Open Up Group Inc. FY2026 FY Earnings Report

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Executive Summary

Although revenue declined, the Company secured higher operating income through improved profit margins; however, net income declined due to the increased tax burden. Revenue was ¥1,674.8B (-10.9% year on year), operating income was ¥166.9B (+2.8%), profit before tax was ¥168.5B (+4.2%), and net income attributable to owners of the parent was ¥118.3B (-5.8%). The primary reason for the revenue decline was the contraction of overseas operations following the sale of a UK subsidiary, while the domestic core electrical and mechanical, IT, and construction businesses generally remained resilient. The year-on-year increase in the effective tax rate created a divergence between higher operating income and lower net income.

Factors Affecting Earnings

【Revenue】Revenue was ¥1,674.8B, representing a year-on-year decline of -10.9%. The primary factor was a sharp decrease in overseas revenue to ¥7.5B (-97.3% year on year), a temporary structural factor resulting from the exclusion of the UK subsidiary from consolidation. Within the domestic core businesses, the electrical and mechanical business grew to ¥667.3B (+10.7%), while the construction business at ¥576.0B (+1.2%) and the IT business at ¥409.0B (-0.8%) remained broadly flat. The three domestic businesses accounted for approximately 99.5% of total Company revenue.

【Profit and Loss】Operating income was ¥166.9B (+2.8%), securing an increase despite the decline in revenue. The gross margin was 27.6% (cost of sales: ¥1,212.4B), while selling, general and administrative expenses were contained at ¥298.5B, resulting in an operating margin of 10.0%. Meanwhile, against profit before tax of ¥168.5B, income taxes and other taxes of ¥50.0B (effective tax rate of approximately 29.7%) were recorded, resulting in net income of ¥118.3B (-5.8%) and offsetting the increase in profit before tax (+4.2%). Given that higher income was secured through improvements in the cost structure of the core business despite the revenue decline, the underlying performance can be characterized as lower revenue but higher operating income, with the increased tax burden weighing on net income.

Segment Analysis

The electrical and mechanical business was the largest earnings contributor, with revenue of ¥667.3B (39.8% of total, +10.7% year on year) and operating income of ¥83.6B (+15.1%, 12.5% margin). The construction business posted revenue of ¥576.0B (+1.2%), but operating income declined to ¥69.7B (-7.5%, 12.1% margin), suggesting the impact of project mix and higher costs. The IT business recorded revenue of ¥409.0B (-0.8%), while operating income increased to ¥41.0B (+9.1%, 10.0% margin), indicating improved profitability. Due to the exclusion of the UK subsidiary from consolidation, the overseas business contracted significantly, with revenue of ¥7.5B (-97.3%) and operating income of ¥2.6B (-72.0%), although its impact on the consolidated results was limited. Maintaining high profitability in the electrical and mechanical and IT businesses, together with a recovery in the profitability of the construction business, will determine future consolidated performance.

Key Financial Metrics

【Profitability】ROE was 14.9%, the operating margin was 10.0%, and the net margin was 7.1%, all improving from the prior year (it should be noted that ROE declined from the prior-year level of 16.5%). SG&A expenses were equivalent to 17.8% of revenue compared with a gross margin of 27.6%, indicating an overall efficient cost structure.【Cash Flow Quality】Operating cash flow (OCF) was ¥178.8B, approximately 1.51 times net income of ¥118.3B, indicating strong consistency between earnings and cash generation. OCF/EBITDA was approximately 0.94 times, also indicating a favorable cash conversion rate.【Investment Efficiency】Capital expenditures were ¥4.4B, only approximately 0.19 times depreciation and amortization expense of ¥23.6B, indicating that organic investment remained at a low level. Equity in earnings of affiliates was a minor ¥2.1B, reflecting a high degree of dependence on the core business for earnings.【Financial Soundness】The equity ratio was 62.0%, while cash and deposits stood at ¥231.9B, providing ample liquidity relative to interest-bearing debt (short-term borrowings of ¥50.0B and bonds and other liabilities of ¥49.8B). Meanwhile, goodwill was ¥593.7B, accounting for 45.9% of total assets and 73.9% of net assets, representing the largest structural feature of the financial position.

Cash Flow Analysis

OCF increased substantially to ¥178.8B (+26.3% year on year), demonstrating cash-generating capacity exceeding net income of ¥118.3B. Investing cash flow was -¥28.1B, with the main uses of funds being capital expenditures of ¥4.4B and the acquisition of shares in a subsidiary associated with a change in the scope of consolidation (¥23.3B). Financing cash flow was -¥122.8B. The primary outflows were dividend payments of ¥68.9B, share repurchases of ¥39.8B, and lease liability repayments of ¥58.1B, while ¥49.7B was also raised through bond issuance. As a result, free cash flow (OCF + investing cash flow) was ¥150.7B, maintaining a level sufficient to cover dividends and capital expenditures. Cash and cash equivalents accumulated to ¥231.9B, an increase of ¥28.4B from the end of the prior fiscal year.

Quality of Earnings

Earnings are primarily derived from recurring business activities, with limited impact from temporary factors. Non-recurring items were small, with other income of ¥3.1B and other expenses of ¥0.1B, while finance income of ¥1.5B and finance costs of ¥2.1B also remained minor relative to revenue. OCF was approximately 1.51 times net income, indicating strong consistency between cash flow and accounting earnings and suggesting good earnings quality. The divergence between profit before tax (¥168.5B, +4.2%) and net income (¥118.3B, -5.8%) resulted from the increase in the effective tax rate from the prior year and can be explained as a change in the tax burden structure rather than a non-recurring special factor.

Earnings Forecast and Guidance

The forecast for the next fiscal year is revenue of ¥1,750.0B (+4.5% year on year), operating income of ¥177.0B (+6.0%), EPS of ¥144.77, and DPS of ¥90. The forecast implies a modest improvement in the operating margin from 10.0% in the current fiscal year to approximately 10.1% in the next fiscal year. The plan appears to assume that the effects of the contraction in overseas operations will have run their course, supported by solid performance in the electrical and mechanical and IT businesses and a bottoming out in the profitability of the construction business. The dividend forecast is ¥90 per year, representing a planned increase from the current fiscal year’s actual dividend of ¥85.

Shareholder Returns

The annual dividend was ¥85 (interim: ¥35, year-end: ¥50), resulting in a payout ratio of 61.2%. Share repurchases of ¥39.8B were conducted, and the total return ratio, combining dividends of ¥68.9B and share repurchases, reached approximately 92% (¥108.7B ÷ ¥118.3B), indicating an aggressive level of shareholder returns. Free cash flow of ¥150.7B exceeded the combined amount of dividends and share repurchases, supporting the sustainability of shareholder returns from a cash flow perspective. The Company plans to increase the annual dividend to ¥90 in the next fiscal year.

Risk Factors

1. High dependence on goodwill: Goodwill was ¥593.7B, accounting for 45.9% of total assets and 73.9% of net assets. As the scope of consolidation continues to expand through M&A, impairment risk may materialize if the earnings power of acquired businesses declines.

2. Declining profitability in the construction business: The construction business recorded revenue growth of +1.2% but operating income decline of -7.5% (12.1% margin), indicating deterioration in profitability due to project trends and higher costs. A delayed recovery could affect the Company-wide profit margin.

3. Low level of internal investment: Capital expenditures of ¥4.4B were only approximately 0.19 times depreciation and amortization expense of ¥23.6B. If insufficient investment continues, the Company may face constraints on improving productivity and pricing power in the human resources services industry.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

All profitability metrics exceeded the industry median, indicating a relatively advantageous position in terms of capital efficiency and margins.

Growth and Capital Efficiency

Revenue growth was substantially below the industry median, primarily due to the structural factor of the sale of the overseas subsidiary, contrasting with the Company’s relative advantage in profitability.

※Source: Company analysis

Key Takeaways from the Results

1. The increase in operating income despite lower revenue was achieved through gross margin improvement (approximately +2.4pt) and cost management, confirming improvements in the cost structure of the core business. Meanwhile, the decline in net income resulted from the higher tax rate and does not indicate deterioration in the business structure.

2. Goodwill accounting for 73.9% of net assets is an important indicator for monitoring future M&A-related impairment risk. Trends in the goodwill-to-net-assets ratio are a key focus in evaluating financial soundness.

3. The high total return ratio of approximately 92% is supported by growth in OCF (+26.3%) and free cash flow of ¥150.7B, confirming consistency with the Company’s cash-generating capacity.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,082–¥1,142 at ±1% for the cost of equity, and ¥1,108–¥1,117 at ±0.1 for ω.

Notes:

• The ratio of goodwill to net assets is high, and the assumptions would change substantially if impairment were incurred.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not predict or guarantee the future share price)

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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 responsibility, and after consulting a professional advisor as necessary.

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