NIPPON KANZAI Holdings Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

The Company posted higher revenue and earnings for the quarter, with the expansion of its core Building Management Operations and Residential Management Operations businesses driving profit growth. Revenue amounted to ¥383.9B (+9.3% YoY), Operating Income was ¥31.3B (+14.8%), Ordinary Income was ¥32.3B (+5.3%), and Net Income (consolidated, before deduction of non-controlling interests) was ¥24.9B (+18.6%). The gross margin improved by +1.36pt, absorbing the increase in SG&A expenses (+13.9%) and raising the growth rate at the operating-income level, while the contraction in non-operating income slowed the growth of Ordinary Income. Net Income attributable to owners of the parent was ¥23.4B (+20.4%), and EPS was ¥64.42.

Factors Affecting Performance

【Revenue】Revenue of ¥383.9B (+9.3% YoY) increased across all 4 segments. The core Building Management Operations business grew to ¥241.3B (+8.7%, 62.8% of revenue), while Residential Management Operations increased to ¥88.9B (+13.3%, 23.2% of revenue), with the two segments accounting for the majority of the increase in revenue. Environmental Facilities Management (¥39.2B, +5.0%) and Real Estate Fund Management (¥8.1B, +7.0%) also continued to post revenue growth.

【Profit and Loss】Operating Income of ¥31.3B (+14.8%) resulted from an improvement in the gross margin to 31.9% (30.5% in the previous year, +1.36pt), which absorbed the increase in SG&A expenses (¥91.1B, +13.9%). Ordinary Income, however, was limited to ¥32.3B (+5.3%), as non-operating income declined sharply to ¥1.8B (¥4.1B in the previous year), causing the Ordinary Income margin to decline to 8.40% (8.72% in the previous year). Extraordinary income of ¥0.4B (gain on sale of investment securities) was a temporary factor, and its contribution to recurring earnings was limited. Consolidated Net Income reached ¥24.9B (+18.6%), also benefiting from a decline in the effective income tax rate (23.9%, compared with 31.5% in the previous year). In conclusion, the Company posted higher revenue and earnings.

Segment Analysis

Building Management Operations generated revenue of ¥241.3B (+8.7%), Operating Income of ¥25.5B (+10.2%), and a profit margin of 10.6%, serving as the core contributor to Company-wide profit. Residential Management Operations posted a significant increase in earnings, with Operating Income rising 48.5% to ¥7.6B against revenue of ¥88.9B (+13.3%); its earnings increase of +¥2.47B accounted for more than half of the Company-wide earnings increase (+¥4.05B). Environmental Facilities Management maintained a high profit margin of 19.0%, but Operating Income declined 7.4% to ¥7.5B, confirming the volatility of this segment. Real Estate Fund Management was small in scale but the most profitable segment, with a profit margin of 21.7% and Operating Income growing 21.2% to ¥1.8B. Overall, the earnings growth of the Building and Residential Management businesses (combined +¥4.82B) offset the earnings decline in Environmental Facilities Management and other businesses (combined -¥1.29B), driving the Company-wide increase in earnings.

Key Financial Indicators

【Profitability】The Operating Income margin improved by +0.4pt to 8.2% (7.8% in the previous year), while the Net Income margin (on a consolidated basis) rose to 6.5% (6.0% in the previous year). The primary factor was the improvement in the gross margin to 31.9% (30.5% in the previous year), suggesting the effects of price revisions and an improved project mix.【Cash Flow Quality】ROE was 3.2% (based on profit attributable to owners of the parent), a level calculated against a conservative capital structure with an Equity Ratio of 74.2%.【Investment Efficiency】The total asset turnover ratio remained low (approximately equivalent to 1.5x on an annualized revenue/total assets basis), as the substantial asset base, including cash of ¥356.0B and investment securities of ¥134.1B, depressed the turnover ratio.【Financial Soundness】The Company maintained a high level of financial safety, with a current ratio of 387.9% (current assets of ¥670.8B/current liabilities of ¥172.9B) and a debt-to-equity ratio of 0.35x (total liabilities of ¥270.2B/net assets of ¥777.3B).

Cash Flow Analysis

As direct data from the statement of cash flows is not included, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits amounted to ¥356.0B, down ¥17.9B from ¥373.9B in the same period of the previous year. The primary factor was a ¥30.6B decrease in accounts payable (from ¥91.0B to ¥60.4B, -33.6%), suggesting that shorter payment terms or changes in the composition of purchases and outsourcing absorbed funds through working capital. Meanwhile, accounts receivable amounted to ¥182.4B, down ¥18.9B from ¥201.4B in the previous year, which instead contributed to cash generation through collections. Investment securities increased to ¥134.1B (+¥4.6B), and the allocation of a portion of surplus funds to securities investments is also considered to have contributed to the decrease in cash. With the burden of capital expenditures not being substantial given the nature of the business, the management of changes in working capital, particularly accounts payable, will determine future cash-generation capacity.

Quality of Earnings

Recurring earnings constituted the primary source of profit, while non-operating income of ¥1.8B (0.47% of revenue) and extraordinary income of ¥0.4B (gain on sale of investment securities) were both small in scale and represented limited, temporary impacts on Net Income. The gap between Ordinary Income of ¥32.3B and consolidated Net Income of ¥24.9B is largely explained by income taxes of ¥7.8B (effective tax rate of 23.9%, down from 31.5% in the previous year) and profit attributable to non-controlling interests of ¥1.5B. Comprehensive income was ¥30.5B, ¥5.6B above Net Income, with the difference attributable to valuation-related OCI items, including foreign currency translation adjustments (+¥2.0B), valuation difference on securities (+¥1.7B), and the share of OCI of equity-method affiliates (+¥1.9B). In the same period of the previous year, OCI items were broadly negative and comprehensive income was limited to ¥15.2B. Accordingly, comprehensive income increased substantially by +99.9% YoY, with improvements in OCI adding to the growth in Net Income during the current period.

Earnings Forecast and Guidance

Progress against the full-year plan in Q1 was 24.3% for revenue (¥383.9B/¥1,580.0B), 34.8% for Operating Income (¥31.3B/¥90.0B), 29.9% for Ordinary Income (¥32.3B/¥108.0B), and 32.0% for Net Income (based on profit attributable to owners of the parent) (¥23.4B/¥73.0B). Compared with the simple time-apportionment benchmark of 25%, progress for Operating Income and Net Income was ahead, confirming a start that is progressing at a pace above plan in terms of profitability. Neither the earnings forecast nor the dividend forecast was revised during the quarter.

Shareholder Returns

The full-year dividend forecast is ¥60 per share, representing a Payout Ratio of 29.9% against forecast EPS of ¥200.99. No revision was made to the dividend forecast, and the financial base of cash and deposits of ¥356.0B and an Equity Ratio of 74.2% provides stable support for dividends. The Company holds 4.859 million treasury shares, but no disclosure was made regarding additional share repurchases or similar measures during the current period. The current shareholder return policy is therefore centered on dividends.

Risk Factors

1. Segment concentration risk: Building Management Operations accounts for 62.8% of revenue (¥241.3B/¥383.9B), meaning that price competition and rising labor costs in this business area could have a significant impact on Company-wide performance.

2. Earnings volatility due to the decline in non-operating income: Non-operating income declined 55.3% to ¥1.8B from ¥4.1B in the previous year, causing the Ordinary Income margin to decline to 8.40% (8.72% in the previous year). Non-recurring fluctuations, such as fee income, may affect the future volatility of Ordinary Income.

3. Cash flow pressure from working capital fluctuations: Accounts payable declined 33.6% YoY to ¥60.4B, requiring monitoring of the impact of changes in payment terms on short-term liquidity. The fact that SG&A expenses are growing (+13.9%) faster than revenue (+9.3%) should also be noted as a potential factor contributing to lower operating leverage going forward.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceed the industry median, placing the Company’s profitability in a relatively favorable position within the industry.

Growth and Capital Efficiency

The revenue growth rate is broadly in line with the industry median, representing a standard pace of growth.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. The improvement in the gross margin by +1.36pt from the previous year, which absorbed the increase in SG&A expenses (+13.9%) and lifted the Operating Income margin to 8.2%, is noteworthy as a change in the earnings structure accompanied by price revisions and an improved project mix.

2. Q1 progress against the full-year plan was 34.8% for Operating Income and 32.0% for Net Income, exceeding the simple time-apportionment benchmark of 25% and indicating a start that is progressing at a pace above plan in terms of profitability.

3. While accounts payable declined 33.6% YoY, accounts receivable declined by approximately 8.6% over the same period (from ¥201.4B to ¥182.4B). The impact of changes in working capital on future cash-generation capacity will therefore be an area to monitor.

Theoretical Share Price (For Reference)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type, explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,085–¥2,207 at ±1% for the cost of equity, and ¥2,144–¥2,145 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).
• As non-controlling interests are included in net assets, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast 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 report 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 professionals as necessary.

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