HISAKA WORKS (6247) FY2026 Q3 Earnings Report

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Executive Summary

Revenue and earnings increased, primarily due to the rapid expansion of the Process Engineering Business. Operating income grew substantially faster than revenue as the increase in SG&A expenses was contained. Revenue was ¥314.2B (+21.3% YoY), operating income was ¥24.3B (+54.6%), ordinary income was ¥27.2B (+36.6%), and quarterly net income attributable to owners of the parent was ¥23.2B (+8.7%). The more modest growth in net income compared with operating and ordinary income was attributable to differences in year-over-year comparisons of extraordinary income and losses, including gains on the sale of investment securities.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥314.2B, representing a 21.3% YoY increase. By segment, Process Engineering led company-wide growth with revenue of ¥146.3B (46.6% of total, +40.5% YoY), followed by Heat Exchangers at ¥128.8B (41.0% of total, +9.5%) and Valves at ¥38.5B (12.3% of total, +5.2%). Progress-based revenue recognition for made-to-order projects in the Process Engineering Business was the primary driver.

【Profit and Loss】Operating income was ¥24.3B (+54.6%), and the operating margin improved to 7.7% from 6.1% in the same period of the previous year. Although the gross profit margin declined to 24.5% from 25.6% in the same period of the previous year, SG&A expenses were contained at ¥52.6B (+4.2%), and improved fixed-cost absorption accompanying higher revenue was the primary factor behind the margin improvement. By segment, Process Engineering posted a substantial increase in profit to ¥13.9B (+202.8%, 9.5% margin), while Valves also improved to ¥3.0B (+45.1%, 7.7% margin). In contrast, Heat Exchangers recorded a decline in profit to ¥8.7B (-6.0%), with its margin falling to 6.8% from 7.9% in the previous year. Ordinary income was ¥27.2B (+36.6%) after adding non-operating income, including ¥4.0B in dividend income. Net income was ¥23.2B (+8.7%), reflecting net extraordinary income of ¥5.6B, comprising extraordinary income including an ¥8.8B gain on the sale of investment securities and a ¥5.6B gain on the sale of fixed assets, offset by ¥8.8B in extraordinary losses. Overall, the company achieved higher revenue and earnings, and earnings growth exceeding revenue growth indicates the emergence of operating leverage.

Segment Analysis

The Process Engineering Business was the largest contributor to earnings growth, with revenue of ¥146.3B (46.6% of total, +40.5% YoY) and segment profit of ¥13.9B (+202.8%, 9.5% margin). It has grown into the core business, accounting for 53.5% of total reported segment profit. The Heat Exchangers Business posted higher revenue of ¥128.8B (+9.5%), but segment profit declined to ¥8.7B (-6.0%), and its margin fell to 6.8% from 7.9% in the previous year. The impact of raw material and energy costs and product mix is likely. The Valves Business recorded revenue of ¥38.5B (+5.2%) and segment profit of ¥2.96B (+45.1%), improving its margin to 7.7%. The sustainability of Process Engineering’s growth and analysis of the factors behind the decline in Heat Exchangers’ margin will be key areas of focus going forward.

Key Financial Indicators

【Profitability】The operating margin improved to 7.7% from 6.1% in the same period of the previous year, while the net profit margin was 7.4%; both indicators are trending upward. The gross profit margin declined to 24.5% from 25.6% in the same period of the previous year, indicating that the increase in profit was primarily attributable to a decline in the SG&A ratio (16.7%, with YoY growth of +4.2%). 【Cash Quality】Comprehensive income of ¥42.3B exceeded net income of ¥23.2B by ¥19.1B, primarily due to a ¥16.2B increase in valuation difference on securities and a ¥4.7B increase in foreign currency translation adjustments. 【Investment Efficiency】Annualized ROE was 5.0%, EPS was ¥87.29 (+16.2% YoY), and BPS was ¥2,327.83. The equity ratio was high at 73.5%, indicating room for improvement in asset efficiency. 【Financial Soundness】The company maintained substantial liquidity, with current assets of ¥377.9B versus current liabilities of ¥143.1B. Long-term borrowings declined to ¥7.5B, while bonds totaled ¥40.0B on a combined current and non-current basis. A low debt ratio and high equity ratio support the stability of the financial base.

Cash Flow Analysis

Although explicit data from the cash flow statement is unavailable, changes in the balance sheet provide insight into fund flows. Cash and deposits declined to ¥116.0B from ¥129.1B in the same period of the previous year. Given that treasury stock increased from ¥13.2B to ¥26.3B, the use of funds for share repurchases and other purposes may have affected the cash balance. Meanwhile, investment securities increased from ¥124.9B to ¥147.1B, strengthening the asset composition, including through the expansion of valuation gains on held assets. Long-term borrowings declined from ¥10.0B to ¥7.5B, indicating progress in reducing interest-bearing debt. Work in process increased from ¥72.7B to ¥82.6B, and the accumulation of working capital associated with the progress of order-based projects is a point requiring attention from a capital-efficiency perspective.

Quality of Earnings

The increase in earnings for the current period reflects both an improvement in recurring earning power and temporary factors. The increase in operating income, driven by SG&A containment and the effect of higher revenue, represents a recurring improvement and is a high-quality component of earnings. Meanwhile, net income of ¥23.2B included ¥14.4B in extraordinary income, comprising an ¥8.8B gain on the sale of investment securities and a ¥5.6B gain on the sale of fixed assets, as well as ¥8.8B in extraordinary losses. The resulting net amount of ¥5.6B was included in profit as temporary income. In addition, ordinary income of ¥27.2B benefited in part from ¥4.0B in dividend income, which represents stable income from investments held but is distinct from core operations. Comprehensive income of ¥42.3B substantially exceeded net income due to unrealized changes in asset valuations, such as valuation differences on securities and foreign currency translation adjustments, which differ in nature from realized income. Accordingly, when evaluating recurring earning power, it is appropriate to focus primarily on operating income and ordinary income.

Earnings Forecast and Guidance

Progress against the full-year company forecast was 71.4% for revenue, 81.1% for operating income, 81.1% for ordinary income, and 86.2% for net income. Compared with the standard Q3 progress rate of 75%, revenue was below the benchmark, while profit indicators were above it. Against the full-year forecasts of revenue of ¥440.0B (+14.7% YoY), operating income of ¥30.0B (+2.4%), and ordinary income of ¥33.5B (-1.2%), the cumulative operating margin of 7.7% exceeded the full-year forecast operating margin of 6.8%. This indicates that the company’s plan assumes a somewhat conservative profit margin in the second half. In the second half, progress will focus on the buildup of revenue, as well as project mix and the reversal of temporary gains and losses.

Shareholder Returns

The Q2 dividend was ¥27.00 per share, and the full-year dividend forecast is ¥55.00. The payout ratio based on cumulative net income was 33.5%, while the forecast payout ratio based on forecast full-year EPS of ¥102.31 was approximately 53.8%. The forecast payout ratio is below 60%, and, given the financial base of net assets of ¥615.4B and cash and deposits of ¥116.0B, the company has sufficient capacity to maintain dividends from an earnings perspective. However, treasury stock increased by ¥13.1B YoY. If share repurchases continue in addition to dividends, it will be necessary to assess the balance of capital allocation in terms of the total return ratio.

Risk Factors

1. Prolongation of the working capital cycle: Work in process of ¥82.6B accounted for 59.5% of total inventories, while DSO of 66 days, DIO of 160 days, and CCC of 188 days all exceeded warning levels. As the Process Engineering Business expands rapidly, delays in acceptance inspections or collections could have an increasingly significant impact on capital efficiency.

2. Decline in the Heat Exchangers Business margin: Although revenue in the Heat Exchangers Business increased by 9.5%, segment profit declined by 6.0%, and the margin fell to 6.8% from 7.9% in the previous year. Raw material and energy costs and the status of price pass-through will determine profitability going forward.

3. Dependence on temporary gains and losses: Net income of ¥23.2B included net extraordinary income of ¥5.6B after accounting for extraordinary income, including an ¥8.8B gain on the sale of investment securities and a ¥5.6B gain on the sale of fixed assets, and extraordinary losses. Temporary items accounted for an amount equivalent to 24.2% of net income. The sustainability of recurring profit growth must be carefully assessed.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

The operating margin was slightly below the industry median, while the net profit margin exceeded the median. Differences in the contribution of extraordinary income and losses affected the earnings structure.

Growth and Capital Efficiency

Revenue growth substantially exceeded the industry median, indicating a high level of growth within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Operating income increased by +54.6% against revenue growth of +21.3%, demonstrating operating leverage as the increase in SG&A expenses was contained at +4.2%. The Process Engineering Business was the largest contributor to earnings growth, accounting for 53.5% of segment profit and achieving a 9.5% margin.

2. The full-year operating income progress rate was 81.1%, exceeding the standard progress rate of 75%, while the revenue progress rate was 71.4%, below the standard. Compared with cumulative results, the company’s plan incorporates a conservative profit margin assumption (6.8% for the full year versus 7.7% cumulatively).

3. The prolonged working capital cycle, reflected in a work-in-process ratio of 59.5% and a CCC of 188 days, is a structural point of observation in the made-to-order business. Project progress, acceptance inspections, and collections will determine capital efficiency and quality of earnings going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,964–¥2,076 at ±1% for the cost of equity, and ¥2,009–¥2,025 at ±0.1 for ω.

Notes:

• Because net income progress against the full-year forecast (86%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of schedule tend to exceed forecasts; adjustments may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are 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 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 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 discretion and responsibility, after consulting professionals as necessary.

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