Nihon M&A Center Holdings (2127) FY2027 Q1 Earnings Report

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Executive Summary

Although revenue increased and operating income declined in Q1, net income rose substantially due to extraordinary income. Revenue was ¥91.0B (up +0.9% YoY), operating income was ¥23.5B (down △6.4%), and ordinary income was ¥22.5B (down △11.1%). Meanwhile, quarterly net income attributable to owners of the parent increased to ¥20.3B (up +33.8%), primarily due to the recognition of ¥9.0B in extraordinary income, including a ¥8.5B gain on the sale of shares in a subsidiary. The profitability of the core business has therefore deteriorated from the previous year.

Factors Affecting Performance

【Revenue】Revenue was ¥91.0B, representing only a marginal increase of +0.9% from the same period of the previous year. The core M&A Consulting Business generated ¥90.6B (up +0.7%) and accounted for the majority of consolidated revenue, while growth remained limited. The Fund Business grew significantly to ¥0.4B (up +69.2%), although it represents only a small portion of consolidated revenue.

【Profit and Loss】Gross profit was ¥54.9B, and the gross margin improved by 60bp to 60.3% from 59.7% in the same period of the previous year. However, SG&A expenses increased by +9.5% YoY to ¥31.4B, substantially outpacing revenue growth. As a result, the operating margin declined by 200bp to 25.8% from 27.8%, and operating income fell to ¥23.5B (down △6.4%). Ordinary income declined to ¥22.5B (down △11.1%) as non-operating expenses exceeded non-operating income. Pretax income was ¥31.6B following the recognition of ¥9.0B in extraordinary income, including a ¥8.5B gain on the sale of shares in a subsidiary, and net income reached ¥20.3B (up +33.8%). Excluding extraordinary income, core business profit remained on a declining trend; overall, the result was higher revenue but lower operating profit.

Segment Analysis

The M&A Consulting Business generated revenue of ¥90.6B (up +0.7% YoY) and segment profit, on a pretax income basis, of ¥25.4B (down △6.9%). Its profit margin declined by approximately 230bp to 28.0% from 30.3% in the same period of the previous year. The increase in expenses exceeding revenue growth appears to have been the primary cause of the margin decline. The Fund Business generated revenue of ¥0.4B (up +69.2%) and segment profit of ¥6.5B, turning profitable from a loss of ¥0.5B in the same period of the previous year. This business is highly affected by the valuation and sale timing of investment projects, making it difficult to assess earnings repeatability based solely on a single-quarter return to profitability.

Key Financial Metrics

【Profitability】The operating margin of 25.8% declined by 200bp from 27.8% in the same period of the previous year, reflecting negative operating leverage as SG&A expense growth outpaced revenue growth. The net margin rose by 550bp to 22.3% from 16.8% in the same period of the previous year; however, the contribution of ¥9.0B in extraordinary income was substantial, and this should not be regarded as a recurring improvement.【Earnings Quality】Of pretax income of ¥31.6B, ordinary income accounted for only ¥22.5B. The ¥9.0B gap between the two was primarily attributable to the one-time gain on the sale of shares in a subsidiary.【Capital Efficiency】Annualized ROE was high at 18.5% on an equity basis, although it could have been lower without the extraordinary income described above.【Financial Soundness】The equity ratio was extremely high at 87.7%. Against cash and deposits of ¥329.3B, long-term borrowings were only ¥14.0B, indicating low financial leverage.

Cash Flow Analysis

As the financial statements do not explicitly disclose a statement of cash flows, cash trends are analyzed based on changes in the balance sheet. Cash and deposits declined by ¥75.2B from ¥404.5B in the same period of the previous year to ¥329.3B. At the same time, total liabilities declined by ¥88.7B from ¥155.8B to ¥67.1B, with the decrease in accrued corporate taxes payable, from ¥38.1B to ¥1.9B, and the reduction in long-term borrowings, from ¥21.0B to ¥14.0B, likely contributing to the cash outflow. Although cash declined, it still accounted for 60.5% of total assets and represented approximately 6.8 times current liabilities, maintaining substantial liquidity. Investment securities declined from ¥164.9B to ¥146.2B, suggesting that some reassessment of the asset composition may have progressed.

Earnings Quality

The quality of earnings in the current quarter warrants attention due to the divergence between ordinary income and net income. Operating income declined by △6.4% YoY and ordinary income by △11.1%, indicating a declining trend in core earnings, while net income increased by +33.8%. This divergence resulted from the recognition of ¥9.0B in extraordinary income, comprising a ¥8.5B gain on the sale of shares in a subsidiary and ¥0.5B in other extraordinary income; extraordinary losses were immaterial. Non-operating expenses of ¥1.3B, including a ¥0.3B foreign exchange loss, exceeded non-operating income of ¥0.3B, placing pressure on ordinary income. Comprehensive income was ¥23.0B, broadly comparable to net income of ¥20.3B (¥21.2B attributable to owners of the parent), with no significant divergence arising from valuation differences on other securities or foreign currency translation adjustments. Based on the above, the increase in profit for the current quarter should be viewed as relying on one-time factors rather than reflecting an improvement in recurring earnings power.

Earnings Forecast and Guidance

The full-year company forecast calls for revenue of ¥528.0B (up +5.1% YoY), operating income of ¥193.0B (up +2.9%), and ordinary income of ¥193.0B (up +0.8%). Q1 progress rates were 17.2% for revenue, 12.2% for operating income, and 11.7% for ordinary income, all below the simple benchmark of 25%. In particular, the delayed progress of operating and ordinary income suggests either a business plan structure in which deal closings are concentrated in the second half of the fiscal year or the front-loading of SG&A expenses. No revisions have been made to the earnings forecast.

Shareholder Returns

The annual dividend forecast is ¥29 per share, of which ¥4 is a special dividend. The annual level excluding the ordinary dividend is ¥25 (¥12 at the end of Q2 + ¥13 at year-end), representing a substantial increase from the previous year's annual dividend of ¥14. Using the average number of shares outstanding during the period of 317 million shares, the total annual dividend is estimated at approximately ¥92.0B, resulting in an estimated payout ratio of approximately 68.7% against the full-year net income forecast of ¥134.0B. On an ordinary-dividend basis excluding the ¥4 special dividend, total dividends would be approximately ¥79.3B and the payout ratio would be approximately 59.2%. Accordingly, the upward deviation in the payout ratio is attributable to the special dividend and should be distinguished from the recurring burden of shareholder returns. The financial base of ¥329.3B in cash and deposits and ¥14.0B in interest-bearing debt supports this level of shareholder returns. No revisions have been made to the dividend forecast.

Risk Factors

1. Decline in the profit margin of the core business: The segment profit margin of the M&A Consulting Business declined by approximately 230bp to 28.0% from 30.3% in the same period of the previous year. SG&A expenses increased by +9.5% on a company-wide basis against revenue growth of +0.7%, and the margin decline could continue if the recovery in the pace of deal closings is delayed.

2. Delayed progress against the full-year plan: The full-year progress rate for operating income was 12.2%, which was 12.8pt below the standard Q1 progress rate of 25%. Whether deal closings and the absorption of SG&A expenses progress from Q2 onward will be a key factor in assessing achievement of the plan.

3. Earnings volatility in the Fund Business: The Fund Business returned to profitability, generating segment profit of ¥6.5B against revenue of ¥0.4B. However, its earnings structure is susceptible to the valuation and sale timing of portfolio investments, making it difficult to assess sustainability based solely on a single-quarter improvement.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the operating margin and net margin substantially exceeded the industry median, placing profitability at a high level within the industry.

Growth and Capital Efficiency

The revenue growth rate was below the industry median, indicating a relatively moderate level of growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The increase in net income was driven by extraordinary income, while both operating income and ordinary income declined. When assessing the profitability of the core business, trends based on ordinary income should be referenced.

2. The segment profit margin of the M&A Consulting Business declined by approximately 230bp. Addressing the increase in SG&A expenses, which exceeded revenue growth, will be the key focus for restoring profitability.

3. Q1 progress against the full-year plan was low, at 12.2% for operating income and 11.7% for ordinary income. Deal-closing conditions in the second half of the fiscal year will be a key factor in assessing achievement of the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥232–¥245 at ±1% for the cost of equity, and ¥236–¥241 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because 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 / Mechanically calculated using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. 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 a professional adviser as necessary.

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