| Metric | Current | Prior | YoY |
|---|---|---|---|
| Revenue | ¥415.3B | ¥349.4B | +18.9% |
| Operating Income | ¥105.9B | ¥130.4B | -18.8% |
| Profit Before Tax | ¥107.7B | ¥125.1B | -13.9% |
| Net Income | ¥69.7B | ¥84.8B | -17.9% |
| ROE | 12.6% | 17.1% | - |
FY2026 Q3 (nine-month cumulative) results for Change Holdings: Revenue ¥415.3B (YoY +18.9%), Operating Income ¥105.9B (YoY -18.8%), Ordinary Income ¥108.3B (YoY -19.1%), Net Income ¥69.7B (YoY -17.9%). Revenue growth was driven by existing business expansion and addition of five newly consolidated subsidiaries during the period. However, profitability declined significantly as SG&A expenses increased at a faster pace than revenue growth, compressing operating margin from 37.3% to 25.5%. The divergence between revenue growth and profit decline reflects cost structure challenges and working capital management issues, particularly in accounts receivable collection. Cash and equivalents stood at ¥255.2B with operating CF of ¥45.4B, representing 0.66x of net income, indicating earnings quality concerns. The company maintained shareholder returns through dividends of ¥14.5B and share buybacks of ¥44.9B, though total returns exceeded free cash flow generation.
Revenue expansion of 18.9% to ¥415.3B was primarily driven by organic growth in existing operations and the consolidation of five new subsidiaries during the period. Gross profit reached ¥240.4B with a robust gross margin of 57.9%, demonstrating strong pricing power and service delivery efficiency. However, SG&A expenses surged to ¥135.5B, representing 32.6% of revenue, significantly higher than the prior year level. The disproportionate increase in SG&A relative to revenue growth resulted in operating income declining 18.8% to ¥105.9B, with operating margin contracting 11.8 percentage points to 25.5%. Non-operating items contributed modestly, with finance income of ¥6.1B offset by finance costs of ¥4.2B and equity method income of ¥0.6B. Profit before tax reached ¥107.7B, translating to net income of ¥69.7B after tax expenses. The gap between operating income (¥105.9B) and net income (¥69.7B) reflects a tax burden of approximately ¥38.0B, representing an effective tax rate of 35.3%. No material extraordinary items or impairments were disclosed during the period. The performance pattern follows "revenue up, profit down" dynamics, characterized by top-line momentum offset by operational cost pressures and working capital deterioration.
[Profitability] ROE 12.6% demonstrates solid return generation but reflects pressure from declining profitability. Operating margin contracted to 25.5% from prior year 37.3%, indicating cost structure challenges. Net profit margin of 16.8% (calculated as ¥69.7B / ¥415.3B) remains respectable but declined from prior levels due to SG&A expense growth outpacing revenue expansion. Gross margin of 57.9% remained healthy, suggesting core service profitability is intact. [Cash Quality] Cash and equivalents of ¥255.2B provide substantial liquidity buffer. Operating CF of ¥45.4B represents 0.66x net income, below the 0.8x threshold and signaling earnings quality concerns related to working capital deterioration, particularly accounts receivable accumulation of ¥408.5B. [Investment Efficiency] Asset turnover of 0.329 reflects capital-intensive business characteristics, though asset efficiency declined as total assets expanded to ¥1,263.5B, driven primarily by accounts receivable growth of ¥230.9B YoY. Goodwill of ¥292.9B represents 53.1% of equity, indicating M&A-driven growth strategy and elevated impairment risk. [Financial Health] Equity ratio of 37.4% (¥551.6B equity / ¥1,263.5B total assets) provides adequate financial stability. Current ratio of 1.57x (¥685.1B current assets / ¥436.0B current liabilities) indicates acceptable short-term liquidity coverage. Interest-bearing debt of ¥59.4B remains limited, representing 9.7% of capital structure. However, 100% of debt is classified as short-term, creating refinancing risk. Days sales outstanding extended to approximately 359 days, indicating significant accounts receivable collection challenges.
Operating CF of ¥45.4B increased dramatically from ¥2.2B in the prior year, representing a 2008.8% year-over-year surge, though this represents only 0.66x of net income of ¥69.7B, indicating that earnings are not fully converting to cash. The primary driver of the operating CF shortfall versus net income was accounts receivable expansion of ¥224.8B within the period, reflecting extended collection cycles or large outstanding project receivables. Investing CF recorded an outflow of ¥22.8B, primarily comprising capital expenditures of ¥1.7B and intangible asset acquisitions of ¥4.9B, with the remainder likely related to business acquisitions and investments. Financing CF showed an outflow of ¥69.3B, driven by share buybacks of ¥44.9B and dividend payments of ¥14.5B, representing aggressive shareholder returns that exceeded internally generated cash. Free cash flow of ¥22.7B (operating CF minus investing CF) provided 1.56x coverage of dividend payments but fell short of total shareholder returns by approximately ¥36.7B, requiring utilization of existing cash reserves. The cash and equivalents balance of ¥255.2B provides adequate buffer for near-term obligations, though the rate of cash consumption from shareholder returns warrants monitoring.
Ordinary income of ¥108.3B compared to operating income of ¥105.9B reflects a modest net non-operating contribution of approximately ¥2.4B. This comprises primarily finance income of ¥6.1B (interest and dividend income, potential FX gains) and equity method income of ¥0.6B, partially offset by finance costs of ¥4.2B. Non-operating income represents approximately 1.5% of revenue, a relatively minor contribution indicating earnings are predominantly driven by core operations. The 0.66x operating CF to net income ratio signals earnings quality concerns, as accounts receivable expansion of ¥408.5B indicates significant revenue recognized but not yet collected in cash. This working capital deterioration suggests potential collection challenges or extended payment terms with customers, warranting closer scrutiny of revenue recognition policies and customer credit quality. The accrual component of earnings is elevated, as evidenced by the ¥224.8B increase in trade receivables absorbing substantial operating cash flow. While no material non-recurring items were disclosed, the sustainability of reported earnings depends critically on successful collection of outstanding receivables and restoration of healthier working capital dynamics.
Progress toward full-year guidance shows revenue at 75.5% (¥415.3B actual / ¥550.0B forecast), operating income at 75.6% (¥105.9B / ¥140.0B), and net income at 83.4% (¥69.7B / ¥83.6B) of full-year targets. With Q3 representing the nine-month period (75% of the fiscal year), revenue and operating income are tracking slightly above the linear pace, while net income achievement rate of 83.4% is ahead of schedule. This suggests the company maintains confidence in achieving full-year operating income growth of 3.6% and net income growth of 4.9% despite year-to-date profit declines. The implied Q4 requirements are revenue of ¥134.7B (32.4% of annual target in one quarter) and operating income of ¥34.1B, which would represent significant sequential improvement from the Q3 run rate. The forecast assumes recovery in profitability through cost control measures and potential acceleration of high-margin business in Q4. Annual dividend forecast of ¥23.00 per share remains unchanged, implying stable payout policy. Key assumptions underlying guidance achievement include stabilization of SG&A expense growth, successful collection of outstanding receivables to improve operating cash flow, and absence of goodwill impairment or other non-recurring charges. The gap between current profitability trends and full-year targets suggests Q4 will be a critical period for validating management's outlook.
Annual dividend forecast stands at ¥23.00 per share for FY2026, consisting of an interim dividend of ¥2.10 (already paid) and projected year-end dividend of ¥20.90. Based on forecasted EPS of ¥113.60, the dividend payout ratio calculates to approximately 20.2%, a conservative level that prioritizes earnings retention for growth investments. Actual dividends paid during the nine-month period totaled ¥14.5B. The company executed substantial share buybacks during the period, repurchasing ¥44.9B of its own shares, representing an aggressive capital return policy. Combined shareholder returns (dividends plus buybacks) totaled approximately ¥59.4B, significantly exceeding free cash flow generation of ¥22.7B. The total return ratio (total returns divided by net income) calculates to approximately 85.2%, indicating the company is distributing the majority of earnings to shareholders when considering both dividends and buybacks. While the dividend-only payout ratio of 20.2% appears sustainable, the total capital allocation strategy of returning ¥59.4B against ¥22.7B of FCF required drawing on existing cash reserves. This aggressive return posture reflects management confidence in future cash generation and balance sheet strength, though sustainability of this total return level depends on working capital improvement and restoration of operating cash flow conversion closer to net income levels.
Extended accounts receivable collection cycle represents the most immediate risk, with DSO reaching approximately 359 days and receivables balance expanding ¥230.9B year-over-year to ¥408.5B. This significantly exceeds industry norms and indicates either extended payment terms on large projects, customer payment difficulties, or revenue recognition timing issues. Failure to collect these receivables would impair cash flow generation, strain liquidity, and potentially require reserve provisions that would reduce earnings. Quantitatively, if 10% of receivables proved uncollectible, it would require ¥40.9B in provisions, eliminating 58.7% of current net income. Elevated goodwill balance of ¥292.9B representing 53.1% of total equity creates substantial impairment risk. The company's M&A-driven growth strategy has accumulated significant goodwill that requires annual impairment testing. If acquired businesses underperform expectations or market conditions deteriorate, impairment charges could materially erode equity. A 20% impairment would reduce equity by ¥58.6B or 10.6%. Concentration of 100% of debt (¥59.4B) in short-term maturities creates refinancing risk, particularly if credit markets tighten or the company's credit profile deteriorates due to ongoing working capital challenges. While the absolute debt level is manageable, the need to refinance the entire amount within 12 months introduces execution risk and potential exposure to higher interest rates.
[Industry Position] (Reference - Proprietary Analysis)
Change Holdings operates in the IT and telecommunications sector, where FY2025-Q3 industry benchmarks provide context for evaluating relative performance. Profitability metrics show ROE of 12.6% exceeding the industry median of 8.3% (Q3 2025, n=104), positioning the company in the upper quartile for shareholder return generation despite recent margin pressures. Operating margin of 25.5% substantially outperforms the industry median of 8.2% (IQR: 3.6%-18.0%), confirming a competitive advantage in operational efficiency and pricing power. Net profit margin of 16.8% similarly exceeds the industry median of 6.0% (IQR: 2.2%-12.7%), reflecting superior bottom-line conversion. However, financial health metrics reveal areas of concern relative to peers. Equity ratio of 37.4% trails the industry median of 59.2% (IQR: 42.5%-72.7%), indicating higher leverage and lower financial cushion than typical sector participants. Asset turnover of 0.329 significantly underperforms the industry median of 0.67 (IQR: 0.49-0.93), driven by elevated goodwill and accounts receivable balances that reduce asset productivity. The company's receivables turnover of approximately 359 days dramatically exceeds the industry median of 61.25 days (IQR: 45.96-82.69 days), representing a critical outlier requiring immediate management attention. Revenue growth of 18.9% substantially outpaces the industry median of 10.4% (IQR: -1.2%-19.6%), demonstrating strong market share gains or successful M&A execution. Operating cash conversion ratio of 0.66 falls below the industry median of 1.31 (IQR: 0.82-1.99), confirming that earnings quality lags peer standards. Overall, Change Holdings exhibits superior profitability but faces financial health and working capital efficiency challenges relative to industry norms.
(Industry: IT and Telecommunications, N=104 companies, Period: FY2025-Q3, Source: Proprietary analysis)
Revenue momentum of 18.9% growth driven by organic expansion and M&A execution demonstrates the company's ability to capture market opportunities and successfully integrate acquisitions, though this growth has come at the expense of near-term profitability with operating margin contracting 11.8 percentage points year-over-year. Working capital management has emerged as the critical operational issue, with accounts receivable collection cycles extending to 359 days and absorbing ¥224.8B of operating cash flow during the nine-month period, creating an urgent need for management to implement enhanced credit controls, accelerate billing cycles, or renegotiate payment terms with major customers to restore healthy cash conversion. The company's aggressive shareholder return policy of distributing ¥59.4B (85.2% of net income) through dividends and buybacks reflects management confidence but exceeds free cash flow generation by ¥36.7B, requiring cash reserve utilization that is sustainable in the near term given the ¥255.2B cash balance but cannot continue indefinitely without improved operating cash flow. Goodwill accumulation to 53.1% of equity from M&A activity creates binary risk where successful integration and performance of acquired businesses validates the investment strategy, while underperformance could trigger material impairments that would significantly impact reported earnings and equity. The divergence between current nine-month profitability trends (operating income -18.8%) and full-year guidance (operating income +3.6%) implies management expects substantial Q4 improvement through cost control and revenue acceleration, making Q4 results a critical validation point for the company's ability to restore profitable growth momentum.
This report was automatically generated by AI analyzing XBRL earnings data as an earnings analysis tool. This is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled from publicly available earnings data. Please make investment decisions at your own responsibility and consult professionals as needed.