MIGALO HOLDINGS Inc. FY2027 Q1 Earnings Report

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Executive Summary

Although revenue growth was secured in Q1, Operating Income and Ordinary Income declined slightly from the previous year, while Net Income attributable to owners of the parent increased due to the recognition of extraordinary income. Revenue was ¥148.4B (+4.0% YoY), Operating Income was ¥9.7B (-0.2%), Ordinary Income was ¥7.7B (-1.2%), and Net Income attributable to owners of the parent was ¥5.37B (+7.5%). While the gross profit margin improved to 17.2% (16.5% in the previous year), the SG&A expense ratio increased to 10.6% (9.6% in the previous year), offsetting the gross profit improvement. In addition, higher interest expenses pressured Ordinary Income. A gain on the sale of investment securities of ¥0.29B boosted final profit.

Factors Affecting Business Performance

【Revenue】Revenue was ¥148.4B, representing a +4.0% YoY increase. By segment, DXRealEstate maintained its position as the core business in terms of scale, with revenue of ¥137.1B (92.4% composition ratio, +1.5% YoY), while DXPromotion recorded strong growth of ¥11.7B (7.9% composition ratio, +46.5% YoY). Overall growth was primarily driven by the expansion of DXPromotion.

【Profit and Loss】Operating Income was ¥9.7B, essentially flat (-0.2% YoY). Although the gross profit margin improved by +0.7pt, the SG&A expense ratio rose by +1.0pt, offsetting the improvement. Segment profit diverged significantly, with DXRealEstate reporting a decline to ¥12.1B (-9.0% YoY) and DXPromotion posting substantial growth to ¥1.0B (+223.8% YoY). Among non-operating items, interest expenses increased to ¥1.73B (¥1.54B in the previous year), resulting in Ordinary Income of ¥7.7B (-1.2% YoY). A gain on the sale of investment securities of ¥0.29B was recorded as extraordinary income, resulting in Profit Before Tax of ¥8.0B (+2.4% YoY) and Net Income attributable to owners of the parent of ¥5.37B (+7.5% YoY). The overall structure was one of higher revenue but lower profit at the Operating Income and Ordinary Income stages, followed by profit growth at the final stage due to the contribution of extraordinary income. Overall, the results can be characterized as a higher-revenue, lower-profit performance.

Segment Analysis

DXRealEstate recorded revenue of ¥137.1B (92.4% composition ratio, +1.5% YoY) and Operating Income of ¥12.1B (-9.0% YoY, 8.8% margin). Although it remains overwhelmingly the leading business in terms of scale, profit declined despite higher revenue, suggesting increases in costs or fluctuations in sales efficiency. DXPromotion recorded revenue of ¥11.7B (7.9% composition ratio, +46.5% YoY) and Operating Income of ¥1.0B (+223.8% YoY, 8.8% margin), achieving substantial growth in both revenue and profit and improving its margin to the same level as the core business. Corporate adjustments totaled -¥3.36B, expanding from -¥2.67B in the previous year. Increases in corporate expenses, including holding company operating costs, contributed to the sluggish growth in overall Operating Income. Although the business portfolio remains highly dependent on DXRealEstate, the high growth of DXPromotion is beginning to contribute to diversification of earnings sources.

Key Financial Indicators

【Profitability】The Operating Income margin was 6.6%, down -0.2pt from 6.8% in the previous year. The Ordinary Income margin was 5.2%, down from 5.5% in the previous year. The Net Income margin, based on income attributable to owners of the parent, was 3.6%, up +0.1pt from 3.5% in the previous year. ROE was 3.5%; the level of the Net Income margin and the low total asset turnover of 0.26x are weighing on capital efficiency. 【Cash Quality】Cash and deposits were ¥88.5B, down -11.3% from ¥99.7B in the previous year, while inventories were ¥441.8B, accounting for 77.2% of total assets. Accounts payable were ¥9.2B, a substantial decrease of -58.2% from ¥21.98B in the previous year, indicating increasing cash outflow pressure from a working capital perspective. 【Investment Efficiency】Total asset turnover remained low at 0.26x, with high inventory levels constraining asset efficiency. 【Financial Soundness】The Equity Ratio rose +0.8pt to 27.1% from 26.3% in the previous year. However, interest-bearing debt remained high, comprising short-term borrowings of ¥98.2B, long-term borrowings of ¥168.0B, and bonds of ¥5.2B. The balance sheet structure shows a low Quick Ratio relative to the Current Ratio of 229.7%.

Cash Flow Analysis

As the cash flow statement has not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits were ¥88.5B, down -11.3% from ¥99.7B in the previous year, indicating a declining trend in funds. Meanwhile, inventories increased +2.2% to ¥441.8B from ¥432.1B in the previous year, while accounts payable declined substantially by -58.2% to ¥9.2B from ¥21.98B. This combination of persistently high inventories and reduced accounts payable is a factor increasing cash outflow pressure from working capital. The increase in short-term borrowings to ¥98.2B from ¥85.9B in the previous year (+14.3%) suggests that such working capital requirements are being financed through borrowings. Long-term borrowings decreased -6.7% to ¥168.0B from ¥180.1B in the previous year, indicating progress in repayments, while the debt structure has shifted toward the short-term side.

Quality of Earnings

Current-period earnings were primarily composed of core operating profit. While non-operating income was limited to ¥0.02B, non-operating expenses totaled ¥2.04B, mainly consisting of interest expenses of ¥1.73B, and remain a continuing factor pressuring Ordinary Income. A gain on the sale of investment securities of ¥0.29B was recorded as extraordinary income, representing a one-time factor equivalent to approximately 3.6% of Profit Before Tax of ¥8.0B. Comprehensive Income was ¥5.41B (¥5.37B attributable to owners of the parent), remaining at nearly the same level as Net Income, with no significant divergence attributable to valuation differences on other securities or similar items. From an accrual perspective, deterioration in working capital was observed in the form of persistently high inventories and a substantial decrease in accounts payable. Operating Cash Flow generation may therefore be lagging behind reported profit, and attention should be paid to the conversion of profit into cash.

Earnings Forecast and Guidance

Progress against the full-year plan was 22.8% for Revenue, 29.5% for Operating Income, 31.4% for Ordinary Income, and 35.8% for Net Income attributable to owners of the parent. Compared with the standard Q1 progress rate of 25%, Revenue was slightly below the benchmark, while all profit indicators from Operating Income onward exceeded it, reflecting the improvement in the gross profit margin and the recognition of extraordinary income. The full-year outlook remains unchanged at Revenue of ¥650.0B (+13.0% YoY), Operating Income of ¥33.0B (+7.8% YoY), and Ordinary Income of ¥24.5B (+4.4% YoY). There were no revisions to either the earnings forecast or the dividend forecast during the quarter.

Shareholder Returns

The annual dividend forecast is ¥9.00 per share, implying a Payout Ratio of approximately 38.6% against forecast EPS of ¥23.33. There was no revision to the dividend forecast as of the end of the quarter. Although interest coverage has been secured, given the level of interest-bearing debt and fluctuations in working capital, the sustainability of dividends should be assessed together with the future trend in cash generation.

Risk Factors

1. Inventory Retention and Liquidity Risk: Inventories of ¥441.8B account for 77.2% of total assets, while the Quick Ratio remains low relative to the Current Ratio of 229.7%. The company’s structure is such that progress in inventory sales is directly linked to funding efficiency and cash flow quality.

2. Business Concentration Risk: DXRealEstate accounts for 92.4% of the revenue composition and the majority of Operating Income, creating a structure in which fluctuations in this business have a significant impact on overall performance. Operating Income in this business declined -9.0% YoY.

3. Financial Leverage and Interest Burden Risk: The Equity Ratio remains at 27.1%, while interest-bearing debt, including short-term borrowings of ¥98.2B (+14.3% YoY), remains high. Interest expenses increased to ¥1.73B from ¥1.54B in the previous year, requiring monitoring of the impact of changes in the interest rate environment on Ordinary Income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (real_estate)

Profitability and Returns

Both the Operating Income margin and Net Income margin are slightly below the industry median.

Growth and Capital Efficiency

The Revenue growth rate is broadly in line with the industry median and is positioned in the middle of the industry range.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. Although the gross profit margin improved +0.7pt from the previous year, the increase in the SG&A expense ratio (+1.0pt) and higher interest expenses offset the improvement, leaving profit at the Operating Income and Ordinary Income stages at approximately the previous year’s level. Control of SG&A expenses will be key to sustaining profitability improvements.

2. Inventories account for 77.2% of total assets, while accounts payable decreased substantially by -58.2% YoY. These are structural factors affecting cash generation from working capital, and progress in inventory sales will be an important indicator for measuring funding efficiency going forward.

3. Profit progress against the full-year plan (Operating Income 29.5%, Ordinary Income 31.4%, Net Income 35.8%) exceeded the standard progress rate. The high growth of DXPromotion (Revenue +46.5%, Operating Income +223.8%) is contributing to portfolio diversification and supporting overall profitability.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson type, explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥234–¥247 at Cost of Equity ±1%, and ¥241–¥241 at ω±0.1.

Notes:

• Because Net Income progress against the full-year forecast (36%) exceeds the standard rate (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of schedule tend to outperform forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Net Income is significantly compressed relative to Operating Income due to tax burdens, acquisition-related expenses, and non-controlling interests (Net Income ÷ Operating Income 45%). This value reflects that compression at face value; if these factors are temporary, underlying earnings power may be higher.
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets at 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 / Interest rate reference month: 2026-07 / This value is not a forecast or guarantee of 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. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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