KOEI TECMO HOLDINGS CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The Company achieved higher revenue and earnings, together with a significant improvement in profit margins, during the quarter, driven by revenue growth in its core Entertainment Business and an expansion in investment-related income. Revenue was ¥17.37B (+17.4% year on year), Operating Income was ¥5.41B (+51.3%), Ordinary Income was ¥15.72B (+79.2%), and Net Income was ¥11.35B (+86.9%). The Operating Margin rose substantially to 31.1% from the same period last year, confirming an improvement in the profitability of the core business. However, the growth in Ordinary Income and Net Income also depended significantly on the expansion of non-operating income of ¥12.56B, including gains on the sale of securities of ¥3.68B and interest income of ¥4.34B.

Factors Affecting Performance

【Revenue】Revenue was ¥17.37B, an increase of +17.4% year on year. The core Entertainment Business led growth with revenue of ¥15.93B (91.7% of total revenue, YoY +17.3%), while the Amusement Business generated revenue of ¥1.12B (+6.3%) and the Real Estate Business generated ¥0.33B (+7.1%), both securing revenue growth.

【Profit and Loss】Operating Income was ¥5.41B (+51.3%). The Gross Profit Margin improved to 55.8% from 54.1% in the previous year, while SG&A expenses decreased by 3.3% year on year to ¥4.29B, thereby increasing operating leverage. Ordinary Income expanded to ¥15.72B (+79.2%), driven not only by the increase in Operating Income but also by non-operating income of ¥12.56B, including interest income of ¥4.34B and gains on the sale of securities of ¥3.68B. Net Income was ¥11.35B (+86.9%). The significant divergence between Operating Income and Ordinary Income indicates that the growth at the ordinary-income level depends substantially on investment income, which is strongly temporary in nature. In conclusion, the Company achieved higher revenue and earnings.

Segment Analysis

The Entertainment Business accounted for the core of consolidated earnings, with revenue of ¥15.93B (91.7% of total revenue, YoY +17.3%) and segment profit of ¥5.29B (YoY +42.7%, margin 33.2%). The Amusement Business recorded revenue of ¥1.12B (+6.3%) and profit of ¥0.16B (+60.2%, margin 14.7%), notable for its improved profit margin. The Real Estate Business reported revenue of ¥0.33B (+7.1%) and profit of ¥0.08B (+0.0%, margin 22.5%), remaining essentially flat. The “Other” category recorded revenue of ¥0.08B but a loss of ¥0.12B (margin of -148.8%), significantly affected by the allocation of head-office expenses and other factors. The growth in consolidated profit is structurally dependent on revenue expansion and margin improvement in the Entertainment Business.

Key Financial Metrics

【Profitability】The Operating Margin of 31.1% improved by approximately 700bp from 24.1% in the same period last year, supported by an improvement in the Gross Profit Margin to 55.8% from 54.1% and a decline in the SG&A Ratio to 24.7% from 29.9%. The Net Profit Margin rose significantly to 65.3% from 41.0%; however, as this includes gains on the sale of securities of ¥3.68B, it should be evaluated separately from the Operating Margin, which reflects the underlying strength of the core business.【Cash Flow Quality】Of Ordinary Income of ¥15.72B, net non-operating income accounted for ¥10.31B, indicating a high degree of dependence on investment-related income such as interest income of ¥4.34B and gains on the sale of securities of ¥3.68B.【Investment Efficiency】Annualized ROE was 16.2%, supported by the high Net Profit Margin and conservative financial leverage of approximately 1.19x. The total asset turnover ratio remained low due to the accumulation of investment securities.【Financial Soundness】The Company had an Equity Ratio of 83.8%, with substantial working capital comprising current assets of ¥134.65B against current liabilities of ¥35.29B. Cash and deposits of ¥46.17B substantially exceeded short-term borrowings of ¥10.0B. Interest-bearing debt consisted solely of short-term borrowings of ¥10.0B, resulting in a short-term debt ratio of 100%; however, the substantial balances of cash and short-term investment securities provide a high repayment capacity.

Cash Flow Analysis

As the cash flow statement has not been disclosed, funding trends are analyzed based on changes in the balance sheet. Accounts receivable decreased by ¥9.55B from ¥20.87B in the same period last year to ¥11.33B, suggesting that progress in collecting receivables or changes in the timing of revenue recognition contributed to easing the working-capital burden. Meanwhile, cash and deposits decreased by ¥15.11B from ¥61.28B to ¥46.17B, while investment securities increased by ¥25.44B from ¥101.69B to ¥127.13B, suggesting that a portion of cash may have been transferred into securities investments. Total liabilities increased by ¥12.83B from ¥41.13B to ¥53.96B; however, financial leverage remained low, as indicated by a debt ratio of 16.2% and a Debt/Capital ratio of 3.4%. The expansion of Ordinary Income to ¥15.72B, compared with Operating Income of ¥5.41B, was supported by interest income and gains on the sale of securities from investment assets and must be distinguished from the cash-generating capacity of the core business.

Earnings Quality

Of Ordinary Income of ¥15.72B, non-operating income of ¥12.56B was equivalent to 72.3% of revenue, with interest income of ¥4.34B and gains on the sale of securities of ¥3.68B as the primary components. Gains on the sale of securities are strongly temporary in nature, and caution is therefore required when extrapolating the quarter’s Ordinary Income and Net Income as representative of full-year earnings power. Comprehensive Income was ¥29.44B, exceeding Net Income of ¥11.35B by ¥18.09B, mainly due to an increase of ¥17.73B in valuation difference on other securities. The expansion of net assets is highly dependent on changes in the market value of securities held, creating a structure in which fluctuations in Comprehensive Income and net assets are likely to widen when market prices change. While the improvement in the profitability of the core business, reflected in an Operating Margin of 31.1% and accompanied by SG&A containment, is expected to be sustainable, the Net Profit Margin of 65.3% has a high dependence on investment income. Accordingly, operating-income-level indicators should be emphasized when assessing earnings quality.

Earnings Forecast and Guidance

The full-year company forecasts are revenue of ¥90.00B (+1.8% from the previous fiscal year), Operating Income of ¥32.00B (-13.9%), and Ordinary Income of ¥42.00B (-26.3%), with no revisions to either the earnings forecast or the dividend forecast. The Q1 progress rates for revenue and Operating Income were 19.3% and 16.9%, respectively, below the standard 25%. In contrast, the progress rates for Ordinary Income and Net Income attributable to owners of the parent were 37.4% and 36.6%, respectively, above the standard level. As investment income was recognized ahead of the core business, assessment of full-year achievement requires separate monitoring of title sales trends in the Entertainment Business and the recurring nature of investment income.

Shareholder Returns

The full-year dividend forecast is ¥48.0 per share, with no revision to the dividend forecast. Based on the average number of shares outstanding during the period of 334,086,733 shares, total annual dividends are calculated at approximately ¥16.04B, resulting in an expected Payout Ratio of approximately 51.7% against the full-year Net Income forecast of ¥31.00B. With net assets of ¥279.96B, cash and deposits of ¥46.17B, and short-term investment securities of ¥70.02B, the Company has sufficient financial capacity to support dividend payments. However, because Q1 earnings include gains on the sale of securities that are strongly temporary in nature, assessment of dividend sustainability should also consider progress in core business profit and the achievement of the full-year earnings forecast.

Risk Factors

1. Concentration of earnings in the Entertainment Business: With segment profit of ¥5.29B, this business constitutes the core of consolidated Operating Income of ¥5.41B. The timing of title releases and sales trends could significantly affect performance.

2. Dependence on investment-related income: Non-operating income of ¥12.56B, including interest income of ¥4.34B and gains on the sale of securities of ¥3.68B, made a significant contribution to Ordinary Income of ¥15.72B, creating a substantial divergence from Operating Income of ¥5.41B generated by the core business. This income is affected by market conditions and investment performance and has lower recurrence potential than core business profit.

3. Dependence on short-term borrowings and market sensitivity of securities holdings: All interest-bearing debt of ¥10.00B consists of short-term borrowings, resulting in a short-term debt ratio of 100%; however, cash and deposits of ¥46.17B provide a mitigating factor. Meanwhile, investment securities of ¥127.13B account for 38.1% of total assets, making valuation differences susceptible to changes that could affect Comprehensive Income and net assets.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Margin and Net Profit Margin substantially exceeded the industry median, indicating high profitability within the industry.

Growth and Capital Efficiency

The revenue growth rate also ranked in the upper tier of the industry, indicating a superior level of growth relative to peers.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The Operating Margin improved by 700bp year on year to 31.1%, confirming enhanced profitability in the core business accompanied by SG&A containment. This was supported by the combination of revenue growth in the Entertainment Business and disciplined cost management.

2. The substantial growth in Ordinary Income and Net Income depended significantly on the expansion of non-operating income, including gains on the sale of securities of ¥3.68B and interest income of ¥4.34B. The Net Profit Margin of 65.3% must be viewed separately from the Operating Margin of 31.1%, which reflects the strength of the core business.

3. The full-year progress rate for Operating Income was 16.9%, below the standard level on a core-business basis, while the progress rates for Ordinary Income and Net Income were 37.4% and 36.6%, respectively, above the standard level. Both the early recognition of investment income and a recovery in the core business during the second half will be key to achieving the full-year results.

Theoretical Share Price (For Reference)

Sensitivity: ¥889–¥940 at ±1% for the Cost of Equity, and ¥912–¥917 at ±0.1 for ω.

Notes:

• Because Net Income progress against the full-year forecast was 37%, exceeding the standard level of 25%, forecast EPS has been adjusted upward within a range of up to +10% (because companies with progress ahead of schedule tend to exceed their forecasts. For businesses with strong seasonality, the adjustment may be excessive).
• Net assets as of the end of the quarter are used (there is a time gap relative to the full-year forecast).

(Model used: 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 neither a forecast of the market share price nor a recommendation of any specific investment action, and 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 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, after consulting with a professional adviser as necessary.

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