F&M CO.,LTD. FY2026 Q3 Earnings Report

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Executive Summary

Consolidated results for FY2026 Q3 delivered Revenue of ¥150.2B (YoY +¥26.9B +21.9%), Operating Income of ¥26.0B (YoY +¥7.4B +39.6%), Ordinary Income of ¥26.3B (YoY +¥7.5B +39.8%), and Net Income of ¥17.7B (YoY +¥5.3B +42.8%), achieving higher revenue and profit. The operating margin improved to 17.3%, up 4.1pt from 13.2% in the prior year, indicating a shift toward a high-profitability structure. Progress toward the full-year forecast of ¥208.7B reached 72.0% by Q3, putting achievement within sight with one quarter remaining. By segment, Consulting Revenue of ¥61.7B (Operating Income ¥19.9B) led results; while System Development posted an Operating Loss of ¥1.6B on sales of ¥24.9B, Accounting Services at ¥37.3B (Operating Income ¥11.4B) contributed as a stable earnings source.

Key Financial Metrics

[Profitability] ROE 12.3% (DuPont decomposition: Net Profit Margin 11.8% × Total Asset Turnover 0.765 × Financial Leverage 1.37); Operating Margin 17.3% (up +4.1pt from 13.2% in the prior year); Net Profit Margin a high 11.8%. Gross Margin of 67.9% suggests delivery of high value-added services. ROA is 9.0%, indicating solid asset efficiency. [Cash Quality] Cash and Deposits of ¥57.1B account for 29.1% of total assets, securing 1.63x coverage versus Short-term Liabilities of ¥35.0B. Accounts Receivable at ¥19.8B increased by +¥8.1B (+82.6%) YoY, confirming receivables expansion alongside sales growth. [Investment Efficiency] Total Asset Turnover 0.765x; Intangible Fixed Assets of ¥45.6B (23.2% of total assets) indicate accumulation of intellectual assets such as software. [Financial Soundness] Equity Ratio 73.2% (slight decline from 76.3% in the prior year), Current Ratio 163.2%, and Debt-to-Equity Ratio 0.37x point to a conservative capital structure. Retained Earnings of ¥110.7B increased by +¥11.6B YoY, strengthening the financial base through internal reserves.

Cash Flow Analysis

Cash and Deposits accumulated to ¥57.1B, up +¥5.9B YoY, reflecting profit growth from higher operating earnings contributing to cash build-up. Meanwhile, Accounts Receivable surged to ¥19.8B, up +82.6% YoY; this receivable increase far exceeding sales growth of +21.9% suggests a lengthening collection cycle or expanded credit terms. Working Capital stands at ¥32.2B, and while liquidity is secured, the pace of collections will drive future cash conversion. Cash coverage of Short-term Liabilities of ¥35.0B is a sufficient 1.63x, and together with a Current Ratio of 163.2%, short-term payment capacity remains sound. The +¥11.6B increase in Retained Earnings reflects accumulation of internal reserves after deducting dividend payments, etc., from Net Income of ¥17.7B, increasing the thickness of equity. Total assets reached ¥196.4B, up +¥23.3B YoY, confirming expansion of the asset base via growth investments.

Quality of Earnings

With Ordinary Income at ¥26.3B versus Operating Income at ¥26.0B, net non-operating gains were a modest ~¥0.3B, indicating that core operating profits account for the majority of earnings. While details of non-operating income and expenses are undisclosed, the small gap between Ordinary and Operating Income suggests limited financial income/expenses such as interest/dividends received and foreign exchange gains/losses. Net Income of ¥17.7B versus Ordinary Income of ¥26.3B implies an effective tax rate of approximately 32.8%, indicating a standard level of tax burden on profit before tax. The operating margin of 17.3% improved by 4.1pt from 13.2% in the prior year, likely driven by a lower fixed-cost ratio on higher sales and a greater mix of high value-added services. By segment, Consulting’s operating margin is 32.3%, and Accounting Services’ is 30.5%, both highly profitable, while the ¥1.6B operating loss in System Development indicates room for structural improvement. Although the rapid increase in Accounts Receivable suggests earlier revenue recognition relative to cash, the build-up in cash and deposits indicates a certain portion of earnings has already been monetized; overall, the quality of earnings can be assessed as favorable.

Risk Factors

1. Receivables Collection Risk: Accounts Receivable increased +82.6% YoY, far outpacing sales growth of +21.9%, raising concerns about a lengthening collection cycle or looser credit control. Should delays arise, risks include pressure on Operating Cash Flow and the need to increase allowance for doubtful accounts.
2. Impairment Risk on Intangible Assets: Intangible Fixed Assets of ¥45.6B (23.2% of total assets), consisting of intellectual assets such as software, may require impairment due to technological obsolescence or market changes, potentially leading to recognition of extraordinary losses and earnings pressure. Amortization burden will continue to affect future margins.
3. Variability in Segment Profitability: The System Development segment posted an Operating Loss of ¥1.6B on sales of ¥24.9B; if profitability fails to improve, it will weigh on the company-wide margin. A revenue structure reliant on the high profitability of Consulting and Accounting Services means overall performance will be sensitive should market conditions in core businesses deteriorate.

Industry Benchmark (Reference • Our Research)

[Positioning within Industry] (Reference information • Our research) Profitability: Operating Margin of 17.3% significantly exceeds the industry median of 8.2% (IQR: 5.2%–10.9%), placing the company among the top in profitability. Net Profit Margin of 11.8% also substantially exceeds the industry median of 5.7% (IQR: 3.1%–9.1%), confirming delivery of high value-added services. ROE 12.3% is slightly above the industry median of 9.7% (IQR: 3.9%–15.0%). Growth: Revenue growth of 21.9% far exceeds the industry median of 9.5% (IQR: 2.7%–15.2%), representing top-tier growth within the industry. Soundness: Equity Ratio of 73.2% is well above the industry median of 49.0% (IQR: 38.8%–66.3%), indicating a conservative financial profile. The Current Ratio of 163.2% is below the industry median of 206% but liquidity remains sufficiently secured. ※Industry: Healthcare (N=44 companies), Comparison: 2025 Q3 reporting period, Source: Our compilation

Key Highlights from Results

1. Establishment of a High-Profit Model: The operating margin of 17.3% is more than 2x the industry median of 8.2%, with high value-added services centered on Consulting and Accounting Services forming the earnings base. ROE 12.3% and Net Profit Margin 11.8% are among the top in the industry, offering advantages in both capital efficiency and profitability.
2. Challenge of Verifying Growth Sustainability: While revenue growth of 21.9% far exceeds the industry average, the +82.6% increase in Accounts Receivable greatly outpaces sales, making receivables management and monetization progress key to future growth sustainability. To achieve the full-year forecast, revenue recognition of ¥58.5B is required in the remaining one quarter, and whether the Q3 run rate can be maintained is the focal point.
3. Dividend Capacity and Capital Allocation: Payout Ratio 35.6% (based on an annual dividend of ¥40.0) and ample Cash and Deposits of ¥57.1B suggest high dividend continuity; however, as Operating Cash Flow disclosure is not provided, free cash flow coverage of dividends remains unconfirmed. Balancing continued investment in intangible assets with shareholder returns is central to the medium- to long-term capital allocation strategy.

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This report is an earnings analysis automatically generated by AI based on XBRL financial summary data and is not a recommendation to invest in any specific security. The industry benchmark is reference information compiled by us from publicly available financial results data. Investment decisions are your own responsibility; consult a professional as needed before making any decisions.