Metawater Co., Ltd. Q1 FY2027 Earnings Deep Dive Report

This report provides a multi-faceted analysis of the Q1 FY2027 earnings (for the period ended March 31, 2027) of Metawater Co., Ltd. (Securities Code: 9551), a comprehensive engineering firm specializing in water environment infrastructure. Based on the company's official earnings presentation, we analyze performance highlights, segment trends, financial structure, and full-year outlook.

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1. Earnings Highlights and General Overview

In the first quarter (April 1, 2026, to June 30, 2026), the company achieved revenue growth and expanded orders driven by the contribution of newly consolidated subsidiaries and the steady progress of large-scale construction projects. Conversely, the company reported an operating loss due to upfront investments in SG&A expenses and the booking of one-time costs related to quality defect countermeasures. However, according to management, this progress is largely in line with the initial plan .

Key performance metrics for Q1 are as follows:

• Orders Received : 74,262 million yen (+6.6% YoY / +4,617 million yen)
• Net Sales : 37,677 million yen (+14.0% YoY / +4,622 million yen)
• Operating Profit : -910 million yen (vs. -603 million yen in the same period last year)
• Ordinary Profit : -861 million yen (vs. -665 million yen in the same period last year, including 134 million yen in foreign exchange gains)
• Quarterly Net Profit Attributable to Owners of Parent : -711 million yen (vs. -1,003 million yen in the same period last year)
• Order Backlog : 425,884 million yen (+70,592 million yen from the end of the previous fiscal year)

[Commentary and Significance of Slide 3]

The slide above provides a comprehensive overview of the Q1 consolidated results, progress against annual targets, and the characteristics of the business structure. Notably, the order backlog has reached an extremely high level of 425.884 billion yen . This represents a significant increase from the 355.291 billion yen at the end of the previous fiscal year, serving as a solid foundation for long-term revenue growth.

Furthermore, as shown in the "Quarterly Sales Composition" chart on the top right, the company's primary customers are domestic public sector entities, leading to a tendency for deliveries and project completions to concentrate at the end of the fiscal year. Consequently, Q1 sales typically account for only around 15% of the annual total , and the company follows a seasonal pattern where operating losses are common early in the year, with profits heavily skewed toward the fourth quarter . The expansion of the operating loss this quarter should be viewed in the context of this business structure and the impact of front-loaded expenses.

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2. Analysis of Operating Profit Fluctuations

Operating profit decreased by 306 million yen from -603 million yen in the same period last year to -910 million yen. The detailed factors are as follows:

1. Revenue Growth Effect (+1,000 million yen) : Driven by the consolidation of Schwing Bioset, Inc. and E&P Anlagenbau GmbH (not included in Q1 of the previous year) and the steady progress of large-scale construction projects in the Environmental Engineering business.

2. Improvement in Gross Profit Margin (+500 million yen) : The cost-to-sales ratio improved, and the gross profit margin rose by 1.5 percentage points from 20.8% to 22.3% compared to the same period last year, thanks to an improved product mix and higher margins on repair projects.

3. Increase in SG&A Expenses (-1,800 million yen) : This was the primary factor for the profit decline. SG&A expenses rose due to the new consolidation of Schwing Bioset (approx. 1.3 billion yen) associated with global expansion and increased sales promotion expenses.

In summary, while the company's core earning power (gross profit) has improved, operating profit was temporarily pressured by upfront costs associated with group expansion and the front-loading of costs for unprofitable projects.

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3. Segment Performance Analysis

The company operates through four reporting segments: "Environmental Engineering," "System Solution," "Service Solution," and "Overseas."

[Commentary and Significance of Slide 7]

The slide above is one of the most critical data points, providing a comprehensive list of orders, sales, and operating profit for the four segments in Q1, along with year-on-year changes. Because growth drivers and profitability factors differ by segment, this data is essential for accurately interpreting the overall loss and the strengths of each segment.

(1) Environmental Engineering (EE) Business

• Orders Received : 21,013 million yen (+26.7% YoY)
• Net Sales : 9,497 million yen (+11.0% YoY)
• Operating Profit : -727 million yen (vs. -427 million yen in the same period last year) Despite revenue growth from large-scale construction projects, the operating loss widened due to the front-loaded booking of defect countermeasure costs for certain products and declining profitability in some resource environment construction projects. However, the order backlog has steadily accumulated to 129,652 million yen .

(2) System Solution (SS) Business

• Orders Received : 19,346 million yen (-26.2% YoY)
• Net Sales : 7,269 million yen (+5.3% YoY)
• Operating Profit : -1,141 million yen (vs. -1,168 million yen in the same period last year, an improvement of 27 million yen ) While orders decreased temporarily due to the reaction from a concentration of large-scale projects in the same period last year, the order backlog remains robust at 109,130 million yen . The loss narrowed due to steady progress in repair work and improved profitability on previously unprofitable projects.

(3) Service Solution Business

• Orders Received : 15,172 million yen (+13.5% YoY)
• Net Sales : 6,126 million yen (+5.6% YoY)
• Operating Profit : 239 million yen (+111.5% YoY / 3.9% operating margin) This is a growth segment responsible for facility operation and O&M. Driven by strong new orders for operation services and the steady expansion of service subsidiaries, the segment achieved revenue growth and doubled its operating profit , contributing stably to the company's bottom line. The order backlog stands at 127,480 million yen .

(4) Overseas Business

• Orders Received : 18,729 million yen (+39.0% YoY)
• Net Sales : 14,784 million yen (+25.3% YoY)
• Operating Profit : 717 million yen (-18.4% YoY / 4.8% operating margin) Operating primarily through North American and European subsidiaries (e.g., Aqua-Aerobic Systems, Inc. and Schwing Bioset), the segment achieved significant growth in both orders and sales due to strong demand for core products. Operating profit fell year-on-year due to the front-loading of costs for low-margin projects at Schwing Bioset and the amortization of intangible assets (approx. 300 million yen in goodwill amortization). However, the order backlog has surged to 59,621 million yen .

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4. Financial Position and Cash Flow Structure

Balance Sheet (B/S) Movements

• Total Assets : 210,539 million yen (-9,753 million yen from the end of the previous fiscal year)
  • With the collection of trade receivables and contract assets that had inflated at the end of the previous fiscal year, trade receivables decreased by 47,810 million yen , resulting in an increase in cash and deposits of 32,106 million yen (to 59,372 million yen) .
• Liabilities : 117,803 million yen (-8,338 million yen from the end of the previous fiscal year)
  • Trade payables decreased by 11,841 million yen due to progress in payments for purchases.
• Net Assets : 92,735 million yen (-1,415 million yen from the end of the previous fiscal year)
  • The equity ratio remains at a healthy level of 43.4% .

Cash Flow (C/F) Status

• Operating Cash Flow : 38,763 million yen inflow (vs. 44,618 million yen inflow in the same period last year)
  • The company generated a very healthy operating cash flow for a first quarter due to the smooth collection of trade receivables.
• Investing Cash Flow : -4,924 million yen outflow (capital expenditures, etc.)
• Free Cash Flow : 33,839 million yen generated

The balance of cash and cash equivalents at the end of the quarter was 58,830 million yen , ensuring sufficient liquidity to support investments for business expansion and shareholder returns.

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5. Full-Year Earnings Forecast and Growth Story

The company has maintained its full-year consolidated earnings forecast for FY2027, aiming for revenue growth and a significant profit increase to reach record-high earnings .

[Commentary and Significance of Slide 15]

The slide above shows the full-year segment forecasts for FY2027. The highlight is the plan to achieve record-high operating profit of 15.0 billion yen (+16.5% / +2.121 billion yen YoY) , alongside revenue growth across all segments.

Key Full-Year Targets:

• Orders Received : 246,000 million yen (-10.4% YoY, maintaining a high level while accounting for the reaction to large-scale projects in the previous year)
• Net Sales : 240,000 million yen (+14.4% YoY / +30,156 million yen)
• Operating Profit : 15,000 million yen (+16.5% YoY / +2,121 million yen)
• Ordinary Profit : 14,500 million yen (+11.8% YoY)
• Net Profit Attributable to Owners of Parent : 10,000 million yen (+11.5% YoY)
• Annual Dividend Forecast : 80 yen/share (40 yen at Q2 end, 40 yen at year-end)

Points of the Full-Year Growth Story:

1. Conversion of Record-High Backlog into Revenue : The order backlog exceeding 400 billion yen accumulated at the end of the previous fiscal year and Q1 strongly supports revenue growth for this fiscal year.
2. Overseas Business as a Profit Driver : Overseas operating profit is expected to reach 4.6 billion yen (+40.0% / +1.315 billion yen YoY) , serving as the largest driver of group-wide profit growth. Full-year consolidation of Schwing Bioset and E&P, combined with PMI effects and the completion of unprofitable project processing, will contribute to margin improvement.
3. Stable High Profitability in Domestic Business : The expansion of public-private partnership (PPP/PFI) and DBO (Design-Build-Operate) projects is increasing the ratio of stock-based business, which covers everything from design and construction to maintenance and operation, thereby stabilizing the earnings base.

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Conclusion

Although Metawater reported an operating loss in Q1 FY2027 due to seasonal factors, one-time defect countermeasure costs, and upfront M&A-related expenses, the company's business fundamentals remain extremely robust, characterized by expanding orders and sales, improved gross margins, and an overwhelming accumulation of order backlog .

Given the concentration of sales and profits in the second half (particularly Q4), the company is making steady progress toward achieving its record-high full-year operating profit target of 15 billion yen , supported by the digestion of its abundant order backlog and the improved profitability of overseas subsidiaries.