SMS (2175) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative Q3 results for the fiscal year ending March 2026 showed increases in both revenue and earnings; however, progress against the full-year plan is behind schedule, and the most important point is that achievement of the plan is heavily weighted toward Q4. Revenue was ¥473.5B (+5.5% YoY), Operating Income was ¥39.0B (+8.7%), Ordinary Income was ¥53.8B (+4.9%), and Net Income was ¥46.6B (¥38.5B in the previous year, +21.2%). Operating Income growth exceeding revenue growth reflects cost discipline, while the increase in Net Income was largely attributable to a lower effective tax rate and the contribution from equity-method investment gains. Cumulative Q3 progress toward the full-year Operating Income forecast of ¥72.9B was 53.6%, below the standard 75%.

Factors Affecting Performance

【Revenue】Revenue increased 5.5% YoY to ¥473.5B. By segment, Kaipoke led growth at +15%, while Overseas declined 7%, and the Career segment remained at +4%, indicating that the pace of recovery is slower than planned. Progress toward the full-year forecast of ¥675.4B was 70.1%, slightly below the standard 75%.

【Profit and Loss】Operating Income increased 8.7% YoY to ¥39.0B, and the Operating Income margin improved to 8.2% from the previous year. The increase in earnings was supported by revenue growth of +5.5% exceeding the +4.0% increase in SG&A expenses. However, advertising expenses increased 12.4%, outpacing revenue growth, and their potential impact on future profit margins requires monitoring. Ordinary Income was ¥53.8B (+4.9%), below the Operating Income growth rate, due to the recognition of a ¥1.5B foreign exchange loss. Net Income of ¥46.6B (+21.2%) significantly exceeded the growth in Ordinary Income, primarily due to the decline in the effective tax rate (from 23.3% in the previous year to 13.2%); this should be viewed as a temporary factor. In conclusion, the company achieved increases in both revenue and earnings.

Segment Analysis

Segment revenue comprised Career at ¥288.7B (the largest composition, +4% YoY), Kaipoke at ¥100.8B (+15%), and Overseas at ¥56.4B (-7%), with Career being the core business and the largest segment. Within Career, Nursing Care Career generated ¥152.9B (+6%), while Medical Career generated ¥135.8B (+3%); the lengthening of the time required for job seekers to enter employment restrained growth. Kaipoke achieved the highest revenue growth rate, supported by an expanding membership base and factoring and option revenue. Overseas was the only segment to report a revenue decline, due to reduced customer budgets for the medical platform and fewer trips under Global Career, thereby weighing on the overall revenue growth rate. As segment Operating Income is not disclosed, the analysis is limited to the company-wide level.

Key Financial Indicators

Profitability: ROE (annualized) of 14.0% and Operating Income margin of 8.2% (improved from approximately 8.0% in the previous year)
Cash flow quality: No standalone Operating Cash Flow (OCF) data available
Investment efficiency: No standalone capital expenditure/depreciation data available
Financial soundness: Equity Ratio of 60.4% (61.5% in the previous year) and Current Ratio of 149.1%

Cash Flow Analysis

As detailed data from the cash flow statement has not been provided, the analysis is inferred from changes in the balance sheet. Cash and deposits amounted to ¥146.9B, down from ¥168.8B in the previous year, suggesting that share repurchases (approximately ¥40B) and an increase in short-term borrowings (+¥18.6B) generated funding requirements. Interest-bearing debt stood at ¥67.6B, below cash and deposits of ¥146.9B, and the company maintained a positive net cash position.

Earnings Quality

The difference between Ordinary Income of ¥53.8B and Net Income of ¥46.6B was primarily corporate income taxes and other taxes of ¥7.1B, resulting in an effective tax rate of 13.2%, a significant decline from 23.3% in the previous year. This temporary factor drove Net Income growth of +21.2% well above Ordinary Income growth of +4.9%. Non-operating income of ¥17.3B represented 3.7% of revenue, of which equity-method investment gains of ¥16.3B accounted for 30.3% of Ordinary Income, indicating that fluctuations in the performance of affiliated companies have a significant impact on consolidated earnings. Extraordinary gains and losses were negligible (extraordinary loss of ¥0.03B), indicating that earnings were not dependent on temporary extraordinary items. Comprehensive Income was ¥34.2B, below Net Income of ¥46.6B, primarily due to foreign currency translation adjustments of -¥11.7B.

Earnings Forecast and Guidance

Cumulative Q3 progress toward the full-year forecast was 70.1% for Revenue, 53.6% for Operating Income, 56.8% for Ordinary Income, and 66.3% for Net Income, all below the standard progress rate of 75%. Operating Income progress was particularly low, at 21.4pt below the standard, requiring the company to generate Operating Income of ¥33.8B in Q4, approximately 2.6 times the average quarterly amount through cumulative Q3. Management maintained its full-year plan and expects to achieve it despite the concentration of performance in Q4.

Shareholder Returns

The full-year dividend forecast is ¥29.5 per share (an increase of ¥1 from the previous year), and the Payout Ratio based on forecast EPS of ¥85.13 is 34.7%. The Q2 dividend was ¥0, reflecting a policy focused on the year-end dividend. In addition, the company conducted share repurchases of approximately ¥40B during April–July 2025, bringing the Total Return Ratio, including dividends and share repurchases, to 91.3%. In terms of terminology, dividends alone are evaluated using the Payout Ratio of 34.7%, while shareholder returns including share repurchases are distinguished as the Total Return Ratio of 91.3%.

Catalysts

【Short Term】Progress toward achieving Q4 Operating Income of ¥33.8B, improvement in matching performance in the Career segment, and trends in Kaipoke membership growth and ARPA expansion.

【Long Term】The transition toward corporate value management under the new president, who took office in January 2026; the new growth roadmap scheduled to be announced when full-year results are released, including co-creation-oriented portfolio management, a ROE target of 20%, and a capital allocation policy; and a review of the overseas business portfolio.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (healthcare)

Profitability and Returns

The company’s profitability metrics exceed the industry median, with both its Operating Income margin and Net Income margin positioned at high levels within the industry.

Growth and Capital Efficiency

The revenue growth rate is below the industry median, indicating that the company’s growth pace is somewhat less competitive within the industry despite its high profitability.

※Source: Compiled by the Company

Risk Factors

1. Risk of delayed recovery in the Career business: The overall growth rate of Career has remained at +4%, due to a lengthening of the time required for job seekers to enter employment in Nursing Care Career and changes in job seeker attributes in Medical Career.

2. Risk of deteriorating profitability in the Overseas business: The Overseas segment was the only segment to report a revenue decline, down 7% YoY to ¥56.4B, affected by reduced customer marketing budgets and fewer trips amid concerns regarding the situation in the Middle East.

3. Risk of shorter-term financing: Short-term borrowings increased 53.1% YoY to ¥53.6B, while long-term borrowings decreased 40.4% to ¥14.0B, shifting the debt composition toward the short term. Although cash and deposits of ¥146.9B exceed interest-bearing debt, sensitivity to changes in refinancing conditions and the interest-rate environment has increased.

Key Takeaways from the Earnings Results

1. The Operating Income margin improved to 8.2%, indicating stronger core profitability through cost discipline. However, the +21.2% increase in Net Income was substantially supported by the temporary factor of a lower effective tax rate, and the significant divergence from Ordinary Income growth of +4.9% should be considered when assessing earnings quality.

2. Progress toward the full-year forecast was below the standard level for all indicators. In particular, the Operating Income progress rate of 53.6% assumes achievement of a plan heavily weighted toward Q4. The Q4 results will have a significant impact on the degree to which the full-year plan is achieved.

3. While the Payout Ratio is 34.7%, the Total Return Ratio including share repurchases reached 91.3%. Dividend-only distributions provide room for sustainability; however, the relationship between the high level of shareholder returns including share repurchases and the decline in net assets (-6.3% YoY) warrants continued monitoring.

Theoretical Share Price (Reference Value)

Sensitivity: ¥631–¥668 for ±1% in the cost of equity, and ¥646–¥653 for ±0.1 in 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.

(Model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / Mechanically calculated solely from 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 through 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 professionals as necessary.

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