Insource Co.,Ltd. FY2026 Q3 Earnings Report

Quick View

Executive Summary

Revenue growth continued, but the increase in SG&A expenses exceeded sales growth, causing the growth rate of operating income to decelerate. Revenue was ¥115.8B (+8.9% YoY), operating income was ¥44.5B (+3.7%), ordinary income was ¥45.0B (+4.6%), and net income attributable to owners of the parent was ¥30.8B (+6.2%). The operating margin remained high at 38.4%, but declined from 40.3% in the same period of the previous year, primarily due to the increase in the SG&A ratio.

Factors Affecting Results

【Revenue】Revenue was ¥115.8B, up +8.9% YoY, maintaining its growth trajectory. As the Company operates in a single Education Services segment, there was no change in the business mix, and growth appears to have been driven by expanding demand for corporate training and human-resource development. Progress against the full-year forecast of ¥160.0B was 72.4%, slightly below the standard progress level of 75%.

【Profit and Loss】Operating income was ¥44.5B, up only +3.7% YoY, below the revenue growth rate. SG&A expenses increased to ¥43.9B (+13.2% YoY), outpacing revenue growth, and the SG&A ratio rose to 37.9% from 36.5% in the same period of the previous year. The gross margin also edged down to 76.3% from 76.8%. Ordinary income of ¥45.0B exceeded operating income, due to non-operating income that included a gain on the sale of securities of ¥0.4B, indicating a certain degree of support from sources outside the core business. Extraordinary items were immaterial, consisting of a loss on disposal of fixed assets of ¥0.0B, and had a limited impact on net income of ¥30.8B. Overall, the Company achieved higher revenue and profit, but profit growth decelerated due to expenses increasing ahead of revenue growth.

Key Financial Metrics

【Profitability】The operating margin of 38.4% and net margin of 26.6% were both high, but declined from 40.3% and 27.2%, respectively, in the same period of the previous year, as the increase in SG&A expenses somewhat weighed on profitability.【Cash Flow Quality】The difference between ordinary income and net income was small, and excluding the ¥0.4B gain on the sale of securities included in non-operating income, almost all profit was derived from the core business.【Investment Efficiency】Annualized ROE was 30.4%, decomposed into a net margin of 26.6% × total asset turnover of 0.93x × financial leverage of 1.23x, demonstrating high capital efficiency without reliance on leverage.【Financial Soundness】The Company maintained an extremely conservative financial base, with an equity ratio of 81.3% (up from 77.3% in the previous year), a current ratio of 338.7%, and a debt-to-equity ratio of 0.23x.

Cash Flow Analysis

Although detailed cash flow statement data is not included in the disclosed information, fund movements can be assessed from changes in the balance sheet. Cash and deposits were ¥82.2B, almost flat compared with ¥81.9B in the same period of the previous year, and remained high at 49.5% of total assets. Retained earnings increased to ¥123.6B, while net assets expanded to ¥135.1B from ¥124.9B in the previous year. Current liabilities remained limited at ¥30.0B and could be covered almost entirely by cash and deposits, indicating little concern regarding liquidity management. The accumulation of retained earnings is further strengthening the financial base.

Earnings Quality

The majority of profit was derived from operating activities, and earnings quality was generally sound. Of the ¥0.6B in non-operating income, ¥0.4B was a gain on the sale of securities, which should be distinguished as a non-recurring item. Extraordinary losses consisted only of a ¥0.0B loss on disposal of fixed assets and had a limited impact on net income. The gap between ordinary income of ¥45.0B and net income of ¥30.8B was attributable to income taxes and other taxes (an effective tax rate of approximately 31.7%), while distortion from non-operating and extraordinary items was limited. However, the fact that the 3.7% growth rate in operating income fell below the 8.9% revenue growth rate suggests an increase in accruals due to rising expenses. In assessing the sustainability of profit growth, it is necessary to closely monitor profit trends on a core-business basis, excluding the gain on the sale of securities.

Earnings Forecast and Guidance

Against the full-year Company forecasts of revenue of ¥160.0B, operating income of ¥63.8B, and ordinary income of ¥64.3B, progress for the cumulative Q3 period was 72.4% for revenue, 69.7% for operating income, and 69.9% for net income. Revenue progress was slightly below the standard level of 75%, while operating income progress was 5.3 points below that level. Accordingly, the Company needs revenue of ¥44.2B and operating income of ¥19.3B (a margin of 43.7%) in Q4. This would be approximately 5.3 points above the cumulative operating margin of 38.4%, making improvement in Q4 profitability the key to achieving the full-year plan. There was no revision to the earnings forecast during the quarter, although the dividend forecast was revised.

Shareholder Returns

The annual dividend forecast for the fiscal year ending September 2026 is ¥35.00 per share, comprising an ordinary dividend of ¥29.50 and a commemorative dividend of ¥5.50. Based on the full-year net income forecast of ¥44.0B and the average number of shares outstanding during the period of 83,996 thousand shares, the annual total dividend is calculated at approximately ¥29.4B, resulting in a payout ratio of approximately 66.8%. The payout ratio calculated using only the ordinary dividend is approximately 56.3%, indicating relatively strong alignment with the earnings level when the commemorative dividend is excluded. The Q2 dividend was ¥0, and the annual dividend is scheduled to be paid in a lump sum at the fiscal year-end. Financial capacity, including cash and deposits of ¥82.2B and an equity ratio of 81.3%, provides the foundation for supporting this dividend level. No disclosure regarding share repurchases has been identified.

Risk Factors

1. Sustainability of declining profitability: SG&A expenses increased +13.2% YoY, exceeding the +8.9% revenue growth rate, and the operating margin declined by approximately 1.9pt YoY. It will be necessary to determine in future quarters whether this increase in expenses represents growth investment or the conversion to fixed costs.

2. Risk of failing to achieve the full-year profit plan: Achieving the full-year operating income forecast requires an operating margin of 43.7% in Q4, necessitating improvement from the cumulative actual result of 38.4%. The progress rate of 69.7% is below the standard level of 75%.

3. Risk of fluctuations in demand for education and training: As the Company operates in a single Education Services segment, a reduction in corporate training budgets or competition from rival online training platforms could directly affect revenue growth.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the operating margin and net margin significantly exceeded the industry median, placing the Company among the high-profitability group within the industry.

Growth and Capital Efficiency

The revenue growth rate was slightly below the industry median, leaving growth performance at a mid-range level within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The operating margin of 38.4% and annualized ROE of 30.4% are notable for achieving both high profitability and capital efficiency under low leverage, with a debt-to-equity ratio of 0.23x.

2. While revenue increased +8.9% YoY, SG&A expenses increased +13.2%, outpacing revenue growth, causing operating income growth to remain at +3.7%. The nature of the increase in expenses—whether growth investment or conversion to fixed costs—will be a key focus going forward.

3. Achieving the full-year operating income forecast requires a recovery in Q4 profitability, with the margin rising to 43.7%; monitoring progress will therefore be useful.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥270–¥285 at ±1% for the cost of equity, and ¥275–¥282 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• As 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 price or a recommendation of any specific investment action, nor does it predict or guarantee future stock prices.)

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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 discretion and responsibility, after consulting professionals as necessary.

---End of Report---