Faber Company (220A) FY2026 Q1 Earnings Report

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Executive Summary

Despite higher revenue, this earnings result was characterized by a significant decline in operating income due to higher SG&A expenses, with changes in the earnings structure representing the primary focus. Revenue increased to ¥6.60B (+6.4% YoY), while operating income declined significantly to ¥0.73B (-38.2%) and net income to ¥0.49B (-39.3%). The primary cause of the decline in earnings was SG&A expenses increasing +25.2% YoY, substantially outpacing revenue growth, while initial losses from the newly established Distribution Business also had an impact.

Factors Affecting Earnings

【Revenue】Revenue increased to ¥6.60B, up +6.4% YoY. The core Mieruca Business accounted for ¥6.58B (99.7% of consolidated revenue), generating segment income of ¥1.13B (profit margin of 17.1%) and serving as the earnings pillar. Revenue from the newly established Distribution Business was limited to ¥0.02B.

【Profit and Loss】Gross profit was ¥4.58B, and the gross profit margin improved to 69.4% from 68.7% in the previous year’s same period. However, SG&A expenses rose to ¥3.85B (+25.2% YoY), substantially exceeding the revenue growth rate. Operating income declined to ¥0.73B (-38.2%), and the operating margin fell to 11.1% from 19.0% in the previous year. Ordinary income also declined by approximately the same amount to ¥0.73B (-38.1%), with the impact of non-operating income and expenses being minor. Net income was ¥0.49B (-39.3%). The primary cause of the earnings decline was the ¥0.39B segment loss in the Distribution Business, classifying the result as higher revenue but lower earnings.

Segment Analysis

Beginning in Q1 of the current fiscal year, the segment classification was changed to two segments: the Mieruca Business and the Distribution Business. The Mieruca Business generated revenue of ¥6.58B and segment income of ¥1.13B (profit margin of 17.1%), serving as the core of consolidated earnings. Meanwhile, the Distribution Business recorded a segment loss of ¥0.39B against revenue of ¥0.02B, exerting an offsetting impact on consolidated operating income of ¥0.73B. The previous year’s same period was disclosed as a single segment, so year-on-year comparisons by business cannot be made; however, the decline in consolidated operating income during the current period is considered primarily attributable to the Distribution Business’s initial losses.

Key Financial Indicators

【Profitability】The operating margin fell significantly to 11.1% from 19.0% in the previous year, while the net profit margin declined to 7.4% from 13.2%. Annualized ROE was 8.5%, primarily reflecting the decline in the net profit margin. The cost-of-sales ratio improved to 30.6% from 31.4% in the previous year, indicating improved profitability at the gross profit level. 【Cash Quality】Comprehensive income was ¥0.36B, below net income of ¥0.49B, with a ¥0.24B decline in valuation differences on other securities serving as a downward factor. 【Investment Efficiency】Cash and deposits totaled ¥20.4B against total assets of ¥27.8B, accounting for 73.3%; the majority of assets therefore consisted of cash and cash-like assets. 【Financial Soundness】The equity ratio remained high at 83.9% (82.7% in the previous year), and liquidity was extremely strong, with current assets of ¥23.8B against current liabilities of ¥4.5B. Non-current liabilities were only ¥0.03B, indicating low reliance on borrowings.

Cash Flow Analysis

Although no cash flow statement was disclosed, an analysis of funding trends based on changes in the balance sheet indicates that cash and deposits totaled ¥20.40B, down ¥0.85B from ¥21.24B in the previous year. Cash remained a high 73.3% of total assets, and the depth of liquidity was maintained. Retained earnings were ¥20.56B, slightly down from ¥20.89B in the previous year, suggesting cash outflows such as dividend payments against current-period net income of ¥0.49B. Investment securities totaled ¥2.76B, down from ¥3.01B in the previous year, apparently reflecting deterioration in valuation differences and changes in part of the asset composition. Overall, the asset composition remains centered on cash and securities, and the Company retains substantial financial funding capacity.

Quality of Earnings

The decline in earnings during the current period was not caused by extraordinary gains or losses, but by recurring factors consisting of higher SG&A expenses in the core business and initial losses from the Distribution Business; no temporary factors are apparent. Both non-operating income and expenses were immaterial (each in the ¥0.0B range), and ordinary income and operating income were nearly identical, indicating that non-operating gains or losses had no material effect in inflating or depressing earnings. The difference between ordinary income of ¥0.73B and net income of ¥0.49B was attributable to income taxes of ¥0.24B, resulting in an effective tax rate of approximately 32.3%, which is not particularly unusual. Comprehensive income of ¥0.36B was below net income of ¥0.49B, with deterioration in valuation differences on investment securities representing a negative accrual-related factor, although its scale was limited. Overall, earnings quality directly reflects changes in the cost structure of the core business, and the scope for accounting manipulation can be assessed as low.

Earnings Forecast and Guidance

The full-year Company forecast is revenue of ¥28.17B (+10.0% YoY), operating income of ¥3.00B (-20.2%), ordinary income of ¥3.06B (-19.3%), and net income of ¥2.10B. Q1 progress rates were 23.4% for revenue, 24.4% for operating income, and 23.3% for net income. Although all were slightly below the standard progress rate of 25%, there was no significant deviation. The full-year forecast itself incorporates a decline in operating income, and the Company’s plan represents a conservative outlook premised on the investment burden associated with the Distribution Business.

Shareholder Returns

The full-year forecast assumes an annual dividend per share of ¥30.0 and forecast EPS of ¥76.7, resulting in a payout ratio of approximately 39.1%. Based on the average number of shares outstanding during the period of 2.74 million shares, the total annual dividend is approximately ¥0.82B, within the range of forecast full-year net income of ¥2.10B. The financial foundation, including cash and deposits of ¥20.40B and an equity ratio of 83.9%, is sufficient to support dividend stability. The Company holds 260 thousand treasury shares; however, no additional purchases during the current period have been disclosed, so the assessment is based solely on the payout ratio.

Risk Factors

1. Risk of continued losses in the Distribution Business: The Distribution Business recorded a segment loss of ¥0.39B against revenue of ¥0.02B, representing a significant offset to consolidated operating income of ¥0.73B. Prolonged losses could continue to place pressure on the profits of the core Mieruca Business.

2. Risk of declining margins due to higher SG&A expenses: SG&A expenses increased +25.2% YoY, substantially exceeding revenue growth of +6.4%, and the operating margin declined by 790bp. If this trend continues, the capacity to achieve the full-year earnings plan will diminish.

3. Business concentration risk: The Mieruca Business accounts for 99.7% of consolidated revenue. Consequently, changes in the competitive environment, including search algorithm changes and the spread of generative AI in the SEO and content marketing fields, could have a significant impact on consolidated performance.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin are below the industry median, placing profitability below the middle range compared with peers.

Growth and Capital Efficiency

The revenue growth rate is below the industry median, placing the Company among the slower-growing businesses within the IT and communications industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Although revenue growth was maintained during the current period, operating income declined 38.2% YoY, indicating an earnings result in which initial investment was prioritized over profitability. The gross profit margin improved to 69.4%, and the primary causes of the deterioration in earnings were higher SG&A expenses and losses from the new segment rather than costs of sales.

2. While the Mieruca Business secured revenue of ¥6.58B and a segment profit margin of 17.1%, the ¥0.39B segment loss in the Distribution Business placed substantial pressure on consolidated earnings. The structure of the business is such that the status of earnings improvement in this segment will determine the future recovery of profit margins.

3. Financial soundness is extremely high, with cash and deposits of ¥20.40B, an equity ratio of 83.9%, and a current ratio of 533.6%, providing substantial capacity to support the investment phase. Progress toward the full-year forecast is also broadly on track, with revenue at 23.4% and operating income at 24.4%.

Theoretical Share Price (Reference Value)

Sensitivity: ¥799–¥844 at ±1% for the cost of equity, and ¥820–¥822 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• 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 (Ohlson-type, explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data. It 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 analysis of XBRL earnings report 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 professionals as necessary.

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