| Metric | Current Period | Prior Year Same Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥787.5B | ¥714.2B | +10.3% |
| Operating Income / Operating Profit | ¥45.0B | ¥43.3B | +3.9% |
| Ordinary Income | ¥47.0B | ¥45.7B | +3.0% |
| Net Income / Net Profit | ¥17.0B | ¥26.8B | -36.4% |
| ROE | 3.9% | 6.4% | - |
For the full year ended February 2026, Revenue was ¥787.5B (YoY +¥73.3B +10.3%), Operating Income was ¥45.0B (YoY +¥1.7B +3.9%), Ordinary Income was ¥47.0B (YoY +¥1.3B +3.0%), and Net Income was ¥17.0B (YoY -¥9.8B -36.4%), resulting in higher top-line but lower bottom-line. Revenue growth was driven by the core Security Business, which achieved double-digit growth due to large projects for East Japan Railway Company and consolidation of subsidiary revenues. Gross margin declined to 21.6% (down 0.5pt YoY) due to higher personnel and cost of goods sold, compressing operating margin to 5.7% (prior 6.1%). In non-recurring items, the company recorded investment securities sale gains of ¥11.0B but also impairment losses of ¥8.2B, creating mixed one-off effects. A rise in the effective tax rate to 38.2% (prior 32.4%) further reduced net margin to 2.2% (prior 3.7%), a deterioration of 1.5pt. ROE remained low at 3.9% (prior 5.4%), highlighting the need to improve profitability.
[Revenue] Revenue of ¥787.5B (+10.3%) was driven by the Security Business. That segment reported Revenue of ¥768.3B (+10.3%, +¥73.2B YoY), accounting for 97.6% of group sales. Sales to major customer East Japan Railway Company amounted to ¥105.5B (prior ¥99.6B), an increase of approximately ¥5.9B, supported by expansions in on-site security and electronic security projects and consolidation of subsidiary sales through business combinations. Building Management & Real Estate Business recorded Revenue of ¥25.7B (+9.2%) but only represented 3.3% of total sales. Revenue is concentrated in Japan; no overseas sales were disclosed. Gross margin fell to 21.6% (prior 22.0%), a 0.5pt decline, as cost of sales increased by ¥62.1B (+11.2%), outpacing revenue growth, driven by personnel costs (salaries and allowances ¥45.3B) and higher materials/equipment costs.
[Profitability] Gross profit was ¥169.7B (+¥12.2B +7.8%) while SG&A was limited to ¥124.7B (+¥10.7B +9.4%), improving the SG&A ratio to 15.8% (prior 16.0%) by 0.2pt. SG&A composition includes salaries and allowances ¥45.3B (prior ¥43.5B), depreciation ¥6.2B, rent ¥7.4B, and goodwill amortization ¥2.0B (prior ¥0.9B). The increase in goodwill amortization reflects M&A activity during the period (acquisition of Nihon Rengo Co., Ltd.). Operating Income was ¥45.0B (+3.9%) with an operating margin of 5.7% (prior 6.1%), down 0.3pt. Non-operating income totaled ¥3.4B (dividends received ¥1.3B, insurance proceeds ¥1.2B, etc.) and non-operating expenses were ¥1.4B (interest expense ¥0.7B, etc.), resulting in Ordinary Income of ¥47.0B (+3.0%). Extraordinary gains included investment securities sale gains ¥11.0B and fixed asset sale gains ¥2.4B; extraordinary losses included impairment losses ¥8.2B (security business assets) and loss on disposal of fixed assets ¥0.4B, totaling ¥14.0B. Profit before tax was ¥46.4B (prior ¥51.8B -10.4%), with income taxes and related expenses of ¥17.7B (effective tax rate 38.2%), and after deducting non-controlling interests of ¥3.7B, Net Income attributable to owners of the parent was ¥25.0B (prior ¥32.3B -22.5%). In summary, despite revenue growth, lower gross margin, one-off losses, and higher tax burden led to a final-year decline in net profit.
Security Business: Revenue ¥768.3B (+10.3%), Operating Income ¥41.7B (+5.2%), operating margin 5.4% (prior 5.7%). Margin decreased 0.3pt as higher personnel and COGS limited profit contribution from revenue growth. Building Management & Real Estate Business: Revenue ¥25.7B (+9.2%), Operating Income ¥3.3B (-12.1%), operating margin 12.7% (prior 15.7%). Margin deterioration was 3.0pt, but absolute decrease was limited to ¥37.79M, so it remains a small but high-margin complementary business. Inter-segment revenues eliminated were Security ¥0.5B and Building Management ¥6.1B, indicating limited internal transactions. The impairment loss ¥8.2B was entirely attributable to the Security Business, reflecting reassessment of fixed-asset profitability. Increase in goodwill amortization ¥2.0B (prior ¥0.9B) and goodwill balance rising to ¥8.7B resulted from M&A; goodwill impairment of ¥0.8B was also recorded during the period. Integration progress and realization of synergies will be key to margin recovery.
[Profitability] Operating margin 5.7%, net margin 2.2% (parent company basis 3.2%), ROE 3.9% — profitability remains low. ROE decomposition: net margin 3.2% × total asset turnover 1.10 × financial leverage 1.62x, with net margin decline being the main drag. EBITDA ¥74.6B (Operating Income ¥45.0B + depreciation and amortization ¥29.7B) with EBITDA margin 9.5% (prior ~9.9%) — slight decline. ROA (on Ordinary Income basis) 6.6% down 0.6pt from 7.2% prior year.
[Cash Quality] Operating Cash Flow (OCF) ¥55.8B is 3.3x Net Income ¥17.0B and 2.2x parent company Net Income ¥25.0B, a high level. OCF/EBITDA ratio 0.75x is below the benchmark (0.9x+), affected by working capital absorption (accounts receivable +¥13.8B, inventory +¥5.8B, accounts payable -¥3.1B). Free Cash Flow (FCF) was limited to ¥4.0B, pressured by capital expenditures ¥40.1B and intangible investments ¥12.3B.
[Investment Efficiency] Total asset turnover 1.10x (prior 1.12x) slightly decreased. Working capital turnover days: accounts receivable turnover 9 days, inventory turnover 10.6 days, accounts payable turnover 11.2 days, yielding a cash conversion cycle of 8.4 days — short-term.
[Financial Soundness] Equity Ratio 61.6% (prior 66.2%), Debt/Equity 0.08x, Net Debt/EBITDA 0.01x — effectively debt-free. Current ratio 182.7%, quick ratio 182.7%, cash and deposits ¥166.4B (covers 76.9% of short-term liabilities), indicating very strong liquidity. Interest coverage ratio 62x, demonstrating solid ability to service interest.
Operating Cash Flow was ¥55.8B (prior ¥29.4B +90.0%), a large increase, generating 3.3x cash relative to Net Income ¥17.0B. Starting from subtotal (pre-tax profit adjustments) ¥74.2B, working capital change -¥18.4B (accounts receivable increase -¥13.8B, inventory increase -¥5.8B, accounts payable decrease -¥3.1B, accrued expenses increase +¥7.5B) was deducted, and cash taxes paid -¥14.5B led to OCF. Working capital absorption is interpreted as natural increases accompanying revenue growth, with no signs of manipulation. Investing Cash Flow was -¥51.9B (prior -¥29.0B), primarily tangible fixed asset acquisition -¥40.1B (land, buildings, lease assets) and intangible asset acquisition -¥12.3B (software, etc.). M&A-related outflows (acquisition of subsidiary shares -¥9.3B, business acquisitions -¥8.1B) also contributed to investment outflow. Investment securities sale proceeds ¥11.9B provided a positive offset. FCF remained ¥4.0B, while dividend payments -¥8.7B and share buybacks -¥13.3B produced total returns of -¥22.0B, substantially exceeding FCF; however, abundant cash on hand and low leverage mitigate short-term sustainability concerns. Financing Cash Flow was -¥17.4B: long-term borrowing ¥22.9B was raised to fund investments, while borrowings repayment -¥9.6B and lease repayments -¥7.4B were executed. Cash on hand at period end ¥166.4B, accounting for 23.2% of total assets, provides a robust liquidity buffer. OCF/Net Income of 3.3x indicates high cash quality, though OCF/EBITDA 0.75x suggests some room to improve working capital efficiency.
Operating Income ¥45.0B plus non-operating results +¥2.0B produced Ordinary Income ¥47.0B, demonstrating recurring earning power at 6.0% of revenue — healthy. Extraordinary items comprised gains ¥13.4B (investment securities sale gains ¥11.0B, fixed asset sale gains ¥2.4B) and losses ¥14.0B (impairment ¥8.2B, loss on disposal of fixed assets ¥0.4B), nearly offsetting with a net one-off impact of -¥0.6B, limited in scale. However, the gross amount of extraordinary items ¥27.4B represents 59% of pre-tax income ¥46.4B, indicating earnings are sensitive to one-off swings. Non-operating income ¥3.4B (dividends received ¥1.3B, insurance proceeds ¥1.2B) is minor at 0.4% of revenue. Accrual quality is sound: OCF ¥55.8B / Net Income ¥17.0B = 3.3x, showing strong cash backing. Comprehensive income ¥45.1B exceeded Net Income ¥17.0B by ¥28.1B, supported by other securities valuation differences +¥10.6B and actuarial gains/losses recognized in equity +¥5.8B. While valuation gains strengthen equity, they carry reversal risk with market volatility. The gap between Ordinary Income and Net Income is mainly due to extraordinary items (-¥0.6B) and the higher tax burden (effective tax rate 38.2%), so ongoing monitoring is needed to determine whether the tax rate increase is transient or structural. Overall, recurring earnings are stable, but one-offs and high tax burden leave room to normalize net income quality.
Company guidance projects Revenue ¥780.0B (YoY -0.9%), Operating Income ¥35.0B (-22.2%), Ordinary Income ¥36.0B (-23.4%), and Net Income attributable to owners of the parent ¥23.0B (EPS forecast ¥163.90), indicating a plan for lower revenue and earnings. Operating margin is expected to compress to around 4.5%, reflecting assumptions of higher personnel costs, increased goodwill amortization, and higher depreciation due to investment-driven spending. Current actual results (Revenue ¥787.5B, Operating Income ¥45.0B) exceeded undisclosed prior plan, so next fiscal year starts from cautious assumptions. While not subject to progress-rate evaluation, upside is possible if cost control and price revisions progress and M&A subsidiaries realize synergies. Dividend guidance is annual ¥30.00 (including interim ¥30.00) in the company plan, halving from prior year ¥60.00; given this year’s actual payout (dividend ¥60), the company guidance may be conservative. Forecasts are based on currently available information and actual results may vary due to FX, costs, and demand environment.
Annual dividend maintained at ¥60.00 (interim ¥30.00, year-end ¥30.00), unchanged from prior year, representing total dividends of ¥8.7B (approx. 1 share × ¥30 × average shares outstanding 14,312k shares, as an estimate). Payout Ratio is approximately 35.5% (simple estimate: dividends ¥8.7B / parent company Net Income ¥25.0B), a sustainable level. In addition, share buybacks were executed with total purchase amount ¥13.3B (as per cash flow statement; estimated average acquisition price approx. ¥163 per share). Dividend ¥8.7B + buybacks ¥13.3B yields total return ¥22.0B, implying a Total Return Ratio of 88% (total return ¥22.0B / parent company Net Income ¥25.0B), a high level that substantially exceeds FCF ¥4.0B. However, ample cash on hand ¥166.4B and low debt (Debt/Equity 0.08x) mitigate short-term sustainability concerns. The dividend policy emphasizes stable dividends; target payout range is not specified but historically around 30%. During an investment-led phase, balancing FCF improvement with the pace of buybacks is warranted. Next fiscal year's dividend guidance ¥30.00 (planned total ≈ ¥4.2B) halves from this year’s actual ¥60.00 and appears conservative; formal revision would be informative.
Personnel and hiring cost inflation risk: Salaries and allowances were ¥45.3B (SG&A), an increase of ¥1.9B YoY, with intensified competition for security personnel and continued minimum wage increases. Gross margin is 21.6% (down 0.5pt YoY), and delayed cost pass-through could continue to pressure margins. Depreciation this period ¥29.7B (prior ¥27.7B +7.2%) is also rising, adding costs from investment lead.
Large-customer concentration risk: Sales to East Japan Railway Company ¥105.5B represent 13.4% of group sales, exposing performance to that customer's capex and security demand. Contract renewals and pricing negotiations could materially affect profitability. The Security Business accounting for 97.6% of sales increases sensitivity to economic and event-driven demand fluctuations.
M&A integration and goodwill impairment risk: Goodwill balance ¥8.7B (prior ¥5.6B +55%) increased, and during the period goodwill amortization ¥2.0B and goodwill impairment ¥0.8B were recorded. If the acquired subsidiary (Nihon Rengo Co., Ltd.) underperforms or integration is delayed, additional impairment risk could materialize. Already recognized impairment losses ¥8.2B may require re-evaluation if profitability deteriorates.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 5.7% | 8.1% (3.6%–16.0%) | -2.4pt |
| Net Margin | 2.2% | 5.8% (1.2%–11.6%) | -3.7pt |
Profitability trails the industry median, with personnel and COGS increases weighing on margins.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 10.3% | 10.1% (1.7%–20.2%) | +0.2pt |
Growth rate is in line with the industry and slightly above median due to large projects and M&A contributions.
※ Source: Company compilation
Asymmetric top-line expansion and bottom-line restraint: Revenue +10.3% vs Operating Income +3.9% indicates limited operating leverage, primarily due to a 0.5pt decline in gross margin. Passing through higher personnel and material costs and improving cost control are catalysts for margin recovery. Realization of post-M&A synergies (offsetting goodwill amortization) and improved utilization will be focal points in the second half and beyond.
Coexistence of investment-led capex and cash over-distribution: While growth investments (capex ¥40.1B, intangible investments ¥12.3B) are accelerating, total returns ¥22.0B far exceed FCF ¥4.0B. Given cash on hand ¥166.4B and effective debt-free position, short-term sustainability is not an issue, but investment recovery and FCF improvement will determine medium-term return capacity. Management’s guidance factors in reduced earnings next year; flexibility in buyback pace is prudent.
Monitor volatility in one-off items and rise in effective tax rate: Extraordinary gains ¥13.4B (investment securities sale gains etc.) and extraordinary losses ¥14.0B (impairment etc.) influenced results, and the effective tax rate rose to 38.2% from 32.4% prior year (+5.8pt). Determining whether the tax rate increase is structural (e.g., loss of consolidated tax benefits) or temporary is critical; progress toward next year’s post-tax profit guidance of ¥23.0B (EPS ¥163.90) will be a litmus test.
This report is an AI-generated earnings analysis document created from XBRL financial statement data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the company from public financial statements. Investment decisions are your responsibility; please consult a professional advisor as needed.