F&M (4771) FY2026 Q3 Earnings Report

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Executive Summary

This was a strong earnings result, with operating leverage in addition to revenue and profit growth driving a notable improvement in margins. Revenue was ¥150.2B (+21.9% YoY), Operating Income was ¥26.0B (+39.6%), Ordinary Income was ¥26.3B (+39.8%), and Net Income was ¥17.7B (+42.8%). While maintaining a gross margin of 67.9%, the 16.5% increase in SG&A expenses remained below the revenue growth rate, directly contributing to the expansion of the Operating Income margin from 15.1% to 17.3%.

Factors Affecting Earnings

【Revenue】Revenue increased 21.9% YoY to ¥150.2B. By segment, Consulting was the largest at ¥61.7B (41.1% composition ratio, 32.3% margin), followed by Business Solutions at ¥47.9B (31.9%, 12.2% margin) and Accounting Services at ¥37.3B (24.8%, 30.5% margin). Systems Development generated ¥24.9B (16.6%), but Operating Income was negative ¥1.6B, resulting in a deficit and a significant profitability gap versus the other businesses.

【Profit and Loss】Operating Income increased 39.6% YoY to ¥26.0B, exceeding the revenue growth rate by 17.7pt. The SG&A ratio declined to 50.6% from 52.9% in the prior year, supported by cost efficiencies and the absorption of fixed costs through scale expansion. Both non-operating and extraordinary income and expenses were immaterial, and Ordinary Income and Net Income were structured to track Operating Income closely. Against pre-tax income of ¥26.3B, Net Income was ¥17.7B, resulting in an effective tax rate of 32.8%. This was a high-quality earnings result, characterized by both revenue and profit growth, with the profit growth rate exceeding the revenue growth rate.

Segment Analysis

Consulting was the largest earnings pillar, generating revenue of ¥61.7B and Operating Income of ¥19.9B (32.3% margin). Accounting Services also secured high profitability, with revenue of ¥37.3B and a margin of 30.5%. By contrast, Systems Development generated ¥24.9B in revenue but recorded an Operating Loss of ¥1.6B (▲6.6% margin), making it a factor weighing on the company-wide Operating Income margin of 17.3%. Business Solutions had mid-range profitability, with revenue of ¥47.9B and a margin of 12.2%. Real Estate Leasing was small in scale at ¥0.9B in revenue but had a high margin of 23.6%. Overall, the highly profitable Consulting and Accounting Services businesses are driving earnings, while improving the profitability of Systems Development remains a key issue going forward.

Key Financial Metrics

【Profitability】The Operating Income margin of 17.3% (15.1% in the prior year) and Net Income margin of 11.8% (10.0% in the prior year) both improved. The gross margin of 67.9% was broadly flat, indicating that margin expansion was driven by both revenue growth and cost efficiencies.【Cash Flow Quality】Accounts receivable increased 82.6% to ¥20.5B from ¥11.2B in the prior year, substantially outpacing the 21.9% increase in revenue, confirming an elongation in receivables turnover.【Investment Efficiency】ROE was 16.4% (annualized), while intangible fixed assets were ¥64.5B, accounting for 32.8% of total assets, indicating that software investment is central to the asset composition.【Financial Soundness】The Equity Ratio was 73.2%, the current ratio was 163.2%, and the debt-to-equity ratio was 0.37x, all indicating a high level of financial soundness.

Cash Flow Analysis

As the Statement of Cash Flows has not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits were ¥57.2B, broadly flat compared with ¥58.3B in the same period of the prior year, indicating that the cash balance has not increased despite the earnings growth. This is believed to be attributable to accounts receivable increasing 82.6% from ¥11.2B to ¥20.5B, with part of the profits generated through operating activities remaining tied up in trade receivables. Meanwhile, contract liabilities (deferred revenue) increased 21.3% from ¥8.4B to ¥10.1B, with the expansion in deferred revenue supporting short-term liquidity. Intangible fixed assets increased 22.4% from ¥52.7B to ¥64.5B, suggesting that investment activities centered on software remain ongoing. Overall, the increase in working capital, particularly accounts receivable, partially offset the expansion in Operating Income in terms of cash generation, and future cash-generating capacity will depend on the collection efficiency of trade receivables.

Quality of Earnings

Non-operating income was ¥0.3B, while extraordinary income and losses were both near zero. Accordingly, Ordinary Income and Net Income reflect a recurring earnings structure that is closely linked to Operating Income. There was effectively no boost or drag on earnings from temporary factors, indicating that the profit growth was attributable to operating leverage in the core business. Meanwhile, comprehensive income was ¥17.6B, almost identical to Net Income of ¥17.7B, and the valuation difference on other securities was a small negative ¥0.1B; therefore, the divergence between comprehensive income and Net Income was minimal. From an accruals perspective, accounts receivable increased at a faster pace than revenue, suggesting that income recognition under accrual accounting may be preceding cash collection. This remains an item requiring ongoing monitoring when evaluating earnings quality.

Earnings Forecast and Guidance

Progress against the Full-Year forecast was 72.0% for revenue against a forecast of ¥208.7B, 83.0% for Operating Income against a forecast of ¥31.3B, and 83.3% for Ordinary Income against a forecast of ¥31.6B. Profit progress is ahead of revenue progress, reflecting the high margins achieved through the first half. Revenue of ¥58.5B and Operating Income of ¥5.3B are required in Q4 (the remaining quarter), corresponding to an Operating Income margin of approximately 9.1%, substantially below the 17.3% achieved cumulatively through Q3. The Full-Year forecast may incorporate an increase in expenses and seasonality in Q4, making the actual landing level a key focus.

Shareholder Returns

The Q2 dividend was ¥21.00 per share, while the Full-Year forecast dividend is ¥42.00 per share. Based on the Full-Year Net Income forecast of ¥20.88B and the annual dividend forecast, the Payout Ratio is approximately 29.8%, a conservative level below 60%. Retained earnings increased 11.7% YoY to ¥111.0B, indicating continued accumulation of funds available for dividends. The financial base, including cash and deposits of ¥57.2B and a current ratio of 163.2%, also supports the stability of dividend payments. No data on share repurchases has been disclosed.

Risk Factors

1. Increase in trade receivables: Accounts receivable increased 82.6% YoY to ¥20.5B, substantially exceeding the 21.9% growth in revenue. On an annualized basis, days sales outstanding also lengthened from approximately 25 days to approximately 37 days, requiring close monitoring of collection efficiency trends.

2. Dependence on intangible assets: Intangible fixed assets were ¥64.5B, accounting for 32.8% of total assets, and primarily consisted of software. While these investments support the earnings power of the business, the maintenance of asset value depends on continued monetization, making it important to monitor amortization and impairment trends.

3. Embedded decline in Q4 margin: The implied Q4 Operating Income margin in the Full-Year forecast is approximately 9.1%, substantially below the 17.3% cumulative result through Q3. Whether the anticipated increase in expenses and seasonality materialize as expected will determine the Full-Year outcome.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (healthcare)

Profitability and Returns

The company's profitability substantially exceeds the industry median and ranks at a high level.

Growth and Capital Efficiency

The growth rate also substantially exceeds the industry median, positioning the company among the industry leaders in both profitability and growth.

※Source: Company analysis

Key Earnings Takeaways

1. Operating Income increased 39.6% and Net Income increased 42.8%, exceeding the 21.9% increase in revenue. The emergence of operating leverage, accompanied by a decline in the SG&A ratio from 52.9% to 50.6%, was confirmed.

2. Progress against the Full-Year forecast was 83.0% for Operating Income and 72.0% for revenue, with profit progress ahead of revenue progress. The assumed Q4 Operating Income margin is approximately 9.1%, below the cumulative Q3 level, making expense trends in the second half the key focus for the Full-Year outcome.

3. Accounts receivable increased at a faster pace than revenue, rising 82.6%, making the collection efficiency of trade receivables during the earnings growth phase an important observation point for future working capital management.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,067–¥1,130 at ±1% for the cost of equity, and ¥1,095–¥1,102 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the Full-Year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on 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 responsibility, after consulting with a professional as necessary.

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