Nippon Air Conditioning Services Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

In addition to higher revenue and earnings, this quarter confirmed a qualitative improvement in the earnings structure, including an improvement in the operating margin to 8.1% (6.0% in the same period last year). Revenue was ¥150.6B (¥138.9B in the same period last year, YoY +8.4%), Operating Income was ¥12.2B (up +45.8%), Ordinary Income was ¥13.9B (up +45.7%), and Net Income attributable to owners of the parent was ¥8.1B (¥5.3B in the same period last year, YoY +53.8%). The main factors behind the earnings increase were an improvement in the gross margin (22.6%, +1.5pt year on year) and the suppression of SG&A expense growth (SG&A ratio of 14.5%, down -0.6pt). Each profit level expanded at a pace exceeding revenue growth (+8.4%). The full-year earnings forecast remains unchanged, and progress rates of 23.0% for Operating Income and 24.8% for Ordinary Income indicate generally steady progress.

Factors Affecting Earnings

【Revenue】Revenue was ¥150.6B (¥138.9B in the same period last year, YoY +8.4%). The Company operates through a single reportable segment integrating building-equipment maintenance services and renewal construction work. In addition to the stable operation of its maintenance base, progress and billing for renewal construction work appear to have driven revenue growth. Accounts receivable for completed construction contracts declined ▲33.9% to ¥118.9B (¥189.9B in the same period last year), suggesting progress in the billing and collection of construction projects.

【Profit and Loss】Operating Income of ¥12.2B (+45.8%), Ordinary Income of ¥13.9B (+45.7%), and Net Income attributable to owners of the parent of ¥8.1B (+53.8%) all increased at rates substantially exceeding revenue growth. The gross margin improved to 22.6% (21.1% in the same period last year, +1.5pt), suggesting improved cost control and project mix. SG&A expenses increased to ¥21.9B (¥21.0B in the same period last year), but declined as a percentage of revenue to 14.5% (15.1% in the same period last year, -0.6pt), indicating the operation of operating leverage. At the Ordinary Income level, dividend income of ¥1.6B (¥1.1B in the same period last year) made a contribution and substantially exceeded and offset interest expenses of ¥0.1B. Virtually no extraordinary gains or losses were recorded, and the impact of one-time factors was limited. Between Ordinary Income and Net Income, income taxes of ¥5.7B resulted in an effective tax rate of 41.2% (44.4% in the same period last year), which remained high but improved from the previous year. Overall, this quarter can be characterized as a high-quality result, with higher revenue and earnings and profit growth exceeding revenue growth.

Segment Analysis

The Company Group treats its integrated maintenance services and renewal construction business as a single reportable segment, and therefore omits the disclosure of segment-level profit and loss. The Group also operates an electricity sales business, but this is excluded from separate segment disclosure due to its limited materiality. Accordingly, the factors behind changes between segments cannot be identified from this earnings report.

Key Financial Indicators

【Profitability】The Operating Income margin improved across multiple levels to 8.1% (6.0% in the same period last year, +2.1pt), the Ordinary Income margin to 9.2% (6.9% in the same period last year, +2.4pt), and the Net Income margin attributable to owners of the parent to 5.4% (3.8% in the same period last year, +1.6pt). The gross margin also increased to 22.6% (21.1% in the same period last year, +1.5pt). 【Cash Quality】Cash and deposits were ¥91.7B (¥81.9B in the same period last year), representing the core of current assets of ¥245.3B. Meanwhile, accounts receivable for completed construction contracts declined significantly to ¥118.9B (¥189.9B in the same period last year, -33.9%), while inventories increased to ¥14.6B (¥8.9B in the same period last year, +64.1%), indicating a change in the composition of working capital. 【Investment Efficiency】ROE was 2.6%, while total asset turnover (Revenue/total assets) was 0.295, indicating that capital efficiency remained limited during the quarter. Total assets decreased to ¥509.7B (¥531.4B in the same period last year), while net assets increased to ¥317.9B (¥309.4B in the same period last year), indicating simultaneous progress in asset reduction and capital accumulation. 【Financial Soundness】The Equity Ratio remained high at 62.4%, while the current ratio was 202.9% (current assets of ¥245.3B/current liabilities of ¥120.9B), securing ample liquidity. Interest-bearing debt totaled ¥37.4B, consisting of short-term borrowings of ¥7.5B, current portion of long-term borrowings of ¥6.8B, and long-term borrowings of ¥23.0B. This represents 11.8% of equity of ¥317.9B, indicating a conservative capital structure.

Cash Flow Analysis

Although the cash flow statement is not disclosed separately, funding trends can be confirmed from changes in the balance sheet. Cash and deposits increased by +¥9.8B to ¥91.7B (¥81.9B in the same period last year). In terms of working capital, accounts receivable for completed construction contracts decreased by ▲¥61.1B to ¥118.9B (¥189.9B in the same period last year), and progress in collections may have supported cash generation. Meanwhile, inventories increased by +¥5.7B to ¥14.6B (¥8.9B in the same period last year), suggesting that materials for renewal construction work and other items accumulated and temporarily absorbed funds. On the trade payables side, electronically recorded obligations declined by ▲¥9.0B to ¥6.8B (¥15.9B in the same period last year), indicating a slight increase in cash outflows for payments. However, short-term borrowings also increased by +¥2.0B to ¥7.5B (¥5.5B in the same period last year), suggesting that funding adjustments were implemented. Investment securities increased by +¥15.8B to ¥115.5B (¥99.7B in the same period last year), reflecting the impact of additional investments as well as increases in fair value. Overall, the quality of working capital appears to be improving, primarily due to the reduction in accounts receivable for completed construction contracts, and the cash balance also indicates sufficient financial flexibility.

Earnings Quality

The quarter’s earnings were primarily generated by recurring business activities. Extraordinary losses were virtually zero, and no extraordinary gains were recorded, indicating that the impact of one-time factors was extremely limited. Non-operating income was ¥1.8B, or 1.2% of revenue, which was small in scale; however, dividend income of ¥1.6B, accounting for the majority of non-operating income, represented 11.5% of Ordinary Income of ¥13.9B. Consequently, profit at the Ordinary Income level is structured to be influenced to a certain extent by market conditions, particularly dividend trends for held securities. From an accrual perspective, the decline in accounts receivable for completed construction contracts (▲¥61.1B) and the increase in inventories (+¥5.7B) offset each other. Cash conversion supporting earnings therefore appears to have been broadly neutral to slightly favorable. The gap between Ordinary Income of ¥13.9B and Net Income attributable to owners of the parent of ¥8.1B was mainly due to the recognition of income taxes of ¥5.7B (effective tax rate of 41.2%), with the high tax burden being the primary factor restraining growth at the Net Income level. Comprehensive income was ¥19.2B, exceeding Net Income, primarily due to valuation differences on securities (+¥10.8B) associated with increases in the fair value of investment securities.

Earnings Forecast and Guidance

Against the full-year earnings forecast of Revenue of ¥740.0B, Operating Income of ¥53.0B, Ordinary Income of ¥56.0B, and Net Income attributable to owners of the parent of ¥39.0B, progress rates for the quarter were 20.3% for Revenue, 23.0% for Operating Income, 24.8% for Ordinary Income, and 20.8% for Net Income. Operating Income and Ordinary Income were close to the simple progress assumption of 25% for Q1, while Revenue and Net Income showed somewhat slower progress. No revisions were made to either the earnings forecast or the dividend forecast during the quarter, and management maintained its current plan.

Shareholder Returns

The Company forecasts an annual dividend of 57.00 yen per share, with no revision to the dividend forecast as of the end of the quarter. Based on forecast EPS of 112.52 yen, the Payout Ratio is 50.7% (¥57/¥112.52), which is not an excessively high level. Given the conservative financial structure of cash and deposits of ¥91.7B and interest-bearing debt of ¥37.4B, the Company appears to have a reasonable financial foundation for securing funds for dividends.

Risk Factors

1. Persistently high effective tax rate: The effective tax rate for the quarter was 41.2% (44.4% in the same period last year). Although it improved from the previous year, it remains high and is a structural factor restraining growth in the Net Income margin (5.4%) and ROE (2.6%).

2. Change in working capital composition: While inventories increased +64.1% (+¥5.7B), accounts receivable for completed construction contracts decreased -33.9% (▲¥61.1B), and short-term borrowings increased +36.4% (+¥2.0B). It is necessary to monitor future trends to determine whether changes in the composition of working capital are leading to a temporary increase in funding needs.

3. Reliance on non-operating income: Dividend income of ¥1.6B represented 11.5% of Ordinary Income of ¥13.9B, creating a structure in which profit at the Ordinary Income level is susceptible to the dividend policies and fair-value fluctuations of held securities.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Operating Income margin is at the same level as the industry median, while the Net Income margin is positioned slightly below the median.

Growth and Capital Efficiency

The Revenue growth rate is slightly below the industry median but is positioned near the center of the IQR range.

※Source: Compiled by the Company

Key Takeaways from the Earnings

1. The improvement of +1.5pt in the gross margin and +2.1pt in the Operating Income margin resulted from the combined effects of improved cost control, a better project mix, and SG&A expense restraint. The fact that profit expanded at a pace exceeding revenue growth (+8.4%) indicates a strengthening earnings structure.

2. The effective tax rate of 41.2% (44.4% in the same period last year) improved from the previous year but remains high even within the industry, representing a structural factor that continues to restrain the Net Income margin (5.4%) and ROE (2.6%).

3. While full-year progress of 23.0% for Operating Income and 24.8% for Ordinary Income is generally steady, Revenue and Net Income are off to a somewhat slower start at around 20%, making construction progress in the second half the key focus for achieving the full-year plan.

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: ¥972–¥1,028 at ±1% for the cost of equity, and ¥998–¥1,002 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).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

（Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / 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 report data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

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