HISAKA WORKS,LTD. FY2027 Q1 Earnings Report

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Executive Summary

This was a period of higher revenue and earnings, with improved profitability supporting profit growth. Revenue was ¥10.21B (¥9.46B in the same period of the previous year, +8.0%), Operating Income was ¥0.80B (¥0.59B, +35.9%), Ordinary Income was ¥1.10B (¥0.78B, +42.1%), and Net Income was ¥0.87B (consolidated net income attributable to the current period, ¥0.58B, +49.6%). The increase in Operating Income was attributable to improved margins in the Heat Exchangers and Valves Businesses. At the Ordinary Income level, non-operating income, including ¥0.26B in dividend income, contributed to a further expansion in the earnings growth rate.

Factors Driving Performance Changes

【Revenue】Revenue was ¥10.21B (+8.0% YoY), with divergent performance among segments. The Process Engineering Business (VitalIndustryDivision) posted substantial revenue growth of ¥4.62B (+26.7%), driving overall company growth. Meanwhile, the Heat Exchangers Business declined slightly to ¥4.34B (-4.2%), while the Valves Business was nearly flat at ¥1.25B (-0.6%).

【Profit and Loss】Operating Income increased to ¥0.80B (+35.9%), and the Operating Margin improved to 7.8% (6.2% in the previous year). Despite higher revenue, the Process Engineering Business recorded Operating Income of ¥0.295B (-17.1%), with its margin declining to 6.4%, suggesting variability in project profitability. In contrast, the Heat Exchangers Business recorded Operating Income of ¥0.376B (+37.7%, 8.7% margin), while the Valves Business achieved ¥0.144B (+56.5%, 11.5% margin), reflecting progress toward higher profitability. Ordinary Income was ¥1.10B (+42.1%), supported by ¥0.31B in non-operating income, primarily consisting of ¥0.26B in dividend income, and Net Income reached ¥0.87B (+49.6%). No extraordinary gains or losses were recorded. The key feature was simultaneous revenue and earnings growth, accompanied by improvements in both revenue and profit margins.

Segment Analysis

The Heat Exchangers Business recorded Revenue of ¥4.34B (-4.2%), but Operating Income increased to ¥0.376B (+37.7%), with the margin rising to 8.7%, making it the largest contributor to overall earnings growth. The Valves Business recorded Revenue of ¥1.25B (-0.6%) and Operating Income of ¥0.144B (+56.5%), securing the highest margin among all segments at 11.5%. The Process Engineering Business achieved substantial revenue growth to ¥4.62B (+26.7%), but Operating Income declined to ¥0.295B (-17.1%), with the margin falling to 6.4%; in terms of the quality of revenue growth, its performance contrasted with that of the other segments. The increased weighting of high-margin segments was the primary driver of the improvement in the company-wide margin, while restoring profitability in the Process Engineering Business will be a key focus going forward.

Key Financial Indicators

【Profitability】The Operating Margin of 7.8% (6.2% in the previous year) and Net Profit Margin of 8.3% (6.1% in the previous year) both improved year on year, while the Gross Margin also edged up to 25.4% (25.3% in the previous year). 【Cash Flow Quality】ROE remained low at 1.3%, indicating that the low Total Asset Turnover Ratio is constraining capital efficiency despite the improvement in the Net Profit Margin. 【Investment Efficiency】The Equity Ratio was high at 77.5%, while the substantial asset base, including ¥16.60B in investment securities, kept the Total Asset Turnover Ratio low. 【Financial Soundness】With Current Assets of ¥34.32B compared with Current Liabilities of ¥11.22B, and Cash and Deposits of ¥10.27B, the company has ample liquidity. Interest-bearing debt was limited, consisting of ¥2.34B in bonds and ¥0.58B in long-term borrowings.

Cash Flow Analysis

As no cash flow statement was disclosed, cash flow trends are analyzed based on the composition of the balance sheet. Cash and Deposits decreased to ¥10.27B from ¥12.01B in the previous year, while Inventories remained high at ¥3.58B (of which Work in Process was ¥6.47B and represented the largest component). The continued situation in which Work in Process of ¥6.47B exceeds Contract Liabilities (advances received) of ¥3.17B indicates a structure in which the timing gap between project progress and the recording of acceptance delays cash conversion. Meanwhile, Investment Securities were substantial at ¥16.60B, and ¥0.26B in dividend income represented a source of funds that steadily supported Ordinary Income. Although cash on hand remains ample, the high weighting of Work in Process is a meaningful constraint on cash generation.

Quality of Earnings

No extraordinary gains or losses were recorded during the period, and earnings reflect the recurring earnings structure. However, the difference of approximately ¥0.30B between Ordinary Income of ¥1.10B and Operating Income of ¥0.80B was largely attributable to ¥0.31B in non-operating income, primarily consisting of ¥0.26B in dividend income. This warrants attention given the company’s reliance on its holdings of Investment Securities. Non-operating income was approximately 3.1% of Revenue; although this is not an extreme level, the divergence between Operating Income and Ordinary Income is relatively large. The effective tax rate was approximately 21.4%, with no unusual tax factors observed. The conversion from Ordinary Income to Net Income was generally within a reasonable range, excluding income attributable to non-controlling interests. The fact that a portion of earnings depends on investment income outside the core business should be considered when assessing earnings sustainability.

Earnings Forecast and Guidance

Progress against the full-year plan was 23.2% for Revenue (¥10.21B against the ¥44.00B plan) and 24.2% for Operating Income (¥0.80B against the ¥3.30B plan), slightly behind the standard quarterly progress rate of 25%. Conversely, Ordinary Income was 30.6% and Net Income was 35.2% of their respective full-year plans, reflecting the front-loading of non-operating income such as dividend income at the beginning of the fiscal year. The full-year plan itself is based on conservative assumptions, with Revenue at -2.0% and Operating Income at -0.1%, essentially in line with the previous year. Progress will depend on the accumulation of core Operating Income, excluding the early contribution from non-operating income. There were no revisions to either the earnings forecast or the dividend forecast during the quarter.

Shareholder Returns

The full-year dividend forecast is ¥55 per share (converted to a full-year figure from the previous year’s actual interim-equivalent amount of ¥27), with no revision to the dividend forecast during the quarter. Based on the full-year Net Income forecast of ¥2.41B and an estimated total dividend amount of approximately ¥1.45B using the average number of shares outstanding during the period, the estimated Payout Ratio is approximately 60%. The strong financial base, including Cash and Deposits of ¥10.27B and an Equity Ratio of 77.5%, supports this dividend level. No information on share repurchases has been disclosed; accordingly, this report evaluates shareholder returns based solely on the Payout Ratio.

Risk Factors

1. Working Capital Accumulation Risk: Work in Process of ¥6.47B exceeds Contract Liabilities of ¥3.17B, and the structure in which the timing gap between project progress and the recording of acceptance delays cash conversion remains in place.

2. Variability in Segment Profitability: Despite substantial revenue growth of +26.7% in the Process Engineering Business, Operating Income declined by -17.1%, and the margin fell to 6.4%.

3. Market Price Volatility Risk of Investment Assets: The company holds ¥16.60B in Investment Securities and recorded ¥0.88B in valuation differences, resulting in relatively high reliance on non-operating income, including ¥0.26B in dividend income.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Margin is slightly below the industry median, while the Net Profit Margin exceeds the median due to the contribution from non-operating income.

Growth and Capital Efficiency

The Revenue Growth Rate exceeds the industry median and is positioned in the upper half of the IQR.

※Source: Company analysis

Key Earnings Highlights

1. Decomposing the content of the higher revenue and earnings, the increased weighting of the high-margin Valves and Heat Exchangers Businesses drove margin improvement at the operating level, indicating an improvement in the “quality” of revenue growth. Meanwhile, the Process Engineering Business experienced deteriorating profitability despite higher revenue, resulting in contrasting performance among segments.

2. Net Income progress against the full-year plan (35.2%) exceeded that of Ordinary Income (30.6%) and Operating Income (24.2%) due to the front-loading of non-operating income such as dividend income at the beginning of the fiscal year. The earnings data indicate that the pace of progress may normalize toward the second half of the fiscal year.

3. Work in Process of ¥6.47B continues to exceed Contract Liabilities of ¥3.17B, indicating a structurally occurring time lag in cash generation relative to revenue growth. This is an important point when assessing 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: ¥2,016–¥2,129 for ±1% in the Cost of Equity, and ¥2,060–¥2,079 for ±0.1 in ω.

Notes:

• As Net Income progress against the full-year forecast (35%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of plan tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• As 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 from the full-year forecast).

(Calculation model: Residual Income Model / Interest rate reference month: 2026-07 / 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 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 advisor.

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