HOCHIKI CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Revenue and profit increased in Q1, with operating leverage from an improved gross margin serving as the primary driver of performance growth. Revenue was ¥238.3B (¥223.6B in the same period last year, YoY +6.6%), Operating Income was ¥15.2B (¥10.7B, YoY +41.4%), Ordinary Income was ¥16.5B (¥10.7B, YoY +54.4%), and Net Income attributable to owners of the parent was ¥11.8B (¥8.0B, YoY +47.5%). The Operating Income margin improved to 6.4%, up 1.6pt from 4.8% in the same period last year, led by improved profitability in the core Fire Alarm Systems and Security Systems businesses, while Fire Extinguishing Systems experienced a temporary adjustment phase characterized by declines in both revenue and profit.

Factors Affecting Performance

【Revenue】Revenue was ¥238.3B, representing a YoY increase of +6.6%. By segment, Fire Alarm Systems was the largest and fastest-growing segment at ¥153.2B (64.3% of total, YoY +9.1%), while Maintenance continued its stable growth at ¥44.8B (18.8%, YoY +6.3%). Security Systems achieved high growth at ¥16.5B (6.9%, YoY +27.8%), whereas Fire Extinguishing Systems was the only segment to post a decline in revenue, at ¥23.8B (10.0%, YoY -15.3%).

【Profit and Loss】The gross profit margin improved to 39.1% from 36.3% in the same period last year, an improvement of +2.8pt, and, combined with the revenue increase, drove Operating Income up 41.4%. The SG&A expense ratio increased to 32.7% from 31.5%, up +1.2pt, but the benefit of the gross margin improvement more than offset this increase, resulting in an Operating Income margin of 6.4% (up +1.6pt). Ordinary Income grew more than Operating Income due to ¥1.9B in non-operating income, including ¥0.6B in foreign exchange gains, resulting in an Ordinary Income margin of 6.9% (up +2.2pt). Net Income was ¥11.8B after an effective tax rate of 28.4% on Ordinary Income. Extraordinary income and losses were minor, at ¥0.03B of income and ¥0.08B of loss, and no temporary factors distorting the quality of earnings were identified. This was a case of revenue and profit growth, with the improvement in the gross margin driving profit growth.

Segment Analysis

Total segment profit was ¥33.4B (¥25.9B in the same period last year), and Operating Income after deducting corporate expense adjustments of ¥18.2B (¥15.2B) was ¥15.2B.

• Fire Alarm Systems: Operating Income of ¥20.1B (YoY +49.4%) and a margin of 13.1% (9.6% in the same period last year, +3.5pt), making it the largest contributor to profit growth
• Maintenance: Operating Income of ¥8.1B (YoY +17.5%) and a margin of 18.0% (16.3%, +1.7pt), maintaining stable high profitability
• Security Systems: Operating Income of ¥2.3B (YoY +458.5%) and a margin of 13.9% (3.2%, +10.7pt), reflecting a substantial improvement in profitability
• Fire Extinguishing Systems: Operating Income of ¥2.9B (YoY -43.6%) and a margin of 12.3% (18.4%, -6.1pt), with both revenue and profitability deteriorating

Corporate expenses (adjustments) increased to ¥18.2B from ¥15.2B in the same period last year, up +19.8%, partially offsetting the +28.9% growth in total reported segment profit.

Key Financial Indicators

【Profitability】The Operating Income margin of 6.4% (4.8% in the same period last year, +1.6pt) and Net Income margin of 4.9% (3.6%, +1.4pt) both improved, primarily due to the improvement in the gross margin (39.1%, +2.8pt). 【Cash Quality】Days sales outstanding were approximately 74 days (accounts receivable of ¥192.8B / Revenue of ¥238.3B × 91 days), days inventory outstanding were approximately 101 days, and days payables outstanding were approximately 25 days, resulting in a cash conversion cycle of approximately 150 days, reflecting the business characteristics of having many projects accounted for under the percentage-of-completion method. 【Capital Efficiency】ROE was 1.7% (1.2% in the same period last year, +0.5pt), with the improvement in the Net Income margin and the reduction in total assets (an increase in total asset turnover) serving as drivers, while the decline in financial leverage associated with the increase in the Equity Ratio provided a modest offset. 【Financial Soundness】The Equity Ratio was 74.0% (69.8% in the same period last year, +4.2pt), the current ratio was 400.5% (current assets of ¥665.2B / current liabilities of ¥166.1B), the debt-to-equity ratio was 0.35x, and interest coverage was approximately 190x (Operating Income of ¥15.2B / interest expense of ¥0.1B), all indicating substantial financial capacity.

Cash Flow Analysis

Although the cash flow statement has not been disclosed, trends in the balance sheet indicate funds movement accompanied by asset reduction. Cash and deposits declined to ¥264.8B, down -5.3% YoY (-¥14.9B), while accounts receivable and notes receivable decreased substantially to ¥192.8B, down -22.3% (-¥55.5B), indicating that the collection of receivables was the primary factor behind the reduction in total assets. Meanwhile, inventories (the combined total of finished goods, raw materials, and work in progress) increased to ¥160.6B, up +5.8% (+¥8.8B), suggesting an accumulation of projects in progress. Current liabilities declined to ¥166.1B, down -25.0% (-¥55.5B), primarily because income taxes payable decreased by ¥20.6B, from ¥23.5B to ¥2.9B, suggesting a period in which taxes related to the previous fiscal year’s financial results flowed out as a cash outflow. Total assets declined to ¥918.0B, down -6.3% YoY, contributing to an improvement in total asset turnover from the perspective of asset efficiency.

Quality of Earnings

Current-period profit was primarily generated by operating activities, and the overall quality of earnings was favorable. Extraordinary income of ¥0.03B and extraordinary loss of ¥0.08B were both immaterial, with virtually no temporary factors distorting recurring earnings power. Non-operating income of ¥1.9B (0.8% of Revenue) consisted of dividend income of ¥0.7B, foreign exchange gains of ¥0.6B, and other income of ¥0.3B. While this includes both dividend income based on actual demand and gains arising from foreign exchange movements, the overall scale was limited and not sufficient to materially affect the quality of Ordinary Income. Net Income of ¥11.8B was -28.6% below Ordinary Income of ¥16.5B, due to the corporate tax burden reflected in the effective tax rate of 28.4%, rather than non-recurring adjustment items. The increase in inventories (+5.8%) represents an accrual-related factor accompanied by future recognition of costs of sales, and future trends in the gross margin should therefore be monitored.

Earnings Forecast and Guidance

Against the full-year company plan (Revenue of ¥1100.0B, Operating Income of ¥123.0B, Ordinary Income of ¥125.0B, and Net Income of ¥90.0B), Q1 progress was 21.7% for Revenue, 12.3% for Operating Income, 13.2% for Ordinary Income, and 13.1% for Net Income. Compared with a simple evenly distributed quarterly progress benchmark of 25%, progress was relatively low from Operating Income onward. Given the business characteristic that acceptance of projects accounted for under the percentage-of-completion method is concentrated in the second half of the fiscal year, the impact of seasonality is considered significant, and no revisions were made to the earnings or dividend forecasts during the quarter. The full-year plan assumes Operating Income YoY growth of +1.9%, a more moderate rate than the +41.4% YoY growth in Operating Income in Q1, making the second-half reaction and the pace of recovery in Fire Extinguishing Systems key factors in achieving the plan.

Shareholder Returns

The company’s forecast annual dividend is ¥40 per share, resulting in a Payout Ratio of 33.2% against forecast EPS of ¥120.64. The company implemented a 3-for-1 stock split effective April 1, 2026. Accordingly, the ¥40 dividend for the previous fiscal year (FY ended March 2026) is the actual amount on a pre-split basis, while the ¥40 forecast for the current fiscal year (FY ending March 2027) is on a post-split basis. It should therefore be noted that, on a split-adjusted basis, this represents an effective dividend increase. Given the financial foundation of cash and deposits of ¥264.8B, an Equity Ratio of 74.0%, and a debt-to-equity ratio of 0.35x, no revision has been made to the dividend forecast as of the end of the quarter, and the company has substantial financial capacity to support its dividend.

Risk Factors

1. Working Capital Efficiency: Days sales outstanding are estimated at approximately 74 days, days inventory outstanding at approximately 101 days, and the cash conversion cycle at approximately 150 days, indicating continued elongation of working capital due to the timing of project acceptance under the percentage-of-completion method.

2. Deterioration in Fire Extinguishing Systems Profitability: Revenue was ¥23.8B (YoY -15.3%), Operating Income was ¥2.9B (YoY -43.6%), and the margin was 12.3% (18.4% in the same period last year, -6.1pt), deteriorating in contrast to the other segments.

3. Pace of SG&A Expense Growth: SG&A expenses increased to ¥77.9B, up +10.8% YoY, exceeding Revenue growth of +6.6%. Corporate expenses (segment adjustments) also expanded to ¥18.2B (YoY +19.8%), partially offsetting the gross margin improvement resulting from higher revenue.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Points from the Financial Results

1. The improvement in the gross margin and profit growth in the two core segments (Fire Alarm Systems and Maintenance) raised the Operating Income margin by 1.6pt, while the SG&A expense growth rate (+10.8%) exceeded Revenue growth (+6.6%), creating a structure that partially offset the benefit of higher revenue.

2. In terms of segment mix, Security Systems expanded sharply, with Operating Income up +458.5%, while Fire Extinguishing Systems moved in the opposite direction, with Operating Income down -43.6% and its margin down -6.1pt. Dispersion among segments has therefore widened as a factor affecting the company-wide profit margin.

3. Q1 progress against the full-year plan was 12.3% for Operating Income, a relatively low level even after taking seasonality into account. The extent of the recovery in Fire Extinguishing Systems and the progress of project acceptance in the second half will determine full-year results.

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 to take any specific investment action.

Sensitivity: ¥1,003–¥1,062 at ±1% for the cost of equity, and ¥1,029–¥1,036 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).

(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 disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional where necessary.

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