Action to Implement Management that is Conscious of Cost of Capital and Stock Price

Action to Implement Management that is Conscious of Cost of Capital and Stock Price, updated as of June 19, 2026

Summary

Analysis of current situation	Our cost of equity, estimated using the capital asset pricing model (CAPM), has risen to around 8.9%, due to the rise in long-term interest rates (the estimated cost for FY3/2025 was 7.0%.) While the cost of equity is rising, ROE is also increasing (FY3/2026: 12.4%,) so a certain equity spread^1 has been secured. Our PBR^2 improved to 2.1x, driven by solid business performance. Although it does not reach the weighted average PBR of 2.4x for the machinery industry on the Tokyo Stock Exchange Prime Market, it exceeds the weighted average PBR of 1.6x for the construction industry. While we believe that we have received a certain level of recognition from the market, we need to continue our efforts in order to meet market expectations.
Policies	Maintain and increase ROE in excess of cost of equity (FY3/2027: while the target is at least 11.5%, it is projected to reach at least 13.5%, note that it would be at least 11.0% excluding the effect of gains from sale of cross-shareholdings.) To achieve the target ROE, we will increase balance sheet efficiency while improving profitability and maintaining a solid financial foundation. At the same time, we will promote initiatives to reduce the cost of capital.
Initiatives	Steady implementation of the 14th Medium-Term Management Plan to achieve Vision 2030. (Working especially to maintain and expand our market position in the EPC Business, the source of our recurring revenue model businesses) Optimal cash allocation to achieve both our growth strategy and capital efficiency. Specification of a quantitative policy on shareholder return. Further enhancement of IR activities, including effective dialogue with investors and enhanced disclosure information.

*1 Equity spread = ROE - Cost of equity
*2 Calculated based on average closing stock price from May 15 to May 29, 2026 and net assets per share as of the end of March 2026

Analysis of Current Situation

ROE / Cost of equity^*3 / Equity spreads over time

ROE has remained above cost of equity, and a certain equity spread has been secured.

ROE / Cost of equity / Equity spreads over time graph

*3 Cost of equity calculated based on CAPM.
Beta values are measured over multiple time periods (weekly 1 year, weekly 2 years, monthly 3 years, monthly 5 years, monthly 10 years), and the median value is used.

PBR^*4over time

Although PBR does not reach the weighted average for the machinery industry on the Tokyo Stock Exchange Prime Market, it exceeds the weighted average for the construction industry.

*4
- Each year PBR = (Average month-end stock price over 12 months) / (Year-end net assets per share)
- Latest PBR = (Average closing stock price from May 15, 2026 to May 29, 2026) / (net assets per share as of the end of March 2026)
- The weighted average PBR for the machinery industry and the construction industry based on the data as of May 2026 for the "Average PER and PBR by Size and Types of Industry" published by the Tokyo Stock Exchange.

Analysis of ROE (Net profit on sales ×Total asset turnover×Financial leverage)

Over the past 15 years, we have enhanced our equity capital to stabilize management and improve creditworthiness. As a result, financial leverage decreased, and capital efficiency declined. While maintaining our strong financial base, we aim to achieve our target ROE by improving our profit margin on sales.

*The product of the three components of ROE may not equal ROE because the figures are rounded to the second decimal place.

Policy and Main Initiatives

Policy	Main Initiatives	Results
Improvement of profitability	We will expand EPC orders, which is a prerequisite for further growing recurring revenue model businesses. In particular, we will give priority to investing management resources in municipal solid waste treatment plants, for which a large amount of renewal demand is expected during the Medium-Term Management Plan period.	Orders received reached ¥333.0 billion and order backlog reached ¥745.1 billion in FY3/2026, both were record highs.
Enhancement of balance sheet efficiency	We will maintain a solid financial foundation to back our EPC and long-term O&M businesses, while ensuring a balanced distribution of profits between investments for growth including M&As and shareholder returns. Specify a new, quantitative policy on shareholder return. We will maintain the equity ratio at the 50% level with cash and deposits at a minimum level of roughly two to three months’ worth of sales (30-40 billion yen).	Completed 3 M&A projects in September 2024, April 2025 and April 2026. Repurchase and cancellation of approx. 18 billion yen of treasury shares (approx. 14 billion yen was implemented between FY3/2025 and FY3/2026, and a resolution was passed to implement up to 4 billion yen in May 2026.) Acceleration of efforts to reduce our cross-shareholdings (to less than 15% of our consolidated net assets by the end of FY3/2027, as well as to less than 10% by the end FY3/2029).
Reducing cost of capital	Through proactive investor relations, we will carefully explain our business environment and corresponding business strategy to our investors so that they can expect stable returns over the long term, thereby bridging the gap between cost of equity and the future business outlook.	In FY3/2026, we held a total of 206 individual meetings with investors, in addition, we newly conducted visits to overseas institutional investors as well as factory tours for shareholders.

Investor RelationsIR