SANKI SERVICE CORPORATION Q1 FY2026 earnings call

Company Overview & Market Position

• Sanki Service is an independent facility maintenance provider founded in 1977, operating three core business segments, with clients spanning retail, food service, education, healthcare, public facilities and other infrastructure-focused industries.
• The maintenance industry is fragmented with many small local providers facing service quality inconsistencies and labor shortages from aging demographics, which Sanki addresses via a 16-location national in-house team plus a partner network covering all 47 Japanese prefectures.
• From 2015 May term to 2025 May term, consolidated revenue grew from 5.897 billion yen to 20.636 billion yen (3.5x growth), with 20% average annual revenue growth over the previous 3-year mid-term plan.

Core Business Strengths

• Maintenance Service Business: The largest Panasonic group authorized maintenance agent in Japan, an independent multi-manufacturer provider with over 300 in-house service engineers (half of total company employees), offering end-to-end service from design/construction to maintenance, creating a circular business model where maintenance leads to new installation and follow-up maintenance contracts.
• Total Maintenance Business: Provides bundled maintenance for all facility equipment to national chain clients, with a 24/7 two-center (east/west Japan) call center and a curated national partner network enabling one-stop nationwide service.
• Compared to peer independent competitors: Sanki combines in-house engineers with partner networks (vs 100% outsource for a major peer), giving it an advantage in large, long-term projects that require consistent quality.

2026-2028 Medium-Term Management Plan (Theme: "Sanki of People")

• Top priority: Strengthened human capital development: Launched a dedicated training department led by the CEO, with an annual 100 million yen training budget. Focuses on accelerated upskilling for young engineers (goal: train 2 years of experience in 1 year), introduced talent management systems for skill visibility and customized career paths, and invests in workplace improvement to boost retention and employee engagement. Renovated the in-house training center to add simulated convenience store environments for practical training.
• DX for profitability improvement: Expanding rollout of a tablet service request app that cuts response time and reduces customer effort (already deployed at ~260 client stores), trains existing staff in DX literacy, and rolls out company-wide efficiency tools to reduce time spent on routine tasks, control SG&A growth as the business scales, and improve customer satisfaction.
• Capital efficiency-focused management: Targets 18% ROE over the 3-year plan (up from 15.3% last fiscal year), allocates 1.5 billion yen total to growth investment: 500 million yen to human capital/training, 1 billion yen to M&A and DX initiatives, with 900 million yen earmarked for shareholder returns over the 3 years.
• Shareholder return policy: Commits to gradual dividend increases aligned with earnings growth, targeting a 30% payout ratio combined with 3.0% DOE, introduced a long-term holding preferential stock dividend program starting from the May 2026 record date.

2026 May Term 1Q Operational Performance

• 1Q consolidated revenue was 5.956 billion yen (+44% YoY), gross profit 1.144 billion yen (+44% YoY), operating profit 195 million yen, net income 129 million yen — all record highs for a 1Q.
• Both core business segments grew, with 161 million yen of gross profit growth from recurring stock maintenance contracts and 190 million yen from one-time flow projects. Only 38 million yen of incremental expense related to hiring and human capital expansion was recorded, with no other unusual costs.
• The 8.1 billion yen Hirakata City large-scale DBO school air conditioning replacement and 15-year maintenance project (the company's largest ever contract) is progressing on schedule, with 1Q first-phase construction completed and first-phase revenue already recognized with no material cost deviations from plan.

1. Maintenance Service Business (including environmental business): Previous fiscal year (2025 May term) actual revenue was 9.359 billion yen, contributing 45.3% of total consolidated revenue. 2028 May term target revenue is 15.379 billion yen.
2. Total Maintenance Business: Previous fiscal year actual revenue was 8.102 billion yen, contributing 39.3% of total consolidated revenue. 2028 May term target revenue is 13.62 billion yen.
3. Other (subsidiaries etc.): Previous fiscal year actual revenue was 3.175 billion yen, contributing 15.4% of total consolidated revenue. 2028 May term target revenue is 3.65 billion yen.

• Full year 2026 May term (first year of new mid-term plan): Maintains guidance of 23.302 billion yen consolidated revenue (+2.666 billion yen YoY), 1.13 billion yen operating profit (+110 million yen YoY), and 4.8% operating margin.
• 2028 May term (final year of 2026-2028 mid-term plan): Maintains the original target of 32.65 billion yen consolidated revenue (1.6x 2025 May term actual), 2.2 billion yen operating profit, and 6.7% operating margin. The targets exclude potential growth from new M&A.
• Segment targets 2028 May term: 15.379 billion yen for Maintenance Service/Environmental Business, 13.62 billion yen for Total Maintenance Business, 3.65 billion yen for other segments; 19.738 billion yen in recurring stock revenue (up from 11.242 billion yen in 2025 May term).
• Long-term guidance aligned with Vision 2030: After 2029, the company expects to enter the harvest phase where investments in human capital and growth will deliver full results, driving a shift in profit structure and a step-change in corporate value.

• The biggest risk is that human capital development (the company's top strategic priority) progresses slower than planned, which would limit the company's ability to take on growing order volume and constrain overall growth. The CEO is personally leading the training department to mitigate this risk.
• The fragmented maintenance industry faces widespread labor shortage from demographic aging, which creates industry-wide pressure on staffing and service delivery capacity.
• New entry into niche high-barrier segments like data center air conditioning maintenance remains challenging, as existing clients typically retain the original design/construction provider for long-term maintenance, limiting new entrant opportunities at this time.

Q: The market generally perceives Sanki as a stable, conservative business rather than a high-growth company. How does management view this perception? / A: Management acknowledges the perception is natural, as the company has built its business on stable maintenance revenue and has never posted a loss since founding, growing revenue consistently. However, management sees current industry conditions (growing demand from aging building/equipment, rising focus on air conditioning from extreme heat) as strong tailwinds, and views industry labor shortages as an opportunity for the scaled, well-staffed Sanki to capture market share. For this reason, the new mid-term plan prioritizes human capital development to drive sustained growth.

Q: What is the progress of the large Hirakata City school air conditioning project, and has winning this project changed the broader business environment or increased inquiry volume? / A: The project is progressing exactly to plan, with the first year of construction nearly complete and revenue recognized as scheduled with no major cost deviations. Going forward, the company will use the project to upskill in-house engineers and improve in-house delivery to boost margin. Management notes that winning this large public project has increased industry recognition, leading to more direct inbound inquiries from other public sector clients like schools and hospitals, which has expanded overall order opportunities.

Q: What is driving growth in the Total Maintenance Business for convenience store and food service clients — is it new store openings, outsourcing, or client switching from competitors? / A: Growth comes from all three sources. For clients with national bundled contracts, any new store opening in the service area automatically adds to Sanki's order book. For existing clients, many are outsourcing maintenance to Sanki to address internal issues like aging staff and overly specialized, unmanageable operations. There is also meaningful switching from other providers, driven by Sanki's combination of national coverage and active in-house quality oversight of partner work, which differentiates its service quality from purely outsourced peers.

Q: Why did 1Q swing from a year-ago deficit to profit this year, and was the result in line with initial plans? / A: The business has inherent seasonality: 1Q (June-August) and 3Q are peak air conditioning operating seasons, so high-margin projects that require shutting down air conditioning are concentrated in 2Q and 4Q, leaving 1Q naturally lower-performing, which explains the prior year deficit. This year, the first phase revenue from the Hirakata project was recognized in 1Q, plus completed construction on projects won last year and steady growth in Total Maintenance orders drove the improvement. The result is broadly in line with initial management forecasts.