CAC Holdings (4725) FY2026 Q1 Earnings Report

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Executive Summary

FY2026 Q1 saw higher revenue but lower profit, with improved profitability in the core domestic business contrasting with deteriorating margins in the overseas business. Revenue was ¥135.8B (+2.8% YoY), while operating income was ¥8.6B (△8.9% YoY). Meanwhile, ordinary income increased significantly to ¥6.3B (+40.3% YoY), and net income rose substantially to ¥4.3B (+234.1% YoY); however, these figures included temporary factors such as a ¥1.9B gain on the sale of investment securities. At the operating level, the 11.8% increase in SG&A expenses exceeded the revenue growth rate, indicating that higher costs offset the improvement in gross profit.

Factors Affecting Business Performance

【Revenue】Revenue was ¥135.8B, representing a 2.8% YoY increase. Domestic IT was nearly flat at ¥96.2B (external revenue, △0.3% YoY), while Overseas IT expanded to ¥42.0B (+9.2% YoY), becoming the primary driver of revenue growth. The segment mix consists of approximately 70% Domestic IT and 30% Overseas IT.

【Profit and Loss】Operating income declined 8.9% YoY to ¥8.6B. The gross margin improved to 26.6% from 25.8% in the same period of the previous year; however, SG&A expenses increased to ¥27.4B (+11.8%), outpacing revenue growth, and the operating margin declined to 6.4% from 7.2% in the previous year. By segment, Domestic IT profit increased 8.9% YoY to ¥9.5B, while Overseas IT profit declined 10.1% to ¥3.7B, indicating deteriorating profitability despite higher revenue. In addition, corporate expenses (holding company expenses) increased by ¥1.2B YoY to ¥4.5B, putting pressure on consolidated operating income. Ordinary income and net income increased significantly due to the temporary factor of a ¥1.9B gain on the sale of investment securities. It is therefore important to note the divergence between the decline in operating income and the sharp increase in net income. In conclusion, the current period saw higher revenue but lower profit.

Segment Analysis

Domestic IT external revenue was nearly flat at ¥96.2B (△0.3% YoY), while segment profit increased 8.9% to ¥9.5B, improving the profit margin from 9.0% to 9.7%. Overseas IT external revenue grew 9.2% to ¥42.0B, but segment profit declined 10.1% to ¥3.7B, and the profit margin decreased from 10.6% to 8.7%. Domestic IT generates the majority of consolidated segment profit, and the inability to convert growth in the overseas business into profit remains a challenge. In addition, goodwill of ¥19.0B was newly recognized in Domestic IT following the consolidation of JEMS Co., Ltd. as a subsidiary.

Key Financial Indicators

【Profitability】The operating margin was 6.4%, down from 7.2% in the same period of the previous year, while the net profit margin was 3.2%, based on profit attributable to owners of the parent. The gross margin improved YoY to 26.6%, but the SG&A ratio increased to 20.2% from 18.6% in the previous year, putting pressure on profitability.【Cash Flow Quality】The sharp increases in ordinary income and net income included a ¥1.9B gain on the sale of investment securities and therefore need to be evaluated separately from recurring earnings power.【Investment Efficiency】Annualized ROE was 4.9%, remaining relatively low in terms of capital efficiency.【Financial Soundness】The equity ratio remained high at 62.9%, and current assets of ¥289.9B substantially exceeded current liabilities of ¥114.4B. Long-term borrowings increased to ¥61.0B from ¥16.3B in the same period of the previous year, while short-term borrowings were reduced, indicating progress toward lengthening the maturity of funding.

Cash Flow Analysis

As detailed disclosure of the statement of cash flows is unavailable, funding trends are analyzed based on changes in the balance sheet. Cash and deposits declined to ¥107.0B from ¥117.7B in the same period of the previous year, suggesting that funds may have been allocated to investment activities such as the acquisition of securities and JEMS shares. While long-term borrowings increased by ¥44.8B, short-term borrowings were substantially reduced, shifting the debt structure from short-term to long-term. Goodwill and intangible assets increased 36.5% and 35.4%, respectively, YoY, suggesting that acquisition-related investment was the primary use of funds. With an equity ratio of 62.9%, the Company’s financial foundation remains strong enough to absorb investment.

Earnings Quality

The sharp increase in net income included non-recurring factors and should be evaluated separately from recurring earnings power. The increase in ordinary income to ¥6.3B was partly attributable to the reversal of an investment partnership loss recorded in the same period of the previous year, while pretax income of ¥8.2B included a ¥1.9B gain on the sale of investment securities. This extraordinary gain represented approximately 23% of pretax income, and it would not be appropriate to interpret the 234.1% YoY increase in net income as an equivalent improvement in operating performance. Meanwhile, income taxes and other taxes were ¥3.9B, representing a high burden ratio of approximately 48% relative to pretax income, which restrained net income growth. Non-operating income included a foreign exchange gain of ¥0.6B, which was also a source of variability outside the core business. Operating income declined 8.9% YoY, moving in the opposite direction from ordinary income and net income; this is a key consideration in evaluating earnings quality.

Earnings Forecast and Guidance

The full-year revenue forecast is ¥515.0B (+1.8% YoY), with no revision to the earnings forecast. Q1 revenue of ¥135.8B represents a progress rate of 26.4%, slightly above the 25% implied by even quarterly progress. Against the full-year YoY growth forecast of +1.8%, Q1 actual growth of +2.8% was slightly higher, indicating progress in line with, or slightly ahead of, the plan in terms of revenue. As full-year forecasts for operating income and net income have not been disclosed, progress rates for profit cannot be evaluated.

Shareholder Returns

The full-year dividend forecast is ¥100 per share, unchanged from the previous year’s dividend forecast. Based on the average number of shares outstanding during the period of 17.122M shares, the estimated annual total dividend would be approximately ¥1.71B. Annualizing Q1 profit attributable to owners of the parent of ¥3.7B on a simple basis produces an EPS equivalent of ¥86.6, slightly below the ¥100 dividend forecast. However, since Q1 profit includes temporary factors such as the gain on the sale of investment securities, it would not be appropriate to evaluate the payout ratio or capacity for shareholder returns based solely on this comparison. As the full-year net income forecast has not been disclosed, the payout ratio is not calculated.

Risk Factors

1. Deterioration in the profitability of the Overseas IT business: While external revenue in Overseas IT increased 9.2% YoY, segment profit declined 10.1%, and the profit margin fell by approximately 190bp from 10.6% to 8.7%. If the ongoing inability to convert revenue growth into profit continues, it could hinder a recovery in the consolidated profit margin.

2. Impairment risk associated with increased goodwill: The acquisition of JEMS shares resulted in newly recognized goodwill of ¥19.0B in Domestic IT, increasing consolidated goodwill to ¥66.2B (+36.5% YoY). The purchase price allocation remains provisional, and depending on integration progress and the earnings contribution of the acquired business, future amortization expenses or impairment may arise.

3. High tax burden and reliance on extraordinary gains: Income taxes and other taxes of ¥3.9B against pretax income of ¥8.2B resulted in a burden ratio of approximately 48%, creating a structure in which the high tax burden coefficient restrains net income growth. In addition, the ¥1.9B gain on the sale of investment securities contributed to the increase in net income, requiring close monitoring of the level of recurring earnings power excluding this gain.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Compared with the industry median, both the operating margin and net profit margin are positioned in the lower range, indicating room for improvement in profitability.

Growth and Capital Efficiency

The revenue growth rate also fell substantially below the industry median, placing the Company in the lower-growth group within the IT and communications industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. While the improvement in the Domestic IT profit margin (9.0%→9.7%) was solid, the decline in the Overseas IT profit margin (10.6%→8.7%) and the increase in corporate expenses contributed to the decline in consolidated operating income. The recovery trend in the profitability of the overseas business will be a key focus going forward.

2. The recognition of ¥19.0B in goodwill following the consolidation of JEMS as a subsidiary indicates an expansion of the business scope; however, the purchase price allocation remains provisional, and continued monitoring is necessary regarding the acquired business’s contribution to profit and trends in goodwill amortization and impairment.

3. The substantial increase in net income (+234.1%) included a ¥1.9B gain on the sale of investment securities. Together with the decline in operating income (△8.9%), this highlights the importance of distinguishing recurring earnings power from temporary factors when assessing the financial results.

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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 professionals as necessary.

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