Nippon Dry-Chemical CO., LTD.

In FY2026 (ending March 2026), sales from the fire prevention equipment business accounted for 60.8% of total sales, indicating a high degree of dependence on a specific business segment. If construction investment projects decline or capital expenditure plans are postponed, this could directly impact the group's overall business results and financial condition. Although delivery dates, construction periods, and cost management are managed on a per-project basis, there is also an inherent risk of delayed sales recognition due to design changes or rework.

The maintenance business and product business are considered relatively resistant to economic fluctuations due to stable demand driven by regulations such as the Fire Service Act and product service life, but unexpected changes in economic conditions or sharp increases in construction material and labor costs beyond expectations could impact business results. In particular, a contraction in construction demand and capital expenditure is a risk directly linked to orders in the fire prevention equipment business.

Because the company adopts revenue recognition based on the percentage-of-completion method and recognition at project completion for contracted construction work, business results tend to be concentrated in specific quarters depending on construction progress and completion timing. Quarterly operating profit for FY2026 (ending March 2026) fluctuated significantly, from ¥1,448,245 thousand in the first quarter to ¥2,577,465 thousand in the third quarter, making it a factor that complicates investors' earnings forecasts.

The execution of the fire prevention equipment business and maintenance business requires specific construction business licenses (fire protection facility construction and piping construction), which must be renewed every five years (current license valid until February 2030). If the company falls under the disqualification requirements of Articles 8 and 17 of the Construction Business Act, it could face license revocation or business suspension orders, potentially causing significant damage to social trust and contract cancellations, which could seriously affect business continuity.

The Fire Service Act and related laws mandate the installation and maintenance inspection of fire prevention equipment, and revisions to laws or the introduction of new regulations are anticipated in response to changes in social conditions. While new regulations could stimulate demand, they could also necessitate significant changes to investment and business plans, and the resulting increase in compliance costs could affect business results.

While the company supplies products such as fire extinguishing equipment, fire extinguishers, and fire trucks that have been certified by the Japan Fire Equipment Inspection Institute and maintains thorough internal quality control, if a product defect results in a recall or product liability claim, although liability insurance would cover part of the damages, damage to social credibility would be unavoidable. Loss of trust could lead to lost order opportunities, potentially affecting business results and financial condition.

Production functions for fire prevention equipment, fire extinguishers, fire trucks, and other products are concentrated at two locations, the Chiba Plant and the Fukushima Plant, creating a risk that production activities could be disrupted in the event of a natural disaster or equipment accident. Although the company has strengthened safety patrols and conducts regular equipment inspections, if human or physical damage occurs, it could seriously affect business results due to increased costs or supply disruptions.

Although multiple suppliers are secured, some key raw materials are heavily reliant on specific suppliers, creating a risk that a production halt at such a supplier could significantly affect production activities. Additionally, if increases in material costs driven by domestic and overseas market trends cannot be passed on to sales prices, profitability could deteriorate.

Aside from construction management operations, most construction and maintenance work related to fire extinguishing equipment is outsourced, and the company states that it maintains good relationships with numerous subcontractors. However, if the company is unable to secure sufficient subcontractors during a sudden surge in construction projects due to economic fluctuations or other factors, delays in construction periods and increased costs could affect business results and financial condition.

The company holds fixed assets including tangible fixed assets and goodwill arising from mergers, and significant changes in the business environment or deterioration in earnings could necessitate the recognition of impairment losses. In addition, as of the end of FY2026 (ending March 2026), the company recorded deferred tax assets of ¥434 million; if actual taxable income falls significantly short of forecasts or if tax system revisions occur, a reversal of deferred tax assets may be required, potentially affecting business results.