HAKUHODO DY HOLDINGS (2433) FY2026 FY Earnings Report

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Executive Summary

This period’s results were characterized by a structure opposite to one in which operating income rises substantially amid revenue growth and profit decline, with a high capacity to absorb costs through improved gross profit margins. Consolidated revenue was ¥861.0B, representing a decline of 9.7% YoY from ¥953.3B, while operating income increased to ¥44.68B (previous year: ¥37.58B; YoY +18.9%) and ordinary income rose to ¥46.06B (previous year: ¥42.66B; YoY +8.0%), securing earnings growth. Net income attributable to owners of the parent increased substantially to ¥16.78B (previous year: ¥10.77B; YoY +55.8%), while consolidated net income of ¥17.64B (previous year: ¥12.38B; YoY +40.2%) showed a similar trend. The main factors behind the increase in earnings were an improvement in the gross profit margin (47.2%, up +5.2pt from 41.9% in the previous year) and a reduction in absolute SG&A expenses, indicating progress in profitability improvement through selective project acceptance even amid declining revenue.

Factors Affecting Results

【Revenue】Consolidated revenue was ¥861.0B, representing a 9.7% YoY decline. By region, domestic revenue decreased to ¥639.0B (previous year: ¥714.9B), while overseas revenue declined to ¥222.0B (previous year: ¥238.4B). The overseas revenue ratio rose slightly to 27.7% from 27.1% in the previous year. The primary causes of the revenue decline appear to have been reductions in advertising placements and production projects in both domestic and overseas markets.

【Profit and Loss】Gross profit increased 1.6% to ¥406.0B from ¥399.6B in the previous year, and the gross profit margin improved by +5.2pt to 47.2% from 41.9%. SG&A expenses decreased by ¥0.66B to ¥361.36B from ¥362.02B in the previous year, indicating cost discipline even amid declining revenue. As a result, the operating margin expanded by +1.25pt to 5.19% from 3.94%. By region, domestic operating income increased to ¥86.19B from ¥81.95B, while overseas operating losses narrowed to ¥2.22B from ¥7.54B, although the overseas business has not yet turned profitable. The slower growth in ordinary income than in operating income was due to a decrease in non-operating income to ¥6.11B from ¥9.77B. Regarding extraordinary items, extraordinary losses of ¥10.56B, including an impairment loss on investment securities of ¥1.35B, a loss on disposal of fixed assets of ¥1.27B, and an impairment loss of ¥1.08B, exceeded extraordinary income of ¥2.24B, resulting in a net loss of ¥8.32B. Corporate income taxes and other taxes amounted to ¥20.10B against profit before tax of ¥37.74B, representing a high effective tax rate of 53.3% and partially offsetting the growth in net income relative to the improvements at the operating and ordinary income levels. Overall, the results reflect a decline in revenue but an increase in earnings, with gross profit improvement and cost control amid revenue contraction being the primary drivers of earnings growth.

Segment Analysis

As the Company operates as a single segment comprising advertising and marketing services, business-segment analysis is not disclosed; however, regional results are provided as reference information. The domestic business recorded a decline in revenue but an increase in earnings, with revenue from external customers of ¥639.0B (previous year: ¥714.9B) and operating income of ¥86.19B (previous year: ¥81.95B; +5.2%). The overseas business recorded revenue from external customers of ¥222.0B (previous year: ¥238.4B) and an operating loss of ¥2.22B (previous year: loss of ¥7.54B). Although the loss narrowed, the overseas business remains a factor depressing consolidated earnings. The overseas revenue ratio rose slightly to 27.7% from 27.1% in the previous year, and improvement in the overseas business’s profitability will determine the quality of consolidated earnings going forward.

Key Financial Metrics

【Profitability】The operating margin improved to 5.19% from 3.94%, while the gross profit margin also expanded to 47.2% from 41.9%. Meanwhile, the net margin attributable to owners of the parent remained at 1.95%; the gap relative to the operating margin was attributable to the effective tax rate of 53.3% and the ¥8.32B net loss from extraordinary items. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥68.36B, approximately 4.1 times net income attributable to owners of the parent of ¥16.78B, indicating strong cash conversion. However, OCF declined 17.1% from ¥82.45B in the previous year and was partly supported by working-capital factors such as an increase in deposits received and a decrease in inventories. 【Investment Efficiency】ROE was 4.4%. EPS was ¥46.09 (previous year: ¥29.32), and BPS was ¥1,083.83 (previous year: ¥1,062.25; +2.0%), indicating a gradual improvement in capital efficiency. 【Financial Soundness】The equity ratio was 37.2%. Interest-bearing debt primarily comprised long-term borrowings of ¥65.32B and bonds of ¥30.00B. Cash and deposits of ¥238.96B substantially exceeded short-term interest-bearing debt, and no liquidity concerns were evident.

Cash Flow Analysis

OCF was ¥68.36B, down 17.1% from ¥82.45B in the previous year, but remained approximately 4.1 times net income attributable to owners of the parent of ¥16.78B, maintaining a high level of earnings-to-cash conversion. OCF for the period was supported by a ¥22.74B increase in deposits received and a ¥5.92B decrease in inventories, while a ¥1.68B increase in accounts receivable had a negative impact. Investing CF was negative ¥14.09B, with capital expenditures of ¥3.39B and acquisitions of intangible assets of ¥8.05B constituting the primary uses of funds. As a result, free cash flow was ¥54.28B, leaving the Company with ample financial capacity even after executing financing CF of negative ¥30.66B, including ¥10.00B in share repurchases and dividend payments. Capital expenditures were approximately 24% of depreciation and amortization expenses of ¥14.26B, indicating limited investment in tangible fixed assets. As the advertising and marketing business has an asset-light structure, this is not an immediate concern in itself; however, trends in investment in digital and data platforms warrant attention.

Quality of Earnings

There was a substantial gap between ordinary income of ¥46.06B and net income attributable to owners of the parent of ¥16.78B, primarily due to the ¥8.32B net loss from extraordinary items and the high effective tax rate of 53.3%. Extraordinary losses included an impairment loss on investment securities of ¥1.35B, a loss on disposal of fixed assets of ¥1.27B, and an impairment loss of ¥1.08B, all of which can be distinguished as temporary factors. Non-operating income of ¥6.11B comprised items such as dividend income of ¥2.22B and foreign exchange gains of ¥1.43B, indicating limited supplementary income from outside the core business. From an accrual perspective, OCF of ¥68.36B substantially exceeded net income attributable to owners of the parent, indicating sound earnings quality in terms of cash backing. However, the increase in deposits received that supported OCF includes temporary working-capital fluctuations; therefore, OCF may move closer to the level of earnings when this factor reverses. Comprehensive income was ¥25.96B (previous year: ¥17.94B), supported by positive contributions from valuation differences on securities of ¥4.19B and adjustments related to retirement benefits of ¥4.14B. The divergence from net income was attributable to changes in other comprehensive income (OCI).

Earnings Forecast and Guidance

Progress against the full-year forecast was 94.6% for revenue (actual ¥861.0B / forecast ¥910.0B), 95.7% for operating income (¥44.68B / ¥46.70B), and 98.0% for ordinary income (¥46.06B / ¥47.00B), indicating steady progress at the operating and ordinary income levels. Meanwhile, net income attributable to owners of the parent was ¥16.78B, representing progress of only 64.5% against the full-year forecast of ¥26.00B. The high effective tax rate and net loss from extraordinary items delayed progress at the bottom-line level. Actual EPS was ¥46.09 against forecast EPS of ¥72.42, making normalization of the tax rate and improvement in extraordinary items prerequisites for achieving the full-year forecast.

Shareholder Returns

The annual dividend was ¥32.00 per share, resulting in a payout ratio of 69.4% against net income attributable to owners of the parent of ¥16.78B. Total dividend payments were approximately ¥11.60B, and coverage against free cash flow of ¥54.28B was approximately 4.7 times, indicating strong cash backing. In addition to dividends, the Company repurchased ¥10.00B of its own shares during the period, resulting in a Total Return Ratio of approximately 128.8% and shareholder returns exceeding current-period net income. Based on forecast EPS of ¥72.42 and a dividend of ¥32.00 per share, the forecast payout ratio would decline to approximately 44.2%; consequently, the degree to which the net income forecast is achieved will determine future capacity for shareholder returns.

Risk Factors

1. Overseas business profitability: While the overseas revenue ratio reached 27.7% (previous year: 27.1%), the overseas operating loss was ¥2.22B (previous year: loss of ¥7.54B). Although the loss narrowed, the business has not yet turned profitable, and there is a risk of renewed losses due to overseas advertising demand and foreign exchange fluctuations.

2. High effective tax rate and extraordinary items: The effective tax rate for the period was high at 53.3%, and the tax burden coefficient was substantially below the normal range. Extraordinary losses of ¥10.56B, including an impairment loss on investment securities of ¥1.35B, a loss on disposal of fixed assets of ¥1.27B, and an impairment loss of ¥1.08B, weighed on net income. Progress against the full-year forecast of ¥26.00B in net income attributable to owners of the parent remained at only 64.5%.

3. Amortization burden of goodwill: Against a goodwill balance of ¥49.81B, goodwill amortization for the period was ¥10.26B, representing a high ratio relative to the EBITDA-equivalent amount. If the profitability of acquired businesses declines, impairment risk may arise in addition to the amortization burden.

Industry Benchmark (Reference; Compiled by the Company)

No industry benchmark data available

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Operating income increased 18.9% while revenue declined 9.7%, with the gross profit margin improving by 5.2pt and the operating margin by 1.25pt. The increase in earnings amid declining revenue reflects profitability improvement through selective project acceptance and is noteworthy in assessing earnings quality.

2. OCF of ¥68.36B, approximately 4.1 times net income attributable to owners of the parent, was secured, demonstrating strong cash-generation capacity. However, OCF included support from working-capital factors such as an increase in deposits received, and its level may change when these factors reverse.

3. The effective tax rate of 53.3% and the net loss from extraordinary items constrained the growth in net income. Progress in net income attributable to owners of the parent against the full-year forecast was 64.5%, lagging the operating and ordinary income levels, which exceeded 95%. Whether this gap is resolved going forward will be an important point in assessing the quality of the earnings results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,065–¥1,127 at a ±1% change in the cost of equity, and ¥1,095–¥1,096 at a ±0.1 change in ω.

Notes:

• Goodwill amortization of ¥28.6 per share is added back to earnings (due to its nature as a non-cash expense and for comparability with IFRS companies).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, nor does it 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. 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 a professional as necessary.

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