SALA (2734) FY2026 Q1 Earnings Report

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Executive Summary

The Company reported higher revenue and earnings for the quarter, with revenue remaining almost flat while gross margin improvement and SG&A expense control resulted in a significant increase in operating income. Revenue was ¥66.24B (+0.4% YoY), operating income was ¥4.54B (+49.3%), ordinary income was ¥4.94B (+40.6%), and net income attributable to owners of the parent was ¥3.19B (+34.3%). The primary factors behind the earnings increase were an improvement in gross margin from 25.0% to 26.4% and a 3.8% YoY decrease in SG&A expenses to ¥12.95B. Meanwhile, operating cash flow (OCF) was negative ¥5.08B, representing a significant divergence from net income, and attention should be paid to the conversion of earnings into cash.

Factors Affecting Performance

【Revenue】Consolidated revenue was ¥66.24B, essentially flat at +0.4% YoY. By segment, the core Energy & Solutions Business declined 1.3% to ¥36.00B, with declines in city gas, LP gas, and electricity, while the Engineering & Maintenance Business grew substantially by 17.8% to ¥11.18B, supporting overall revenue. Revenue continued to decline in the Housing Business, down 3.5% to ¥9.46B, and the Animal Healthcare Business, down 0.7% to ¥5.74B.

【Profit and Loss】Operating income increased significantly by 49.3% to ¥4.54B, while the operating margin improved from 4.6% to 6.9%. The primary factors were a +140bp increase in gross margin and a 3.8% reduction in SG&A expenses. Ordinary income rose 40.6% to ¥4.94B, with net non-operating income of ¥0.39B. Extraordinary income amounted to ¥0.05B, while extraordinary losses totaled ¥0.15B, comprising a ¥0.14B loss on disposal and sale of fixed assets and a ¥0.01B impairment loss, resulting in a temporary net downward impact of ¥0.099B. Net income was ¥3.19B, up 34.3% YoY. By segment, the Energy & Solutions Business generated profit of ¥3.42B, up 26.9%, accounting for approximately 76% of total reported segment profit and serving as the core driver of earnings growth. The Engineering & Maintenance Business also contributed, with profit increasing 13.3% to ¥1.32B, while the Housing, Car Life Support, and Animal Healthcare Businesses continued to report operating losses. Overall, the Company achieved higher revenue and earnings, driven by improved profitability despite nearly flat revenue.

Segment Analysis

Total reported segment profit was ¥4.50B, of which the Energy & Solutions Business accounted for approximately 76%, at ¥3.42B, making it the core business. Although revenue in this business declined 1.3% YoY to ¥36.00B, its profit margin improved from 7.5% to 9.5%, resulting in higher profit despite lower revenue. The Engineering & Maintenance Business recorded higher revenue and earnings, with revenue of ¥11.18B (+17.8%) and profit of ¥1.32B (+13.3%); however, its profit margin declined slightly from 13.9% to 11.9%, suggesting dilution in project profitability. Losses narrowed in the Housing Business (¥0.05B loss) and Car Life Support Business (¥0.19B loss), while the Animal Healthcare Business saw its loss expand from ¥0.09B to ¥0.20B. The Property Business returned to profitability, generating profit of ¥0.20B. Structural improvements in low-margin and loss-making segments will be a key focus going forward.

Key Financial Indicators

【Profitability】The operating margin improved from 4.6% to 6.9%, while the net profit margin improved from 3.6% to 4.8%. Annualized ROE was 13.7%, indicating a favorable level of profitability. 【Cash Quality】OCF was negative ¥5.08B, representing a significant divergence from net income of ¥3.19B, and OCF/net income was negative. The primary factors were a ¥5.31B increase in trade receivables and a ¥1.62B increase in inventories. At the Q1 stage, earnings conversion into cash was weak. 【Investment Efficiency】Capital expenditures were ¥5.99B, approximately 3.7 times depreciation and amortization of ¥1.60B, indicating an active investment phase. Free cash flow was negative ¥12.29B. 【Financial Soundness】The equity ratio remained stable at 43.6%, while short-term borrowings increased substantially by 155.4% YoY to ¥11.13B, indicating that a portion of investment funding is being financed through short-term funds. Cash and deposits of ¥25.98B were 2.3 times short-term borrowings, securing sufficient near-term liquidity.

Cash Flow Analysis

OCF was negative ¥5.08B, representing a significant divergence from net income attributable to owners of the parent of ¥3.19B. The factors were a ¥5.31B increase in trade receivables, a ¥1.62B increase in inventories, a ¥1.46B decrease in provision for bonuses, and ¥2.03B in income taxes paid. The ¥1.15B increase in trade payables provided only partial offset. Investing cash flow was negative ¥7.21B, primarily due to ¥5.99B in capital expenditures, indicating an active investment phase in which capital expenditures substantially exceeded depreciation and amortization of ¥1.60B. Free cash flow, comprising OCF and investing cash flow, reached negative ¥12.29B. To compensate, financing cash flow was a ¥6.39B inflow, primarily consisting of a net increase of ¥6.94B in short-term borrowings. As a result, cash and cash equivalents decreased by ¥5.896B, leaving an ending balance of ¥25.61B. Recovery of investment expenditures and reduction of working capital will be necessary to improve future cash flow.

Earnings Quality

The earnings increase for the current period was driven by recurring factors—gross margin improvement and SG&A expense control—and reliance on non-operating income was low, at ¥0.52B, or 0.8% of revenue. Meanwhile, extraordinary income was ¥0.05B compared with extraordinary losses of ¥0.15B, including losses on the disposal and sale of fixed assets, resulting in a temporary net downward impact of approximately ¥0.10B on pretax income. Comprehensive income was ¥3.81B, exceeding net income attributable to owners of the parent of ¥3.19B, with the increase in valuation difference on available-for-sale securities of ¥0.84B serving as a contributor. OCF, however, was negative ¥5.08B and diverged significantly from net income; deterioration in working capital through increases in trade receivables and inventories weighed on earnings quality as an accrual-related factor. The increase in profit reported on the income statement can be regarded as high quality because it originated from core operations, but confirmation of improvement in cash-generation capacity remains necessary.

Earnings Forecast and Guidance

The full-year Company forecast remains unchanged for revenue of ¥260.00B (+3.4% YoY), operating income of ¥7.50B (+1.6%), ordinary income of ¥8.40B (-15.4%), EPS of ¥80.98, and dividends of ¥33.0. Q1 progress rates were 25.5% for revenue, 60.5% for operating income, and 58.8% for ordinary income, with profit progress substantially exceeding revenue progress. Since full-year ordinary income is forecast to decline YoY, progress should be monitored while taking into account the possibility that the high Q1 progress rate may partially reverse in the second half.

Shareholder Returns

The full-year dividend forecast is ¥33.0 per share. Based on forecast EPS of ¥80.98, the payout ratio is 40.8%, within the guideline of less than 60%. Dividend payments during Q1 were ¥1.03B, equivalent to 32.3% of net income attributable to owners of the parent of ¥3.19B. No share repurchases were recorded, and shareholder returns during the period consisted solely of dividends; accordingly, shareholder returns are evaluated based on the payout ratio rather than the total return ratio. There has been no revision to the dividend forecast.

Risk Factors

1. Concentration of profit in the core business: The Energy & Solutions Business accounts for approximately 76% (¥3.42B) of reported segment profit, creating a structure in which sales volumes and margin trends for city gas, LP gas, and electricity have a significant impact on consolidated earnings.

2. Cash flow quality: OCF was negative ¥5.08B and free cash flow was negative ¥12.29B, representing a significant divergence from net income of ¥3.19B. The increase in trade receivables and inventories was the cause, and the conversion of earnings into cash should be monitored continuously.

3. Debt and investment burden: Short-term borrowings increased 155.4% YoY to ¥11.13B, while interest-bearing debt reached ¥58.17B. Capital expenditures of ¥5.99B were approximately 3.7 times depreciation and amortization, making progress in investment recovery and leverage trends key areas of financial monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Return

Growth and Capital Efficiency

As median data has not been sufficiently prepared, the Company’s relative position within the industry cannot currently be determined.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. While revenue was essentially flat at +0.4% YoY, operating income increased 49.3% due to a 140bp improvement in gross margin and a 3.8% reduction in SG&A expenses. The fact that earnings growth was driven primarily by efficiency improvements in the earnings structure rather than revenue growth is important when assessing the quality of the earnings results.

2. The Energy & Solutions Business accounts for approximately 76% of reported segment profit, and the structure in which the profitability trends of this business determine consolidated performance remains in place.

3. The combination of negative OCF of ¥5.08B and negative free cash flow of ¥12.29B indicates a divergence between earnings growth on the income statement and cash flow. Working capital trends will therefore be an important area for follow-up.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,316–¥1,392 at ±1% for the cost of equity, and ¥1,348–¥1,356 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥3.9 per share has been added back to profit (as a non-cash expense and to facilitate comparability with IFRS companies).
• Because progress of net income against the full-year forecast (61%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with leading progress tend to exceed forecasts; adjustments may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end have been used (there is 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 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, and does not 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, and you should consult a professional adviser as necessary.

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