EBARA JITSUGYO (6328) FY2026 Q1 Earnings Report

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Executive Summary

Q1 of the fiscal year ending December 2026 was characterized by a substantially higher earnings growth rate than revenue growth, resulting in an earnings-driven performance. Revenue was ¥14.81B (+2.1% year on year), Operating Income was ¥3.48B (+15.9%), Ordinary Income was ¥3.52B (+15.3%), and Net Income was ¥2.43B (+14.9%). The Operating Income margin improved to 23.5%, from 20.7% in the same period of the previous year, an improvement of approximately 2.8pt. Margin expansion drove earnings growth despite the modest increase in revenue.

Factors Affecting Performance

【Revenue】Revenue was ¥14.81B, representing a modest 2.1% year-on-year increase. By business, the Trading Business grew substantially to ¥3.997B (+29.1%), supported by expanded sales to private-sector customers. Meanwhile, the Engineering Business declined to ¥8.573B (-6.1%), and the Manufacturing Business declined to ¥2.244B (-1.4%). Sales to government agencies also remained broadly flat at ¥10.432B (-0.6%).

【Profit and Loss】Operating Income increased substantially to ¥3.48B (+15.9%), Ordinary Income to ¥3.52B (+15.3%), and Net Income to ¥2.43B (+14.9%). Net non-operating income and expenses were limited to approximately ¥0.04B, while extraordinary losses were also limited to ¥0.002B; therefore, the drivers of profit growth were almost entirely attributable to the core business. The segment profit margin of the Engineering Business improved to 28.1% (+approximately 4.4pt year on year), while the Trading Business also increased its profit margin to 21.6% (+approximately 2.7pt), serving as the primary drivers of earnings growth. The Manufacturing Business recorded a 6.5% decline in segment profit, with its profit margin also declining by approximately 1.3pt, and therefore did not support consolidated earnings growth. In conclusion, this was a period of revenue and earnings growth in which high-margin businesses offset declines in other businesses.

Segment Analysis

Of the three businesses, the Engineering Business recorded segment profit growth to ¥2.407B (+11.5%) despite a 6.1% decline in revenue to ¥8.573B, making it the largest source of profit and accounting for 63.1% of consolidated Operating Income (total before adjustments). The Trading Business achieved both revenue and earnings growth, with revenue of ¥3.997B (+29.1%) and segment profit of ¥0.862B (+47.4%), driven by expanding demand from private-sector customers. The Manufacturing Business recorded both revenue and earnings declines, with revenue of ¥2.244B (-1.4%) and segment profit of ¥0.544B (-6.5%), while its profit margin declined to 24.2%. The structure in which sales to government agencies account for 70.4% of total company revenue remains unchanged, and improved profitability in the Engineering Business is the core driver of consolidated profitability.

Key Financial Metrics

【Profitability】The Operating Income margin of 23.5% (20.7% in the same period of the previous year) and Net Income margin of 16.4% (14.6%) both improved. The high Gross Profit margin of 36.6% and control of the SG&A expense ratio at 13.1% generated operating leverage.【Cash Flow Quality】Accounts receivable of ¥19.97B accounted for 39.6% of total assets, and DSO had lengthened to 123 days. Accordingly, the speed at which increases in Operating Income and Net Income are converted into Operating Cash Flow depends on the collection of receivables.【Investment Efficiency】ROE was 8.1%. Against the high Net Income margin of 16.4%, the total asset turnover ratio was low at 0.294x, indicating room for improvement in asset efficiency.【Financial Soundness】The company maintains a low-leverage, highly liquid financial base, with an Equity Ratio of 59.6%, a current ratio of 211.4%, interest-bearing debt of ¥1.44B, and cash and deposits of ¥13.88B.

Cash Flow Analysis

Although the cash flow statement is not directly disclosed, funding trends can be assessed from changes in the balance sheet. Cash and deposits were ¥13.88B, down from ¥15.17B in the same period of the previous year, while the increase in accounts receivable to ¥19.97B (¥16.77B in the previous year) appears to have absorbed some funds. Inventories were limited to ¥0.86B, indicating that inventory does not materially impede capital efficiency. Operating liabilities, including accounts payable of ¥11.39B and contract liabilities of ¥1.61B, were broadly flat or declined from the previous year, indicating that the increase in working capital was primarily attributable to growth in accounts receivable. Interest-bearing debt was limited to ¥1.44B, and pressure from cash outflows related to financing activities was limited. Overall, the decline in cash balances despite earnings growth indicates that continued monitoring of receivables collection trends is necessary when assessing earnings quality.

Earnings Quality

Current-period earnings were primarily composed of Operating Income, and earnings quality can be assessed as high. Non-operating income was ¥0.08B, equivalent to only 0.5% of revenue, with dividend income of ¥0.03B representing the primary component. Extraordinary losses were ¥0.002B, less than 0.1% of Net Income, indicating virtually no earnings uplift from one-time gains or losses. The difference between Ordinary Income of ¥3.52B and Operating Income of ¥3.48B was limited to ¥0.04B, meaning that the core earnings power was directly reflected in Ordinary Income and Net Income. Meanwhile, comprehensive income of ¥3.09B exceeded Net Income of ¥2.43B by ¥0.66B, primarily due to an increase in the valuation difference on other securities. This difference resulted from market price fluctuations and must be distinguished from recurring business earnings. In addition, accounts receivable of ¥19.97B and DSO of 123 days suggest that a certain divergence may arise between income statement earnings and cash-generation capacity. From an accrual perspective, monitoring collection status is therefore useful.

Earnings Forecast and Guidance

The company’s full-year forecast is revenue of ¥44.00B (+6.8% year on year), Operating Income of ¥6.30B (+2.9%), and Ordinary Income of ¥6.50B (+2.9%). Q1 progress against the forecasts was 33.7% for revenue, 55.2% for Operating Income, and 54.1% for Net Income (actual Net Income of ¥2.43B against the Net Income plan of ¥4.50B). Progress for Operating Income and Net Income was substantially above the 25% benchmark based on simple quarterly allocation, indicating a strong initial performance against the first-half earnings plan. However, revenue progress of 33.7% lagged substantially behind earnings progress, suggesting that project profitability may have been particularly favorable in Q1. The Engineering Business is subject to quarterly fluctuations depending on the timing of acceptance inspections for government projects, and it should be noted that full-year results will depend on project progress in the second half. No revision to the earnings forecast was made this time.

Shareholder Returns

The company’s forecast annual dividend for the fiscal year ending December 2026 is ¥75 per share, taking into account the 1-for-2 stock split effective January 1, 2026; no revision has been made. The Payout Ratio against forecast EPS of ¥189.09 is approximately 39.7% (¥75 ÷ ¥189.09), representing a relatively restrained earnings burden for dividends alone. The actual dividend for the fiscal year ended December 2025 was ¥120, consisting of an ordinary dividend of ¥100 and an 80th anniversary commemorative dividend of ¥20. Compared with the underlying level excluding the commemorative dividend, the post-split dividend of ¥75 (equivalent to ¥150 before the split) appears to represent an increase. Financial capacity supported by cash and deposits of ¥13.88B and interest-bearing debt of ¥1.44B, together with Q1 Net Income of ¥2.43B reaching 54.1% of the full-year plan of ¥4.50B, also supports dividend sustainability.

Risk Factors

1. Lengthening receivables collection period: Accounts receivable amounted to ¥19.97B, accounting for 39.6% of total assets, and DSO reached 123 days. This appears to result from the timing of acceptance inspections and billing for government and large-scale construction projects, and could affect capital efficiency and the speed of conversion into Operating Cash Flow.

2. Variability in profitability by business: While the segment profit margin of the Engineering Business, the largest source of profit, improved to 28.1% (+approximately 4.4pt year on year), the Manufacturing Business recorded revenue of -1.4% and segment profit of -6.5%, with its profit margin also declining by approximately 1.3pt. The profitability gap between businesses is therefore widening.

3. Dependence on sales to government agencies: Sales to government agencies amounted to ¥10.43B, accounting for 70.4% of total company revenue. This structure makes quarterly performance susceptible to fluctuations arising from the timing of budget execution and changes in the bidding environment.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin substantially exceeded the industry median, placing the company among the high-profitability group within the industry.

Growth and Capital Efficiency

The revenue growth rate was below the industry median, indicating that the pace of revenue growth is relatively moderate within the industry compared with the company’s high profitability.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The improvement in the Operating Income margin to 23.5%, or approximately 2.8pt, against revenue growth of +2.1% indicates that changes in the business mix—namely, the expansion of the high-margin Trading Business and improved profitability in the Engineering Business—boosted profitability.

2. Operating Income progress of 55.2% against the full-year plan substantially exceeded revenue progress of 33.7%, indicating that the pace of Q1 profit generation is ahead of the full-year plan.

3. DSO of 123 days and the increase in accounts receivable are among the factors behind the year-on-year decline in cash and deposits despite earnings growth. The speed of earnings conversion into cash will be a key point for monitoring going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,472–¥1,558 at ±1% for the cost of equity, and ¥1,508–¥1,523 at ±0.1 for ω.

Notes:

• Because Net Income progress against the full-year forecast (54%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies that are ahead of plan tend to exceed forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the quarter-end have been used (there is a timing difference relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model (Ohlson-type, explicit five-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 with a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q1 was a strong earnings print, with modest revenue growth converting into materially faster operating and net-profit growth. Revenue increased 2.1% YoY to ¥14.81bn. Operating income rose 15.9% to ¥3.48bn, while ordinary income increased 15.3% to ¥3.52bn. Net income attributable to owners increased 14.8% to ¥2.43bn, and EPS was ¥102.21. Gross profit increased 11.4% YoY to ¥5.42bn despite only 2.1% sales growth. The gross margin expanded to 36.6% from 33.5% a year earlier, a 314bp improvement. The operating margin expanded to 23.5% from 20.7%, a 278bp improvement. The net margin improved to 16.4% from 14.6%, a 180bp expansion. Segment profit growth was led by the Engineering business and Trading business, offsetting a modest decline in Manufacturer business profit. Engineering remained the core business by segment-profit contribution, generating ¥2.41bn, or 63.1% of aggregate segment profit before corporate-cost adjustments. Trading posted particularly strong momentum, with revenue rising 29.1% YoY and segment profit rising 47.4% YoY. Public-sector revenue was broadly stable at ¥10.43bn, while private-sector revenue rose 9.3% to ¥4.38bn, supporting the consolidated top line. The annualized DuPont ROE of 32.4% is excellent, although it reflects a Q1 annualized run rate and should not be interpreted as a full-year outcome. The full-year forecast implies Q1 progress of 33.7% for sales, 55.2% for operating income, and 54.1% for net income, all above the standard 25% Q1 pace. This front-loaded profit progress creates scope for earnings resilience if project timing normalizes, but it also raises the importance of conversion of the large receivables balance into cash during subsequent quarters. Financial flexibility is robust, with a 211.4% current ratio, ¥13.88bn of cash, and interest-bearing debt equivalent to only 4.8% of equity.

Profitability Analysis

Annualized DuPont ROE is 32.4%, decomposed into a 16.4% net-profit margin, 1.175x asset turnover, and 1.68x financial leverage. The primary driver of the high annualized ROE is profitability rather than balance-sheet leverage: the 16.4% net margin is well above the 10% benchmark for excellent profitability, while leverage is moderate. Operating performance strengthened faster than revenue, as gross profit rose 11.4% YoY versus sales growth of 2.1%, producing a 314bp gross-margin expansion to 36.6%. SG&A expenses increased 4.7% YoY to ¥1.94bn, below gross-profit growth, demonstrating positive operating leverage and resulting in a 278bp operating-margin expansion to 23.5%. The five-factor analysis shows a 69.2% tax burden and a 101.0% interest burden, with the latter reflecting immaterial financing costs relative to EBIT. Interest coverage was exceptionally strong at 1,160x. Engineering is the core profit contributor, with segment profit of ¥2.41bn and a segment margin of 28.1%, up from 23.6% in the prior-year quarter. Trading segment margin improved to 21.6% from 18.9%, alongside strong sales growth. Manufacturer segment margin declined to 24.2% from 25.6%, with segment revenue down 1.4% and profit down 6.5% YoY. The group’s overall operating-margin expansion therefore came from a favorable mix and stronger execution in Engineering and Trading rather than from Manufacturer operations. Ordinary income of ¥3.52bn remained close to operating income, indicating that earnings were principally generated by operations. Dividend income was ¥34m and represented only 0.2% of revenue, so non-operating income was not a material determinant of reported profitability. The ¥2m extraordinary loss was immaterial relative to net income.

Growth Assessment

Consolidated sales growth of 2.1% was modest, but profit growth was substantially stronger because of gross-margin and operating-leverage gains. Private-sector sales increased to ¥4.38bn from ¥4.01bn, while public-sector sales were stable at ¥10.43bn versus ¥10.49bn. Engineering sales declined 6.1% YoY to ¥8.57bn, yet segment profit increased 11.5% to ¥2.41bn, indicating improved project profitability and cost discipline. Trading sales increased 29.1% to ¥4.00bn and segment profit increased 47.4% to ¥862m, making it the principal incremental growth driver in Q1. Manufacturer sales decreased 1.4% to ¥2.24bn and segment profit decreased 6.5% to ¥544m, making recovery in this business important for broad-based growth. The full-year forecast calls for revenue of ¥44.0bn, up 6.8% YoY, operating income of ¥6.30bn, up 2.9%, and net income of ¥4.50bn. Q1 revenue progress is 33.7%, 8.7 percentage points above the standard 25% Q1 progress rate. Q1 operating-income progress is 55.2%, 30.2 percentage points above the standard rate, while net-income progress is 54.1%, 29.1 percentage points above it. The disparity between sales and profit progress suggests that the quarter benefited from high-margin project mix, margin recovery, or timing of profit recognition. Maintaining the full-year run rate will depend on sustained Engineering margins and continued Trading growth, since the forecast assumes profit growth well below Q1’s 15.9% operating-income growth.

Financial Health

Liquidity is strong, with current assets of ¥36.28bn against current liabilities of ¥17.16bn, producing a 211.4% current ratio. The quick ratio is also robust at 206.4%, supported by cash and deposits of ¥13.88bn and trade receivables of ¥19.97bn. Working capital was ¥19.12bn. Total equity was ¥30.04bn, equivalent to a 59.6% capital adequacy ratio, while total liabilities represented 40.4% of total assets. Interest-bearing debt was ¥1.44bn, comprising ¥1.01bn of short-term loans and ¥428m of long-term loans, equivalent to only 4.8% of equity and 4.6% of total capital. Debt service capacity is strong, with cash equal to 13.75x short-term loans and interest coverage of 1,160x. The short-term debt ratio of 70.2% is a refinancing-risk alert because a substantial proportion of borrowings is due within one year. In context, the alert has limited immediate liquidity impact because cash alone substantially exceeds short-term loans and the current ratio is above 2.0x. Nevertheless, reliance on short-term funding increases sensitivity to changes in bank lending terms and should be monitored if operating working-capital needs increase. Trade receivables of ¥19.97bn account for 39.6% of total assets and are the largest balance-sheet operating exposure. The annualized DSO of 123 days is elevated relative to the 60-day warning threshold, increasing the importance of customer collections and project billing discipline. Inventory declined 33.4% YoY to ¥857m, which releases capital and reduces obsolescence exposure, although the receivables increase remains the more material working-capital consideration. Investment securities totaled ¥9.35bn, or 18.5% of assets, and expose equity and comprehensive income to market-value movements. Deferred tax liabilities of ¥2.45bn are material within non-current liabilities and are consistent with the company carrying sizeable unrealized gains on investment securities.

Notable B/S Changes

Inventories: -¥0.43bn (-33.4%) YoY to ¥0.86bn - reduces inventory carrying and obsolescence exposure, but working-capital attention remains focused on the larger receivables balance. Investment securities: +¥0.97bn (+11.5%) YoY to ¥9.35bn - securities now represent 18.5% of total assets, increasing exposure of comprehensive income and equity to market-value fluctuations. Trade receivables: +¥2.90bn (+17.0%) YoY to ¥19.97bn - receivables are 39.6% of assets and align with the 123-day annualized DSO alert, making collection performance a key monitoring item.

Cash Flow Quality

The earnings profile was operationally sound at the income-statement level, with operating income rising 15.9% YoY and net income rising 14.8% YoY without material non-operating or extraordinary contributions. Operating income of ¥3.48bn was closely followed by ordinary income of ¥3.52bn, and the difference was supported mainly by ¥34m of dividend income. The extraordinary loss was only ¥2m, or less than 0.1% of net income, limiting one-off distortion. Working-capital quality is the principal area to monitor: trade receivables increased by ¥2.90bn YoY to ¥19.97bn and annualized DSO was 123 days. This elevated collection period can defer cash realization relative to accounting earnings, particularly in public-sector and engineering-project activity. Conversely, inventories declined by ¥429m YoY to ¥857m, reducing inventory carrying and obsolescence risk. Accounts payable were broadly stable at ¥11.39bn, preserving supplier financing while inventory fell. Contract liabilities were ¥1.61bn, providing some advance customer funding for contract execution. Subsequent quarters should demonstrate whether the Q1 profit increase converts into customer collections commensurate with the high receivables balance.

Dividend Sustainability

The FY2026 forecast dividend is ¥75 per share following the two-for-one share split effective January 1, 2026. Against forecast EPS of ¥189.09, the implied dividend payout ratio is 39.7%. This is below the 60% sustainability benchmark and leaves a meaningful earnings buffer for working capital, investment, and balance-sheet resilience. The forecast dividend corresponds to ¥150 per share before reflecting the stock split. The prior FY2025 annual dividend included a ¥20 per-share 80th-anniversary commemorative component before the stock split, so the recurring-dividend comparison should distinguish ordinary and commemorative distributions. Retained earnings of ¥24.71bn and low interest-bearing debt support dividend capacity. The outlook for dividend sustainability depends principally on delivery of the ¥4.50bn full-year net-income forecast and collection of the elevated receivables balance.

Risk Assessment

Business risks include High priority: Engineering revenue declined 6.1% YoY despite a 11.5% increase in segment profit. Sustaining the current 28.1% segment margin depends on project execution, procurement discipline, and the timing of higher-margin contract recognition., High priority: Annualized DSO of 123 days exceeds the 60-day warning threshold. The large ¥19.97bn receivables balance exposes the company to delayed acceptance, billing, and collection cycles in project-based and public-sector business., Medium priority: Manufacturer segment revenue declined 1.4% YoY and segment profit declined 6.5% YoY. Continued weakness would reduce diversification of group profit sources., Medium priority: The company’s public-sector revenue base of ¥10.43bn creates exposure to government budget timing, tender competition, project approvals, and changes in environmental and infrastructure spending priorities., Medium priority: Trading segment growth was strong, but trading profitability can be exposed to supplier availability, product pricing, customer demand, and competitive margin pressure..

Financial risks include Medium priority: The 70.2% short-term debt ratio is a refinancing-risk alert because most borrowings are short dated. Its impact is currently moderated by ¥13.88bn of cash, a 211.4% current ratio, and cash equal to 13.75x short-term loans., Medium priority: Investment securities of ¥9.35bn represent 18.5% of assets. Market-value movements can affect other comprehensive income and the valuation reserve embedded in equity., Low priority: Deferred tax liabilities of ¥2.45bn and valuation gains on securities make equity partly sensitive to financial-market valuations, although capital adequacy remains strong at 59.6%., Low priority: Interest-bearing debt is modest at ¥1.44bn, debt/capital is 4.6%, and interest coverage is 1,160x, limiting current solvency risk..

Key concerns include The key execution test is conversion of high Q1 earnings into cash collections, given the elevated receivable days., Q1 operating-income progress of 55.2% against the full-year forecast is unusually front-loaded versus the standard 25% pace; the sustainability of Q1 margin and project mix will determine whether this outperformance persists., The substantial concentration of segment profit in Engineering makes its contract profitability and order execution central to consolidated earnings stability..

Investment Implications

Key takeaways include Q1 operating income rose 15.9% YoY despite only 2.1% revenue growth, driven by a 278bp operating-margin expansion to 23.5%., Engineering is the core profit business, contributing 63.1% of aggregate segment profit before corporate-cost adjustments and achieving a 28.1% segment margin., Trading was the strongest growth segment, with revenue up 29.1% and segment profit up 47.4% YoY., Balance-sheet leverage is conservative, with interest-bearing debt of ¥1.44bn, debt/capital of 4.6%, and a 211.4% current ratio., The elevated annualized DSO of 123 days is the central financial-quality metric to monitor despite otherwise strong liquidity., The forecast ¥75 dividend implies a moderate 39.7% payout ratio based on forecast EPS of ¥189.09..

Metrics to watch include Engineering segment revenue, segment margin, and profit conversion, Trading segment sales growth and margin retention, Manufacturer segment revenue and segment-profit recovery, Trade receivables, annualized DSO, and collection trends, Q2 and Q3 operating-income progress relative to the ¥6.30bn full-year forecast, Investment-securities valuation movements and their effect on comprehensive income, Short-term debt composition and refinancing terms.

Regarding relative positioning, The company combines excellent annualized profitability, high operating margins, conservative balance-sheet leverage, and a moderate forecast dividend payout. Relative earnings quality will be determined by whether its project-led profits and receivables convert into cash on a timely basis, while the high Q1 profit progress makes margin durability more important than near-term sales growth alone.