CENTRAL SECURITY PATROLS CO.,LTD. Q2 FY2026 earnings call

Overall Interim Financial Results

• Total consolidated revenue increased 3.942 billion yen YoY, with both revenue and all profit lines (operating, ordinary) beating the original interim guidance, while net profit attributable to parent shareholders fell 0.119 billion yen YoY due to the absence of the prior year's gain from selling policy-held Nihon Housing shares.
• Key outperformance drivers: Faster-than-expected customer acceptance of on-site security price increases, larger-than-planned additional temporary security contracts for Osaka-Kansai Expo, and stronger than expected sales of AI-enabled camera and fire safety system projects.
• Sales to JR East Group grew YoY, driven by strong security and equipment demand at Takanawa Gateway City, with full-year growth expected. CSP has maintained its long-standing 1-2 M&A deals every 1-2 years, having completed acquisitions of regional security and specialized tech firms steadily since 2014.

Strategic Focus and Mid-Term Plan Updates

• CSP updated its mid-term plan from Creative2025 to Omoi 2030 (Wish 2030), with a core brand concept of Creative Security Partner and the slogan "CSP is here for this community. The plan's three core pillars are:
  • Solution provision: Scale the Kakehashi security platform (which unifies and AI-analyzes all site security data for integrated area management, implemented at Takanawa Gateway City) to other multi-building areas, and open up the CSP Cloud Center to third-party partners.
  • Core business expansion: Grow image analysis services (already piloted as the VACS system at Keio Corporation stations, which detects falls and safety incidents to share with station staff) and expand drone solutions (launched a dedicated drone division with a full product line including counter-drone systems, long-flight hybrid drones, and mobile drone base vehicles).
  • Core business transformation: Develop next-generation on-site and mechanical security models, create a new transportation security model, and transition one-time equipment sales to recurring revenue stock business.

H1 2026 Fiscal Year Operational Milestones

1. Successfully deployed the Kakehashi security platform for the first phase opening of Takanawa Gateway City, enabling unified management of multiple buildings in the area.
2. Launched pilot testing of the VACS image analysis safety system at Keio stations.
3. Launched the dedicated drone division and released CSP-branded full drone product line for customer deployment.
4. Completed acquisition of Nippon Rengo Security, adding mechanical security scale in the Yamanashi region.

Upcoming New Product Development

• In-house development of the C-SParX autonomous security robot, with planned feature upgrades for improved AI anomaly detection, user information/guidance functions, and better integration with site infrastructure.

• Upgraded version of the Emerge mobile emergency alert system, adding new location tracking functionality for on-duty security staff, planned for launch next fiscal year.

• Customizable smart key system to solve customer pain points of physical key management, currently in R&D and targeting near-term commercial launch.

• Profitability strategy: Continue growing high-margin mechanical security and equipment sales. For large-share on-site security, pursue (1) price increases to pass through rising labor and property costs, with progress already achieved, and (2) structural reform replacing purely labor-based work with AI, systems and machinery to improve margins.

1. On-site (常駐) Security: +2.47 billion yen in revenue year-over-year (YoY). Positive drivers included new security contracts for Takanawa Gateway City, full-year contribution from the acquired Hankyu Hanshin High Security Service, and temporary security services for Osaka-Kansai Expo. 2. Mechanical (機械) Security: +0.2 billion yen in revenue YoY. Growth came entirely from the April 2025 acquisition of Nippon Rengo Security (based in Kofu, Yamanashi). 3. Construction and Equipment Sales: +1.2 billion yen in revenue YoY. Strong sales of security cameras, access control systems, and fire safety solutions, with especially strong demand from the Takanawa Gateway City project driving results. Long-term trend: From 2019 to 2026 fiscal year, on-site security revenue share has declined gradually, while mechanical security and equipment construction revenue share has increased.

• Mid-term target for 2030 February fiscal year: 90 billion yen total revenue and 6.0% operating profit margin, maintained from the plan update.
• 2026 February fiscal year full-year dividend: Interim dividend of 30 yen per share is completed, with a planned 30 yen per share final dividend for a total annual dividend of 60 yen per share.
• CSP expects full-year 2026 fiscal year sales to JR East Group to continue growing.
• Management expects to offset the 2027 fiscal year revenue pullback from 2026's large Takanawa Gateway City and Osaka Expo projects through ongoing price increases for on-site security, structural reform, and a pipeline of upcoming large equipment projects, with net revenue growth still achievable for 2027.
• CSP will continue active M&A of high-compatibility targets (including security firms, building maintenance companies, and security tech/system firms) when attractive opportunities arise.

• The core industry risk is ongoing labor shortages and rising personnel costs, which pressure on-site security margins if price increases are not fully implemented.
• Mature security market competition creates pressure to differentiate offerings and compete effectively on price.
• M&A deals typically result in temporarily lower profitability for the acquired business in the first few years post-acquisition, which can drag on group-wide margins until integration and improvement are complete.
• Pullback in revenue and profit after large one-time projects (Takanawa Gateway City first-phase construction, Osaka-Kansai Expo temporary security) creates downside risk for 2027 fiscal year results if new pipeline projects do not materialize as expected.

Q: What will be the impact of the expiration of Osaka-Kansai Expo temporary security special demand on full-year on-site security profit margin in H2 2026? / A: Management states that the temporary Expo security contract is not large enough in volume relative to total on-site security revenue to meaningfully move the overall segment profit margin. The expiration of this special demand will not have a large impact on H2 profitability.

Q: How will CSP offset the expected revenue pullback from 2026's large one-time projects (Expo, Takanawa Gateway equipment) in 2027, and can it still deliver revenue growth? / A: CSP will continue to pursue price increase negotiations for ongoing on-site security contracts and move forward with structural reform to improve on-site margins. There are already several visible large equipment projects in the pipeline that will deliver steady revenue. Management expects overall group revenue and profit growth to continue in 2027.

Q: What are the key challenges and growth drivers for the Japanese security market, and how is CSP positioning itself? / A: The market is mature, with core challenges of labor shortages and rising personnel costs. Growth will come from entering new segments such as automated/unmanned retail stores, where CSP is already developing combined offerings of machinery, systems and security personnel with partners. CSP will focus on differentiating its services against competitors while maintaining price competitiveness.

Q: What is CSP's profit improvement timeline for M&A targets, and how much M&A activity does it expect? / A: Acquired firms typically have profit margins slightly below the current group average immediately after acquisition. It is expected that within a few years, post-integration and sales expansion, the acquired firm's margin will improve to match the group average. CSP will only pursue deals that meet a minimum profitability threshold, and will continue to acquire 1 target every 1-2 years when attractive opportunities arise.