ULS Group (3798) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of FY2026 ending March 2026, the Company posted higher revenue and higher profits, while margins declined due to the front-loaded increase in SG&A expenses, despite maintaining a high revenue growth rate. Revenue was ¥12.31B (¥9.47B in the previous period, YoY +30.0%), Operating Income was ¥2.56B (¥2.21B, YoY +15.7%), Ordinary Income was ¥2.57B (¥2.21B, YoY +16.2%), and Net Income attributable to owners of the parent was ¥1.62B (¥1.39B, YoY +16.6%). Revenue growth exceeded Operating Income growth by 14.3 percentage points, indicating that profit growth relative to revenue growth has slowed. The primary factor was SG&A expenses, which increased +50.6% YoY, substantially outpacing revenue growth.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥12.31B, continuing to grow at a high rate of +30.0% YoY. The Company operates as a single segment, the Consulting Business, and therefore the diversification effect across businesses is limited. Gross profit expanded at nearly the same pace as revenue, increasing to ¥5.10B (+30.7%), while the gross margin improved slightly to 41.4% from 41.1% in the previous period.

【Profit and Loss】Operating Income increased by +15.7% to ¥2.56B. Cost of sales increased +29.4%, broadly in line with revenue growth; however, SG&A expenses increased substantially ahead of revenue, reaching ¥2.53B, up +50.6% YoY. Consequently, the Operating Income margin declined to 20.8% from 23.4% in the previous period, a decrease of approximately 2.6pt. Ordinary Income was only ¥0.01B above Operating Income, indicating limited dependence on non-operating gains and losses. The effective tax rate was 35.2%, acting as a factor suppressing the margin in the conversion from profit before tax to Net Income. Extraordinary gains and losses were virtually nonexistent. Overall, the Company achieved higher revenue and higher profits, but operating leverage was unfavorable, and the Company was unable to fully absorb the increase in costs.

Key Financial Indicators

【Profitability】The Operating Income margin was 20.8%, down approximately 2.6pt from 23.4% in the previous period. However, the gross margin improved slightly to 41.4% from 41.1%, indicating that the decline in the profit margin was driven primarily by higher SG&A expenses rather than deterioration in the cost ratio. 【Cash Quality】Ordinary Income of ¥2.57B was almost at the same level as Operating Income of ¥2.56B. Non-operating income, consisting mainly of interest and dividend income, was limited to 0.1% of revenue, indicating that earnings are primarily supported by the core business. 【Investment Efficiency】Annualized ROE was 18.4%, primarily driven by a high EBIT margin and an asset turnover ratio exceeding 1x, with limited dependence on financial leverage. BPS increased to ¥200.17 from ¥178.01. 【Financial Soundness】The Equity Ratio was 84.0% (a quarter-end figure calculated using a method different from the annualized value of 78.6% in the original source). Cash and deposits were ¥7.80B, accounting for 54.2% of total assets. All liabilities consisted of current liabilities, which totaled ¥2.31B, indicating an extremely conservative financial foundation.

Cash Flow Analysis

As the disclosure does not include cash flow statement items, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥7.80B, increasing by ¥0.67B from ¥7.14B in the previous period and accumulating to a level equivalent to 54.2% of total assets. Current assets were ¥12.51B and current liabilities were ¥2.31B, resulting in positive working capital of approximately ¥10.20B and providing ample short-term liquidity. While total liabilities decreased by ¥0.78B from ¥3.09B in the previous period to ¥2.31B, net assets increased from ¥10.48B to ¥12.09B. This indicates that retained earnings directly contributed to the expansion of equity and the accumulation of cash on hand. Property, plant and equipment increased by ¥0.29B YoY, indicating that a certain degree of capital allocation toward growth investment is also progressing.

Earnings Quality

Ordinary Income was ¥2.57B compared with Operating Income of ¥2.56B, a small difference of ¥0.01B. Non-operating income was ¥0.01B, equivalent to only 0.1% of revenue, and consisted mainly of interest and dividend income. Accordingly, earnings are supported by the core Consulting Business. Extraordinary gains and losses were virtually nonexistent, and no earnings increase resulting from temporary factors was identified. Net Income attributable to owners of the parent was ¥1.62B against profit before tax of ¥2.57B, with the tax burden associated with the 35.2% effective tax rate reducing the profit margin. Comprehensive income was ¥1.67B, nearly equal to consolidated Net Income of ¥1.67B. Changes in valuation differences on available-for-sale securities and other items were small, and factors distorting earnings quality were limited.

Earnings Forecast and Guidance

Cumulative Q3 progress against the full-year Company forecasts was 77.4% for revenue, 82.6% for Operating Income, 83.0% for Ordinary Income, and 83.2% for Net Income. All exceeded the standard progress rate of 75%, although the excess remained below 10 percentage points. Based on the Company forecasts, Q4 requires revenue of ¥3.59B and Operating Income of ¥0.54B. The implied Operating Income margin is approximately 15.0%, below the cumulative actual margin of 20.8%, indicating that a lower margin is incorporated into the forecast. No revision to the earnings forecast was made during the quarter.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year Company dividend forecast is ¥7.1 per share on a post-stock-split basis (equivalent to ¥71 before reflecting the split). The Payout Ratio against forecast EPS of ¥34.48 is approximately 20.6%, remaining conservative relative to the earnings level. A 10-for-1 stock split was conducted effective October 1, 2025. Financial capacity, including cash and deposits of ¥7.80B and an Equity Ratio of 84.0%, supports the sustainability of dividend payments. There was no disclosure regarding share repurchases; therefore, no assessment is made of the Total Return Ratio.

Risk Factors

1. Pressure on profit margins from higher SG&A expenses: SG&A expenses increased +50.6% YoY, exceeding the +30.0% growth in revenue. If the recovery of personnel expenses, recruitment costs, and sales investments is delayed, maintaining the 20.8% Operating Income margin will become difficult.

2. Single-segment concentration risk: As the Company operates as a single Consulting Business segment, reductions in major customers’ IT investment, delays in project commencements, and deterioration in project profitability could directly affect consolidated performance.

3. Risk associated with the acquisition and retention of specialized personnel: Competition for talent and wage increases common to the information, communications, and consulting industries could simultaneously constrain project delivery capacity and profit margins.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s profitability is substantially above the industry median and exceeds the upper bound of the IQR.

Growth and Capital Efficiency

The revenue growth rate also substantially exceeds the industry median and the upper bound of the IQR, demonstrating high growth within the industry.

Source: Compiled by the Company

Key Points from the Earnings Results

1. Revenue increased +30.0% YoY, while Net Income increased +16.6% YoY, achieving both high growth and higher profits. At the same time, the gross margin of 41.4% was nearly flat, and the approximately 2.6pt decline in the Operating Income margin was primarily attributable to higher SG&A expenses. This structure warrants attention when assessing the quality of revenue growth.

2. Profit progress against the full-year plan was above the standard progress rate, at 82.6% for Operating Income and 83.2% for Net Income. However, the Company forecast incorporates an assumed decline in the Q4 Operating Income margin to approximately 15.0%. Whether this divergence reflects one-time expense recognition or a change in the cost structure should be confirmed through future disclosures.

3. The financial foundation, comprising cash and deposits of ¥7.80B and an Equity Ratio of 84.0%, is extremely conservative and provides capacity to support growth investments and shareholder returns.

Theoretical Share Price (Reference Value)

Sensitivity: ¥238–¥252 at ±1% for the cost of equity, and ¥243–¥246 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end were used (there is a time lag relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of the market share price or recommendations of any specific investment action and do 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 discretion and responsibility, after consulting professionals as necessary.

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