| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥95.7B | ¥85.0B | +12.6% |
| Operating Income / Operating Profit | ¥12.8B | ¥11.0B | +16.3% |
| Ordinary Income | ¥14.6B | ¥11.6B | +25.4% |
| Net Income / Net Profit | ¥10.6B | ¥7.5B | +41.7% |
| ROE | 5.5% | 4.1% | - |
The FY2026 Q1 results came in with Revenue ¥95.7B (YoY +¥10.7B +12.6%), Operating Income ¥12.8B (YoY +¥1.8B +16.3%), Ordinary Income ¥14.6B (YoY +¥2.9B +25.4%), and Net Income ¥10.6B (YoY +¥3.1B +41.7%), delivering higher revenue and profit. Revenue was driven by the Environmental Energy Business (+10.6%) and the Service & Engineering Business (+45.7%), and the operating margin improved 0.5pt to 13.4% (prior 12.9%). The increase in Ordinary Income was significantly supported by ¥1.6B of gain on sale of securities recorded in non-operating income, and net profit margin expanded 2.2pt to 11.0% (prior 8.8%). Against the Full Year plan (Revenue ¥360B, Operating Income ¥30B, Net Income ¥23B), progress rates were Revenue 26.6%, Operating Income 42.7%, and Net Income 46.0%, indicating profit items are running ahead of schedule.
[Revenue] Revenue ¥95.7B represents a YoY increase of +12.6%. By segment, the Environmental Energy Business remained the largest at ¥39.4B (share 41.1%, YoY +10.6%), and the Service & Engineering Business recorded high growth at ¥22.6B (share 23.6%, YoY +45.7%). Meanwhile, the Power Business was ¥24.3B (share 25.4%, YoY -2.7%), the Information Business ¥5.5B (share 5.7%, YoY +8.3%), and Other Businesses ¥7.1B (share 7.4%, YoY -8.4%), showing mixed results. The main drivers of revenue growth were progress on large projects in the Service segment and accelerated digestion of backlog in the Environmental Energy field.
[Profitability] Cost of sales was ¥74.0B, improving gross margin to 22.7% (prior 22.4%) by 0.3pt, and SG&A was ¥8.9B with an SG&A ratio of 9.3% (prior 9.4%) down 0.1pt. As a result, Operating Income was ¥12.8B (YoY +16.3%), and operating margin improved 0.5pt to 13.4%. By segment, the Environmental Energy Business achieved a large increase in Operating Income to ¥6.5B (YoY +111.0%, margin 16.6%), while the Power Business declined to ¥4.8B (YoY -14.8%, margin 19.7%) and the Information Business to ¥0.1B (YoY -79.6%, margin 2.0%), making inter-segment profitability differences pronounced. Non-operating income of ¥1.9B included ¥1.6B gain on sale of securities, boosting Ordinary Income to ¥14.6B (YoY +25.4%). Non-operating expenses were limited to ¥0.2B, comprising interest expense ¥0.1B and foreign exchange loss ¥0.1B. After deducting corporate taxes etc. of ¥4.0B, Net Income was ¥10.6B (YoY +41.7%), concluding with higher revenue and profits.
The Environmental Energy Business recorded Revenue ¥39.4B (YoY +10.6%) and Operating Income ¥6.5B (YoY +111.0%), a substantial increase in profit with margin improving to 16.6%, accounting for 50.9% of consolidated Operating Income and becoming the core business. The Power Business saw Revenue ¥24.3B (YoY -2.7%) and Operating Income ¥4.8B (YoY -14.8%), with a high margin of 19.7% maintained but down from ¥562 million in the prior year period. The Service & Engineering Business achieved high growth Revenue ¥22.6B (YoY +45.7%) but Operating Income remained limited at ¥0.5B (YoY +27.8%), yielding a low margin of 2.0%. The Information Business posted Revenue ¥5.5B (YoY +8.3%) but a large decline in Operating Income to ¥0.1B (YoY -79.6%), lowering margin to 2.0%. Other Businesses declined with Revenue ¥7.1B (YoY -8.4%) and Operating Income ¥0.9B (YoY -34.8%).
[Profitability] Operating margin 13.4% improved 0.5pt from 12.9% in the prior period, and net profit margin 11.0% expanded 2.2pt from 8.8%. Gross margin 22.7% (prior 22.4%) and SG&A ratio 9.3% (prior 9.4%) indicate good cost control. ROE remains low at 5.5%. [Cash Quality] Accounts receivable ¥13,447百万円 (as a percent of sales 140.5%) corresponds to DSO of 513 days; inventory including work-in-progress ¥1,549百万円 equals inventory of ¥8.5B with DIO about 140 days, indicating prolonged working capital retention. Accounts payable decreased significantly to ¥39.3B (from ¥61.1B, -35.7% YoY), and CCC extended to 459 days. [Investment Efficiency] Total asset turnover is low at 0.26x (annualized 1.05x), with tangible fixed assets ¥92.5B (share of total assets 25.5%) and investment securities ¥59.0B (share 16.3%) inflating asset base. [Financial Soundness] Equity Ratio is healthy at 53.1% (prior 52.1%), D/E ratio 0.88x, interest-bearing debt ¥35.3B (short-term borrowings ¥32.6B, long-term borrowings ¥2.7B) versus cash & deposits ¥40.8B, maintaining a net cash position. Liquidity is ensured with current ratio 154.3% and quick ratio 148.0%, though short-term debt ratio is high at 92.5%, indicating short-term dependence.
Because the cash flow statement data is not disclosed, funding trends are analyzed from balance sheet movements. Cash & deposits increased by ¥8.2B to ¥40.8B (prior ¥32.6B), strengthening liquidity. Conversely, short-term borrowings rose sharply by ¥26.1B to ¥32.6B (prior ¥6.6B), suggesting expanded working capital needs and the need to secure funds ahead of backlog digestion. Accounts receivable decreased by ¥14.9B to ¥134.5百万円 (prior ¥149.4百万円), but remain equivalent to 140% of sales and thus still long outstanding; expansion of working capital including work-in-progress ¥15.5百万円 is pressuring cash flows. Accounts payable decreased by ¥21.8B to ¥39.3B (prior ¥61.1B), causing cash outflows due to reduced supplier credit usage. Investment securities increased by ¥6.8B to ¥59.0B, and despite recording ¥1.6B gain on sale of securities, the balance rose, suggesting new investments or accumulation of valuation gains. Retained earnings increased ¥7.2B to ¥102.6B (prior ¥95.4B), indicating steady internal reserves accumulation.
Operating Income ¥12.8B is the base of recurring earnings, and operating margin 13.4% improved from the prior period. As a one-off factor, gain on sale of securities ¥1.6B recorded in non-operating income (equivalent to 12.8% of Operating Income and 15.5% of Net Income) boosted Ordinary Income ¥14.6B and Net Income ¥10.6B, and its reproducibility going forward is limited. Of total non-operating income ¥1.9B, recurring items such as interest income ¥0.02B and rental income ¥0.07B are small, with gain on sale of securities being the main component. Non-operating expenses ¥0.2B include interest expense ¥0.1B and foreign exchange loss ¥0.1B, both minor. Comprehensive income ¥15.1B exceeds Net Income ¥10.6B due to other comprehensive income from valuation gain on securities ¥4.7B, reflecting market value increases of held securities. The difference between Ordinary Income and Net Income is mainly tax expense ¥4.0B; no extraordinary items were recorded and the profit structure is generally transparent. However, excluding the non-operating gain on sale of securities, Ordinary Income would be approximately ¥13B, and caution is required when assessing operating-level earning power.
Full Year forecast is maintained at Revenue ¥360B (YoY +14.7%), Operating Income ¥30B (YoY +14.7%), Ordinary Income ¥34B (YoY +8.8%), and Net Income ¥23B. As of the end of Q1, progress rates are Revenue 26.6% (standard pace 25% +1.6pt), Operating Income 42.7% (standard +17.7pt), Ordinary Income 42.8% (standard +17.8pt), and Net Income 46.0% (standard +21.0pt), indicating profits are materially front-loaded. The accelerated operating-profit progress is attributable to margin improvement in the Environmental Energy Business (YoY +111.0%) and favorable project mix. However, the ¥1.6B gain on sale of securities recorded in Q1 is a temporary factor and there is no guarantee similar non-operating income will recur in the remaining three quarters. Maintaining operating-level profitability, recovery in the Information and Power businesses, and working-capital compression to improve Operating Cash Flow will be key to achieving or beating the Full Year plan.
Full Year dividend forecast is ¥27.5 per share (breakdown between interim and year-end not disclosed), an increase of ¥2.5 from prior ¥25.00. Using Q1 EPS ¥78.16 (prior ¥55.31) versus Full Year forecast EPS ¥170.05, the payout ratio is approximately 16.2%, a conservative level. Of Net Income ¥10.6B, dividend payments are approximately ¥3.7B (calculated on shares outstanding 13,909 thousand - treasury shares 383 thousand = 13,526 thousand shares), making dividend burden modest. With cash & deposits ¥40.8B versus interest-bearing debt ¥35.3B maintaining a net cash position and retained earnings ¥102.6B accumulated, dividend sustainability is high. No share buyback has been disclosed; shareholder returns are currently limited to dividends.
Prolonged Working Capital Risk: Accounts receivable ¥134.5百万円 (DSO 513 days) and work-in-progress ¥15.5百万円 lead to a CCC of 459 days, an extremely extended cycle. Collection delays in project-based business or variability in backlog digestion can pressure Operating Cash Flow and increase reliance on short-term borrowings. The sharp decline in accounts payable (YoY -35.7%) suggests reduced use of supplier credit and is a headwind to liquidity.
Short-term Funding Refinancing Risk: Short-term borrowings increased sharply to ¥32.6B (from ¥6.6B, +398%), elevating short-term debt concentration with a short-term debt ratio of 92.5%. Although cash & deposits ¥40.8B cover this currently, rising interest rates could worsen refinancing terms and further working-capital expansion may increase funding needs and financial costs.
Widening Inter-segment Profitability Gap Risk: Profitability disparity is pronounced with Environmental Energy margin 16.6% versus Information Business 2.0% and Service & Engineering 2.0%. The Information Business suffered a significant drop in Operating Income (YoY -79.6%), with deteriorating project mix and intensifying price competition pressuring margins. If turnaround of low-margin segments is delayed, maintaining consolidated operating margin will be difficult.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 13.4% | 6.8% (2.9%–9.0%) | +6.5pt |
| Net Profit Margin | 11.0% | 5.9% (3.3%–7.7%) | +5.1pt |
Profitability substantially exceeds the industry median, placing the company in the upper quartile.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 12.6% | 13.2% (2.5%–28.5%) | -0.6pt |
Growth is in line with the industry median and within the IQR range.
※ Source: Company compilation
Profit items are running ahead and operating margin improvement continues, with the Environmental Energy Business profitability recovery (Operating Income +111.0%) lifting consolidated margins. However, Q1 outperformance in Ordinary and Net Income was aided by a one-off gain on sale of securities ¥1.6B (12.8% of Operating Income), and evaluation should distinguish operating-level profitability. Given the high Operating Income progress rate of 42.7% versus the Full Year plan, the continuation of favorable project mix and smooth backlog digestion will determine upside potential to the Full Year results.
Prolonged working capital (CCC 459 days, DSO 513 days) and the sharp increase in short-term borrowings (+¥26.1B) are delaying improvements in cash generation. Compression of accounts receivable and work-in-progress and normalization of accounts payable management are essential to stabilize Operating Cash Flow and reduce short-term funding dependence. While net cash position and low payout ratio (16.2%) support financial stability, ROE at 5.5% and low capital efficiency indicate that working-capital improvements and selection of higher-margin projects are key to medium-term improvement in capital productivity.
This report is an earnings analysis document automatically generated by AI analyzing XBRL earnings disclosure data. It is not a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company based on public financial statements. Investment decisions are your responsibility; please consult professionals as needed before making investment decisions.