Takasago Thermal Engineering FY2026 Q1 Earnings Deep Dive: Driving Toward Record Full-Year Results Through Improved Profitability and Overseas Expansion

1. Earnings Summary and Highlights

Takasago Thermal Engineering’s consolidated results for the first quarter (Q1) of FY2026 showed a decline in both revenue and profit, primarily due to the reactionary impact of concentrated revenue recognition from several large-scale projects in the same period last year. However, the gross profit margin reached 22.5% , marking the highest level ever recorded for a first quarter, while both order intake and the backlog of construction contracts (carried-forward work) showed robust momentum.

• Net Sales : ¥84.922 billion (down 9.9% YoY)
• Operating Profit : ¥8.481 billion (down 16.2% YoY; operating margin of 10.0% )
• Ordinary Profit : ¥9.621 billion (down 11.8% YoY)
• Quarterly Net Profit Attributable to Owners of Parent : ¥6.480 billion (down 28.4% YoY)
• Order Intake : ¥106.598 billion (up 1.7% YoY)
• Backlog of Construction Contracts : ¥433.250 billion (up 12.2% YoY)

On a non-consolidated basis, the decline in sales due to the absence of large-scale projects from the previous year (down 17.6% YoY) weighed on the overall figures. However, domestic and overseas consolidated subsidiaries achieved significant profit growth, providing strong support for the overall profit level.

Slide Commentary (PAGE_4): Breakdown of FY2026 Q1 Consolidated Results

This slide is a critical document illustrating the consolidated profit and loss structure for Q1 FY2026, broken down by "Non-consolidated," "Domestic Subsidiaries," and "Overseas Subsidiaries." Of particular note is the expansion of overseas subsidiary performance . Overseas subsidiaries saw sales reach ¥18.584 billion (up 15.4% YoY) , with operating profit surging to ¥1.699 billion (up 262.1% YoY) . The gross profit margin also improved significantly to 18.1% (up 7.6 percentage points YoY), confirming the diversification of the group's overall earnings structure. Furthermore, the backlog of construction contracts, which indicates the volume of work on hand, reached ¥433.250 billion (up 12.2% YoY) for the entire group, demonstrating a solid foundation for construction work over the medium to long term.

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2. Segment and Structural Factor Analysis

(1) Factors Behind Operating Profit Changes (YoY)

The primary factors for the change in consolidated operating profit (¥8.481 billion) are as follows:

1. Decrease in Non-consolidated Gross Profit (-¥2.874 billion) : Reactionary decline following the concentrated revenue recognition of multiple large-scale industrial HVAC projects in Q1 of the previous fiscal year.
2. Increase in Non-consolidated SG&A Expenses (-¥0.427 billion) : Investments in human capital due to base pay increases and the acceleration of DX-related investments.
3. Increase in Domestic Subsidiary Profit (+¥0.349 billion) : Improvements driven by the implementation of sales enhancement measures and successful cost-reduction activities (operating profit up 294.5% YoY).
4. Increase in Overseas Subsidiary Profit (+¥1.229 billion) : Smooth progress of construction projects in Singapore, India, and other regions, alongside improved profitability.

(2) Order Trends and Construction Breakdown

In non-consolidated orders, a balance and qualitative shift can be observed between General HVAC and Industrial HVAC .

• General HVAC : Orders for renovation (RN) work remain extremely strong, with renovation projects accounting for 76% (¥36.7 billion) of general HVAC orders. Projects for office buildings and educational facilities are driving this growth.
• Industrial HVAC : Demand from the manufacturing sector, including semiconductor, battery, and automotive plants, remains firm, securing ¥31.5 billion in orders. The renovation ratio in industrial HVAC has also risen to 94% .
• Prime Contractor Ratio : The non-consolidated prime contractor ratio rose to 55.0% (from 52.4% in the same period last year), and the ratio including cost-plus contracts remains at a high level of 63.8% .

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3. Full-Year Earnings Forecast and Outlook

Takasago Thermal Engineering has maintained its full-year earnings forecast for FY2026, aiming to update record highs across all profit items and order intake.

• Full-Year Sales Plan : ¥440 billion (up 3.8% YoY)
• Full-Year Operating Profit Plan : ¥50 billion (up 4.7% YoY; operating margin of 11.4% )
• Full-Year Ordinary Profit Plan : ¥52 billion (up 2.7% YoY)
• Full-Year Net Profit Plan : ¥40 billion (up 6.7% YoY)
• Full-Year Order Intake Plan : ¥520 billion (up 13.0% YoY; first time exceeding ¥500 billion )
• Full-Year Backlog Plan : ¥491.574 billion (up 19.4% YoY)

Slide Commentary (PAGE_12): FY2026 Full-Year Earnings Forecast

This slide is the core of the financial results presentation, summarizing the FY2026 plan and comparing it with past performance. The biggest topic is the challenging plan to surpass the ¥500 billion milestone for annual orders for the first time, targeting ¥520 billion (up 13.0% YoY) . Backed by overwhelming sales information in the semiconductor, pharmaceutical, and information/communication (data center) sectors, the company aims to increase the efficiency of converting orders into sales and profits by building an efficient construction system (e.g., utilization of T-Base®). The company has also clearly stated its commitment to pursuing both profitability and capital efficiency, aiming for a non-consolidated operating profit margin of 13.8% and a consolidated ROE of approximately 19.0% .

Backing of Sales Information

The volume of sales information for projects targeted for orders within the fiscal year on a non-consolidated basis has increased since the beginning of the year, centered on semiconductor-related projects. In the renovation field, the company maintained approximately 80% of the sales information available at the start of the year as of the end of Q1, securing a high level of project information compared to previous years.

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4. Progress of Medium-Term Management Plan 2026 and Growth Strategy

The company is steadily promoting key measures (KPIs) for structural reform and sustainable growth under its Medium-Term Management Plan 2026.

(1) Transformation of Construction Business Process: "T-Base® Project"

T-Base®, which promotes off-site construction (pre-fabrication and modularization), is a core project directly linked to productivity improvement and the reduction of on-site labor hours.

• FY2030 Goal : Contribution of ¥50 billion increase in completed construction volume via T-Base®.
• Q1 Progress : Involved in 150 sites (55% progress against the full-year plan of 150 sites), on-site labor reduction of 140,000 hours (26% progress), and unit production of 3,500 units (35% progress against the 10,000-unit plan), all progressing smoothly.
• Environmental Consideration : Started utilizing 100% recycled aluminum for unit production at T-Base®, achieving a 10.8% reduction in CO2 emissions during the construction process.

(2) Initiatives Toward a Decarbonized Society (Green Hydrogen Business)

As an "Environmental Creator®," the company is pushing forward the social implementation of its proprietary green hydrogen technology.

• Kirin Brewery Hokkaido Chitose Plant : First introduction of the company's water electrolysis system, "Hydro Creator™." A demonstration project has begun, combining solar power generation and hydrogen boilers with the goal of reducing GHG emissions by approximately 464 tons annually.
• Iino Building : Introduced green hydrogen production and utilization equipment to a high-rise complex in central Tokyo owned by Iino Kaiun, contributing to the building's overall value and BCP measures.
• Uruma City, Okinawa Prefecture : Commenced a joint demonstration project with Okidenko and others for the utilization of green hydrogen derived from renewable energy (scheduled to start in March 2027).

(3) Initiatives for Strengthening Human Capital

The company positions the expansion of human capital as the source of growth and is making active investments.

• Recruitment Capability : For the class starting in April 2027, the company has secured 137 job offers , exceeding the recruitment plan of 120.
• Training and Development : Total training hours increased by 7.1% YoY (234,904 hours) due to the expansion of the training system.
• Compensation Improvement : Against the backdrop of revisions to the compensation system and base pay increases, the average annual income is on an upward trend, reaching an estimated ¥12,457,000 for FY2025.

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5. Capital Allocation and Shareholder Return Policy

The company operates a capital allocation framework that optimally distributes generated cash between growth investments and shareholder returns.

Slide Commentary (PAGE_19): Medium-Term Management Plan 2026 Capital Allocation

This slide clearly illustrates the cash-in and cash-out distribution plan during the medium-term management plan period (the three years from FY2023 to FY2025 and the FY2026 outlook). With the increase in operating cash flow, the outlook for cash generated by business operations has expanded to ¥163 billion (an increase of ¥26 billion) . Furthermore, the company expects a cash-in of ¥20 billion through the reduction of cross-shareholdings (targeting a net asset ratio of 15% or less). Based on these funds, the company plans to allocate over ¥90 billion to growth investments such as BIM, T-Base, CN, M&A, and human capital investment. At the same time, it plans to allocate over ¥58 billion to shareholder returns (dividends + share buybacks) , demonstrating a clear allocation structure that balances active growth investment with enhanced shareholder returns.

Specific Shareholder Return Plan

• Dividend Forecast : The annual dividend forecast for FY2026 is ¥123 per share (¥61 interim, ¥62 year-end). (Based on the post-split basis, reflecting the 2-for-1 stock split effective October 1, 2025).
• Dividend Policy : The basic policy is a progressive dividend linked to sustainable profit growth, with a target dividend payout ratio of 40% .
• Total Return : The company maintains a high level of returns, including flexible share buybacks (approximately ¥8 billion implemented from April to June 2025).

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6. Conclusion and Summary

Takasago Thermal Engineering’s Q1 FY2026 results showed a temporary decline in revenue and profit due to the reactionary impact of large-scale projects from the previous year. However, a closer examination reveals the qualitative strength of its earnings structure, highlighted by the highest-ever gross profit margin (22.5%) and the rapid profit expansion of overseas subsidiaries (+262%) .

In its full-year plan, backed by a rich backlog of construction contracts (¥433.2 billion) and a high level of sales information, the company aims to achieve ¥520 billion in orders for the first time and update record highs for sales and profits . With all-encompassing strategies—such as on-site construction efficiency via T-Base®, commercialization of the decarbonization sector (green hydrogen), investment in human capital, and expansion of shareholder returns—progressing smoothly, these results highlight a company with significant future potential.