| Metric | Current | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥106.3B | ¥88.5B | +20.1% |
| Operating Income | ¥40.9B | ¥32.6B | +25.3% |
| Ordinary Income | ¥41.2B | ¥32.8B | +25.8% |
| Net Income | ¥29.1B | ¥22.6B | +28.7% |
| ROE | 9.6% | 7.9% | - |
FY2026 Q1 results delivered double-digit revenue and profit growth at all stages: Revenue ¥106.3B (YoY +¥17.8B +20.1%), Operating Income ¥40.9B (YoY +¥8.3B +25.3%), Ordinary Income ¥41.2B (YoY +¥8.5B +25.8%), Net Income ¥29.1B (YoY +¥6.5B +28.7%). Gross profit margin improved to 53.3% (prior 51.2%, +2.1pt) and SG&A ratio declined to 14.8% (prior 15.7%, -0.9pt), expanding operating margin to 38.5% (prior 36.9%, +1.6pt). Domestic operations account for 94% of revenue and nearly all operating income, with Revenue +20.8% and Operating Income +24.3%, indicating continued growth in the core business. ROE is 9.6%, supported by an improved Net Margin of 27.4% (prior 25.6%, +1.8pt) and Total Asset Turnover of 0.267 turns. Cash and deposits are sizable at ¥203.9B (YoY +¥25.6B), and Contract Liabilities increased sharply to ¥15.9B (prior ¥5.2B, +¥10.7B), suggesting an accumulation of advance-type orders. Progress against the Full Year plan stands at 38% for Revenue and 114% for Operating Income, significantly front-loaded and leaving substantial room for upward revision.
[Revenue] Revenue reached ¥106.3B (+20.1%), a high-growth outcome. By segment, Domestic Business was ¥99.9B (+20.8%) and Overseas Business ¥6.4B (+10.7%), keeping domestic share at 94% as the dominant core. By product, Water Supply ¥28.3B (prior ¥21.1B, +34.2%), Sewage ¥70.4B (prior ¥61.9B, +13.8%), Environment & Others ¥7.6B (prior ¥5.5B, +37.1%) — notable strength in Water Supply and Environment. Contract Liabilities surged to ¥15.9B (prior ¥5.2B, +207%), confirming accumulation of advance-type orders and short-term support for revenue recognition. Cost of goods sold ratio improved to 46.7% (prior 48.8%, -2.1pt) due to a higher mix of high-margin projects and disciplined cost control.
[Profitability] Gross profit was ¥56.7B (+21.8%), with gross margin rising to 53.3% (+2.1pt). SG&A totaled ¥15.8B (+13.1%), keeping the SG&A ratio at 14.8% (-0.9pt) and enabling operating leverage. As a result, Operating Income expanded to ¥40.9B (+25.3%), with an operating margin of 38.5% (+1.6pt). Non-operating income was ¥0.5B (interest income ¥0.2B, dividend income ¥0.1B, other ¥0.2B) and non-operating expenses were ¥0.1B (mainly foreign exchange losses ¥0.1B), leaving Ordinary Income at ¥41.2B (+25.8%). Extraordinary income/losses were negligible (gain ¥0.0B, loss ¥0.0B), bringing Profit Before Tax to ¥41.2B (+25.9%). Corporate tax and related amounted to ¥12.1B, lowering the effective tax rate to 29.3% (prior approx. 30.9%), resulting in Net Income of ¥29.1B (+28.7%) and Net Margin of 27.4% (+1.8pt). Non-controlling interests were limited at ¥0.0B, with Net Income attributable to owners of the parent at ¥29.1B. In summary, growth in the domestic core, gross margin improvement, and cost-efficiency combined to produce revenue and profit growth.
Domestic Business: Revenue ¥99.9B (+20.8%), Operating Income ¥41.2B (+24.3%), Operating Margin 41.3% (prior 40.1%, +1.2pt), maintaining high profitability while increasing earnings. Domestic revenue breakdown: Water Supply ¥26.5B (+36.7%), Sewage ¥69.9B (+13.6%), Environment & Others ¥3.5B (+94.0%), with Water Supply and Environment driving domestic growth. Overseas Business grew Revenue to ¥6.4B (+10.7%) but continued to record an operating loss of ¥0.3B (prior ▲¥0.5B). However, the loss narrowed by 40.8% YoY, indicating an improving trend. Overseas composition: Water Supply ¥1.8B, Sewage ¥0.5B, Environment & Others ¥4.1B, with Environment projects accounting for a large share. Contribution to consolidated operating income is dominated by Domestic (>100%), while Overseas margin is -4.9%, diluting consolidated margins. Domestic high profitability underpins consolidated results, with Overseas on a path of loss reduction.
[Profitability] Operating Margin 38.5% (prior 36.9%, +1.6pt), Net Margin 27.4% (prior 25.6%, +1.8pt) — profitability has been improving over multiple periods. Gross Margin 53.3% (+2.1pt) reflects improved project mix and cost controls; SG&A Ratio 14.8% (-0.9pt) indicates improved cost efficiency. ROE is 9.6%, supported by Net Margin expansion and Total Asset Turnover of 0.267 turns. [Cash Quality] Contract Liabilities jumped to ¥15.9B (prior ¥5.2B, +207%), indicating accumulation of advance-type orders and cash being collected in advance. Cash and deposits are ¥203.9B, representing 51.2% of total assets, with funds accumulated partly ahead of Operating Cash Flow. [Investment Efficiency] Total Asset Turnover is 0.267 turns (annualized 1.07 turns); turnover is inherently limited for a service company but offset by high operating margins. Goodwill is ¥4.9B (1.2% of total assets) and Intangible Assets ¥12.3B (3.1%), both modest, implying limited M&A risk. [Financial Soundness] Equity Ratio is 76.1% (prior 81.2%), remaining high; Current Ratio 370.5% and Quick Ratio 370.5% indicate very strong liquidity. Interest-bearing debt is effectively non-existent, making interest coverage effectively unmeasurable and interest risk negligible. Net assets are ¥303.0B versus cash and deposits of ¥203.9B, supporting ample dividend capacity and room for growth investment.
Disclosure of Operating Cash Flow, Investing Cash Flow, and Financing Cash Flow is not provided, but balance sheet movements allow analysis of cash trends. Cash and deposits increased to ¥203.9B (prior ¥178.3B, +¥25.6B), driven by profit generation and a large increase in Contract Liabilities. Contract Liabilities rose to ¥15.9B (prior ¥5.2B, +¥10.7B), indicating advance-type cash inflows recognized as deferred revenue. Accrued corporate taxes and similar liabilities also increased to ¥18.9B (prior ¥5.7B, +¥13.2B), implying cash outflows for taxes in future periods, though this is 9.3% relative to cash and deposits and manageable. Investment securities declined to ¥30.2B (prior ¥39.1B, -¥8.9B), with valuation declines compressing comprehensive income (Unrealized Gain/Loss on Available-for-Sale Securities ▲¥6.1B), but not directly affecting cash. Retained earnings increased to ¥285.7B (prior ¥261.9B, +¥23.8B), showing steady internal reserve accumulation. Overall, strong core profitability and expansion of advance-type Contract Liabilities are driving robust cash generation; interest-bearing debt is near zero and free cash accumulation continues.
Non-operating income ¥0.5B (0.4% of sales) and non-operating expenses ¥0.1B (0.1% of sales) are minor, indicating profits are mainly from core operations. Non-operating income mainly comprises interest income ¥0.2B and dividend income ¥0.1B from financial assets, which are recurring and have high sustainability. Foreign exchange losses ¥0.1B are a temporary effect from Overseas operations but immaterial in size. Extraordinary items were negligible (gain ¥0.0005B, loss ¥0.0B), so no material one-off impact on Net Income. The gap between Ordinary Income ¥41.2B and Net Income ¥29.1B (a -29.4% swing) is largely driven by Corporation Taxes ¥12.1B (effective tax rate 29.3%), a normal tax burden. Comprehensive Income ¥22.5B (¥29.1B Net Income less ▲¥6.6B) shows a notable divergence, mainly due to Unrealized Loss on Securities ▲¥6.1B, Foreign Currency Translation Adjustments ▲¥0.4B, and Remeasurements of Defined Benefit Plans ▲¥0.2B, totaling ▲¥6.7B in valuation losses. These are unrealized, market-driven items that do not directly affect cash flows and do not materially impair the quality of core earnings. There is no indication of accrual bias; core earnings quality is assessed as very high.
Full Year plan: Revenue ¥280.0B (+12.7%), Operating Income ¥36.0B (+10.2%), Ordinary Income ¥37.0B (+9.3%), Net Income ¥24.5B (EPS forecast ¥257.27, Dividend forecast ¥55). Progress vs. Full Year based on Q1 results: Revenue 38.0% (standard 25% +13.0pt), Operating Income 113.6% (standard +88.6pt), Ordinary Income 111.4% (standard +86.4pt), Net Income 118.8% (standard +93.8pt) — all stages far ahead of schedule. Operating Income and Net Income have already exceeded Full Year plans at Q1, leaving significant scope for upward revision. While prior-year progress also exceeded standard, the current period is even more advanced. High-margin domestic projects and improved cost efficiency underpin this momentum; the absence of announced revisions likely reflects conservatism. Even accounting for quarterly variability in project progress, if current momentum continues, a significant outperformance of the Full Year plan is expected.
The company plans an annual dividend of ¥55 (Payout Ratio 21.4% based on forecast EPS ¥257.27). Q1 EPS is ¥305.67, which annualizes to ¥1,222.68, but considering seasonality and project progress in the second half, the forecast EPS appears conservative. Payout Ratio 21.4% is highly sustainable given cash and deposits ¥203.9B, retained earnings ¥285.7B, and ample operating cash generation. Annual dividend payout based on shares outstanding (after treasury shares) of 9,523 thousand shares is approximately ¥520M, about 2.6% of cash and deposits and ~4.5% of annualized Net Income, indicating ample dividend capacity. No share buyback program is disclosed; current shareholder returns consist solely of dividends. Given low payout ratio and strong liquidity, there is room for dividend increases or introduction of buybacks, though the company appears to prioritize balancing with growth investments. No revision to dividend guidance has been announced; mid-term upward adjustments are not indicated at this time.
Domestic concentration risk: Domestic operations account for 94% of Revenue and nearly 100% of Operating Income, leaving limited geographic diversification. Domestic public investment cycles and changes in water environment regulation directly impact performance. Contract Liabilities of ¥15.9B (15.0% of Revenue) indicate strong short-term order momentum, but a medium- to long-term decline in orders could slow revenue growth.
Continued losses in Overseas operations: Overseas Business grew revenue to ¥6.4B (+10.7%) but remains in operating loss at ¥0.3B (Operating Margin -4.9%). Although loss narrowed by 40.8% YoY, the timing to reach break-even is uncertain. Continued upfront costs could dilute consolidated margins.
Market valuation risk of investment securities: Investment securities ¥30.2B (10.0% of Net Assets) are subject to market value fluctuations that affect comprehensive income and Net Assets. This period recorded Unrealized Loss on Securities ▲¥6.1B (▲27%), compressing Comprehensive Income to ¥22.5B (Net Income delta ▲22.7%). Market conditions could further widen Net Asset volatility.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 38.5% | 6.2% (4.2%–17.2%) | +32.3pt |
| Net Margin | 27.4% | 2.8% (0.6%–11.9%) | +24.6pt |
The company's profitability significantly exceeds the industry median and ranks among the top.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 20.1% | 20.9% (12.5%–25.8%) | -0.8pt |
Revenue growth is roughly in line with the industry median and maintains a standard growth pace within the IT & Communications sector.
※ Source: Company aggregation
Q1 Operating Income has already exceeded the Full Year plan (progress 114%), making an upward revision likely. Simultaneous improvement in Gross Margin (53.3%, +2.1pt) and SG&A Ratio (14.8%, -0.9pt) expanded Operating Margin to 38.5% (+1.6pt), indicating qualitative improvement in the revenue structure. If domestic high-margin trends and cost efficiency persist, a medium-term upward trend in margins is expected.
Rapid increase in Contract Liabilities to ¥15.9B (YoY +207%) signals accumulation of advance-type orders and front-loaded revenue recognition and cash generation. Cash and deposits ¥203.9B (51.2% of total assets) and a low-leverage balance sheet secure both dividend capacity and growth investment flexibility. Overseas operations are narrowing losses and, if monetized mid-term, could enhance geographic diversification and revenue sources.
This report is an AI-generated earnings analysis document created by analyzing XBRL financial statement data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on public financial statements. Investment decisions are your responsibility; please consult a professional advisor as needed.