Performance Trend 1. Overview of performance for FY3/2024 Consolidated performance for FY3/2024 of G-7 Holdings <7508> was 192,992 million yen in increased operating income of 9.1% over the previous year, and increased ordinary income of 7.4% to 7,318 million yen, and attributed to the parent company's net income of 5,175 million yen, an increase of 35.3% over the previous year. Sales were driven by the Business Supermarket Business and the Meat Business, and continued to set a new record high, exceeding the company's plan by 4.3%. However, in terms of profits, the automobile-related business was affected by a decrease in profits due to poor sales of winter tires due to a warm winter, and could not reach the company's plan, it turned to a profit increase for the second time due to the growth of other businesses centered on the Business Supermarket business. The sales cost ratio has increased by 0.8 points over the previous year due to changes in the sales composition ratio; however, the selling, general and administrative expense ratio decreased by 0.7 points due to the effect of increased earnings, and the operating margin decreased by 0.1 points to 3.6%. The main reasons for the increase/decrease of selling, general and administrative expenses were a decrease of 600 million yen in energy costs due to subsidies from rising electricity prices, and an increase of 1 billion yen in labor costs due to improvements in employee treatment and increased education costs. In addition to this, depreciation expenses increased by nearly 600 million yen due to rising construction material costs and rising costs of opening stores etc. The EBITDA margin has increased by 0.1 points from the previous year. Also, the reason for the large increase in the net income of the parent company's shareholders attributable to the current period is due to the elimination of 500 million yen in retirement benefits paid to executives that were recorded as special losses in the previous year, a decrease of 455 million yen in impairment losses, and a gain of 127 million yen on the sale of investment securities in FY3/2024.

3. Performance outlook for the year ending March 2025

Shinko Kogyo <6458> forecasts an increase in sales revenue by 4.0% compared to the previous year, expected to reach 54000 million yen, with operating profit increasing by 5.5% to 9100 million yen, ordinary profit increasing by 4.2% to 9500 million yen, and net income attributable to parent company shareholders increasing by 3.3% to 6800 million yen.

The order amount related to the construction planning and piping and equipment work is at a high level, and the demand for industrial air conditioning, such as factories, research facilities, and datacenters, remains strong. On the other hand, the 2024 problem is expected to bring certain changes to the business environment of the air conditioning equipment industry. In this environment, based on the group market strategy of the new medium-term management plan "move.2027", the company will focus on expanding sales in the domestic datacenter air conditioning market, heat pump market, and air conditioning work market, as well as developing new markets using cooling tower materials. In particular, the air conditioning market for datacenters, which requires high capacity and stable operation, is a promising target in which the company can leverage its strengths and focus on developing.

In terms of products and services, as for the air conditioning equipment manufacturing/sales business, central air conditioning units, which are expected to continue to perform well, are expected to drive the company's overall sales, while individual air conditioning, which established a heat pump engineering department after reflecting on the previous year's performance, plans to develop sales channels that lead to small and medium-sized sub-contractors and design offices. In the construction and service business, the company plans to develop personnel who are essential for maintenance by implementing planned hiring and improving working conditions in order to expand its capabilities. In Asia, mainly in China, the company plans to build a business that can ensure high profitability by differentiating itself from other companies in terms of product and service, and by thoroughly reducing costs to avoid being caught up in price competition. Even after releasing the "New Design System" and "SINKO Direct" as part of the SIMA project, the company plans to continue to develop a new production and sales system in order to achieve full effectiveness.

In this way, based on the four group market strategies, while addressing challenges such as enhancing capabilities, selecting orders, building a system through the SIMA project, and gaining proficiency in the system, the company plans to expand sales revenue. However, current orders seem to be progressing smoothly. On the profit side, improvements in gross profit margin are expected to continue due to selected orders and price revisions. On the other hand, selling, general and administrative expenses are expected to increase significantly due to office reforms, the 2024 problem, and expansion of investments. As a result, while both are in the mid-10% range, sales revenue is expected to increase for the fourth consecutive year, and operating profit is expected to increase for the third consecutive year. However, it is worth noting that there is a possibility of exceeding expectations in performance depending on value creation and price revision.

(Author: FISCO guest analyst Nobumitsu Miyata)