Heiwa (6412) FY2026 Q3 Earnings Report

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Executive Summary

Revenue increased substantially due to the contribution from the consolidation of Accordia Golf Holdings; however, higher financial expenses and tax burdens pressured net income, resulting in a structure where revenue and operating income increased while net income declined. Revenue was ¥2,065.5B (+73.9% YoY), operating income was ¥429.2B (+49.2%), ordinary income was ¥357.5B (+25.4%), and net income was ¥170.8B (-17.0%). Although the Company secured higher earnings at the operating level, a sharp increase in interest expenses (¥5.2B in the previous year → ¥73.0B) and the high tax burden, reflected in an effective tax rate of 52.2%, pressured net income.

Factors Affecting Earnings

【Revenue】The expansion of the Golf Business drove consolidated revenue growth. Revenue from the Golf Business was ¥1,832.1B (+130.3% YoY), accounting for 88.7% of consolidated revenue. Meanwhile, the Amusement Equipment Business recorded ¥233.5B (-40.5%), representing a substantial revenue decline, and the polarization of the business portfolio progressed. Of the ¥877.7B increase in consolidated revenue, the Golf Business was the effective source of growth.

【Profit and Loss】Operating income increased to ¥429.2B (+49.2% YoY), although the operating margin declined to 20.8% from 24.2% in the same period of the previous year, a decrease of 3.4pt. The gross margin also declined to 35.5% from 39.3% in the previous year, with the increase in the cost-of-sales ratio being the primary factor pressuring margins. Ordinary income increased to ¥357.5B (+25.4%), below the operating income growth rate, due to the expansion of non-operating expenses, primarily interest expenses of ¥73.0B (¥5.2B in the previous year). Net income was ¥170.8B (-17.0%), and the high tax burden, reflected in an effective tax rate of 52.2%, further contributed to the failure of operating-level growth to flow through to net income. The conclusion is that revenue and operating income increased, while net income declined.

Segment Analysis

The Golf Business recorded revenue of ¥1,832.1B and segment income of ¥429.9B (23.5% margin, improving by +0.9pt from 22.5% in the previous year), accounting for the majority of consolidated earnings. The provisional accounting treatment for the business combination with PJC Investments (currently Accordia Golf Holdings) in January 2025 was finalized in Q2. The Amusement Equipment Business recorded revenue of ¥233.5B (-40.5% YoY) and segment income of ¥23.1B (-81.9%), with its margin declining substantially to 9.9% from 32.5% in the previous year. Consolidated performance is becoming increasingly dependent on the Golf Business.

Key Financial Indicators

【Profitability】The operating margin of 20.8% declined by 3.4pt from 24.2% in the same period of the previous year, and the gross margin also deteriorated to 35.5% from 39.3%, while the SG&A ratio improved by 0.4pt YoY to 14.7%, indicating progress in fixed-cost absorption.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥356.2B, equivalent to 2.1 times net income of ¥170.8B, indicating solid cash support for earnings.【Investment Efficiency】Annualized ROE was 9.0%, the Equity Ratio was 23.0%, and EPS was ¥172.94 (down 17.1% from ¥208.70 in the previous year).【Financial Soundness】Long-term borrowings were ¥5,833.5B, indicating a large debt burden, while the sharp increase in interest expenses (¥5.2B in the previous year → ¥73.0B) indicates high interest-rate sensitivity. Goodwill was ¥1,417.6B, accounting for 55.8% of net assets of ¥2,539.5B; maintaining the profitability of the acquired assets is therefore important from the perspective of financial soundness.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥356.2B, up 53.0% YoY, equivalent to approximately 2.1 times net income attributable to owners of the parent of ¥170.6B. Based on this ratio, current-period earnings can be assessed as being generally supported by cash. Investing Cash Flow was an outflow of ¥214.0B, with capital expenditures of ¥228.6B exceeding depreciation and amortization of ¥172.4B, indicating continued investment. Financing Cash Flow was an outflow of ¥166.5B, primarily due to repayments of long-term borrowings of ¥212.6B and dividend payments of ¥78.6B. Free Cash Flow (OCF + Investing Cash Flow) was secured at ¥142.2B, absorbing the financing cash flow outflow within the scope of FCF. In terms of working capital, inventories increased by ¥10.0B and trade payables decreased by ¥16.2B, both exerting a negative impact on cash; nevertheless, securing positive FCF after absorbing corporate income tax payments of ¥204.3B and interest payments of ¥39.0B is noteworthy from the perspective of cash flow quality.

Earnings Quality

The divergence between ordinary income and net income was attributable to the heavy tax burden. Against pretax income of ¥357.7B, corporate income taxes and other taxes of ¥186.9B were recorded, resulting in a high effective tax rate of 52.2%. Non-operating income was ¥13.4B, including relatively small items such as dividend income of ¥1.5B, while non-operating expenses reached ¥85.1B. The largest factor was interest expenses of ¥73.0B, which surged from ¥5.2B in the same period of the previous year. Extraordinary gains and losses were approximately balanced, with extraordinary income of ¥2.6B and extraordinary losses of ¥2.5B, indicating a limited impact from temporary factors. Comprehensive income was ¥175.2B, with only a small divergence from net income of ¥170.8B. The impact of other comprehensive income, including valuation difference on securities of ¥4.3B, was also minor and was not a factor materially distorting earnings quality. Given that OCF exceeded net income, the principal factors pressuring earnings quality were non-operating items—financial expenses and tax burdens.

Earnings Forecast and Guidance

Against the full-year company forecasts of revenue of ¥2,578.0B, operating income of ¥425.0B, and ordinary income of ¥317.0B, the Q3 cumulative progress rates were 80.1% for revenue, 101.0% for operating income, and 112.8% for ordinary income. Operating income and ordinary income have already exceeded their full-year forecasts and are substantially above the usual Q3 progress benchmark of approximately 75%. This structure suggests that the Company may have incorporated a significant decline in earnings or conservative assumptions for Q4. Net income also substantially exceeded the full-year forecast of ¥79.0B, reaching ¥170.8B on a Q3 cumulative basis, making developments in Q4 a focus of attention.

Shareholder Returns

The interim dividend was ¥40.00 per share, and the Payout Ratio based on this dividend was 23.4% against net income of ¥170.8B. The full-year company forecast indicates an annual dividend of ¥80.00 and forecast EPS of ¥80.10, implying a forecast Payout Ratio of approximately 99.9%. Interim dividend FCF coverage (FCF of ¥142.2B ÷ equivalent total dividend amount of ¥78.6B) was approximately 3.6 times, indicating that dividends for the time being are being covered within the range of cash-generating capacity. No share repurchases were confirmed.

Risk Factors

1. High leverage and interest burden: Due to the debt structure, including long-term borrowings of ¥5,833.5B, interest expenses surged from ¥5.2B in the same period of the previous year to ¥73.0B. With an Equity Ratio of 23.0%, the Company has high sensitivity to interest-rate increases and refinancing terms.

2. Goodwill dependence: Goodwill totaled ¥1,417.6B, accounting for 55.8% of net assets of ¥2,539.5B. If the earnings plan for the acquired business falls short of expectations, the risk of goodwill impairment could affect shareholders’ equity.

3. Deterioration in the profitability of the Amusement Equipment Business: Revenue from the Amusement Equipment Business declined 40.5% YoY, while segment income declined 81.9%, and its margin fell from 32.5% to 9.9%. Earnings diversification across businesses has weakened.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company demonstrates profitability substantially above the industry median.

Growth and Capital Efficiency

Reflecting the expansion of the consolidated scope through M&A, the Company’s growth rate is substantially above the industry average.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Operating income of ¥429.2B had already exceeded the full-year forecast of ¥425.0B on a Q3 cumulative basis, but net income declined 17.0% YoY due to the sharp increase in interest expenses and the high tax burden (effective tax rate of 52.2%). A structure in which operating-level growth is not readily reflected in net income has been confirmed.

2. While the expansion of the Golf Business (revenue +130.3%) drove consolidated performance, the Amusement Equipment Business experienced substantial declines in both revenue and earnings (revenue -40.5%, segment income -81.9%), resulting in reduced earnings diversification across the business portfolio.

3. OCF was 2.1 times net income and FCF of ¥142.2B was secured, confirming cash support for earnings. However, the financial structure of long-term borrowings of ¥5,833.5B and goodwill of ¥1,417.6B (55.8% of net assets) requires monitoring of future interest payment burdens and the recoverability of goodwill.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,286–¥2,409 at cost of equity ±1%, and ¥2,339–¥2,350 at ω±0.1.

Notes:

• Goodwill amortization of ¥75.8 per share is added back to earnings (to account for a non-cash expense and comparability with IFRS companies).
• Because net income progress against the full-year forecast (216%) exceeds the standard benchmark (75%), forecast EPS is adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to outperform their forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Net income is substantially compressed relative to operating income due to the tax burden, acquisition-related expenses, and non-controlling interests (net income ÷ operating income 19%). This figure 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.
• Goodwill represents a high proportion of net assets, and the assumptions would change significantly if impairment occurred.
• Net assets as of the quarter-end are used (there is a timing discrepancy relative to the full-year forecast).

(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 through analysis of 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 discretion and responsibility, after consulting professionals as necessary.

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