Hibiya Engineering (1982) FY2026 Q3 Earnings Report

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Executive Summary

The Company reported higher revenue and substantially higher profit, mainly due to improved profitability in the Facilities Construction Business, confirming a structural improvement in profit margins. Revenue was ¥64.34B (+13.3% YoY), Operating Income was ¥6.54B (+85.3%), Ordinary Income was ¥7.23B (+76.3%), and Net Income was ¥5.18B (+64.9%). The Operating Income margin improved to 10.2%, from 6.2% in the same period of the previous year, an improvement of approximately 4pt, reflecting contributions from both revenue growth and a higher gross profit margin.

Factors Affecting Performance

【Revenue】The core Facilities Construction Business led overall performance, with revenue of ¥59.17B (+16.9% YoY). Within this, revenue recognized under the percentage-of-completion method increased substantially to ¥53.98B (+20.9%). Meanwhile, the Facilities Equipment Sales Business posted revenue of ¥6.70B (-22.1%), and the Facilities Equipment Manufacturing Business posted revenue of ¥1.85B (-1.1%), both declining, indicating sluggish growth in businesses other than construction. The revenue composition was 92.0% for Facilities Construction, 10.4% for Facilities Equipment Sales, and 2.9% for Facilities Equipment Manufacturing (before elimination of intersegment transactions), indicating a high degree of dependence on the construction business.

【Profit and Loss】The gross profit margin improved to 21.2%, from 17.9% in the same period of the previous year. Operating leverage also worked as the SG&A expense growth rate of +7.0% remained below the revenue growth rate of +13.3%. The Facilities Construction Business margin improved substantially to 10.8%, from 6.5% in the same period of the previous year, and became the core contributor to company-wide profit. Meanwhile, the Facilities Equipment Manufacturing Business recorded an Operating Loss of ¥0.11B, deteriorating from a loss of ¥0.03B in the same period of the previous year. Non-operating income of ¥0.70B included dividend income of ¥0.42B, boosting Ordinary Income, while non-recurring income included a gain on the sale of investment securities of ¥0.34B. The Company reported higher revenue and profit, with the primary driver of profit growth being the increase in the gross profit margin resulting from improved construction profitability.

Segment Analysis

The Facilities Construction Business accounted for almost all company-wide profit, with revenue of ¥59.17B (92.0% composition), segment profit of ¥6.42B, and a margin of 10.8%. The Facilities Equipment Sales Business posted revenue of ¥6.70B, profit of ¥0.22B, and a margin of 3.2%, with revenue declining from the previous year. The Facilities Equipment Manufacturing Business posted revenue of ¥1.85B and an Operating Loss of ¥0.11B, deteriorating from the loss of ¥0.03B in the same period of the previous year, highlighting the profitability challenges facing peripheral businesses.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 10.2%, from 6.2% in the same period of the previous year, an improvement of approximately 4pt. The Net Income margin also improved to 8.0%, from 5.5% in the same period of the previous year. The gross profit margin rose to 21.2%, from 17.9% in the same period of the previous year, mainly due to improved construction profitability.【Cash Flow Quality】Since the gain on the sale of investment securities of ¥0.34B included in non-recurring income accounts for 4.5% of Profit Before Tax of ¥7.57B, recurring earning power should appropriately be assessed based on Operating Income and Ordinary Income. Comprehensive Income of ¥9.11B exceeded Net Income of ¥5.18B, mainly due to an increase in the valuation difference on securities.【Investment Efficiency】Annualized ROE was 9.0%, a level achieved under a conservative capital structure with an Equity Ratio of 73.6%. Basic EPS was ¥236.86, a substantial increase of +70.5% YoY.【Financial Soundness】Liquidity remains ample, with current assets of ¥71.52B compared with current liabilities of ¥23.23B. Cash and deposits of ¥27.07B and investment securities of ¥26.06B together account for nearly half of total assets.

Cash Flow Analysis

The statement of cash flows is not included in the disclosed data, but funding trends can be inferred from changes in the balance sheet. Cash and deposits increased by ¥7.29B from the end of the previous fiscal year to ¥27.07B, while accounts receivable for completed construction contracts decreased by ¥11.15B to ¥30.41B. Progress in the collection of receivables during a period of revenue expansion appears to have contributed to the increase in funds. Meanwhile, accounts payable for construction and related items decreased by ¥5.87B to ¥9.97B, while advances received on construction contracts in progress increased by ¥3.67B to ¥4.10B, indicating that the accumulation of advance payments also had a positive impact on working capital. Investment securities increased by ¥5.68B to ¥26.06B, suggesting that a portion of surplus funds is being allocated to securities investments.

Earnings Quality

Operating Income and Ordinary Income are the core sources of profit, while dividend income of ¥0.42B out of non-operating income of ¥0.70B supplements Ordinary Income. Non-recurring income includes a gain on the sale of investment securities of ¥0.34B, accounting for 4.5% of Profit Before Tax of ¥7.57B; this portion therefore needs to be distinguished as non-recurring income. Comprehensive Income of ¥9.11B exceeded Net Income of ¥5.18B by ¥3.93B, mainly due to an increase of ¥3.91B in the valuation difference on other securities. Accordingly, the divergence between Net Income and Comprehensive Income for the current period is attributable to fluctuations in market prices and does not itself indicate the earning power of the core business. The substantial decrease in accounts receivable for completed construction contracts and the increase in advances received on construction contracts in progress suggest favorable timing between revenue recognition and cash collection.

Earnings Forecasts and Guidance

The cumulative Q3 progress rates against the full-year forecast were 68.2% for Revenue, 69.6% for Operating Income, 70.9% for Ordinary Income, and 70.5% for Net Income, all remaining slightly below the simple progress rate of 75%. The full-year forecasts are Revenue of ¥94.30B (+5.0% YoY), Operating Income of ¥9.40B (+26.1%), and Ordinary Income of ¥10.20B (+25.3%). Compared with the high profit growth rate in the cumulative Q3 results, including Operating Income growth of +85.3%, the full-year growth rates have been set at more moderate levels. The timing of construction progress and completion-based revenue recognition in Q4 will be key to achieving the full-year plan.

Shareholder Returns

The Q2 dividend was ¥50.00 per share, an increase of ¥6.00 from ¥44.00 in the same period of the previous year. The Payout Ratio based solely on dividends was approximately 23.1%, substantially below the level of approximately 60% used as a guideline, indicating limited concern regarding dividend sustainability. Treasury stock increased by ¥1.86B YoY to ¥6.17B, suggesting that share repurchases were conducted in addition to dividend payments. Accordingly, the Payout Ratio and Total Return Ratio should be considered separately. Against retained earnings of ¥58.37B, the overall capacity to pay dividends remains ample.

Risk Factors

1. Concentration of profit in the Facilities Construction Business: Segment profit of ¥6.42B accounts for approximately 98% of total segment profit of ¥6.53B, creating a structure in which deterioration in the profitability of this business would directly affect consolidated profit.

2. Declining profitability of peripheral businesses: The Facilities Equipment Sales Business recorded a revenue decline of -22.1% YoY, while the Facilities Equipment Manufacturing Business recorded an Operating Loss of ¥0.11B, deteriorating from a loss of ¥0.03B in the same period of the previous year. Revenue sources other than the construction business are weakening.

3. Fluctuations in investment securities prices: Investment securities of ¥26.06B account for 25.0% of total assets, while the valuation difference on other securities has reached ¥11.35B, creating a structure in which net assets and Comprehensive Income are susceptible to fluctuations in market prices.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

Although median data is not provided, an Operating Income margin of 10.2% and a Net Income margin of 8.0% are favorable levels for the construction industry.

Growth and Capital Efficiency

Revenue growth of +13.3% can be considered a solid level even compared with typical growth in the construction industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The Operating Income margin improved by approximately 4pt YoY, with improved profitability in the Facilities Construction Business being the primary driver of company-wide earnings improvement. Whether this improvement can be maintained during a period of rising costs will be a key focus going forward.

2. The progress rate toward the full-year forecast was 69.6% based on Operating Income, slightly below the standard 75%. The status of construction progress and completion-based revenue recognition in Q4 will be a factor in assessing achievement of the full-year plan.

3. In addition to the gain on the sale of investment securities of ¥0.34B included in non-recurring income, financial assets such as investment securities and cash and deposits account for nearly half of total assets. Accordingly, when assessing recurring earning power, it is useful to focus on Operating Income and Ordinary Income.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥2,966–¥3,139 at Cost of Equity ±1%, and ¥3,036–¥3,060 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 relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market stock price or a recommendation of any specific investment action, and does not predict or guarantee the future stock price.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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 with professionals as necessary.

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