Terilogy Holdings (5133) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for Q3 of the fiscal year ending March 2026 marked a significant improvement in profitability, achieving substantial growth in operating income in addition to higher revenue. Revenue was ¥7.25B (+21.7% YoY), operating income was ¥0.39B (+834.6%), ordinary income was ¥0.45B (+356.0%), and net income attributable to owners of the parent was ¥0.30B, a substantial increase from ¥0.005B in the same period of the previous year. Operating leverage took effect as SG&A expenses increased by only +5.0% relative to revenue growth, driving an improvement in profit margins. Progress against the full-year plan was a standard 74.7% for revenue, while ordinary income had reached 100.7%, indicating that profit performance was running ahead of schedule.

Factors Driving Performance Changes

【Revenue】Revenue increased +21.7% YoY to ¥7.25B. Although disclosure by business is not available because the Company operates as a single segment, demand expanded under an operating structure that provides information and communications equipment sales, software development, network construction, and maintenance services on an integrated basis. Progress against the full-year plan of ¥9.70B was 74.7%, almost in line with standard seasonal progress of approximately 75%.

【Profit and Loss】Operating income increased substantially to ¥0.39B (¥0.04B in the same period of the previous year, YoY +834.6%), while ordinary income rose to ¥0.45B (+356.0%). The primary driver of the increase was the significant decline in the SG&A ratio to 27.5% from 31.9% in the same period of the previous year, while the gross margin improved slightly to 32.8% from 32.5%. Non-operating income of ¥0.07B included ¥0.01B in subsidy income and ¥0.02B in equity-method investment income, which boosted ordinary income. Extraordinary income of ¥0.01B consisted of gains on the sale of investment securities and was a temporary factor, but its impact on profit before tax of ¥0.46B was limited. Net income was ¥0.30B, a substantial increase from ¥0.005B in the same period of the previous year. In conclusion, the Company achieved both revenue and profit growth.

Segment Analysis

The Group operates as a single IT Solutions and Services Business segment comprising information and communications equipment sales, software development, network construction, and maintenance services; disclosure by segment has therefore been omitted.

Key Financial Indicators

【Profitability】The operating margin improved by approximately 4.7pt to 5.4% from 0.7% in the same period of the previous year. The ordinary income margin and net income margin also improved significantly to 6.3% and 4.2%, respectively. The gross margin increased slightly to 32.8% from 32.5% in the same period of the previous year, indicating that revenue growth was not accompanied by deterioration in profitability.【Cash Flow Quality】Cash and deposits increased +65.3% YoY to ¥2.82B, while accounts receivable decreased -37.5% to ¥0.82B, indicating no expansion of trade receivables despite revenue growth. Inventories increased +141.8% to ¥0.44B, requiring monitoring of inventory accumulation.【Investment Efficiency】Annualized ROE was 11.8%, supported by financial leverage of approximately 2.76x and total asset turnover of approximately 1.07x; improvement in profit margins was the primary factor driving the increase in ROE.【Financial Soundness】The equity ratio declined slightly to 36.3% from 39.7% in the same period of the previous year. However, interest-bearing debt was extremely small, consisting solely of ¥0.12B in long-term borrowings, and interest coverage was at an extremely high level. The primary component of current liabilities was advances received, representing a different type of financial risk from a debt-dependent structure.

Cash Flow Analysis

Because the Company does not disclose a statement of cash flows, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased by +¥1.11B (+65.3%) YoY to ¥2.82B, resulting in a net cash position substantially exceeding interest-bearing debt of ¥0.12B. Although accounts receivable decreased -37.5% YoY, indicating no expansion of receivables accompanying revenue growth, inventories increased +141.8%, suggesting that inventory investment may have absorbed a portion of funds. On the liabilities side, advances received totaled ¥4.61B, accounting for most of current liabilities and creating a structure in which advance receipt of contract-based funds supports the cash balance. Long-term borrowings decreased -34.9% YoY, while accounts payable also declined -34.2%; amid reductions in both borrowings and trade payables, retained earnings increased +32.9%. Overall, profit accumulation and the advances-received structure have raised cash levels, while the increase in inventories should be monitored as a potential future working capital burden.

Quality of Earnings

Of ordinary income of ¥0.45B, non-operating income of ¥0.07B included recurring sources such as subsidy income of ¥0.01B and equity-method investment income of ¥0.02B. Non-operating expenses of ¥0.01B, including interest expenses of ¥0.002B, were immaterial. Extraordinary income of ¥0.01B resulted from gains on the sale of investment securities and was a temporary factor, but its impact on profit before tax of ¥0.46B was small; most earnings were attributable to the improvement in operating income, or core business factors. Comprehensive income was ¥0.31B, approximately equal to net income attributable to owners of the parent of ¥0.30B, indicating limited divergence from valuation-related items such as the valuation difference on other securities. Although accounts receivable decreased while inventories increased, suggesting some change in the timing of revenue recognition and cash conversion, no indications have been identified at this time that materially impair earnings quality from an accrual perspective.

Earnings Forecast and Guidance

The earnings forecast remains unchanged, with no revisions to the revenue or dividend forecasts. The full-year plan calls for revenue of ¥9.70B (+33.8% YoY), operating income of ¥0.45B (+15.8%), and ordinary income of ¥0.45B (-0.7%). As of cumulative Q3, progress was standard at 74.7% for revenue, based on a benchmark of 75%, while operating income and ordinary income had achieved 86.2% and 100.7% of their respective plans. With the plan unchanged, the implied Q4 operating income plan is approximately ¥0.06B, suggesting that the plan may assume that the high profit margin recorded through Q3 will not continue unchanged through the full year.

Shareholder Returns

The full-year dividend forecast is ¥5.00 per share. Since the Q2 dividend was ¥0, the annual dividend is expected to be concentrated at the fiscal year-end. There has been no revision to the dividend forecast. Based on average shares outstanding during the period of 17,106 thousand shares, total annual dividends are estimated at approximately ¥0.09B, implying a payout ratio of approximately 30% against the full-year net income plan of ¥0.28B. The ¥5 dividend in the previous fiscal year, ending March 2025, included a portion funded from capital surplus; in the current fiscal year, the planned full-year profit appears sufficient to cover the dividend. Treasury shares are immaterial, and the total return ratio is not evaluated in light of share repurchases.

Risk Factors

1. Inventory increase risk: Inventories increased +141.8% YoY to ¥0.44B. If this reflects advance procurement for equipment sales and construction projects, it may be viewed as growth investment; however, changes in demand or declines in prices could result in inventory write-downs or an increased working capital burden.

2. Gap between the full-year profit plan and Q4 profitability: Ordinary income had reached 100.7% of the full-year plan on a cumulative Q3 basis, while the plan remains unchanged. Depending on the timing of project acceptance and cost deployment in Q4, the high cumulative profit margin may not be reflected unchanged in the full-year results.

3. Performance obligation risk associated with the advances-received structure: Advances received accounted for ¥4.61B of current liabilities totaling ¥5.60B. Although this structure is advantageous from a funding perspective, concentration of the associated delivery and service performance obligations or project delays could cause fluctuations in revenue recognition and working capital.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Although profitability improved substantially from the previous year, both the operating margin and net income margin remain below the industry median.

Growth and Capital Efficiency

The revenue growth rate significantly exceeded the industry median, demonstrating a high rate of growth close to the upper bound of the IQR.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. SG&A expenses increased by only +5.0% compared with revenue growth of +21.7%, and the operating margin improved by approximately 4.7pt YoY. The restraint in cost increases accompanying revenue growth represents a structural change that can be positively evaluated from the perspective of earnings quality.

2. Progress against the full-year plan was 74.7% for revenue, compared with 100.7% for ordinary income and 107.9% for profit attributable to owners of the parent, indicating that profit performance was running ahead. With the plan unchanged, attention should be paid to the possibility that the plan incorporates an assumption of slower Q4 profitability compared with the cumulative Q3 level.

3. Inventories increased +141.8% YoY, while accounts receivable decreased -37.5% and cash and deposits increased +65.3%. Changes in the composition of working capital warrant monitoring from both the perspectives of cash efficiency and inventory risk.

Theoretical Share Price (Reference Value)

Sensitivity: ¥179–¥189 at cost of equity ±1%; ¥184–¥184 at ω±0.1.

Notes:

• Because net income progress against the full-year forecast (108%) exceeds the standard benchmark (75%), forecast EPS has been adjusted upward within a range capped at +10% (because companies whose progress is ahead of schedule tend to exceed forecasts; the adjustment 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 have been 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: 2026-08 / This is a mechanically calculated value based solely on publicly disclosed data; it 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 through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. 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, and you should consult a professional as necessary.

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