AVANT GROUP CORPORATION FY2026 FY Earnings Report

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Executive Summary

Although the Company maintained higher revenue and operating income for the current period, ordinary income and net income declined, resulting in earnings pressure at the bottom line. Revenue increased to ¥30.48B (+8.0% YoY), while operating income rose to ¥4.70B (+2.0%). In contrast, ordinary income declined to ¥4.57B (-0.9%), and net income fell to ¥2.98B (-13.1%). The primary factors behind the decline in final earnings were the reversal of the ¥0.32B gain on the sale of investment securities recognized in the previous year and the ¥0.07B impairment loss on investment securities recorded in the current period. Recurring earnings power itself remained firm on an operating income basis. EPS declined to ¥83.41 (¥94.15 in the previous year).

Factors Affecting Financial Results

【Revenue】Revenue was ¥30.48B, representing an 8.0% YoY increase, with all three major segments contributing to growth. The Consolidated Financial Results Disclosure Business, the core business, recorded the highest growth at +16.2% and served as the main growth driver, despite accounting for 31.7% of revenue. Meanwhile, the Digital Transformation Promotion Business, the largest business by revenue with a 36.2% revenue mix, grew by +6.8%, while the Management Control Solutions Business, with a 31.8% revenue mix, grew by only +1.7%.

【Profitability】Operating income was ¥4.70B, representing a +2.0% YoY increase, but grew at a slower pace than revenue growth of +8.0%. SG&A expenses increased to ¥8.83B (+10.7%), exceeding the pace of revenue growth, and the operating margin declined by 0.9pt to 15.4% from 16.3% in the previous year. By segment, operating income in the Consolidated Financial Results Disclosure Business improved substantially to ¥2.92B (+45.7%), with a margin of 30.3%. In contrast, operating income in the Management Control Solutions Business deteriorated to ¥1.13B (-36.3%), causing its margin to decline to 11.7% and depressing the earnings mix. Ordinary income was ¥4.57B (-0.9%), pressured by ¥0.18B in non-operating expenses, including ¥0.06B in commission fees and ¥0.01B in foreign exchange losses. Net income was ¥2.98B (-13.1%), primarily due to temporary factors: the reversal of the ¥0.32B gain on the sale of investment securities recorded in the previous year and the recognition of a ¥0.07B impairment loss on investment securities in the current period. In summary, the Company achieved higher revenue and operating income, but higher revenue and lower ordinary income and net income.

Segment Analysis

Among the four major businesses, the Consolidated Financial Results Disclosure Business secured the highest profitability, with operating income of ¥2.92B (+45.7%) and a margin of 30.3%, serving as the main driver of consolidated earnings growth. The Digital Transformation Promotion Business generated revenue of ¥11.02B, representing a 36.2% revenue mix and the largest share by business, and achieved revenue growth of +6.8%. However, operating income was ¥1.72B (+0.1%), essentially flat, and the margin remained at 15.6%. The Management Control Solutions Business generated revenue of ¥9.69B (+1.7%), but operating income deteriorated substantially to ¥1.13B (-36.3%), resulting in a margin decline to 11.7% and diluting the consolidated profit margin. Other Businesses remained stable despite their small scale, with revenue of ¥0.53B (+21.5%), operating income of ¥0.10B (+4.7%), and a margin of 19.6%. The widening profitability gap between businesses has become evident as a mix factor affecting the consolidated margin.

Key Financial Metrics

【Profitability】The operating margin was 15.4% (16.3% in the previous year), the ordinary income margin was 15.0% (16.3% in the previous year), and the net profit margin was 9.8% (12.2% in the previous year), all declining from the previous year, with the net profit margin showing the largest decrease. The gross profit margin was 44.4%, essentially unchanged from the previous year, indicating that the cost structure remained broadly stable. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥3.79B, providing 1.27x coverage of net income of ¥2.98B, indicating favorable cash conversion of earnings. However, OCF was only 0.74x EBITDA of ¥5.11B, as changes in working capital associated with increases in trade receivables and inventories somewhat slowed cash conversion. 【Investment Efficiency】ROE was 20.5% (23.8% in the previous year), remaining at a high level but declining slightly in line with the decrease in net income. Capital expenditures of ¥0.60B exceeded depreciation and amortization of ¥0.42B, indicating a period of investment exceeding depreciation. 【Financial Soundness】The equity ratio was 60.3% (63.9% in the previous year). Liquidity remained ample, with cash and deposits of ¥12.82B and current assets of ¥19.58B compared with current liabilities of ¥9.02B. Share repurchases of ¥3.23B reduced net assets to ¥14.57B from ¥15.60B in the previous year, resulting in a slight decline in the equity ratio.

Cash Flow Analysis

Operating Cash Flow (OCF) declined by -15.2% YoY to ¥3.79B. In addition to the decrease in net income, working capital movements absorbed cash, including ¥1.57B in corporate income tax payments and increases of ¥0.14B in trade receivables and ¥0.09B in inventories. Investing Cash Flow was -¥1.34B, representing net investment outflows centered on capital expenditures of ¥0.60B. Financing Cash Flow was -¥4.26B, with share repurchases of ¥3.23B and dividend payments of ¥0.93B on a cash flow statement basis representing the main outflows. Free cash flow was ¥2.45B (OCF of ¥3.79B + investing cash flow of -¥1.34B), leaving a reasonable level of internally generated financial capacity even after the implementation of capital policies, including share repurchases. Cash and deposits declined to ¥12.82B from ¥14.59B in the previous year, but remained ample relative to current liabilities of ¥9.02B.

Quality of Earnings

Operating income of ¥4.70B and EBITDA of ¥5.11B remained stable, reflecting the recurring earning power of the business. From ordinary income through net income, however, the reversal of temporary items affected results: the current period included a special loss of ¥0.07B, representing an impairment loss on investment securities, while the previous year included a special gain of ¥0.32B from the sale of investment securities. As a result, net income declined by -13.1% YoY, a larger decrease than the -0.9% YoY decline in ordinary income. Non-operating income was small at ¥0.05B and consisted primarily of interest income, while non-operating expenses of ¥0.18B consisted of commission fees of ¥0.06B, foreign exchange losses of ¥0.01B, and other items, thereby pressuring ordinary income. Comprehensive income was ¥3.02B, nearly in line with net income of ¥2.98B. The impact of other comprehensive income items, including foreign currency translation adjustments of +¥0.04B, was limited, and the small divergence between net income and comprehensive income does not materially impair earnings quality.

Earnings Forecast and Guidance

For the full-year plan, management expects higher revenue and earnings, forecasting revenue of ¥32.80B (+7.6%), operating income of ¥5.00B (+6.4%), and ordinary income of ¥5.00B (+9.3%). The planned operating margin is approximately 15.2% (¥5.00B/¥32.80B), implying a broadly flat level from the current period’s actual 15.4% and not assuming a substantial improvement in profitability. The EPS forecast is ¥100.13, representing an anticipated recovery from the current period’s actual ¥83.41, suggesting that the temporary factors depressing net income are expected to be resolved. The dividend forecast is ¥34, representing an increase from the current period’s actual dividend of ¥32.

Shareholder Returns

The dividend for the current period was ¥32 at year-end, with no interim dividend, resulting in a payout ratio of 38.4%. In addition, the Company conducted share repurchases of ¥3.23B. Combined with total dividends of ¥1.12B, total shareholder returns amounted to approximately ¥4.35B, equivalent to approximately 146% of net income of ¥2.98B. Total shareholder returns also exceeded free cash flow of ¥2.45B, making this a year in which the Company implemented proactive shareholder returns using cash and retained earnings. The dividend forecast for the next fiscal year is ¥34, indicating a policy of increasing the dividend from the previous period’s actual ¥32.

Risk Factors

1. Deterioration in the profitability of the Management Control Solutions Business: Operating income declined by -36.3% YoY to ¥1.13B, and the margin fell to 11.7%. As one of the core businesses accounting for 31.8% of the revenue mix, it is a factor depressing the consolidated operating margin of 15.4%.

2. Slower cash conversion: OCF of ¥3.79B declined by -15.2% YoY. Coverage of net income was 1.27x, while OCF was only 0.74x EBITDA. Increases of ¥0.14B in trade receivables and ¥0.09B in inventories absorbed working capital, and cash flow growth has not kept pace with earnings growth.

3. Volatility in special gains and losses: The Company recorded an impairment loss on investment securities of ¥0.07B in the current period, while it recorded a gain on the sale of investment securities of ¥0.32B in the previous year. The reversal of these temporary items was the primary factor behind the -13.1% YoY decline in net income. Changes in the fair value of securities held may continue to cause volatility in net income.

Industry Benchmark (Reference; Based on Company Analysis)

Profitability and Returns

Profitability substantially exceeds the industry median, with both the operating margin and net profit margin ranking at upper-industry levels.

Growth and Capital Efficiency

The revenue growth rate was slightly below the industry median, placing the Company at a mid-range level in terms of growth.

Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The core Consolidated Financial Results Disclosure Business improved operating income by +45.7% and its margin to 30.3%, driving earnings growth. In contrast, the Management Control Solutions Business experienced deteriorating profitability, with operating income declining by -36.3%, widening the profitability gap across the business portfolio.

2. The -13.1% YoY decline in net income was primarily attributable to the reversal of special gains and losses related to investment securities. At the operating income level, the Company secured earnings growth of +2.0%, indicating that its recurring earning power remained intact.

3. In addition to a dividend of ¥32, the Company conducted share repurchases of ¥3.23B, bringing total shareholder returns to approximately 146% of net income. This represents a phase of enhanced shareholder returns supported by a financial base of cash and deposits of ¥12.82B and an equity ratio of 60.3%.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥607–¥644 for a ±1% change in the cost of equity, and ¥620–¥633 for a ±0.1 change in ω.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value 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 available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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