METAWATER Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Although revenue continued to increase, both operating and ordinary losses widened due to negative operating leverage, with SG&A expenses growing faster than revenue. Revenue was ¥37.68B (¥33.05B in the previous year, YoY +14.0%), Operating Income was ¥-0.91B (¥-0.60B in the previous year), and Ordinary Income was ¥-0.86B (¥-0.67B in the previous year), with losses widening year on year in each case. Meanwhile, Net Income attributable to owners of the parent was ¥-0.71B (¥-1.00B in the previous year, YoY +29.1%), with the loss narrowing partly due to the effect of corporate income taxes. The primary driver of revenue growth was the expansion of the International segment (+25.3%), while the main factor behind the deterioration in profitability was the increase in SG&A expenses (+24.5%).

Factors Affecting Financial Performance

【Revenue】Revenue increased 14.0% year on year to ¥37.68B. The main growth driver was International, which generated ¥14.78B (+25.3%) and became the largest segment, accounting for 39.2% of company-wide revenue. Environmental Engineering generated ¥9.50B (+11.0%), System Solution generated ¥7.27B (+5.3%), and Operation generated ¥6.13B (+5.6%), with all four segments securing revenue growth.

【Profit and Loss】The gross profit margin improved to 22.3% from 20.8% in the previous year, an improvement of +150bp, suggesting progress in project mix and cost management. However, SG&A expenses increased to ¥9.32B (¥7.49B in the previous year, +24.5%), causing the SG&A-to-revenue ratio to rise to 24.7% (+209bp from 22.7% in the previous year). Consequently, Operating Income was ¥-0.91B, with the loss widening from ¥-0.60B in the previous year. Below operating income, foreign exchange gains of ¥0.13B and dividend income of ¥0.10B provided support, limiting the Ordinary Loss to ¥-0.86B. No extraordinary gains or losses were recorded, and the impact of temporary factors on earnings was limited. Net Income attributable to owners of the parent was ¥-0.71B; corporate income taxes were ¥-0.25B (a negative tax expense), which contributed to the narrowing of the loss and represented an improvement from ¥-1.00B in the previous year. Overall, the current period was characterized by higher revenue and lower earnings, with losses widening at both the operating and ordinary income levels.

Segment Analysis

International recorded revenue of ¥14.78B (+25.3%), Operating Income of ¥0.72B (¥0.88B in the previous year, YoY -18.4%), and a profit margin of 4.8%. Although revenue increased, its profit margin declined year on year; nevertheless, it remains the only and largest segment contributing positive earnings. Operation recorded revenue of ¥6.13B (+5.6%), Operating Income of ¥0.24B (¥0.11B in the previous year, YoY +111.5%), and a profit margin of 3.9%, widening its profit and demonstrating progress toward earnings stabilization. By contrast, System Solution recorded revenue of ¥7.27B (+5.3%) and an Operating Loss of ¥-1.14B (¥-1.17B in the previous year, YoY +2.3%), with a profit margin of -15.7%, continuing to be the segment placing the greatest pressure on company-wide profitability. Environmental Engineering recorded revenue of ¥9.50B (+11.0%), while its Operating Loss widened to ¥-0.73B (¥-0.43B in the previous year, YoY -70.3%), and its profit margin deteriorated to -7.7%. The combined profit of the two profitable segments (International and Operation) was ¥0.96B, while the combined loss of the two loss-making segments (System Solution and Environmental Engineering) was ¥-1.87B, resulting in the company-wide Operating Loss of ¥-0.91B.

Key Financial Indicators

【Profitability】The Operating Income margin deteriorated further to -2.4% from -1.8% in the previous year, while the gross profit margin improved to 22.3% from 20.8%, an improvement of +150bp. This indicates that improvements in costs were offset by the increase in SG&A expenses.【Cash Quality】The Ordinary Loss of ¥-0.86B was supported to a certain extent by non-operating income, including foreign exchange gains of ¥0.13B and dividend income of ¥0.10B, indicating that underlying profitability at the operating level remains weak.【Investment Efficiency】ROE was -0.7%, reflecting Net Income attributable to owners of the parent of ¥-0.71B and the level of equity. Evaluation should take into account the seasonality of Q1, when capacity utilization is low.【Financial Soundness】The Equity Ratio improved to 44.0% from 42.7% in the previous year (94,150/220,292), while the current ratio remained high at 208.7%, based on current assets of ¥148.88B and current liabilities of ¥71.34B. Cash and deposits were ¥59.37B, substantially exceeding interest-bearing debt of ¥25.02B, consisting of long-term borrowings of ¥5.02B and bonds of ¥20.00B.

Cash Flow Analysis

As the cash flow statement was not disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased substantially to ¥59.37B, up ¥32.11B (+117.8%) from the end of the previous fiscal year, while accounts receivable and notes receivable decreased significantly to ¥62.12B, down ¥47.81B (-43.5%). Progress in project acceptance and the collection of billed receivables appears to have been the primary driver of the increase in cash. Accounts payable and notes payable fell by half to ¥14.79B, down ¥14.57B (-49.6%), potentially indicating that payments served as a cash outflow factor. Contract liabilities increased to ¥27.90B from ¥19.49B in the previous year, up ¥8.41B (+43.1%), confirming an accumulation of advance payments and milestone receipts. Property, plant and equipment increased to ¥18.59B from ¥13.59B in the previous year, up ¥5.00B, indicating progress in capital investment. Overall, the collection of accounts receivable and the increase in contract liabilities have pushed up cash levels, and a funding base to support revenue recognition and monetization in the second half is being established.

Earnings Quality

No extraordinary gains or losses were recorded during the period, and the Ordinary Loss of ¥-0.86B was equal to Profit Before Tax of ¥-0.86B, meaning that the earnings structure can be explained solely by ordinary items. Of non-operating income of ¥0.29B, foreign exchange gains of ¥0.13B and dividend income of ¥0.10B were the major components. Their role in reducing the Operating Loss from ¥-0.91B to an Ordinary Loss of ¥-0.86B should be noted as an indication that non-operating factors are compensating for weak operating profitability. Against Net Income attributable to owners of the parent of ¥-0.71B, comprehensive income attributable to owners of the parent turned positive at ¥0.16B. The gap between the two was mainly attributable to foreign currency translation adjustments of +¥0.71B (¥-1.15B in the previous year), as the yen translation of overseas subsidiaries boosted comprehensive income. From an accrual perspective, the simultaneous substantial decrease in accounts receivable (-¥47.81B) and increase in contract liabilities (+¥8.41B) suggest that revenue recognition supported by cash flows may be progressing.

Earnings Forecast and Guidance

The full-year company forecasts are Revenue of ¥240.0B (YoY +14.4%), Operating Income of ¥15.00B (YoY +16.5%), and Ordinary Income of ¥14.50B (YoY +10.1%). Actual Q1 revenue represented 15.7% progress against the full-year forecast. As both Operating Income and Ordinary Income were negative for the current period, progress rates against the full-year plan were negative, substantially below the simple quarterly run-rate benchmark of 25%. The company made no revisions to its earnings or dividend forecasts during the quarter, and the plan appears to assume earnings recognition weighted toward the second half, based on the accumulation of contract liabilities (+43.1%).

Shareholder Returns

The company’s full-year dividend forecast is ¥40.00 per share, representing an increase from ¥35 in the previous year. The Payout Ratio against the company’s forecast EPS of ¥229.04 is approximately 17.5% (¥40.00/¥229.04), a conservative level. Although Net Income attributable to owners of the parent was negative at ¥-0.71B in Q1, the company has sufficient funding for dividend payments under the full-year plan, given its financial base of cash and deposits of ¥59.37B and an Equity Ratio of 44.0%. No revision was made to the dividend forecast during the quarter.

Risk Factors

1. Project Progress and Revenue Recognition Timing Risk: While accounts receivable and notes receivable decreased 43.5% from the end of the previous fiscal year, contract liabilities increased 43.1%, indicating a structure in which revenue and profit recognition are weighted toward the second half. Achievement of the plan depends on acceptance and progress management proceeding as expected.

2. Segment Profitability Risk: Operating losses continue in System Solution (profit margin of -15.7%) and Environmental Engineering (profit margin of -7.7%, deteriorating by -70.3% year on year), serving as the primary factors depressing the company-wide Operating Income margin of -2.4%. If profitability improvements in both segments are delayed, they could weigh on achievement of the full-year plan.

3. Dependence on Non-Operating Income and Interest Burden: The Ordinary Loss of ¥-0.86B was supported to a certain extent by non-operating income such as foreign exchange gains of ¥0.13B and dividend income of ¥0.10B. The ratio of Operating Income (¥-0.91B) to interest expense (¥0.14B) is therefore substantially negative. The impact of foreign exchange fluctuations accompanying the rising dependence on International is also a factor requiring attention in assessing earnings volatility.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (utilities)

Profitability and Returns

Profitability is substantially below the industry median in both Operating Income margin and Net Profit margin, placing the company toward the lower end of the industry.

Growth and Capital Efficiency

The Revenue Growth Rate exceeds the industry median, indicating relatively high top-line growth within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. SG&A expenses increased +24.5% against Revenue growth of +14.0%, causing the Operating Loss to widen year on year due to negative operating leverage. The gross profit margin improved by +150bp, indicating that the primary cause of the deterioration in profitability lies in the cost structure.

2. Contract liabilities increased +43.1% from the end of the previous fiscal year to ¥27.90B, building a foundation to support revenue and earnings recognition in the second half. In evaluating progress against the full-year plan, it is important to understand the allocation of results over the period in light of this advance-payment structure.

3. The International segment accounted for 39.2% of the revenue mix and supported company-wide earnings as the only major profitable segment. At the same time, Operating Losses continued in System Solution and Environmental Engineering, highlighting pronounced earnings dispersion within the business portfolio.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥2,198–¥2,330 at a ±1% change in the Cost of Equity, and ¥2,259–¥2,267 at a change of ±0.1 in 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 net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee future share prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. 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 a professional as necessary.

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