HAKUHODO DY HOLDINGS (2433) FY2026 Q3 Earnings Report

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Executive Summary

Although cumulative Q3 revenue declined, operating income increased primarily due to cost reductions, confirming a trend toward earnings growth. Consolidated revenue was ¥595.32B, down 9.7% YoY, while operating income increased to ¥28.60B (+26.3%) and ordinary income to ¥29.54B (+18.7%). Net income attributable to owners of the parent was ¥10.37B (+85.7%), also benefiting from the reaction to the large extraordinary loss recorded in the same period of the previous year. The primary factor behind the earnings growth was a 17.8% decline in cost of sales, which improved the gross profit margin from 43.3% to 48.3%. Progress toward the full-year operating income forecast of ¥40.00B was 71.5%, slightly below the standard 75% level.

Factors Affecting Performance

【Revenue】Consolidated revenue was ¥595.32B, down 9.7% YoY. Domestic revenue was ¥445.83B (▲9.7%), while overseas revenue was ¥156.21B (▲9.7%), both declining at almost the same rate, indicating a contraction in advertising demand and project volume across the single-segment business as a whole. The overseas revenue ratio was 28.0%, essentially flat from 27.8% in the same period of the previous year.

【Profit and Loss】Cost of sales was ¥307.72B, down 17.8% YoY, representing a reduction substantially exceeding the decline in revenue. As a result, the gross profit margin improved by approximately 500bp to 48.3%. SG&A expenses were ¥259.01B, down only 1.4%, but the improvement in gross profit more than offset this, resulting in operating income of ¥28.60B (+26.3%). By region, domestic operating income was ¥60.15B (+8.3%), while overseas operating income was ▲¥3.21B, representing a narrower loss than the ▲¥7.18B recorded in the same period of the previous year; overseas operations remain in the red. Ordinary income was ¥29.54B (+18.7%), reflecting the increase in operating income. Extraordinary losses of ¥6.34B—including a ¥1.01B loss on disposal of fixed assets and a ¥0.17B impairment loss—exceeded extraordinary gains of ¥0.51B, resulting in profit before taxes of ¥23.71B. Income taxes of ¥12.71B produced a high effective tax rate of 53.6%, restraining the conversion of pre-tax income into net income. In the same period of the previous year, extraordinary losses of ¥11.98B had nearly eliminated net income; accordingly, net income surged to ¥10.37B (+85.7%) in the current period, also reflecting this base effect. Overall, the results represent higher earnings despite lower revenue, with improvements in the cost structure under declining revenue driving profit growth.

Segment Analysis

As the business consists of a single segment, the analysis is based on regional information. Domestic revenue was ¥445.83B (▲9.7%), while operating income was ¥60.15B (+8.3%), resulting in an operating margin of 13.5%, up from 11.3% in the same period of the previous year. Overseas revenue was ¥156.21B (▲9.7%), while the operating loss was ¥3.21B, narrower than the ▲¥7.18B loss recorded in the same period of the previous year. Although the loss has narrowed, the business has not yet achieved profitability. The consolidated operating margin of 4.8% is substantially below the domestic standalone level, with the overseas deficit and company-wide/elimination amount of ¥28.34B weighing on the consolidated margin. Improving the profitability of overseas operations will be the key focus for raising the consolidated operating margin going forward.

Key Financial Indicators

【Profitability】The gross profit margin was 48.3%, improving by approximately 500bp from 43.3% in the same period of the previous year, while the operating margin rose by approximately 140bp to 4.8% from 3.4%. Meanwhile, the effective tax rate remained high at 53.6%, limiting the conversion efficiency from pre-tax income of ¥23.71B to net income of ¥10.37B. 【Cash Quality】Extraordinary losses of ¥6.34B exceeded extraordinary gains of ¥0.51B, indicating that non-recurring items exerted a certain degree of volatility on earnings. 【Investment Efficiency】Annualized ROE remained at an estimated 3.6% (based on disclosed figures), while total asset turnover was approximately 0.79x, indicating that declining revenue is constraining asset efficiency. Goodwill was ¥52.05B, equivalent to 12.8% of net assets and only 5.2% of total assets, indicating limited reliance on M&A-related assets. 【Financial Soundness】The equity ratio was 40.5%, essentially flat from approximately 39.4% in the same period of the previous year. Cash and deposits were ¥164.17B, down ¥47.34B YoY, while short-term borrowings increased by ¥55.95B to ¥62.83B, making the increased reliance on short-term financing a point of focus in the funding structure.

Cash Flow Analysis

Although the cash flow statement was not disclosed, trends in the balance sheet provide insight into funding movements. Cash and deposits were ¥164.17B, down ¥47.34B from ¥211.50B in the same period of the previous year, while short-term borrowings increased by 813.0% from ¥6.28B to ¥62.83B, indicating a rapid increase in reliance on short-term financing. Inventories were ¥42.95B, up 50.9% YoY, suggesting that an increase in work-in-progress projects such as advertising production and events may have increased working capital requirements. Accounts receivable were ¥397.02B, accounting for 39.4% of total assets, and the difference from accounts payable of ¥250.70B represents a factor contributing to the tying up of funds. Treasury stock increased by ¥8.57B to ¥29.34B, indicating that cash expenditures related to shareholder returns may also have contributed to the decline in cash and deposits. Overall, in contrast to the increase in operating earnings, the company is in a phase where changes in the funding structure are observable in terms of short-term liquidity management.

Earnings Quality

The increase in current-period profit includes not only a substantive improvement in operating income—gross margin improvement of approximately +500bp—but also the non-recurring impact of year-on-year fluctuations in extraordinary gains and losses. In the same period of the previous year, extraordinary losses of ¥11.98B, including impairment losses of ¥2.54B and valuation losses on investment securities of ¥4.26B, had reduced net income to nearly zero. By contrast, extraordinary losses in the current period declined to ¥6.34B, comprising a ¥1.01B loss on disposal of fixed assets, a ¥0.17B impairment loss, and a ¥0.30B valuation loss on investment securities. This contributed to the increase in net income of +509.5%. Non-operating income of ¥4.16B was primarily composed of dividend income of ¥1.85B and foreign exchange gains of ¥0.85B. Although these items are recurring in nature, their scale is somewhat large. The high effective tax rate of 53.6% may reflect changes in deferred tax assets and liabilities and tax-related adjustments, indicating that bottom-line profit is somewhat discounted relative to recurring earnings power. Comprehensive income was ¥14.96B, with comprehensive income attributable to owners of the parent of ¥14.20B, creating a gap versus net income of ¥10.37B. The primary factors were foreign currency translation adjustments of ▲¥5.36B and valuation difference on available-for-sale securities of +¥8.70B. This gap is attributable not to the underlying recurring earnings power of the business, but to fair-value and translation fluctuations in financial and overseas assets; these factors should therefore be distinguished when assessing earnings quality.

Earnings Forecast and Guidance

Progress toward the full-year operating income forecast of ¥40.00B was 71.5%, 3.5 percentage points below the standard 75% level, although the deviation is not substantial. Against the full-year ordinary income forecast of ¥43.00B, an additional ¥13.46B is required, while ¥9.63B must be added to meet the full-year forecast of ¥20.00B for profit attributable to owners of the parent. Progress toward profit attributable to owners of the parent was only 51.9%, clearly lagging behind operating income. This gap reflects the significant impact of the high effective tax rate and fluctuations in extraordinary gains and losses on net income. Trends in the tax burden and non-recurring items in Q4 will be key to achieving the full-year targets.

Shareholder Returns

The Q2 dividend was ¥16.00 per share, and the company’s full-year dividend forecast is ¥32.00 per share, the same as the interim dividend in the same period of the previous year. Applying the full-year dividend forecast mechanically to the number of shares outstanding produces total dividends of approximately ¥12.47B, resulting in a payout ratio of approximately 62.3% against the full-year forecast of ¥20.00B in profit attributable to owners of the parent. On a dividend-only basis, this is slightly above the 60% benchmark. Treasury stock increased by ¥8.57B YoY; if share repurchases are included, evaluation based on the total return ratio, separate from the payout ratio, will be necessary.

Risk Factors

1. High Tax Burden Risk: The effective tax rate was high at 53.6% (income taxes of ¥12.71B ÷ profit before taxes of ¥23.71B), indicating that improvements at the operating level have not been fully converted into net income. If the high tax rate continues from Q4 onward, it may reduce the scope for achieving the ¥20.00B forecast for profit attributable to owners of the parent.

2. Increased Reliance on Short-Term Financing: Short-term borrowings surged 813.0% YoY to ¥62.83B, while cash and deposits declined by ¥47.34B. Greater reliance on short-term liabilities suggests a financial structure that is more susceptible to refinancing conditions and interest-rate trends.

3. Overseas Business Profitability: Overseas revenue was ¥156.21B (▲9.7% YoY), and the operating loss narrowed to ¥3.21B from ▲¥7.18B in the same period of the previous year, but the business remains loss-making. Overseas revenue accounts for 28.0%, and delays in achieving profitability constrain the potential for improvement in the consolidated operating margin of 4.8%.

Industry Benchmark (For Reference; Compiled by the Company)

No industry benchmark data available
Source: Compiled by the Company

Key Points in the Financial Results

1. Operating income increased +26.3% YoY and the operating margin improved by approximately 140bp, while consolidated revenue declined 9.7%. This indicates a structure in which the increase in earnings depends on improvements in the cost ratio and cost discipline. Whether this resulted from changes in project composition or temporary expense controls will require monitoring in subsequent quarters.

2. The domestic operating margin improved to 13.5%, and the overseas operating loss narrowed, but the overseas business has not yet achieved profitability. Recovery in the profitability of overseas operations is a structural factor that will determine the sustainability of margin improvement on a consolidated basis.

3. The high effective tax rate of 53.6% and the sharp increase in short-term borrowings are two matters that should be monitored continuously in future results to assess the extent to which operating improvements will flow through to profit attributable to shareholders, cash, and the financial structure.

Theoretical Share Price (Reference Value)

Sensitivity: ¥977–¥1,032 at ±1% for the cost of equity, and ¥1,000–¥1,006 at ±0.1 for ω.

Notes:

• Due to the tax burden, acquisition-related expenses, non-controlling interests, and other factors, net income is significantly compressed relative to operating income (net income ÷ operating income 50%). This value reflects that compression at face value; if the factors are temporary, the underlying earning power may be higher.
• Because 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, resulting in a timing difference from 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 base 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. 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 with a professional where necessary.

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