Restar (3156) FY2026 Q3 Earnings Report

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Executive Summary

The most important point this quarter is that, despite revenue growth, both operating income and net income declined due to higher SG&A expenses and financial and foreign-exchange cost burdens. Revenue increased to ¥4369.8B (+4.8% YoY), while operating income was ¥94.1B (△6.0% YoY), and net income attributable to owners of the parent was ¥37.9B (△29.9% YoY; the disclosed “net income” of ¥44.4B is on a consolidated basis including the portion attributable to non-controlling interests). Ordinary income increased to ¥67.7B (+2.3% YoY), but this resulted from offsetting factors, including lower non-operating expenses and one-time special-loss factors; profitability of the core businesses has deteriorated. The main drivers of revenue growth were the solid performance of the Devices BU and significant expansion of the IT & SIer BU, while the main causes of the profit decline were deteriorating profitability in the Systems BU and a higher SG&A ratio.

Factors Affecting Performance

【Revenue】Revenue increased 4.8% YoY to ¥4369.8B. By segment, the core Devices BU (88.1% of total) generated ¥3851.3B (+2.8%), the Systems BU (7.5%) generated ¥327.5B (△8.9%), and the IT & SIer BU (4.4%) generated ¥191.0B (+210.8%). The sharp expansion of the IT & SIer BU was supported by the expansion of its business base following the consolidation of PCI Holdings as a consolidated subsidiary and the integration of its businesses in the previous fiscal year. Meanwhile, the Systems BU declined in revenue and has become a drag on company-wide growth.

【Profit and Loss】Operating income was ¥94.1B (△6.0% YoY). While revenue increased 4.8%, SG&A expenses rose 10.5%, exceeding the revenue growth rate, causing operating leverage to turn negative. The gross margin improved slightly to 8.3%, but the SG&A ratio increased from 5.87% to 6.19%, and the operating margin contracted by approximately 25bp to 2.2%. Ordinary income increased 2.3% to ¥67.7B, despite ¥35.1B in non-operating expenses, including ¥21.3B in interest expense and ¥7.8B in foreign-exchange losses, due to a reduction in non-operating expenses from the previous year. Special losses of ¥4.5B, including ¥1.6B in impairment losses on fixed assets in the Devices BU, weighed on net income as a one-time factor, resulting in net income attributable to owners of the parent of ¥37.9B (△29.9%). With revenue increasing but operating income declining, the overall conclusion is higher revenue but lower profit.

Segment Analysis

The Devices BU maintained higher revenue and profit, with external revenue of ¥385.1B (+2.8% YoY) and segment profit of ¥82.9B (+1.1%), while its margin of 2.15% makes it the main contributor to company-wide profit. The Systems BU recorded external revenue of ¥32.7B (△8.9%) and segment profit of ¥17.7B (△43.6%), representing declines in both revenue and profit. Given its relatively high profitability, with a margin of 5.41%, its deterioration has been a factor depressing the company-wide profit margin. The IT & SIer BU posted substantial growth in both revenue and profit, with external revenue of ¥19.1B (+210.8%) and segment profit of ¥7.4B (+309.4%), but its share of company-wide revenue remains only 4.4%, and its contribution to company-wide earnings is currently limited. The classification of the Devices BU and Systems BU was revised in connection with the business integration in July 2025, and year-on-year comparisons are based on the revised classifications.

Key Financial Indicators

【Profitability】The operating margin was 2.2%, down approximately 25bp from 2.4% in the same period of the previous year, while the net income margin attributable to owners of the parent narrowed to 0.87% from 1.30%. Annualized ROE was 5.6% (disclosed metric), indicating a thin level of profitability even within the industry. 【Cash Quality】Accounts receivable were ¥1354.5B, accounting for 39.7% of total assets, and contract assets also increased significantly from the previous year, confirming the accumulation of working capital accompanying revenue expansion. 【Investment Efficiency】Goodwill was ¥64.2B, equivalent to 6.1% of net assets and 1.9% of total assets, indicating that the risk of capital impairment associated with M&A is currently limited. 【Financial Soundness】The Equity Ratio was 30.7% (approximately 30.7% in the previous year), while short-term borrowings increased 33.2% YoY to ¥699.9B, indicating greater reliance on short-term borrowings to finance working capital.

Cash Flow Analysis

Although direct disclosure of the cash flow statement is not included in the available data, cash trends inferred from changes in the balance sheet indicate that accounts receivable increased 19.1% YoY to ¥1354.5B and inventories increased 13.8% YoY to ¥610.5B, reflecting continued expansion of working capital. Short-term borrowings increased substantially by 33.2% YoY to ¥699.9B to support this expansion, suggesting a structure in which funding needs associated with business expansion are financed through short-term borrowings. Cash and deposits were ¥451.5B, nearly flat at +1.7% YoY, indicating that the accumulation of working capital has not translated directly into an increase in cash on hand. Accounts payable also increased 17.9% YoY to ¥845.1B, and the expansion of both procurement and sales channels is affecting cash management.

Quality of Earnings

Ordinary income of ¥67.7B represents operating income of ¥94.1B less ¥35.1B in non-operating expenses, including ¥21.3B in interest expense and ¥7.8B in foreign-exchange losses, plus ¥8.7B in non-operating income. The recurring financial cost burden is therefore a qualitative drag on the earnings level. In extraordinary items, an extraordinary gain of ¥0.6B on the sale of investment securities was more than offset by extraordinary losses of ¥4.5B, including ¥1.6B in impairment losses on fixed assets, meaning that net income includes a one-time downward factor. Comprehensive income was ¥76.3B, exceeding net income of ¥44.4B, primarily due to foreign currency translation adjustments of ¥29.3B. This indicates that translation gains on overseas assets increased net assets and should be distinguished in nature from net income, which reflects the recurring earning power of the business. In the bridge from operating income to net income attributable to owners of the parent, both interest costs and one-time losses had an impact, and earnings quality has declined somewhat compared with the same period of the previous year.

Earnings Forecasts and Guidance

The full-year company forecast is revenue of ¥6000.0B (+7.0% YoY), operating income of ¥160.0B (+12.9% YoY), and ordinary income of ¥125.0B (+30.8% YoY). The progress rates for the nine-month cumulative period were 72.8% for revenue, 58.8% for operating income, and 54.2% for ordinary income, all below the standard 75% level, with profit progress particularly delayed. Achieving the full-year plan requires approximately ¥65.9B in operating income in Q4, implying that the company’s plan assumes a return to operating income growth. This turnaround will require a recovery in the profitability of the Systems BU and control of the SG&A ratio.

Shareholder Returns

The Q2 dividend was ¥60.00 per share, and the full-year company forecast for the annual dividend is ¥125.00 per share, implying a simple estimate of a year-end dividend of ¥65.00 per share. Based on forecast full-year net income attributable to owners of the parent of ¥75.0B and forecast EPS of ¥266.73, the annual Payout Ratio is approximately 46.9%. This Payout Ratio is based solely on dividends, and data for the Total Return Ratio, including share repurchases, has not been disclosed. Maintaining the dividend level depends on achieving the full-year earnings plan, particularly delivering profit growth in Q4.

Risk Factors

1. Deterioration in Systems BU profitability: Revenue declined 8.9% YoY, while segment profit declined 43.6%. As this is a relatively high-margin business among all segments, with a profit margin of 5.41%, a delayed recovery could continue to depress the company-wide profit margin.

2. Increasing reliance on short-term funding: Short-term borrowings increased 33.2% YoY to ¥699.9B, reflecting working-capital requirements associated with increases in accounts receivable and inventories. Cash and deposits of ¥451.5B were only approximately 0.65 times short-term borrowings, leaving cash management dependent on financial institution credit and the speed at which accounts receivable are converted into cash.

3. Pressure on earnings from interest and foreign-exchange costs: Interest expense of ¥21.3B and foreign-exchange losses of ¥7.8B were the main components of non-operating expenses, and coverage relative to operating income of ¥94.1B was limited. The impact of rising interest rates and foreign-exchange fluctuations on ordinary income requires continued monitoring.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

Growth and Capital Efficiency

※Source: Company analysis

Key Points from the Earnings Results

1. While the core Devices BU maintained growth in both revenue and profit and remains the pillar of company-wide earnings, the substantial decline in Systems BU profit is weighing on company-wide operating income, highlighting the imbalance in the business mix as a profitability challenge.

2. The IT & SIer BU is growing rapidly, with revenue up +210.8% and segment profit up +309.4%, but its share of company-wide revenue remains only 4.4%; its full-scale contribution to profit growth will need to be monitored going forward.

3. The full-year progress rates for operating income and ordinary income were 58.8% and 54.2%, respectively, below the standard 75% level. The extent to which profitability improves in Q4 will be the key to achieving the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,987–¥3,158 for cost of equity ±1%, and ¥3,068–¥3,073 for ω±0.1.

Notes:

• Net income is substantially compressed relative to operating income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (net income ÷ operating income 47%). This figure reflects that compression at face value; if the factors are temporary, underlying earnings 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 quarter-end are used; there is a timing difference relative to the full-year forecast.

(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 summary data. It does not recommend investment 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 discretion and responsibility, after consulting professionals as necessary.

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