JOHNAN ACADEMIC PREPARATORY INSTITUTE (4720) FY2026 Q3

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Executive Summary

The key point for the cumulative Q3 period was the turnaround in operating results, from a ¥0.2B loss in the same period of the previous year to a ¥1.7B profit. Revenue remained virtually flat at ¥43.5B (+0.7% YoY), but Operating Income turned positive at ¥1.7B (versus ¥-0.2B in the same period of the previous year), Ordinary Income also reached ¥1.7B (same comparison), and Net Income reached ¥1.6B (versus ¥-1.4B in the same period of the previous year), with all three measures turning profitable. Against low revenue growth, operating leverage from improved gross margins and reductions in selling, general and administrative expenses was the primary driver of the earnings recovery.

Factors Affecting Financial Results

【Revenue】Revenue was ¥43.5B, representing limited growth of +0.7% YoY. By segment, the Education Business generated ¥40.8B (93.6% of the total), while the Sports Business generated ¥2.8B (6.4%). Within Education, the video-based instruction division grew 11.4% and the individual tutoring franchise division grew 6.1%, while the directly operated individual tutoring division declined 14.1%, indicating that growth drivers are concentrated in certain divisions. The Sports Business recorded a 3.8% decline in revenue.

【Profit and Loss】Operating Income turned positive at ¥1.7B (versus ¥-0.2B in the same period of the previous year), and the Operating Income margin improved by 441bp to 4.0% (versus -0.5% in the same period of the previous year). The earnings structure improved on both the cost-of-sales and expense fronts, with the gross margin at 25.5% (same period of the previous year: +2.3pt) and the SG&A expense ratio at 21.5% (same period of the previous year: -2.1pt). The Education Business turned profitable, recording Operating Income of ¥1.3B (3.1% margin; loss in the same period of the previous year), while the Sports Business recorded Operating Income of ¥0.5B, down 22.2% YoY, and its margin declined to 16.4% (same period of the previous year: -3.9pt). Ordinary Income was ¥1.7B, broadly in line with Operating Income. Profit Before Tax was ¥2.3B, boosted by extraordinary income of ¥0.8B, including a ¥0.8B gain on the sale of investment securities, which exceeded extraordinary losses of ¥0.2B (impairment loss). Net Income was ¥1.6B, representing growth in revenue and earnings on an Operating Income, Ordinary Income, and Net Income basis. However, it should be noted that part of the earnings increase depended on a nonrecurring gain on sale.

Segment Analysis

The Education Business generated Revenue of ¥40.8B (93.6% of the total), Operating Income of ¥1.3B, and a 3.1% margin, turning profitable from an Operating Loss in the same period of the previous year (-¥0.79B, -2.0% margin). Although revenue itself was broadly flat, growth in the video-based instruction, franchise, and digital teaching materials divisions, as well as fixed-cost reductions, appear to have contributed. The Sports Business generated Revenue of ¥2.8B (6.4% of the total), Operating Income of ¥0.5B, and a 16.4% margin, making it the most profitable segment within the consolidated group. However, revenue declined 3.8% and Operating Income declined 22.2% YoY, and the deterioration in the earnings capacity of this high-margin business constrained further growth in consolidated earnings. In the Education Business, an impairment loss of ¥0.19B was recorded for an asset group that has continued to generate negative operating results.

Key Financial Indicators

【Profitability】The Operating Income margin improved significantly to 4.0% (same period of the previous year: -0.5%), while the Net Income margin improved to 3.8% (same period of the previous year: -3.2%). However, it remains below the 5% level generally regarded as a benchmark for the industry. 【Cash Quality】Cash and deposits were ¥15.4B, representing 31.7% of total assets. The advance-payment funding structure, including contract liabilities of ¥7.9B, supports working capital, while investment securities declined 77.4% from the previous year, consistent with the recognition of a gain on sale. 【Investment Efficiency】Annualized ROE was 14.1%, reflecting the combination of a 3.8% Net Income margin, total asset turnover, and financial leverage, with the contribution from leverage being relatively significant. 【Financial Soundness】The Equity Ratio was 31.9% (27.5% in the same period of the previous year), and the current ratio was 132.9%, exceeding current liabilities but slightly below the general benchmark of 150%. The company carries ¥6.0B in long-term borrowings and ¥4.4B in liabilities related to retirement benefits, leaving scope for continued monitoring of its liability structure.

Cash Flow Analysis

Although the cash flow statement is not disclosed separately, movements in funding can be inferred from changes in the balance sheet. Cash and deposits were ¥15.4B, down ¥0.5B from ¥16.0B in the same period of the previous year. Cash represented 31.7% of total assets, maintaining a high level, while the advance-revenue funding structure represented by ¥7.9B in contract liabilities supported working capital. Meanwhile, investment securities declined significantly from ¥1.4B to ¥0.3B, consistent with the conversion of assets into cash through sales and the recognition of extraordinary income. Retained earnings increased from ¥7.4B to ¥9.0B, and the accumulation of current-period earnings contributed to the recovery of shareholders’ equity.

Quality of Earnings

The improvement in earnings for the current period consisted of both an improvement in the earnings structure of the core business and nonrecurring factors, and these should be distinguished when evaluating earnings quality. The turnaround in Operating Income and Ordinary Income was supported by recurring factors, namely improved gross margins and reductions in SG&A expenses. Meanwhile, of Profit Before Tax of ¥2.3B, ¥0.55B represented the amount exceeding Operating Income, primarily due to extraordinary income centered on a ¥0.8B gain on the sale of investment securities. As Net Income of ¥1.6B includes a meaningful contribution from this nonrecurring gain, the high full-year progress rate (176.3% on a Net Income basis) should not be interpreted directly as evidence of high recurring earnings power. Comprehensive income was ¥1.15B, ¥0.49B below Net Income of ¥1.64B, and the deterioration in valuation differences on securities reduced other comprehensive income. This warrants attention as an indication of the impact of changes in the fair value of held assets on the financial position.

Earnings Forecasts and Guidance

Progress against the full-year company forecasts (Revenue of ¥59.0B, Operating Income of ¥1.5B, Ordinary Income of ¥1.4B, and Net Income of ¥0.9B) was 73.8% for Revenue (slightly below the standard progress rate of 75%), 115.4% for Operating Income, 121.3% for Ordinary Income, and 176.3% for Net Income. The earnings items have already exceeded their full-year forecasts. This outperformance was attributable to both improved profitability resulting from SG&A restraint and the nonrecurring gain on the sale of investment securities. As earnings have exceeded the plan despite revenue progress being slightly below the standard level, it will be useful to monitor future developments for consistency with the earnings structure underlying the full-year plan.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the company’s full-year dividend forecast is ¥7 per share. Based on the average number of shares outstanding during the period of 803.2万 shares, the forecast total dividend is approximately ¥0.56B, resulting in a Payout Ratio of approximately 60.5% against forecast full-year Net Income of ¥0.93B. This is a dividend Payout Ratio based solely on dividends and is not a Total Return Ratio including share repurchases. Cumulative Q3 Net Income has already reached ¥1.6B, exceeding the full-year forecast, but part of this amount was generated by the gain on the sale of investment securities. The stability of the funding source for dividends therefore depends on the sustainable level of core-business earnings.

Risk Factors

1. Structural risk in the Education Business: Revenue in the directly operated individual tutoring division declined 14.1% YoY, and restoring the utilization rate of locations amid a declining birthrate and intensifying competition remains a challenge. In the Education Business, an impairment loss of ¥0.19B was recorded for an asset group with continuing losses.

2. Financial leverage and asset retirement obligations: The D/E ratio was 2.13x, exceeding the general quality-alert threshold of 2.0x. Asset retirement obligations of ¥4.05B represented 12.3% of total liabilities, creating a risk of concentrated funding needs in connection with facility restructuring and departures. Interest coverage was 13.88x, ensuring sufficient capacity to meet interest payments for the time being.

3. Dependence on nonrecurring gains: Net Income and the high full-year progress rate include a ¥0.8B gain on the sale of investment securities, and earnings levels may fluctuate in subsequent periods due to the reversal of this temporary factor. In addition, the high-margin Sports Business recorded a 22.2% YoY decline in Operating Income, and if the decline in earnings capacity continues, an impact on consolidated earnings is expected.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Although the company achieved a return to profitability, profitability remained below the industry median.

Growth and Capital Efficiency

Revenue growth ranked low within the industry, and the earnings improvement depended on cost-structure improvements rather than growth.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Operating results turned profitable from a loss in the same period of the previous year, reaching ¥1.7B, while the Operating Income margin improved by 441bp to 4.0%. Improved gross margins and reductions in SG&A expenses were the primary factors.

2. Progress against the full-year Operating Income and Ordinary Income forecasts has already exceeded 100%, but the 176.3% progress rate for Net Income includes a ¥0.8B gain on the sale of investment securities and must be considered separately from recurring earnings power.

3. The stabilization of profitability in the Education Business and the declining earnings capacity of the Sports Business (16.4% Operating Income margin, -3.9pt YoY) are key points for evaluating the reproducibility of future earnings levels.

Theoretical Share Price (Reference Value)

Sensitivity: ¥167–¥176 at ±1% for the cost of equity, and ¥171–¥172 at ±0.1 for ω.

Notes:

• Because Net Income progress against the full-year forecast (176%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with leading progress tend to outperform their forecasts; adjustments may be excessive for businesses with strong seasonality).
• Because 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 from the full-year forecast).
• Because net assets include noncontrolling interests, the theoretical value may be calculated somewhat on the high side.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-08 / 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 a professional as necessary.

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