SMS CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

During the quarter, the Company recorded double-digit growth in both operating and ordinary income, while net income attributable to owners of the parent declined year on year due to the higher tax burden. Revenue was ¥20.21B (+8.2% YoY), operating income was ¥4.31B (+19.1%), and ordinary income was ¥5.43B (+13.5%), with profit growth exceeding top-line growth in all cases. Meanwhile, net income was limited to ¥3.73B (-5.4%), primarily due to the increase in the effective tax rate from 17.6% in the previous year to 30.9%. The operating margin improved to 21.3% (+1.9pt YoY), with higher revenue and profit in the core Career Business driving overall performance.

Factors Affecting Performance

【Revenue】Revenue of ¥20.21B represented an 8.2% YoY increase. The core Career Business, which accounts for 69.8% of the revenue mix, led growth with revenue of ¥14.11B (+7.9%), while the Elderly/Disability Business generated ¥3.47B (+9.4%) and the Overseas Business generated ¥1.59B (+3.9%), resulting in higher revenue across all segments. It should be noted that, following the transition to a new management structure in January 2026, the segment classification was changed from this period to three categories: “Career,” “Elderly and Disability Welfare Management Support,” and “Overseas.”

【Profit and Loss】Operating income increased 19.1% to ¥4.31B, exceeding the revenue growth rate, and the operating margin improved to 21.3% (+1.9pt YoY). While maintaining a highly profitable structure with a gross margin of 91.0% (+0.3pt YoY), the increase in personnel and advertising expenses remained below the pace of revenue growth, suppressing the SG&A ratio and resulting in operating leverage. By segment, operating income from Career was ¥5.01B (+10.2%, margin of 35.5%), driving overall profit; Elderly/Disability remained solid at ¥1.03B (+2.5%, margin of 29.7%); and Overseas, despite an operating loss of ¥0.32B, reduced its loss by 53.5% from the previous year. Ordinary income increased 13.5% to ¥5.43B, owing largely to ¥1.21B in equity-method investment gain, with non-operating income at a somewhat high level of 6.1% of revenue. On the other hand, net income attributable to owners of the parent was ¥3.73B, a 5.4% decline from ¥3.94B in the previous year. The increase in the effective tax rate (17.6%→30.9%) and the recognition of a ¥0.06B foreign exchange loss were the main factors depressing earnings. Overall, the Company achieved higher revenue and profit at the operating and ordinary income levels, while final profit declined year on year due to tax and foreign-exchange factors; the underlying earnings power of the core business has instead improved.

Segment Analysis

The Career Business is the earnings base of the Company, with revenue of ¥14.11B (+7.9%), operating income of ¥5.01B (+10.2%), and a margin of 35.5%. The Elderly/Disability Business maintained higher revenue and profit, with revenue of ¥3.47B (+9.4%), operating income of ¥1.03B (+2.5%), and a margin of 29.7%. The Overseas Business continued to post an operating loss of ¥0.32B against revenue of ¥1.59B (+3.9%), but the loss narrowed 53.5% from the previous year, indicating an improving trend. Other Businesses, including Senior Life, generated revenue of ¥1.05B (+15.2%) and an operating loss of ¥0.12B. Company-wide operating income of ¥4.31B represents the ¥5.60B total for the reporting segments less adjustments of -¥1.29B, including corporate administrative expenses, demonstrating a structure in which Career’s high profitability absorbs group management costs.

Key Financial Indicators

【Profitability】The operating margin was 21.3% (+1.9pt YoY), the net margin was 18.4% (-2.7pt YoY), and ROE was 13.2%. ROE consists of three DuPont components: a net margin of 18.4%, total asset turnover of 0.372x (quarterly basis), and financial leverage of 1.92x. While the decline in the net margin put pressure on final profitability, earnings power at the operating level improved.【Cash Quality】Cash and deposits increased to ¥15.35B (+11.8% from ¥13.73B in the previous year). After deducting interest-bearing debt—comprising short-term borrowings of ¥3.04B, current portion of long-term borrowings of ¥1.30B, and long-term borrowings of ¥1.05B, for a total of ¥5.39B—net cash was approximately ¥9.96B, providing a substantial liquidity cushion.【Investment Efficiency】Investment securities decreased 32.9% to ¥1.95B from ¥2.91B in the previous year, reducing sensitivity to market fluctuations compared with the previous year.【Financial Soundness】The equity ratio was 52.0% (+1.8pt YoY), and the current ratio was 165.1% (current assets of ¥40.73B / current liabilities of ¥24.67B). Non-current liabilities remained modest at ¥1.43B, indicating a conservative financial structure.

Cash Flow Analysis

Because the cash flow statement has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased by ¥1.62B (+11.8%) year on year to ¥15.35B, indicating an accumulation of funds. On the liabilities side, short-term borrowings decreased by ¥1.56B (-33.9%) to ¥3.04B from ¥4.60B in the previous year, reducing dependence on borrowings. Investment securities decreased by ¥0.96B (-32.9%) to ¥1.95B from ¥2.91B in the previous year, suggesting that the replacement or sale of held assets may have been one source of funds. Contract liabilities increased by ¥0.63B (+39.8%) to ¥2.20B from ¥1.57B in the previous year, with the expansion of advance-payment-based revenue contributing to the early collection of cash. Overall, the reduction of borrowings and accumulation of advance payments supported the increase in cash, and the funding base remained stable.

Earnings Quality

Of ordinary income of ¥5.43B, the ¥1.21B equity-method investment gain represented the core of non-operating income and the majority of total non-operating income of ¥1.22B. Accordingly, earnings at the ordinary income level are structurally subject to a meaningful degree of influence from fluctuations in the performance of equity-method affiliates. Extraordinary items were limited, with extraordinary losses of ¥0.04B, including a ¥0.01B loss on disposal of fixed assets. The factor with the greatest impact on net income was instead the tax burden: the effective tax rate rose from 17.6% in the previous year to 30.9%, causing net income to decline 5.4% despite a 12.8% increase in pretax income. Comprehensive income was ¥3.95B, ¥0.22B higher than net income attributable to owners of the parent of ¥3.73B, primarily due to a ¥0.21B foreign currency translation adjustment. The divergence between the two figures was relatively small, indicating that, excluding foreign-exchange factors, net income is highly consistent with underlying earnings from an earnings-quality perspective.

Earnings Forecast and Guidance

The full-year forecast calls for revenue of ¥71.83B (+11.0% YoY), operating income of ¥6.80B (+0.2%), ordinary income of ¥8.73B (+0.1%), and EPS of ¥75.10, with no revisions to the forecast made during the quarter. Q1 progress rates were 28.1% for revenue, 63.3% for operating income, 62.2% for ordinary income, and 60.5% for net income, based on the net income forecast of ¥6.165B. These figures are substantially above the simple quarterly run-rate of 25%. In particular, the fact that progress in profit items substantially exceeded revenue progress indicates that the full-year growth assumptions—operating income of +0.2% and ordinary income of +0.1%—are conservative compared with Q1 growth rates of +19.1% and +13.5%, respectively.

Shareholder Returns

The dividend forecast for the current period is ¥0, resulting in a payout ratio of 0%. The dividend paid in the same period of the previous year was also ¥0, with no change in policy. Retained earnings have accumulated to ¥28.00B, confirming that growth investment funded by retained earnings is being prioritized.

Risk Factors

1. Segment concentration risk: The Career Business accounts for 69.8% of revenue, creating a structure in which demand trends in this business, including employment market conditions, have a significant impact on overall performance.

2. Continued losses in the Overseas segment: The Overseas Business posted an operating loss of ¥0.32B. Although the loss narrowed 53.5% from the previous year, the segment has not yet achieved profitability, making progress toward monetization an ongoing focus.

3. Dependence of ordinary income on equity-method investments and fluctuations in the tax burden: Equity-method investment gain accounts for ¥1.21B of ordinary income of ¥5.43B and may become a source of volatility at the ordinary income level. In addition, the effective tax rate increased from 17.6% to 30.9%, meaning that the tax burden is affecting the volatility of net income.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net margin exceed the industry median by more than 10pt, placing profitability at a high level within the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median, placing the Company’s growth pace around the middle of the industry.

Source: Compiled by the Company

Key Points from the Earnings Results

1. The full-year progress rates for Q1 operating income and ordinary income were 63.3% and 62.2%, respectively, substantially exceeding not only the quarterly run-rate of 25% but also the full-year growth assumptions of +0.2% for operating income and +0.1% for ordinary income. The earnings data therefore indicate conservatism in the full-year plan.

2. The increase in the effective tax rate from 17.6% in the previous year to 30.9% resulted in a 5.4% YoY decline in net income despite higher profit through the ordinary income level. Trends in the tax burden will be an important point to monitor when assessing the future earnings growth trend.

3. The loss in the Overseas segment narrowed 53.5% from the previous year, while contract liabilities increased +39.8%. Two structural changes are evident: improved profitability and expansion of the advance-payment-based revenue base.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on 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: ¥502–¥534 at ±1% for the cost of equity, and ¥512–¥525 at ±0.1 for ω.

Notes:

• Because net income progress against the full-year forecast is 60%, exceeding the standard 25%, forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of plan tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the end of the quarter are used; there is a timing difference relative to the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / 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 through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. 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, where necessary, after consulting with a professional advisor.

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