MIDAC HOLDINGS CO.,LTD. FY2027 Q1 Earnings Report

Quick View

Executive Summary

FY2027 Q1 resulted in higher revenue and earnings, with expanded operations in the core waste disposal business driving performance. Revenue was ¥32.8B (¥27.0B in the previous year, YoY +21.3%), Operating Income was ¥13.6B (¥11.5B in the previous year, YoY +18.2%), Ordinary Income was ¥13.1B (¥11.2B in the previous year, YoY +17.0%), and Net Income (net income attributable to owners of the parent) was ¥8.0B (¥7.0B in the previous year, YoY +14.2%). Although both revenue and earnings increased year on year, the higher effective tax rate (39.0%) restrained Net Income growth relative to Operating Income growth.

Factors Affecting Results

【Revenue】Revenue was ¥32.8B (YoY +21.3%). By segment, waste disposal grew to ¥29.0B (85.8% of total, YoY +27.7%), with the core business driving overall growth. Collection and transportation declined to ¥4.3B (YoY -8.6%), while brokerage and management posted modest growth to ¥0.5B (YoY +6.1%). Revenue sources remain concentrated in waste disposal.

【Profit and Loss】Operating Income was ¥13.6B (YoY +18.2%), and the Operating Income margin remained high at 41.5%, although it declined by approximately 1.1pt from 42.6% in the previous year. The gross profit margin improved to 62.6%, but higher SG&A expenses slightly weighed on the Operating Income margin. Ordinary Income was ¥13.1B (YoY +17.0%), mainly because interest expense increased from ¥0.33B to ¥0.59B, resulting in higher non-operating expenses. Net Income was ¥8.0B (YoY +14.2%), below the growth rate of Ordinary Income due to the burden of the 39.0% effective tax rate. Revenue and earnings both increased.

Segment Analysis

Waste disposal generated Revenue of ¥29.0B (YoY +27.7%) and Operating Income of ¥15.8B (YoY +16.0%), with a margin of 54.4%, making it the highest-profitability core business and the primary driver of consolidated earnings growth. Collection and transportation recorded lower Revenue of ¥4.3B (YoY -8.6%), but Operating Income improved to ¥1.3B (YoY +27.0%) and the margin improved to 30.2%, apparently benefiting from project selection and efficiency improvements. Brokerage and management posted modest Revenue growth to ¥0.5B (YoY +6.1%), but Operating Income declined to ¥0.2B (YoY -17.9%), with its margin also decreasing. Corporate expense adjustments were △¥3.5B, reconciling with consolidated Operating Income of ¥13.6B. The company relies on waste disposal for more than 85% of both Revenue and earnings, indicating a high degree of business portfolio concentration.

Key Financial Metrics

【Profitability】The Operating Income margin of 41.5% and Net Income margin of 24.3% both declined slightly from the previous year but remained at high levels. The gross profit margin improved to 62.6%, while the SG&A expense ratio declined to 21.1% (23.3% in the previous year), indicating improved cost efficiency.【Cash Quality】Cash and deposits were ¥56.9B and accounted for a significant proportion of current assets of ¥78.8B, while investment securities increased to ¥7.6B.【Investment Efficiency】ROE was 4.3% and the Equity Ratio was 45.7%; the low total asset turnover ratio is constraining capital efficiency.【Financial Soundness】Against fixed liabilities of ¥150.6B, including long-term borrowings of ¥90.6B, the Equity Ratio was 45.7%, indicating that the capital base maintains a certain level of stability.

Cash Flow Analysis

As the Company has not provided detailed disclosure of its cash flow statement in this earnings report, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥56.9B, down from ¥65.0B in the previous year. This was attributable to a substantial increase in investment securities to ¥7.6B (¥2.6B in the previous year) and an increase in short-term borrowings to ¥35.0B (¥25.0B in the previous year). Long-term borrowings decreased slightly to ¥90.6B, indicating a modest shift toward shorter-term interest-bearing debt. Accounts receivable and notes receivable were ¥12.7B, slightly down from ¥13.0B in the previous year, with no significant change in collection conditions. Fixed assets increased to ¥321.8B, indicating continued investment in tangible fixed assets, including construction in progress, and suggesting that the Company is in an investment-led phase.

Earnings Quality

Current-period earnings arose from recurring business activities, and the impact of temporary factors was limited. Non-operating income was ¥0.1B, equivalent to approximately 0.02% of Revenue, indicating an extremely low degree of dependence. Non-operating expenses were ¥0.6B, most of which consisted of interest expense, increasing from ¥0.3B in the previous year in line with the increase in interest-bearing debt. No major temporary items equivalent to extraordinary gains or losses were identified. The difference between Ordinary Income of ¥13.1B and Net Income of ¥8.0B was primarily attributable to income taxes of ¥5.1B (effective tax rate of 39.0%). Comprehensive income was ¥7.9B, almost in line with Net Income of ¥8.0B. The impact of valuation differences on securities was minor, the divergence from Net Income was limited, and earnings quality was stable.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year plan were 24.3% for Revenue (¥32.8B/¥134.9B), 24.8% for Operating Income (¥13.6B/¥54.9B), 24.8% for Ordinary Income (¥13.1B/¥52.7B), and 23.8% for Net Income (¥8.0B/¥33.4B). These figures were broadly consistent with even quarterly progress of 25%, and no significant deviation from the full-year plan was observed. There were no revisions to the earnings forecast or dividend forecast during the quarter, suggesting that the Company anticipates progress in line with its plan.

Shareholder Returns

The full-year dividend forecast is ¥20 per share, implying a Payout Ratio of approximately 16.6% based on full-year forecast EPS of ¥120.67. There was no revision to the dividend forecast as of the end of the quarter. On the balance sheet, treasury stock had increased from the previous year, indicating flexibility in capital policy in addition to dividends; however, no specific amount of treasury stock repurchases was disclosed. Given cash and deposits of ¥56.9B and the high Operating Income margin, no significant constraints on securing funds for dividends are apparent.

Risk Factors

1. Segment concentration risk: The Company depends on the waste disposal segment for 85.8% of Revenue and the majority of Operating Income. As a result, changes in operating conditions and disposal unit prices in this business directly affect consolidated performance.

2. Low capital efficiency: ROE is 4.3%, and the ratio of Revenue to total assets is also low. The investment burden associated with fixed assets of ¥321.8B is constraining capital efficiency. The timing of the commencement of operations for tangible fixed assets, including construction in progress, will be key to future efficiency improvements.

3. Rising interest expense: Interest expense increased from ¥0.33B in the previous year to ¥0.59B, while short-term borrowings increased from ¥25.0B to ¥35.0B. If interest-bearing debt continues to increase, sensitivity to changes in the interest-rate environment may rise.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability metrics are substantially above the industry median, placing the Company among the top performers in the industry.

Growth and Capital Efficiency

Revenue growth is also expanding at a pace above the industry median.

※Source: Compiled by the Company

Key Takeaways from the Earnings Report

1. Although the Operating Income margin of 41.5% and Net Income margin of 24.3% declined slightly from the previous year, the Company maintained a high level of profitability within the industry. The more efficient cost structure indicated by the improvement in the gross profit margin and decline in the SG&A expense ratio provides a foundation supporting higher revenue and earnings.

2. The high degree of dependence on the waste disposal segment (85.8% of Revenue) is the primary driver of earnings growth, but from the perspective of business diversification, it should be noted as a concentration risk in the earnings base.

3. The expansion of fixed asset investment and increase in interest-bearing debt are proceeding simultaneously, indicating that the Company is in an investment-led phase. Future operating conditions will determine the pace of improvements in asset efficiency and capital efficiency, making this a key structural area of focus.

Theoretical Share Price (Reference Value)

Sensitivity: ¥833–¥885 at Cost of Equity ±1%, and ¥853–¥866 at ω ±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

---

This report is an earnings analysis document automatically generated by AI through analysis of 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.

---End of Report---

---

AI Financial Analysis

Executive Summary

FY2027 Q1 delivered strong top-line and earnings growth, although margins moderated modestly from the unusually high prior-year level. Revenue increased 21.3% YoY to ¥3.28bn. Operating income rose 18.2% to ¥1.36bn. Ordinary income increased 17.0% to ¥1.31bn, while net income increased 14.2% to ¥0.80bn. The operating margin was 41.5%, down 110bp YoY from approximately 42.6%. Gross margin declined 330bp YoY to 62.6%, indicating that revenue growth carried a somewhat higher cost base. Net margin declined 150bp YoY to 24.3%, reflecting the lower operating margin and a higher effective tax rate. Nevertheless, profitability remains exceptional for the sector, with annualized ROE of 17.4%, above the 15% excellence benchmark. The waste-treatment segment was the principal growth engine, with external revenue rising 28.8% YoY to ¥2.82bn. This segment generated approximately 91% of total reported segment profit before corporate-cost adjustments and remains the core business. Collection and transportation revenue fell 8.5% YoY, while brokerage and management revenue declined 31.7% YoY. Interest expense increased to ¥59m from ¥33m a year earlier, but interest coverage remained robust at 23.16x. The balance sheet reflects substantial investment in operating capacity, including construction in progress of ¥5.92bn, equivalent to 23.9% of PPE. Cash and deposits of ¥5.69bn exceed reported short-term loans of ¥3.50bn, providing a near-term liquidity buffer. Full-year guidance was unchanged, and Q1 progress is broadly consistent with the normal 25% seasonal benchmark. The key forward implication is that earnings delivery depends on sustained waste-treatment volumes and timely conversion of the elevated construction-in-progress balance into productive, cash-generating facilities.

Profitability Analysis

The annualized DuPont ROE of 17.4% is composed of a 24.3% net profit margin, annualized asset turnover of 0.327x, and financial leverage of 2.19x. The dominant contributor to ROE is the very high margin structure rather than asset turnover, which is structurally moderated by the asset-intensive disposal-facility base. Financial leverage is meaningful but not excessive, with D/E of 1.19x and debt/capital of 40.7%. Revenue growth of 21.3% outpaced operating-income growth of 18.2%, producing 110bp operating-margin compression. Gross margin fell 330bp to 62.6%, while SG&A rose 10.0% YoY to ¥0.69bn, slower than revenue growth; therefore, SG&A discipline partly offset gross-margin pressure. The operating-margin decline appears to originate principally in cost of sales, which increased 32.7% YoY versus revenue growth of 21.3%, rather than from a loss of overhead control. Disposal segment profit rose 16.0% to ¥1.58bn on 28.8% external-revenue growth, implying that the core segment also experienced some incremental-margin dilution. Collection and transportation segment profit increased 27.0% to ¥0.13bn despite an 8.5% revenue decline, indicating improved profitability or mix in that operation. Brokerage and management segment profit declined 17.9% to ¥0.02bn alongside the revenue decline. The effective tax rate increased to 39.0%, and the 0.609 tax burden reduced conversion of pre-tax profit into net income. Interest burden remained healthy at 0.961, showing that financing costs have not materially impaired operating earnings conversion. The ¥3m gain on sale of assets was immaterial relative to pre-tax income and does not materially affect the recurring-profit assessment.

Growth Assessment

Revenue growth was led by waste disposal, where Q1 external sales increased ¥0.63bn YoY to ¥2.82bn. The disposal segment accounted for 85.9% of consolidated revenue, reinforcing its central role in the growth profile. Consolidated operating income increased by ¥0.21bn, but the lower incremental margin indicates that revenue growth was not fully converted into operating-profit growth. Collection and transportation generated lower revenue but higher segment profit, which is favorable for earnings mix if sustained. Conversely, the contraction in brokerage and management revenue reduces diversification within the reported business portfolio. The company has maintained FY2027 guidance for revenue of ¥13.49bn, operating income of ¥5.49bn, ordinary income of ¥5.27bn, and profit attributable to owners of ¥3.34bn. Q1 revenue progress against full-year guidance is 24.3%, close to the 25% standard Q1 progress rate. Operating-income and ordinary-income progress are each 24.8%, also broadly on plan. Net-income progress is 23.9%, modestly below the 25% reference point but not a material deviation. Full-year guidance implies 13.9% revenue growth and 16.2% operating-income growth, requiring continued expansion without meaningful additional margin erosion. The ¥5.92bn construction-in-progress balance points to a capacity-expansion pipeline that could support medium-term growth after commissioning. Growth quality will depend on utilization, project completion discipline, and the ability to maintain disposal pricing and waste intake volumes.

Financial Health

Liquidity is adequate but not abundant: the current ratio is 118.0% and the quick ratio is 116.2%. The current ratio is above 1.0x, so there is no immediate current-liability coverage warning, although it remains below the 1.5x level generally viewed as more conservative. Working capital is positive at ¥1.20bn. Cash and deposits total ¥5.69bn, compared with ¥3.50bn of short-term loans. Including the ¥1.05bn current portion of long-term loans and ¥0.02bn current portion of bonds, cash still covers the ¥4.57bn of identified short-term interest-bearing debt by approximately 1.24x. Total interest-bearing debt is ¥12.56bn, consisting mainly of ¥9.06bn of long-term loans, supporting the long-lived facility asset base. D/E of 1.19x is moderate and remains well below the 2.0x aggressive-leverage warning threshold. Debt/capital of 40.7% is marginally above the 40% investment-grade reference point, warranting monitoring but not signaling acute balance-sheet stress. Interest coverage of 23.16x provides substantial headroom for the current interest burden. PPE represents 61.8% of total assets, reflecting the capital intensity of waste-treatment infrastructure. Goodwill of ¥3.67bn equals 20.0% of equity, below the 30% healthy benchmark, while intangible assets are 9.9% of assets, also within a balanced range. Investment securities increased ¥0.50bn, or 191.2% YoY, to ¥0.76bn; this is a notable capital allocation movement but remains only 1.9% of total assets. Short-term loans increased ¥1.00bn, or 40.0% YoY, to ¥3.50bn, increasing refinancing and liquidity-management sensitivity. Treasury stock increased 30.3% to negative ¥0.11bn, although its scale is limited relative to equity.

Notable B/S Changes

Investment securities: +¥0.50bn (+191.2%) to ¥0.76bn - a material percentage increase, although still only 1.9% of total assets; monitor the strategic purpose and return profile of the investment allocation. Short-term loans: +¥1.00bn (+40.0%) to ¥3.50bn - increases reliance on short-dated funding during an elevated investment phase; cash of ¥5.69bn remains above identified short-term interest-bearing debt. Treasury stock: -¥0.03bn (-30.3%) to negative ¥0.11bn - indicates additional share repurchases or treasury-share acquisition, but the balance remains immaterial relative to ¥18.32bn of equity. Goodwill: +¥0.52bn (+16.4%) to ¥3.67bn - consistent with acquisition-related balance-sheet expansion, including one newly consolidated subsidiary; goodwill/equity remains a manageable 20.0%, but JGAAP amortization and impairment performance should be monitored. Construction in progress: +¥0.36bn (+6.5%) to ¥5.92bn - represents 23.9% of PPE and signals significant capacity-development activity; project execution and commissioning are key determinants of future returns.

Cash Flow Quality

Cash-flow quality cannot be quantified because operating cash flow, investing cash flow, financing cash flow, capital expenditure, and free cash flow are not reported in the available financial data. Accordingly, no OCF-to-net-income ratio, cash-conversion ratio, accruals assessment, or free-cash-flow coverage calculation is available. Earnings quality on the income statement is nevertheless supported by the limited contribution from non-recurring items: the gain on sale of assets was only ¥3m. The principal cash-flow monitoring item is construction in progress of ¥5.92bn, which represents a substantial ongoing deployment of capital. Conversion of these projects into commissioned facilities is important because construction spending can precede both cash generation and depreciation charges. The increase in short-term loans to ¥3.50bn alongside lower cash balances versus the prior-year quarter heightens the importance of monitoring operating cash generation and project funding requirements.

Dividend Sustainability

The full-year dividend forecast is ¥20.00 per share. Against forecast EPS of ¥120.67, the implied dividend payout ratio is approximately 16.6%. This is materially below the 60% sustainability reference level and leaves substantial retained earnings capacity for debt reduction, facility investment, and future shareholder distributions. Forecast net income of ¥3.34bn also provides wide accounting-profit coverage for the indicated dividend. Retained earnings were ¥13.30bn at Q1-end, equivalent to a sizeable internal capital base. Dividend guidance has not been revised. Cash-flow coverage cannot be quantified from the available data because free cash flow and capital expenditure are not reported. Given the elevated construction-in-progress balance and debt-funded infrastructure profile, dividend sustainability should be assessed primarily alongside future operating cash flow, project-completion spending, and refinancing needs.

Risk Assessment

Business risks include Waste-treatment concentration: the waste disposal business contributes 85.9% of revenue and approximately 91% of reported segment profit before corporate-cost adjustments, making utilization, pricing, customer waste volumes, and regulatory operating conditions in this segment highly material., Construction and commissioning risk: construction in progress of ¥5.92bn is 23.9% of PPE. Delays, cost overruns, permitting issues, or slower-than-expected ramp-up could defer returns on invested capital., Margin risk: cost of sales increased 32.7% YoY, faster than 21.3% revenue growth, resulting in 330bp gross-margin compression. Energy, labor, maintenance, transport, and treatment-input inflation could further pressure margins., Portfolio-diversification risk: collection and transportation and brokerage/management revenue declined 8.5% and 31.7% YoY, respectively, increasing dependence on disposal operations., Industry-specific regulatory and environmental risk: waste-treatment operators face permitting, environmental compliance, remediation, landfill-capacity, and local-community acceptance risks that can affect operating continuity and expansion plans..

Financial risks include Short-term borrowing increased 40.0% YoY to ¥3.50bn. Although cash covers identified short-term interest-bearing debt, this raises sensitivity to refinancing conditions and interest rates., Debt/capital is 40.7% and D/E is 1.19x. These levels are manageable, but debt remains meaningful relative to the capital-intensive investment program., Interest expense increased 78.8% YoY to ¥59m. Interest coverage remains strong at 23.16x, but continued debt funding or higher rates would reduce earnings conversion., Goodwill of ¥3.67bn equals 20.0% of equity. This is within the healthy range, but JGAAP goodwill amortization and future impairment risk should be monitored following consolidation activity..

Key concerns include HIGH_CIP quality alert: construction in progress is 23.9% of PPE, above the 20% alert threshold. The root cause is a substantial facility-development pipeline. This can be normal for a capital-intensive waste-treatment operator expanding disposal capacity, but it increases execution risk and delays the point at which invested capital produces operating cash flow. The investment implication is greater sensitivity of future returns and leverage to project completion, commissioning schedules, and actual utilization., Operating-margin compression: the 41.5% operating margin remains excellent, but it declined 110bp YoY as cost growth exceeded sales growth. Sustained compression would weaken the high-margin investment profile., Tax burden: the 39.0% effective tax rate resulted in a 0.609 tax burden, reducing net-income growth relative to operating-income growth..

Investment Implications

Key takeaways include Q1 results are broadly in line with unchanged full-year guidance, with 24.3% revenue progress and 24.8% operating-income progress versus the standard 25% Q1 benchmark., The core waste-disposal segment produced the majority of growth and profit, but its growth translated into lower consolidated gross and operating margins., Annualized ROE of 17.4% and a 41.5% operating margin indicate strong underlying profitability., Liquidity is positive and interest coverage is strong, though the balance sheet is supporting a large construction pipeline and higher short-term borrowings., The forecast ¥20 dividend implies a low 16.6% payout ratio, preserving financial flexibility..

Metrics to watch include Waste-disposal revenue growth, utilization, and segment-profit trend, Gross margin and operating margin following the Q1 compression, Construction-in-progress completion, commissioning, and subsequent revenue contribution, Operating cash flow and free cash flow relative to net income and capital expenditure, Short-term debt, cash balances, refinancing terms, and interest expense, Goodwill amortization and any impairment indicators under JGAAP.

Regarding relative positioning, The company exhibits profitability metrics that are strong for a capital-intensive environmental-services operator, including a 41.5% operating margin, 24.3% net margin, and annualized 17.4% ROE. Its balance-sheet profile is more leveraged and infrastructure-intensive than that of an asset-light service provider, but current leverage remains manageable given 23.16x interest coverage and goodwill exposure below standard caution thresholds.