NJS Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

The most important point of these results is that revenue and profit growth has been accompanied by simultaneous improvements in profitability, resulting in progress substantially ahead of the earnings forecast. Revenue was ¥167.9B (up +17.5% YoY), Operating Income was ¥49.7B (up +27.0%), Ordinary Income was ¥50.9B (up +28.4%), and Net Income was ¥36.2B (up +34.9%). An increase in high-margin projects in the domestic business and improved SG&A efficiency drove profit growth, improving the Operating Income margin to 29.6%.

Factors Affecting Earnings

【Revenue】Revenue was ¥167.9B, representing an increase of +17.5% YoY. By segment, the domestic business led the growth with revenue of ¥158.2B (94.2% of total, YoY+18.3%), while the overseas business recorded ¥9.8B (5.8% of total, YoY+6.0%), with growth remaining limited. Progress in orders in the sewerage and water supply fields contributed to revenue growth in the domestic business.

【Profit and Loss】Operating Income was ¥49.7B (YoY+27.0%), Ordinary Income was ¥50.9B (YoY+28.4%), and Net Income was ¥36.2B (YoY+34.9%), with all three growing at a pace exceeding revenue growth. The gross margin was 51.2% (50.9% in the previous year), remaining virtually flat, while the decline in the SG&A ratio to 21.6% (23.6% in the previous year) was the primary driver of profit growth. The gap between Ordinary Income and Net Income was attributable to the effective tax rate of 28.8%; with extraordinary gains and losses virtually zero, there were no temporary factors. The domestic business maintained high profitability, with Operating Income of ¥50.3B (margin of 31.8%), while the overseas business continued to post an Operating Loss of ¥0.7B (margin of -7.0%). Overall, the company achieved revenue and profit growth, and the profit growth rate exceeding the revenue growth rate indicates improved margins resulting from greater SG&A efficiency.

Segment Analysis

The domestic business maintained high profitability, with revenue of ¥158.2B (YoY+18.3%), Operating Income of ¥50.3B (YoY+26.7%), and a margin of 31.8%, generating an amount of Operating Income exceeding the total company-wide figure. The overseas business continued to post a loss, with revenue of ¥9.8B (YoY+6.0%) and an Operating Loss of ¥0.7B (loss narrowing by -7.1% YoY). Revenue composition was 94.2% domestic and 5.8% overseas, highlighting the company’s structurally high dependence on the domestic market. In the domestic business, goodwill increased following the acquisition of shares in CDC Aqua Service Co., Ltd. (in the previous fiscal year), but there were no applicable events such as impairment of fixed assets during the current period.

Key Financial Indicators

【Profitability】The Operating Income margin was 29.6%, improving by +2.3pt from 27.3% in the previous year, while the Net Income margin also improved by +2.8pt to 21.6% from 18.8% in the previous year; ROE was 11.7%. The gross margin of 51.2% was virtually flat, and the decline in the SG&A ratio to 21.6% (23.6% in the previous year) was the primary factor behind the margin improvement.【Cash Quality】Operating CF was ¥93.98B, approximately 2.6 times Net Income of ¥36.2B, indicating strong cash backing for earnings. Contract liabilities increased substantially to ¥19.9B, supporting OCF through working capital.【Investment Efficiency】Capital expenditures were ¥1.1B, while depreciation was ¥2.3B, meaning investment remained below depreciation. Although cash resources are ample, the scale of investment is limited.【Financial Soundness】The Equity Ratio was extremely high at 79.0%. Cash and deposits of ¥263.1B accounted for a substantial portion of total assets of ¥391.6B. Interest-bearing debt was negligible, indicating a conservative financial structure.

Cash Flow Analysis

Operating CF was ¥93.98B (up +29.9% YoY), significantly exceeding Net Income of ¥36.2B and demonstrating strong cash-generation capacity. While the increase in contract liabilities (+¥14.7B) boosted OCF through working capital, this advance-payment-like cash inflow may partially reverse in the second half of the fiscal year. Investing CF was -¥33.6B, of which capital expenditures were limited to -¥1.1B; the primary factor was other investing activities, including the management of deposits. Financing CF was -¥5.4B, with dividend payments being the main factor behind the decrease. Free CF was ¥60.4B, a level sufficient to cover investment and shareholder returns, while cash and deposits accumulated to ¥263.1B.

Earnings Quality

Both extraordinary gains and extraordinary losses were virtually zero, indicating that Net Income for the current period was close to the company’s underlying earnings capacity and was scarcely affected by temporary factors. Non-operating income was ¥1.3B, representing less than 0.8% of revenue, indicating a low level of dependence; its components, such as dividend income received and foreign exchange losses, also remained within a routine range. The gap between Ordinary Income of ¥50.9B and Net Income of ¥36.2B was attributable to corporate income taxes at an effective tax rate of 28.8%, allowing for a consistent accounting explanation. Operating CF reached approximately 2.6 times Net Income, indicating limited accruals (the difference between accounting earnings and cash) and strong cash backing for earnings.

Earnings Forecast and Guidance

The first-half progress rates against the full-year forecast were 60.0% for revenue (¥167.9B/¥280.0B), 138.1% for Operating Income (¥49.7B/¥36.0B), and 137.6% for Ordinary Income (¥50.9B/¥37.0B). Compared with the standard benchmark of 50% for first-half progress, profit items are progressing at a substantially faster pace, indicating that the company’s full-year plan remains based on conservative assumptions. No revisions were made to the earnings forecast or dividend forecast during the current quarter.

Shareholder Returns

The interim dividend was ¥55 per share, and the full-year dividend forecast is ¥110 (an increase from the previous year’s dividend of ¥50). The Payout Ratio calculated based on first-half Net Income of ¥36.2B and the average number of shares outstanding during the period is approximately 15% on an interim dividend basis, representing a modest burden given the level of cash flow. Against Operating CF of ¥93.98B and Free CF of ¥60.42B, dividend payments were approximately ¥5.3B, indicating a substantial cash base supporting dividend sustainability. There is no disclosure regarding additional share repurchases.

Risk Factors

1. Concentration risk in the domestic business: The domestic business accounts for 94.2% of revenue, while the overseas business accounts for only 5.8%. The company has a highly concentrated geographic business portfolio, and changes in domestic regulations and the order environment could readily affect overall performance.

2. Profitability of the overseas business: The overseas business continued to post an Operating Loss of ¥0.7B, with a margin of -7.0%, compared with the previous year. With revenue of ¥9.8B being relatively small, insufficient fixed-cost absorption is observed as a profitability challenge.

3. Working capital reversal associated with the increase in contract liabilities: Contract liabilities increased by +284% YoY to ¥19.9B, boosting first-half Operating CF; however, these advance-payment-like funds will be released as revenue is recognized in the second half of the fiscal year and could become a factor causing a cash flow reversal.

Industry Benchmarks (For Reference; Company Analysis)

Profitability and Returns

Both the Operating Income margin and Net Income margin substantially exceed the industry median, indicating a high level of profitability within the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median, leaving the company’s growth rate at approximately the middle of the industry range.

※Source: Company analysis

Key Points to Watch in the Financial Results

1. Revenue and profit growth accompanied by improved SG&A efficiency continues, with the Operating Income margin improving from 27.3% in the previous year to 29.6%. Whether this margin improvement represents a temporary effect associated with revenue growth or structural efficiency gains will be a key point to monitor in future quarters.

2. First-half progress against the full-year forecast was high at 138.1% for Operating Income and 147.8% for Net Income, indicating that the company’s full-year plan is based on conservative assumptions. Whether a revision is made and its timing will be points to monitor in future earnings announcements.

3. While the substantial increase in contract liabilities (+284%) boosted first-half Operating CF, revenue dependence on the domestic business remains high at 94.2%, and the overseas business continues to be loss-making. Changes in working capital and earnings trends in the overseas business during the second half will be key points in assessing earnings quality.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,083–¥3,260 at ±1% Cost of Equity, and ¥3,167–¥3,171 at ω±0.1.

Notes:

• Goodwill amortization of ¥7.8 per share has been added back to profit (as a non-cash expense and for comparability with IFRS companies).
• Since Net Income progress against the full-year forecast (148%) exceeds the standard level (50%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of schedule tend to outperform forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Since forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end have been 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 share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL financial 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 responsibility, and you should consult a professional as necessary.

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