■Summary

The main business of Sankikogyo Co., Ltd. (1961) includes planning, design, manufacturing, supervision, construction, sales, and consulting of building facilities (mainly air conditioning) for office buildings, schools, hospitals, shopping centers, factories, research facilities, etc., as well as plant facilities (such as sewerage treatment facilities). The company's strengths lie in its comprehensive engineering that integrates various businesses and its high technical skills and credibility cultivated over nearly 100 years of experience.

1. For the second quarter of fiscal year 2025: smoothly digesting carry-over projects resulted in an operating profit increase of 362.5% compared to the same period last year. The carry-over amount for the next period is also at a high level.

The performance for the second quarter of fiscal year 2025 showed revenue of 105,950 million yen (an increase of 18.4% compared to the same period last year), operating profit of 5,926 million yen (an increase of 362.5% year-on-year), ordinary profit of 6,639 million yen (an increase of 253.5% year-on-year), and interim profit attributable to the parent company's shareholders of 4,450 million yen (an increase of 215.8% year-on-year). The significant increase in revenue was due to the smooth digestion of ongoing projects. The gross profit margin improved significantly to 16.2% (up from 13.4% in the previous period) due to internal efforts to improve profitability and the progress of highly profitable projects. Additionally, since selling, general and administrative expenses were kept to a 5.5% increase, in line with the budget, the operating profit saw a substantial increase year-on-year. The order intake was also solid at 150,996 million yen (an increase of 20.4% year-on-year), and the carry-over amount at the end of the period reached 243,948 million yen (an increase of 8.7% compared to the end of the previous period), marking a record high at the end of the second quarter.

2. Performance outlook for fiscal year 2025: operating profit is expected to increase by 42.4% compared to the previous period.

For the fiscal year ending March 2025, order intake is expected to reach 230,000 million yen (a decrease of 1.0% compared to the previous period), revenue is projected to be 245,000 million yen (an increase of 10.4% year-on-year), operating profit is anticipated at 16,500 million yen (an increase of 42.4% year-on-year), ordinary profit at 17,000 million yen (an increase of 33.3% year-on-year), and net income attributable to the parent company shareholders is expected to reach 11,600 million yen (an increase of 29.6% year-on-year). These figures represent an upward revision from the initial forecast (revenue of 225,000 million yen, operating profit of 12,500 million yen). The projected gross profit margin is 17.1% (an increase of 1.5 points), while selling, general and administrative expenses are projected to increase by 10.6%. The company stated, 'Of the remaining approximately 140 billion yen toward the expected revenue of 245 billion yen, about 120 billion yen can be recorded from current ongoing projects,' indicating a high likelihood of achieving the performance forecast. Moreover, there is a possibility of further upward revisions depending on future order bookings and progress of construction.

3. The mid-term management plan 'Century 2025' Phase 3 has been completed one year ahead of schedule.

In March 2016, the company announced a long-term vision 'Century 2025' spanning 10 years leading up to the fiscal year ending March 2026, its 100th anniversary. To achieve this goal, the 10 years were divided into three phases, and business strategies based on the mid-term management plan were promoted. The final goal of the long-term vision (Phase 3 goal) was to be a company that is 'more chosen' by stakeholders. The quantitative targets set for the final year, March 2026, included revenue of 220 billion yen, a gross profit margin of 16.5%, ordinary profit of 12 billion yen, a dividend payout ratio of over 50%, and an ROE of over 8.0%. However, since the projections for the fiscal year ending March 2025 exceed these targets, the company stated, 'Since the goals of this 'Century 2025' are expected to be achieved one year ahead of schedule, this plan will tentatively conclude this period. We are currently in the process of formulating a new management plan, which is expected to be announced next spring.' Achieving the long-term vision (10 years) one year ahead of schedule is highly commendable, but attention is focused on what kind of plan (goals) will be presented next.

4. The company is also positively inclined towards shareholder returns, with a dividend payout ratio of 50.4% and a total return ratio of 85.2% planned for the fiscal year ending March 2025.

The company is proactive in returning value to shareholders. Based on the shareholder return policy in the medium-term management plan "Century 2025" Phase 3, stable returns have been implemented. For the fiscal year ending March 2025, the dividend forecast has been raised to 110 yen for the full year due to a revision in the financial estimates. The dividend payout ratio will be 50.4%. Furthermore, by the end of March 2025, the company plans to repurchase 1.5 million shares, and on August 19, 2024, it executed the cancellation of 2 million shares. As a result, the total return ratio for the fiscal year ending March 2025 is projected to be 85.2%. The company's proactive approach not only aims to improve performance but also emphasizes shareholder returns, which should be highly valued.

■Key Points

・A top-class building equipment company in Japan affiliated with Mitsui. Currently promoting profit margin improvement measures.

・In the second quarter of the fiscal year ending March 2025, operating profit increased by 362.5%. Full-year estimates have been revised upwards to a 42.4% increase.

・The medium-term management plan will be achieved one year ahead of schedule, with a new plan set to be announced next spring.

・The company is positively inclined towards shareholder returns, with a dividend of 110 yen planned for the fiscal year ending March 2025 (dividend payout ratio of 50.4%), and a share buyback is also scheduled.

(Written by FISCO guest analyst Noboru Terashima)