RAKUS Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

The most important point this quarter is that, while profitability at the operating level continued to improve, net income was significantly boosted by a nonrecurring gain on the sale of shares in a subsidiary. Revenue was ¥142.1B (+0.9% year on year), Operating Income was ¥47.6B (+30.1%), Ordinary Income was ¥48.7B (+33.2%), and Net Income was ¥146.3B (+313.7%). The increase in Operating Income resulted from an improved gross margin and reduced SG&A expenses, while the sharp increase in Net Income was primarily attributable to the recognition of ¥166.8B in extraordinary income. Accordingly, Net Income must be evaluated separately from core earnings power.

Factors Affecting Earnings

【Revenue】Revenue was ¥142.1B, representing only a modest year-on-year increase of +0.9%. As the consolidated subsidiary in the IT human resources business was transferred during the previous consolidated fiscal year and the Company transitioned to a single-segment structure, segment-level drivers of changes have not been disclosed. However, top-line growth remains limited, indicating a slowdown in growth momentum.

【Profit and Loss】As cost of sales declined to ¥26.2B (¥35.0B in the previous year), the gross margin improved to 81.6% (approximately 75.1% in the previous year). Together with SG&A expenses being reduced to ¥68.3B, this resulted in Operating Income of ¥47.6B (+30.1%) and an expansion in the Operating Income margin to 33.5% (approximately 26.0% in the previous year). Ordinary Income was ¥48.7B (+33.2%), supported by non-operating income, including ¥0.9B in dividend income. Net Income surged to ¥146.3B (+313.7%), but this was attributable to the recognition of ¥166.8B in extraordinary income from the sale of shares in a subsidiary, with the divergence from Ordinary Income exceeding 200%. In conclusion, the Company achieved higher revenue and earnings as improved profitability at the operating level was supplemented by nonrecurring extraordinary income; however, most of the earnings growth depended on a one-time factor.

Segment Analysis

Beginning with the consolidated accounting period for Q1, the Company changed its reporting segments to a single segment, and segment-level revenue and profit information has not been disclosed. The background to this change is that the relevant business category ceased to exist following the transfer of all shares in the consolidated subsidiary previously classified under the IT human resources business.

Key Financial Indicators

【Profitability】The Operating Income margin expanded to 33.5% (approximately 26.0% in the previous year), while the gross margin also improved to 81.6% (approximately 75.1% in the previous year). However, the Net Income margin was an abnormal 103.0% due to the impact of extraordinary income. Accordingly, the Operating Income margin and Ordinary Income margin are appropriate measures for evaluating core earnings power. 【Cash Quality】Cash and deposits increased substantially from the previous year to ¥204.9B. Current assets were ¥296.4B and current liabilities were ¥129.2B, securing substantial liquidity with a current ratio of approximately 230%. 【Investment Efficiency】ROE was high at 38.2%, but the temporary surge in the Net Income margin was the largest contributing factor. As the total asset turnover ratio was low at 0.28x and financial leverage remained at only 1.34x, underlying capital efficiency is considered to be lower. 【Financial Soundness】The Equity Ratio remained at a conservative 74.6% (improving from 71.2% in the previous year). Fixed liabilities were minimal at ¥1.1B, while goodwill of ¥10.2B and intangible assets of ¥28.4B were also limited relative to total assets, indicating low financial risk.

Cash Flow Analysis

Although individual data from the cash flow statement have not been disclosed, the balance sheet trends indicate a substantial liquidity position. Cash and deposits increased significantly to ¥204.9B from ¥138.9B in the previous year, while investment securities also increased to ¥135.5B (¥49.0B in the previous year). Retained earnings increased by +46.8% year on year to ¥381.2B, with the accumulation of Net Income contributing to the strengthening of equity. On the other hand, cash inflows from extraordinary income may have contributed to the increase in cash and investment securities. When evaluating core operating cash generation, it is therefore necessary to also examine movements in working capital, including accounts receivable and accounts payable.

Earnings Quality

Net Income of ¥146.3B depended heavily on extraordinary income of ¥166.8B from the sale of shares in a subsidiary and was at a level exceeding recurring earnings power. Non-operating income was ¥1.2B, equivalent to only approximately 0.8% of revenue, and consisted primarily of ¥0.9B in dividend income, giving it a stable composition. The divergence between Ordinary Income of ¥48.7B and Net Income of ¥146.3B exceeded 200%, with most of this difference attributable to extraordinary gains and losses. When evaluating core earnings power, it is appropriate to use trends in the Operating Income margin of 33.5% and Ordinary Income of ¥48.7B. Care is required when evaluating the Company based on Net Income, as it includes nonrecurring factors.

Earnings Forecasts and Guidance

Progress toward the Full-Year plan was 23.8% for Revenue (¥142.1B/¥597.0B), 23.2% for Operating Income (¥47.6B/¥205.0B), and 23.8% for Ordinary Income (¥48.7B/¥205.0B), broadly in line with the quarterly progress benchmark of 25%. Meanwhile, Net Income progress was ¥146.3B/¥252.0B (the Full-Year Net Income forecast was back-calculated from disclosed information), or 58.1%, representing a substantial front-loading of progress. This was a temporary effect resulting from the recognition of the gain on the sale of shares in a subsidiary. In evaluating Full-Year achievement, it is appropriate to place greater emphasis on progress based on Operating Income and Ordinary Income.

Shareholder Returns

The Full-Year dividend forecast is ¥8 per share, and the Payout Ratio against the Full-Year EPS forecast of ¥71.16 is approximately 11.2%, remaining at a conservative level. There was no revision to the dividend forecast for the current quarter. Given ample on-hand liquidity of ¥204.9B in cash and deposits and a low-leverage financial structure reflected by an Equity Ratio of 74.6%, dividend sustainability is considered high. As Net Income for the current period includes extraordinary income, the Payout Ratio is calculated using EPS based on the Full-Year plan. Whether a dividend policy not dependent on nonrecurring gains will be maintained remains a key monitoring point.

Risk Factors

1. Slowing top-line growth: Revenue growth was limited to +0.9%, substantially below the industry median of 9.3%. Without a renewed acceleration in growth investment, the pace of core earnings expansion may remain limited.

2. Increased market sensitivity accompanying a higher asset investment ratio: Investment securities amounted to ¥135.5B, accounting for 26.4% of total assets, a substantial increase from the previous year (13.4% of total assets). The impact of fluctuations in market prices on net assets and other comprehensive income has increased.

3. Earnings volatility due to dependence on extraordinary income: Of the ¥146.3B in Net Income for the current period, ¥166.8B represented extraordinary income associated with the sale of shares in a subsidiary, and a one-time gain of a similar magnitude may not recur from the next fiscal year onward. It is appropriate to evaluate Full-Year progress based on Operating Income and Ordinary Income.

Industry Benchmark (Reference, Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Operating Income margin and Net Income margin substantially exceeded the industry median. However, it should be noted that the Net Income margin reflects a temporary level resulting from the recognition of extraordinary income.

Growth and Capital Efficiency

The Revenue growth rate was below the industry median and remained close to the lower bound of the IQR (0.4%).

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Improvement in core profitability has been confirmed. The gross margin improved by approximately +650bp year on year, while the Operating Income margin improved by approximately +750bp, indicating that cost efficiencies and changes in the business structure contributed to strengthening the Company’s operating-level earnings foundation.

2. The sharp increase in Net Income (+313.7% year on year) was primarily attributable to the nonrecurring factor of ¥166.8B in gains from the sale of shares in a subsidiary. Tracking progress based on Operating Income and Ordinary Income is therefore effective for evaluating underlying Full-Year earning power.

3. Financial soundness has strengthened, with an Equity Ratio of 74.6% and cash and deposits of ¥204.9B. The increase in the investment securities ratio (26.4% of total assets) warrants attention as a potential source of future volatility in valuation gains and losses and non-operating income.

Theoretical Share Price (Reference Value)

Sensitivity: ¥295–¥315 at ±1% for the cost of equity, and ¥297–¥316 at ±0.1 for ω.

Notes:

• As Net Income progress against the Full-Year forecast (58%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with front-loaded progress tend to exceed forecasts. The adjustment may be excessive for businesses with strong seasonality).
• As forecast ROE is high, ROE is capped at 50% for calculation purposes (the differences between scenarios may appear small).
• Net assets as of the end of the quarter are used (there is a timing difference from the Full-Year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(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 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 with a professional as necessary.

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