| Metric | Current Period | Prior Year | YoY |
|---|---|---|---|
| Revenue | ¥2861.3B | ¥2762.1B | +3.6% |
| Operating Income | ¥233.2B | ¥179.7B | +29.8% |
| Ordinary Income | ¥247.9B | ¥199.4B | +24.3% |
| Net Income | ¥173.7B | ¥102.7B | +69.2% |
| ROE | 10.2% | 6.6% | - |
For the fiscal year ended March 2026, Revenue was ¥2861.3B (YoY +¥99.2B +3.6%), Operating Income was ¥233.2B (YoY +¥53.5B +29.8%), Ordinary Income was ¥247.9B (YoY +¥48.5B +24.3%), and Net income attributable to owners of parent was ¥155.9B (YoY +¥45.9B +41.4%), achieving both top-line and bottom-line growth. The primary driver of profit expansion was an improvement in gross profit margin on completed contracts from 16.3% to 19.3% (+3.0pt), and the Environmental Systems Business recorded a substantial increase in segment profit to ¥208.2B (+36.1%). Operating margin improved from 6.5% to 8.2% (+1.6pt), and ROE improved from 7.6% to 10.2% (+2.6pt), indicating a marked increase in profitability. Operating Cash Flow was ¥647.0B (YoY +404.9%) demonstrating cash generation of 4.15x net income, OCF/EBITDA was 2.54x, and Free Cash Flow reached ¥654.5B. Dividends were ¥110 per annum (total ¥69.8B) with a payout ratio of 44.8%; additionally, ¥54.4B of share buybacks were executed, bringing the Total Return Ratio to approximately 80%.
[Revenue] Revenue was ¥2861.3B (+3.6%), marking the third consecutive year of revenue growth. By segment, Environmental Systems was ¥1831.8B (+8.1%) showing notable expansion in the core business, capturing steady demand for commercial building air conditioning and industrial air conditioning. Paint Systems declined to ¥1030.9B (-3.6%) due to a slowdown in capital investment cycles related to the automotive industry. By region, Japan was ¥1420.9B (prior year ¥1445.8B) slightly down, North America was ¥331.1B (prior year ¥330.5B) flat, while Southeast Asia (Thailand ¥177.3B, others ¥320.1B) and East Asia (China ¥117.7B, others ¥53.5B) totaled ¥666.6B (prior year ¥722.0B) and declined; India ¥325.7B and other regions ¥114.9B increased, altering the geographic mix. Against completed contract revenue of ¥2861.3B, cost of completed contracts was ¥2308.7B, producing gross profit on completed contracts of ¥552.6B (prior year ¥450.1B, +22.8%), a significant expansion.
[Profit & Loss] Gross profit margin on completed contracts improved to 19.3% (prior year 16.3%), +3.0pt, reflecting successful price pass-through and project profitability management. SG&A was ¥319.4B (prior year ¥270.3B, +18.1%), increasing well above revenue growth (+3.6%); it includes advertising expenses ¥2.5B, rental expenses ¥16.7B, depreciation ¥15.1B, etc. However, the increase in gross profit exceeded the SG&A increase, resulting in Operating Income of ¥233.2B (+29.8%). Non-operating income was ¥20.9B (interest income ¥7.8B, dividend income ¥7.1B, foreign exchange gains ¥2.0B, etc.) and non-operating expenses were ¥6.2B (interest expenses ¥3.2B, foreign exchange losses ¥1.2B, etc.), yielding Ordinary Income of ¥247.9B (+24.3%). Extraordinary items were net +¥6.8B (extraordinary gains ¥16.1B including gain on sale of available-for-sale securities ¥14.4B; extraordinary losses ¥9.2B including impairment losses ¥4.0B), slightly boosting Net Income; after tax expense ¥81.2B and non-controlling interests ¥17.6B, Net income attributable to owners of parent was ¥155.9B (+41.4%). In summary, higher-margin projects in Environmental Systems and a significant improvement in gross profit margin on completed contracts drove the revenue and profit increases.
The Environmental Systems Business posted Revenue ¥1831.8B (+8.1%) and segment profit ¥208.2B (prior year ¥153.0B, +36.1%), improving segment profit margin to 11.4% (prior year 9.0%, +2.4pt), acting as the company’s profit pillar contributing approximately 83% of consolidated profit. Expansion in demand for commercial and industrial air conditioning, capture of high-margin projects, and strengthened cost management contributed to margin improvement. The Paint Systems Business reported Revenue ¥1030.9B (-3.6%) and segment profit ¥43.7B (prior year ¥42.6B, +2.6%), with segment margin of 4.2% (prior year 4.0%, +0.2pt) showing only modest improvement; a slowdown in automotive-related capital spending was a headwind. Including goodwill amortization of ¥1.2B, the 7.2pt margin gap with Environmental Systems remains large, making enhancement of Paint Systems profitability a medium-term challenge.
[Profitability] Operating margin was 8.2% (prior year 6.5%, +1.6pt), and net margin was 6.1% (prior year 4.0%, +2.1pt), both showing marked improvement. Improvement in gross profit margin on completed contracts to 19.3% (prior year 16.3%, +3.0pt) was the main driver, reaching a level above the estimated 3-year average (approx. 17%). ROE recovered to 10.2% (prior year 7.6%, +2.6pt), exceeding the estimated 3-year average (approx. 8.1%) and demonstrating improved investment efficiency. DuPont decomposition shows net margin 5.5% × total asset turnover 1.00 × financial leverage 1.68x, indicating margin improvement as the largest contributor. [Cash Quality] Operating Cash Flow was ¥647.0B / Net Income ¥173.7B = 3.7x, indicating very high cash generation; OCF/EBITDA was 2.54x. The accrual ratio was -17.1%, confirming a cash-led earnings structure; collection of completed contract receivables (+¥389.3B monetized) and increase in advances received on uncompleted contracts (+¥77.8B) contributed to working capital improvement. [Investment Efficiency] Total asset turnover was 1.00x (prior year 1.07x) slightly down, but efficiency in Environmental Systems segment assets of ¥1268.7B (prior year ¥1349.4B) has progressed. Capital expenditures were approximately ¥20.8B, 0.97x depreciation of ¥214.5B, focused on maintenance and renewal. [Financial Soundness] Equity Ratio was 59.4% (prior year 58.3%, +1.1pt) and improved steadily; current ratio and quick ratio were both 212.8% at high levels. Cash and deposits were ¥906.6B versus interest-bearing debt ¥12.8B (short-term ¥12.5B, long-term ¥0.3B), giving net cash ¥893.8B, Debt/EBITDA 0.05x, and interest coverage 72.4x, indicating very strong financial resilience. Deferred tax liabilities ¥106.95B reflect valuation differences on available-for-sale securities ¥329.4B, and net defined benefit asset ¥152.81B indicates a healthy pension position.
Operating Cash Flow was ¥647.0B (prior year -¥212.2B, YoY +404.9%) with large inflows; after adding back depreciation ¥214.5B and impairment losses ¥4.0B to pre-tax profit ¥254.7B, working capital changes contributed to cash inflow. Specifically, a decrease in trade receivables (collection of completed contract receivables, etc.) contributed +¥389.3B, an increase in advances received on uncompleted contracts contributed +¥70.7B, offset by a decrease in trade payables -¥66.2B, resulting in substantial net cash generation. After corporate tax payments -¥55.8B, the operating cash subtotal reached ¥691.1B, and OCF ¥647.0B demonstrates 3.7x generation relative to net income ¥173.7B. Investing Cash Flow was +¥7.5B: capital expenditures and intangible asset acquisitions -¥20.8B were more than offset by net increases in time deposits +¥64.8B (deposits -¥51.7B, withdrawals +¥64.8B) and proceeds from sale of short-term investment securities, etc. Free Cash Flow was ¥654.5B (Operating CF ¥647.0B + Investing CF ¥7.5B), providing ample liquidity; Financing Cash Flow was -¥234.8B (dividends -¥52.9B, share buybacks -¥54.4B, debt repayments -¥118.1B, etc.). Cash and cash equivalents increased by +¥443.4B from the opening balance ¥420.1B to the closing balance ¥863.6B, materially strengthening liquidity. OCF/EBITDA 2.54x and accrual ratio -17.1% show high earnings quality, aided by construction-industry working capital characteristics such as improved billing on completed contracts and collection of advance receipts.
Against Ordinary Income ¥247.9B, Operating Income was ¥233.2B; non-operating income ¥20.9B (interest income ¥7.8B, dividend income ¥7.1B, insurance dividend ¥1.6B, foreign exchange gains ¥2.0B, etc.) added net +¥14.7B at the ordinary stage, with recurring financial income making a stable contribution. Extraordinary items were net +¥6.8B (extraordinary gains ¥16.1B including gain on sale of available-for-sale securities ¥14.4B; extraordinary losses ¥9.2B including impairment losses ¥4.0B), indicating limited one-off factors. Net Income ¥173.7B versus Comprehensive Income ¥249.2B — other comprehensive income ¥75.5B comprised valuation differences on available-for-sale securities ¥49.1B, foreign currency translation adjustments ¥9.6B, and adjustments for retirement benefits ¥16.6B, with valuation gains lifting comprehensive income. OCF ¥647.0B / Net Income ¥173.7B = 3.7x and OCF/EBITDA 2.54x indicate a cash-driven earnings structure; accrual ratio -17.1% and negative value confirm high-quality results with OCF materially exceeding net income. Improvement to gross profit margin on completed contracts to 19.3% reflects combined effects of price pass-through and project mix improvement, with no observed transitory special factors, suggesting sustained profit improvement.
Full-year guidance projects Revenue ¥3070.0B (YoY +7.3%), Operating Income ¥238.0B (+2.1%), Ordinary Income ¥250.0B (+0.8%), and Net income attributable to owners of parent ¥180.0B (+15.4%). Progress against current results stands at Revenue 93.2%, Operating Income 98.0%, Ordinary Income 99.2%, Net Income 86.6%, indicating expectations to broadly achieve full-year targets. Revenue growth of +7.3% is assumed, but Operating Income is planned to increase only modestly by +2.1% in a conservative plan likely incorporating higher SG&A and rising material and labor costs. Maintaining gross profit margin on completed contracts is key to meeting operating income targets, predicated on continuation of high-margin projects in Environmental Systems and rigorous cost control. Net income guidance (+15.4%) relative to modest Ordinary Income growth (+0.8%) may imply assumptions of lower tax rate or reduced non-controlling interests, as the gap between ordinary and net income growth is not fully explained by current-period extraordinary items (net +¥6.8B). Full-year EPS is ¥285.72, and dividend guidance is ¥50 per share (payout ratio approx. 35%), a reduction from the current-period payout ratio of 44.8%; given strong FCF generation and net cash position, dividend sustainability is high.
Annual dividend is ¥110 (interim ¥40, year-end ¥70) totaling ¥69.8B, with a payout ratio of 44.8% (based on Net income attributable to owners of parent ¥155.9B). Against FCF ¥654.5B, dividend coverage is 9.4x, indicating high sustainability; with cash and deposits ¥906.6B and net cash ¥893.8B, the company has ample financial flexibility to maintain stable dividends. Share repurchases of ¥54.4B were executed, bringing total shareholder returns to ¥124.2B and Total Return Ratio to approximately 80% (based on Net income attributable to owners of parent ¥155.9B). Next fiscal year’s dividend guidance is ¥50 per share; relative to EPS guidance ¥285.72, the payout ratio is about 35%, a reduction from the current period, but considering the stock split (1 share → 2 shares effective April 1, 2025), the effective dividend level per pre-split share may be maintained. Given strong FCF generation and net cash position, stable returns in the 40–50% payout ratio range and opportunistic share buybacks are expected going forward.
Project profitability variability: Provision for losses on construction contracts doubled to ¥7.5B (prior year ¥3.6B, +109.8%), indicating realized deterioration in profitability on large projects. With a high proportion of fixed-price contracts, increases in material and labor costs could pressure gross margins. Although gross profit margin on completed contracts improved to 19.3% (+3.0pt YoY), maintaining this level may become difficult under future inflationary pressure or changes in project composition.
SG&A control challenges: SG&A rose to ¥319.4B (prior year ¥270.3B, +18.1%), growing at a much faster pace than revenue growth (+3.6%). It includes rental expenses ¥16.7B, depreciation ¥15.1B, retirement benefit expenses ¥3.0B, etc.; if fixed-cost conversion progresses, operating leverage could work adversely, causing rapid margin deterioration in downturns. Historical SG&A trends suggest structural issues where economies of scale from revenue growth are not being fully realized.
Segment profitability disparity: Environmental Systems segment margin is 11.4% versus Paint Systems 4.2%, a 7.2pt gap. Paint Systems revenue declined -3.6% and is sensitive to the automotive industry capital investment cycle. Continued electrification and production adjustments in the automotive sector could delay profit recovery in Paint Systems and limit overall margin expansion.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 8.2% | 5.5% (3.5%–7.2%) | +2.6pt |
| Net Margin | 6.1% | 3.5% (2.5%–4.4%) | +2.6pt |
The company outperforms the construction industry median by +2.6pt in operating margin and +2.6pt in net margin, ranking in the upper tier within the industry.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 3.6% | 9.8% (-2.1%–15.1%) | -6.2pt |
Revenue growth of +3.6% trails the industry median of +9.8%, indicating a slower top-line expansion pace relative to peers.
※ Source: Company compilation
The results confirm a structural improvement in gross profit margin on completed contracts; the rise from 16.3% to 19.3% (+3.0pt) drove Operating Income +29.8%. The increase in high-margin projects in Environmental Systems and price pass-through were primary drivers; if the company can sustain this gross margin level, an operating margin above 8% could become the new norm. However, SG&A growth (+18.1%) exceeding revenue growth (+3.6%) warrants caution, and SG&A control will be key to maintaining margins in subsequent periods.
Strong cash generation was demonstrated with Operating CF ¥647.0B and FCF ¥654.5B; OCF/Net Income 3.7x and OCF/EBITDA 2.54x reflect favorable industry-specific working capital improvements (increase in advances received and collection of receivables). Cash and deposits ¥906.6B and net cash ¥893.8B provide substantial financial flexibility. With a payout ratio of 44.8% and FCF coverage 9.4x, plus ¥54.4B in share buybacks, Total Return Ratio reached approximately 80%. Stable dividends and proactive capital returns are expected to continue.
Guidance for next fiscal year is conservative (Revenue +7.3%, Operating Income +2.1%), assuming continuation of high-margin Environmental Systems projects and strict cost management. Segment-wise, Paint Systems margin at 4.2% remains low relative to Environmental Systems 11.4%; delayed recovery in automotive-related capex could weaken growth. Increases in provision for losses on construction contracts (+109.8%) and SG&A outperformance are margin volatility factors to monitor.
This report is an AI-generated financial analysis document created by analyzing XBRL earnings release data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are company-compiled reference information based on public financial statements. Investment decisions should be made at your own responsibility, and consult with a professional advisor as needed.