MUSASHI (7521) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for the Q3 of the fiscal year ending March 2026 showed declines in both revenue and earnings. The most significant point is that the deterioration in non-operating and extraordinary gains and losses placed substantial pressure on net income. Revenue was essentially flat at ¥28.10B (YoY -0.5%), while Operating Income was ¥2.49B (down -12.3%), Ordinary Income was ¥2.56B (down -39.3%), and Net Income attributable to owners of the parent was ¥1.29B (down -58.4%), with the decline widening further down the income statement. The primary factors were the decline in the gross margin, the absence of the equity-method investment gain recorded in the same period of the previous year, and an impairment loss of ¥0.20B in the Information, Printing, and Industrial Systems Equipment segment.

Factors Affecting Results

【Revenue】Revenue was ¥28.10B, essentially flat at -0.5% YoY. By segment, the Financial General-Purpose and Election Systems Equipment segment secured revenue growth, with revenue of ¥8.51B (up +7.0%), accounting for 30.3% of consolidated revenue. Meanwhile, the Information, Printing, and Industrial Systems Equipment segment generated revenue of ¥12.99B (down -2.4%), and Paper and Paper-Processed Products generated ¥6.40B (down -5.4%). Thus, the decline in the two core segments was partially offset by Financial General-Purpose and Election Systems Equipment.

【Profit and Loss】Cost of sales increased YoY, and the gross margin declined to 27.4%, down 199bp from 29.3% in the same period of the previous year. Although SG&A expenses were contained at ¥5.20B (down -4.6%), this was insufficient to absorb the decline in gross profit, resulting in Operating Income of ¥2.49B (down -12.3%). Ordinary Income deteriorated to ¥2.56B (down -39.3%), primarily due to the absence of the ¥1.29B equity-method investment gain recorded in the same period of the previous year. Following the additional recognition of ¥0.23B in extraordinary losses, including an impairment loss of ¥0.20B, Net Income declined significantly to ¥1.29B (down -58.4%). In conclusion, the company recorded declines in both revenue and earnings.

Segment Analysis

The Financial General-Purpose and Election Systems Equipment segment remained strong, with revenue of ¥8.51B (up +7.0%) and segment profit of ¥2.28B (up +8.4%). It is a core business accounting for the majority of consolidated Operating Income of ¥0.25B. The Information, Printing, and Industrial Systems Equipment segment generated revenue of ¥12.99B (down -2.4%), while its segment result fell from a profit of ¥0.44B in the same period of the previous year to a loss of ¥0.04B. The segment recognized an impairment loss of ¥0.20B on fixed assets, indicating that deteriorating profitability and a reassessment of asset values are occurring simultaneously. Paper and Paper-Processed Products generated revenue of ¥6.40B (down -5.4%) and segment profit of ¥0.08B (down -36.6%), reflecting a deterioration in profitability exceeding the decline in revenue. The Real Estate Leasing, Leasing, and Other Businesses segment remained stable despite its small scale, with revenue of ¥0.49B and segment profit of ¥0.16B (up +1.9%).

Key Financial Indicators

【Profitability】The Operating Income margin was 8.8%, down 119bp from 10.0% in the same period of the previous year, while the gross margin also declined to 27.4% from 29.3%, a decrease of 199bp. The Net Income margin was 4.6%, down 638bp from 11.0% in the same period of the previous year. The high effective tax rate of 44.9% weakened the conversion of pretax income into Net Income.【Cash Flow Quality】Comprehensive income was ¥1.47B, exceeding Net Income of ¥1.29B, indicating that other comprehensive income, including valuation differences on securities, supplemented equity.【Investment Efficiency】Annualized ROE was 4.9%. While the decline in the Net Income margin was the primary constraint on ROE, the total asset turnover ratio of 0.749x and financial leverage of 1.43x remained at conservative levels.【Financial Soundness】The Equity Ratio was high at 70.0%. Cash and deposits of ¥22.28B substantially exceeded short-term borrowings of ¥3.52B, resulting in a capital structure that was effectively net cash.

Cash Flow Analysis

Although an individual disclosure of the cash flow statement was not provided, an analysis of funding trends based on changes in the balance sheet shows that cash and deposits were ¥22.28B, essentially unchanged from ¥22.29B in the same period of the previous year. Net assets increased by ¥1.08B to ¥35.04B from ¥33.96B in the same period of the previous year, while retained earnings accumulated to ¥31.33B. Short-term borrowings were ¥3.52B and unchanged, and tangible fixed assets were largely stable at ¥3.75B, while intangible fixed assets increased 91.2% YoY to ¥0.39B. Overall, the company was characterized by no significant changes in investment or financing activities, continued accumulation of retained earnings, and stable cash holdings.

Earnings Quality

Current-period earnings were significantly affected by temporary factors and therefore need to be evaluated separately from recurring earning power. Non-operating income was small at ¥0.18B, consisting primarily of dividend income of ¥0.09B and interest income of ¥0.05B. The ¥1.29B equity-method investment gain recorded in the same period of the previous year did not recur in the current period. This reversal was the primary cause of the substantial -39.3% decline in Ordinary Income, representing a deterioration greater than the -12.3% decline in Operating Income. In addition, ¥0.20B of the ¥0.23B in extraordinary losses consisted of an impairment loss in the Information, Printing, and Industrial Systems Equipment segment and should be distinguished as a non-recurring temporary factor. The effective tax rate was high at 44.9%, and the tax burden also pressured Net Income. The fact that Comprehensive Income of ¥1.47B exceeded Net Income of ¥1.29B indicates that equity items, including valuation differences on securities, partially supplemented earnings quality.

Earnings Forecast and Guidance

Cumulative Q3 progress against the full-year company forecast was 69.8% for Revenue, 61.1% for Operating Income, 61.8% for Ordinary Income, and 54.9% for Net Income. All were below the standard 75% progress level. The full-year forecast calls for Revenue of ¥40.27B (up +7.7% YoY), Operating Income of ¥4.07B (up +21.4%), Ordinary Income of ¥4.15B (down -12.4%), and Net Income of ¥2.35B. The company’s forecast assumes substantial additions in Q4 of Revenue of ¥12.16B, Operating Income of ¥1.59B, and Net Income of ¥1.06B. The key factors in achieving the plan will be the continued earnings generation capability of the Financial General-Purpose and Election Systems Equipment segment and the recovery in profitability of the Information, Printing, and Industrial Systems Equipment segment.

Shareholder Returns

The Q2 dividend was ¥28.00 per share, and the full-year dividend forecast is ¥76.00 per share. The Payout Ratio against the full-year Net Income forecast of ¥2.35B is approximately 25.8%, substantially below the 60% level generally considered a benchmark for sustainability. The substantial financial capacity represented by retained earnings of ¥31.33B and cash and deposits of ¥22.28B supports dividend sustainability. However, achieving the full-year Net Income forecast requires substantial profit recognition in Q4, and profit progress underlying the dividend should continue to be monitored.

Risk Factors

1. Deterioration in profitability in the Information, Printing, and Industrial Systems Equipment segment: Revenue was ¥12.99B (down -2.4% YoY), and the segment result fell from a profit of ¥0.44B in the same period of the previous year to a loss of ¥0.04B. The segment also recorded an impairment loss of ¥0.20B, and a delay in earnings recovery could impede improvement in the company-wide profit margin.

2. Concentration of earnings in Financial General-Purpose and Election Systems Equipment: Segment profit was ¥2.28B, equivalent to 91.6% of consolidated Operating Income of ¥2.49B. Fluctuations in the investment plans of financial institutions and the timing of election-related projects could have a significant impact on company-wide results.

3. Pressure on Net Income from the high effective tax rate and temporary factors: The effective tax rate was high at 44.9%, and the tax burden coefficient of 0.550 reduced the efficiency of converting pretax income into Net Income. The absence of the ¥1.29B equity-method investment gain that supported Ordinary Income in the same period of the previous year should also be monitored as a source of volatility in non-operating gains and losses.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceeded the industry median, indicating that profitability was relatively strong within the industry.

Growth and Capital Efficiency

The Revenue growth rate was below the industry median, indicating that the company lagged peers in terms of growth compared with other companies maintaining a revenue-growth trend.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The earnings structure has become increasingly dependent on the core business. Financial General-Purpose and Election Systems Equipment accounted for 91.6% of consolidated Operating Income, while Information, Printing, and Industrial Systems Equipment fell into the red and recorded an impairment loss of ¥0.20B. The widening profitability gap among the business portfolios represents a structural change observable in the earnings data.

2. The declines in Ordinary Income and Net Income exceeded the decline in Operating Income. The reversal of the ¥1.29B equity-method investment gain recorded in the same period of the previous year and extraordinary losses of ¥0.23B were the causes. The greater deterioration in lower-line profit indicators—Ordinary Income -39.3% and Net Income -58.4%—than in Operating Income (-12.3%) is noteworthy when evaluating earnings quality.

3. The financial foundation remains strong, with an Equity Ratio of 70.0% and a net cash capital structure, while achieving the full-year plan entails seasonality involving a concentration of earnings in Q4. Cumulative Q3 progress remained in the 55–61% range on a profit basis, below the standard 75% progress level, which is a notable point in the earnings data.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,473–¥4,732 at ±1% for the cost of equity, and ¥4,582–¥4,612 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end were used (there is a timing difference relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest-rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price, a recommendation of any specific investment action, or a prediction or guarantee of the future share price.)

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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 responsibility, after consulting a professional where necessary.

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