Key Positives From The 2Q Results
Revenue was JPY 19,758M (+5.8% YoY) and operating income JPY 4,549M (+9.9% YoY). Profit growth outpaced revenue growth. The drivers were large retrofit projects for factories and offices and a better gross profit margin (46.6%, +1.4pt). Orders received of JPY 33,303M (+18.6% YoY) far exceeded revenue. We view the resulting backlog build as a positive, as it underpins revenue in 2H and next fiscal year.
- Margin Expansion: Gross profit margin improved to 46.6% (+1.4pt), lifting OPM to 23.0% (+0.8pt). Higher retrofit revenue drove profit growth.
- Strong Book-to-Bill: Orders received were 1.69x revenue (our estimate). Backlog rose in both segments: JPY 42,707M (+33.6%) in Air-Conditioning Instrumentation and JPY 4,314M (+31.4%) in Industrial Systems.
- New-Build Orders Surge: Air-Conditioning Instrumentation new-build orders reached JPY 12,361M (+36.2%), led by research facilities and factories. New-build backlog of JPY 22,170M (+53.9%) builds the revenue base for next fiscal year and beyond.
- Industrial Systems Growth: Revenue rose +17.5% and segment profit +15.6%, driven by electrical work and software. Both segments delivered higher revenue and profit.
- Dividend Increase: The full-year dividend forecast is JPY 56, up JPY 16 YoY on a split-adjusted basis. The forecast payout ratio of 41.0% (our estimate) signals a stronger commitment to shareholder returns.
Key Concerns From The 2Q Results
Cumulative profit rose, but standalone 2Q (Jul–Sep) operating income fell to JPY 2,793M (-3.1% YoY, our estimate). The strong 1Q (+39.5%) carried the cumulative result. Standalone 2Q SG&A rose +15.7% YoY (our estimate), outpacing revenue growth. The key sustainability question is whether rising fixed costs, including personnel expenses, are starting to offset margin gains.
- 2Q Gross Margin Decline: Standalone 2Q gross profit margin was 46.3% (-1.4pt YoY, our estimate). The cumulative gross margin improvement came largely from 1Q.
- Weak New-Build Revenue: Air-Conditioning Instrumentation new-build revenue fell to JPY 6,298M (-18.8%) on a pullback in factory and medical facility projects. Conversion of new-build orders into revenue is pushed to 2H and beyond.
- Lagging Revenue Progress Rate: Revenue progress of 38.4% trails the prior-year 1H share of full-year actuals (40.3%). Meeting the plan requires 2H revenue growth of +14.6% YoY (our estimate).
- Decelerating Growth In Plan: The full-year plan calls for operating income +5.7% and net income +3.0%, implying a slowdown from 1H growth (+9.9% and +11.2%).
- Market Exposure: Interim comprehensive income fell to JPY 3,645M (-9.1%). Investment securities of JPY 19,312M account for 32.1% of total assets (our estimate), leaving results sensitive to market swings.
Focus Areas / Items To Monitor Going Forward
- 2H Revenue Delivery: Visibility on achieving 2H revenue of JPY 31,742M (our estimate), given completions and handovers concentrated in 4Q. The pace of backlog conversion is the key focus.
- Gross Margin Resilience: Whether the gross profit margin can hold in the 46% range amid rising personnel costs, including the compensation improvements announced in August. We need to determine whether the 2Q standalone margin decline is temporary.
- New-Build Backlog Timing: Revenue recognition timing and profitability of the JPY 22,170M (+53.9%) new-build backlog, which will drive next year's growth rate.
- Expected revenue recognition of the new-build backlog by period (2H vs. next fiscal year) and assumed gross margins
- Breakdown of the 2Q standalone SG&A increase, and the full-year impact of higher starting salaries and compensation improvements
- Sustainability of strong retrofit growth (revenue +24.7%), and trends in order pricing and cost pass-through
- Reasons for the increase in other property, plant and equipment (JPY 620M → JPY 1,551M) and asset retirement obligations (JPY 85M → JPY 310M), and the impact on future fixed costs
- Policy on deploying surplus funds, including securities and investment securities, and the medium-term positioning of a higher payout ratio
Key Financial Highlights
| Item | Value | YoY |
|---|---|---|
| Orders Received | JPY 33,303M | +18.6% |
| └ Air-Conditioning Instrumentation Business | JPY 30,689M | +19.2% |
| └ Industrial Systems Business | JPY 2,614M | +12.7% |
| Revenue | JPY 19,758M | +5.8% |
| Gross Profit | JPY 9,203M | +9.0% |
| Gross Profit Margin | 46.6% | +1.4pt |
| SG&A | JPY 4,653M | +8.2% |
| Operating Income | JPY 4,549M | +9.9% |
| Operating Income Margin | 23.0% | +0.8pt |
| Non-Operating Income | JPY 296M | +89.7% |
| └ Interest Income | JPY 85M | +60.4% |
| └ Dividend Income | JPY 103M | +49.3% |
| Recurring Profit | JPY 4,846M | +12.8% |
| Interim Net Income Attributable to Owners of Parent Company | JPY 3,300M | +11.2% |
| EPS | JPY 51.78 | +11.1% |
| Order Backlog (Air-Conditioning Instrumentation) | JPY 42,707M | +33.6% |
| Order Backlog (Industrial Systems) | JPY 4,314M | +31.4% |
*Gross profit margin, operating income margin, YoY changes in the non-operating income breakdown, and EPS growth are our estimates. EPS is retroactively adjusted for the 4-for-1 stock split effective April 1, 2026. Recurring profit growth (+12.8%) exceeded operating income growth due to higher interest and dividend income.
Performance By Business Segment
In the core Air-Conditioning Instrumentation segment, retrofit growth offset the pullback in new-build work, delivering higher revenue and profit. Industrial Systems posted double-digit revenue and profit growth. Adjustments (corporate expenses) were -JPY 2,408M, in line with the prior year (-JPY 2,415M).
Segment Performance Table
| Segment | Revenue | YoY | Operating Income | YoY | Margin |
|---|---|---|---|---|---|
| Air-Conditioning Instrumentation Business | JPY 17,403M | +4.4% | JPY 6,524M | +5.6% | 37.5% |
| Industrial Systems Business | JPY 2,354M | +17.5% | JPY 433M | +15.6% | 18.4% |
| Adjustments | - | - | -JPY 2,408M | - | - |
| Consolidated | JPY 19,758M | +5.8% | JPY 4,549M | +9.9% | 23.0% |
*There are no inter-segment sales; external customer revenue equals total revenue. Margins are our estimates.
- Air-Conditioning Instrumentation – Retrofit: Revenue of JPY 11,105M (+24.7%), driven by large retrofit projects for factories and offices. Orders also expanded to JPY 18,328M (+9.9%), led by factories and hospitality facilities.
- Air-Conditioning Instrumentation – New-Build Orders: JPY 12,361M (+36.2%), on growth in new construction for research facilities and factories. New-build backlog reached JPY 22,170M (+53.9%).
- Industrial Systems: Revenue +17.5% and segment profit +15.6%. Electrical work and software drove revenue, while production equipment ancillary work and electrical work drove orders. Orders received were JPY 2,614M (+12.7%).
- By Revenue Recognition Method: Goods transferred over time totaled JPY 14,865M (+7.8%, our estimate). Percentage-of-completion revenue was the main growth driver.
- Air-Conditioning Instrumentation – New-Build Revenue: JPY 6,298M (-18.8%), reflecting a pullback in new-build projects for factories and medical facilities. Given the expansion in new-build orders and backlog, this looks largely like a timing shift.
- Industrial Systems Margin: 18.4% (vs. 18.7% in the prior year, our estimate). Margins were roughly flat despite higher revenue.
Progress Versus Full-Year Guidance
Operating income progress of 36.4% exceeds the prior-year 1H share of full-year actuals (35.0%, our estimate). Revenue progress of 38.4%, however, trails the prior year (40.3%). Required 2H operating income is JPY 7,951M, only +3.5% YoY versus the prior-year 2H (our estimate). Given the Air-Conditioning Instrumentation backlog (+33.6%) and the concentration of revenue in 4Q, a 2H performance in line with last year would be enough to meet the profit plan.
| Item | Value (2Q Cumulative) | Full-Year Forecast | Progress |
|---|---|---|---|
| Revenue | JPY 19,758M | JPY 51,500M | 38.4% |
| Operating Income | JPY 4,549M | JPY 12,500M | 36.4% |
| Recurring Profit | JPY 4,846M | JPY 12,700M | 38.2% |
| Net Income | JPY 3,300M | JPY 8,700M | 37.9% |
| EPS | JPY 51.78 | JPY 136.49 | 37.9% |
- Project completions and handovers cluster in 4Q, when utilization rates also peak. As a result, 4Q revenue tends to exceed 1Q–3Q levels (company disclosure).
- In the prior fiscal year, 1H accounted for 40.3% of full-year revenue and 35.0% of operating income (our estimate), reflecting a 2H-weighted profit structure.
Changes To Guidance
Full-year guidance announced on May 7, 2026 is unchanged (revenue JPY 51,500M, operating income JPY 12,500M, net income JPY 8,700M). Given 1H progress and the backlog build, the pace of 2H completions and handovers will determine any upside potential.
Commentary On Shareholder Returns
The interim dividend is JPY 20 (vs. JPY 15.25 in the prior year, split-adjusted). The year-end forecast is JPY 36, keeping the annual forecast unchanged at JPY 56. This is an increase of JPY 16 from the prior-year actual of JPY 40 (split-adjusted). The payout ratio on forecast EPS of JPY 136.49 is 41.0%, up from 30.2% in the prior year (both our estimates). There was no mention of share buybacks.
Financial Position
The company is debt-free, with an equity ratio of 81.3% (+4.6pt vs. the prior year-end), reflecting a solid balance sheet. Cash and deposits plus securities total JPY 17,309M (our estimate). The company also holds JPY 19,312M of investment securities.
- Key Figures
- Leverage Metrics
| Item | Value | Additional Information |
|---|---|---|
| Cash and Deposits | JPY 9,235M | -12.8% vs. prior year-end |
| Securities | JPY 8,074M | -13.5% vs. prior year-end |
| Investment Securities | JPY 19,312M | +9.2% vs. prior year-end. Main driver of the increase in non-current assets |
| Notes Receivable, Accounts Receivable from Completed Construction Contracts, etc. | JPY 7,944M | -29.4% vs. prior year-end. Collection of year-end receivables |
| Costs on Construction Contracts in Progress | JPY 1,981M | +162.0% vs. prior year-end |
| Advances Received on Construction Contracts in Progress | JPY 2,848M | +112.9% vs. prior year-end |
| Shareholders' Equity | JPY 48,926M | +4.4% vs. prior year-end |
| Income Taxes Payable | JPY 807M | JPY 2,633M at prior year-end |
| Interest-Bearing Debt | - | No borrowings on the balance sheet |
| Metric | Value | Notes |
|---|---|---|
| Debt/Equity | 0.00x | No borrowings; our estimate |
| Equity Ratio | 81.3% | 76.7% at prior year-end; company disclosure |
Disclosures Released Alongside The Earnings Announcement
Major Announcements During The Quarter
- 2026/08/26Announced higher starting salaries for new graduates and improved employee compensation. This signals a priority on talent acquisition; the impact on SG&A needs monitoring
- 2026/09/28Announced a secondary share offering, aimed at broadening the shareholder base and improving liquidity
- 2026/10/06Determined the offering price and other terms of the secondary offering
- 2026/10/07Announced inclusion in the TOPIX. This could attract index-linked inflows and broaden the investor base
Large-Shareholding Filings / Material Proposals Over The Past Year
- Mizuho Bank: 5.2%→2.7% (2026/10/15) - Held to strengthen business ties with the issuer and under trust assets and discretionary investment contracts. Filed due to changes in collateral agreements and a decrease in holdings of 1% or more
- Ryosuke Shimada: 6.3%→5.7% (2026/10/06) - Held as a stable shareholder in his capacity as President and Representative Director. Filed due to the execution of collateral agreements relating to share certificates
- Fidelity Management & Research Company LLC: 9.4%→8.5% (2026/04/30) - Held to manage client assets under trust and discretionary investment contracts
- Fidelity Management & Research Company LLC: 10.0%→9.4% (2026/03/13) - Held to manage client assets. Filed due to an increase in the share of holdings related to securities lending transactions
- FMR LLC: 9.3%→9.4% (2026/03/13) - Held to manage client assets. Amendment report
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