CREATE SD HOLDINGS (3148) FY2027 Q1 Earnings Report

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Executive Summary

Q1 saw higher revenue but lower earnings. The key takeaway is that growth in selling, general and administrative expenses (SG&A), including personnel costs, more than offset the expansion in revenue. Revenue was ¥129.54B (+6.5% YoY), while Operating Income was ¥5.4B (down 4.1% YoY). Ordinary Income was ¥5.63B (down 4.7% YoY), and profit attributable to owners of the parent for the quarter was ¥3.79B (down 5.2% YoY). Gross profit increased by ¥1.69B, but SG&A expenses rose by ¥1.92B, causing the operating margin to decline from 4.6% to 4.2%. The fact that profit growth did not keep pace with revenue growth is important in assessing the quality of this period’s performance.

Drivers of Performance Changes

【Revenue】Revenue increased by ¥7.95B from the prior-year period, representing growth of +6.5%. One new subsidiary was consolidated, which may have contributed to the increase. However, segment information was omitted from disclosure, so its contribution cannot be determined from the materials.

【Earnings】The gross margin declined by approximately 0.2pt, from 25.3% in the prior-year period to 25.0%. The SG&A ratio rose from 20.6% to 20.8%. Salaries and allowances were ¥11.39B, up +11.5% from ¥10.21B in the prior year, exceeding the rate of revenue growth. The allowance for bonuses also increased from ¥0.43B to ¥2.12B. Extraordinary income of ¥0.02B and extraordinary losses of ¥0.02B largely offset each other, so the impact of one-off factors was small. Overall, revenue increased while earnings declined.

Key Financial Metrics

【Profitability】The operating margin declined to 4.2% (4.6% in the prior-year period), and the net margin fell to 2.9% (3.3%). Annualized ROE was 9.8%, below the approximate 10.4% for the prior-year period. In the DuPont analysis, the decline in net margin outweighed the improvement in total asset turnover.【Cash Quality】Cash flow statement data are not available, but cash and deposits decreased by ¥4.83B to ¥32.27B from ¥37.1B in the prior-year period.【Investment Efficiency】Basic EPS was ¥58.64, down 5.2% from ¥61.87 in the prior-year period. Goodwill increased from ¥0.88B to ¥1.84B, but remains a small proportion of total assets.【Financial Soundness】The Equity Ratio rose to 62.0% (60.4% in the prior-year period). The current ratio was 126.2%, and the quick ratio was 73.4%. Accounts payable of ¥63.11B accounts for approximately 74% of current liabilities, making short-term liquidity sensitive to payment terms with suppliers.

Cash Flow Analysis

Balance sheet movements show that cash and deposits decreased by ¥4.83B, from ¥37.1B to ¥32.27B. Total assets also contracted from ¥255.35B to ¥249.87B. Current liabilities declined by ¥6.44B, from ¥91.35B to ¥84.9B, while accounts payable decreased from ¥65.47B to ¥63.11B. Meanwhile, property, plant and equipment increased by ¥2.21B, from ¥99.61B to ¥101.82B. Inventories declined from ¥46.35B to ¥44.82B. Reductions in trade payables, capital investment, and the increase in goodwill may have contributed to the decline in cash on hand. Net assets increased and interest-bearing debt is small, so the decrease in funds does not immediately indicate a financial constraint.

Earnings Quality

Ordinary Income and profit before income taxes were both ¥5.63B, meaning extraordinary items had no material impact. Non-operating income was ¥0.42B, or approximately 0.3% of revenue, with operating activities remaining the primary source of earnings. Most of the ¥1.84B difference between Ordinary Income and Net Income comprises income taxes (¥1.84B), resulting in an effective tax rate of 32.7%. Comprehensive income was ¥3.77B, just ¥0.02B below profit attributable to owners of the parent of ¥3.79B. Adjustments related to retirement benefits were △¥0.03B, while valuation differences on securities were +¥0.01B, indicating limited earnings volatility from valuation gains and losses. The decline in Operating Income stems from the cost structure, rather than temporary factors.

Earnings Forecast and Guidance

The full-year forecast is Revenue of ¥541B (+8.8% YoY), Operating Income of ¥25.3B (+5.5%), and Ordinary Income of ¥26.5B (+5.0%). Net income attributable to owners of the parent is forecast at ¥17B (+0.1%), with no revision made this quarter. Q1 achievement rates were 23.9% for Revenue, 21.4% for Operating Income, 21.2% for Ordinary Income, and 22.3% for Net Income, all below the 25% benchmark for even progress. Achieving the Operating Income forecast will require approximately ¥19.896B from Q2 onward, implying an operating margin of approximately 4.84%. This assumes an improvement from Q1’s 4.2%.

Shareholder Returns

The full-year dividend forecast is ¥96 per share, representing a Payout Ratio of approximately 36.5% against forecast EPS of ¥263.15. The numerator is based on forecast Net Income. The estimated total dividends, calculated using an average number of shares outstanding during the period of 64.6 million, are approximately ¥6.2B, equivalent to slightly more than one-third of forecast Net Income of ¥17B. This metric covers dividends only and excludes share buybacks. With cash and deposits of ¥32.27B and an Equity Ratio of 62.0%, the dividend burden is relatively light from a financial standpoint.

Risk Factors

1. Gross margin decline risk: The gross margin declined by approximately 0.2pt, from 25.3% to 25.0%. With a slim operating margin of 4.2%, even small fluctuations in the gross margin can have a significant impact on Operating Income.

2. Personnel cost increase risk: Salaries and allowances rose by +11.5%, exceeding the +6.5% increase in Revenue. If this trend continues, it could hinder the recovery to the approximately 4.84% operating margin required to achieve the full-year forecast.

3. Short-term liquidity risk: The quick ratio is 73.4%, and short-term cash management depends on sales of inventories of ¥44.82B and the payment terms for accounts payable of ¥63.11B. Cash and deposits stood at ¥32.27B, down ¥4.83B from the prior-year period.

Industry Benchmarks (Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net margin exceed the industry median and fall around the middle of the interquartile range.

Growth and Capital Efficiency

Revenue growth is slightly below the industry median but within the interquartile range.

※ Source: Company compilation

Key Points to Watch in the Results

1. The primary reasons earnings declined despite higher revenue were the +11.5% increase in salaries and allowances and the lower gross margin. Operating leverage is not working, and a key point to watch is whether the cost growth exceeding revenue growth persists.

2. The achievement rate for the full-year Operating Income forecast is 21.4%. To achieve the forecast, the operating margin from Q2 onward needs to improve to approximately 4.84%. The gap from Q1’s 4.2% is important in assessing the assumptions underlying the forecast.

3. The Equity Ratio was 62.0%, up from 60.4% in the prior-year period. The financial base is strong, while the quick ratio is 73.4% and cash and deposits have declined by ¥4.83B from the prior-year period.

Theoretical Share Price (Reference)

Sensitivity: ¥2,418–¥2,558 for a ±1% change in the cost of equity; ¥2,484–¥2,489 for a ±0.1 change in ω.

Notes:

• Net assets as of quarter-end are used (there is a timing mismatch with the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be somewhat overstated.

(Valuation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest Rate Reference Month: 2026-09 / Mechanically calculated using only 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 analysis of 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 available earnings data. Investment decisions should be made at your own responsibility and, where appropriate, in consultation with a professional.

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