TEIKOKU SEN-I (3302) FY2026 Q1 Earnings Report

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Executive Summary

The Company reported higher revenue and profit, with profit margins expanding alongside revenue growth, driven primarily by increased sales to government agencies, centered on the Disaster Prevention and Security Business. Revenue was ¥19.77B (¥15.32B in the same period last year, YoY +29.0%), while operating income was ¥4.07B (¥2.88B, YoY +41.2%), with the profit growth rate exceeding the revenue growth rate by 12.2pt. Ordinary income was ¥4.69B (YoY +37.1%), and net income was ¥3.26B (YoY +34.9%). The operating margin was 20.6%, improving by approximately 1.8pt from 18.8% in the same period last year. While operating leverage from revenue growth was evident, the Q1 progress rate against the full-year operating income forecast was exceptionally high at 94.6%, suggesting possible quarterly fluctuations due to the timing of project recognition.

Factors Affecting Business Performance

【Revenue】Revenue increased 29.0% YoY to ¥19.77B. The core Disaster Prevention and Security Business accounted for ¥18.68B (94.5% of total revenue, YoY +26.2%), of which sales to government agencies were ¥10.23B, up 33.7% YoY, driving revenue growth. The Textile Business rose sharply to ¥1.16B (YoY +60.5%), although its scale remained limited. The Real Estate Leasing Business remained stable at ¥0.14B (YoY +5.4%).

【Profit and Loss】Operating income increased 41.2% YoY to ¥4.07B, exceeding the revenue growth rate. Against a gross margin of 27.1%, the SG&A ratio remained at just 6.6%, resulting in much of the additional revenue converting into operating income. The segment margin of the Disaster Prevention and Security Business improved to 21.4% from 20.3% in the previous year, while the Textile Business also achieved high profitability at 28.2%. Ordinary income totaled ¥4.69B (YoY +37.1%), including ¥0.63B in dividend income added to operating income. Net income was ¥3.26B (YoY +34.9%), after deducting ¥1.44B in income taxes and other taxes (an effective tax rate of approximately 30.6%). Extraordinary gains and losses were virtually absent. In conclusion, the Company achieved higher revenue and profit, with improved profitability at the operating level serving as the primary driver of earnings growth.

Segment Analysis

The Disaster Prevention and Security Business formed the core of Company-wide profit, with revenue of ¥18.68B (94.5% of total revenue, YoY +26.2%) and segment profit of ¥4.01B (YoY +33.3%, margin 21.4%). Sales to government agencies grew significantly to ¥10.23B, up 33.7% YoY, and were the primary driver of revenue growth. The Textile Business recorded strong growth, with revenue of ¥1.16B (YoY +60.5%) and segment profit of ¥0.33B (YoY +161.9%, margin 28.2%), although its scale was small. The Real Estate Leasing Business remained a stable source of earnings, with revenue of ¥0.14B (YoY +5.4%) and segment profit of ¥0.11B (margin 74.8%). From FY2026 Q1, certain textile products for disaster prevention applications have been reclassified into the Disaster Prevention and Security Business, and the same classification has been applied to the comparison for the same period last year.

Key Financial Indicators

【Profitability】The operating margin improved to 20.6% from 18.8% in the previous year, while the net margin improved to 16.5% from approximately 15.8%. The high level of profitability is supported by a low SG&A ratio of 6.6% against a gross margin of 27.1%. 【Cash Quality】Accounts receivable totaled ¥19.31B, accounting for 42.5% of current assets, a level at which the timing of inspection and collection for government agency projects could affect working capital. Inventories were ¥5.68B, equivalent to only 5.8% of total assets. 【Investment Efficiency】ROE was 4.3%. Despite the high profit margins, capital efficiency was constrained by low total asset turnover and conservative financial leverage. Investment securities of ¥39.22B accounted for 40.1% of total assets, affecting asset efficiency. 【Financial Soundness】The equity ratio was 77.3%. Current assets of ¥45.42B versus current liabilities of ¥9.25B indicate extremely ample liquidity. Interest-bearing debt was minimal, and interest expense was negligible.

Cash Flow Analysis

Detailed disclosure of the cash flow statement was limited for this quarter, so the funding position is assessed based on balance sheet trends. Cash and deposits were ¥10.93B, down from ¥12.82B in the previous year, while accounts receivable increased substantially to ¥19.31B from ¥8.46B. This is believed to largely reflect the impact of billing and collection cycles associated with expanding sales to government agencies, suggesting that revenue growth is progressing with a time lag before cash collection. Inventories declined to ¥5.68B from ¥9.03B in the previous year, indicating improved inventory efficiency. Current securities were flat at ¥5.00B, while investment securities increased to ¥39.22B from ¥37.10B in the previous year. Overall, the accumulation of accounts receivable accompanying revenue growth has pressured the cash balance, and future collection performance will determine the quality of cash management.

Quality of Earnings

Of ordinary income of ¥4.69B, the majority of non-operating income of ¥0.64B—¥0.63B—consisted of dividend income, with dividend income from investment securities accounting for approximately 13.5% of ordinary income. Operating profit growth resulted from maintaining the gross margin and keeping SG&A growth low, and can be regarded as recurring business earnings. However, dividend income depends on the dividend policies of investee companies and should therefore be distinguished as a factor affecting fluctuations in ordinary income. Extraordinary gains and losses were virtually absent, and no profit increase attributable to temporary factors was identified. Comprehensive income was ¥4.67B, exceeding net income of ¥3.26B by ¥1.41B. The difference was primarily attributable to valuation differences on investment securities (+¥1.45B). The divergence between earnings generated by the core business and comprehensive income resulting from changes in the fair value of held assets indicates the existence of changes in asset value that cannot be fully captured by net income alone.

Earnings Forecasts and Guidance

The full-year Company forecasts remain unchanged at revenue of ¥36.00B (YoY +7.0%), operating income of ¥4.30B (YoY +6.0%), and ordinary income of ¥5.50B (YoY +3.6%). As of Q1, progress rates were 54.9% for revenue, 94.6% for operating income, 85.3% for ordinary income, and 85.7% for net income, substantially exceeding the standard quarterly progress benchmark of 25%. The particularly high progress rate for operating income reflects the business characteristic that the timing of project recognition for government agencies has a significant impact on quarterly performance. No revisions have been made to the Company forecasts, and the pace of project recognition and any profitability reversal in subsequent quarters will be key points to monitor when assessing full-year results.

Shareholder Returns

The full-year dividend forecast is ¥65.00 per share, and the payout ratio based on forecast EPS of ¥148.43 is 43.8%. Actual Q1 EPS was ¥127.15, representing progress of 85.7% against forecast full-year EPS. No revision has been made to the dividend forecast. The number of treasury shares was 1.959 million shares; however, the Company has not disclosed whether any additional repurchases were made during the quarter. Accordingly, the payout ratio should be assessed based solely on dividends. The dividend level is within a reasonable range relative to earnings, but achievement of the full-year earnings forecast will be an important factor in assessing sustainability.

Risk Factors

1. Collection cycle for trade receivables: Accounts receivable totaled ¥19.31B, accounting for 42.5% of current assets, and increased substantially from ¥8.46B in the previous year. The timing of inspection and billing for government agency projects could prolong the collection cycle.

2. Concentration of business profit: The Disaster Prevention and Security Business accounts for more than 90% of segment profit, meaning that fluctuations in government agency project orders and budget execution timing could have a significant impact on Company-wide performance.

3. Sensitivity to investment securities: Investment securities totaled ¥39.22B, accounting for 40.1% of total assets, while dividend income of ¥0.63B represented approximately 13.5% of ordinary income. Changes in market prices and the dividend policies of investee companies could affect ordinary income and comprehensive income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company's operating and net margins significantly exceed the industry median, placing its profitability at a high level within the industry.

Growth and Capital Efficiency

The revenue growth rate also significantly exceeds the industry median, demonstrating strong growth within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The operating margin improved from 18.8% in the previous year to 20.6%. Given that expense growth has been restrained relative to revenue growth, a trend of improving profitability has been confirmed.

2. The Q1 progress rate against the full-year operating income forecast was high at 94.6%, suggesting quarterly fluctuations in performance due to the timing of project recognition. The pace of recognition in subsequent quarters will be an important point to monitor when assessing full-year results.

3. Accounts receivable increased while cash and deposits declined simultaneously. As a change in working capital during a period of revenue growth, the future collection status warrants monitoring.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,536–¥2,681 at cost of equity ±1%, and ¥2,596–¥2,614 at ω±0.1.

Notes:

• Because net income progress against the full-year forecast is 86%, exceeding the standard 25%, forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of forecast tend to exceed their forecasts. In businesses with strong seasonality, the adjustment may be excessive).
• 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 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 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 and, where necessary, after consulting with a professional.

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AI Financial Analysis

Executive Summary

FY2026 Q1 was a very strong start, with revenue and every principal profit line substantially ahead of the prior-year quarter. Revenue increased 29.0% YoY to ¥19.77bn. Operating income rose 41.2% to ¥4.07bn, outpacing revenue growth and demonstrating favorable operating leverage. Ordinary income increased 37.1% to ¥4.69bn. Net income attributable to owners rose 34.9% to ¥3.26bn, while basic EPS reached ¥127.15. Gross margin improved by 26bp YoY to 27.1%, from approximately 26.8% in the prior-year quarter. Operating margin expanded by 177bp to 20.6%, from approximately 18.8%, reflecting both higher gross profitability and restrained SG&A growth. Net margin increased by 71bp to 16.5%, from approximately 15.8%. The Disaster Prevention & Security segment remained the core business, accounting for roughly 90% of segment profit before corporate-cost allocations. Growth was driven by the Disaster Prevention & Security business, where sales increased 26.2% and segment profit rose 33.3%. Textile was the fastest-growing and most margin-accretive operating segment, with sales up 60.6% and segment profit up 161.9%. Government-related sales in Disaster Prevention & Security increased to ¥10.23bn from ¥7.65bn, underscoring robust public-sector demand. Non-operating dividend income of ¥0.63bn supported ordinary income, although the primary earnings driver remained operating profit. The balance sheet is exceptionally liquid, with a 491.1% current ratio, 429.7% quick ratio, and 0.29x debt-to-equity ratio. However, receivables increased 128.2% YoY to ¥19.31bn and the annualized DSO of 89 days is a material working-capital monitoring point. Q1 operating income already represented 94.6% of the full-year forecast, and net income represented 85.7%, indicating that the unchanged guidance appears conservative unless subsequent quarters experience a substantial normalization. The main forward-looking issue is whether elevated public-sector project deliveries, the Textile margin uplift, and strong investment-income contribution can be sustained through the remainder of FY2026.

Profitability Analysis

Annualized DuPont ROE is 17.2%, comprising a 16.5% net profit margin, 0.807x asset turnover, and 1.29x financial leverage. The principal source of the strong annualized ROE is profitability rather than balance-sheet leverage: the 16.5% net margin is well above the 10% excellence benchmark, while leverage remains conservative. The most meaningful YoY improvement was operating profitability, with operating margin rising 177bp to 20.6% as operating income grew 41.2%, faster than the 29.0% revenue increase. Gross margin expanded 26bp to 27.1%, indicating improved product/project mix or execution at the gross-profit level. SG&A increased only 5.3% YoY to ¥1.30bn, materially below revenue growth, creating strong operating leverage. Disaster Prevention & Security generated ¥18.68bn of external sales, up 26.2% YoY, and ¥4.01bn of segment profit, up 33.3%; its segment margin improved 88bp to 21.4%. Textile generated ¥0.94bn of external sales, up 147.9% YoY, and ¥0.33bn of segment profit, up 161.9%; its segment margin improved sharply to 28.2% from 17.3%. Real-estate leasing revenue rose 5.4% to ¥0.14bn and segment profit was broadly stable at ¥0.11bn, with a still-high 74.8% segment margin. Segment profit figures are measured before unallocated corporate expenses, which increased modestly to ¥0.37bn. Ordinary income exceeded operating income by ¥0.63bn, principally because dividend income was ¥0.63bn; this contributed approximately 13.5% of ordinary income and adds investment-portfolio sensitivity to reported earnings. The tax burden was 0.694 and the effective tax rate was 30.6%, broadly consistent with a normal Japanese corporate tax burden. Interest burden was 1.154 because non-operating income materially exceeded the immaterial interest expense, and interest coverage was extremely strong at 3,904x. With 40.1% of assets invested in investment securities, operating-margin resilience should be assessed separately from recurring investment-income support.

Growth Assessment

Revenue growth was broad-based, led by Disaster Prevention & Security and Textile. Disaster Prevention & Security sales rose by ¥3.88bn YoY to ¥18.68bn, including a ¥2.58bn increase in government-agency sales and a ¥1.29bn increase in other-customer sales. This confirms that public-sector demand remains central to the company’s current growth profile. Textile external sales rose by ¥0.56bn to ¥0.94bn, although its smaller revenue base means quarterly volatility can be high. The segment reclassification implemented from FY2026, including the transfer of certain disaster-prevention textile products into Disaster Prevention & Security, has been retrospectively applied to the prior-year comparison and therefore preserves YoY comparability. Inventory declined 37.1% YoY to ¥5.68bn despite the 29.0% sales increase, which is favorable for inventory discipline and reduces the risk of excess stock. Conversely, receivables expanded faster than sales, requiring confirmation that project billing and collection convert on schedule. Full-year company guidance calls for only 7.0% revenue growth to ¥36.0bn and 6.0% operating-income growth to ¥4.30bn. Q1 revenue progress is 54.9% of the full-year forecast, 29.9 percentage points above the standard 25% Q1 progress rate. Q1 operating-income progress is 94.6%, 69.6 percentage points above the standard rate. Q1 ordinary-income progress is 85.3% and net-income progress is 85.7% of the respective full-year forecasts. These unusually high progress rates may reflect project-delivery seasonality, a conservative initial plan, or both. The lack of a forecast revision despite the Q1 outperformance makes the timing of large Disaster Prevention & Security deliveries and the durability of Textile profitability key determinants of the full-year outcome.

Financial Health

Liquidity is exceptionally strong. Current assets of ¥45.42bn exceed current liabilities of ¥9.25bn by ¥36.17bn, producing a 491.1% current ratio and ¥36.17bn of working capital. The 429.7% quick ratio confirms that liquidity is not dependent on inventory liquidation. Cash and deposits were ¥10.93bn, while short-term investment securities were ¥5.00bn. Debt-to-equity was a conservative 0.29x, well below the 2.0x risk threshold, and there is no current-ratio or leverage warning. Current liabilities include only ¥0.45bn of current long-term borrowings against a very large current-asset base, indicating minimal short-term refinancing or maturity-mismatch risk. Total liabilities represented 22.7% of total assets, while total equity was ¥75.66bn and the equity ratio was approximately 77.3%. Investment securities were ¥39.22bn, equal to 40.1% of total assets and 51.8% of total equity. This sizable securities portfolio supports dividend income and unrealized valuation reserves, but also exposes comprehensive income and net asset value to market-price movements. Accounts receivable increased by ¥10.85bn, or 128.2% YoY, to ¥19.31bn, substantially exceeding the sales growth rate. Accounts payable increased ¥1.47bn, or 37.5% YoY, to ¥5.37bn, partly funding the expansion in receivables but not fully offsetting it. Inventories declined by ¥3.35bn, or 37.1% YoY, to ¥5.68bn, improving the composition of current assets. Deferred tax liabilities were ¥11.24bn, consistent with substantial unrealized gains embedded in securities and other valuation items. Asset retirement obligations were ¥0.08bn, equivalent to approximately 0.3% of total liabilities, indicating limited recognized environmental-retirement obligations. Intangible assets were only 0.1% of total assets, so the balance sheet has negligible acquisition-intangible or goodwill-related impairment dependence.

Notable B/S Changes

Accounts receivable: +¥10.85bn (+128.2%) to ¥19.31bn - substantially outpaced revenue growth and drove the 89-day annualized DSO warning; collection timing is the key near-term earnings-to-cash conversion monitor. Inventories: -¥3.35bn (-37.1%) to ¥5.68bn - inventory reduction alongside 29.0% revenue growth indicates improved delivery/conversion and mitigates working-capital pressure from receivables. Accounts payable: +¥1.47bn (+37.5%) to ¥5.37bn - supplier financing expanded with business volume, but the increase was far smaller than the receivables build. Investment securities: +¥2.12bn (+5.7%) to ¥39.22bn - securities represent 40.1% of assets and support dividend income, while increasing exposure to market-value fluctuations. Total equity: +¥3.27bn (+4.5%) to ¥75.66bn - retained profitability and valuation reserves reinforce an already strong capital base.

Cash Flow Quality

The earnings-quality assessment is primarily centered on accrual conversion and balance-sheet movements. Net income was ¥3.26bn, supported by a 41.2% increase in operating income rather than extraordinary gains. Extraordinary loss was immaterial at less than ¥0.01bn, and loss on disposal of fixed assets was also immaterial, indicating limited distortion from disclosed one-time items. Non-operating income was ¥0.64bn, equal to 3.3% of revenue, and consisted predominantly of ¥0.63bn in dividend income. This investment income is recurring only to the extent that portfolio dividends remain stable; it is less directly linked to core operating activity than segment operating profit. Receivables of ¥19.31bn increased 128.2% YoY, versus revenue growth of 29.0%. The quality alert for annualized DSO of 89 days, above the 60-day warning level, is material: it indicates that a larger share of reported Q1 sales remains uncollected. The root cause is the sharp increase in trade receivables associated with the expanded revenue base, likely including timing of billing and collection for Disaster Prevention & Security projects. This can occur in project-oriented public-sector and security-related businesses, but the magnitude relative to sales growth requires monitoring. The impact is that cash conversion could lag accounting earnings if receivables do not normalize in subsequent quarters. Inventory fell 37.1% YoY while revenue increased, which offsets part of the receivables-related working-capital pressure and suggests no evident build-up of unsold finished goods. Finished goods were ¥5.68bn and work in process was ¥1.52bn, supporting the view that execution and delivery timing are important to quarterly working-capital movements. The balance-sheet evidence therefore presents a mixed cash-conversion picture: favorable inventory reduction but elevated receivables. Dividend income and securities valuations should also be separated from core operating cash generation when evaluating earnings durability.

Dividend Sustainability

The full-year dividend forecast is ¥65.0 per share. Against forecast EPS of ¥148.43, the implied dividend payout ratio is approximately 43.8%, below the 60% sustainability benchmark. The projected dividend is also supported by a strong equity base of ¥75.66bn, retained earnings of ¥50.23bn, and a highly liquid balance sheet. Cash and deposits of ¥10.93bn plus ¥5.00bn of short-term investment securities provide considerable near-term financial flexibility. The conservative 0.29x debt-to-equity ratio and extremely high interest coverage reduce financing pressure on shareholder distributions. Q1 EPS of ¥127.15 already equates to 85.7% of full-year forecast EPS, which provides a substantial accounting-earnings cushion relative to the annual dividend plan. The sizable investment-securities portfolio also generated ¥0.63bn of dividend income during Q1, providing an additional source of earnings support. The principal item to monitor is collection of the sharply higher receivables balance, because working-capital absorption can affect distributable cash generation even when earnings are strong. Based on the forecast payout ratio, capital structure, and Q1 earnings performance, the indicated dividend level appears conservatively positioned relative to reported profitability.

Risk Assessment

Business risks include Public-sector and project-delivery concentration: Disaster Prevention & Security is the core business, contributing approximately 90% of segment profit before corporate-cost allocations; timing of government procurement, inspections, and deliveries can create material quarterly volatility., Receivable collection risk: annualized DSO is 89 days, above the 60-day warning threshold, following a 128.2% YoY increase in receivables to ¥19.31bn., Securities-market exposure: investment securities total ¥39.22bn, or 40.1% of assets, making comprehensive income and book value sensitive to equity-market movements., Portfolio-income sensitivity: dividend income of ¥0.63bn represented 13.5% of ordinary income, so dividend reductions at investee companies would affect reported profit., Manufacturing and supply-chain risk: procurement costs, delivery schedules, product quality, and customer acceptance risk can affect margins in disaster-prevention equipment and textile products..

Financial risks include Working-capital absorption risk from receivables growing materially faster than revenue, notwithstanding the favorable inventory reduction., Deferred tax liabilities of ¥11.24bn create sensitivity of net assets to reversals or declines in unrealized gains on securities., The company has low balance-sheet leverage and no meaningful interest-servicing stress, but its financial asset concentration remains high relative to operating assets..

Key concerns include Whether the 89-day annualized DSO normalizes as large Q1 projects are collected., Whether Q1 operating income of ¥4.07bn, already 94.6% of full-year guidance, reflects unusually concentrated delivery timing rather than a sustainable run rate., Whether the sharp Textile margin improvement to 28.2% can be maintained after the current quarter., Whether investment-security valuation changes offset part of the strong earnings contribution in future comprehensive income..

Investment Implications

Key takeaways include Q1 revenue, operating income, ordinary income, and net income increased 29.0%, 41.2%, 37.1%, and 34.9% YoY, respectively., Operating margin expanded to 20.6%, while SG&A grew only 5.3%, evidencing strong operating leverage., Disaster Prevention & Security remains the earnings engine, while Textile delivered the strongest incremental growth and margin expansion., The balance sheet is highly defensive, with a 491.1% current ratio, 0.29x debt-to-equity, and approximately 77.3% equity ratio., The main counterweight to earnings strength is the 128.2% YoY rise in receivables and 89-day annualized DSO., Q1 profit progress relative to unchanged full-year guidance is exceptionally high, making delivery seasonality and guidance conservatism central interpretive issues..

Metrics to watch include Accounts receivable balance and annualized DSO, Collection timing on government and other Disaster Prevention & Security projects, Disaster Prevention & Security segment sales and segment margin, Textile segment margin following the Q1 increase to 28.2%, Full-year forecast revision status and quarterly progress against ¥4.30bn operating-income guidance, Dividend income and fair-value movements in the ¥39.22bn investment-securities portfolio, Inventory levels relative to sales and order-delivery timing.

Regarding relative positioning, The company combines unusually high reported profitability, with a 20.6% operating margin and 17.2% annualized ROE, with a conservative capital structure and substantial financial-asset backing. Relative to a typical manufacturer, its low PPE intensity of 12.3% and very large investment-securities position make returns less dependent on heavy fixed-asset utilization but more exposed to project timing, public-sector demand, portfolio dividends, and securities-market valuations.