KYORITSU MAINTENANCE CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Although the Company secured an increase in profit at the operating level during the current period, Ordinary Income and Net Income declined, indicating that non-operating factors weighed on results from the perspective of earnings quality. Revenue increased to ¥611.4B (¥568.1B in the same period of the previous year, +7.6%), while Operating Income rose to ¥48.6B (¥45.0B in the previous year, +8.2%), resulting in higher revenue and operating profit. However, Ordinary Income declined to ¥48.1B (¥50.1B in the previous year, -3.9%), and Net Income fell to ¥30.4B (¥36.0B in the previous year, -15.5%). The deterioration from the Ordinary Income level onward was primarily attributable to an increase in interest expense (¥3.6B versus ¥2.5B in the previous year) and a decrease in equity-method investment gains.

Factors Affecting Results

【Revenue】Revenue was ¥611.4B, up +7.6% year on year. The core Hotels segment, which accounts for 54.8% of the revenue mix, led the increase with revenue of ¥370.6B (+7.8%), while Dormitories also achieved stable growth at ¥160.8B (+7.6%). Food Services increased to ¥37.3B (+15.0%), indicating a recovery trend in ancillary businesses, whereas Construction (¥9.8B, -11.6%) and Contracted Services (¥45.0B, -3.3%) recorded declines in revenue.

【Profit and Loss】Operating Income was ¥48.6B (+8.2%). The gross margin improved by +30bp to 24.9% (24.6% in the previous year), while the SG&A ratio remained broadly flat at 16.9%. By segment, Dormitories’ Operating Income improved significantly to ¥22.7B (+29.6%, 14.1% margin), whereas Hotels recorded ¥37.4B (-8.1%, 10.1% margin), resulting in higher revenue but lower profit and suggesting the impact of cost increases and the burden associated with launching new projects. Ordinary Income declined to ¥48.1B (-3.9%), and Net Income fell to ¥30.4B (-15.5%), reflecting higher non-operating expenses (interest expense of ¥3.6B versus ¥2.5B in the previous year) and a contraction in equity-method income. A disaster loss of ¥1.0B was recorded as an extraordinary loss and represented a temporary factor. In conclusion, the results show higher revenue and operating profit but lower Ordinary Income and Net Income, with non-operating factors depressing final earnings.

Segment Analysis

Hotels, which accounts for 54.8% of the revenue mix, is the largest segment by scale, with revenue of ¥370.6B (+7.8%); however, Operating Income declined to ¥37.4B (-8.1%), and the margin fell to 10.1%. Dormitories generated revenue of ¥160.8B (+7.6%), Operating Income of ¥22.7B (+29.6%), and a margin of 14.1%, making it the most profitable segment and indicating an improving trend. Food Services recorded revenue of ¥37.3B (+15.0%) and Operating Income of ¥2.6B (+87.8%), representing a significant recovery in profitability. Meanwhile, Contracted Services (including comprehensive building management services) posted revenue of ¥45.0B (-3.3%) and continued to report an Operating Loss of ¥1.4B, while Construction also turned loss-making, with revenue of ¥9.8B (-11.6%) and an Operating Loss of ¥1.2B. The contrast between improved profitability at Dormitories and higher revenue but lower profit at Hotels is notable, with Hotels’ high revenue dependence representing a source of volatility for the overall portfolio.

Key Financial Indicators

【Profitability】The Operating Profit Margin was 8.0%, broadly flat from 7.9% in the previous year. The gross margin improved by +30bp to 24.9% from 24.6% in the previous year, but the Net Profit Margin declined to 5.0% from 6.3%, indicating that increased burdens from the Ordinary Income level onward weighed on profitability.【Cash Quality】Accounts receivable were ¥173.5B, while cash and deposits were ¥245.5B, down from ¥299.6B in the previous year, indicating a slight decline in liquidity. 【Investment Efficiency】ROE remained low at 2.1%, and the low total asset turnover indicates room for improvement in asset efficiency. BPS increased modestly to ¥1,614.38 (¥1,600.64 in the previous year).【Financial Soundness】The Equity Ratio was 45.7%, broadly flat from 46.0% in the previous year. In addition to long-term borrowings of ¥772.6B, short-term borrowings amounted to ¥446.8B, indicating an elevated level of interest-bearing debt. The increase in interest expense is contributing to the decline in the Net Profit Margin.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is not available, fund flows can be inferred from changes in the balance sheet. Cash and deposits declined to ¥245.5B from ¥299.6B in the previous year, while short-term borrowings increased significantly to ¥446.8B, suggesting that funding needs were supplemented through external financing. Real estate for sale increased substantially to ¥174.7B from ¥48.2B in the previous year, potentially indicating that investment in development and sales projects is placing pressure on funds. Accounts receivable and notes receivable stood at ¥173.5B, down from ¥199.9B in the previous year, indicating an improvement in collections. Overall, both investment activity (development projects and inventory accumulation) and financing activity (increased short-term borrowings) have intensified, with the use of funds resulting in a reduction in the cash position.

Earnings Quality

The current period’s earnings structure shows that Operating Income of ¥48.6B was primarily generated by recurring business activities, while the extraordinary loss of ¥1.0B (disaster loss) was immaterial and temporary. Meanwhile, non-operating expenses of ¥4.1B exceeded non-operating income of ¥3.5B, with interest expense of ¥3.6B (¥2.5B in the previous year) serving as the primary factor depressing Ordinary Income. In addition, equity-method investment income declined substantially to ¥1.6B from ¥6.9B in the previous year, indicating that fluctuations in the performance of affiliated companies affected final earnings. Comprehensive Income was ¥33.4B, only ¥3.0B above Net Income of ¥30.4B, primarily due to an increase of ¥3.6B in valuation difference on available-for-sale securities. Overall, while operating earnings are of high quality, earnings from the Ordinary Income level onward are susceptible to non-recurring fluctuations related to interest expense and equity-method investment income.

Earnings Forecast and Guidance

Progress against the full-year plan was 22.1% for Revenue (¥611.4B/¥2,770B), 18.7% for Operating Income (¥48.6B/¥260B), and 18.5% for Ordinary Income (¥48.1B/¥260B), all below the simple one-quarter benchmark of 25%. Net Income progress was also the lowest at 16.9% (¥30.4B/¥180B), and the decline in earnings from the Ordinary Income level onward represents a headwind to achieving the full-year plan. The Company has made no revisions to its earnings or dividend forecasts, and the plan may assume a second-half weighting due to the seasonality of the lodging business. The full-year Revenue plan is set at a conservative +0.6% year-on-year, while the Operating Income plan is +4.6%.

Shareholder Returns

The annual dividend forecast is ¥46.00, implying a Payout Ratio of approximately 23.2% against the Company’s planned earnings per share of ¥197.98. The dividend was ¥23 in the previous year, and a significant increase to ¥46 is planned for the current fiscal year. As of the current quarter, there has been no revision to the dividend forecast, and the planned dividend increase remains in place. Based on approximately 91.24 million shares outstanding, total annual dividends are estimated at approximately ¥4.2B, representing a conservative Payout Ratio relative to the full-year Net Income plan of ¥180B.

Risk Factors

1. Hotels’ higher revenue but lower profit: Hotels, which accounts for 54.8% of the revenue mix, recorded Operating Income of ¥37.4B (-8.1%), with its margin declining to 10.1%. Cost increases and the burden associated with launching new projects could affect overall profitability.

2. Increase in interest-bearing debt and interest expense: Short-term borrowings increased to ¥446.8B (¥297.9B in the previous year), while interest expense expanded to ¥3.6B (¥2.5B in the previous year). Together with long-term borrowings of ¥772.6B, the structure is increasingly exposed to the impact of changes in interest-rate conditions on Ordinary Income.

3. Fluctuations in equity-method investment income: Equity-method investment income declined significantly to ¥1.6B from ¥6.9B in the previous year, contributing to the decline in Ordinary Income. The impact of fluctuations in the performance of affiliated companies on consolidated results should be monitored.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Operating Profit Margin is broadly in line with the industry median, while the Net Profit Margin is below the median, indicating that the burden from the Ordinary Income level onward is relatively significant within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is below the industry median, with the pace of growth remaining around the middle of the industry range.

Source: Compiled by the Company

Key Takeaways from the Results

1. The divergence between higher Operating Income and lower Ordinary Income and Net Income is clear. While business operations themselves remained solid, as demonstrated by the +30bp improvement in the gross margin, non-operating factors—including increased interest expense and reduced equity-method investment income—depressed final earnings.

2. Dormitories improved its margin to 14.1% and increased its contribution as a highly profitable segment, while Hotels, the largest segment by revenue mix, recorded higher revenue but lower profit, with its margin declining to 10.1%. The performance of the two segments was contrasting.

3. Progress against the full-year plan was below the simple 25% benchmark across the key metrics, at 22.1% for Revenue and 16.9% for Net Income. The extent of the second-half recovery will therefore be a key point to monitor in assessing achievement of the full-year plan.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥1,736–¥1,841 for ±1% in the cost of equity, and ¥1,783–¥1,794 for ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).

(Model used: 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 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 responsibility, after consulting with professionals as necessary.

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