METAWATER (9551) FY2026 Q3 Earnings Report

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Executive Summary

The key highlight for the quarter was the return to profitability from an operating loss in the same period of the previous year, marking a recovery phase characterized by both higher revenue and improved profitability. Revenue was ¥122.98B (+24.9% year on year), Operating Income was ¥3.25B (versus a ¥0.35B loss in the previous year), Ordinary Income was ¥3.65B (versus a ¥0.34B loss in the previous year), and Net Income was ¥2.55B (versus a ¥0.65B loss in the previous year). Substantial increases in revenue and profit in the Overseas Business and the return to profitability of the Environmental Engineering Business were the main drivers. However, the System Solutions Business remained loss-making, and the company-wide profit margin remained thin at 2.6%.

Factors Affecting Earnings

【Revenue】Revenue was ¥122.98B, an increase of +24.9% year on year, with all segments posting higher revenue. The Overseas Business in particular grew significantly, increasing +60.7%, primarily due to strong sales of core products by subsidiaries in North America and Europe. The Environmental Engineering Business also contributed, increasing +22.5% due to progress on large-scale construction projects.

【Profit and Loss】Operating Income turned from a ¥0.35B loss in the previous year to a ¥3.25B profit. The gross profit margin improved by +2.8pt from 19.5% to 22.3%, while the SG&A expense ratio declined from 19.9% to 19.7%, supporting the improvement in profitability. Ordinary Income increased to ¥3.65B, bolstered by non-operating income, including a ¥0.41B foreign exchange gain; however, the foreign exchange gain was strongly temporary in nature. Net extraordinary income was ¥0.08B, mainly comprising a ¥0.09B gain from the revision of the retirement benefit plan, and its impact on profit before tax was limited. Net Income was ¥2.55B after deducting ¥1.18B in income taxes and other taxes and ¥0.26B in profit attributable to non-controlling interests from profit before tax of ¥3.72B (of which ¥2.28B was attributable to owners of the parent). In conclusion, the company achieved higher revenue and higher profit.

Segment Analysis

The Overseas Business was the largest segment by revenue mix (¥41.13B, 33.4% of total revenue) and is positioned as the core business. It was also the largest profit contributor, generating Operating Income of ¥3.40B, an increase of +192.2% year on year and the largest driver of company-wide profit growth. The Environmental Engineering Business turned from an operating loss of ¥0.09B in the previous year to an operating profit of ¥1.37B, making a significant contribution to profit growth. Meanwhile, the System Solutions Business generated revenue of ¥28.83B but recorded an operating loss of ¥2.15B, offsetting profits from other segments. The Operations Business generated Operating Income of ¥0.62B, a decline of -27.5% year on year, due to low-margin projects and depreciation expenses. Profit margins vary significantly among segments: 8.3% for the Overseas Business versus negative 7.5% for the System Solutions Business, highlighting the imbalance in the earnings structure.

Key Financial Indicators

Profitability: ROE (annualized) was 4.0%, and the Operating Income margin was 2.6%.
Cash quality: Although detailed Operating Cash Flow (OCF) data has not been provided at this point, Contract Liabilities increased by ¥9.31B against Net Income of ¥2.55B, indicating that advances received in connection with project execution are supporting cash generation.
Financial soundness: The Equity Ratio was 43.7%, and the Current Ratio was 233.9% (current assets of ¥145.01B / current liabilities of ¥61.99B), indicating a sound level of short-term payment capacity.

Cash Flow Analysis

Cash and deposits were ¥39.58B, an increase from ¥36.28B in the same period of the previous year. Contract Liabilities rose substantially to ¥22.25B (+¥9.31B year on year, +71.9%), with the increase in advances received supporting liquidity. Meanwhile, work in progress increased significantly to ¥11.41B from ¥1.50B in the previous year, tying up funds in ongoing projects. Cash and deposits of ¥39.58B exceeded interest-bearing debt comprising ¥20.00B in bonds and ¥5.02B in long-term borrowings, placing the company effectively in a net cash position. Cash generation is assessed as slightly stronger than standard; however, changes in working capital, including work in progress and accounts receivable, require continued monitoring.

Quality of Earnings

The difference between Ordinary Income of ¥3.65B and Net Income of ¥2.55B (¥2.28B attributable to owners of the parent) reflects deductions of ¥1.18B in income taxes and other taxes and ¥0.26B in profit attributable to non-controlling interests. The gap is primarily attributable to the tax burden and non-controlling interests and is not a temporary factor. Non-operating income of ¥0.86B represented only 0.7% of revenue; however, foreign exchange gains of ¥0.41B accounted for approximately 48% of this amount and are a volatile item. Net extraordinary income was small at ¥0.08B, limiting its impact on overall profit. Comprehensive Income was ¥1.78B, below Net Income of ¥2.55B, primarily due to foreign currency translation adjustments of -¥0.95B.

Earnings Forecast and Guidance

Progress against the full-year forecast (Revenue of ¥210.0B, Operating Income of ¥13.0B, and Ordinary Income of ¥12.8B) was 58.6% for Revenue, 25.0% for Operating Income, and 28.5% for Ordinary Income, substantially below the standard progress benchmark of 75%. However, the company’s business model is characterized by the concentration of project completion and acceptance in Q4, and a similar trend has been observed in past results. Achieving the full-year forecast will require approximately ¥87.0B in revenue and approximately ¥9.75B in Operating Income in Q4, equivalent to a profit margin of approximately 11.2%, requiring a significant improvement from the cumulative 2.6% recorded for the current period. The order backlog was ¥379.57B (+¥35.87B from the end of the previous fiscal year), approximately 1.8 times the full-year revenue forecast of ¥210.0B, providing a certain level of visibility into future revenue. No revision to the forecast was made during the quarter.

Shareholder Returns

The dividend remains unchanged at ¥35.00 per share for the interim dividend and ¥70.00 per share for the full-year forecast (assuming a year-end dividend of ¥35.00). Based on forecast Net Income attributable to owners of the parent of ¥8.90B, the forecast Payout Ratio is approximately 34%. As no share repurchase has been identified in the disclosed data, shareholder returns are evaluated based solely on the dividend Payout Ratio.

Catalysts

【Short term】Progress in the completion and acceptance of large-scale construction projects and other projects in Q4, as well as progress toward achieving the full-year Operating Income plan of ¥13.0B.

【Long term】The accumulation of the ¥379.57B order backlog, the establishment of an earnings base through long-term operating projects such as the Ube City concession business (30 years, commencing in April 2026), and the sustainability of overseas business expansion through M&A in North America and Europe (SBI and E&P).

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (utilities)

Profitability and Return

Comparative data for the company’s profitability indicators against the industry median has not been prepared. In absolute terms, the company has a low-margin structure with profit margins in the 2% range.

Growth and Capital Efficiency

The revenue growth rate is high, supported by the expansion of the Overseas Business; however, comparative data against the industry median has not been prepared.

※Source: Compiled by the company

Risk Factors

1. Continued losses in the System Solutions Business: The business recorded an operating loss of ¥2.15B and a negative profit margin of 7.5%, offsetting profits from other segments. The emergence of additional unprofitable projects or delays in project acceptance could put pressure on company-wide profit.

2. Working capital accumulation: Work in progress increased significantly to ¥11.41B from ¥1.50B in the same period of the previous year, while accounts receivable remained high at ¥71.04B. The tying up of funds as projects progress and uncertainty regarding cost estimates require ongoing monitoring.

3. Concentration of the profit plan in Q4: Cumulative progress toward the full-year Operating Income plan of ¥13.0B was only 25.0%, requiring a sharp improvement in the Q4 profit margin to approximately 11.2% to achieve the plan. Execution risk remains.

Key Points from the Earnings Results

1. The return to profitability from an operating loss in the same period of the previous year was driven by a +2.8pt improvement in the gross profit margin and a decline in the SG&A expense ratio, confirming a structural change whereby revenue growth led to improved profitability through fixed-cost absorption.

2. The Overseas Business demonstrated the highest profitability across the company, with Operating Income of ¥3.40B and a profit margin of 8.3%. The return to profitability of the Environmental Engineering Business is also advancing a shift in the core businesses within the profit composition.

3. The ¥379.57B order backlog has reached approximately 1.8 times the full-year revenue forecast, strengthening the outlook for future revenue. At the same time, the increase in Contract Liabilities also signifies an increase in performance obligations, underscoring the importance of cost and progress management.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,980–¥2,096 at ±1% for the cost of equity, and ¥2,035–¥2,040 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit five-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 integrated analysis of XBRL earnings summary data and PDF earnings presentation materials. 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 a professional as necessary.

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