SPACE CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

Despite a decline in revenue, the Company secured higher profit through improved selling, general and administrative expense efficiency, with profit progress ahead of the full-year plan. Revenue declined to ¥329.2B (-2.8% YoY), while Operating Income increased to ¥27.2B (+1.9%), Ordinary Income to ¥27.5B (+2.4%), and consolidated Net Income to ¥18.6B (+3.6%). The primary cause of the revenue decline appears to be the timing of project recognition. Costs on uncompleted construction contracts increased +63.2% from the end of the previous fiscal year, suggesting room for revenue recognition in the second half, while the main driver of higher profit was the improvement in the SG&A ratio (4.8%→4.4%).

Factors Affecting Performance

【Revenue】Revenue was ¥329.2B, a decline of -2.8% YoY. The Company operates as a single segment, the Display Business, and does not disclose business-specific factors affecting changes. However, costs on uncompleted construction contracts increased by 3.10B (+63.2%), indicating the possibility that construction projects not recognized in the current period have been deferred for recognition as revenue from the second half onward.

【Profit and Loss】Operating Income was ¥27.2B (+1.9%), and the Operating Income margin improved by +0.4pt from the previous year to 8.3%. While the gross margin remained broadly flat at 12.7%, SG&A expenses decreased to ¥14.6B (-10.4%), and the improvement in the SG&A ratio from 4.8% to 4.4% contributed to higher profit. Ordinary Income increased by +2.4% to ¥27.5B, exceeding the rate of growth in Operating Income, supported by non-operating income (0.4B), including an increase in dividend income. The Company recorded a gain on the sale of investment securities of 0.2B as extraordinary income, which was a temporary factor. Consolidated Net Income increased by +3.6% to ¥18.6B, while the effective tax rate was 32.9%, broadly unchanged from 33.1% in the previous year. Accordingly, the quarter was characterized by lower revenue and higher profit.

Key Financial Indicators

【Profitability】The Operating Income margin improved by +0.4pt to 8.3% from 7.9% in the previous year, while the Net Income margin was 5.7% based on consolidated Net Income. The gross margin remained broadly flat at 12.7%. 【Cash Quality】Operating Cash Flow was 35.8B, approximately 1.9 times consolidated Net Income of 18.6B, indicating strong cash backing for earnings. 【Investment Efficiency】ROE was 5.2%, comprising the product of the Net Income margin, asset turnover, and financial leverage. However, leverage has been trending downward as the Equity Ratio has risen. 【Financial Soundness】The Equity Ratio was 80.6% (+3.4pt from 77.2% in the previous year), while Current Liabilities were limited to 78.2B against Current Assets of 299.6B, indicating high liquidity and financial safety.

Cash Flow Analysis

Cash Flow from Operating Activities was 35.8B, an increase of +6.0% YoY. The decrease in trade receivables and contract assets (+35.7B cash inflow) exceeded the decrease in trade payables (-7.2B), contributing positively from a working capital perspective. Cash Flow from Investing Activities was +9.5B, turning positive even after capital expenditures (-1.5B) and improving from -2.4B in the previous year. Cash Flow from Financing Activities was -12.5B, primarily due to dividend payments (-12.5B). Free Cash Flow (Operating CF + Investing CF) was ample at 45.4B, and cash and deposits accumulated to 168.9B at period-end (+13.6% from the end of the previous fiscal year).

Earnings Quality

The difference between Ordinary Income of 27.5B and consolidated Net Income of 18.6B was primarily attributable to the burden of income taxes of 9.1B, with the effective tax rate remaining broadly flat at 32.9% compared with 33.1% in the previous year. Most of the 0.4B in non-operating income consisted of dividend income of 0.2B, which was recurring in nature. The Company recorded a gain on the sale of investment securities of 0.2B as extraordinary income; however, the amount was small, and its impact on overall profit was limited to a temporary factor. Comprehensive Income was 20.0B, slightly exceeding consolidated Net Income of 18.6B. Valuation differences on securities of +1.6B and foreign currency translation adjustments of +0.2B contributed positively, while adjustments related to retirement benefits were -0.4B. The divergence between Net Income and Comprehensive Income was minor at approximately +1.4B, with no significant distortion from accrual factors observed.

Earnings Forecasts and Guidance

Progress against the full-year earnings forecast was 45.7% for Revenue (32,923/72,000 million yen), 54.0% for Operating Income, and 54.6% for Ordinary Income, indicating relatively more advanced progress on the profit side. Progress against Net Income attributable to owners of the parent, for which the full-year forecast is 33.0B, was 56.5%. EPS progress was also 76.04 yen/134.57 yen, or 56.5%, in line with this figure. Even assuming contributions from profit in the second half, profit progress is weighted toward the first half. Neither the earnings forecast nor the dividend forecast was revised during the quarter.

Shareholder Returns

The dividend per share at the end of Q2 was 36 yen, and the Payout Ratio against first-half EPS of 76.04 yen based on Net Income attributable to owners of the parent was 47.3%. The full-year dividend forecast is 72 yen (equivalent to the previous year's actual dividend of 72 yen and assumed unchanged from the DividendPerShareQ2 actual dividend of 36 yen), resulting in a Payout Ratio of 53.5% against forecast EPS of 134.57 yen. It is noted that the breakdown of the year-end dividend includes a special dividend of 8 yen 00 sen. Given the levels of Operating Cash Flow and cash and deposits (168.9B), the financial backing for the dividend is secured.

Risk Factors

1. Gross Margin Structure and Profitability Volatility Risk: The gross margin has remained broadly flat at 12.7% from the previous year. Accordingly, sensitivity to profit margins is relatively high should costs rise or project profitability deteriorate.

2. Seasonality Risk in Revenue Recognition Timing: Costs on uncompleted construction contracts increased by +3.10B (+63.2%) from the end of the previous fiscal year, suggesting a structure in which revenue recognition associated with construction progress is weighted toward the second half. The Revenue progress rate of 45.7% is below the Operating Income progress rate of 54.0%, supporting this trend.

3. Cash Flow Volatility Due to Working Capital Fluctuations: The decrease in trade receivables and contract assets (+35.7B) boosted Operating CF during the current period. However, this effect may be temporary, and the level of Operating CF may fluctuate depending on working capital trends from the second half onward.

Industry Benchmark (For Reference; Company Research)

Profitability and Returns

Profitability is below the industry median, reflecting the characteristics of a construction-oriented business model with a low gross margin.

Growth and Capital Efficiency

The Revenue growth rate is significantly below the industry median, indicating that the impact of project recognition timing is particularly notable within the industry.

※Source: Company research

Key Points in the Financial Results

1. Despite the decline in revenue, the improvement in the SG&A ratio (4.8%→4.4%) improved the Operating Income margin by +0.4pt to 8.3%, confirming the defense of profit margins through cost management.

2. Full-year progress is ahead on the profit side, with profit at approximately 54–57% compared with Revenue at 45.7%. While profit progress is ahead of plan, the Revenue structure appears dependent on the completion of projects in the second half.

3. Financial soundness remains high, as indicated by an Equity Ratio of 80.6% and ample Current Assets and cash relative to Current Liabilities.

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 five-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: 1,410 yen–1,490 yen at ±1% for the cost of equity, and 1,449 yen–1,449 yen at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter 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 / Interest Rate Reference Month: 2026-07 / This value does not predict 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 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 professionals as necessary.

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