SECOM CO.,LTD. FY2027 Q1 Earnings Report

Quick View

Executive Summary

Although SECOM secured higher revenue and operating income, led by its core security services, net income declined due to a decrease in non-operating income and a higher tax burden. Revenue was ¥2984.5B (+3.6% YoY), while operating income was ¥334.7B (+3.9% YoY), both showing solid performance. Meanwhile, ordinary income was ¥390.8B (-0.7% YoY), and consolidated net income was ¥260.1B (-4.2% YoY), indicating a shift from higher revenue and operating income to lower earnings at subsequent profit levels. The gross profit margin improved to 31.6%, but the SG&A ratio also rose to 20.4%, leaving the operating margin essentially flat at 11.2%. The increase in operating income was therefore primarily driven by top-line growth.

Factors Affecting Performance

【Revenue】Revenue was ¥2984.5B, representing a 3.6% YoY increase. By segment, the core Security Services segment generated ¥1673.1B (+2.0%), accounting for 56.1% of total revenue. Fire Protection Services at ¥404.7B (+12.2%), Insurance Services at ¥156.8B (+7.4%), and Geospatial Information Services at ¥99.9B (+7.1%) drove overall growth, while Other Businesses declined slightly to ¥148.2B (-2.0%).

【Profit and Loss】Operating income was ¥334.7B (+3.9%), supported by an improvement in the gross profit margin to 31.6% from 31.3% a year earlier. By segment, Fire Protection Services posted a significant increase in segment profit to ¥12.8B (+410.8%), while BPO ICT also grew to ¥23.1B (+21.2%). In contrast, Insurance Services declined to ¥23.0B (-24.4%), and Geospatial Information Services continued to report a loss of ¥-15.7B. Ordinary income was ¥390.8B (-0.7%), pressured by declines in gains from investment partnership management and equity-method income. Net income was ¥260.1B (-4.2%), with income taxes and other taxes of ¥129.2B (an effective tax rate of approximately 33.2%, higher YoY) further weighing on bottom-line earnings. Overall, the results represent a pattern of higher revenue and operating income but lower earnings from the ordinary income stage onward.

Segment Analysis

Profitability differences among segments are clear. Security Services is the core business, generating operating income of ¥319.4B at a margin of 19.1% and accounting for the majority of company-wide profit. It continues to deliver stable growth, with revenue up 2.0% and profit up 2.6%. Fire Protection Services posted a sharp recovery, with revenue up 12.2% and operating income up 410.8%, apparently supported by improved project progress, although its profit margin remains low at 3.2%. BPO ICT recorded a high rate of profit growth, with operating income up 21.2%, reflecting ongoing efficiency improvements. By contrast, Insurance Services reported lower operating income of 24.4% despite higher revenue, while Geospatial Information Services continued to post an operating loss of ¥-15.7B. Structural profitability disparities within the portfolio therefore remain an issue.

Key Financial Indicators

【Profitability】The operating margin was 11.2%, essentially unchanged from 11.2% a year earlier, while the net profit margin declined from the previous year to approximately 8.7%. The gross profit margin improved to 31.6% from 31.3% a year earlier, but this benefit was offset by an increase in the SG&A ratio to 20.4% from 20.1%.【Cash Flow Quality】Accounts receivable and notes receivable declined significantly to ¥1177.2B from ¥1809.3B a year earlier, while accounts payable and notes payable also decreased to ¥342.8B from ¥488.6B, indicating changes in the working capital structure.【Investment Efficiency】ROE was 1.7% on a quarterly basis, and the equity ratio was 68.4%, up from 67.3% a year earlier. Financial soundness is high, although capital efficiency remains low.【Financial Soundness】Against total assets of ¥21786.6B, net assets were ¥14903.2B and the equity ratio was 68.4%, indicating a conservative capital structure. The company holds substantial cash and deposits of ¥3931.6B and investment securities of ¥4932.4B.

Cash Flow Analysis

Because details of the cash flow statement were not disclosed in these financial results, funding trends are assessed based on changes in the balance sheet. Cash and deposits were ¥3931.6B, nearly unchanged from ¥3949.8B in the same period of the previous year, indicating stable liquidity. Meanwhile, accounts receivable and notes receivable declined by ¥632.1B YoY to ¥1177.2B, while accounts payable and notes payable also decreased by ¥145.8B, demonstrating progress in working capital reduction. Long-term borrowings increased by ¥71.5B YoY to ¥168.0B, indicating a shift toward longer-term financing. Overall, the company continues to pursue conservative financial management, maintaining cash levels while simultaneously reducing assets and liabilities.

Earnings Quality

Recurring operating income and expenses account for the majority of earnings, while the impact of extraordinary items is extremely limited. Extraordinary income of ¥1.6B and extraordinary losses of ¥3.1B were each less than 0.1% of revenue, indicating minimal earnings distortion from temporary factors. Of non-operating income of ¥67.2B, gains from investment partnership management of ¥29.8B and dividend income of ¥7.4B were the primary components; however, both declined from the previous year, when gains from investment partnerships were ¥47.4B, indicating that reliance on non-operating income has actually decreased. The main reasons net income declined despite higher operating income were a reduction in equity-method income (¥14.4B versus ¥22.9B a year earlier) and a higher effective tax rate. The divergence between ordinary income and net income was primarily attributable to the higher tax burden, and structural distortion in earnings quality can be assessed as limited.

Earnings Forecast and Guidance

Progress against the full-year forecast was 22.7% for revenue, 20.2% for operating income, 22.2% for ordinary income, and 22.8% for net income attributable to owners of the parent, all below the standard quarterly progress rate of 25%. In particular, progress for operating income and ordinary income was relatively slow, at -4.8pt and -2.8pt, respectively, versus 25%. The full-year forecast calls for revenue growth of +4.5%, operating income growth of +3.2%, and ordinary income decline of -3.4% (EPS ¥263.57, DPS ¥120). Progress in accumulating earnings from the core segments from the second half onward will be key to improving performance against the full-year forecast.

Shareholder Returns

The company’s full-year dividend forecast is ¥120 per share, and no revision to the dividend forecast had been made as of the current quarter. Based on forecast EPS of ¥263.57, the payout ratio is approximately 45.5%. Given the sound financial foundation represented by cash and deposits of ¥3931.6B and an equity ratio of 68.4%, there is little concern regarding dividend sustainability. The prior-year dividend was ¥50 (an interim or period-specific figure), and confirmation of full-year results is necessary to assess the trend in annual dividend levels.

Risk Factors

1. Segment concentration risk: Security Services accounts for 56.1% of revenue and the majority of operating income, meaning that changes in unit pricing and utilization rates in this business could have a significant impact on company-wide performance.

2. Profitability dispersion: Geospatial Information Services continues to report an operating loss of ¥-15.7B, while Insurance Services also posted a 24.4% decline in operating income. Profitability disparities among segments create a structure that is susceptible to fixed-cost burdens and changes in project mix.

3. Margin pressure from rising costs: The SG&A ratio increased to 20.4% from 20.1% a year earlier. Personnel expenses, including salaries and allowances of ¥222.4B (+4.7% YoY), and higher rent expenses are increasing at a faster pace than revenue growth (+3.6%), potentially weakening operating leverage.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The profitability metrics exceed the industry median, placing the company in the upper tier among its peers.

Growth and Capital Efficiency

The revenue growth rate is below the industry median, placing the company at a relative disadvantage in terms of growth.

Source: Company analysis

Key Takeaways from the Financial Results

1. A two-tier structure is evident, comprising higher revenue and operating income in the core businesses but lower final earnings. Operating income increased by +3.9%, while ordinary income declined by -0.7% and net income by -4.2%, with the decline widening at subsequent profit levels. Trends in non-operating income and the tax burden are determining bottom-line earnings.

2. Profitability disparities among segments are widening. While Fire Protection Services posted a significant increase in profit (+410.8%) and BPO ICT grew strongly (+21.2%), Geospatial Information Services continued to post losses and Insurance Services recorded lower profit (-24.4%). The potential for earnings improvement within the portfolio will remain an important structural area of focus.

3. The increase in the SG&A ratio to 20.4% from 20.1% a year earlier offset the benefit of the improvement in the gross profit margin to 31.6%, leaving the operating margin essentially flat. If personnel and rent expenses continue to grow faster than revenue, operating leverage will be an important monitoring point.

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). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥3,170–¥3,355 at ±1% for the cost of equity, and ¥3,260–¥3,260 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end were used (there is a timing mismatch with the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This figure does not predict or guarantee future share prices)

---

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. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, in consultation with a professional advisor as necessary.

---End of Report---