USS Co.,Ltd. FY2026 FY Earnings Report

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Executive Summary

The fiscal year ended March 2026 recorded Revenue of ¥1,138.5B (YoY +¥98.3B / +9.5%), Operating Income of ¥598.5B (YoY +¥56.4B / +10.4%), Ordinary Income of ¥605.9B (YoY +¥57.1B / +10.4%), and Net Income attributable to owners of the parent of ¥413.6B (YoY +¥37.2B / +10.0%), achieving double-digit profit growth across all profit measures. The core Auto Auction Business drove results through higher handled volumes and improved fee prices, improving the Operating Margin to 52.6% (from 52.1%, +0.5pt) and Gross Margin to 62.8% (from 62.3%, +0.5pt). The company achieved profit growth exceeding revenue growth while maintaining high margins, demonstrating operating leverage. Double-digit growth in the Recycling Business (Revenue +22.4%, Profit +24.2%) also contributed complementarily, advancing portfolio diversification.

Drivers of Performance

[Revenue] Revenue of ¥1,138.5B (YoY +9.5%) was driven by the core Auto Auction Business at ¥900.2B (+9.6%), accounting for 79.1% of consolidated revenue, with increases in handled units and improvements in pricing. By segment, Recycling continued high growth at ¥103.0B (+22.4%), supported by improved end-of-life vehicle and metal scrap market conditions and expanded handling volumes. Used Vehicle Purchase & Sales was slightly down at ¥124.7B (-1.4%) as the business prioritized profitability over scale expansion. Other businesses (Auto Loans, Solar Power, etc.) were ¥13.9B (+24.0%), small but favorable.

[Profitability] Cost of Sales remained at ¥424.0B (prior year ¥391.99B, +8.2%), growing less than revenue (+9.5%), resulting in Gross Margin improvement to 62.8% (+0.5pt). SG&A was ¥116.0B (prior year ¥106.15B, +9.3%), keeping the SG&A ratio stable at 10.2% (same), absorbing the revenue increase. Operating Income was ¥598.5B (+10.4%), with an Operating Margin of 52.6% (+0.5pt), achieving profit growth and margin improvement exceeding top-line growth. Non-operating income was ¥9.3B (including interest income ¥1.1B) and non-operating expenses were ¥1.9B (interest expense ¥0.1B), both minor, leading to Ordinary Income of ¥605.9B (+10.4%), nearly matching operating-stage growth. Extraordinary gains were ¥5.0B (including gain on sale of fixed assets ¥0.6B) and extraordinary losses were ¥5.1B (including loss on disposal of fixed assets ¥2.4B), essentially offsetting, producing Profit Before Tax of ¥605.8B (+10.2%). Income taxes were ¥186.7B (effective tax rate 30.8%, prior year 30.9%), with stable tax burden, resulting in Net Income attributable to owners of the parent of ¥413.6B (+10.0%).

Segment Analysis

The Auto Auction Business delivered Revenue of ¥900.2B (YoY +9.6%), Operating Income of ¥585.8B (+10.0%), and Operating Margin of 65.1% (prior 65.0%, +0.1pt), maintaining overwhelming profitability. It is the main pillar generating 97.9% of consolidated Operating Income, driven by a high-value-added model including dedicated terminals, internet connectivity services, and transport brokerage. Used Vehicle Purchase & Sales recorded Revenue of ¥124.7B (-1.4%) but Operating Income improved to ¥3.8B (+37.7%), with a margin of 3.0% (prior 2.2%, +0.8pt) due to stricter selection of low-margin transactions and efficiency gains. The Recycling Business achieved Revenue of ¥103.0B (+22.4%), Operating Income of ¥6.7B (+24.2%), and margin of 6.5% (prior 6.4%, +0.1pt), balancing high growth and stable margin, supported by improved markets for end-of-life vehicles and metal scrap and expanded volume, realizing portfolio diversification benefits. Other businesses posted Revenue of ¥13.9B (+24.0%) and Operating Income of ¥0.6B (+165.2%), showing high growth despite small scale.

Key Financial Metrics

[Profitability] Operating Margin of 52.6% (prior 52.1%, +0.5pt) ranks among the top in listed domestic companies, supported by Gross Margin improvement to 62.8% (prior 62.3%, +0.5pt) and containment of SG&A ratio at 10.2% (same). ROE of 19.9% (prior 18.9%, +1.0pt) remains high, underpinned by a slight improvement in Net Profit Margin to 36.3% (prior 36.2%, +0.1pt) and stable Asset Turnover of 0.42x (same). [Cash Quality] Operating Cash Flow (OCF) of ¥439.1B (YoY +15.1%) is 1.06x Net Income of ¥413.6B, indicating a very high cash conversion rate. Working capital movement resulted in net outflow of ¥-8.9B due to accounts receivable increase ¥-12.8B and accounts payable increase ¥+3.9B, within natural growth from business expansion. [Investment Efficiency] Capital expenditures were ¥93.5B (prior ¥27.7B), 1.84x depreciation ¥50.7B, indicating continued growth investments including facility upgrades and expansions. Intangible asset investment was modest at ¥16.9B, reflecting a tangible-asset-centric investment structure. [Financial Soundness] Equity Ratio was 78.1% (prior 76.2%, +1.9pt), Current Ratio 271.7% (prior 282.6%, -10.9pt), Quick Ratio 268.1% (prior 279.2%, -11.1pt), all at overwhelmingly strong levels. Cash and deposits of ¥1,104.3B are 2.1x short-term liabilities of ¥521.7B, eliminating maturity mismatch concerns. Interest-bearing debt remained ¥23.2B (short-term borrowings ¥7.0B, long-term borrowings ¥16.2B), with a Debt/Equity ratio of 1.1% and Interest Coverage of approximately 4,603x (Operating Income ¥598.5B / interest expense ¥0.1B), demonstrating exceptional financial resilience.

Cash Flow Analysis

OCF was ¥439.1B (YoY +15.1%), with subtotal OCF before working capital movements at ¥621.8B, indicating robustness. Accounts receivable increase ¥-12.8B and accounts payable increase ¥+3.9B reflect natural working capital movements associated with business expansion. Corporate tax payments were ¥-183.1B (prior ¥-164.5B), a major cash outflow. Investing Cash Flow was ¥-212.7B, driven mainly by Capital Expenditures ¥-93.5B (prior ¥-27.7B) and net increase in time deposits ¥-100.0B. Proceeds from sale of tangible fixed assets were minor at ¥0.7B; in substance, the focus was on growth investment and liquidity management. Free Cash Flow (OCF + Investing CF) was ¥226.4B, yielding coverage of 1.01x against total dividends of ¥224.8B (excluding share buybacks), nearly balanced. Financing Cash Flow was ¥-384.3B, comprised mainly of share buybacks ¥-160.0B, dividend payments ¥-224.8B (including to non-controlling interests), long-term borrowings repayment ¥-5.2B, and proceeds from disposal of treasury shares ¥3.8B. Cash and cash equivalents at period end were ¥889.3B (from ¥1,047.2B at period start, change ¥-157.9B), indicating prioritization of dividends, share buybacks, and growth investment in cash allocation. Interest and dividends received were ¥0.6B and interest paid ¥-0.1B, showing minimal financial income/expense; the core business generates exceptionally high cash.

Quality of Earnings

The difference between Ordinary Income ¥605.9B and Operating Income ¥598.5B is ¥+7.4B, attributable to Non-operating income ¥9.3B (including interest income ¥1.1B and other ¥2.1B) and Non-operating expenses ¥1.9B (including interest expense ¥0.1B and other ¥0.3B), both minor and highly recurring. Extraordinary gains ¥5.0B (including gain on sale of fixed assets ¥0.6B) and extraordinary losses ¥5.1B (including loss on disposal of fixed assets ¥2.4B) nearly offset, limiting one-off impacts. Profit Before Tax ¥605.8B and Ordinary Income ¥605.9B are nearly identical, indicating minimal non-recurring factors. Comprehensive income ¥419.3B vs. Net Income ¥419.1B difference of ¥+0.2B is due to valuation difference on available-for-sale securities ¥-0.1B and actuarial adjustments for retirement benefits ¥+0.4B, showing minor balance sheet fluctuations. OCF ¥439.1B is 1.06x Net Income ¥413.6B, and including working capital movements, earnings quality is very high. Goodwill amortization of ¥5.4B is only 0.9% of Operating Income ¥598.5B, negligible from an accounting burden perspective. Earnings are predominantly recurring and core-business derived, supporting high earnings sustainability.

Forecasts & Guidance

The FY ending March 2027 consolidated forecast is Revenue ¥1,198.0B (YoY +5.2%), Operating Income ¥610.0B (+1.9%), Ordinary Income ¥618.0B (+2.0%), Net Income attributable to owners of the parent ¥416.0B (+0.6%), and EPS ¥91.35 (prior ¥88.78, +2.9%). Revenue growth is expected to decelerate from +9.5% to +5.2%, assuming a slowdown in handled units growth. Operating Income is planned to increase modestly by +1.9%, incorporating a decline in Operating Margin to 50.9% (from 52.6%, -1.7pt), reflecting conservative assumptions for external environment volatility (volume/price) and cost increases. Forecast Dividend is annual ¥27.50 (a reduction of ¥27.2 from prior-year dividend of ¥54.7), but the prior year may have included special dividends, suggesting a return to normalized levels. Progress toward full-year forecasts based on current period results is high: Revenue 95.0%, Operating Income 98.1%, Ordinary Income 98.1%, Net Income 99.4%, indicating clear visibility toward plan achievement. The company shows a realistic plan that maintains high margins while embedding buffers for market and competitive volatility.

Shareholder Returns

Payout Ratio is 62.7% (Total dividends ¥225.5B / Net Income attributable to owners of the parent ¥413.6B, including shares held in company trust), up +7.7pt from 55.0% prior year. Annual dividend was ¥54.7 (Q2-end ¥25.2, Year-end ¥29.5), a substantial increase from prior-year dividend ¥20.6 (+¥34.1), though the prior year may have excluded special dividends, suggesting normalization. Share buybacks totaled ¥160.0B, bringing Total Return Amount to ¥385.5B (Dividends ¥225.5B + Share buybacks ¥160.0B), and Total Return Ratio to 93.2%, an extremely high level. Coverage of Total Returns by Free Cash Flow was 0.59x (Free Cash Flow ¥226.4B vs Total Returns ¥385.5B), implying a shortfall that was covered using ample cash on hand (Cash & Deposits ¥1,104.3B). Treasury shares decreased from ¥329.6B at the beginning of the period to ¥93.3B, a decline of ¥236.3B, reflecting share buybacks and simultaneous disposals (e.g., employee share trust). Forecast dividend for FY ending March 2027 is annual ¥27.50, implying a Payout Ratio of approximately 30% against forecast Net Income ¥416.0B, a conservative level leaving room for future dividend increases. Dividend sustainability is very high given large cash reserves and low leverage, so downside risk to dividends is limited.

Risk Factors

1. Business concentration risk: The Auto Auction Business accounts for 79.1% of Revenue and 97.9% of Operating Income, indicating very high dependence. Handled volumes and bid prices are sensitive to used car market conditions and supply-demand balance; a recession or changes in new-car supply could reduce volumes and materially impact Revenue and Profit. While year-on-year growth in auction handling volume is not disclosed, Revenue growth of +9.6% reflects combined effects of volume and price; reversal of either factor could reverse the revenue growth trend.

2. Sustainability risk of dividends and total returns: Current Total Return Ratio of 93.2% and coverage of total returns by Free Cash Flow 0.59x show cash outflows significantly exceed cash generation. Although cash on hand of ¥1,104.3B is ample, maintaining high-level returns permanently could constrain investment capacity or require ongoing drawdown of cash. The company plans to lower Payout Ratio to 30% next fiscal year, but continuation and scale of share buybacks could cause fluctuation in total return levels.

3. Recovery risk on capital expenditures: Current Capital Expenditures of ¥93.5B are 1.84x Depreciation ¥50.7B, reflecting aggressive expansion and renewal investments. Investments in auction venues and system infrastructure are long-term in nature; if handled volumes or prices fall short of plan, investment efficiency may decline and growth in ROE and OCF could slow. Prolonged recovery periods for investments could create a trade-off with shareholder returns.

Industry Benchmark (Reference, Company Estimates)

Profitability & Returns

Both Operating Margin and Net Profit Margin exceed industry medians by more than 40ppt, indicating top-tier industry profitability.

Growth & Capital Efficiency

Revenue growth is approximately in line with the industry median; while growth is average, the company significantly outpaces peers in profit growth due to its overwhelming profitability.

※ Source: Company compilation

Earnings Highlights

1. Overwhelming profitability and cash generation: Operating Margin 52.6%, ROE 19.9%, OCF/Net Income 1.06x demonstrate top-class profitability and earnings quality among domestic listed companies. The Auto Auction Business’s high-value-added model (margin 65.1%) forms a structural strength, and the low SG&A ratio of 10.2% yields highly efficient operations. The balance sheet is extremely robust with Equity Ratio 78.1%, Cash & Deposits ¥1,104.3B, and interest-bearing debt ¥23.2B, minimizing financial risk.

2. Focus on balancing total returns and investment: This period’s Total Return Ratio of 93.2% and Free Cash Flow coverage 0.59x mean cash outflows far exceeded generation. The company plans to constrain Payout Ratio to 30% next year, but attention will be on how total return levels evolve depending on continuation and scale of share buybacks. Capital expenditures are 1.84x depreciation, indicating aggressive investment; the balance among growth investment, returns, and liquidity will be key to capital allocation strategy.

3. Business concentration risk and preparedness for growth slowdown: High concentration in the Auto Auction Business (79.1% of Revenue, 97.9% of Operating Income) implies sensitivity to used car market fluctuations. Next-year plan assumes Revenue growth +5.2% and Operating Income +1.9% with conservative assumptions while aiming to maintain high margins. Continued double-digit growth in the Recycling Business supports portfolio diversification; monitoring whether this diversification materially reduces medium- to long-term concentration risk is important.

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This report was automatically generated by AI analyzing XBRL financial statement disclosures. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are company-compiled reference information based on public financial statements. Investment decisions are your own responsibility; consult a professional advisor as needed.