ADR120S (3750) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for Q3 are in a temporary revenue gap period associated with the transition from the Real Assets Business to the Medical Business. Revenue was ¥0.3B, down 71.3% from ¥1.1B in the same period of the previous year, while the operating loss was ¥5.2B (¥-6.0B in the same period of the previous year). The ordinary loss was ¥5.3B and the net loss was ¥3.2B (¥-7.5B in the same period of the previous year). The reduction in the net loss was attributable to extraordinary income of ¥2.1B (primarily ¥2.1B in gains from the reversal of stock acquisition rights), which must be distinguished from an actual improvement in operating profitability. As the Company completed its final real estate transfer in May 2025 and became a single-segment company, the impact of changes in the business structure is substantial in the year-on-year comparison.

Factors Affecting Performance

【Revenue】Revenue was ¥0.3B, down 71.3% year on year. The primary reason was the complete withdrawal from the Real Assets Business, while the Medical Business alone has not yet established a sufficient revenue scale. Progress against the full-year plan of ¥10.6B was limited to 3.1%.

【Profit and Loss】Cost of sales of ¥0.3B exceeded revenue, resulting in a gross profit margin of -0.2%. SG&A expenses were ¥5.2B, down 12.6% from ¥6.0B in the same period of the previous year; however, the decline was smaller than the 71.3% decrease in revenue, and the operating loss remained substantial at ¥5.2B. The ordinary loss expanded to ¥5.3B due to interest expense. The net loss narrowed to ¥3.2B following the recognition of ¥2.1B in extraordinary income, but no improvement in operating profitability was confirmed. The results can therefore be characterized as a decline in revenue and profit, with the operating deficit effectively continuing.

Segment Analysis

Since Q1 of the fiscal year ending April 2025, the Company has operated under a single segment, the “Medical Business.” The former “Real Assets Business” ended upon completion of the real estate transfer in May 2025. As the Company has a single segment, it does not disclose a breakdown of segment revenue or profit and loss.

Key Financial Indicators

【Profitability】The operating margin was -1578.8% (equivalent to -523.5% in the same period of the previous year), while the net profit margin was -957.6%; both were at substantially loss-making levels. The gross profit margin was also -0.2%, indicating that cost of sales exceeded revenue. 【Cash Quality】The improvement in net income was largely attributable to ¥2.1B in extraordinary income, providing limited support for recurring earning power from operating activities. 【Investment Efficiency】Annualized ROE was -418.5%, and total asset turnover was 0.061 times, indicating limited efficiency in converting assets into revenue. 【Financial Soundness】The equity ratio was 13.9% (flat from the equivalent 13.9% in the previous year), while total assets contracted substantially from ¥35.4B to ¥7.3B. Short-term borrowings of ¥4.0B exceeded cash and deposits of ¥2.5B, placing cash flow management at a critical juncture.

Cash Flow Analysis

As detailed data from the cash flow statement is not disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥2.5B, remaining almost flat compared with ¥2.6B in the same period of the previous year. Meanwhile, property, plant and equipment declined substantially from ¥29.6B in the same period of the previous year to ¥0.2B, suggesting that the asset sale associated with the final real estate transfer in May 2025 served as a source of funds. Short-term borrowings increased by ¥1.0B from ¥3.0B to ¥4.0B, indicating a rising reliance on short-term funding to cover the operating loss. The fact that cash levels were maintained even as total assets contracted from ¥35.4B to ¥7.3B is believed to reflect the contribution of cash preservation through asset sales.

Quality of Earnings

The current-period net loss of ¥3.2B narrowed relative to the operating loss of ¥5.2B and the ordinary loss of ¥5.3B, which included interest expense, due to the recognition of ¥2.1B in extraordinary income (primarily ¥2.1B in gains from the reversal of stock acquisition rights). This extraordinary income is non-recurring in nature and does not indicate the Company’s recurring earning power. Non-operating income of ¥0.1B and non-operating expenses of ¥0.2B (including ¥0.2B in interest expense) were both small in scale but represented additional effective burdens relative to the operating loss. Comprehensive income was -¥3.2B, equal to the net loss, with no divergence attributable to other comprehensive income items. Overall, the improvement in profit and loss for the period was highly dependent on extraordinary income, and the quality of earnings can be assessed as low.

Earnings Forecast and Guidance

The full-year plan comprises revenue of ¥10.6B (+767.5% year on year), an operating loss of ¥1.2B, an ordinary loss of ¥1.4B, and EPS of ¥8.04. Cumulative Q3 progress was 3.1% for revenue, while the operating loss had already reached ¥5.2B, substantially exceeding the loss amount projected in the full-year plan. Achieving the full-year plan would require approximately ¥10.3B in revenue and a significant return to profitability in Q4 alone, and the progress to date indicates considerable uncertainty regarding achievement. No revisions were made to either the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the full-year dividend forecast is also ¥0, indicating the continuation of a no-dividend policy. Given the financial position of a current-period net loss of ¥3.2B and retained earnings of -¥29.4B, the payout ratio cannot be calculated. Treasury stock remained small at ¥0.02B, and the Company is considered to be in a phase where capital preservation and the securing of liquidity are prioritized.

Risk Factors

1. Liquidity and refinancing risk: Cash and deposits were limited to ¥2.5B against short-term borrowings of ¥4.0B, resulting in a cash coverage ratio of approximately 0.62 times. All interest-bearing debt is short term, making refinancing terms directly relevant to cash flow management.

2. Unestablished earnings base: Revenue from the Medical Business alone was ¥0.3B, and the gross profit margin was -0.2%; the revenue scale and cost structure required for sustainable profitability have not been established. Substantial revenue expansion in Q4 will be necessary to achieve the full-year plan.

3. High leverage and interest burden: The equity ratio was 13.9%, while total assets of ¥7.3B compared with net assets of ¥1.0B indicate high financial leverage. The operating loss is insufficient to absorb the interest burden, raising concerns over a rapid decline in capital resources.

Industry Benchmark (Reference; Based on Our Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company is substantially below the industry median, with profitability at an extremely low level within the industry.

Growth and Capital Efficiency

While the industry median is in positive-growth territory, the Company is experiencing a substantial revenue decline associated with its business transformation.

※Source: Based on our analysis

Key Points from the Financial Results

1. The business portfolio has completely shifted from the Real Assets Business to the Medical Business, and the year-on-year comparison of revenue and profit and loss is substantially affected by this structural change. Going forward, the focus of evaluation will be the ramp-up in revenue and the achievement of gross profitability in the new business.

2. The year-on-year improvement in the net loss depended on ¥2.1B in extraordinary income (gains from the reversal of stock acquisition rights), while the operating loss remained substantial at ¥5.2B. No improvement in recurring earning power has been confirmed.

3. Given the financial structure of short-term borrowings of ¥4.0B and a cash coverage ratio of 0.62 times, the management of refinancing and cash flow will be an important area for monitoring going forward.

Theoretical Share Price (Reference Value)

Sensitivity: 31 yen–33 yen at ±1% for the cost of equity, and 31 yen–33 yen at ±0.1 for ω.

Notes:

• Because forecast ROE is high, ROE is capped at 50% for calculation purposes (the differences between scenarios may therefore appear small).
• 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: 2026-08 / These are mechanically calculated values based solely on publicly disclosed data; they are not forecasts of the market share price or recommendations for specific investment actions, nor do they 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, after consulting professionals as necessary.

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