NIHON DENGI CO., LTD. 1Q Earnings Preview

A Q1 to assess full-year guidance progress and contribution from the business acquisition, underpinned by HVAC instrumentation's high-margin profile and record-high backlog

PublishedJuly 22, 2026 at 15:30 GMT+9

Summary

In FY2026/3, Nippon Dengi demonstrated strong profitability with an OPM of 25.5%, securing orders of JPY 54.001B (+23.4% YoY) and a record-high backlog of JPY 33.475B. For FY2027/3, the company targets revenue of JPY 51.5B (+11.1%) and operating income of JPY 12.5B (+5.7%), projecting continued top- and bottom-line growth, though the pace of profit growth decelerates from +29.6% in the prior year—signaling a shift from earnings "quantity" to "quality." As the first quarter following the revision to the capital allocation policy (dividend payout ratio ≥40% / DOE ≥7%, ROE target ≥15%), the balance between enhanced shareholder returns and growth investment will be closely watched. Additionally, the focus will be on whether the acquisition of the SCADA business for food processing plants announced in June and order trends for large-scale data center and factory projects validate the company's competitive edge in proprietary instrumentation engineering capabilities.

Key Points for Next Quarter

Key Points & Focus	Implications
Order Trends1Q orders YoY	Whether the momentum from FY2026/3 full-year orders of JPY 54.0B (+23.4%) is sustained. Pipeline activity for data center and redevelopment projects will determine the achievability of the full-year plan of JPY 52.5B
Gross Profit MarginGross profit margin YoY change	GPM improved sharply to 47.4% in FY2026/3 (from 43.3%, +4.1pt). Key question is whether the 47% level can be maintained amid upward pressure on subcontracting costs from compliance with the Fair Subcontracting Act
Industrial Systems BusinessSegment profit margin and integration progress of business acquisition	Beyond sustainability of FY2026/3 segment profit of JPY 867M (+102.5%), timing of revenue and profit contribution from the SCADA business acquisition closing in July needs to be confirmed
Capital EfficiencyROE level and execution of capital allocation policy	Against the medium-to-long-term target of ROE ≥15%, FY2026/3 came in at 19.6%. Progress on capital efficiency measures (share buybacks, dividend increases, etc.) to counter rising net assets of JPY 46.857B
Backlog ConversionRevenue conversion rate of backlog	With FY2026/3 ending backlog at JPY 33.5B (+29.7%), Q1 revenue is subject to heavy seasonal skew due to annual project management, but the conversion pace vs. full-year revenue plan of JPY 51.5B should be monitored
Mid-Term Plan KPIsProgress on Phase 2 of the medium-term management plan	Outlook for achieving FY2027 targets (revenue JPY 52.0B, operating income JPY 13.0B, ROE ≥15%). Whether any revision is signaled as of Q1

Key Issues from Previous Results (FY2026/3 4Q Results)

FY2026/3 concluded with revenue of JPY 46.371B (+7.7%) and operating income of JPY 11.821B (+29.6%), delivering top- and bottom-line growth. OPM improved +4.3pt to 25.5% from 21.2% in the prior year. The company entered the new fiscal year with a robust backlog, including orders of JPY 54.0B (+23.4%) and a backlog of JPY 33.5B (+29.7%). Below, we outline the key issues heading into Q1.

1. Sustainability of High Profitability in HVAC Instrumentation

Prior Year:
Revenue JPY 41.697B (+5.9%), segment profit JPY 16.6B (+22.3%). Existing facility revenue of JPY 27.516B accounted for 66% of total, driving profitability
This Quarter — Key Confirmation:
As revenue recognition from large-scale new construction projects (redevelopment, data centers, factories) ramps up, monitor the margin impact of a rising new construction mix
Key Metric:
Whether segment profit margin can sustain the 39.7% level from FY2026/3. Changes in new construction vs. existing facility revenue mix

The HVAC Instrumentation segment posted segment profit of JPY 16.563B (+22.3%) with a segment profit margin of 39.7%—an exceptionally high level. While new construction revenue declined (-14.6%), higher-margin existing facility work grew +20.9%, offsetting the decline and lifting overall segment profitability.

2. Growth Acceleration in Industrial Systems and SCADA Business Acquisition Impact

Prior Year:
Orders JPY 5.77B (+17.9%), revenue JPY 4.674B (+26.5%), segment profit JPY 867M (+102.5%). Backlog JPY 4.054B (+36.6%)
This Quarter — Key Confirmation:
Timing and scale of revenue/profit contribution from the SCADA business acquisition scheduled to close in July. Progress in securing smart factory projects through data integration with production management systems
Key Metric:
Segment revenue progress rate against full-year plan. Improvement trajectory of segment profit margin (18.5% in FY2026/3)

The Industrial Systems segment doubled its segment profit (+102.5%) in FY2026/3, solidifying its position as a second earnings pillar. In June 2026, the company decided to acquire the SCADA supervisory control system business from KE Engineering, aiming to expand central monitoring system orders and strengthen its stock-based business.

3. Impact on Subcontracting Costs and Payment Terms from Fair Subcontracting Act Compliance

Prior Year:
COGS JPY 24.408B (+0.0%, COGS ratio improved -4.1pt to 52.6% from 56.7%). Profitability-conscious order selection and margin improvement efforts paid off
This Quarter — Key Confirmation:
Whether subcontracting and material costs are increasing due to compliance with the Fair Subcontracting Act. Impact of revised payment terms with subcontractors on working capital
Key Metric:
Whether COGS ratio can be maintained below 53%. Changes in SG&A ratio (21.9% in FY2026/3)

The Small and Medium Enterprise Subcontracting Fair Practices Act (enacted January 2026) is forcing a reassessment of payment terms across the entire construction supply chain. With the Japan Fair Trade Commission publishing enforcement updates (June 2026), tightening of regulations across the industry has become clear, and Nippon Dengi may see cost structure impacts from changes to payment terms with subcontractors.

4. Revenue Conversion of Robust Backlog and Full-Year Guidance Achievability

Prior Year:
Orders JPY 54.0B (+23.4%). HVAC Instrumentation backlog JPY 29.421B (+28.5%), Industrial Systems JPY 4.1B (+36.6%)
This Quarter — Key Confirmation:
New order trends and backlog trajectory as of Q1. Order pipeline for data center and factory construction projects
Key Metric:
Q1 order progress rate against full-year order plan of JPY 52.5B. Comparison with prior-year Q1 orders

The full-year revenue target of JPY 51.5B (+11.1%) is anchored by the FY2026/3 ending backlog of JPY 33.5B. While quarterly earnings exhibit significant seasonal skew due to the company's annual project management approach, the strong order momentum from the prior year supports high confidence in guidance achievability.

5. Capital Allocation Policy Shift and Execution of Enhanced Shareholder Returns

Prior Year:
Payout ratio 30.2%, DOE 5.9%, ROE 19.6%. Annual dividend JPY 160 (pre-split)
This Quarter — Key Confirmation:
Whether a share buyback program will be initiated. Additional disclosures on capital efficiency measures to sustain ROE ≥15%
Key Metric:
Actual DOE trajectory relative to the ≥7% threshold. Relationship between net asset growth pace and ROE

Concurrent with earnings, the company revised its capital allocation policy, introducing a progressive dividend with a payout ratio ≥40% / DOE ≥7%, and setting a medium-to-long-term ROE target of ≥15%. The FY2027/3 annual dividend is JPY 56 (post-split basis; JPY 224 pre-split equivalent, an increase of JPY 16 from JPY 40 in the prior year), lifting the payout ratio to 41.0%.

Timely Disclosure & Industry Trends

2026/06/15
Notice of Business Acquisition — Acquired the SCADA supervisory control system business for food processing plants from KE Engineering. A strategic acquisition directly linked to expanding central monitoring system orders and strengthening the stock-based business in the Industrial Systems segment. Closing scheduled for July 1. Notice of Business Acquisition
2026/05/27
FY2026/3 Earnings Presentation Materials — Updated Phase 2 of the medium-term management plan, revising FY2027 targets upward to revenue JPY 52.0B, operating income JPY 13.0B, and ROE ≥15%. FY2026/3 Earnings Presentation Materials
2026/05/07
Change in Capital Allocation Policy — Introduced a progressive dividend policy with new benchmarks of ROE ≥15%, payout ratio ≥40% / DOE ≥7%. Commitment to simultaneous enhancement of capital efficiency and shareholder returns. Notice of Change in Capital Allocation Policy
2026/05/07
Dividend Increase — FY2026/3 year-end dividend raised from JPY 91 to JPY 99, bringing the annual dividend to JPY 160 (pre-split). Notice of Dividend Increase

Previous Quarter Results (FY2026/3 4Q Actuals)

Nippon Dengi is a specialized instrumentation engineering company focused on the design, installation, and maintenance of HVAC automatic control systems, holding a niche-top position in HVAC controls for buildings and factories. Under Phase 2 of its medium-term management plan, the company targets FY2027 revenue of JPY 52.0B and operating income of JPY 13.0B, pursuing growth through both new construction projects for data centers and factories and existing facility renovation work. In FY2026/3, the company achieved an OPM of 25.5% and ROE of 19.6%, demonstrating high capital efficiency, with COGS ratio improvement (52.6%, from 56.7%) underpinning earnings growth.

Item	Amount	YoY	vs. Guidance	Remarks
Revenue	JPY 46.4B	+7.7%	-	HVAC Instrumentation +5.9%, Industrial Systems +26.5%
Operating Income	JPY 11.8B	+29.6%	-	OPM 25.5% (prior year 21.2%, +4.3pt)
Recurring Profit	JPY 12.126B	+30.3%	-	Non-operating income JPY 308M (interest & dividend income JPY 230M)
Net Income	JPY 8.442B	+31.6%	-	Effective tax rate 30.5%. Minimal impact from extraordinary items
EPS	JPY 132.49	+31.6%	-	Adjusted for stock splits (1:2 + 1:4)

*Guidance comparison is not shown as full-year guidance figures for the prior year could not be confirmed in the earnings release.

Nihon Dengi Co., Ltd.