TESS Holdings Co.,Ltd. FY2026 FY Earnings Report

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Executive Summary

In addition to higher revenue and earnings, the Company turned profitable at the ordinary income level during the period, confirming a qualitative improvement in its earnings structure. Revenue was ¥512.2B (+39.6% year on year), while operating income was ¥53.3B (+109.0%), resulting in an operating margin of 10.4%, a significant improvement from 7.0% in the previous year. Ordinary income reached ¥38.3B, representing a turnaround from a loss of ¥-6.4B in the previous year, while net income was ¥22.3B (+604.4%). The primary drivers were expanded sales in the Energy Supply Business and improved profitability in the Engineering Business.

Factors Affecting Performance

【Revenue】Revenue of ¥512.2B increased 39.6% year on year. By segment, the Energy Supply Business was the main growth driver, generating revenue of ¥290.3B (56.7% composition ratio, +45.4%), while the Engineering Business also secured double-digit revenue growth at ¥222.0B (43.3% composition ratio, +22.4%).

【Profit and Loss】Gross profit was ¥104.2B (+39.8% year on year), and the gross margin remained broadly unchanged at 20.3%. Revenue growth significantly exceeded the 3.8% increase in SG&A expenses to ¥50.9B, resulting in a substantial increase in operating income to ¥53.3B (+109.0%). Ordinary income expanded to ¥38.3B, partly due to a ¥2.6B foreign exchange gain; however, interest expense of ¥16.6B remained a burden and the primary factor in non-operating expenses. Net income was ¥22.3B, including ¥21.2B attributable to owners of the parent. The effective tax rate remained high at approximately 40%, and the net profit margin has not increased to the same extent as the improvement at the operating income level. Higher revenue and earnings.

Segment Analysis

The Energy Supply Business generated revenue of ¥290.3B (+45.4%), operating income of ¥34.2B (+39.8%), and an operating margin of 11.8%, making it the core of the Company’s profitability. The Engineering Business recorded revenue of ¥222.0B (+22.4%), operating income of ¥12.7B (+253.9%), and a margin of 5.7%, demonstrating a significant improvement in profitability. The gap in margins between the two segments was 6.1pt. While the capital-intensive Energy Supply Business secured high profitability, the Engineering Business remains in the process of expanding its profit base.

Key Financial Indicators

【Profitability】The operating margin improved by +3.4pt to 10.4% from 7.0% in the previous year, while the net profit margin also recovered substantially to 4.4% from 0.9%.【Cash Flow Quality】Operating cash flow (OCF) was ¥51.0B, 2.4 times net income of ¥21.2B, indicating solid cash backing; however, the OCF level relative to depreciation and amortization of ¥71.0B was somewhat low, leaving room to improve cash conversion efficiency.【Investment Efficiency】ROE was 4.3%, while total asset turnover remained at approximately 0.31 times. The substantial asset base, including power generation facilities, is a factor depressing capital efficiency.【Financial Soundness】The equity ratio was 31.8%, and interest-bearing debt, including long-term borrowings of ¥621.5B, remained high. The burden of ¥16.6B in interest expense constrained the growth of ordinary income.

Cash Flow Analysis

Operating cash flow was ¥51.0B, a 34.7% year-on-year decrease, but remained above net income of ¥22.3B, maintaining solid cash backing for earnings. Investing cash flow was negative ¥73.1B, including ¥64.0B in capital expenditures, indicating the continuation of an active investment stance. Free cash flow (operating cash flow + investing cash flow) was negative ¥22.1B. Financing cash flow was negative ¥14.5B, with liquidity being flexibly adjusted through the raising and repayment of long-term borrowings. Capital expenditures continue to exceed operating cash flow, and progress in recovering investments will determine future cash generation capacity.

Quality of Earnings

Recurring earnings are centered on operating income of ¥53.3B, while non-operating income of ¥8.1B, equivalent to 1.6% of revenue, remains relatively limited. The primary component of non-operating expenses of ¥23.0B, equivalent to 4.5% of revenue, was interest expense of ¥16.6B, which is likely to continue weighing on earnings as part of the ongoing cost structure. A ¥2.6B foreign exchange gain boosted ordinary income during the period, and attention should be paid to the possibility that this effect may disappear from the following period onward. Extraordinary loss of ¥1.3B was limited and highly one-off in nature. The primary reason for the gap between ordinary income and net income was the tax burden, with an effective tax rate of approximately 40%; no major distortion was evident in the earnings structure itself.

Earnings Forecast and Guidance

The Company’s plan for the following period calls for revenue of ¥640.0B (+25.0%), operating income of ¥47.0B (-11.8%), and ordinary income of ¥29.0B (-24.4%), indicating a plan for higher revenue but lower earnings. Compared with the current-period operating margin of 10.4%, the Company assumes a decline to approximately 7.3% in the following period. This can be interpreted as a cautious plan reflecting higher procurement costs, conservative estimates for spreads, and the continued burden of interest and taxes. Forecast EPS is ¥25.48, below the current-period actual EPS of ¥30.11.

Shareholder Returns

The year-end dividend was ¥9.54, and the payout ratio based on current-period net income attributable to owners of the parent of ¥21.2B was 31.7%, a balanced level. However, current-period free cash flow was negative ¥22.1B, meaning that the sustainability of dividend funding depends on the stability of operating cash flow and adjustments to the pace of capital expenditures. The dividend forecast for the following period is ¥9.60, essentially flat, indicating a cautious stance relative to earnings growth.

Risk Factors

1. Business Segment Concentration Risk: The Energy Supply Business accounts for 56.7% of revenue, creating a structure in which fluctuations in electricity and fuel procurement costs and delays in passing through price increases could have a significant impact on performance.

2. Financial Leverage and Interest Burden Risk: Interest-bearing debt, including long-term borrowings of ¥621.5B, is substantial, and interest expense of ¥16.6B accounts for 72% of non-operating expenses. The Company is relatively sensitive to changes in the interest rate environment.

3. Working Capital and Credit Risk: Accounts receivable increased to ¥55.2B alongside revenue growth, increasing the importance of credit and collection management during the business expansion phase.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Return

The operating margin significantly exceeds the industry median, placing the Company’s profitability among the higher levels within the industry.

Growth and Capital Efficiency

The revenue growth rate significantly exceeds the industry median, representing an outstanding pace of revenue growth within the industry.

Source: Compiled by the Company

Key Points from the Financial Results

1. The operating margin improved to 10.4% from 7.0% in the previous year, reaching a level above the industry median of 5.3%. High profitability in the Energy Supply Business and expanding profitability in the Engineering Business served as the two pillars of performance, confirming the emergence of operating leverage accompanying revenue growth.

2. Ordinary income turned profitable at ¥38.3B from a loss in the previous year; however, the contribution of factors with one-off characteristics, namely the interest expense burden and foreign exchange gain, should be examined when assessing the sustainability of ordinary income going forward.

3. The plan for the following period calls for higher revenue but lower earnings, with the Company itself anticipating a retreat from the profit margin level achieved during the current period. How actual progress compares with this conservative plan will be a key point of focus in the next financial results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥604–¥639 at cost of equity ±1%; ¥617–¥623 at ω±0.1.

Notes:

• Goodwill amortization of ¥0.5 per share is added back to earnings (as a non-cash expense and for comparability with IFRS companies).
• Net income is substantially compressed relative to operating income due to the tax burden, acquisition-related expenses, and non-controlling interests (net income ÷ operating income 38%). This value reflects that compression at face value; if these factors are temporary, underlying earnings power may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / Mechanically calculated value based solely on 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 the future share price.)

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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, after consulting with a professional as necessary.

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