E・J Holdings (2153) FY2026 Q3 Earnings Report

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Executive Summary

While revenue expanded significantly by 22.3%, the rate of increase in selling, general and administrative expenses exceeded revenue growth, resulting in a wider operating loss and a financial performance characterized by higher revenue but lower earnings (wider losses). Revenue was ¥20.198B (¥16.509B in the same period of the previous year, +22.3%), the operating loss was ¥1.404B (a loss of ¥1.180B in the previous year, representing a ¥0.224B widening of the loss), the ordinary loss was ¥1.277B (a loss of ¥1.073B in the previous year), and the quarterly net loss attributable to owners of the parent was ¥1.125B (a loss of ¥0.656B in the previous year, a deterioration of ¥0.469B). The gross profit margin improved to 33.0%, but the SG&A ratio rose to 40.0%, putting pressure on profits.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥20.198B, an increase of +22.3% year on year. The Company operates in a single segment, the comprehensive construction consulting business, and the expansion of project progress and acceptance inspections appears to have been the primary driver of revenue growth. Although cost of sales also increased to ¥13.531B, gross profit was ¥6.666B and the gross profit margin improved to 33.0% from 32.1% in the same period of the previous year, indicating improved profitability at the cost level.

【Profit and Loss】SG&A expenses were ¥8.071B, an increase of +24.5% year on year, exceeding the 22.3% revenue growth rate. As a result, the SG&A ratio increased to 40.0% from 39.3%, offsetting the benefit of improved gross profit. The operating loss widened to ¥1.404B from ¥1.180B in the previous year, and even after adding non-operating income of ¥0.127B, the Company posted an ordinary loss of ¥1.277B. Although extraordinary income included a gain on the sale of investment securities of ¥0.074B, extraordinary items resulted in a net loss of ¥0.009B, leading to a loss before tax of ¥1.286B and a net loss of ¥1.125B. Despite higher revenue, the increase in expenses exceeded profit growth, resulting in higher revenue but lower earnings.

Segment Analysis

The Company operates solely in the comprehensive construction consulting business as a single segment and does not disclose segment-specific information.

Key Financial Indicators

【Profitability】The operating margin improved slightly to negative 7.0% from negative 7.1% in the previous year, but remained at a loss-making level, while the net profit margin was negative 5.6%. The gross profit margin improved to 33.0% from 32.1% in the previous year, but this was offset by the increase in the SG&A ratio to 40.0%. 【Cash Flow Quality】Inventories surged to ¥11.788B, an increase of +218.0% year on year, with DIO reaching 238 days. Accounts receivable were ¥7.228B, and DSO reached 98 days, indicating prolonged periods before project acceptance and collection. 【Investment Efficiency】Annualized ROE was negative 4.3% and annualized ROIC was negative 5.1%, indicating that invested capital is not currently generating returns. 【Financial Soundness】The equity ratio remained high at 62.0%, while short-term liquidity was ample, with a current ratio of 269.8% and a quick ratio of 185.3%. The Company held cash and deposits of ¥15.701B against interest-bearing debt of ¥12.406B, resulting in a conservative capital structure with a D/E ratio of 0.61x.

Cash Flow Analysis

As the amount of cash flow from operating activities has not been disclosed, cash flow trends are analyzed based on changes in the balance sheet. While cash and deposits decreased by 26.8% year on year to ¥15.701B, inventories increased by ¥8.081B to ¥11.788B, suggesting that uncompleted services and construction work in progress associated with project progress are absorbing cash. Contract liabilities (advance receipts) of ¥3.107B were recorded, and advance funds received in connection with orders provide a certain cash buffer; however, they have not been sufficient to absorb the increase in inventories. The long cash conversion periods of 238 days for DIO and 98 days for DSO indicate that revenue growth is not directly translating into cash generation. Progress in acceptance inspections, billing, and collections from Q4 onward will be key to cash flow trends.

Quality of Earnings

The current period’s profit and loss includes temporary factors that require consideration when evaluating earnings quality. Of the ¥0.089B in extraordinary income, the majority consisted of a ¥0.074B gain on the sale of investment securities. As this is temporary income unrelated to operating results, it should be excluded when assessing the Company’s underlying business earnings power. Non-operating income of ¥0.256B consisted primarily of dividend income of ¥0.022B and other items. Although these sources are stable, they are small in scale and insufficient to offset the ¥1.404B operating loss. The combination of a sharp increase in inventories and a decrease in cash and deposits suggests that cash collection is lagging the recognition of revenue and profit. From an accrual perspective—the discrepancy between accounting profit and cash inflows and outflows—a somewhat cautious assessment of earnings quality is warranted.

Earnings Forecasts and Guidance

The full-year Company forecasts are revenue of ¥47.000B (up +10.1% year on year), operating income of ¥5.000B (up +11.6%), and ordinary income of ¥5.100B (up +10.1%). The Q3 year-to-date revenue progress rate was 43.0% (¥20.198B/¥47.000B), substantially below the standard 75% level. However, the comprehensive construction consulting business related to public infrastructure may have characteristics that result in acceptance inspections being concentrated toward the fiscal year-end. Since the cumulative operating loss was ¥1.404B, achieving the full-year plan requires standalone Q4 operating income of ¥6.404B, highlighting the extremely significant degree of recovery required. There were no revisions to the earnings or dividend forecasts during the current quarter.

Shareholder Returns

The Q2 dividend was ¥25.00 per share, and the full-year dividend forecast is ¥69.00 (annual). As the cumulative period resulted in a net loss, it is not appropriate to calculate the payout ratio based on cumulative results. However, based on the full-year net income forecast of ¥3.350B, the annual dividend forecast of ¥69.00, and the weighted-average number of shares outstanding during the period of 17,755,090 shares, the forecast payout ratio is approximately 36.6%. If the annual dividend of ¥69.00 is realized, the difference of ¥44.00 from the Q2 dividend already paid of ¥25.00 represents the expected year-end dividend. Since this assessment assumes achievement of the full-year net income plan, Q4 performance will directly determine the certainty of the funds available for dividends. No results or plans for share buybacks have been disclosed.

Risk Factors

1. Risk of prolonged project progress and collection periods: Inventories increased +218.0% year on year to ¥11.788B, and DIO reached 238 days. Together with accounts receivable of ¥7.228B and DSO of 98 days, delays in acceptance inspections, billing, and collection are restricting the conversion of assets into cash.

2. Risk of concentration of performance in the second half in connection with achieving the full-year plan: Against the full-year operating income plan of ¥5.000B, the cumulative result was an operating loss of ¥1.404B, requiring standalone Q4 operating income of ¥6.404B. Even taking into account the project characteristics that cause results to be weighted toward the fiscal year-end, the achievement burden is substantial.

3. Low profitability and capital efficiency: The operating margin was negative 7.0%, annualized ROIC was negative 5.1%, and interest coverage was negative 23.40x, indicating that the Company remains unable to cover interest payments with operating income while EBIT is in the red.

Industry Benchmark (Reference; Compiled by the Company)

Key Takeaways from the Financial Results

1. Revenue increased +22.3% year on year, and the gross profit margin also improved to 33.0%, confirming positive developments in project volume and profitability at the cost level. However, the rate of increase in SG&A expenses exceeded revenue growth, and the period was characterized by the failure of higher revenue to translate into profit growth.

2. Achievement of the full-year plan is highly dependent on the realization of Q4 revenue and profit. Given the Q3 cumulative revenue progress rate of 43.0% and the operating loss of ¥1.404B, acceptance inspections, billing, and collection results at the fiscal year-end will be the most important events determining future performance.

3. From a financial perspective, the equity ratio of 62.0% and current ratio of 269.8% indicate substantial capital and liquidity headroom. At the same time, the sharp increase in inventories (DIO of 238 days) and decrease in cash and deposits (-26.8% year on year) have occurred in parallel. Whether working capital will continue to absorb cash is therefore an important point to monitor when assessing future cash flow trends.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,918–¥2,030 at ±1% for the cost of equity, and ¥1,972–¥1,973 at ±0.1 for ω.

Notes:

• Net assets as of the quarterly end are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical values may be calculated somewhat higher.

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of market prices or recommendations for specific investment actions and do 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 as necessary.

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