INTERMESTIC INC. FY2026 Q2 Earnings Report

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Executive Summary

The Company posted substantial revenue growth and higher income, driven by business expansion involving the newly consolidated entities Horus HD/Horus and ZOFF I SINGAPORE, although gross margin and operating margin declined. Revenue was ¥433.1B (+80.7% YoY), Operating Income was ¥49.5B (+33.9%), Ordinary Income was ¥47.1B (+27.3%), and Net Income attributable to owners of the parent was ¥29.1B (+15.0%). Operating margin declined to 11.4% from the previous year, indicating that profit growth has not kept pace with the rate of revenue growth.

Factors Affecting Results

【Revenue】Revenue was ¥433.1B, representing substantial growth of +80.7% YoY. The domestic business accounted for 99.0% of revenue and drove growth, with revenue of ¥430.2B (+81.7%), apparently reflecting the contribution from the consolidation of newly added subsidiaries. The overseas business posted a slight revenue decline of 4.2B (-4.1%).

【Profit and Loss】Operating Income increased to ¥49.5B (+33.9%), but profit growth was limited to +33.9% compared with revenue growth of +80.7%, and the operating margin declined to 11.4% from the previous year. While increases in cost of sales and selling, general and administrative expenses pressured gross margin and profit margins, Ordinary Income declined further from Operating Income to ¥47.1B (+27.3%) due to non-operating expenses, including interest expenses of ¥1.5B and foreign exchange losses of ¥0.2B. Net Income was ¥29.1B (+15.0%), affected by extraordinary losses, including loss on disposal of fixed assets of ¥0.9B, and an increase in the effective tax rate to 37.3%. Although the Company achieved higher revenue and income, the results were characterized by declining profit margins.

Segment Analysis

The segments comprise the domestic business and overseas business, with the domestic business forming the core of operations in terms of both revenue and profit. The domestic business recorded revenue of ¥430.2B (+81.7% YoY), Operating Income of ¥49.3B (+33.9%), and a profit margin of 11.5%. The overseas business recorded revenue of 4.2B (-4.1% YoY), Operating Income of ¥0.2B (+47.1%), and a profit margin of 5.9%; although small in scale, it secured higher profit. The difference in profit margins between the domestic and overseas businesses was approximately 5.6 percentage points. The overseas business remains in the process of expanding its scale following the newly consolidated ZOFF I SINGAPORE PTE. LTD. during the interim period. For the domestic business, the provisional accounting treatment for goodwill arising from business combinations involving Horus HD Co., Ltd. and other entities was finalized during the interim period, resulting in changes to the goodwill balance.

Key Financial Indicators

【Profitability】Operating margin was 11.4% and net profit margin was 6.7%, both declining from the same period of the previous year. The gross margin was 70.8%, indicating that the increase in cost of sales was relatively large compared with revenue growth.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥39.4B, exceeding Net Income of ¥29.1B. The OCF/Net Income ratio was approximately 1.36x, indicating favorable cash conversion of earnings, although working capital factors such as a decrease in contract liabilities (-¥4.4B) and declines in other liabilities constrained cash conversion.【Investment Efficiency】ROE was 10.5%, reflecting the combination of net profit margin, total asset turnover, and financial leverage. Capital expenditures of ¥14.0B were 1.24x depreciation and amortization of ¥11.3B, indicating continued growth investment.【Financial Soundness】The Equity Ratio was 42.1%, improving from 39.5% in the previous year. Short-term borrowings were substantially reduced from the previous year, while the shift toward long-term borrowings resulted in a longer-term liability structure.

Cash Flow Analysis

Operating Cash Flow (OCF) increased substantially to ¥39.4B, up +148.8% YoY, exceeding Net Income of ¥29.1B and indicating favorable cash conversion of earnings. Investing Cash Flow was -¥20.0B, of which capital expenditures accounted for ¥14.0B. The Company continued to invest at a level exceeding depreciation and amortization of ¥11.3B. Financing Cash Flow was -¥20.9B, primarily comprising the lengthening of the financing term through the reduction of short-term borrowings (-¥120B scale) and procurement of long-term borrowings (¥120B scale), as well as dividend payments of ¥13.5B. Free cash flow, calculated as the sum of Operating Cash Flow and Investing Cash Flow, was positive at ¥19.5B, securing a level sufficient to cover dividend payments and debt repayments. However, working capital factors such as decreases in contract liabilities and other liabilities somewhat constrained cash generation. Attention should therefore be paid to trends in inventory and collection periods, which could affect the quality of future cash flow.

Earnings Quality

The core of current-period earnings was Operating Income of ¥49.5B, while the impact of extraordinary gains and losses was limited. Against extraordinary gains of ¥0.2B, including a gain on bargain purchase of ¥0.2B arising from the acquisition of an overseas subsidiary, the Company recorded extraordinary losses of ¥1.0B, comprising loss on disposal of fixed assets of ¥0.9B and impairment loss of ¥0.1B, resulting in a slight net negative impact. Non-operating income and expenses consisted of non-operating income of ¥0.3B and non-operating expenses of ¥2.7B, including interest expenses of ¥1.5B, fees paid of ¥0.9B, and foreign exchange losses of ¥0.2B, reducing Ordinary Income by slightly less than ¥2.5B from Operating Income. The gap between Ordinary Income of ¥47.1B and Net Income of ¥29.1B was primarily attributable to the ¥17.3B burden of income taxes, resulting in an effective tax rate of approximately 37.3%. OCF was 1.36x Net Income, indicating favorable cash conversion, and the low degree of dependence on extraordinary items suggests that the quality of current-period earnings was generally based on recurring business activities.

Earnings Forecast and Guidance

Progress against the full-year plan was 50.5% for revenue (¥433.1B/¥858.0B), 66.0% for Operating Income (¥49.5B/¥75.0B), and 66.3% for Ordinary Income (¥47.1B/¥71.0B). Compared with the standard first-half progress rate of 50%, revenue was broadly in line with the plan, while the profit items were more than +15pt ahead of schedule. Neither the earnings forecast nor the dividend forecast was revised during the quarter, and management maintained its current full-year plan. Factors behind the lead in profit progress include improved absorption of fixed costs accompanying scale expansion and the limited impact of extraordinary gains and losses.

Shareholder Returns

The Company paid no interim dividend during the interim period and forecasts a full-year dividend of ¥51 per share. Based on projected full-year EPS of ¥155.32, the Payout Ratio is calculated at approximately 32.8%. Interim-period free cash flow of ¥19.5B exceeded the dividend payment of ¥13.5B already made, indicating sufficient cash flow capacity to pay dividends. No information regarding share repurchases was identified.

Risk Factors

1. Inventory and Working Capital Efficiency: Inventories were ¥73.3B, with the increase in inventory slightly pressuring cash flow. As the gross margin has declined from the previous year, inventory optimization will be an area requiring attention to maintain future profitability.

2. Level of Intangible Assets and Goodwill: Intangible assets of ¥270.9B, including goodwill of ¥137.6B, accounted for approximately 41.2% of total assets of ¥657.9B. As the accounting treatment for past business combinations was finalized during the interim period and the scale of assets such as goodwill and trademark rights is substantial, future impairment risk requires monitoring.

3. Concentration in the Domestic Business: The domestic business accounts for 99.0% of revenue, while the overseas business remains small at 4.2B. The business portfolio is therefore highly dependent on conditions in the domestic market.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (retail)

Profitability and Returns

As median data has not been prepared, the relative positioning of profitability cannot currently be compared.

Growth and Capital Efficiency

As median data has not been prepared, the relative positioning of growth cannot currently be compared.

※Source: Company research

Key Points from the Earnings Results

1. Operating Income increased by only +33.9% against revenue growth of +80.7%, while both gross margin and operating margin declined from the previous year. The earnings data confirms that, during a phase of scale expansion involving newly consolidated entities, rising costs are constraining the pace of profit growth.

2. Progress against the full-year plan was 66.0% for Operating Income and 66.3% for Ordinary Income, ahead of the standard progress rate of 50%. Meanwhile, revenue progress was 50.5%, broadly in line with the plan, making the first half characterized by superior progress on the profit side.

3. The financing structure became more long-term through a substantial reduction in short-term borrowings and a shift toward long-term borrowings, while the Equity Ratio improved to 42.1% from 39.5% in the previous year. The fact that intangible assets and goodwill account for more than 40% of total assets is an important consideration when assessing balance sheet quality.

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 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,210–¥1,282 at ±1% for the cost of equity, and ¥1,236–¥1,258 at ±0.1 for ω.

Notes:

• Goodwill amortization of 27.2円/share is added back to earnings (due to its non-cash nature and for comparability with IFRS companies).
• Because progress of Net Income against the full-year forecast (61%) exceeds the standard level (50%), forecast EPS is adjusted upward within a maximum range of +10% (as companies ahead of schedule tend to outperform forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Goodwill represents a high proportion of net assets, and the assumptions would change substantially if impairment were recognized.
• Net assets as of the quarter-end are used (there is a timing gap 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 / Interest rate reference month: 2026-07 / This value is not intended to 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. 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 professionals as necessary.

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