AVAL DATA (6918) FY2026 Q3 Earnings Report

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Executive Summary

Operating income contracted at a faster pace than the decline in revenue as a substantial decrease in revenue was compounded by weaker fixed-cost absorption. Revenue was ¥6.34B (down -23.9% YoY), operating income was ¥0.47B (down -57.1%), ordinary income was ¥0.55B (down -53.8%), and net income was ¥0.40B (down -55.6%). The primary factor was that the SG&A expense ratio rose to 21.3% (17.7% in the same period of the previous year) because SG&A expense reductions failed to keep pace with declining sales of both the core consignment products and in-house products.

Factors Affecting Performance

【Revenue】Revenue was ¥6.34B, down 23.9% year on year. By segment, ConsignmentProducts (consignment products) accounted for ¥4.06B, or 64.0% of the total, while InHouseProducts (in-house products) accounted for ¥2.28B, or 36.0%. Both segments appear to have been affected by shrinking demand, and the gross profit margin also declined to 28.7% (30.9% in the same period of the previous year).

【Profit and Loss】Operating income was ¥0.47B, down 57.1% year on year, representing a significantly greater decline than the -23.9% decrease in revenue. SG&A expenses declined 8.5% year on year to ¥1.35B, but the decrease did not match the decline in revenue, resulting in weaker fixed-cost absorption. Ordinary income of ¥0.55B exceeded operating income by ¥0.08B, supported by non-operating income primarily consisting of ¥0.07B in dividend income. The ¥0.07B gain on the sale of investment securities recorded in the same period of the previous year was absent in the current period, and net income of ¥0.40B (down -55.6%) was therefore largely a decline attributable to the core business. The results are classified as lower revenue and lower earnings.

Segment Analysis

ConsignmentProducts (consignment products) generated revenue of ¥4.06B, operating income of ¥0.36B, and a profit margin of 8.9%. InHouseProducts (in-house products) generated revenue of ¥2.28B, operating income of ¥0.58B, and a profit margin of 25.6%, demonstrating substantially superior profitability for in-house products. The profit margin of in-house products was approximately 2.9 times that of consignment products and represents a source of earnings supporting the overall profit margin of 7.4%. Going forward, changes in the in-house product mix will have a direct impact on the company-wide profit margin.

Key Financial Metrics

【Profitability】The operating margin was 7.4% (13.2% in the previous year), while the net profit margin was 6.3% (10.9% in the previous year); both declined substantially. ROE (annualized) was 2.6% and ROIC (annualized) was 3.3%, indicating low earnings-generating capability relative to the substantial capital base. 【Cash Quality】Annualized DSO was 82 days, DIO was 373 days, and CCC was 419 days, indicating significant working-capital retention and room for improvement in the conversion of earnings into cash. 【Investment Efficiency】Total asset turnover remained low at 0.378x, indicating weak revenue generation relative to the asset base. Investment securities amounted to ¥4.13B, representing 18.5% of total assets, and are a factor affecting the flexibility of capital allocation. 【Financial Soundness】The equity ratio was 91.4% (90.2% in the previous year), the current ratio was 1,558.8%, and the debt-to-equity ratio was 0.09x, indicating an extremely conservative financial structure.

Cash Flow Analysis

Although individual data from the cash flow statement has not been disclosed, the balance-sheet movements indicate that cash and deposits amounted to ¥6.46B, up from ¥6.12B in the same period of the previous year. Meanwhile, working-capital metrics of annualized DSO of 82 days, DIO of 373 days, and CCC of 419 days indicate substantial funds tied up in accounts receivable and inventory. Accounts payable decreased 48.4% from ¥1.16B in the same period of the previous year to ¥0.60B, suggesting that a contraction in purchasing activity or changes in payment timing may have affected cash management. Investment securities increased 54.3% from ¥2.68B to ¥4.13B, indicating that a portion of surplus funds was directed toward securities investments. Overall, although the cash balance itself has been maintained, improving inventory and receivables turnover will be key to enhancing future cash-generation capacity.

Quality of Earnings

The current-period profit before tax of ¥0.55B consisted of operating income of ¥0.47B plus ¥0.09B in non-operating income, primarily ¥0.07B in dividend income; non-operating income accounted for only 1.3% of revenue and can be regarded as a recurring component of the earnings structure. Extraordinary losses consisted solely of a ¥0.003B loss on the disposal of fixed assets, and there were no temporary earnings-boosting factors in the current period such as the ¥0.07B gain on the sale of investment securities recorded in the same period of the previous year. The absence of this one-time gain explains why the decline in net income of -55.6% was somewhat smaller than the -57.1% decline in operating income, while the deterioration in underlying earnings power is more strongly reflected in operating income. Given the elevated levels of inventory and accounts receivable, an increase in accounting accruals (uncollected or unconsumed assets) may have somewhat weakened earnings quality.

Earnings Forecast and Guidance

Progress against the full-year forecast was 73.7% for revenue (forecast: ¥8.60B), 61.3% for operating income (forecast: ¥0.77B), 64.3% for ordinary income (forecast: ¥0.86B), and 71.6% for net income (forecast: ¥0.56B). Compared with the standard progress rate of 75% after three quarters of cumulative Q3 results, progress in operating income and ordinary income was substantially below expectations, requiring operating income of ¥0.298B in Q4 (equivalent to a single-quarter operating margin of 13.2%). This is substantially above the Q3 cumulative operating margin of 7.4%, and achieving the full-year forecast will require a recovery in the gross profit margin and improved fixed-cost absorption.

Shareholder Returns

The interim dividend was ¥45.00 per share, and the full-year dividend forecast is ¥99.00. The forecast payout ratio against forecast full-year EPS of ¥91.27 is approximately 108.5%, indicating that dividends exceeding earnings are planned. The payout ratio (dividends only) is calculated using net income as the numerator and total dividends as the denominator under a single definition; because share buybacks are not included in the disclosed information, the total return ratio is not discussed. Cash and deposits of ¥6.46B and an equity ratio of 91.4% provide financial capacity to support dividends exceeding earnings; however, it is necessary to monitor the impact on the pace of retained-earnings accumulation if the recovery in business performance is delayed.

Risk Factors

1. Declining revenue and weaker fixed-cost absorption: While revenue declined 23.9% year on year, SG&A expense reductions were limited to 8.5%, causing the SG&A expense ratio to rise from 17.7% to 21.3%. A delayed recovery in demand could lead to a further decline in the operating margin.

2. Funds tied up in inventory and accounts receivable: Annualized DIO of 373 days, DSO of 82 days, and CCC of 419 days have all lengthened substantially, and inventory valuation and collection risks during demand fluctuations could affect profit margins and capital efficiency.

3. Price volatility risk of investment securities: Investment securities amounted to ¥4.13B, representing 18.5% of total assets, while the valuation difference on other securities reached ¥2.31B. This composition means that market-price fluctuations directly affect net assets and comprehensive income.

Industry Benchmark (Reference; Company Analysis)

Key Takeaways from the Earnings Results

1. The decline in operating income was 57.1% versus a 23.9% decrease in revenue, highlighting the structural issue of weaker fixed-cost absorption as the business scale contracts. The 25.6% profit margin of the in-house products segment substantially exceeded the 8.9% margin of the consignment products segment, indicating that segment mix has a significant impact on company-wide profitability.

2. Annualized CCC of 419 days, DSO of 82 days, and DIO of 373 days substantially exceed general industry cautionary benchmarks, and the financial data indicates that funds tied up in working capital are delaying the conversion of earnings into cash.

3. The full-year forecast payout ratio is approximately 108.5%, exceeding earnings, and the extent to which the required Q4 operating margin of 13.2% (versus the Q3 cumulative actual result of 7.4%) is achieved will be a key focus affecting the consistency of earnings, dividends, and cash generation.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,663–¥2,805 at ±1% for the cost of equity, and ¥2,714–¥2,745 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets as of the quarter-end 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 (Ohlson-type, explicit five-year fade) / Interest-rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it does not constitute 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 responsibility, after consulting with a professional as necessary.

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