THERMAE-YU HOLDINGS (3521) FY2026 Q3 Earnings Report

#テルマー湯 Holdings FY2026 Q3 Financial Analysis Report

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Executive Summary

Although revenue increased 33.0%, operating income and net income declined, resulting in higher revenue but lower earnings. Revenue was ¥2.00B (¥1.50B in the previous year, YoY +33.0%), operating income was ¥0.24B (¥0.25B in the previous year, YoY -5.3%), ordinary income was ¥0.24B (¥0.25B in the previous year, YoY -4.5%), and net income attributable to owners of the parent was ¥0.13B (¥0.15B in the previous year, YoY -18.3%). The increase in revenue was driven by the recovery of the core hot spring and bathing facilities business, as well as a boost to the top line from the newly consolidated food company during the period. This was offset by higher company-wide expenses and an increase in the effective tax rate, which contributed to the earnings decline.

Factors Affecting Results

【Revenue】Revenue increased substantially to ¥2.00B (YoY +33.0%). By segment, the core hot spring and bathing facilities business remained solid, generating ¥1.50B (75.1% of the total, operating income of ¥0.37B, and a profit margin of 24.4%). The newly consolidated food business generated ¥0.46B (23.1% of the total), contributing to the revenue increase, while the real estate business remained small at ¥0.04B.

【Profit and Loss】Operating income declined to ¥0.24B (YoY -5.3%). Although total segment profit was ¥0.376B, company-wide expenses increased from ¥0.109B in the previous year to ¥0.138B, weighing on operating income. The food business recorded an operating loss of ¥0.003B (profit margin of -0.7%), reflecting front-loaded costs during the initial phase of consolidation. Ordinary income was almost flat at ¥0.24B (YoY -4.5%), but the recording of ¥0.03B in extraordinary losses (including losses on the disposal of fixed assets) and an increase in the burden of income taxes relative to pretax income to 41.3% (37.8% in the previous year) caused the decline in net income to widen beyond that of ordinary income, with net income decreasing to ¥0.13B (YoY -18.3%). The results represent higher revenue but lower earnings, with the decline in profitability primarily attributable to higher company-wide expenses and a greater tax burden.

Segment Analysis

The hot spring and bathing facilities business generated revenue of ¥1.50B and operating income of ¥0.37B (profit margin of 24.4%), serving as the core contributor to company-wide profit. The real estate business generated revenue of ¥0.04B and operating income of ¥0.01B (profit margin of 34.0%); although small in scale, it is highly profitable. The newly consolidated food business generated revenue of ¥0.46B but recorded an operating loss of ¥0.003B (profit margin of -0.7%), and appears to remain in an investment phase involving front-loaded costs, with the benefits of increased revenue expected over time. Goodwill of ¥0.20B was newly recognized in connection with the consolidation of the food business, making future earnings improvement a key focus.

Key Financial Metrics

【Profitability】The operating margin was 11.9%, deteriorating from the previous year (¥0.25B on revenue of ¥1.50B, or approximately 16.7%). The net profit margin declined to 6.3% (approximately 10.2% in the previous year), as the higher tax burden and increased company-wide expenses pressured profitability.【Cash Flow Quality】Although operating cash flow has not been disclosed, cash and deposits of ¥1.25B substantially exceeded current liabilities of ¥0.58B, confirming ample liquidity. In terms of working capital items, accounts receivable increased sharply by +135.1% year on year, inventories by +1488%, and accounts payable by +384%, indicating a greater working capital burden associated with the expansion of the consolidated food business.【Investment Efficiency】ROE (annualized) was 3.4%, indicating that capital efficiency remains low despite a high level of financial soundness, reflected in an equity ratio of 81.2%. Total assets were essentially flat at ¥6.07B, while increases in intangible fixed assets and goodwill (goodwill +¥0.20B) weighed on asset efficiency.【Financial Soundness】The equity ratio remained high at 81.2% (80.8% in the previous year), while interest-bearing debt continued to be reduced, with long-term borrowings declining 32.4% from ¥0.41B in the previous year to ¥0.27B.

Cash Flow Analysis

As the cash flow statement has not been disclosed, cash flow trends are assessed based on changes in the balance sheet. Cash and deposits declined to ¥1.25B (¥1.50B in the previous year), apparently reflecting the absorption of funds through the recognition of goodwill related to the acquisition of shares in the food company (+¥0.20B) and the expansion of working capital (accounts receivable +¥0.129B, inventories +¥0.028B). Meanwhile, long-term borrowings declined from ¥0.41B to ¥0.27B, and repayment of interest-bearing debt is also considered to have contributed to the decline in cash. Current assets of ¥1.53B substantially exceeded current liabilities of ¥0.58B, maintaining ample capacity for short-term funding needs.

Earnings Quality

Profit at the ordinary income level was nearly flat year on year at -4.5%, but extraordinary losses of ¥0.03B (including losses on the disposal of fixed assets) temporarily weighed on net income. Income taxes of ¥0.09B were recorded against pretax income of ¥0.22B, and the effective tax rate rose to approximately 41.3% (approximately 37.8% in the previous year). The increase in the tax burden was the primary reason the decline in net income exceeded that in ordinary income. Non-operating income and expenses were both small (less than ¥0.005B each), and there is no significant distortion in the recurring earnings structure. Comprehensive income was ¥0.13B, broadly in line with net income, indicating limited divergence from other comprehensive income items.

Earnings Forecast and Guidance

The full-year company forecasts are revenue of ¥2.75B (YoY +38.9%), operating income of ¥0.38B (YoY +10.0%), ordinary income of ¥0.37B (YoY +9.1%), net income of ¥0.235B, and forecast EPS of ¥8.88. Cumulative revenue through Q3 of ¥2.00B represents progress of 72.7% against the full-year forecast, while net income of ¥0.13B represents progress of 53.6% against the full-year forecast. The full-year plan calls for higher revenue and earnings, with a recovery in the earnings growth rate expected in the second half.

Shareholder Returns

The dividend forecast is ¥5.00 per share at year-end (unchanged from the previous year at ¥5.00), representing no increase or decrease. Based on the average number of shares outstanding during the period of 26,450,868 shares, the annual dividend payout is estimated at approximately ¥0.132B, resulting in a payout ratio of approximately 56.3% against the full-year net income forecast of ¥0.235B. Cash and deposits of ¥1.25B appear sufficient to cover dividend payments for the foreseeable future; however, if the decline in net income due to the higher effective tax rate continues, the payout ratio could rise, requiring monitoring of earnings trends.

Risk Factors

1. Risk of a Higher Tax Burden: The effective tax rate rose to approximately 41.3% (approximately 37.8% in the previous year), becoming the primary factor driving net income down to YoY -18.3%. Future trends in the tax burden ratio will continue to influence net income.

2. Risk of Impairment of Goodwill and Intangible Assets: Goodwill increased by ¥0.20B in connection with the newly consolidated food company, while intangible fixed assets increased +216.3% year on year. If the acquired business underperforms its plan, there is a risk of impairment losses being recognized.

3. Funding Burden from Working Capital Expansion: Accounts receivable (+135.1%), inventories (+1488%), and accounts payable (+384%) increased sharply. The impact of the accumulation of working capital accompanying business expansion on cash flow requires close monitoring.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The operating margin exceeds the industry median, while the net profit margin remains broadly in line with the median, indicating that the heavy tax burden offsets the company’s advantage at the net income level.

Growth and Capital Efficiency

The revenue growth rate significantly exceeds the industry median, confirming high growth including the effect of the new consolidation.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Revenue increased +33.0%, driven by the new consolidation and recovery in the hot spring and bathing facilities business. However, the higher effective tax rate (approximately 41.3%) and increased company-wide expenses weighed on operating income and net income, resulting in higher revenue but lower earnings.

2. Goodwill and intangible assets increased substantially in connection with the consolidation of the food business (intangible fixed assets +216.3%). The monetization of this business will be the focus of future assessments of asset efficiency and impairment risk.

3. The dividend forecast is ¥5.00, unchanged from the previous year, and the payout ratio based on the full-year forecast is estimated at approximately 56.3%. Since operating cash flow has not been disclosed, the extent to which earnings are converted into cash must be assessed indirectly through trends in cash and borrowings on the balance sheet.

Theoretical Share Price (Reference Value)

Sensitivity: ¥154–¥162 at cost of equity ±1%, and ¥157–¥159 at ω±0.1.

Notes:

• As 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 gap relative to the full-year forecast).
• As 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 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 with a professional where necessary.

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