EBARA JITSUGYO CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

Despite nearly flat revenue, improvements in the gross margin enabled Operating Income and Net Income to increase by approximately 8%, resulting in earnings growth outpacing the revenue growth rate. Revenue was 212.2B yen (+0.1% YoY), Operating Income was 37.7B yen (+7.5%), Ordinary Income was 38.7B yen (+7.4%), and Net Income attributable to owners of the parent was 26.8B yen (+8.0%). The gross margin improved to 35.6% from the previous year, absorbing the 3.3% increase in SG&A expenses and resulting in an Operating Income margin of 17.7%. The first-half profit progress rate against the Full-Year plan was approximately 60%, exceeding the simple mid-year progress benchmark of 50%.

Factors Affecting Financial Performance

【Revenue】Revenue was 212.2B yen, essentially flat at +0.1% YoY. By segment, the core Water Treatment-related Business, which accounted for 52.8% of the total, declined 6.5% YoY, while the Environmental-related Business, accounting for 19.0%, increased 9.0%, and the Pneumatic and Hydraulic Equipment and Air Conditioning-related Business, accounting for 28.2%, increased 8.3%, offsetting the decline in the overall revenue contribution from the Water Treatment-related Business. The decline in the Water Treatment-related Business appears to have been attributable to the timing of orders and inspections for public-sector demand, while growth in the other two segments supported overall revenue.

【Profit and Loss】Operating Income was 37.7B yen (+7.5% YoY), Ordinary Income was 38.7B yen (+7.4%), and Net Income was 26.8B yen (+8.0%). The gross margin improved to 35.6% from the previous year. Although SG&A expenses increased to 38.0B yen (+3.3%), the decline in the cost ratio more than offset this increase, resulting in an Operating Income margin of 17.7%. Non-operating income of 1.6B yen, primarily consisting of 0.8B yen in dividend income, exceeded non-operating expenses of 0.6B yen and supported Ordinary Income. Extraordinary losses were minimal at 0.03B yen, indicating virtually no impact from temporary factors. Given the earnings growth despite nearly flat revenue, the results can be viewed as effectively representing both revenue and profit growth.

Segment Analysis

By segment Operating Income, the Water Treatment-related Business generated revenue of 112.1B yen (-6.5% YoY) and Operating Income of 24.2B yen (+2.6%), maintaining a profit margin of 21.6% and achieving profit growth despite lower revenue. The Environmental-related Business generated revenue of 40.4B yen (+9.0%) and Operating Income of 8.8B yen (+7.5%), maintaining the highest profitability among the three segments with a margin of 21.7%. The Pneumatic and Hydraulic Equipment and Air Conditioning-related Business generated revenue of 59.8B yen (+8.3%) and Operating Income of 11.0B yen (+16.5%), recording the highest profit growth rate among the three segments. Although its profit margin of 18.4% was relatively lower, it was on an improving trend. Growth in revenue and profit from the other two segments offset the decline in the Water Treatment-related Business, with business portfolio diversification supporting overall profit growth.

Key Financial Indicators

【Profitability】The Operating Income margin was 17.7% and the Net Income margin was 12.6%, both improving from the previous year.【Cash Flow Quality】Operating Cash Flow (OCF) of 54.5B yen was approximately 2.0 times Net Income of 26.8B yen, indicating a high level of cash-generation capacity supporting earnings.【Investment Efficiency】ROE was 8.2%, a level that also reflects the impact of a substantial increase in net assets from the previous year due to growth in valuation differences.【Financial Soundness】The Equity Ratio rose approximately 9.5pt from 57.7% in the previous year to 67.2%. Cash and deposits totaled 187.6B yen, while interest-bearing debt remained limited to approximately 13B yen in total for current and non-current debt, indicating a conservative financial foundation.

Cash Flow Analysis

Operating Cash Flow was 54.5B yen, up 18.6% YoY; Investing Cash Flow was 3.8B yen; and Financing Cash Flow was -16.4B yen, including 9.3B yen in share repurchases. Free Cash Flow reached 58.2B yen. The increase in Operating Cash Flow was supported by a 78.6B yen cash inflow from the decrease in trade receivables and a 4.8B yen decrease in inventories, while the 61.1B yen decrease in trade payables served as an offsetting factor. Capital expenditures remained at a low level of 0.7B yen, below depreciation and amortization of 1.2B yen, and Investing Cash Flow turned positive. The company is financing dividend payments and share repurchases through abundant Free Cash Flow, indicating ample financial flexibility. However, the increase in Operating Cash Flow depended significantly on changes in working capital items, namely trade receivables and trade payables. The extent to which these factors will persist from the following period onward will be a key consideration in evaluating cash-generation capacity.

Earnings Quality

Operating Income of 37.7B yen was the principal source of Ordinary Income and Net Income. Non-operating income was limited to 1.6B yen, primarily consisting of 0.8B yen in dividend income, while extraordinary losses were minimal at 0.03B yen, with no indication that temporary factors materially affected performance. Operating Cash Flow of 54.5B yen was approximately 2.0 times Net Income of 26.8B yen, indicating strong cash backing for earnings. However, part of this difference was attributable to the working capital factor of a decline in trade receivables, and it is necessary to distinguish the strength of recurring earnings power from the impact of working capital fluctuations. Comprehensive Income was 61.4B yen, substantially exceeding Net Income of 26.8B yen, with the difference attributable to a 34.7B yen increase in valuation differences on investment securities. This represents a non-recurring factor dependent on market conditions. In light of this, while the level of Net Income for the period relatively well reflects the company’s recurring earnings power, fluctuations in Comprehensive Income are strongly affected by market factors.

Earnings Forecast and Guidance

The Full-Year forecast calls for Revenue of 440.0B yen (+6.8% YoY), Operating Income of 63.0B yen (+2.9%), and Ordinary Income of 65.0B yen (+2.9%), with no revision to the earnings forecast during the quarter. First-half progress rates were 48.2% for Revenue, 59.8% for Operating Income, and 59.5% for Ordinary Income. On the profit front, performance is progressing at a pace exceeding the simple mid-year benchmark of 50%. This appears to reflect the early contribution of improved gross margins in the first half and profit growth in the Environmental-related Business and the Pneumatic and Hydraulic-related Business. The key issue for achieving the Full-Year plan will be the extent to which this pace can be maintained in the second half.

Shareholder Returns

The interim dividend was ¥37.5 per share, while the Full-Year dividend forecast is ¥75. Based on the Full-Year forecast EPS of ¥189.09, the Payout Ratio is 39.7%. The company conducted a 2-for-1 stock split effective January 1, 2026, and the previous year’s annual dividend of ¥120, consisting of a regular dividend of ¥100 and an 80th anniversary commemorative dividend of ¥20, is based on a different number of shares; therefore, a simple comparison is not possible. On a pre-stock-split basis, the forecast dividend for the fiscal year ending December 2026 is equivalent to ¥150, representing an effective dividend increase even on a regular-dividend basis excluding the commemorative dividend. Based on first-half results, total shareholder returns, comprising dividend payments of 7.1B yen and share repurchases of 9.3B yen, totaled 16.4B yen. The Total Return Ratio against first-half Net Income of 26.8B yen was approximately 61.4%, indicating a commitment to capital returns in addition to dividends.

Risk Factors

1. Revenue concentration in the core segment: The Water Treatment-related Business accounts for 52.8% of total revenue, while revenue from the segment declined 6.5% YoY during the period. Accordingly, order trends in this segment have a significant impact on overall performance.

2. Risk of reversal in working capital fluctuations: During the first half, a 78.6B yen decrease in trade receivables and a 61.1B yen decrease in trade payables, among other significant working capital movements, contributed to the increase in Operating Cash Flow. These movements may reverse from the following period onward.

3. Market fluctuation risk related to investment securities: Investment securities totaled 134.4B yen, representing 27.7% of total assets. During the first half, valuation differences increased by 34.7B yen, boosting Comprehensive Income. Net assets and Comprehensive Income are therefore structurally susceptible to fluctuations in market prices.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

Profitability, as measured by both the Operating Income margin and the Net Income margin, is substantially above the industry median.

Growth and Capital Efficiency

The Revenue growth rate was below the industry median, indicating a relatively moderate pace of revenue growth.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. First-half profit progress against the Full-Year plan was 59.8% for Operating Income and 59.5% for Ordinary Income, exceeding the 50% mid-year benchmark. The results therefore reflect the early contribution of improved profitability in the first half.

2. The gross margin improved from the previous year, while the Water Treatment-related Business maintained a profit margin of 21.6% despite lower revenue. Improvements in pricing and project mix appear to have been the primary factors driving higher profitability. Whether this improvement can be sustained in the second half will be a key focus.

3. The Equity Ratio rose to 67.2% (+9.5pt YoY), while cash and deposits totaled 187.6B yen and interest-bearing debt remained minimal, leaving the financial foundation at a consistently conservative level.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,538–¥1,627 at ±1% for the cost of equity, and ¥1,577–¥1,588 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end were used (there is a time lag relative to 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: 2026-07 / This value 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 available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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