Open Up Group (2154) FY2026 Q3 Earnings Report

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Executive Summary

Revenue declined due to the exclusion of overseas subsidiaries from the consolidated results; however, the most important point for the current period is that the Company achieved higher profit without revenue growth, supported by increased revenue and improved profitability in its core domestic areas. Revenue was ¥1252.7B (-14.7% YoY), Operating Income was ¥136.8B (+6.0%), Profit Before Tax was ¥138.2B (+8.1%), and Net Income attributable to owners of the parent was ¥97.2B (+11.2%). The decline in revenue was primarily attributable to the transfer of subsidiaries in the overseas area, while revenue growth in the Electromechanical and Construction areas and improved efficiency in costs and SG&A supported the increase in profit.

Factors Affecting Earnings

【Revenue】Consolidated Revenue was ¥1252.7B, down -14.7% YoY. The primary factor was the exclusion from consolidation following the transfer of the overseas subsidiary GAP PERSONNEL INVESTMENTS LIMITED, with revenue in this segment plunging from ¥276.0B to ¥5.2B. Meanwhile, the domestic core Electromechanical area maintained revenue growth at ¥492.8B (+10.3%), the Construction area at ¥436.6B (+3.0%), while the IT area was nearly flat at ¥306.9B (-0.3%). The Electromechanical area also benefited from the newly consolidated results of two companies under Aisabu Holdings.

【Profit and Loss】Operating Income was ¥136.8B (+6.0% YoY), and the Operating Income Margin improved by 2.1pt to 10.9% from 8.8% in the same period of the previous year. The decline in cost of sales exceeded the decline in revenue, raising the gross profit margin to 27.7% from 24.8% in the previous year. SG&A expenses declined to ¥212.8B (-11.5%), also reflecting improved efficiency in company-wide expenses. Financial expenses fell significantly to ¥1.4B from ¥2.9B in the previous year, resulting in Profit Before Tax of ¥138.2B (+8.1%) and Net Income of ¥97.2B (+11.2%). Despite lower revenue, profit increased; accordingly, the results should be characterized as lower revenue and higher profit, rather than higher revenue and higher profit.

Segment Analysis

The Electromechanical area is the core business making the largest contribution to consolidated profit, with revenue of ¥492.8B (+10.3% YoY), segment profit of ¥62.8B (+6.6%), and a profit margin of 12.7%. The Construction area maintained revenue of ¥436.6B (+3.0%), profit of ¥60.5B (+2.9%), and a profit margin of 13.9%; the acquisition of Offucus Invesco contributed to increases in goodwill and assets. The IT area was nearly flat in revenue at ¥306.9B (-0.3%), but profit increased to ¥31.1B (+6.7%), with the profit margin improving to 10.1% from 9.5% in the previous year, suggesting improvement in pricing and project mix. The overseas area saw revenue plunge to ¥5.2B (-98.1%) and profit to ¥2.2B (-75.6%) following the transfer of the subsidiary, becoming the direct cause of the decline in consolidated revenue. While the total profit margin of the reporting segments was 12.6%, the consolidated Operating Income Margin was 10.9%, with company-wide expenses of ¥33.4B weighing on the consolidated margin.

Key Financial Metrics

【Profitability】The Operating Income Margin improved by 2.1pt to 10.9% from 8.8% in the same period of the previous year, while the Net Profit Margin rose by 1.8pt to 7.8% from 6.0% in the previous year. 【Cash Flow Quality】Operating Cash Flow (OCF) of ¥97.2B was nearly equal to Net Income attributable to owners of the parent of ¥97.2B, resulting in OCF/Net Income of 1.0x and indicating solid cash backing for earnings. 【Investment Efficiency】ROE (Annualized) was 16.6%, primarily due to improved profitability and asset efficiency, and was not dependent on excessive financial leverage. 【Financial Soundness】The Equity Ratio was 63.9%, nearly unchanged from 64.2% in the same period of the previous year, indicating a substantial capital buffer. Meanwhile, goodwill of ¥593.7B accounted for 76.1% of net assets of ¥779.8B, representing an important structural characteristic alongside the assessment of profitability.

Cash Flow Analysis

Operating Cash Flow was ¥97.2B, an increase of +47.8% from ¥65.8B in the same period of the previous year, reflecting higher Profit Before Tax and lower corporate tax payments. In terms of working capital, increases in trade receivables of ¥5.2B, a decrease in trade payables of ¥8.1B, and a decrease in accrued personnel expenses of ¥24.1B were sources of cash outflow; however, these were offset by a decrease in prepaid expenses of ¥17.2B and collections of lease receivables of ¥15.0B. Cash flow from investing activities was -¥28.0B, of which acquisitions of subsidiaries accounted for ¥23.3B, indicating continued business expansion through M&A. Capital expenditures were modest at ¥2.6B, resulting in free cash flow (OCF + investing cash flow) of ¥69.2B. Cash flow from financing activities was -¥108.0B, primarily due to dividend payments of ¥68.8B and the acquisition of treasury shares of ¥39.8B; the combined amount exceeded free cash flow. As a result, cash and cash equivalents decreased from ¥203.5B at the beginning of the period to ¥165.1B.

Earnings Quality

Operating Cash Flow and Net Income attributable to owners of the parent were at nearly the same level (¥97.2B versus ¥97.2B), indicating limited accrual factors—the divergence between profit and cash—and generally sound earnings quality. No significant one-off factors equivalent to extraordinary gains or losses were identified in the profit and loss statement, while financial income of ¥1.2B and financial expenses of ¥1.4B were also largely offsetting. Equity-method investment income of ¥1.7B was recorded from the overseas area and represented a limited proportion of consolidated profit. Income taxes of ¥41.0B, representing the difference between Profit Before Tax of ¥138.2B and Net Income of ¥97.2B, corresponded to an effective tax rate of approximately 29.7%, slightly lower than 31.6% in the same period of the previous year. Comprehensive income was ¥98.2B, with only a small divergence from Net Income of ¥97.2B; the impact of other comprehensive income items, such as foreign currency translation adjustments of foreign operations, was limited.

Earnings Forecast and Guidance

The full-year forecast remains unchanged at Revenue of ¥1710.0B, Operating Income of ¥165.0B (+1.6% YoY), and Net Income of ¥118.0B. The cumulative Q3 progress rates were 73.3% for Revenue, 82.9% for Operating Income, and 82.3% for Net Income. Compared with the standard progress rate of 75%, Revenue was slightly below, while Operating Income and Net Income were above. The delay in revenue progress reflects the exclusion of the overseas area from consolidation, whereas improved profitability in the domestic businesses has contributed ahead of the full-year plan on the profit side. The Revenue required in Q4 is approximately ¥457.3B, and the Operating Income required is approximately ¥28.2B, indicating relative flexibility in achieving the profit plan.

Shareholder Returns

The Q2 dividend was ¥35.00 per share, and the full-year dividend forecast is ¥85.00. Cumulative dividend payments for the current period were ¥68.8B, and the forecast Payout Ratio based on forecast full-year EPS of ¥135.76 is approximately 62.6%. Treasury share repurchases totaled ¥39.8B during the current period, bringing total shareholder returns, including dividends and treasury share repurchases, to ¥108.7B. The Total Return Ratio against Net Income attributable to owners of the parent of ¥97.2B was approximately 111.9%. Total shareholder returns exceeded free cash flow of ¥69.2B, and cash and cash equivalents decreased by ¥38.5B from the beginning of the period. The sustainability of future shareholder returns will depend on the achievement of the full-year profit plan and changes in cash levels.

Risk Factors

1. Goodwill impairment risk: Goodwill of ¥593.7B represents 76.1% of net assets of ¥779.8B and 48.7% of total assets. As goodwill is not amortized on a straight-line basis under IFRS, if the earnings plans of acquired companies are revised downward, impairment losses could arise discontinuously and materially erode net assets and profit.

2. Narrower revenue base following the sale of the overseas business: Revenue in the overseas area plunged from ¥276.0B in the same period of the previous year to ¥5.2B, becoming the direct cause of the decline in consolidated Revenue (-14.7%). Whether growth in the three domestic areas and acquired businesses can fill this gap is a structural issue.

3. Balance between shareholder returns and cash flow: Combined dividend payments and treasury share repurchases of ¥108.7B exceeded free cash flow of ¥69.2B for the current period, and cash and cash equivalents decreased by ¥38.5B from the beginning of the period. If M&A investment and shareholder returns are pursued simultaneously, the allocation of funds will require ongoing monitoring.

Industry Benchmark (For Reference; Company Research)

Profitability and Return

The Company's profitability exceeds the median for the IT and telecommunications industry and ranks at a high level within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is significantly below the industry median; however, this is primarily due to the temporary factor of excluding the overseas subsidiary from consolidation and should be viewed in a different context from the profitability metrics.

※Source: Company research

Key Points from the Earnings Results

1. Despite lower revenue, the Operating Income Margin improved by 2.1pt YoY and Operating Income increased by +6.0%. A structural feature is that higher profit and cost efficiency in the domestic Electromechanical, Construction, and IT areas absorbed the impact of the contraction in the overseas business.

2. Operating Cash Flow and Net Income were nearly equal (1.0x), indicating solid cash backing for earnings. Meanwhile, the fact that goodwill accounts for 76.1% of net assets is recognized as a risk factor integrated with the growth strategy utilizing M&A.

3. Full-year progress was led by profit, with Revenue at 73.3% versus Operating Income at 82.9% and Net Income at 82.3%; the trend of improving profitability is the central observation from the current-period results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,036–¥1,094 at Cost of Equity ±1%, and ¥1,061–¥1,070 at ω±0.1.

Notes:

• The ratio of goodwill to net assets is high, and the assumptions will change materially if impairment occurs.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).

(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 share prices or recommendations of 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 responsibility, after consulting with professionals as necessary.

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