■ Performance trends of Nippon Electric Technology <1723>

3. Status of segments

The performance by segment shows significant inconsistency in numerical terms, but management resources are concentrated on new construction in the air conditioning instrumentation-related business. The inconsistency in revenue and segment profits of the air conditioning instrumentation-related business is likely due to seasonal volatility, as the completion and delivery of projects are concentrated in the fourth quarter, resulting in increased operating rates and revenue, compounded by the rebound from the completion of large-scale projects during the same period last year. In fact, it can be said that the demand for the company's various businesses and projects is stronger than expected given the business environment.

Regarding the air conditioning instrumentation-related business, revenue was 13,507 million yen (a 3.2% decrease compared to the same period last year), but the order intake was 23,457 million yen (a 12.4% increase), and segment profit was 4,019 million yen (a 28.2% increase), indicating strong performance. The order intake included new construction at 8,843 million yen (a 30.9% increase) and existing construction at 14,613 million yen (a 3.6% increase). The new construction was bolstered by urban redevelopment projects in the metropolitan area and Osaka, as well as the addition of urban redevelopment in Sapporo and Nagoya, and the favorable progress of datacenters backed by the strengthening of domestic semiconductor-related factory production and the expansion of demand for AI and cloud services. Notable features include the emergence of large projects in rural areas, an increase in order value due to larger projects, and improved profitability through selective order-taking. For existing construction, large-scale renovation projects like factories are gradually coming in. Revenue for new construction was 6,302 million yen (a 10.6% decrease), and existing construction was 7,205 million yen (a 4.3% increase). The reduction in revenue from new construction is due to the completion of large projects such as Toranomon, Azabudai, and Yokohama Minato Mirai in the same period last year but is considered to be progress as expected from seasonal volatility. Existing construction has seen an increase in projects for research facilities and Medical Care Facilities. Segment profit exceeded the modest predictions set based on anticipated cost push and the '2024 problem', as there were many inquiries, and limited companies, including the firm, were able to selectively take on orders, making it easier for estimates to pass.

In the industrial systems-related business, the order intake increased to 1,960 million yen (a 14.9% increase compared to the same period last year) due to large electrical works won at pharmaceutical and food factories. Revenue fell to 1,480 million yen (a 9.1% decrease) due to the absence of large electrical works from pharmaceutical factories that occurred in the same period last year. Segment profit improved to 132 million yen (a 39.2% increase) due to the occurrence of high-margin spot sales in maintenance and Software. The industrial systems-related business is a newly started division, and since personnel have been allocated to the air conditioning instrumentation-related business, it gives the impression that full-fledged activities have not yet begun, but high demand can be inferred from the order intake.

(Author: FISCO guest analyst Nobumitsu Miyata)