NS Group (471A) FY2026 Q1 Earnings Report

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Executive Summary

FY2026 Q1 delivered revenue of ¥79.4B (YoY +¥8.9B +12.6%), Operating Income of ¥29.6B (YoY +¥4.7B +18.7%), Ordinary Income of ¥28.1B (YoY +¥4.5B +19.2%), and Net Income of ¥19.6B (YoY +¥4.3B +28.3%), achieving year-over-year increases across all profit measures. Expansion of the customer base in the single segment (Rent Guarantee Business) drove revenue growth. Operating margin improved to 37.2% from 35.3% in the prior-year period (+1.9pt), as expense control and scale benefits enhanced profitability. Net margin rose to 24.7% from 21.7% (+3.0pt), indicating operating leverage flowed through to the net income line.

Drivers of Performance

[Revenue] Revenue of ¥79.4B was up ¥8.9B (+12.6%) year-over-year. The increase was mainly driven by higher contract volumes and recurring contracts in the single segment (Rent Guarantee Business). The company operates a business model specialized in rent guarantee services; stable tenant demand and share gains in the rental market supported sales growth. Regional and segment breakdowns are not disclosed, but given the single-segment portfolio, the revenue increase can be attributed primarily to net additions to guarantee contracts.

[Profitability] Operating expenses were ¥50.9B (vs ¥46.9B in the prior-year period, +¥4.0B +8.5%), rising at a lower rate than revenue (+12.6%), resulting in an operating expense ratio improvement to 64.1% from 64.7% (‑0.6pt). Consequently, Operating Income was ¥29.6B (+18.7%), with an Operating Margin of 37.2% (vs 35.3% prior year, +1.9pt), driven by fixed-cost absorption and credit management optimization. Finance costs were minor at ¥1.4B (¥1.3B prior year), leading to Ordinary Income of ¥28.1B (+19.2%). Other income totaled ¥1.1B and other expenses ¥0.0B, indicating limited effect from non-operating items; main driver of profit growth was operating leverage. After deducting income taxes of ¥8.5B (¥8.3B prior year), Net Income reached ¥19.6B (+28.3%), with Net Margin improving to 24.7% (vs 21.7% prior year, +3.0pt). No special profits or losses were disclosed; divergence between Ordinary Income and Net Income is explainable by taxes only, and there is no indication of one-off profit inflation. In conclusion, the company achieved quality profit growth—higher revenue and profits driven by operating leverage and cost discipline.

Key Financial Metrics

[Profitability] Operating Margin of 37.2% improved by 1.9pt from 35.3% in the prior-year period, confirming lower expense ratios and emergence of scale benefits. Net Margin of 24.7% (vs 21.7% prior year, +3.0pt) reflects the improvement in Operating Margin and only a limited increase in finance costs (¥1.4B, 1.8% of revenue). ROE stood at 6.8%; despite the substantial Net Margin improvement, low total asset turnover (0.106x, with Goodwill of ¥360.4B included) and a heavy asset base are constraining capital efficiency.

[Cash Quality] Cash and cash equivalents were ¥148.2B compared with ¥159.8B at the prior-year period end (down ¥11.6B). Seasonally, Q1 cash outflows related to corporate tax payments (accrued corporate taxes decreased from ¥25.6B to ¥10.3B) reduced cash, but working capital levels are broadly stable. Accounts receivable were ¥121.2B (vs ¥117.8B prior year, +¥3.4B); although collection periods continue to lengthen, this remains within the credit management scope of the guarantee business.

[Investment Efficiency] Total asset turnover was 0.106x (annualized 0.42x). Goodwill of ¥360.4B (47.9% of total assets) and intangible assets of ¥74.3B account for approximately 57.8% of total assets of ¥752.1B, explaining the low asset turnover and making short-term improvement unlikely. Fixed asset ratio is high at 61.6%; tangible fixed assets are limited at ¥13.3B. While goodwill and intangibles have no amortization burden under applicable accounting, sensitivity to impairment risk is elevated.

[Financial Soundness] Equity Ratio was 38.6%, up 0.7pt from 37.9% at the prior-year period end, and Net Assets were ¥290.2B (vs ¥288.8B prior-year period end, +¥1.4B). Interest-bearing debt totaled ¥258.7B (short-term borrowings ¥9.6B, long-term borrowings ¥249.1B), resulting in a D/E ratio of 0.89x (flat vs 0.90x prior-year period end). Interest coverage is approximately 20.4x (Operating Income ¥29.6B ÷ Finance Costs ¥1.4B), remaining high and indicating strong resilience to rising interest rates. Current Ratio was 154.6% (Current Assets ¥289.1B ÷ Current Liabilities ¥186.9B), showing no short-term liquidity concerns.

Cash Flow Analysis

A cash flow statement was not disclosed; funding trends are analyzed from balance sheet movements. Cash and cash equivalents were ¥148.2B (vs ¥159.8B prior-year period end, down ¥11.6B). This decrease is primarily attributable to corporate tax payments at the prior fiscal year end, as accrued corporate taxes fell from ¥25.6B to ¥10.3B (a ¥15.3B decrease). Accounts receivable rose to ¥121.2B (vs ¥117.8B prior-year period end, +¥3.4B), reflecting working capital increases associated with revenue growth. Interest-bearing debt remained stable at ¥258.7B, indicating no new borrowing financing. Retained earnings were ¥208.0B (vs ¥206.6B prior-year period end, +¥1.4B), with internal reserves growing due to Net Income of ¥19.6B; however, the increase was limited by dividend payouts (estimated dividend outflow approximately ¥120B based on prior-year dividend of ¥230.08 per share). Overall, cash generation from operating activities is stable and short-term liquidity risk is assessed as low.

Quality of Earnings

Operating Income of ¥29.6B constitutes the majority of Ordinary Income of ¥28.1B. Non-operating income totaled ¥1.1B (financial income ¥0.0B, other income ¥1.1B), representing 1.4% of revenue, and non-operating expenses were finance costs ¥1.4B and other expenses ¥0.0B. The increase in finance costs was marginal (+¥0.1B from ¥1.3B prior year). Earnings quality is therefore attributable to core operations. The reduction from Ordinary Income ¥28.1B to Net Income ¥19.6B is mainly due to income taxes of ¥8.5B; no special gains or losses were disclosed, so there is no evidence of one-off profit inflation. Comprehensive income of ¥19.6B equals Net Income, with other comprehensive income at zero, indicating no divergence from unrecognized gains/losses. The accounts receivable increase of ¥3.4B is within the natural rise from revenue growth and shows no abnormal accrual buildup. Earnings quality is high, indicating a sustainable profit structure.

Forecasts & Guidance

Full Year guidance anticipates Revenue ¥330.7B (YoY +10.9%), Operating Income ¥119.0B (YoY +20.5%), and Net Income ¥79.0B (YoY +24.9%). Q1 progress rates versus full-year guidance are: Revenue 24.0% (¥79.4B ÷ ¥330.7B), Operating Income 24.8% (¥29.6B ÷ ¥119.0B), and Net Income 24.9% (¥19.6B ÷ ¥79.0B), roughly consistent with a standard quarterly pace (25% per quarter), indicating on-track progress toward full-year targets. Full-year Operating Margin is forecast at 36.0% (¥119.0B ÷ ¥330.7B), below Q1’s 37.2%, likely reflecting conservative assumptions for higher costs and seasonality in the second half. Forecast EPS is ¥151.46, and forecast dividend is ¥38.00. The payout ratio relative to full-year Net Income of ¥79.0B is 25.1% (¥38.00 × 52,156 thousand shares ÷ ¥79.0B), a sustainable level. There were no revisions to performance forecasts or dividend forecasts at Q1; company plans remain unchanged.

Shareholder Returns

Dividend guidance is ¥38.00 for the full year, reflecting the 1-for-2 stock split effective October 11, 2025. Based on Q1 Net Income ¥19.6B and full-year Net Income guidance ¥79.0B, the annual dividend outflow is approximately ¥19.8B (¥38.00 × 52,156 thousand shares), and the full-year payout ratio is 25.1%, a conservative level. Prior-year actual dividend was ¥230.08 (pre-split), which converts to ¥115.04 post-split; the current guidance of ¥38.00 appears lower, but this may reflect a change in disclosure method from quarterly to annual presentation or differences between interim and year-end dividend aggregation rather than an actual policy shift. There is no share buyback disclosed; shareholder returns consist only of dividends. Given ROE of 6.8% and Equity Ratio of 38.6%, a payout ratio of 25.1% is assessed as a policy aiming to retain internal reserves for growth investment while maintaining stable dividends. With cash at ¥148.2B and Operating Income at ¥29.6B, dividend sustainability is high.

Risk Factors

1. Business Concentration Risk: The company is 100% dependent on a single segment (Rent Guarantee Business). Contraction of the rental market, intensified competition, or delinquency rates exceeding assumptions could directly damage earnings. Revenue of ¥79.4B and Operating Income of ¥29.6B are entirely derived from this business, and lack of diversification increases volatility.

2. Goodwill Impairment Risk: Goodwill of ¥360.4B equals 124.2% of Net Assets of ¥290.2B. Under IFRS, goodwill is not amortized, but if future impairment tests show business value below assumptions, a substantial one-off impairment could materially erode Net Assets and sharply reduce the Equity Ratio of 38.6%.

3. Working Capital & Collection Risk: Accounts receivable of ¥121.2B equate to roughly 139 days relative to annualized revenue of ¥317.6B, indicating extended collection periods. If accounts receivable growth outpaces revenue growth, cash conversion could worsen and strain liquidity.

Industry Benchmark (Reference — Company Estimates)

Profitability & Returns

Due to insufficient industry benchmark data, relative positioning is difficult to assess, but Operating Margin of 37.2% and Net Margin of 24.7% are presumed to be high.

Growth & Capital Efficiency

Revenue growth of 12.6% maintains double-digit growth, consistent with market expansion in the guarantee business and share gains.

※ Source: Company aggregation

Earnings Highlights / Items to Watch

1. High-profitability structure and realization of operating leverage: Operating Margin 37.2% and Net Margin 24.7% improved by 1.9pt and 3.0pt respectively from the prior year, confirming a structure in which expenses grow more slowly than sales. With Revenue growth +12.6%, Operating Income growth +18.7%, and Net Income growth +28.3%, operating leverage is flowing through to Net Income; sustaining scale benefits and cost control will be key to maintaining profitability.

2. Structural constraints on capital efficiency and reliance on goodwill: ROE of 6.8% remains suppressed despite Net Margin improvement, due to low Total Asset Turnover of 0.106x and heavy asset composition including Goodwill ¥360.4B (47.9% of total assets, 124.2% of Net Assets). Under IFRS, goodwill is not amortized, but future impairment tests could materially reduce Net Assets if business value underperforms assumptions. Improving capital efficiency will require sustained revenue growth and higher asset turnover, or disposal/review of low-return assets.

3. Financial soundness and dividend sustainability: Equity Ratio 38.6%, D/E 0.89x, and Interest Coverage approx. 20.4x indicate a stable financial position; cash of ¥148.2B substantially exceeds short-term borrowings of ¥9.6B. Payout Ratio 25.1% is conservative and balances internal reserve accumulation for growth with stable dividends. However, the pace of increase in accounts receivable and lengthening collection periods warrant monitoring as a working capital risk.

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This report was automatically generated by AI analyzing XBRL financial statement data. It is not a recommendation to invest in any specific security. Industry benchmark data are reference information aggregated by the company from public financial statements. Investment decisions are your responsibility; consult advisors as needed before making investment decisions.

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AI Financial Analysis

Executive Summary

FY2026 Q1 was a strong start, with revenue, operating income and net income all growing faster than the company’s full-year plan implies. Revenue increased 12.6% year on year to ¥7.94bn. Operating income rose 18.7% to ¥2.96bn. Net income attributable to owners increased 28.3% to ¥1.97bn. The operating margin expanded by 191bp year on year to 37.2% from 35.3%. The net margin expanded by 301bp to 24.7% from 21.7%. Operating expenses rose 8.5%, materially slower than revenue growth, demonstrating favorable operating leverage. Pre-tax profit increased 19.2% to ¥2.81bn despite finance costs rising 11.5% to ¥145m. The effective tax rate declined to 30.2% from approximately 35.1% a year earlier, contributing to net-income growth outpacing operating-income growth. The annualized ROE was 27.1%, supported by high profitability and financial leverage. The annualized ROA was approximately 10.4%, indicating that the profit model generates strong returns on the asset base. Q1 revenue represented 24.0% of the full-year forecast, while operating income represented 24.8% and net income 24.9%. These progress rates are broadly in line with the standard 25% Q1 run rate. The balance sheet remains materially shaped by acquisition-related goodwill of ¥36.04bn, equal to 124.2% of equity and 47.9% of total assets. Cash of ¥14.82bn covers reported short-term borrowings of ¥0.96bn by 15.4x, although the ¥11.48bn current financial-guarantee-contract liability requires continued liquidity monitoring. The principal forward implication is that the company is executing above the margin level embedded in its full-year forecast, but the durability of returns depends on maintaining collection discipline and preserving the value of its large goodwill balance.

Profitability Analysis

The annualized DuPont ROE is 27.1%, decomposed into a 24.7% net profit margin, 0.422x asset turnover and 2.59x financial leverage. The largest driver of the strong ROE is the exceptionally high net margin, while leverage also materially amplifies equity returns. Revenue growth of 12.6% combined with operating-expense growth of 8.5% produced operating leverage and lifted the operating margin to 37.2%. This margin is well above the 15% benchmark generally considered excellent. The net margin improved more than the operating margin because the effective tax rate fell to 30.2% and tax expense increased only 2.4%, compared with a 19.2% increase in profit before tax. The interest burden was 0.952, indicating that finance costs had only a limited effect on pre-tax earnings. EBIT interest coverage was approximately 20.4x, calculated as ¥2.96bn of EBIT divided by ¥145m of finance costs, which is strong. The tax burden was 0.698, slightly below the 0.70 normal-reference level but not indicative of an excessive tax drag. Asset turnover of 0.422x is moderate for a balance sheet containing substantial goodwill and intangible assets. Financial leverage of 2.59x is meaningful but remains below the level usually associated with an aggressive debt-to-equity profile. Profitability is therefore operationally strong, but the reported ROE should not be viewed solely as an underlying operating return because leverage and intangible-heavy assets both influence it.

Growth Assessment

The Q1 growth profile was favorable: revenue increased ¥0.89bn year on year, operating income increased ¥0.47bn, and net income increased ¥0.43bn. Operating-income growth exceeded revenue growth by 6.1 percentage points, confirming positive operating leverage. The revenue base is derived from a single reportable business, rent-guarantee services and related operations, making group growth dependent on sustained expansion and performance within that core activity. The FY2026 plan calls for revenue growth of 10.9%, operating-income growth of 20.5%, and net-income growth of 24.9%. Q1 performance is closely aligned with these targets: revenue progress is 24.0%, operating-income progress is 24.8%, and net-income progress is 24.9%, versus a standard Q1 progress rate of 25%. The Q1 operating margin of 37.2% is 124bp above the approximately 36.0% margin implied by the full-year operating-income forecast, providing a modest margin cushion if current efficiency is sustained. Other income declined from ¥133m to ¥105m, so the operating-profit improvement was not dependent on a rise in this item. Finance costs increased from ¥130m to ¥145m, creating a modest headwind below operating profit. Net-income outperformance versus operating-income growth was partly assisted by the lower effective tax rate, so this portion of the earnings acceleration may not recur at the same rate. The absence of segment diversification increases sensitivity to demand conditions, credit outcomes and competitive pricing within the rent-guarantee market.

Financial Health

Liquidity is sound based on reported balance-sheet amounts. Current assets of ¥28.91bn exceeded current liabilities of ¥18.70bn, implying a current ratio of approximately 1.55x, above the 1.0x warning threshold. Cash and cash equivalents were ¥14.82bn. Cash covered reported short-term borrowings of ¥0.96bn by approximately 15.4x. Cash also exceeded short-term borrowings plus current lease liabilities of ¥1.43bn by more than 10x. The liquidity-stress alert based on a cash-to-short-term-debt ratio of 0.00x should be interpreted alongside the reported balance-sheet figures: reported cash is substantial relative to disclosed short-term borrowings, while current financial-guarantee-contract liabilities of ¥11.48bn are the more material short-dated obligation. Cash alone covered short-term borrowings plus those guarantee-contract liabilities by approximately 1.19x. Total interest-bearing debt was ¥25.87bn, consisting primarily of ¥24.91bn of long-term loans, and the short-term debt ratio was only 3.7%. This long-term maturity profile limits immediate refinancing pressure. Debt-to-equity was 1.59x, below the 2.0x level that would require an explicit high-leverage warning, but it remains material. Debt-to-capital was 47.1%, above the 40% investment-grade reference point but below the 60% concern threshold. Equity increased ¥0.14bn sequentially to ¥29.02bn, and the equity ratio improved to 38.6% from 37.9%. The principal solvency issue is not near-term debt maturity but the concentration of assets in goodwill, which reduces tangible equity protection for creditors.

Notable B/S Changes

Cash and cash equivalents: -¥1.16bn (-7.3%) sequentially to ¥14.82bn - liquidity remains adequate, but the reduction should be assessed alongside receivable collections and guarantee-related obligations. Income taxes payable: -¥1.53bn (-59.8%) sequentially to ¥1.03bn - a significant reduction in current liabilities that contributed to the lower liability balance. Current financial-guarantee-contract liabilities: +¥0.61bn (+5.6%) sequentially to ¥11.48bn - a large current operating obligation requiring monitoring against cash resources, collections and guarantee-loss trends. Trade receivables: +¥0.34bn (+2.9%) sequentially to ¥12.12bn - receivables remain material and, together with approximately 139 annualized DSO, elevate collection and working-capital sensitivity. Goodwill: unchanged at ¥36.04bn, equal to 124.2% of equity - stable in the quarter, but its scale makes impairment avoidance central to capital preservation.

Cash Flow Quality

Cash flow from operations and free cash flow were not provided, so cash conversion, operating-cash-flow-to-net-income coverage and free-cash-flow coverage cannot be quantified. Balance-sheet movements nevertheless point to areas requiring monitoring. Cash and cash equivalents declined by ¥1.16bn sequentially to ¥14.82bn. Trade receivables increased by ¥0.34bn, or 2.9%, to ¥12.12bn, while revenue was strong. Annualized days sales outstanding were approximately 139 days, matching the high-receivable-days quality alert and substantially exceeding the 60-day reference level. For a rent-guarantee business, the collection profile and settlement timing can differ from conventional product sales, but the receivables balance remains material at 16.1% of total assets and warrants close attention. High DSO can tie up liquidity, raise funding needs and increase exposure to collection losses if credit conditions weaken. Income taxes payable declined by ¥1.53bn sequentially to ¥1.03bn, which was a major source of the reduction in current liabilities. Current financial-guarantee-contract liabilities increased by ¥0.61bn to ¥11.48bn and should be monitored alongside receivables and cash, as these balances reflect the operating and credit-risk structure of the business. There is no disclosed evidence in the provided figures of unusual non-operating gains driving earnings: other income was only ¥105m, equivalent to 1.3% of revenue.

Dividend Sustainability

The FY2026 forecast dividend is ¥76.00 per share. Against forecast EPS of ¥151.46, the implied dividend payout ratio is approximately 50.2%. This is below the 60% sustainability reference level and leaves a meaningful portion of forecast earnings available for debt service, liquidity and capital accumulation. Forecast net income of ¥7.90bn would imply aggregate dividends of approximately ¥3.96bn using 52.16 million shares, subject to changes in share count. The planned dividend is therefore covered by forecast accounting earnings by approximately 2.0x. Balance-sheet leverage and the large goodwill position make retention of a meaningful share of earnings important, even though the stated payout level appears moderate. The dividend outlook will depend particularly on the conversion of earnings into operating cash flow, receivable collections and the absence of credit-related losses in the guarantee portfolio.

Risk Assessment

Business risks include Rent-guarantee credit risk: the core business is exposed to tenant defaults, collection performance and loss outcomes associated with guaranteed obligations., Receivables and collection risk: annualized DSO of approximately 139 days is above the 60-day reference level; slower collection can constrain liquidity and may precede higher credit costs., Single-business concentration: the group has one reportable segment, so weaker demand, pricing pressure or regulatory changes in rent-guarantee services would directly affect consolidated earnings., Competition and pricing risk: maintaining a 37.2% operating margin may become more difficult if competitors seek market share through lower guarantee fees or more favorable terms., Goodwill impairment risk: goodwill of ¥36.04bn represents 124.2% of equity, so a deterioration in acquired-business cash-flow expectations could result in a material impairment charge under IFRS..

Financial risks include The goodwill-risk alert is material: goodwill equals 47.9% of assets and exceeds equity, leaving reported capital highly dependent on the retention of acquired-business value., Debt-to-equity of 1.59x and debt-to-capital of 47.1% indicate meaningful reliance on debt financing, even though the debt profile is predominantly long term., Finance costs increased 11.5% year on year to ¥145m; interest coverage remains strong at approximately 20.4x, but higher funding rates could erode below-operating-profit earnings over time., Current financial-guarantee-contract liabilities of ¥11.48bn are substantial relative to cash and should be assessed together with collection trends and any calls under guarantee arrangements..

Key concerns include Highest priority: preservation of goodwill value, given goodwill-to-equity of 124.2% and the potentially severe equity impact of any impairment., High priority: receivables discipline and guarantee-loss experience, because a 139-day annualized DSO signals significant working-capital and credit-risk exposure., Moderate priority: sustaining the Q1 margin improvement, since net-income growth was assisted by a lower effective tax rate in addition to operational leverage., Moderate priority: refinancing and interest-rate exposure on ¥24.91bn of long-term borrowings, notwithstanding the currently strong interest-coverage ratio..

Investment Implications

Key takeaways include Revenue grew 12.6%, while operating income grew 18.7%, demonstrating favorable operating leverage., The operating margin expanded 191bp to 37.2%, and the net margin expanded 301bp to 24.7%., Q1 progress against the FY2026 forecast was broadly normal, at 24.0% for revenue, 24.8% for operating income and 24.9% for net income., Annualized ROE of 27.1% is strong, but is supported by both high margins and 2.59x financial leverage., The capital structure is the central balance-sheet consideration: goodwill is ¥36.04bn, equal to 124.2% of equity, while interest-bearing debt is ¥25.87bn., The FY2026 planned dividend implies a 50.2% forecast payout ratio, which appears moderate relative to forecast earnings..

Metrics to watch include Trade receivables, annualized DSO and guarantee-related collection performance, Goodwill impairment testing assumptions and acquired-business cash-flow performance, Operating margin versus the 36.0% margin implied by the FY2026 forecast, Finance costs, long-term debt refinancing terms and interest coverage, Cash balance relative to current financial-guarantee-contract liabilities, Operating cash flow and free cash flow relative to net income and forecast dividends.

Regarding relative positioning, The company exhibits profitability metrics that are strong by general corporate benchmarks, including a 37.2% operating margin, 24.7% net margin and 27.1% annualized ROE. Relative to a conservatively capitalized service company, however, its balance sheet is more acquisition- and debt-dependent because goodwill exceeds equity and long-term loans are substantial. The resulting profile combines high earnings efficiency with elevated sensitivity to goodwill valuation, collection performance and credit outcomes in the rent-guarantee business.