JAPAN RELIANCE SERVICE (4664) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative Q3 results showed declines in both revenue and earnings, with the deterioration in profitability directly resulting in a sharp decrease in operating income being the key takeaway. Revenue was ¥59.5B (-13.0% YoY), operating income was ¥1.2B (-54.7%), ordinary income was ¥1.3B (-51.2%), and net income was ¥0.7B (-56.4%). While the core Comprehensive Building Management Services Business remained resilient, a sharp decline in profitability in the Human Resources Services Business weighed down overall results. In addition, the high effective tax rate further pressured net income.

Factors Affecting Performance

【Revenue】Revenue was ¥59.5B, representing a 13.0% YoY decline. By segment, the Comprehensive Building Management Services Business generated ¥54.8B (92.0% of total revenue), an increase from ¥50.7B in the previous year, driven by an increase in temporary contracts. Meanwhile, the Human Resources Services Business generated ¥4.8B (8.0% of total revenue), a substantial decrease from ¥17.8B in the previous year, making it the primary cause of the company-wide revenue decline.

【Profit and Loss】Operating income declined sharply to ¥1.2B (-54.7% YoY), and the operating margin remained at 1.9%. The gross margin was 17.8%, showing a downward trend from the previous year (16.9%; it should be noted that the previous year’s figure was lower), while SG&A expenses remained high at ¥9.4B despite the decline in revenue. Segment income was ¥4.6B for the Comprehensive Building Management Services Business (slightly down from ¥4.8B in the previous year) and ¥0.1B for the Human Resources Services Business (a substantial decrease from ¥1.2B in the previous year), while company-wide expense adjustments amounted to negative ¥3.5B. Ordinary income was ¥1.3B (-51.2%), and net income was ¥0.7B (-56.4%). Corporate income taxes and other taxes of ¥0.5B were imposed on pre-tax income of ¥1.3B, resulting in a high effective tax rate of approximately 42.8%. The company is in a pattern of declining revenue and earnings, with the heavy tax burden further exacerbating the pressure on net income.

Segment Analysis

The Comprehensive Building Management Services Business recorded revenue of ¥54.8B (an increase from ¥50.7B in the previous year) and segment income of ¥4.6B (slightly down from ¥4.8B in the previous year), indicating a slight decline in profitability despite higher revenue. The Human Resources Services Business recorded revenue of ¥4.8B (a substantial decrease from ¥17.8B in the previous year) and segment income of ¥0.1B (a substantial decrease from ¥1.2B in the previous year), highlighting the significant contraction of the business. The company-wide declines in revenue and earnings were primarily caused by the sharp decline in the Human Resources Services Business. The increase in revenue dependence on the Comprehensive Building Management Services Business to 92.0% indicates a structural change in the business mix.

Key Financial Metrics

【Profitability】The operating margin was 1.9% and the net profit margin was 1.2%, both deteriorating from the previous year. The gross margin remained at 17.8%, leaving only a narrow gap with the SG&A expense ratio of 15.9% and creating a structure in which operating leverage is likely to pressure earnings.【Cash Flow Quality】Although operating cash flow (OCF) has not been disclosed, cash and deposits amounted to ¥16.9B, accounting for 40.5% of total assets, indicating ample liquidity on hand. Accounts receivable amounted to ¥10.9B, suggesting a lengthy collection cycle relative to the scale of revenue.【Investment Efficiency】Annualized ROE was 4.2%. While the total asset turnover ratio remained at approximately 1.42x, indicating that asset efficiency itself has been maintained, the decline in net profit margin has pushed down ROE.【Financial Soundness】The equity ratio was 55.6% (up from 52.4% in the previous year), indicating a high level of financial soundness. Long-term borrowings declined by approximately 45% YoY to ¥0.9B, while short-term borrowings increased, resulting in a shorter-term liability structure.

Cash Flow Analysis

Although the statement of cash flows has not been disclosed, funding trends can be inferred from movements in the balance sheet. Cash and deposits were ¥16.9B, slightly down from ¥17.7B in the previous year, but still accounted for more than 40% of total assets, indicating ample liquidity. In the borrowing structure, long-term borrowings decreased YoY while short-term borrowings increased, indicating a shift toward shorter-term funding. Current assets were ¥29.1B versus current liabilities of ¥11.9B, resulting in a current ratio of more than 244% and ample near-term payment capacity. However, the increasing dependence on short-term funding is a point requiring attention in liquidity management.

Quality of Earnings

No significant one-time factors were identified in recurring operating income and expenses. Non-operating income and expenses were also limited to minor items such as dividends received, resulting in a limited impact on earnings. Meanwhile, the effective tax rate was approximately 42.8%, with corporate income taxes and other taxes of ¥54.6 million recorded against pre-tax income of ¥127.7 million. The resulting heavy tax burden materially pressured net income and is an important consideration in evaluating earnings quality. Comprehensive income was ¥0.9B, slightly exceeding net income of ¥0.7B. The increase in the valuation difference on securities was the primary reason for this difference and represents an OCI factor separate from the earnings power of the underlying business. Although accounts receivable remained almost flat from the previous year, the decline in revenue suggests a relative lengthening of the collection period, warranting monitoring from an accrual perspective.

Earnings Forecast and Guidance

The company forecasts full-year revenue of ¥83.0B (-6.2% YoY), operating income of ¥3.0B (-0.3%), and ordinary income of ¥3.0B (-3.3%). Compared with cumulative Q3 revenue of ¥59.5B and operating income of ¥1.2B, progress toward the full-year plan was only 71.7% for revenue and 38.7% for operating income. This means that approximately ¥23.5B in revenue and approximately ¥1.8B in operating income must be generated in the second half. Given the earnings level through the first half, improvement in profitability during the second half is a prerequisite for achieving the full-year plan.

Shareholder Returns

The company plans an interim dividend of ¥7.00, an estimated year-end dividend of ¥17.00, and a full-year dividend of ¥24.00, representing an increase from the previous year’s annual dividend (including the interim dividend of ¥7). Based on net income of ¥0.7B, the payout ratio calculated from the estimated total annual dividend (based on the number of shares outstanding) is above 100%, indicating that current-period earnings alone are insufficient to fully cover the dividend. Given cash and deposits of ¥16.9B, near-term dividend payments are unlikely to pose a problem. However, the sustainability of the dividend policy will require monitoring if earnings do not recover.

Risk Factors

1. Business mix change risk: Revenue from the Human Resources Services Business fell sharply from ¥17.8B in the previous year to ¥4.8B, while segment income declined from ¥1.2B to ¥0.1B. Revenue dependence on the Comprehensive Building Management Services Business has risen to 92.0%, increasing concentration in a single business.

2. Profitability and tax burden risk: The gross margin of 17.8% and operating margin of 1.9% are both low, while the effective tax rate is high at approximately 42.8%. The heavy tax burden relative to pre-tax income creates a structure that significantly pressures net income.

3. Shortening of funding maturities risk: While long-term borrowings have declined YoY, short-term borrowings have increased, resulting in a shorter-term liability structure. The current ratio exceeds 244%, securing near-term payment capacity; however, changes in the maturity structure should be monitored.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Return

Both the operating margin and net profit margin are substantially below the industry median, placing profitability toward the lower end of the industry.

Growth and Capital Efficiency

The revenue growth rate is substantially below the industry median, placing the company among the group with the largest revenue declines in the industry.

※Source: Company analysis

Key Points from the Financial Results

1. The primary cause of the declines in revenue and earnings was the sharp decline in the Human Resources Services Business, resulting in a further increase in dependence on the Comprehensive Building Management Services Business for revenue and profit. The increasing concentration of the business portfolio is a key point to monitor in future performance analysis.

2. Cumulative Q3 progress toward the full-year plan was 71.7% for revenue and 38.7% for operating income. Whether profitability improves in the second half will be the determining factor in achieving the full-year plan.

3. The full-year dividend plan of ¥24.00 represents a payout ratio exceeding 100% relative to current-period net income. Although cash on hand is ample, the recovery of earnings will be the key factor in assessing the sustainability of the dividend policy.

Theoretical Share Price (Reference Value)

Sensitivity: ¥721–¥762 at cost of equity ±1%; ¥740–¥741 at ω±0.1.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• 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: 2026-07 / 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, nor does it 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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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