KOEI TECMO HOLDINGS (3635) FY2026 Q3 Earnings Report

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Executive Summary

This financial performance reflects a structure in which the core business slowed slightly while investment income boosted net income; therefore, the two should be evaluated separately when assessing earnings quality. Revenue was ¥517.3B (-1.6% YoY), Operating Income was ¥145.7B (-3.3%), Ordinary Income was ¥311.0B (-6.2%), and Net Income was ¥237.8B (-5.5%). The decline in Operating Income exceeding the rate of Revenue decline was attributable to a decrease in gross profit margin (56.2%, compared with 56.8% in the previous year), which was not fully offset by the reduction in SG&A expenses (-1.9%). Ordinary Income and Net Income were supported by non-operating income, including gains on the sale of securities of ¥109.5B, and progress toward the Full-Year forecast was also high at 84.1% and 88.1%, respectively. However, this indicates a high degree of dependence on non-recurring investment income.

Factors Affecting Earnings

【Revenue】Revenue was ¥517.3B, down 1.6% YoY. It was affected by sales trends for game titles and IP life cycles, and progress toward the Full-Year company forecast of ¥920.0B (+10.6% YoY) remained at 56.2%. Revenue of ¥402.7B will be required in Q4, meaning that achieving the Full-Year plan will require contributions from major titles and additional content toward the end of the quarter.

【Profit and Loss】Operating Income was ¥145.7B (-3.3% YoY). Gross profit margin declined to 56.2% from 56.8% in the previous year, while Operating Income margin declined to 28.2% from 28.7%. SG&A expenses were compressed to ¥144.9B (-1.9%), a pace exceeding the rate of Revenue decline, but this was insufficient to offset the decrease in gross profit. Ordinary Income was ¥311.0B (-6.2%), and Net Income was ¥237.8B (-5.5%). Non-operating income of ¥275.8B, including gains on the sale of securities of ¥109.5B, significantly boosted Net Income. The core business experienced declining Revenue and profit, while the consolidated group as a whole was supported by investment income; overall, the results should be characterized as declining Revenue and profit.

Key Financial Indicators

【Profitability】Operating Income margin was 28.2%, down from 28.7% in the same period of the previous year. Net Income margin was exceptionally high at 46.0%, but this was due to dependence on non-operating income of ¥275.8B (53.3% of Revenue); the 17.8pt gap versus Operating Income margin warrants attention from a sustainability perspective. 【Cash Flow Quality】The difference between Ordinary Income and Net Income primarily reflected investment income such as gains on the sale of securities of ¥109.5B and interest income of ¥83.6B, which should be evaluated separately from the cash-generating capacity of the core business. 【Investment Efficiency】ROE (Annualized) was 12.3%, supported by the high Net Income margin and low leverage (total asset turnover of 0.22x and leverage of 1.20x). 【Financial Soundness】The Equity Ratio was 83.1%, while cash and deposits of ¥513.2B were 2.2 times short-term borrowings of ¥230.0B. Liquidity and the capital base are strong, but the fact that all interest-bearing debt consists of short-term borrowings requires monitoring.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, the balance sheet trends indicate an accumulation of funds. Cash and deposits increased by ¥272.9B (+113.5%) YoY to ¥513.2B, substantially improving the company’s ability to meet short-term funding needs. Meanwhile, investment securities increased by ¥281.2B (+28.3%) to ¥1,275.3B, and property, plant and equipment increased by ¥209.7B (+57.4%) to ¥574.8B, indicating a stronger tilt in the asset composition toward investment assets and fixed assets. Treasury stock decreased from negative ¥377.4B to negative ¥37.5B, a reduction of ¥339.9B, with this significant change in capital policy contributing to the increase in net assets. Overall, funds have been allocated toward increasing investment assets and changing the capital structure.

Earnings Quality

The Net Income margin of 46.0% exceeded the Operating Income margin of 28.2% by 17.8pt, a difference generated by non-operating income of ¥275.8B, including gains on the sale of securities of ¥109.5B and interest income of ¥83.6B. Gains on the sale of securities increased significantly from ¥12.8B in the same period of the previous year, while interest income declined from ¥135.8B, indicating that the composition of non-operating income itself fluctuates from year to year. These items depend on the sale of investment assets and market conditions and are considered less repeatable than Operating Income. Comprehensive income was ¥563.6B, exceeding Net Income by ¥325.8B, primarily due to valuation differences on available-for-sale securities of ¥310.3B. Accordingly, the possibility that net assets and the Equity Ratio may fluctuate if valuation gains reverse should also be considered when evaluating earnings quality.

Earnings Forecast and Guidance

Progress toward the Full-Year company forecast was 56.2% for Revenue, 47.0% for Operating Income, 84.1% for Ordinary Income, and 88.1% for Net Income. Revenue and Operating Income were substantially below the standard Q3 progress rate of 75%, requiring Q4 contributions of ¥402.7B in Revenue and ¥164.3B in Operating Income, exceeding the cumulative results achieved to date. Meanwhile, Ordinary Income and Net Income have already achieved high progress rates, and the probability of meeting the Net Income plan is higher than that for the core business due to non-operating investment income. The Full-Year forecast assumes Revenue growth of +10.6%, while forecasting declines of -3.5% in Operating Income and -26.0% in Ordinary Income, representing a plan based on higher Revenue but lower profit and declining margins.

Shareholder Returns

The Full-Year forecast calls for an annual dividend of ¥43.0 per share. The Q2 dividend was ¥0, indicating a structure in which dividends are concentrated at the fiscal year-end. The forecast Payout Ratio against Full-Year forecast EPS of ¥83.07 is approximately 51.8%, which is not excessively high. Net assets of ¥2,587.2B, cash and deposits of ¥513.2B, and an Equity Ratio of 83.1% provide a financial foundation supporting dividend funding. However, the fact that a certain proportion of Net Income of ¥237.8B consists of non-recurring investment income, such as gains on the sale of securities, warrants attention when assessing the stability of the dividend funding base.

Risk Factors

1. Dependence on Q4 to achieve the Full-Year plan: Progress toward the Full-Year plan for Revenue and Operating Income was 56.2% and 47.0%, respectively, below the standard progress rate of 75%. Q4 must deliver Revenue of ¥402.7B and Operating Income of ¥164.3B (+12.8% versus cumulative results), making progress in sales of major titles and additional content the key focus.

2. Concentration in investment assets and valuation fluctuations: Investment securities of ¥1,275.3B account for 40.9% of total assets, while valuation differences on available-for-sale securities of ¥310.3B significantly boosted comprehensive income. If valuation gains reverse due to fluctuations in financial markets, net assets and the Equity Ratio could be affected.

3. Dependence on short-term borrowings: All interest-bearing debt of ¥230.0B consists of short-term borrowings, resulting in a short-term debt ratio of 100.0%. Although cash and deposits of ¥513.2B provide substantial near-term repayment capacity, changes in refinancing terms must be monitored continuously.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability and margins are substantially above the industry median, indicating a highly profitable earnings structure within the industry.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median, placing the company at a relatively disadvantageous position in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The company maintained high profitability and financial soundness, with an Operating Income margin of 28.2% and an Equity Ratio of 83.1%, while progress toward the Full-Year forecasts for Ordinary Income and Net Income has already reached a high level due to investment income. The growth and margin trends of the core business should be considered separately from the repeatability of investment income.

2. Progress toward the Full-Year plan for Revenue and Operating Income was below the standard progress rate, making Q4 sales performance a decisive factor in achieving the Full-Year plan. The company’s forecast itself assumes declining profit despite higher Revenue, and is based on lower margins.

3. Investment securities of ¥1,275.3B and related valuation differences of ¥310.3B are factors boosting asset value, but they also represent structural changes that could affect net assets and the Equity Ratio during market fluctuations and therefore warrant ongoing monitoring.

Theoretical Share Price (Reference Value)

Sensitivity: ¥806–¥852 at ±1% Cost of Equity, and ¥827–¥830 at ω±0.1.

Notes:

• Because progress of Net Income toward the Full-Year forecast (88%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies running ahead of forecast progress tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the end of the quarter are 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 solely from 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 benchmark is 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 as necessary.

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