INTERLIFE HOLDINGS CO.,LTD. Q2 FY2026 earnings call

• Company Overview and Strategic Positioning

  • InterLife Holdings is a holding company for a group focused on two core businesses: interior construction (operated by Nissho InterLife) and audio/lighting equipment (operated by System Engineering and Sanken System). The group completed a selection and concentration process, reducing from 15 group companies to 3 to focus on core construction operations, enabling more efficient management.
  • The company positions itself as a unique "one-of-a-kind" group: for interior construction, it has the rare combination of both prime contractor and subcontractor capabilities, with an in-house team of ~250 craftsmen for strong execution flexibility. For audio/lighting, it can deliver full turnkey solutions covering audio, lighting, video, and suspended staging equipment, a capability that very few competitors offer, giving it a competitive advantage especially in the luxury hotel segment where it holds top market share.

• Operational Restructuring and New Growth Initiatives

  • Completed recent restructuring: sold all shares of Tamakoh Industry, and absorbed Facility Management into Nissho InterLife to strengthen end-to-end service from construction through maintenance, improving customer service and group profitability.
  • Launched new patented product development: (1) Atlas Board, an ultra-light hybrid building material made from recycled paper and aluminum foil, 1/7 the weight of traditional gypsum board, which reduces fall injury risk and eases installation, with existing commercial installation projects underway and ongoing expansion. (2) Movable LED panels for hotel banquet halls, which can be split and repositioned to enable flexible space use, with the first installation already completed at a JW Marriott hotel and strong incoming inquiries from other properties.
  • M&A strategy: No plans for M&A into entirely unrelated business areas, but will actively pursue complementary M&A that expands the company's existing core business scope, with multiple opportunities currently under discussion.

• Profitability and Shareholder Return

  • Focused on improving profitability over pure revenue growth, targeting an ROE of 18%+ this year after hitting 18% in the 2025 February term. PBR has risen from 0.92x in 2024 to 1.36x in 2025, with a target of 1.5x+ through stronger IR and improved performance.
  • Expanded shareholder return: Implemented the first ever interim dividend of 10 yen per share, is conducting share repurchases with an upper limit of 200 million yen, and increased the year-end dividend from 10 yen to 15 yen, bringing total annual dividend to 25 yen with a planned payout ratio of 50%+ going forward, up from the prior target of 40%+.

1. Interior Construction Business: Sales of 5.024 billion yen, segment profit of 383 million yen. This represents a year-over-year decrease in revenue but an increase in profit. It contributed 56.3% of total consolidated segment revenue. There were no large-scale projects matching the prior year period, but completion of carried-over projects and focus on high-margin work drove profit growth despite lower revenue. 2. Audio/lighting Equipment Business: Sales of 3.867 billion yen, segment profit of 599 million yen. This represents a significant year-over-year increase in both revenue and profit. It contributed 43.3% of total consolidated segment revenue. Strong progress on high-margin large hotel projects, solid new maintenance service orders, and increased new orders at Sanken System both exceeded prior year results. Total company combined segment sales reached 8.917 billion yen, with total segment profit of 968 million yen.

• Full year 2026 February term guidance: Full year revenue is maintained at 16.5 billion yen, but management upwardly revised profit guidance: operating profit increased from the initial 800 million yen to 1.1 billion yen, ordinary profit to 1.09 billion yen, and net income attributable to parent shareholders increased by 150 million yen to 750 million yen. The upward revision is driven by better-than-expected progress on large high-margin projects in both core businesses.
  • The company expects lower sales and profit in the second half compared to the first half, because multiple large projects that were scheduled for the second half were pulled forward into the first half. Even after accounting for this pull-forward, the full year guidance is still on track, and management aims to achieve a new record high full year profit.
  • 5th Medium-term Management Plan (slogan "NEXT STAGE 2030"): The initial 2028 February term target of 20 billion yen in revenue and 1 billion yen in operating profit is already on track to be exceeded this year. The updated long-term target is to establish a 20 billion yen group revenue base by 2030 focused on the two core businesses, and achieve a market capitalization of 10 billion yen. The plan is positioned around the 2030 opening of Osaka IR: the company has already started early sales activities for the project, with audio/lighting operations targeting the convention hall and 3 planned hotels (the company's core stronghold), and interior construction targeting commercial fit-out work. Revenue from Osaka IR is not expected to be recorded before 2028, so it is accounted for as a long-term growth opportunity in the plan.
  • Industry outlook: Management expects overall construction industry demand to remain stable through 2030, supported by ongoing redevelopment projects in the Tokyo metropolitan area and Osaka IR-related development in the Kansai region, with steady underlying demand for both core businesses.

• Large construction project timing uncertainty: Under construction progress accounting, revenue is recognized based on how much of the project is completed by the February fiscal year end. For projects completing in March, the amount of revenue recognized in the current fiscal year depends on progress by the end of February, which introduces uncertainty to full year results: faster progress would lead to higher-than-planned profit, while delays would lead to lower-than-planned results.
  • Industry-wide skilled labor shortage: There is a systemic shortage of construction site managers across the industry, which limits the company's ability to rapidly grow revenue. Recruiting skilled workers is difficult across the sector, so the company must invest heavily in in-house training and retention to grow capacity.
  • Sustained large project flow uncertainty: While System Engineering already has a 2-3 year project backlog that supports current performance, the continued flow of similarly large projects in future periods has some uncertainty.

Q: Can the improved profit margin in the interior construction business (which saw lower revenue but higher profit in the first half) be sustained going forward? / A: Management says the company's current core strategy prioritizes protecting profit margins over rapid revenue growth, which is why it focused on accumulating high-margin projects this period even as total revenue declined. The company is also driving cost reductions through increased internalization: shifting previously outsourced work like transportation and some construction tasks to in-house teams to cut external costs. Management expects this margin improvement trend to continue going forward.

Q: Can the very strong first half performance of the audio/lighting equipment business be sustained in the second half and next year? / A: System Engineering typically books orders 2-3 years in advance (much longer lead times than interior construction), so the order backlog is largely predictable. The very strong first half result was partially driven by large projects that were pulled forward from the originally scheduled second half timeline, so second half revenue is expected to decline slightly. The company already has a solid pipeline of large projects for coming years, and management expects performance around the current scale to be maintainable, though steady large project flow has some uncertainty.

Q: What is your outlook for the industry environment and demand going forward? / A: Management expects overall construction industry demand to remain stable through 2030. General contractors are already operating at full capacity and turning down low-margin work, which creates steady available demand for capable subcontractors and specialty contractors. Multiple large redevelopment projects are planned in the Tokyo area, and Osaka IR will drive additional growth in the Kansai region, so underlying demand for both of the company's core businesses is expected to remain solid.

Q: What are your top priority investment areas for future growth? / A: The single largest priority is securing and retaining skilled construction talent, specifically construction site managers, because industry-wide shortage of this labor is the primary constraint on revenue growth. The company is conducting new graduate hiring, actively recruiting mid-career workers, and has begun recruiting talent from overseas (already hiring 6 workers from Vietnam, with plans to expand this program). The highest priority is retaining and training existing in-house talent, since industry-wide competition for skilled mid-career workers makes rapid external hiring difficult.