Daiei Kankyo (9336) FY2026 Q3 Earnings Report

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Executive Summary

The Company reported higher revenue but lower profit for the period, as business expansion through the conversion of major entities into consolidated subsidiaries progressed alongside rising costs. Revenue was ¥625.4B (¥589.1B in the same period of the previous year, +6.1%), Operating Income was ¥146.2B (¥156.8B in the previous year, -6.7%), Ordinary Income was ¥148.6B (¥157.2B in the previous year, -5.5%), and Net Income was ¥100.2B (¥105.6B in the previous year, -5.1%). Revenue growth was driven by the Environmental-Related Business, but increases in the cost of sales and selling, general and administrative expenses exceeded the revenue growth rate, causing the Operating Income margin to decline to 23.4% from 26.6% in the previous year.

Factors Affecting Results

【Revenue】Revenue was ¥625.4B, up +6.1% year on year. External revenue from the Environmental-Related Business was ¥606.1B (¥568.9B in the previous year, +6.5%), driving consolidated revenue, while Other Businesses (Valuable Resources Recycling and Sports Promotion) recorded ¥19.2B, representing a year-on-year decline. The primary factor behind the revenue increase was the expansion of the business base through the conversion of Hizen Kankyo, Scarab Sacré Co., Ltd., and four other companies into consolidated subsidiaries.

【Profit and Loss】Operating Income was ¥146.2B, down -6.7% year on year. The cost of sales increased to ¥361.6B (+9.5%), while selling, general and administrative expenses increased to ¥117.5B (+15.2%); both grew at rates exceeding the 6.1% revenue growth rate, putting pressure on the Operating Income margin. The segment profit margin of the Environmental-Related Business was 24.5%, down from 28.0% in the previous year. Ordinary Income was ¥148.6B, with improved non-operating income and expenses, including a foreign exchange gain of ¥2.8B, partially offsetting the decline in Operating Income. Net Income was ¥100.2B (¥99.1B attributable to owners of the parent). Extraordinary income of ¥6.6B, including a gain on the sale of investment securities of ¥4.9B, and extraordinary losses of ¥5.4B substantially offset each other, limiting their impact on net income. In conclusion, the period was characterized by higher revenue but lower profit, with costs increasing faster than profit.

Segment Analysis

The Environmental-Related Business accounted for the core of consolidated profit, with revenue of ¥606.9B (97.0% of the total), Operating Income of ¥148.7B, and a profit margin of 24.5%. The margin declined from the segment profit margin of 28.0% in the same period of the previous year, confirming that pressure on profitability from rising costs was concentrated in this core segment. Other Businesses (Valuable Resources Recycling and Sports Promotion) recorded revenue of ¥19.2B and a segment loss of ¥1.9B, deteriorating from the ¥1.8B loss in the previous year.

Key Financial Indicators

【Profitability】The Operating Income margin of 23.4% and Net Income margin of 16.0% (based on net income attributable to owners of the parent) both declined from the previous year, but the Company continues to maintain high profitability in absolute terms. The gross margin was 42.2%, down from 43.9% in the previous year, indicating that higher costs affected margins.【Cash Quality】Extraordinary income of ¥6.6B, including a ¥4.9B gain on the sale of investment securities, contributed to Net Income, but was largely offset by extraordinary losses of ¥5.4B, resulting in only a limited net impact from special factors.【Investment Efficiency】ROE was 12.3%; changes in capital efficiency accompanying the rapid expansion of assets and goodwill will be a key point to monitor going forward.【Financial Soundness】The Equity Ratio was 42.3%, and cash and deposits stood at ¥473.4B, providing a solid liquidity position. Long-term borrowings increased significantly year on year to ¥984.9B, reflecting financing associated with major acquisitions.

Cash Flow Analysis

Although detailed data from the cash flow statement were not presented in this earnings release, fund movements can be assessed from changes in the balance sheet. Cash and deposits declined to ¥473.4B from ¥514.8B in the previous year, suggesting that investment expenditures associated with the conversion of major entities into consolidated subsidiaries and financing activities involving increased borrowings were undertaken. Long-term borrowings increased 91.5% year on year to ¥984.9B and are considered to have been utilized as a means of financing acquisitions. Property, plant and equipment increased substantially to ¥1300.3B, intangible assets to ¥333.9B, and goodwill to ¥329.1B, indicating an expansion of investment activity on the asset side, while the capital structure became more dependent on debt.

Quality of Earnings

Of pre-tax income of ¥149.7B, extraordinary income of ¥6.6B—primarily the ¥4.9B gain on the sale of investment securities—is a non-recurring factor and should be evaluated separately from recurring earnings power. Meanwhile, extraordinary losses of ¥5.4B, including a ¥1.5B loss on disposal of fixed assets, were recorded, limiting the net contribution of extraordinary gains and losses to ¥1.1B; therefore, the impact of temporary factors on Net Income was limited. Non-operating income included a foreign exchange gain of ¥2.8B, interest income of ¥1.6B, and dividend income of ¥0.9B, while interest expense of ¥4.8B was the main non-operating expense. Comprehensive income was ¥102.0B, and the difference from net income attributable to owners of the parent of ¥99.1B was mainly attributable to other comprehensive income, including valuation differences on securities of ¥2.2B. The gap between the two was small, supporting an assessment that earnings quality was generally stable.

Earnings Forecast and Guidance

The full-year plan calls for revenue of ¥839.0B (+4.6% year on year), Operating Income of ¥218.0B (+1.2%), and Ordinary Income of ¥216.0B (+0.5%). The Q3 cumulative progress rates were 74.5% for revenue, 67.1% for Operating Income, and 68.8% for Ordinary Income. While revenue is progressing broadly as planned, Operating Income and Ordinary Income are below the standard progress benchmark of approximately 75%. To achieve the full-year plan, Q4 will require Operating Income of ¥71.8B and a quarterly Operating Income margin of 33.6%, a significant gap from the cumulative actual margin of 23.4%. Contributions to profit from acquired companies and progress in absorbing costs will be key to achieving the full-year plan.

Shareholder Returns

The full-year forecast dividend per share is ¥49.00, of which ¥24.50 was paid in Q2, equivalent to 50.0% of the full-year forecast. The forecast Payout Ratio against the Company’s forecast EPS of ¥146.19 is approximately 33.5%, calculated using dividends alone as the numerator. The Payout Ratio is below the level generally regarded as a guideline for sustainability, and, against the backdrop of accumulated retained earnings of ¥824.1B, the Company continues to maintain dividend capacity from an earnings perspective. However, as long-term borrowings have increased due to major acquisitions, discipline in future capital allocation will also affect the sustainability of shareholder returns.

Risk Factors

1. Goodwill and acquisition integration risk: Goodwill was ¥329.1B, equivalent to 30.2% of net assets. Of this amount, approximately ¥300.4B related to Scarab Sacré Co., Ltd., the principal source of the goodwill, and the purchase price allocation remains provisional. If integration progress or post-acquisition performance falls below plan, the risk of future impairment could materialize.

2. Rising financial leverage: Long-term borrowings increased 91.5% year on year to ¥984.9B, reflecting acquisition financing. Although the current interest burden is limited, changes in the interest-rate environment or failure of acquired companies to meet earnings targets could increase the leverage burden.

3. Declining profitability in the Environmental-Related Business: The segment profit margin of the core Environmental-Related Business was 24.5%, down 349bp from 28.0% in the previous year. If increases in processing costs, personnel expenses, and other costs cannot be passed on through selling prices, recovery in profitability could be delayed.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s profitability substantially exceeds the industry median, with both its Operating Income margin and Net Income margin ranking at high levels within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate was slightly below the industry median, placing the Company around the middle of the industry in terms of growth.

※Source: Compiled by the Company

Key Points in the Earnings Release

1. The higher-revenue, lower-profit structure resulted from both the expansion of the Environmental-Related Business and the fact that the pace of increases in costs of sales and selling, general and administrative expenses exceeded revenue growth. Whether the declining trend in the Operating Income margin is temporary or structural can be assessed by monitoring cost absorption from the next period onward.

2. The conversion of major entities into consolidated subsidiaries led to sharp increases in goodwill to ¥329.1B and long-term borrowings to ¥984.9B, significantly changing the asset base and capital structure. Progress in earnings contributions from acquired companies and the finalized details of the purchase price allocation will be key areas of focus in future earnings disclosures.

3. The progress rate of Operating Income against the full-year plan was 67.1%, below the revenue progress rate of 74.5%; the degree of profitability improvement in Q4 will be an important basis for assessing achievement of the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,194–¥1,265 at Cost of Equity ±1%; ¥1,225–¥1,234 at ω±0.1.

Notes:

• Goodwill represents a high proportion of net assets, and the assumptions would change substantially if impairment were recognized.
• Net assets as of the quarter-end were 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.

（Valuation 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 predict or guarantee future share prices）

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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 discretion and responsibility, after consulting with professionals as necessary.

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