DOSHISHA (7483) FY2027 Q1 Earnings Report

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Executive Summary

FY2027 Q1 saw increases in both revenue and profit, with the simultaneous progression of a modest improvement in profitability and deterioration in cash flow being the most important point. Revenue was ¥309.0B (+3.0% YoY), Operating Income was ¥35.0B (+3.4%), Ordinary Income was ¥36.0B (+3.6%), and quarterly Net Income attributable to owners of the parent was ¥24.4B (+3.0%). The gross profit margin improved to 31.7%; however, SG&A expenses increased at a faster rate than Revenue, limiting the improvement in the Operating Income margin to a modest level compared with the same period last year.

Factors Affecting Business Performance

【Revenue】Revenue was ¥309.0B (+3.0% YoY). The wholesale-type business model grew to ¥125.2B (+8.6%), offsetting the decline in the development-type business model, which generated ¥177.0B (-1.0%). Other businesses, including real estate, logistics, and nursing care and welfare services, generated ¥29.1B (+3.8%). The development-type business model is the core business, accounting for approximately 57% of the sales mix, and its decline in revenue was a factor weighing on the Company-wide growth rate.

【Profit and Loss】Operating Income was ¥35.0B (+3.4%), while the Operating Income margin of 11.3% was nearly flat compared with the same period last year (+4bp approximately). The gross profit margin improved by +62bp YoY to 31.7%, but SG&A expenses increased by +6.1% to ¥63.1B, exceeding the growth in Revenue; consequently, most of the benefit from the gross profit improvement was offset by higher expenses. By segment, the wholesale-type business model led Company-wide profit growth, with profit of ¥14.7B (+18.7%), although its profit margin declined by -101bp to 11.7%. The development-type business model recorded profit of ¥21.2B (-7.5%) and a profit margin of 12.0% (-83bp), resulting in both lower profit and a lower profit margin. Ordinary Income was ¥36.0B after adding a ¥0.9B surplus in non-operating income and expenses, primarily interest and dividend income. Although Revenue and profit increased, profit margins declined in both reported segments, indicating that the quality of profit growth is dependent on gross profit improvement and the sales mix.

Segment Analysis

The development-type business model recorded Revenue of ¥177.0B (57.3% of the mix, -1.0% YoY), segment profit of ¥21.2B (-7.5%), and a profit margin of 12.0% (down from 13.0% in the previous year). The decline in revenue and profit in this core business weighed on Company-wide profit growth. The wholesale-type business model recorded Revenue of ¥125.2B (40.5% of the mix, +8.6%), segment profit of ¥14.7B (+18.7%), and a profit margin of 11.7% (down from 13.0% in the previous year). Although it drove Company-wide growth in both Revenue and profit, its profit margin itself declined. Other businesses recorded profit of ¥1.7B (-15.4%) against Revenue of ¥29.1B (+3.8%), resulting in lower profit; the reduction in the adjustment for Company-wide expenses (from △¥3.4B in the previous year to △¥2.5B in the current period) provided support for total Operating Income.

Key Financial Indicators

【Profitability】The Operating Income margin was 11.3%, the Net Income margin was 7.9%, and annualized ROE was 10.1%. The gross profit margin improved by +62bp YoY to 31.7%, while the SG&A expense ratio also increased by +58bp to 20.4%, limiting the improvement in the Operating Income margin.【Cash Flow Quality】Operating Cash Flow (OCF) was negative at -¥35.3B, representing a significant divergence from Net Income attributable to owners of the parent of ¥24.4B. The main factors were a ¥33.5B increase in accounts receivable, a ¥14.4B decrease in accounts payable, and ¥22.1B in corporate income taxes paid. Net Income for the quarter was not sufficiently converted into cash generation.【Investment Efficiency】Capital expenditures were ¥0.3B versus depreciation and amortization expense of ¥1.6B, indicating that the level of investment was below depreciation and amortization. Basic EPS was ¥68.01 (¥67.40 in the previous year, +0.9%), and BPS was ¥2,651.94.【Financial Soundness】The Equity Ratio was 89.3%. Cash and deposits were ¥580.3B, while current assets were ¥875.1B against current liabilities of ¥105.3B, indicating an extremely low level of liabilities.

Cash Flow Analysis

Operating Cash Flow (OCF) was negative at ¥35.3B, creating a significant divergence from Net Income attributable to owners of the parent of ¥24.4B. The main factors were a ¥33.5B increase in trade receivables, a ¥14.4B decrease in trade payables, and ¥22.1B in corporate income taxes paid. Working capital absorbed cash across the board, including a ¥2.2B increase in inventories. Investing Cash Flow was negative at ¥0.6B; capital expenditures of ¥0.3B remained below depreciation and amortization expense of ¥1.6B, indicating restrained maintenance investment. Free Cash Flow was negative at ¥35.9B. Financing Cash Flow was negative at ¥18.7B, primarily due to dividend payments of ¥21.1B. As a result, cash and cash equivalents declined, but cash and deposits at the end of the period remained substantial at ¥580.3B, and the impact on short-term liquidity is considered limited.

Earnings Quality

The increase in profit for the current period was primarily attributable to the core business, and no extraordinary gains or losses were recorded. Non-operating income of ¥1.1B consisted mainly of interest income of ¥0.6B and dividend income of ¥0.3B, representing a contribution from recurring financial income. Non-operating expenses of ¥0.2B included a foreign exchange loss of ¥0.1B, although the amount was immaterial. Meanwhile, the fact that the improvement in the gross profit margin was almost entirely offset by higher SG&A expenses, as well as the decline in profit margins in both reported segments, warrants attention when assessing the sustainability of profit growth. In addition, OCF was substantially negative relative to Net Income, and the expansion of accruals, centered on the increase in accounts receivable, indicates that the cash backing for earnings was weak as of the current quarter. Comprehensive Income was ¥26.7B, exceeding quarterly Net Income attributable to owners of the parent of ¥24.4B, with increases in other comprehensive income, including valuation differences on securities and deferred hedge gains or losses, contributing to the difference.

Earnings Forecast and Guidance

The full-year Company forecast is Revenue of ¥1290.0B (+7.0% YoY), Operating Income of ¥122.0B (+2.2%), and Ordinary Income of ¥125.0B (+1.1%); no revision to the forecast was made during the quarter. Progress rates were 24.0% for Revenue, 28.7% for Operating Income, and 28.8% for Ordinary Income. While the profit-related indicators exceeded the standard 25%, Revenue progress was slightly below this level. The improvement in the gross profit margin may have preceded and lifted profit progress, while achieving the full-year Revenue growth target of 7.0% will require acceleration from the Q1 growth rate of 3.0%.

Shareholder Returns

The full-year dividend forecast is ¥110 per share, and the Payout Ratio calculated based on full-year forecast EPS of ¥238.35 is 46.2%. No share repurchases were conducted during the quarter, and shareholder returns are centered on dividends. Dividend payments during the quarter were ¥21.1B, while Free Cash Flow for the same period was negative at ¥35.9B; on a standalone Q1 basis, dividends were not covered by cash generated from operating activities. However, the financial foundation of cash and deposits of ¥580.3B and an Equity Ratio of 89.3% supports the stability of dividend payments.

Risk Factors

1. Decline in revenue and profit in the core segment: The development-type business model recorded Revenue of -1.0% YoY and segment profit of -7.5%, with its profit margin also declining to 12.0% (-83bp YoY). This is a factor constraining Company-wide profit growth.

2. Deterioration in working capital and delayed cash conversion: OCF was -¥35.3B, representing a significant divergence from Net Income attributable to owners of the parent of ¥24.4B. The main factors were a ¥33.5B increase in accounts receivable and a ¥14.4B decrease in accounts payable. The timing of collecting trade receivables and settling purchases will be key areas of focus going forward.

3. Structural factors pressuring profit margins: Profit margins declined YoY in both the wholesale-type business model (-101bp) and the development-type business model (-83bp). The ability to pass through procurement and logistics costs, as well as SG&A expense growth exceeding gross profit improvement, is constraining expansion of the Operating Income margin.

Industry Benchmark (For Reference; Based on Company Research)

Industry Benchmark (trading)

Profitability and Returns

Both the Operating Income margin and Net Income margin are significantly above the industry median, placing profitability among the highest in the industry.

Growth and Capital Efficiency

The Revenue growth rate is approximately in line with the industry median, positioning the Company’s growth as average within the industry.

※Source: Company research

Key Takeaways from the Earnings Results

1. Although increases in Revenue and profit and an improvement in the gross profit margin (+62bp) were confirmed, the benefit was barely reflected in the Operating Income margin due to higher SG&A expenses. Qualitative improvement in the earnings structure will depend on cost management trends.

2. OCF was -¥35.3B, significantly diverging from Net Income of ¥24.4B, primarily due to the expansion of working capital resulting from increased accounts receivable, decreased accounts payable, and tax payments. Whether this cash absorption normalizes in subsequent quarters will be a key point of observation.

3. Contrasting trends were observed between the development-type business model, which accounts for 57% of the mix and experienced declines in revenue and profit margin, and the wholesale-type business model, which recorded increases in both Revenue and profit. The impact of changes in the earnings structures between segments on Company-wide performance will be an area of focus going forward.

Theoretical Share Price (For Reference)

Sensitivity: ¥2,548–¥2,694 for cost of equity ±1%, and ¥2,618–¥2,620 for ω±0.1.

Notes:

• Goodwill amortization of ¥0.4 per share has been added back to profit (to reflect a non-cash expense and facilitate comparability with IFRS companies).
• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end have been used (there is a time lag 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 solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation for 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 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 a professional as necessary.

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