grems,Inc. FY2027 Q1 Earnings Report

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Executive Summary

The Company recorded higher revenue and earnings in Q1, with the operating margin also improving from the same period of the previous year, confirming growth accompanied by improved profitability. Revenue was ¥85.3B (+7.2% YoY), Operating Income was ¥19.9B (+11.5%), Ordinary Income was ¥19.9B (+11.1%), and quarterly Net Income attributable to owners of the parent was ¥13.3B (+10.7%). The primary driver of revenue growth was the expansion in sales volume in the Retail Electricity Business (sales +22.4% YoY), while the primary driver of earnings growth was the reduction in SG&A expenses (-21.3% YoY). The decline in gross profit margin (-3.3pt) was absorbed through expense efficiencies.

Factors Affecting Results

【Revenue】Revenue was ¥85.3B, representing an increase of +7.2% YoY. By segment, the Retail Electricity Business generated ¥50.2B (composition ratio 58.8%, YoY +22.4%) and led overall Company growth, while the Energy Solutions Business generated ¥35.1B (composition ratio 41.2%, YoY -9.1%), resulting in lower revenue. The expansion in sales volume in the Retail Electricity Business was the primary driver of overall revenue growth. Although the Energy Solutions Business recorded lower revenue due to selective project screening, it maintained high profitability.

【Profit and Loss】Operating Income was ¥19.9B (YoY +11.5%), and the operating margin improved to 23.3% from 22.4% in the same period of the previous year, an improvement of +0.9pt. The gross profit margin declined to 34.9% from 38.1%, a decrease of -3.3pt, but earnings increased as SG&A expenses were reduced to ¥9.9B (¥12.5B in the same period of the previous year, YoY -21.3%). By segment, the Energy Solutions Business generated segment profit of ¥14.2B (YoY +5.7%, profit margin 40.4%), while the Retail Electricity Business generated ¥7.5B (YoY +4.1%, profit margin 15.0%). Thus, the high-margin Energy Solutions Business remains the primary driver of overall Company profit. Corporate expenses decreased to ¥1.9B (¥2.9B in the same period of the previous year), also contributing to the improvement in the operating margin. Ordinary Income was ¥19.9B (YoY +11.1%), almost at the same level as Operating Income. Both non-operating gains and losses (dividend income of ¥0.1B and interest expense of ¥0.1B) and extraordinary gains and losses (extraordinary gain of ¥0.01B and extraordinary loss of ¥0.01B) were immaterial. Accordingly, the difference between Ordinary Income and Net Income was almost entirely attributable to income taxes and other taxes at an effective tax rate of approximately 33%. Net Income was ¥13.3B (YoY +10.7%), resulting in higher revenue and earnings.

Segment Analysis

The Energy Solutions Business recorded revenue of ¥35.1B (YoY -9.1%), Operating Income of ¥14.2B (YoY +5.7%), and an operating margin of 40.4%. Despite lower revenue, the segment posted higher earnings and an improved margin from the previous year. The Retail Electricity Business recorded revenue of ¥50.2B (YoY +22.4%), Operating Income of ¥7.5B (YoY +4.1%), and an operating margin of 15.0%. Although volume expansion drove revenue growth, the earnings growth rate fell below the revenue growth rate. The difference in profit margins between the two businesses was approximately 25.4pt. Despite accounting for only 41.2% of revenue, the Energy Solutions Business contributed relatively more to profit than the Retail Electricity Business, which accounted for 58.8% of revenue. Against total segment profit of ¥21.7B, corporate expenses declined to ¥1.9B (¥2.9B in the same period of the previous year, YoY -34.7%), providing support for the improvement in the consolidated operating margin.

Key Financial Indicators

【Profitability】The operating margin improved to 23.3% from 22.4% in the same period of the previous year, while the net profit margin also improved to 15.6% from 15.1%. ROE was 6.9%, exceeding 6.2% in the same period of the previous year, indicating that improved profitability was also reflected in capital efficiency.【Cash Quality】Cash and deposits were ¥144.8B, a substantial level equivalent to 53.3% of total assets. Interest-bearing debt consisted solely of long-term borrowings of ¥20.0B, indicating stable payment capacity without reliance on operating activities. Meanwhile, accounts receivable and notes receivable increased to ¥52.6B, up +18.9% YoY, exceeding the pace of revenue growth. This requires monitoring from the perspective of cash conversion. Inventories were ¥20.2B, down -12.3% YoY, indicating improved inventory efficiency.【Investment Efficiency】Fixed assets were ¥49.0B, including ¥32.4B in property, plant and equipment. Investment is ongoing, including ¥9.9B in construction in progress, and the contribution to earnings after the assets commence operations will determine future investment efficiency.【Financial Soundness】The Equity Ratio remained high at 71.3% (68.0% in the same period of the previous year). With current assets of ¥222.7B and current liabilities of ¥55.0B, the current ratio was approximately 405%, indicating an overall sound financial base.

Cash Flow Analysis

As individual line items in the statement of cash flows were not disclosed for the quarter, cash trends are assessed based on changes in the balance sheet. Cash and deposits were ¥144.8B, down ¥18.5B from ¥163.2B in the same period of the previous year, while total assets decreased from ¥286.7B to ¥271.7B. On the liabilities side, income taxes payable declined from ¥12.5B in the previous period to ¥5.7B, and the provision for bonuses decreased from ¥1.6B to ¥0.4B. Cash outflows associated with tax payments and bonus payments are believed to have contributed to the decline in the cash balance. Long-term borrowings were ¥20.0B, reflecting repayments of ¥3.4B from ¥23.4B in the same period of the previous year. Cash outflows from financing activities were also a factor putting downward pressure on cash levels. Meanwhile, accounts receivable increased to ¥52.6B, suggesting that the buildup of working capital associated with business growth also constituted a use of funds. Net assets were ¥193.8B and the Equity Ratio remained high at 71.3%. Although funds were primarily used for tax payments, debt repayment, and working capital accumulation, financial soundness was not compromised.

Quality of Earnings

The Company’s earnings for the quarter were almost entirely generated through recurring business activities, indicating high earnings quality. Extraordinary income of ¥0.01B and extraordinary loss of ¥0.01B were both immaterial, and temporary factors had almost no impact on earnings. Non-operating income was ¥0.1B, primarily dividend income, while non-operating expenses were also ¥0.1B, primarily interest expense. Non-operating gains and losses remained at approximately 0.1% of revenue, and Ordinary Income remained almost at the same level as Operating Income. The effective tax rate was approximately 33.0% (income taxes and other taxes of ¥6.6B / Profit Before Tax of ¥19.9B), broadly stable from the same period of the previous year. Excluding the tax burden, consistency between the various profit stages was high. However, accounts receivable increased +18.9% YoY, exceeding revenue growth of +7.2%, suggesting the possibility of a certain time lag between accrual-based earnings and actual cash collection.

Earnings Forecast and Guidance

Progress against the Full-Year earnings forecast was 22.9% for Revenue, 25.2% for Operating Income, 25.1% for Ordinary Income, and 24.8% for Net Income. All were close to the simple progress benchmark of 25%. The slightly low progress in Revenue appears to reflect seasonality in the Retail Electricity Business, while Operating Income and Ordinary Income exceeded the benchmark, supported by the effects of expense efficiencies. The Full-Year forecast calls for Revenue of ¥371.7B (YoY +9.5%), Operating Income of ¥79.0B (YoY +10.5%), and Ordinary Income of ¥79.3B (YoY +8.8%). Neither the earnings forecast nor the dividend forecast was revised in Q1.

Shareholder Returns

The Full-Year dividend forecast is ¥93 per share, implying a Payout Ratio of 40.0% against forecast EPS of ¥232.48. The Equity Ratio increased to 71.3% from 68.0% in the same period of the previous year. Given the financial base of cash and deposits of ¥144.8B and long-term borrowings of ¥20.0B, the Company appears to have substantial capacity to support dividend sustainability. No share repurchases were identified in the available data, and shareholder returns are centered on dividends.

Risk Factors

1. Increase in working capital: Accounts receivable and notes receivable were ¥52.6B, up +18.9% YoY and expanding faster than the revenue growth rate of +7.2%. Inventories were ¥20.2B, down -12.3%, meaning that the increase in accounts receivable is relatively significant as a source of funds tied up in working capital.

2. Concentration in the segment earnings structure: The Retail Electricity Business accounts for 58.8% of revenue by composition ratio, while overall Company profit is centered on the Energy Solutions Business, which has a profit margin of 40.4%. The Retail Electricity Business has a profit margin of 15.0%, 25.4pt below that of the Solutions Business, and the margin gap between the businesses increases the concentration of the earnings structure.

3. Operational risk related to invested assets: Construction in progress accounts for ¥9.9B of the ¥32.4B in property, plant and equipment. Depreciation does not commence and no earnings contribution is generated until completion and the start of operations. Progress toward the start of operations could affect future investment efficiency.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

The Company’s operating margin and net profit margin both substantially exceed the industry median, placing its profitability in the upper tier of the industry.

Growth and Capital Efficiency

The Revenue growth rate is slightly above the industry median, placing the Company’s growth pace at an average to slightly above-average level within the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The operating margin improved to 23.3% from 22.4% in the same period of the previous year. Securing higher earnings through control of SG&A expenses (YoY -21.3%) despite a -3.3pt decline in the gross profit margin demonstrates flexibility in the expense structure.

2. The business portfolio consists of the high-growth, low-margin Retail Electricity Business (sales YoY +22.4%, profit margin 15.0%) and the declining-revenue, high-margin Energy Solutions Business (sales YoY -9.1%, profit margin 40.4%), which complement each other and create a structure capable of achieving both revenue growth and high profitability.

3. Full-Year progress was broadly in line with plan, at 22.9% for Revenue, 25.2% for Operating Income, and 24.8% for Net Income. Neither the earnings forecast nor the dividend forecast was revised.

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: ¥1,361–¥1,442 at ±1% for the cost of equity, and ¥1,386–¥1,423 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end were used (there is a time lag relative to the Full-Year forecast).
• Because 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 does not predict or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It is not a recommendation to invest in any specific security. The 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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