TEIKOKU SEN-I Co.,Ltd. FY2026 Q2 Earnings Report

Quick View

Executive Summary

The most important point for the current interim period is that revenue and earnings increased, with Operating Income expanding at a faster pace than Revenue, against a backdrop of growing demand for disaster prevention and security and strong growth in the Textile Business. Revenue was ¥241.8B (¥185.4B in the previous year, YoY +30.5%), Operating Income was ¥40.7B (¥26.6B in the previous year, YoY +53.4%), Ordinary Income was ¥48.0B (¥33.1B in the previous year, YoY +45.0%), and Net Income was ¥33.3B (¥23.4B in the previous year, YoY +42.5%). The Operating Income margin improved to 16.8% (14.3% in the previous year), and the earnings growth rate exceeding the revenue growth rate indicates a leverage effect from cost control and an improved business mix.

Factors Affecting Business Results

【Revenue】The core Disaster Prevention and Security Business generated Revenue of ¥223.4B (¥174.5B in the previous year, YoY +28.1%), accounting for 92.4% of the total, driven by growth in projects for government agencies (¥108.8B, YoY +39.8%). The Textile Business achieved strong growth to ¥15.7B (¥8.2B in the previous year, YoY +90.8%), expanding its composition ratio to 6.5%, while Real Estate Leasing remained stable at ¥2.7B (up +2.3%).

【Profit and Loss】The Operating Income margin improved to 16.8% (14.3% in the previous year), supported by an increase in the gross profit margin to 27.9% (27.6% in the previous year) and a decline in the SG&A expense ratio to 11.1% (13.3% in the previous year). Ordinary Income was increased from Operating Income by dividend income of ¥7.1B (¥6.1B in the previous year). Extraordinary gains and losses were immaterial (extraordinary gain of ¥0.01B and extraordinary loss of ¥0.01B), limiting the impact of temporary factors. The gap between Ordinary Income and Net Income (¥14.7B) was attributable to income taxes and other taxes of ¥14.6B, with the effective tax rate at approximately 30.5%, showing no significant change from the previous year (at the same level). This was a result of increased revenue and earnings, with Operating Income benefiting from operating leverage as the earnings growth rate exceeded the revenue growth rate.

Segment Analysis

Segment profit for the Disaster Prevention and Security Business was ¥41.5B (¥29.6B in the previous year, YoY +40.2%), accounting for the majority of company-wide profit, with a profit margin of 18.6%. The Textile Business recorded segment profit of ¥4.5B (¥1.7B in the previous year, YoY +160.1%), with a profit margin of 28.3%, representing a significant improvement and suggesting an increase in the proportion of high-margin products. Real Estate Leasing maintained an exceptionally high and stable margin, with segment profit of ¥2.0B (¥2.0B in the previous year, YoY +1.0%) and a profit margin of 74.2%. The adjustment amount after allocation of company-wide expenses increased from △¥6.8B in the previous year to △¥7.3B, but remained at a level that did not impair overall Operating Income growth. The earnings structure shows that the volume-driven Disaster Prevention and Security Business and the high-profitability Textile and Real Estate Leasing businesses complement each other.

Key Financial Metrics

【Profitability】The Operating Income margin of 16.8% (14.3% in the previous year) and Net Income margin of 13.8% (12.6% in the previous year) both improved, against a backdrop of the increase in the gross profit margin to 27.9% and the decline in the SG&A expense ratio to 11.1%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥95.4B, equivalent to 2.9 times Net Income of ¥33.3B, indicating solid cash backing for earnings. 【Investment Efficiency】ROE was 4.5%. While the improvement in the Net Income margin contributed positively together with total asset turnover (Revenue of ¥241.8B against total assets of ¥916.3B), the high Equity Ratio of 80.9% structurally suppresses the ROE level in relative terms. EPS increased to ¥130.02 (¥90.51 in the previous year, +43.7%), while BPS increased to ¥2,887.19 (¥2,821.33 in the previous year). 【Financial Soundness】The Equity Ratio rose to 80.9% (79.1% in the previous year), and current liabilities remained at ¥52.3B against current assets of ¥415.2B, indicating a high level of short-term payment capacity.

Cash Flow Analysis

Operating Cash Flow was ¥95.4B, a substantial year-on-year increase of +38.1%, significantly exceeding Net Income of ¥33.3B. The primary drivers of the increase were a decrease in trade receivables (+¥40.3B) and a decrease in inventories (+¥24.8B), reflecting progress in collection of receivables and inventory optimization during the period. Meanwhile, accounts payable decreased by ¥16.1B, indicating that working capital was generally released. Investing Cash Flow was +¥31.6B, supported by the redemption of short-term securities (¥50.0B), while capital expenditures remained limited to ¥3.1B, maintaining capital efficiency. Financing Cash Flow was △¥14.7B, primarily due to dividend payments of ¥14.3B. Free Cash Flow was ample at ¥127.0B, a level sufficient to cover dividends and capital expenditures fully through internal funds.

Quality of Earnings

The core of recurring earnings was Operating Income of ¥40.7B. Of the ¥7.4B in non-operating income, dividend income accounted for ¥7.1B, equivalent to approximately 3.0% of Revenue. Extraordinary gains and losses were immaterial, consisting of an extraordinary gain of ¥0.01B and an extraordinary loss of ¥0.01B, with virtually no impact on current-period profit. Comprehensive Income was ¥31.5B, slightly below Net Income of ¥33.3B. The ¥1.8B gap was attributable to valuation-related factors, including a decrease in the valuation difference on securities (△¥1.4B) and a decrease in deferred hedge gains and losses (△¥0.3B). As OCF significantly exceeded Net Income, accruals—the difference between accounting profit and cash flows—were small, and the quality of earnings was supported by cash generation. The gap between Ordinary Income and Net Income was attributable to the income tax burden, with no structural distortion apparent.

Earnings Forecast and Guidance

Progress toward the Full-Year forecast was 67.2% for Revenue, 94.7% for Operating Income, 87.2% for Ordinary Income, and 87.6% for Net Income (based on actual Net Income of ¥33.3B against the Net Income forecast of ¥38.0B). As of the first half, Operating Income, Ordinary Income, and Net Income had all reached approximately 90% of their Full-Year forecasts. Progress was significantly above the standard interim-period progress rate of 50%, suggesting that recognition of public-sector projects may have been concentrated in the first half. Neither the earnings forecast nor the dividend forecast was revised this time, and the company plan remains unchanged.

Shareholder Returns

The interim dividend was ¥0, and the Full-Year dividend forecast is ¥65 per share. Based on the Full-Year Net Income forecast of ¥38.0B and Full-Year EPS forecast of ¥148.43, the Payout Ratio is approximately 43.8% (¥65 ÷ ¥148.43). Given Free Cash Flow of ¥127.0B, sufficient funds are available for dividends. No share repurchase was confirmed, and the shareholder return policy for the current fiscal year consists solely of dividends.

Risk Factors

1. Public-sector demand volatility risk: Revenue from government agencies in the Disaster Prevention and Security Business was ¥108.8B (up +39.8% year on year), accounting for 45% of the total. The business structure is susceptible to quarterly fluctuations due to the timing of tenders and uneven budget execution.

2. Investment securities dependency risk: Investment securities of ¥368.9B account for 40.3% of total assets of ¥916.3B. Dividend income of ¥7.1B supports 14.9% of Ordinary Income of ¥48.0B, meaning that market fluctuations could affect earnings at the Ordinary Income level.

3. Working capital volatility risk: During the current period, trade receivables of △¥40.3B and inventories of △¥24.8B declined, reducing working capital and contributing to cash generation. Depending on future order trends, however, working capital could expand again and put pressure on OCF.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

There is insufficient comparative data against the disclosed industry median for the Company’s Operating Income margin and Net Income margin; therefore, the discussion is limited to their absolute levels.

Growth and Capital Efficiency

The Company’s Revenue growth rate of 30.5% reflects growth in the Disaster Prevention and Security Business and the Textile Business.

※Source: Compiled by the Company

Key Points from the Earnings Report

1. The Operating Income margin improved by +2.5pt to 16.8% (14.3% in the previous year), while Operating Income increased by +53.4%, exceeding the Revenue growth rate of +30.5%. The improvement in cost efficiency exceeding Revenue growth suggests a structural improvement in profitability accompanying the expansion of business scale.

2. Progress toward the Full-Year forecast was 94.7% for Operating Income and 87.6% for Net Income, meaning that a substantial portion of the Full-Year forecast had already been achieved in the first half. A concentration of project recognition in the first half was evident. Order trends in the second half will be a factor determining Full-Year results.

3. OCF was ¥95.4B, equivalent to 2.9 times Net Income, with decreases in trade receivables and inventories boosting cash generation. The fact that earnings growth was supported by cash flow is notable from the perspective of earnings quality.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly available data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,494–¥2,636 at ±1% for the cost of equity, and ¥2,553–¥2,570 at ±0.1 for ω.

Notes:

• Because progress of Net Income toward the Full-Year forecast (88%) exceeds the standard level (50%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with leading progress tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below BPS.
• Net assets as of the quarter-end are used (there is a timing gap relative to the Full-Year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee future share prices)

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

---End of Report---