Ishin (143A) FY2026 Q3 Earnings Report

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Executive Summary

Revenue reached a record high, but operating income turned negative due to an increase in SG&A expenses. Although revenue increased to ¥0.99B (+7.5% YoY), Operating Income was ¥-0.01B (¥0.10B in the same period of the previous year), Ordinary Income was ¥-0.02B (same as above), and Net Income was ¥-0.04B (¥0.06B in the same period of the previous year), with all three turning negative. The primary drivers of revenue growth were the Public-Private Co-Creation Business and the HR Business; however, start-up costs for the HR Business and expenses related to relocating the head office increased costs, resulting in higher revenue but lower earnings (a shift into the red).

Factors Affecting Performance

【Revenue】Revenue increased 7.5% YoY to ¥0.99B, reaching a quarterly record high. The Public-Private Co-Creation Business (+14.7%) and HR Business (+65.1%) led growth, while the Global Innovation Business declined 9.4% due to sluggish growth in new orders. The Media PR Business remained firm, increasing 2.8%.

【Profit and Loss】Gross profit declined slightly to ¥0.75B (gross margin: 75.6%, compared with 77.7% in the same period of the previous year), while SG&A expenses increased to ¥0.76B (+23.6% YoY), substantially outpacing revenue growth. As a result, Operating Income turned negative at ¥-0.01B (¥0.10B in the same period of the previous year). The primary drivers of the increase in SG&A expenses were upfront investments in the HR Business (recruiting and marketing expenses) and costs associated with relocating the head office to Shinagawa. Ordinary Income was ¥-0.02B, including non-operating expenses (investment partnership operating loss of ¥0.03B), and a Net Loss of ¥-0.04B was recorded due to the recognition of an extraordinary loss of ¥0.02B. The divergence between Ordinary Income and Net Income was attributable to the impact of the extraordinary loss and income attributable to non-controlling interests, both of which included temporary factors. In conclusion, revenue increased but earnings declined, with Operating Income turning negative.

Segment Analysis

The Public-Private Co-Creation Business accounted for 44.3% of the revenue mix and is positioned as the core business. Segment profit was ¥0.13B (margin: 29.8%), with the margin improving from the previous year and supporting consolidated earnings. The Media PR Business had the highest margin, with segment profit of ¥0.15B and a margin of 61.8%, making it a key source of profitability. Meanwhile, the newly established HR Business generated revenue of ¥0.08B but recorded a segment loss of ¥0.05B (margin: -64.5%), reflecting its upfront investment phase and making it one of the primary causes of the consolidated operating loss. Segment profit for the Global Innovation Business also declined YoY, with its margin falling from 36.9% to 29.6%. Although total segment profit was ¥0.30B, adjustments for corporate expenses and other items expanded to ¥0.30B (+20.8% YoY), resulting in a consolidated operating loss.

Key Financial Metrics

Profitability: ROE (annualized) of -3.6% (positive territory in the previous year); Operating Margin of -0.7% (11.3% in the previous year)
Cash quality: No data available for Operating Cash Flow (OCF)
Investment efficiency: Property, plant and equipment increased 513.3% YoY, indicating an investment expansion phase associated with the relocation of the Shinagawa office
Financial soundness: The Equity Ratio was 83.7% and the Current Ratio was 461.3%, both high levels, indicating a stable financial foundation

Cash Flow Analysis

As the financial results data does not disclose cash flow statement items, a detailed analysis is omitted. On the balance sheet, cash and deposits amounted to ¥1.17B (¥1.399B in the previous year), substantially exceeding total liabilities of ¥0.32B and indicating a net cash position.

Quality of Earnings

The divergence between Ordinary Income (¥-0.02B) and Net Income (¥-0.04B) was substantial, due to the recognition of an extraordinary loss of ¥0.02B and the impact of income attributable to non-controlling interests. Non-operating expenses of ¥0.03B primarily comprised an investment partnership operating loss of ¥0.03B and should be evaluated separately from the earning power of the underlying business as a temporary factor. Since Operating Income was already negative, downward pressure from both ordinary and extraordinary items expanded the net loss.

Earnings Forecast and Guidance

The progress rate against the full-year forecast was 64.7% for revenue (10.3pt below the standard progress rate of 75%), while a progress rate for Operating Income is not meaningful because cumulative Operating Income was negative. To achieve the full-year Operating Income forecast of ¥0.03B, standalone Q4 Operating Income of ¥0.037B would be required, representing a substantial deviation from standard quarterly progress. The Company expects to achieve its full-year forecast through SG&A expense control and a recovery in revenue in Q4; however, the delay in progress remains an area to monitor.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the full-year dividend forecast is also ¥0, indicating a no-dividend policy for the current period. As the Company recorded a quarterly net loss attributable to owners of the parent, calculation of the Payout Ratio is not applicable. Cash and deposits of ¥1.17B and low debt levels indicate capacity for future shareholder returns, but upfront investment in the HR Business is being prioritized for the time being.

Catalysts

【Short Term】Whether the Company can achieve its full-year Operating Income forecast of ¥0.03B through SG&A expense control and a recovery in revenue in Q4. Trends in order recovery for the Global Innovation Business.

【Long Term】Progress toward monetizing the HR Business, realization of acquisition synergies including goodwill of ¥0.05B related to Repsel and OK Junction, and progress toward the medium-term management plan target of ¥4.5B in revenue and a 20% Operating Margin for the fiscal year ending March 2030.

Industry Benchmark (For Reference; Company Research)

Profitability and Return

Both the Operating Margin and Net Profit Margin were substantially below the industry median, placing the Company’s profitability toward the lower end of the industry.

Growth and Capital Efficiency

The revenue growth rate was slightly below the industry median and remained positive, although it did not reach the upper bound of the IQR.

※Source: Company research

Risk Factors

1. Upfront investment burden in the HR Business: Although revenue grew 65.1% YoY, the business recorded a segment loss of ¥0.05B (margin: -64.5%), and the timing of recovery of recruiting and marketing expenses will affect consolidated profitability.

2. Slowing orders in the Global Innovation Business: Revenue declined 9.4% YoY, while the segment profit margin fell from 36.9% to 29.6%. A delayed recovery in this high-margin business would affect the pace of Company-wide return to profitability.

3. Expansion of corporate expenses: While total segment profit was ¥0.30B, adjustments for corporate expenses and other items expanded to ¥0.30B (+20.8% YoY), making the cost structure required to convert the profitability of each business into consolidated earnings a key issue.

Key Takeaways from the Earnings Results

1. Although revenue reached a quarterly record high, the sharp expansion in SG&A expenses (+23.6% YoY) caused the Operating Margin to deteriorate by approximately 1,200bp and turn negative. The Company’s ability to absorb costs during a period of revenue growth is a key point in the earnings results.

2. By segment, the Media PR Business (margin: 61.8%) and Public-Private Co-Creation Business (margin: 29.8%, with an improving trend) are the pillars of profitability, while the newly established HR Business and Global Innovation Business are weighing on consolidated earnings. The profitability gap within the business portfolio is widening.

3. The full-year revenue progress rate was 64.7%, below the standard progress rate, while cumulative Operating Income was negative. Substantial earnings improvement in Q4 is therefore required to achieve the full-year forecast.

Theoretical Share Price (Reference Value)

Sensitivity: ¥619–¥655 at Cost of Equity ±1%; ¥630–¥641 at ω±0.1.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burdens, acquisition-related expenses, and non-controlling interests (Net Income ÷ Operating Income: 43%). This value reflects that compression at face value; if the factors are temporary, normalized earnings power may be higher.
• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI through an integrated analysis of XBRL earnings summary data and PDF earnings presentation materials. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

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