OPM surges to 25.5%; focus on growth runway signaled by JPY 54,001M in orders received for HVAC controls and revamped capital allocation policy

Key Positives From The Results

Operating income reached JPY 11,821M (+29.6% YoY) with OPM of 25.5% (+4.3pt YoY), marking a significant profitability improvement. While COGS stayed essentially flat (JPY 24,404M → JPY 24,408M), revenue grew +7.7%, driving gross margin up +4.1pt from 43.3% to 47.4%—the primary factor behind the profit surge. Orders received of JPY 54,001M (+23.4% YoY) and carried-forward backlog growth of +28–36% across both HVAC Controls and Industrial Systems underpin growth visibility into the coming fiscal year and beyond.

• Gross Margin Improved To 47.4% (+4.1pt YoY):
  Revenue growth was achieved with virtually flat COGS, reflecting disciplined order selection and margin improvement initiatives
• Orders Received Of JPY 54,001M (+23.4% YoY):
  Next-period backlog stands at elevated levels—JPY 29,421M (+28.5% YoY) for HVAC Controls and JPY 4,054M (+36.6% YoY) for Industrial Systems
• Industrial Systems Segment Income Doubled To JPY 867M (+102.5% YoY):
  Driven by electrical construction work and production management system software
• Operating Cash Flow Of JPY 11,045M (+35.8% YoY):
  Cash and cash equivalents reached JPY 13,585M (+26.4% YoY), bolstering liquidity
• Capital Policy Overhaul:
  Medium-to-long-term consolidated ROE target raised to 15%+; shareholder return policy revised to "progressive dividend based on payout ratio of 40%+ or DOE of 7%+"

Key Concerns From The Results

Next-year guidance calls for revenue of JPY 51,500M (+11.1%) but operating income of only JPY 12,500M (+5.7%), implying a deceleration in profit growth relative to the top line. Risks include energy and materials price volatility stemming from Middle East tensions, as well as potential cost increases associated with compliance with the Fair Subcontracting Act (Act on Fair Small and Medium-sized Subcontracting Transactions).

• Next-Year Operating Income Growth Decelerates To +5.7%
  versus +29.6% this year; OPM guided down from 25.5% to 24.3%
• HVAC Controls New Construction Revenue Declined To JPY 14,180M (−14.6% YoY):
  A payback after prior-year strength; balance between new and existing project mix warrants monitoring
• Investing Cash Flow Of −JPY 5,820M (+36.0% YoY Increase In Outflows):
  Includes JPY 2,474M in PP&E acquisition and JPY 4,613M in securities purchases, indicating front-loaded spending
• SG&A Rose To JPY 10,141M (+6.3% YoY):
  Uptrend in fixed costs including personnel expenses and rent continues
• Construction Industry Labor Shortages Remain A Sector-Wide Challenge:
  Upward pressure on labor costs poses a risk to future cost ratios

Focus Areas / Items To Monitor Going Forward

• Breakdown of the assumptions behind the −1.2pt OPM decline in next-year guidance; critical to quantify the impact of Fair Subcontracting Act compliance costs and assess the scope for passing through materials price increases
• Whether new HVAC Controls construction recovers from the payback dip; need to scrutinize the specific pipeline for data center and factory construction demand, and period-shift risks embedded in the JPY 29,421M backlog
• Whether the doubling of Industrial Systems segment profit is one-off or structural; progress on recurring revenue from central monitoring systems and the order pipeline for smart factory solutions will be key

Key Financial Highlights

COGS was virtually flat (+JPY 4M) while revenue increased by JPY 3,310M, meaning virtually all of the top-line growth flowed straight through to gross profit. Gross margin improved 4.1pt from 43.3% to 47.4%, confirming structural improvement in the profitability profile.

Performance By Business Segment

Progress Versus Full-Year Guidance

Next-year guidance calls for revenue of JPY 51,500M (+11.1%), operating income of JPY 12,500M (+5.7%), and net income of JPY 8,700M (+3.0%), with orders received of JPY 52,500M. Double-digit revenue growth appears highly probable given the accumulated backlog, but the margin compression baked into guidance suggests a conservative stance toward external environment risks.

• The group manages operations on an annual basis and does not disclose semi-annual earnings forecasts. Due to the nature of the construction industry, quarterly results may fluctuate depending on the timing of project completions

Changes To Guidance

No revisions to full-year guidance were disclosed for the current fiscal year. Guidance for next fiscal year (FY ending March 2027) was newly announced.

Commentary On Shareholder Returns

The year-end dividend was raised by JPY 8 from the previous forecast of JPY 91 to JPY 99. The full-year dividend totals JPY 160 (interim JPY 61 + year-end JPY 99), representing a payout ratio of 30.2% and a DOE of 5.9%. On a post-split basis (1:4 stock split effective April 1, 2026), the annualized dividend is JPY 40. Starting next fiscal year, a "progressive dividend based on a payout ratio of 40%+ or DOE of 7%+" will be adopted. Next-year projected dividend is JPY 56 per share on a post-split basis (+JPY 16 increase), implying a 41.0% payout ratio.

Financial Position

The company maintains a virtually debt-free balance sheet, with an equity ratio of 76.7% (+2.0pt). Net income attributable to owners of the parent of JPY 8,442M drove retained earnings up to JPY 44,015M, further solidifying the financial foundation.

News Released Alongside The Earnings Announcement

Major Announcements During The Quarter

Large-Shareholding Filings / Material Proposals Over The Past Year

• FMR LLC: 9.25% → 9.45% (reported 2026/03/23, trigger date 2026/03/13) — For the purpose of managing client assets under trust agreements and contracts