Sokensha (7413) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, Operating Income declined significantly due to the combination of lower Revenue and rigid SG&A expenses. Revenue was ¥36.6B (-3.8% YoY), Operating Income was ¥0.3B (-58.8%), Ordinary Income was ¥0.3B (-59.6%), and Net Income was ¥0.3B (-19.5%). Although the gross margin improved slightly to 25.2%, SG&A expenses exceeded the previous-year level despite the Company being in a declining-revenue phase rather than a revenue-growth phase, causing operating leverage to work negatively. The fact that the decline in Net Income was smaller than the decline in Operating Income was supported by extraordinary gains, including gains on the sale of investment securities, as well as a low effective tax rate. Accordingly, recurring earning power should be assessed based on Operating Income of ¥0.3B.

Factors Affecting Earnings

【Revenue】Revenue was ¥36.6B, down 3.8% from ¥38.0B in the same period of the previous year. As a single-segment business engaged in the wholesale of health and natural foods, the slowdown in demand and sales volume appears to have been the primary cause of the decline in Revenue. The gross margin improved slightly to 25.2% from 25.1% in the same period of the previous year; however, gross profit declined to ¥9.2B from ¥9.5B, indicating that improvements in pricing and procurement terms alone were insufficient to offset the decline in Revenue.

【Profit and Loss】SG&A expenses were ¥9.0B, up 0.7% YoY, and the SG&A ratio increased to 24.5% from 23.4% in the same period of the previous year. As a result, Operating Income was ¥0.3B (¥0.6B in the same period of the previous year), while the Operating Margin contracted to 0.7% from 1.7%. Ordinary Income remained at ¥0.3B, affected by ¥0.1B in interest expense among other non-operating expenses. Net Income was ¥0.3B, supported by ¥0.2B in extraordinary gains, including a ¥0.1B gain on the sale of investment securities and a ¥0.1B gain on the sale of fixed assets, as well as the low effective tax rate (approximately ¥0.02B in income taxes and other taxes against ¥0.3B in Profit Before Tax). The Company recorded lower Revenue and lower profits.

Key Financial Metrics

【Profitability】The Operating Margin was 0.7%, down approximately 1.0pt from 1.7% in the same period of the previous year. The Net Profit Margin remained at approximately 0.9%. Annualized ROE was 3.5%, reflecting a structure in which the low Net Profit Margin is offset by the Total Asset Turnover Ratio and financial leverage (Total Assets/Net Assets multiple). 【Cash Quality】Accounts receivable were ¥9.6B, a significant increase from ¥6.8B in the same period of the previous year, moving contrary to the decline in Revenue. Inventories were ¥3.3B, broadly unchanged. 【Investment Efficiency】Gains on the sale of fixed assets and investment securities were recorded as extraordinary gains, meaning that Net Income includes a certain degree of one-time factors. The Equity Ratio was 34.3%, down from 39.4% in the same period of the previous year. 【Financial Soundness】Cash and deposits were ¥14.5B, exceeding short-term borrowings of ¥6.5B and providing some near-term liquidity flexibility. On the other hand, short-term borrowings increased 32.2% YoY, while total liabilities increased to ¥22.9B against total assets of ¥34.8B.

Cash Flow Analysis

Although no cash flow statement has been disclosed, an examination of funding trends based on changes in the balance sheet shows that cash and deposits increased by ¥2.0B to ¥14.5B from ¥12.5B in the same period of the previous year. Meanwhile, accounts receivable increased by ¥2.7B to ¥9.6B from ¥6.8B, and accounts payable increased by ¥3.8B to ¥7.9B from ¥4.1B, indicating that working capital expanded in a manner dependent on the increase in trade payables. Short-term borrowings also increased to ¥6.5B from ¥4.9B in the same period of the previous year, suggesting that borrowings may have contributed to part of the increase in cash. With the Operating Margin remaining thin at 0.7%, continued delays in the collection of accounts receivable or dependence on trade payables will require monitoring from a cash-efficiency perspective.

Quality of Earnings

Of Net Income of ¥0.3B, extraordinary gains of ¥0.2B, including a ¥0.1B gain on the sale of investment securities and a ¥0.1B gain on the sale of fixed assets, were recorded. After deducting extraordinary losses of ¥0.1B, net extraordinary income contributed approximately ¥0.05B to profit. The income tax burden was low relative to Profit Before Tax of ¥0.3B, and the low effective tax rate supported Net Income. As a result, the decline in Net Income (-19.5%) was smaller than the decline in Operating Income (-58.8%). Therefore, when evaluating the Company’s earnings power for the current period, it is appropriate to use Operating Income of ¥0.3B as the benchmark after excluding the effects of extraordinary gains/losses and the tax burden. The recurring earnings base has weakened compared with the same period of the previous year.

Earnings Forecasts and Guidance

Against the full-year Revenue forecast of ¥51.2B, cumulative Q3 Revenue of ¥36.6B represents progress of 71.5%, slightly below the standard progress rate of 75%. Meanwhile, progress toward the full-year Operating Income forecast of ¥0.3B was 86.7%, and progress toward the Ordinary Income forecast of ¥0.3B was 84.8%, indicating that profit is currently progressing at a pace exceeding the forecasts. However, the full-year profit forecasts themselves represent a significant decline from the previous year, leaving limited profit upside in the remaining Q4. Neither the earnings forecasts nor the dividend forecasts have been revised, and the focus for the second half will be Revenue recovery and cost management.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year dividend forecast is ¥20 per share. The forecast Payout Ratio against forecast full-year EPS of ¥22.87 is approximately 87.5%, above the generally sustainable benchmark of 60%. Cumulative Q3 EPS of ¥45.11 covers the annual dividend of ¥20; however, cumulative Net Income includes the effects of extraordinary gains/losses and the low tax burden. Accordingly, dividend sustainability will depend on recurring profit levels from Q4 onward. No information on share repurchases during the current period has been disclosed.

Risk Factors

1. Vulnerability of the earnings structure: While Revenue declined 3.8% YoY, SG&A expenses increased 0.7% YoY, and Operating Income declined 58.8%. Given the thin Operating Margin of 0.7%, any further decline in Revenue is likely to be amplified and flow through to profits.

2. Prolonged collection period for accounts receivable: Accounts receivable increased 40.1% YoY to ¥9.6B, rising in the opposite direction to Revenue. Changes in collection terms or the credit conditions of counterparties could affect working-capital efficiency.

3. Dependence on short-term funding: Short-term borrowings increased 32.2% YoY to ¥6.5B, resulting in a high proportion of short-term funding within current liabilities. Although cash and deposits of ¥14.5B exceed this amount and near-term liquidity is secured, sensitivity to interest-rate trends and refinancing terms has increased.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

The Company’s profitability is below the industry median in both Operating Margin and Net Profit Margin, placing its earning power toward the lower end of the industry.

Growth and Capital Efficiency

The Company’s Revenue Growth Rate is significantly below the industry median, with a notable declining-Revenue trend within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The gross margin improved slightly to 25.2% from the same period of the previous year, but the Operating Margin contracted to 0.7% due to the increase in SG&A expenses. The key focus going forward will be whether the improvement in gross margin can be converted into profit growth.

2. Progress toward the full-year Operating Income and Ordinary Income forecasts was 86.7% and 84.8%, respectively, exceeding the Revenue progress rate of 71.5%. This indicates a structure in which cost management will determine the profit level in the second half.

3. The forecast Payout Ratio is high at approximately 87.5%, and dividend sustainability depends on securing recurring profit levels that are not reliant on extraordinary gains/losses.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥1,269–¥1,338 at Cost of Equity ±1%, and ¥1,292–¥1,311 at ω±0.1.

Notes:

• Because progress of Net Income against the full-year forecast (194%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of plan tend to exceed 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, among other factors (Net Income ÷ Operating Income 53%). This figure reflects that compression at face value; if the factors are temporary, normalized 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 gap 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 price or a recommendation of any specific investment action, and does not predict or guarantee future stock prices.)

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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, and you should consult a professional as necessary.

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