¥7.2B (YoY-29.0%), with revenue declining in both regions; the decrease in projects for Asia was particularly notable.

【Profit and Loss】The gross profit margin on completed construction contracts improved to 19.0% (up +0.6pt from 18.4% in the prior year), while the SG&A expense ratio increased slightly to 10.7% (up +0.2pt from 10.5% in the prior year), limiting the improvement in the Operating Income margin to 8.3% (up +0.3pt from 7.9% in the prior year). Non-operating income totaled ¥2.4B, including ¥0.9B in dividends received and ¥0.5B in interest received, improving the Ordinary Income margin to 9.8% (up +0.5pt from 9.3% in the prior year). No extraordinary gains or losses were recorded, and the difference between Ordinary Income and Net Income was primarily attributable to income taxes and other taxes (effective tax rate of 32.2%). Although revenue declined, improved gross margins and a stable tax burden resulted in higher net income, representing a decline in revenue but an increase in profit.

Segment Analysis

The Construction Works Business secured higher revenue and profit, recording revenue of ¥121.6B (YoY+2.0%), segment profit of ¥10.6B (YoY+4.0%), and a profit margin of 8.7%; it serves as the earnings base generating nearly all of the Company-wide profit. In contrast, the Boiler Business recorded segment profit of nearly zero against revenue of ¥10.4B (YoY-47.8%) (¥0.6B in the prior year → ¥0.0B in the current period), with profitability deteriorating to a level at which fixed costs could not be absorbed. Revenue composition is highly concentrated, with Construction Works accounting for 92.1% and Boilers for 7.9%. While Company-wide performance is relatively less susceptible to demand trends in the Boiler Business, continued weakness in that business could become a drag on Company-wide revenue growth.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 8.3%, up +0.3pt from 7.9% in the prior year; the Ordinary Income margin improved to 9.8%, up +0.5pt from 9.3%; and the Net Income margin (based on income attributable to owners of the parent) improved to 6.5%, up +0.7pt from 5.8%. Profitability is therefore on a gradual improvement trend even amid declining revenue.【Cash Quality】Non-operating income was ¥2.4B, representing only 1.8% of revenue, indicating that the majority of profit was generated by the core Construction Works Business. The effective tax rate was 32.2%, roughly in line with the prior year.【Capital Efficiency】ROE was 1.3%, and asset turnover relative to equity (on a net assets basis) remained low. Cash and deposits accounted for 44.3% of total assets, and this conservative asset composition weighed on capital efficiency.【Financial Soundness】The Equity Ratio was an extremely high 82.0% (up +1.4pt from 80.6% in the prior year). The Company maintained a virtually debt-free financial structure, with interest-bearing debt consisting only of ¥1.0B in long-term borrowings.

Cash Flow Analysis

Because a cash flow statement has not been disclosed, cash trends are assessed based on changes in the balance sheet. Cash and deposits increased by +¥5.9B (+1.6%) from the end of the prior year to ¥371.1B. In terms of working capital, accounts receivable for completed construction contracts decreased by -¥40.5B (-17.6%) to ¥189.8B from ¥230.3B at the end of the prior year, indicating progress in the collection of trade receivables. Meanwhile, costs on uncompleted construction contracts expanded by +¥8.9B (+152.0%) to ¥14.8B from ¥5.9B at the end of the prior year, indicating that funds were tied up in work in progress. Construction accounts payable and other liabilities decreased by -¥5.2B to ¥52.4B from ¥57.6B at the end of the prior year, reflecting progress in payments. Income taxes payable and other liabilities also declined from ¥16.3B to ¥5.0B, suggesting a cash outflow for tax payments. Contract liabilities (advances received) increased modestly by +¥0.3B from the end of the prior year to ¥15.7B, serving as a buffer for working capital. On balance, progress in receivables collection contributed to the increase in funds, and the period-end cash balance remained on an upward trend.

Quality of Earnings

The majority of profit consisted of core operating profit from the Construction Works Business. Non-operating income totaled ¥2.4B, primarily comprising ¥0.9B in dividends received, ¥0.5B in interest received, and ¥0.1B in foreign exchange gains, representing only 1.8% of revenue; accordingly, the contribution of temporary factors to Ordinary Income was limited. No extraordinary gains or losses were recorded, and the difference between Ordinary Income of ¥12.9B and net income attributable to owners of the parent of ¥8.56B can be explained almost entirely by income taxes and other taxes (effective tax rate of 32.2%) and net income attributable to non-controlling interests of ¥0.2B. Comprehensive income was ¥12.2B (¥12.1B attributable to owners of the parent), resulting in a divergence of approximately +¥3.5B from Net Income of ¥8.56B. The primary reason was a +¥3.1B increase in valuation difference on securities associated with the mark-to-market valuation of investment securities. This should be noted as not representing profit generated by the current period’s business activities themselves.

Earnings Forecasts and Guidance

Q1 progress against the full-year plan was 21.5% for revenue (¥131.1B/¥610.0B), 15.5% for Operating Income (¥10.8B/¥70.0B), 16.8% for Ordinary Income (¥12.9B/¥76.5B), and 15.3% for Net Income (¥8.56B/¥56.0B). These figures were below the simple quarterly allocation benchmark of 25%, with progress in profit items particularly lagging revenue progress. The full-year plan projects declines of -8.8% YoY in Operating Income and -7.9% in Ordinary Income. Seasonality in progress-based revenue recognition associated with construction work and continued weakness in the Boiler Business may explain the back-loaded nature of performance toward the second half. As of Q1, there were no revisions to the earnings forecast or dividend forecast.

Shareholder Returns

The full-year dividend forecast is ¥65.00 per share, implying a Payout Ratio of approximately 53.3% against the full-year EPS forecast of ¥122.00. No revision to the dividend forecast had been made as of Q1. Interest-bearing debt is extremely limited relative to cash and deposits of ¥371.1B, and substantial net cash and low financial leverage provide structural support for dividend sustainability. However, the extent to which the full-year profit plan is achieved will be a prerequisite for maintaining the dividend policy.

Risk Factors

1. Deterioration in the profitability of the Boiler Business: Revenue declined -47.8% YoY and segment profit was nearly zero. If slowing demand or intensifying competition continues, the business could become a drag on the Company-wide profit plan.

2. Low capital efficiency: ROE remained at 1.3%, while the asset composition, in which cash and deposits account for 44.3% of total assets, constrains improvement in capital efficiency. The policy for utilizing excess funds will be a key monitoring point going forward.

3. Back-loaded full-year progress: Operating Income progress was 15.5%, below the quarterly allocation benchmark of 25%. Achievement of the full-year plan will depend on the pace of progress-based revenue recognition in the second half and the recovery status of the Boiler Business.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability, as measured by both the Operating Income margin and Net Income margin, is substantially above the industry median.

The Revenue growth rate is substantially below the industry median, with the Company experiencing a revenue decline compared with peers.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Despite declining revenue, Net Income increased due to improved gross margins (+0.6pt) and a stable tax burden, indicating the resilience of profitability in the Construction Works Business. However, continued zero profit in the Boiler Business could affect the sustainability of the profit growth trend.

2. An Equity Ratio of 82.0% and extremely limited interest-bearing debt indicate a highly sound financial structure even within the industry, while ROE of 1.3% and cash holdings representing 44.3% of total assets are notable characteristics from a capital efficiency perspective.

3. Q1 progress against the full-year plan was below the quarterly allocation benchmark for both revenue and profit. Progress-based revenue recognition for construction work in the second half and recovery in the Boiler Business will be key to achieving the full-year plan.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥1,425–¥1,506 at Cost of Equity ±1%, and ¥1,464–¥1,465 at ω±0.1.

Notes:

• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / 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 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 discretion and responsibility, after consulting a professional as necessary.

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