GLORY (6457) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for Q3 of the fiscal year ending March 2026 showed a significant decline in both revenue and earnings, primarily due to lower orders in major domestic markets and deteriorating profitability. Revenue was ¥242.38B (-13.4% YoY), Operating Income was ¥14.36B (-52.5%), Ordinary Income was ¥10.24B (-56.2%), and Net Income was ¥4.50B (-66.8%), with all items recording double-digit declines. The decline in earnings, substantially exceeding the decline in revenue, indicates that Operating Leverage reversed under a profit structure with a heavy fixed-cost burden, as all three domestic markets—Financial, Retail & Transportation, and Amusement—simultaneously posted lower revenue. Overseas markets expanded in both revenue and earnings, serving as a support for consolidated earnings.

Factors Affecting Results

【Revenue】Revenue was ¥242.38B, down -13.4% YoY. In Japan, the Financial market declined -41.0%, the Retail & Transportation market declined -26.7%, and the Amusement market declined -25.4%, resulting in substantial revenue declines. Meanwhile, overseas markets remained broadly flat at ¥153.58B, up +0.2%, and came to account for the largest share of revenue at 63.4%.

【Profit and Loss】Operating Income was ¥14.36B, down -52.5% YoY, and the Operating Margin declined 4.9pt to 5.9% from 10.8% in the previous year. SG&A expenses accounted for 40.7% of revenue, compared with a Gross Margin of 46.6%; the downward rigidity of expenses amplified the compression of earnings during the revenue decline. Ordinary Income was ¥10.24B (-56.2%), with non-operating expenses, including ¥1.70B in interest expense and derivative valuation losses, contributing to the decline. The ¥1.18B in extraordinary gains included a ¥0.66B gain on the sale of investment securities and represented a temporary factor. Corporate income taxes and other taxes amounted to ¥6.84B against Pretax Income of ¥11.34B, resulting in an effective tax rate of approximately 60.3% and significantly weighing on the conversion to Net Income of ¥4.50B. The divergence between Ordinary Income and Net Income was primarily attributable to the heavy tax burden, ultimately resulting in lower revenue and earnings.

Segment Analysis

Overseas markets are the core business, accounting for 63.4% of revenue, and were the only segment to achieve higher earnings, with Operating Income of ¥6.08B (+33.0% YoY). Its contribution to consolidated Operating Income of ¥14.36B was 42.4%, making it the largest source of earnings. In contrast, all three domestic markets reported lower earnings: the Financial market posted Operating Income of ¥2.51B (-68.6%), the Retail & Transportation market ¥1.12B (-89.0%), and the Amusement market ¥4.98B (-35.7%). The Amusement market had the highest margin at 28.8%, followed by the Financial market at 10.0%, overseas markets at 4.0%, and the Retail & Transportation market at 2.8%, indicating significant differences in profitability among segments. The decline in revenue and deterioration in profitability in domestic markets were the primary causes of the consolidated earnings decline, while higher earnings from overseas markets partially offset the impact.

Key Financial Metrics

Profitability: ROE 2.0%, Operating Margin 5.9% (10.8% in the previous year).
Financial soundness: Equity Ratio 53.1%; Current Assets of ¥216.24B versus Current Liabilities of ¥115.78B, resulting in a Current Ratio of approximately 186.8%.
Per-share metrics: EPS ¥80.68 (¥237.00 in the previous year), BPS ¥4,285.13.

Cash Flow Analysis

Cash and deposits were ¥46.62B, down from ¥51.68B at the end of the previous fiscal year. Interest-bearing debt consisted mainly of ¥33.27B in long-term borrowings, ¥24.20B in bonds, and ¥22.05B in short-term borrowings, among other items, and financial leverage has not changed significantly. Given the decline in earnings, the company’s ability to generate cash from operating activities is highly likely to have decreased compared with the previous year. Confirmation of future cash flow statements will be important in assessing the relationship between earnings and cash generation.

Quality of Earnings

Net Income of ¥4.50B was substantially below Ordinary Income of ¥10.24B, primarily due to the high effective tax rate of approximately 60.3%. Of the ¥1.18B in extraordinary gains, the ¥0.66B gain on the sale of investment securities was a temporary factor, suggesting that recurring earnings power was even lower after excluding this item. Non-operating expenses totaled ¥5.82B, equivalent to 2.4% of revenue, and included ¥1.70B in interest expense and ¥0.44B in foreign exchange losses. Comprehensive Income of ¥13.17B substantially exceeded Net Income of ¥4.50B, due to ¥9.43B in foreign currency translation adjustments; this does not indicate recurring earnings power.

Earnings Forecast and Guidance

Progress toward the full-year company forecasts—Revenue of ¥340.00B, Operating Income of ¥29.50B, and Net Income of ¥14.50B—is 71.3%, 48.7%, and 31.0%, respectively. Compared with the standard progress rate of 75% at the Q3 stage, Revenue is only slightly below pace, while progress in Operating Income and Net Income is substantially behind. Achieving the plan would require a sharp recovery in the Q4 Operating Margin to approximately 15.5%, representing a significant gap from the cumulative margin of 5.9% achieved to date.

Shareholder Returns

The dividend is ¥56 for the interim period and ¥112 in the full-year forecast. Applying the full-year forecast dividend of ¥112 to the average number of shares outstanding during the period of 54,480 thousand shares results in total dividends of approximately ¥6.10B, implying a Payout Ratio of approximately 42.1% against the company’s forecast Net Income of ¥14.50B. This is a Payout Ratio based solely on dividends and does not represent the Total Return Ratio including share repurchases. Although the plan calls for an increase from the previous year’s dividend of ¥54, cumulative Q3 Net Income progress remains at only 31.0% of the plan, meaning that the realized Payout Ratio will depend on the full-year earnings outcome.

Catalysts

【Short term】Whether orders recover and margins improve in the domestic Financial, Retail & Transportation, and Amusement markets during Q4 will be critical to achieving the full-year plan. 【Long term】Key areas of focus include whether revenue and earnings growth in overseas markets will continue and the pace of growth by business in Europe (GGS, Sitrade, Acrelec, and Flooid).

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Return

The company’s profitability is below the industry median, with the gap particularly large for Net Profit Margin.

Growth and Capital Efficiency

While many companies in the industry are recording revenue growth, the company has shifted to revenue contraction and compares unfavorably on a relative basis.

※Source: Company analysis

Risk Factors

1. Domestic demand and project execution risk: All three domestic markets recorded substantial simultaneous revenue declines—Financial -41.0%, Retail & Transportation -26.7%, and Amusement -25.4%—and a delayed recovery in orders during Q4 could result in failure to achieve the full-year plan.

2. High tax burden and non-operating expense risk: The effective tax rate of approximately 60.3%, interest expense of ¥1.70B, and non-operating expenses of ¥5.82B, including derivative valuation losses, are significantly weighing on the conversion from Ordinary Income to Net Income.

3. Rising dependence on overseas markets: Overseas markets are a core business accounting for 42.4% of consolidated Operating Income. Consequently, foreign exchange fluctuations— the company recorded ¥0.44B in foreign exchange losses during the current period—and local demand trends are having an increasing impact on consolidated results.

Key Takeaways from the Earnings Results

1. The contrasting trends of simultaneous revenue and earnings declines in all three domestic markets and earnings growth in overseas markets are shifting the center of the business structure overseas. Since the 4.0% margin in overseas markets is below the 28.8% margin in the Amusement market, changes in revenue composition alone are unlikely to lead directly to a sharp recovery in the consolidated margin.

2. Progress toward the full-year plan is 71.3% for Revenue, compared with 48.7% for Operating Income and 31.0% for Net Income, highlighting delays on the earnings front. The Operating Margin required in Q4 would be substantially above the cumulative actual margin of 5.9%, making the year-end earnings trend a key focus.

3. The ¥0.66B gain on the sale of investment securities included in extraordinary gains was a temporary factor and should be considered when assessing the level of recurring earnings power excluding this item.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,864–¥4,088 at ±1% for the Cost of Equity, and ¥3,963–¥3,980 at ±0.1 for ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (Net Income ÷ Operating Income 49%). This value reflects that compression at face value; if these factors are temporary, underlying value may be higher.
• Since forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the quarter-end are used (there is a timing difference from 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 through AI-integrated analysis of XBRL earnings summary data and PDF earnings presentation materials. 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, with consultation with a professional as necessary.

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AI Financial Analysis

Executive Summary

Glory’s FY2026 Q3 cumulative earnings were weak, with sharp profit contraction despite broadly stable overseas revenue. Revenue declined 13.4% YoY to ¥242.4bn. Operating income fell 52.5% to ¥14.4bn, reducing the operating margin to 5.9% from 10.8% a year earlier, a 488bp compression. Gross profit declined 10.5% to ¥113.0bn, although gross margin improved 149bp to 46.6%. The margin pressure therefore arose below gross profit, as SG&A increased 2.7% to ¥98.7bn while revenue contracted. SG&A represented 40.7% of revenue, up from 34.3% in the prior-year period. Ordinary income fell 56.2% to ¥10.2bn, reflecting the lower operating result and a ¥4.1bn net non-operating expense. Profit attributable to owners of the parent dropped 66.7% to ¥4.4bn, and net margin compressed 291bp to 1.8%. The 60.3% effective tax rate was a major additional drag, leaving the tax burden at only 0.388. Overseas Market was the core business by segment profit contribution, generating ¥6.1bn, or 42.4% of consolidated operating income, and was the only major segment to expand segment profit. Domestic Financial Market and Distribution & Transportation Market businesses experienced particularly steep revenue and profit declines. Pachinko & Amusement Market retained the highest segment margin at 28.8%, but its revenue declined 25.4% YoY. The reported annualized ROE was 2.6%, reflecting weak profitability rather than excessive leverage. Liquidity remains sound, with a 186.8% current ratio and cash equal to 2.11x short-term loans. However, elevated receivable and inventory days point to substantial working-capital intensity at a time of reduced sales. Q3 progress against full-year guidance is behind the normal 75% seasonal benchmark, especially for operating profit and parent profit. The remaining Q4 implied by guidance requires a substantial earnings recovery, making domestic-demand normalization, overseas margin continuity, working-capital discipline, and the high tax burden central variables for the outlook.

Profitability Analysis

The reported annualized DuPont ROE of 2.6% is decomposed into a 1.8% net profit margin, 0.749x asset turnover, and 1.88x financial leverage. The dominant YoY deterioration was in profitability: operating margin contracted 488bp to 5.9%, while net margin declined 291bp to 1.8%. Gross margin improved to 46.6% from 45.1%, indicating that product-level gross profitability was not the primary cause of the earnings decline. Instead, SG&A grew 2.7% despite a 13.4% revenue decline, reducing operating leverage materially. SG&A-to-sales increased 641bp to 40.7%, which is the clearest driver of the operating-margin compression. The five-factor DuPont tax burden of 0.388 was also materially below a normal level, as the effective tax rate reached 60.3%. Interest burden was 0.790, indicating that non-operating costs, including ¥1.7bn of interest expense and ¥4.4bn of FX losses, further reduced conversion from EBIT to pre-tax income. The revenue decline across three domestic-facing segments suggests that the deleveraging is principally demand and volume related, while the fixed or semi-fixed SG&A base has not adjusted commensurately. Overseas Market segment profit increased 33.0% YoY to ¥6.1bn on revenue growth of 0.2%, raising its margin 98bp to 4.0%; this is a constructive offset but not yet sufficient to compensate for domestic weakness. Financial Market revenue fell 41.0% and segment profit fell 68.6%, with margin declining from 18.8% to 10.0%. Distribution & Transportation Market revenue fell 26.7% and segment profit fell 89.0%, compressing margin from 18.3% to 2.8%. Pachinko & Amusement Market revenue declined 25.4% and profit fell 35.7%, though its 28.8% margin remains the group’s highest. Sustainability of the current 2.6% annualized ROE is dependent on restoring domestic segment volume and improving SG&A absorption; the current earnings profile is below normal capital-efficiency thresholds.

Growth Assessment

Revenue weakness was concentrated in domestic businesses, while Overseas Market revenue was effectively flat at ¥153.6bn and became the largest revenue segment, accounting for 63.4% of group sales. Financial Market sales declined to ¥25.1bn from ¥42.5bn, Distribution & Transportation Market sales declined to ¥40.8bn from ¥55.7bn, and Pachinko & Amusement Market sales declined to ¥17.3bn from ¥23.2bn. Overseas Market’s segment profit rose to ¥6.1bn from ¥4.6bn, demonstrating improved profit contribution despite limited top-line growth. By contrast, the steep decline in Distribution & Transportation Market profit to ¥1.1bn from ¥10.2bn indicates a pronounced reduction in fixed-cost absorption or project mix. Gross-margin expansion is favorable, but it has not translated into operating-profit growth because SG&A has remained elevated. FY2026 full-year guidance calls for revenue of ¥340.0bn, operating income of ¥29.5bn, and parent profit of ¥14.5bn. Q3 cumulative progress is 71.3% for revenue, 48.7% for operating income, and 30.3% for parent profit, versus a standard 75% benchmark. Revenue progress is only 3.7 percentage points below the benchmark, whereas operating-profit progress is 26.3 points behind and parent-profit progress is 44.7 points behind. Achieving guidance therefore implies Q4 revenue of ¥97.6bn, operating income of ¥15.1bn, and parent profit of ¥10.1bn. This required Q4 operating income exceeds the Q3 cumulative operating income of ¥14.4bn, underscoring the magnitude of the anticipated exit-rate improvement. The earnings outlook is therefore more reliant on margin recovery and lower below-the-line burdens than on sales growth alone. The ¥11.8bn extraordinary income, including a ¥6.6bn gain on sales of investment securities, supports reported pre-tax income but does not resolve the underlying operating-profit shortfall.

Financial Health

Liquidity is healthy: current assets of ¥216.2bn exceed current liabilities of ¥115.8bn, producing a current ratio of 186.8%, a quick ratio of 146.1%, and working capital of ¥100.5bn. Cash and deposits of ¥46.6bn cover short-term loans of ¥22.1bn by 2.11x. Interest-bearing debt totals ¥55.3bn, comprising ¥22.1bn of short-term loans and ¥33.3bn of long-term loans, while bonds payable add ¥24.2bn to the liability structure. Debt-to-equity is 0.88x and debt-to-capital is 19.5%, both consistent with a manageable capital structure and materially below aggressive-leverage thresholds. The 39.9% short-term debt ratio warrants monitoring, but current assets and cash provide adequate near-term coverage; there is no evident maturity mismatch from the reported balance-sheet structure. Interest coverage of 8.44x remains above the 5x strong-credit benchmark, although it has become more relevant as EBIT has declined. Short-term loans increased ¥6.9bn, or 45.9% YoY, to ¥22.1bn, which indicates greater use of short-term funding amid weaker earnings and should be monitored against working-capital requirements. Treasury stock increased by ¥9.3bn to negative ¥17.0bn, reflecting shareholder distributions or repurchases that reduce balance-sheet equity available as a buffer. Total equity declined ¥2.7bn YoY to ¥228.9bn, although owners’ equity remained substantial at ¥228.3bn. Goodwill of ¥62.0bn equals 27.1% of equity and 14.4% of assets, remaining below the 30% goodwill-to-equity caution threshold. Intangible assets account for 24.8% of total assets, making the balance sheet meaningfully IP- and acquisition-asset intensive. JGAAP goodwill amortization can depress operating income relative to IFRS comparables, while the carrying value still requires continued validation through acquired-business performance.

Notable B/S Changes

Treasury stock: increased by ¥9.27bn to negative ¥16.98bn (-120.4%) - indicates a material increase in shares held in treasury and reduces equity capital available as a balance-sheet buffer. Short-term loans: +¥6.94bn (+45.9%) to ¥22.05bn - increased reliance on short-term funding; liquidity coverage remains sound but this should be assessed alongside the extended working-capital cycle.

Cash Flow Quality

Dividend Sustainability

The declared Q2 dividend is ¥56 per share. Based on Q3 cumulative profit attributable to owners, the calculated dividend payout ratio is 75.1%, which is elevated relative to the sub-60% sustainability benchmark. The full-year forecast dividend is ¥112 per share, equal to 42.1% of forecast EPS of ¥266.15, which is more moderate if the company achieves its full-year earnings target. The difference between the Q3 cumulative payout ratio and the forecast full-year payout ratio highlights the importance of the implied Q4 recovery. Treasury stock expanded by ¥9.3bn YoY, indicating that capital returns have also reduced equity, though the available data does not quantify the current-period buyback amount. Dividend capacity is supported by ¥46.6bn of cash, a 186.8% current ratio, and debt-to-equity of 0.88x. Dividend sustainability will nevertheless depend on restoring operating income, because the current annualized ROE of 2.6% and 1.8% net margin leave limited tolerance for a prolonged earnings downturn. The key dividend variable is whether Q4 parent profit reaches the ¥10.1bn implied by full-year guidance.

Risk Assessment

Business risks include Domestic demand and project-cycle risk is high: Financial Market revenue declined 41.0% YoY, Distribution & Transportation Market revenue declined 26.7%, and Pachinko & Amusement Market revenue declined 25.4%., Operating-leverage risk is high: SG&A increased 2.7% while revenue declined 13.4%, causing a 488bp operating-margin contraction., Manufacturing inventory risk is elevated. The quality alerts identify annualized inventory days of 199 days and 100 days, both above applicable 90-day and 60-day warning levels; this indicates slow inventory conversion and potential inventory-obsolescence exposure in a technology hardware business., Receivables collection risk is elevated, with annualized DSO of 67 days versus a 60-day warning threshold. This increases the capital tied up in customer balances and heightens sensitivity to customer payment timing., The annualized cash conversion cycle alert of 237 days is materially above the 120-day warning threshold. In combination with elevated DSO and inventory days, this indicates a long operating cash cycle and a need for tighter production, inventory, and collections management., FX risk remains relevant to the overseas business, as ¥4.4bn of FX losses were recorded in non-operating expenses..

Financial risks include The HIGH_TAX_BURDEN alert is material: a 0.388 tax burden and 60.3% effective tax rate reduced conversion of ¥11.3bn pre-tax profit into ¥4.4bn parent profit. This is well above a normal corporate tax level and materially weakens earnings quality unless it normalizes., The HIGH_INTEREST_BURDEN alert is material: an interest burden of 0.790 means 21% of EBIT did not convert to pre-tax profit after net non-operating items. Interest expense of ¥1.7bn is covered 8.44x by EBIT, but weaker operating earnings reduce the protection available against funding-cost increases., The CAPITAL_EFFICIENCY alert is material: ROIC of 4.0% is below the 5% warning threshold, showing that operating returns are currently low relative to the capital employed., Short-term loans increased 45.9% YoY to ¥22.1bn. Liquidity ratios remain strong, but a further increase would raise refinancing sensitivity if working-capital conversion remains slow., Goodwill and intangible assets total ¥169.3bn, or 39.2% of total assets. Goodwill-to-equity of 27.1% is presently within the healthy range, but profitability deterioration increases the importance of acquired-business performance and impairment testing..

Key concerns include Highest priority: delivery of the unusually large implied Q4 recovery needed to meet full-year operating-income and parent-profit guidance., High priority: normalization of SG&A-to-sales from the current 40.7%, particularly in domestic segments where volume decline has sharply reduced cost absorption., High priority: inventory and receivable conversion, given the DSO, DIO, and cash-conversion-cycle quality alerts., Medium-high priority: persistence of the 60.3% effective tax rate, which caused parent profit to decline faster than operating income., Medium priority: sustainability of Overseas Market’s improved profitability, which is currently the principal offset to domestic segment weakness..

Investment Implications

Key takeaways include Gross margin improved 149bp to 46.6%, but operating margin fell 488bp to 5.9% because SG&A did not flex down with revenue., Overseas Market is the core business by operating-profit contribution, providing ¥6.1bn of segment profit and 42.4% of consolidated operating income., Domestic segment weakness is broad-based and is most severe in Financial Market and Distribution & Transportation Market., Balance-sheet liquidity is solid, but the working-capital efficiency alerts and higher short-term borrowings warrant close monitoring., The implied Q4 earnings required to meet guidance are substantial, particularly ¥15.1bn of operating income and ¥10.1bn of parent profit..

Metrics to watch include Quarterly revenue and segment margin recovery in Financial Market and Distribution & Transportation Market, Overseas Market revenue growth and segment margin retention, SG&A-to-sales ratio versus the FY2026 Q3 level of 40.7%, Operating-margin recovery from 5.9%, Effective tax rate and tax burden normalization from 60.3% and 0.388, Annualized DSO, inventory days, and cash conversion cycle, Short-term loan balance and interest coverage, Goodwill and intangible-asset carrying values relative to acquired-business profitability.

Regarding relative positioning, Glory retains a comparatively sound liquidity and leverage profile for a manufacturing and technology-equipment group, with current ratio of 186.8%, debt-to-equity of 0.88x, and interest coverage of 8.44x. Its current relative weakness lies in sub-scale profitability and capital efficiency: 5.9% operating margin, 1.8% net margin, 2.6% annualized ROE, and 4.0% ROIC are below the stated quality benchmarks. The group’s improved overseas profit contribution is a relative strength, while domestic demand sensitivity and extended working-capital conversion are the principal constraints.