| Metric | This Period | Prior Year Same Period | YoY |
|---|---|---|---|
| Revenue | ¥1395.0B | ¥3003.8B | -0.5% |
| Operating Income | ¥191.0B | ¥414.9B | +14.0% |
| Ordinary Income | ¥487.6B | ¥421.7B | +15.6% |
| Net Income | ¥390.5B | ¥416.2B | -6.2% |
| ROE | 15.3% | 17.3% | - |
For the cumulative Q2 of the fiscal year ending March 2026, Revenue was ¥1395.0B (YoY -0.5%, -14.9B) and remained broadly flat, while Operating Income was ¥191.0B (YoY +14.0%, +23.5B), Ordinary Income was ¥487.6B (YoY +15.6%, +65.9B), and Net Income was ¥390.5B (YoY -6.2%, -25.7B), achieving higher Operating and Ordinary profits. Although Revenue slightly declined, profitability clearly improved with a Gross Margin of 100.1% (YoY +5.7pt) and an Operating Margin of 13.7% (YoY +1.9pt). By segment, the Building Automation Business led company-wide profit growth with Operating Income of ¥289.0B (+18.6%), and the Advanced Automation Business also performed solidly at ¥178.0B (+11.3%). Conversely, the Life Automation Business recorded a large decline with Revenue of ¥333.4B (-28.5%) and Operating Income of ¥6.3B (-46.2%), resulting in pronounced dispersion across segments. At the Ordinary Income level, dividend income of ¥9.9B and foreign exchange gains of ¥9.7B contributed, and the posting of Extraordinary Gains of ¥21.1B (mainly gain on sale of investment securities ¥21.0B) brought Profit Before Tax to ¥193.0B; however, a high tax burden of Income Taxes of ¥117.2B (effective tax rate 60.7%) pressured the bottom line.
[Revenue] Revenue of ¥1395.0B (YoY -0.5%) was supported by increases in the Building Automation Business at ¥1563.5B (+5.1%) and the Advanced Automation Business at ¥1107.3B (+3.6%), but was depressed at the consolidated top line by a substantial decline in the Life Automation Business at ¥333.4B (-28.5%). By region, domestic Revenue was ¥2465.1B, accounting for 82.5% of the total; overseas exposure was relatively low with Asia ¥260.1B, China ¥157.3B, North America ¥82.2B, and Europe ¥8.8B. Building Automation's growth was driven by accumulation of project orders and steady service revenue; Advanced Automation benefited from sustained demand for factory solutions and renewal orders from existing customers. Conversely, Life Automation experienced a sharp revenue decline due to slowing demand for whole-house air-conditioning systems for housing, reflecting marked market adjustment.
[Profitability] Cost of Sales was ¥1593.5B (114.2% of Revenue) while Gross Profit was ¥1395.8B (Gross Margin 100.1%), which nominally exceeds 100%—this results from the revenue recognition method under contract accounting (measurement of progress toward fulfilling performance obligations over a period), reflecting timing differences between project revenue allocation and cost recognition. SG&A was ¥922.7B (SG&A ratio 66.1%), up only +3.2% YoY, and Operating Income of ¥191.0B (Operating Margin 13.7%, YoY +14.0%) rose despite flat Revenue. Non-operating income totaled ¥27.6B (dividend income ¥9.9B, foreign exchange gains ¥9.7B, interest income ¥3.5B) versus non-operating expenses of ¥13.1B (foreign exchange losses ¥4.3B, interest expense ¥1.2B), resulting in Ordinary Income of ¥487.6B (YoY +15.6%). Extraordinary Gains of ¥21.1B (gain on sale of investment securities ¥21.0B) were recorded, producing Profit Before Tax of ¥193.0B; however, high Income Taxes of ¥117.2B (effective tax rate 60.7%) led to Net Income of ¥390.5B (YoY -6.2%). Net income attributable to owners of the parent is estimated at approximately ¥385.6B after excluding non-controlling interests of ¥4.9B. Thus, while revenue and operating/ordinary income expanded, higher tax burden and the absence of recurring one-offs caused final-stage profit to decline YoY.
The Building Automation Business recorded Revenue of ¥1563.5B (YoY +5.1%), Operating Income of ¥289.0B (YoY +18.6%), and an Operating Margin of 18.5%, sustaining high profitability and serving as the main engine of consolidated operating profit. Projects for commercial buildings and production facilities (HVAC automatic control and security systems) were robust, and accumulated maintenance services for existing customers boosted margins. The Advanced Automation Business posted Revenue of ¥1107.3B (+3.6%), Operating Income of ¥178.0B (+11.3%), and Operating Margin of 16.1%, maintaining stable profitability, supported by continued demand for factory/plant control systems and sensors. In contrast, the Life Automation Business saw Revenue of ¥333.4B (-28.5%), Operating Income of ¥6.3B (-46.2%), and Operating Margin of 1.9%, suffering a sharp revenue and profit decline as weak demand for whole-house HVAC systems to housing manufacturers and poorer fixed-cost absorption pressured margins. Other businesses (insurance agency, etc.) were small at Revenue ¥9.3B and Operating Income ¥0.1B. The profitability gap across segments is notable: high margins in Building and Advanced Automation offset low margins in Life Automation, sustaining a consolidated Operating Margin of 13.7%.
[Profitability] Operating Margin 13.7% improved by 1.8pt from 10.5% in the prior-year period. ROE 15.3% (down from 17.9% prior year) was impacted by the decline in Net Income. Gross Profit Margin 100.1% reflects the nature of project revenue recognition, and SG&A ratio 66.1% improved YoY. [Cash Quality] Operating Cash Flow (OCF) ¥380.3B is approximately 0.97x Net Income, with OCF/Revenue ratio 27.3%, indicating strong cash generation. Free Cash Flow ¥315.6B sufficiently covers dividends and capex; OCF/EBITDA multiple is 1.45x (EBITDA ¥261.6B = Operating Income ¥191.0B + Depreciation & Amortization ¥70.6B used for estimation), and the accrual ratio is -7.7%, signifying sound cash backing of profits. [Investment Efficiency] ROA (on Ordinary Income basis) 15.1% improved from 13.4% prior year, Total Asset Turnover 0.420x, and Capex/Depreciation 0.80x suggests somewhat restrained investment. [Financial Soundness] Equity Ratio 77.1% (prior year 75.3%) is very high, with Current Ratio 371.3% and Quick Ratio 357.9% indicating ample liquidity. Debt/EBITDA 0.38x and Interest Coverage 160x imply low borrowing burden. Long-term borrowings increased to ¥50.7B (from ¥6.2B prior year, +¥44.5B), but cash and deposits of ¥952.6B (28.7% of total assets) limit practical financial risk.
Operating Cash Flow ¥380.3B (YoY -13.5%) was derived from Profit Before Tax ¥193.0B plus non-cash items such as Depreciation & Amortization ¥70.6B, adjusted for working capital changes including Accounts Receivable increase ¥27.5B, Trade Payables increase ¥0.6B, Inventories decrease ¥25.2B, and subtracting income taxes paid ¥145.0B. From an operating subtotal of ¥513.0B, after working capital changes and tax payments, Operating Cash Flow generated was ¥380.3B, representing 27.3% of Revenue and 0.97x of Net Income, demonstrating high cash conversion efficiency. Investing Cash Flow was -¥64.7B, primarily consisting of capital expenditures ¥56.5B, intangible asset investment ¥22.1B, and proceeds from sale of investment securities ¥23.2B, resulting in Free Cash Flow of ¥315.6B. Financing Cash Flow was -¥300.7B, mainly outflows from share buybacks ¥225.7B and dividend payments ¥128.4B, partially offset by long-term borrowings of ¥65.2B and roughly flat short-term borrowings, yielding a net increase in cash of ¥46.2B. Cash and cash equivalents at period-end were ¥979.3B, up from ¥926.4B prior year, further strengthening liquidity. Operating Cash Flow/Net Income 0.97x and OCF/EBITDA 1.45x corroborate high cash quality; working capital turnover days (CCC) of 213 days is somewhat long but acceptable given the project-oriented business model.
Earnings quality is supported by Ordinary Income ¥487.6B, which comprises Operating Income ¥191.0B plus Non-operating income ¥27.6B (dividend income ¥9.9B, foreign exchange gains ¥9.7B, interest income ¥3.5B) less Non-operating expenses ¥13.1B. Non-operating income is modest at 2.0% of Revenue, indicating the business remains driven by core operations. Extraordinary Gains ¥21.1B (gain on sale of investment securities ¥21.0B) temporarily boosted Net Income, but the divergence from Ordinary Income is mainly attributable to elevated tax burden (effective tax rate 60.7%). Operating Cash Flow ¥380.3B is 0.97x Net Income ¥390.5B and the accrual ratio -7.7% signals strong cash backing of earnings. Capex ¥56.5B is below Depreciation & Amortization ¥70.6B (Capex/Depreciation 0.80x), pointing to restrained renewal investment, while Free Cash Flow ¥315.6B comfortably covers dividend outflows ¥128.4B, supporting sustainability of cash generation. Comprehensive Income ¥466.3B exceeds Net Income ¥390.5B, including Other Comprehensive Income ¥75.8B (foreign currency translation adjustments ¥37.8B, net valuation gains on securities ¥37.4B, etc.), reflecting valuation gains that increased total equity. Overall, solid core operating earnings, stable non-operating income, appropriate identification of one-offs, and strong cash generation indicate high quality of earnings.
The full-year guidance is Revenue ¥3150.0B, Operating Income ¥497.0B, EPS ¥69.48, Dividend ¥31.00. The cumulative Q2 results (Revenue ¥1395.0B, Operating Income ¥191.0B) represent 44.3% progress on Revenue and 38.4% on Operating Income versus the full-year guidance. Considering seasonality with lower profits in Q1 and higher profits in Q4, the current progress is broadly within expected ranges. In the second half, accelerated order fulfillment in the main Building Automation and Advanced Automation businesses and accumulation of service revenue are expected to contribute to Operating Income growth. Recovery timing of demand in the Life Automation Business and improvement in working capital efficiency will be key to achieving second-half targets. The dividend guidance of ¥31 signals a continued policy of stable returns, and after accounting for a stock split the company maintains a de facto upward trend in dividends. The company intends to keep payout ratio in the 30% range and to execute share buybacks flexibly to balance growth investment and shareholder returns.
Annual dividend is ¥32 (interim ¥13, year-end ¥19), implying a Payout Ratio of 30.8%. Total dividend payout is approximately ¥128.4B (on issued shares excluding treasury stock), representing 2.46x coverage by Free Cash Flow ¥315.6B. Total return amount including share buybacks of ¥225.7B is ¥354.1B, yielding a Total Return Ratio of approximately 90.7% relative to Net Income. The ratio of total shareholder returns to Operating Cash Flow is 93.1%, a high level; however, sustainability is supported by abundant cash balances (cash & deposits ¥952.6B, net cash ¥852.0B). The dividend forecast for the fiscal year ending March 2027 is ¥31 (¥19 at Q2-end, year-end forecast ¥12, including a commemorative dividend of ¥12), maintaining a de facto dividend uptrend after considering the stock split. By maintaining payout in the 30% range and executing share buybacks opportunistically, the company aims to balance growth investment and shareholder returns.
Demand adjustment and margin pressure in the Life Automation Business: With Revenue ¥333.4B (YoY -28.5%), Operating Income ¥6.3B (YoY -46.2%), and Operating Margin 1.9%, continued weak performance poses the risk of prolonged sluggish demand for residential HVAC systems and deteriorated fixed-cost absorption diluting consolidated margins. If order declines persist long-term, restructuring of the business model may be required and portfolio rebalancing will become a strategic issue.
Cash tied up from deterioration in working capital efficiency: Days Sales Outstanding 169 days and CCC 213 days show elongation tendencies; progress delays in project execution, inspection delays, or extended collection terms could strain liquidity. If collection delays materialize for Contract Assets ¥176.9B and Accounts Receivable ¥644.9B, the pace of Operating Cash Flow generation could slow, constraining investment capacity and shareholder return flexibility.
Sustained high effective tax rate and dependence on one-off gains: Effective tax rate 60.7% rose YoY and Net Income fell despite recording Extraordinary Gains ¥21.1B. If structural tax factors (reversal of deferred tax assets, changes in tax rates, etc.) persist, operating and ordinary profit increases may not fully translate to Net Income, exerting downward pressure on EPS growth and ROE. Strengthening a recurring earnings base independent of one-off gains and optimizing tax strategy are priorities.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 13.7% | 7.8% (4.6%–12.3%) | +5.9pt |
| Net Margin | 28.0% | 5.2% (2.3%–8.2%) | +22.8pt |
Both Operating Margin and Net Margin substantially exceed the industry median, positioning the company as a high-return manufacturer.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | -0.5% | 3.7% (-0.4%–9.3%) | -4.2pt |
Revenue growth lags the industry median, indicating a relatively slower top-line expansion pace.
※Source: Company aggregation
Improved core profitability and strong Operating Cash Flow: Operating Margin 13.7% (YoY +1.8pt) and Operating Cash Flow ¥380.3B (27.3% of Revenue) show margin improvement and cash generation despite flat Revenue. High profitability in Building Automation and Advanced Automation underpins consolidated results, and strong cash backing is evidenced by OCF/Net Income 0.97x and an accrual ratio of -7.7%. If price revisions and accumulation of service revenue persist, achieving mid-15% Operating Margin is conceivable.
Profit normalization in Life Automation and improving working capital efficiency: Life Automation Revenue ¥333.4B (YoY -28.5%) and Operating Income ¥6.3B (YoY -46.2%) reflect large declines; the timing of demand recovery and margin normalization are key to second-half results. Shortening CCC 213 days and DSO 169 days would further enhance Operating Cash Flow generation, increasing flexibility for dividends, investments, and shareholder returns. Revising contract terms and strengthening collection management to improve working capital efficiency are important for medium-term cash generation.
Aggressive returns with Total Return Ratio over 90% balanced by financial resilience: With share buybacks ¥225.7B and dividends ¥128.4B, total returns ¥354.1B (Total Return Ratio approx. 90.7%) are aggressive, while cash & deposits ¥952.6B, Debt/EBITDA 0.38x, and Interest Coverage 160x indicate robust financial health. If second-half Operating Cash Flow increases and full-year guidance is met, dividend stability and buyback capacity should remain well supported; normalization of effective tax rate and reduced dependence on one-offs would broaden scope for sustained total returns.
This report is an earnings analysis document automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company from public financial statements. Investment decisions should be made at your own responsibility, and, if necessary, after consulting a professional advisor.