Hibiya Engineering,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Despite a decline in revenue, the significant improvement in gross margin resulted in double-digit profit growth, making this a quarterly result marked by a qualitative improvement in profitability. Revenue was ¥17.85B (¥19.08B in the previous year, YoY -6.5%), operating income was ¥2.17B (¥1.62B, YoY +33.7%), ordinary income was ¥2.51B (¥1.90B, YoY +31.6%), and net income attributable to owners of the parent was ¥1.74B (¥1.36B, YoY +28.0%). The primary driver of profit growth was progress on high-margin projects in the core Facilities Construction Business. The gross margin improved by +6.2pt to 25.5% (19.2% in the previous year), absorbing the increase in the SG&A ratio to 13.3% (+2.6pt from 10.7% in the previous year).

Factors Affecting Results

【Revenue】Revenue was ¥17.85B, down 6.5% year on year. The core Facilities Construction Business remained relatively solid at ¥16.55B (92.7% of consolidated revenue), down 5.0% YoY, while Equipment Sales was ¥1.53B, down 32.8% YoY, and Equipment Manufacturing was ¥0.59B, up 0.9% YoY. The significant decline in Equipment Sales was the primary cause of the overall revenue decrease.

【Profit and Loss】Operating income was ¥2.17B (YoY +33.7%), ordinary income was ¥2.51B (YoY +31.6%), and net income was ¥1.74B (YoY +28.0%), all representing double-digit profit growth. The gross margin improved by +6.2pt to 25.5% (19.2% in the previous year), driven by the increase in the operating margin of the Facilities Construction Business from 9.2% to 13.7%. Non-operating income was ¥0.35B, of which the majority, ¥0.26B, consisted of dividend income, making its contribution to ordinary income limited. No extraordinary gains or losses were recorded (in the previous year, a gain on the sale of investment securities of ¥0.09B was recorded), and the difference between ordinary income and net income was largely attributable to income taxes of ¥0.77B (effective tax rate: 30.7%). The results can therefore be characterized as profit growth despite a revenue decline.

Segment Analysis

By segment, the Facilities Construction Business accounted for the majority of revenue and profit, and its operating margin improved to 13.7% (9.2% in the previous year). Against revenue of ¥16.55B (YoY -5.0%), operating income increased substantially to ¥2.27B (YoY +42.0%), with progress on high-margin projects driving profit growth across the Group. Equipment Sales recorded revenue of ¥1.53B (YoY -32.8%) and operating income of -¥0.02B, falling into the red from the previous year’s profit of ¥0.08B; its operating margin was -1.2%. Equipment Manufacturing revenue was ¥0.59B (YoY +0.9%), remaining almost flat, while operating income was -¥0.08B, with the loss widening from -¥0.06B in the previous year; its operating margin was -14.3%. The current structure is one in which the improved profitability of the core business absorbs the losses of the two non-core businesses, making profitability improvement in the non-core businesses an area to monitor going forward.

Key Financial Indicators

【Profitability】The operating margin improved to 12.2% (+3.7pt from 8.5% in the previous year), while the net margin improved to 9.7% (+2.6pt from 7.1%). ROE was 2.4%. Under a DuPont decomposition, this was calculated as the product of a net margin of 9.7%, total asset turnover of 0.187x, and financial leverage of 1.30x, representing an increase from the estimated previous-year level of approximately 1.7%.【Cash Quality】Notes receivable for completed construction contracts declined substantially to ¥21.11B (¥39.29B in the previous year), while advances received on construction contracts in progress increased to ¥3.93B (¥3.15B in the previous year, +24.6%), indicating progress in working capital efficiency.【Investment Efficiency】Total asset turnover improved to 0.187x (0.172x in the previous year), while financial leverage declined to 1.30x (1.38x in the previous year), confirming a structure in which the greater equity base somewhat suppresses asset-efficiency indicators.【Financial Soundness】The equity ratio was 77.0% (72.7% in the previous year, +4.3pt), the current ratio was 353.3%, and the debt-to-equity ratio was 0.30x (0.38x in the previous year), all indicating a conservative financial structure.

Cash Flow Analysis

Although a cash flow statement was not disclosed, trends in balance sheet items suggest that working capital soundness is improving. Notes receivable for completed construction contracts declined substantially from ¥39.29B to ¥21.11B, while electronically recorded monetary claims increased from ¥0.95B to ¥4.28B, indicating a shift in the form of receivables. Advances received on construction contracts in progress increased from ¥3.15B to ¥3.93B, while accounts payable for construction and other payables declined from ¥11.27B to ¥5.73B, confirming a reduction in short-term liabilities through progress in payments. Cash and deposits were ¥26.98B (¥27.39B in the previous year), remaining almost flat, while treasury stock increased substantially from ¥1.32B to ¥7.80B, indicating continued cash outflows for share repurchases. Overall, progress in collecting operating receivables and the accumulation of advances received are strengthening the support for cash generation.

Earnings Quality

Earnings quality can be considered high because there were no extraordinary gains or losses in the current period and profit growth resulted from improvements at the operating level. In the previous year, an extraordinary gain of ¥0.09B from the sale of investment securities was recorded, but the current period was not affected by a reversal of this one-time factor, confirming an improvement in recurring earnings power. Non-operating income was ¥0.35B, equivalent to only 1.9% of revenue, and the majority, ¥0.26B, consisted of dividend income; therefore, its contribution to ordinary income was limited. The difference between ordinary income of ¥2.51B and net income of ¥1.74B was largely attributable to income taxes of ¥0.77B (effective tax rate: 30.7%), with no unusual tax effects identified. Comprehensive income was ¥1.33B, below net income of ¥1.74B, primarily because valuation differences on securities turned to a negative contribution of -¥0.42B (from +¥0.41B in the previous year), with market fluctuations acting as a factor affecting comprehensive income.

Earnings Forecast and Guidance

Q1 progress against the full-year earnings forecasts (revenue of ¥105.00B, operating income of ¥11.00B, and ordinary income of ¥11.80B) was 17.0% for revenue, 19.7% for operating income, 21.2% for ordinary income, and 19.9% for net income (against the forecast of ¥8.70B). Considering the seasonality of the construction industry, which is weighted toward the second half of the fiscal year, the start was slightly below the standard progress rate of 25% based on simple apportionment but remained within expectations. There were no revisions to the earnings forecast or dividend forecast during the quarter, and management maintained its initial plan.

Shareholder Returns

The annual dividend forecast for the fiscal year ending March 2027 is ¥110 (¥100 regular dividend and ¥10 commemorative dividend), resulting in total dividends of approximately ¥4.63B based on the average number of shares outstanding during the period of 42,067 thousand shares. The payout ratio against the forecast net income of ¥8.70B is approximately 53.2%. The Company conducted a 2-for-1 stock split of its common shares effective April 1, 2026. Accordingly, the forecast annual dividend for the fiscal year ending March 2027 would be equivalent to ¥220 without taking the split into account, which should be noted. There was no revision to the dividend forecast for the quarter. Treasury stock increased substantially from ¥1.32B to ¥7.80B, confirming the acceleration of share repurchases.

Risk Factors

1. Segment Profitability Gap Risk: Equipment Sales (operating income of -¥0.02B, operating margin of -1.2%) and Equipment Manufacturing (operating income of -¥0.08B, operating margin of -14.3%) are loss-making. If profitability improvement in the two non-core businesses is delayed, they could dilute the Group’s overall profit margin.

2. Project Profitability Risk: The provision for losses on construction contracts was ¥0.10B (down 1.0% year on year), remaining almost flat. However, cost overruns or schedule delays on large projects could affect the gross margin of the core Facilities Construction Business (13.7% in the current period).

3. Securities Price Volatility Risk: Investment securities amounted to ¥26.69B, representing 28.0% of total assets. Valuation differences on securities were -¥0.42B in the current period (compared with +¥0.41B in the previous year), resulting in fluctuations in comprehensive income and equity depending on market conditions.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Takeaways from the Results

1. Despite the revenue decline, the gross margin improved by +6.2pt and operating profit increased. Improvements in project mix and cost control are structurally supporting the profit margin. The operating margin of the Facilities Construction Business rose from 9.2% to 13.7%, and the sustainability of this improvement will influence the future earnings structure.

2. Notes receivable for completed construction contracts declined from ¥39.29B to ¥21.11B while advances received on construction contracts in progress increased from ¥3.15B to ¥3.93B. This simultaneous movement indicates improved working capital efficiency and stronger cash-generation capacity.

3. While financial soundness remains high, with an equity ratio of 77.0% and a current ratio of 353.3%, the non-core Equipment Sales and Equipment Manufacturing businesses remain loss-making. Treasury stock increased to ¥7.80B, indicating more active shareholder returns. The use of surplus assets and profitability improvement in the non-core businesses will be key monitoring points going forward.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥1,848–¥1,953 at ±1% for the cost of equity, and ¥1,896–¥1,905 at ±0.1 for ω.

Notes:

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

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / 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 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 responsibility, after consulting with professionals as necessary.

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