&Do Holdings (3457) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for 2026 Fiscal Year Q3 reflected declines in both revenue and earnings, with the deterioration in operating profitability being the key issue. Revenue was ¥392.2B (down 16.5% YoY), Operating Income was ¥11.9B (down 29.8%), and Ordinary Income was ¥12.3B (down 28.5%). Net Income declined only modestly to ¥16.3B (down 3.6%), primarily due to a ¥13.7B extraordinary gain, including a ¥13.55B gain on the sale of shares in a subsidiary. Thus, a temporary factor offset the decline in core business earnings. The contraction in the Company’s core real estate sales and House Leaseback businesses was the main driver of the deterioration in profitability.

Factors Affecting Earnings

【Revenue】Revenue was ¥392.2B, down 16.5% YoY. Real estate sales, which account for 69.0% of consolidated revenue, declined to ¥270.9B (down 11.1%), while House Leaseback declined to ¥83.3B (down 31.8%). Conversely, Franchise revenue increased to ¥24.9B (up 3.0%), and Finance revenue increased to ¥4.7B (up 11.1%), maintaining growth and demonstrating the resilience of the Company’s recurring-revenue businesses.

【Profit and Loss】Gross profit was ¥85.6B (gross margin: 21.8%, compared with 22.8% in the previous year), with the decline in the gross margin exceeding the benefits from SG&A expense reductions. Although SG&A expenses were reduced to ¥73.7B (down 18.5%), Operating Income contracted to ¥11.9B (down 29.8%), and the Operating Margin declined to 3.0% (3.6% in the previous year). Ordinary Income also declined to ¥12.3B (down 28.5%), reflecting the deterioration in core earnings power. Net Income was ¥16.3B (down 3.6%), but this was supported by extraordinary gains; recurring profitability should therefore be assessed based on the decline in Ordinary Income. In conclusion, the Company posted declines in both revenue and earnings.

Segment Analysis

Segment profit from real estate sales was ¥15.9B (down 23.3%, profit margin: 5.9%), making it the largest earnings contributor, although profit continued to decline. House Leaseback contracted substantially, with segment profit of ¥8.4B (down 35.8%, profit margin: 10.1%). Franchise maintained high profitability, with segment profit of ¥14.1B (down 1.0%, profit margin: 56.9%), while Finance increased profit to ¥1.9B (up 35.5%, profit margin: 40.6%). Other businesses generated only ¥0.1B (down 94.5%), with profit virtually eliminated. Corporate expenses were substantial at ¥28.5B, resulting in a significant adjustment burden from total segment profit of ¥40.4B to consolidated Operating Income of ¥11.9B. The structure is dominated by low-margin real estate sales in terms of revenue scale, while the high profitability of the Franchise and Finance businesses has not contributed sufficiently to improving the consolidated margin.

Key Financial Indicators

【Profitability】The Operating Margin declined to 3.0% from 3.6% in the same period of the previous year, while the Net Profit Margin improved to 4.2% (3.6% in the previous year), mainly due to extraordinary gains. 【Cash Flow Quality】Cash and deposits increased 50.0% YoY to ¥128.6B, while interest-bearing debt was ¥320.3B, representing 45.9% of total assets. Interest expense of ¥6.1B was equivalent to 51.6% of Operating Income of ¥11.9B. 【Investment Efficiency】Annualized ROE was 11.3%, decomposed into a Net Profit Margin of 4.2% × total asset turnover of 0.75x × financial leverage of 3.64x, indicating a structure with a substantial contribution from leverage. 【Financial Soundness】The Equity Ratio improved to 27.5% (25.6% in the previous year), but the D/E Ratio was 2.64x and the Debt/Capital Ratio was 62.5%, both high relative to the Current Ratio of 168.3%. Interest coverage of 1.94x is at a level requiring monitoring from the perspective of debt-servicing capacity.

Cash Flow Analysis

Although the cash flow statement has not been disclosed directly, an analysis of funding trends based on changes in the balance sheet indicates that cash and deposits increased by ¥42.9B YoY to ¥128.6B, representing an improvement in liquidity. Meanwhile, real estate for sale declined by ¥68.2B to ¥273.1B, suggesting that property sales progressed and contributed to the increase in cash. However, real estate under development increased by ¥24.2B to ¥111.3B, indicating that a portion of inventory has shifted into the development stage. Long-term borrowings declined by ¥32.6B to ¥168.4B, while short-term borrowings increased by ¥18.0B to ¥151.9B, indicating a shortening of the maturity profile of liabilities. Cash/short-term liabilities remained at 0.85x, suggesting that the Company’s ability to address short-term debt depends on the progress of inventory sales.

Quality of Earnings

Of Net Income of ¥16.3B, Ordinary Income, which indicates recurring earnings power, was only ¥12.3B. The gap between the two was primarily attributable to ¥13.7B in extraordinary gains, including a ¥13.55B gain on the sale of shares in a subsidiary in connection with the transfer of the remodeling business. Excluding this temporary factor, core earnings power clearly declined from the same period of the previous year. Accordingly, it would not be appropriate to interpret the improvement in the Net Profit Margin to 4.2% (3.6% in the previous year) as an improvement in recurring profitability. Non-operating income and expenses were broadly balanced, with non-operating income of ¥7.4B and expenses of ¥7.0B. Interest expense of ¥6.1B was the primary component of non-operating expenses. Extraordinary losses were small at ¥0.1B, and the high dependence on extraordinary gains characterizes the quality of earnings for this period.

Earnings Forecast and Guidance

The full-year plan calls for Revenue of ¥550.0B (down 15.0% YoY), Operating Income of ¥29.0B (up 10.6%), and Ordinary Income of ¥30.0B (up 1.9%), with no revisions to the earnings forecast. The cumulative Q3 achievement rates were 71.3% for Revenue, 41.1% for Operating Income, and 41.0% for Ordinary Income. Compared with the standard Q3 progress rate of 75%, Operating Income and Ordinary Income were approximately 34 percentage points behind. To achieve the plan, the Company must generate Operating Income of ¥17.1B and Ordinary Income of ¥17.7B in Q4 alone, requiring profit that exceeds the cumulative Q3 results. Although Revenue progress is relatively close to plan, the delay in profit progress depends on the timing of property sales and trends in the gross margin.

Shareholder Returns

The full-year dividend forecast is ¥46.0 per share, while the Q2 dividend was ¥0, reflecting a structure focused on the year-end dividend. Based on the average number of shares outstanding during the period of 19,964,508 shares, total annual dividends are calculated at approximately ¥9.2B, resulting in a Payout Ratio of approximately 33.1% against forecast full-year Net Income of ¥27.7B. There has been no revision to the dividend forecast. As cumulative Q3 Net Income includes a gain on the sale of shares in a subsidiary, the sustainability of the dividend must be monitored in light of the degree to which the Q4 Ordinary Income plan is achieved and the recovery of core earnings.

Risk Factors

1. Real Estate Inventory and Cash Collection Risk: Real estate for sale of ¥273.1B and real estate under development of ¥111.3B totaled ¥384.3B, equivalent to 55.1% of total assets. If inventory holding periods lengthen or selling prices decline, cash collection could be delayed.

2. Leverage and Refinancing Risk: The D/E Ratio was 2.64x and the Debt/Capital Ratio was 62.5%, indicating a high reliance on borrowings, while interest coverage remained at only 1.94x. Given the short-term liabilities ratio of 47.4% and cash and deposits of ¥128.6B, changes in refinancing conditions could readily affect cash management.

3. Risk of Earnings Contraction in Core Businesses: House Leaseback continued to contract, with Revenue down 31.8% and segment profit down 35.8%, while segment profit from real estate sales declined 23.3%. Delayed recovery in either business would constrain consolidated earnings power.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Operating Margin was substantially below the industry median, while the Net Profit Margin was approximately in line with the median, although it was supported by extraordinary gains.

Growth and Capital Efficiency

The Revenue Growth Rate was substantially below the industry median, placing the Company among those with a notable declining-revenue trend within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Net Income declined only 3.6% YoY, but it was highly dependent on the ¥13.55B gain on the sale of shares in a subsidiary. Recurring earnings power must therefore be assessed based on the 28.5% decline in Ordinary Income.

2. While Franchise (profit margin: 56.9%) and Finance (40.6%) maintained high profitability, the larger real estate sales and House Leaseback businesses posted declines in both revenue and earnings, widening the profitability gap across the business portfolio.

3. The achievement rate against the full-year Operating Income plan was 41.1%, below the standard Q3 progress rate. The realization of property sales in Q4 and the level of corporate expenses will be key to achieving the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,089–¥1,153 at ±1% for the cost of equity, and ¥1,116–¥1,126 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end have been used (there is a timing difference from the full-year forecast).

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / 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 based on XBRL earnings release 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 responsibility, and you should consult a professional as necessary.

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