Care Service (2425) FY2026 Q3 Earnings Report

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Executive Summary

The most important point in this earnings release is the delay in progress toward the full-year plan. While Revenue is close to plan, profit progress is significantly behind schedule. Revenue was ¥69.7B, representing progress of 73.1% against the full-year forecast of ¥95.3B, while Operating Income was ¥0.7B, representing progress of 22.8% against the full-year forecast of ¥3.2B. Ordinary Income was ¥1.2B and Net Income was ¥0.8B. With a gross profit margin of 9.5% versus an SG&A ratio of 8.5%, the cost structure is compressing profit margins. Ordinary Income includes ¥0.4B in subsidy income, and Operating Income Margin remains at only 1.0% when considering the core business alone.

Factors Affecting Performance

【Revenue】Revenue was ¥69.7B, representing progress of 73.1% against the full-year forecast of ¥95.3B, which is nearly in line with the standard Q3 progress rate (approximately 75%). To achieve the full-year plan, approximately ¥25.6B will be required in Q4, a level approximately 1割 above the recent quarterly average.

【Profit and Loss】Operating Income was ¥0.7B (Operating Income Margin of 1.0%), with the high-cost structure of a cost of sales ratio of 90.5% and an SG&A ratio of 8.5% compressing profit margins. Ordinary Income of ¥1.2B exceeded Operating Income by ¥0.5B, primarily due to the contribution of the non-operating factor of ¥0.4B in subsidy income. A gain on liquidation of a subsidiary of ¥0.1B was recorded as extraordinary income, resulting in Profit Before Tax of ¥1.3B; however, the burden of income taxes and other taxes of ¥0.5B (effective tax rate of 40.9%) reduced Net Income to ¥0.8B. Revenue is close to plan, but the profit progress rate (Operating Income of 22.8%) is significantly behind schedule, indicating a structure in which profit performance is highly dependent on Q4 despite higher revenue.

Key Financial Indicators

【Profitability】As an SG&A ratio of 8.5% is required against a gross profit margin of 9.5%, the Operating Income Margin remains thin at 1.0%. The Net Profit Margin is 1.1%, and the cost-intensive earnings structure constrains profitability.【Cash Quality】Subsidy income of ¥0.4B contributed to Ordinary Income of ¥1.2B, making it necessary to evaluate core business profits separately from non-operating factors. The extraordinary income (gain on liquidation of a subsidiary of ¥0.1B) should also be distinguished as a one-time factor.【Investment Efficiency】Annualized ROE is 3.5%, and capital efficiency remains low even after considering the turnover ratio relative to total assets.【Financial Soundness】The Equity Ratio is 74.1%, up from 70.9% in the previous year. Current assets of ¥31.4B are 4.3 times current liabilities of ¥7.3B, indicating a conservative liquidity and capital structure.

Cash Flow Analysis

Although direct data from the cash flow statement is not provided, cash flow trends can be confirmed from changes in the balance sheet. Cash and deposits decreased by ¥2.6B, from ¥18.4B in the same period of the previous year to ¥15.7B, while current liabilities decreased by ¥1.8B to ¥7.3B. Payments of provision for bonuses and income taxes payable are considered to be one factor behind the decrease in cash. Total assets were ¥39.3B, down ¥1.8B from ¥41.1B in the previous year, while Net Assets were ¥29.2B and remained almost unchanged. The contraction in assets was primarily attributable to decreases in cash and deposits and current assets. Cash and deposits of ¥15.7B are 2.2 times current liabilities, indicating that sufficient funds for business operations remain available.

Earnings Quality

Ordinary Income of ¥1.2B exceeded Operating Income of ¥0.7B by ¥0.5B, primarily because subsidy income of ¥0.4B included in non-operating income contributed to the result. Non-operating factors account for more than 30% of Ordinary Income. A gain on liquidation of a subsidiary of ¥0.1B was recorded as extraordinary income and should also be distinguished as a one-time factor. Accordingly, of Profit Before Tax of ¥1.3B, the portion generated by recurring business activities was limited to Operating Income of ¥0.7B, resulting in an earnings structure with relatively high dependence on subsidies and extraordinary income. The effective tax rate was high at 40.9%, restraining the conversion of Profit Before Tax into Net Income. This tax burden should also be considered when evaluating the quality of Net Income of ¥0.8B.

Earnings Forecast and Guidance

Progress against the full-year forecast was 73.1% for Revenue, which is close to plan, while Operating Income, Ordinary Income, and Net Income were significantly behind at 22.8%, 32.6%, and 32.4%, respectively. To achieve the full-year plan, approximately ¥2.5B in Operating Income and approximately ¥1.6B in Net Income will be required in Q4, substantially exceeding the cumulative results for the first three quarters. The gap between revenue progress and profit progress indicates that improvements in the cost of sales ratio and SG&A ratio will be required in a concentrated manner during Q4.

Shareholder Returns

The full-year dividend forecast is ¥22.0 per share, while the Q2 dividend was ¥0, resulting in a structure concentrated on the year-end dividend. Based on the number of shares excluding treasury shares (approximately 379万 shares), total annual dividends are estimated at approximately ¥0.8B, resulting in a Payout Ratio of approximately 35% against the full-year forecast Net Income of ¥2.4B. Cash and deposits of ¥15.7B are equivalent to approximately 19 times the planned annual dividend amount, indicating substantial dividend payment capacity based on available cash. However, the assessment of the Payout Ratio assumes achievement of the full-year profit plan, and it should be noted that profit progress in Q4 will determine the actual Payout Ratio.

Risk Factors

1. Vulnerability of the earnings structure: With a gross profit margin of 9.5% and an Operating Income Margin of 1.0%, the company has a low-margin structure in which increases in labor costs and declines in utilization rates in the nursing care services industry could have a significant impact on profits.

2. Delay in progress toward achieving the full-year plan: The full-year progress rate for Operating Income remains at 22.8%, requiring profit accumulation in Q4 on a scale exceeding the cumulative results to date.

3. Dependence on non-operating factors: Subsidy income of ¥0.4B accounts for more than 30% of Ordinary Income of ¥1.2B, and the continuity and fluctuations in the level of this income may affect Ordinary Income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Operating Income Margin and Net Profit Margin are significantly below the industry median, placing profitability at a low level within the industry.

※Source: Compiled by the Company

Key Points in the Earnings Release

1. Revenue progress was 73.1% against the full-year forecast, close to plan, but the Operating Income progress rate was significantly behind at 22.8%. The key to achieving the profit plan is therefore concentrated in improving profitability in Q4.

2. Ordinary Income is materially dependent on subsidy income of ¥0.4B. When evaluating Ordinary Income, core business Operating Income (¥0.7B) should be distinguished from non-operating factors.

3. The financial foundation is conservative, with an Equity Ratio of 74.1% and a current ratio of 431.0%. While short-term funding stability is high, capital efficiency (annualized ROE of 3.5%) remains low.

Theoretical Share Price (Reference Value)

Sensitivity: ¥702–¥743 at a ±1% change in the cost of equity, and ¥721–¥723 at a change of ±0.1 in ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).
• As Net Assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type model with an explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price, a recommendation of any specific investment action, or a prediction or guarantee of 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 discretion and responsibility, after consulting a professional as necessary.

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