KOSAIDO Holdings (7868) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for Q3 showed declines in both revenue and profit, with the key takeaway being that profit contracted more sharply than revenue. Revenue was ¥25.84B (¥27.44B in the same period of the previous year, YoY -5.8%), Operating Income was ¥4.46B (¥5.78B, YoY -22.7%), Ordinary Income was ¥4.35B (¥5.59B, YoY -22.1%), and Net Income was ¥3.33B (¥4.34B, YoY -23.3%). The primary causes of the revenue decline were lower revenue in the Information Business and Human Resources Business, as well as a substantial decline in revenue from the Asset Consulting Business. The resulting decline in fixed-cost absorption led to a deterioration in the Operating Income margin (17.3%, approximately 378bp narrower than in the same period of the previous year).

Factors Affecting Performance

【Revenue】Revenue was ¥25.84B, down 5.8% year on year. By segment, the Information Business, the largest segment by revenue, declined to ¥9.96B (down 4.4% year on year). The Asset Consulting Business fell sharply to ¥0.27B (down 81.8%), while the Human Resources Business also declined to ¥3.92B (down 2.8%). In contrast, the Public Services Business secured revenue growth at ¥7.73B (up 3.6%), while the Funeral Services Business recorded ¥3.96B (down 3.8%). Performance diverged across businesses, with the resilience of the Public Services Business limiting the overall decline in revenue.

【Profit and Loss】Operating Income was ¥4.46B (down 22.7%), and the Operating Income margin narrowed to 17.3% from approximately 21.1% in the same period of the previous year. Segment profit in the Information Business declined to ¥0.05B (down 62.5%, profit margin 0.5%), making it the primary cause of the decline in consolidated profit. The Asset Consulting Business also experienced a sharp decline in profit to ¥0.01B (down 99.2%), while the Public Services Business secured profit of ¥2.56B (down 12.5%) and supported consolidated earnings. Non-operating expenses exceeded non-operating income by a net ¥0.11B, primarily due to ¥0.21B in interest expenses. Extraordinary gains of ¥0.13B and extraordinary losses of ¥0.12B largely offset one another, limiting their impact on Net Income. Against Profit Before Tax of ¥4.37B, ¥1.04B in income taxes and other taxes was recorded, resulting in Net Income of ¥3.33B. In conclusion, both revenue and profit declined.

Segment Analysis

The Information Business accounts for 38.5% of consolidated revenue and is the largest segment, but segment profit declined substantially to ¥0.05B, with a profit margin of 0.5%, from ¥0.128B in the same period of the previous year. The Public Services Business maintained the highest profitability, with revenue of ¥7.73B, profit of ¥2.56B, and a profit margin of 33.1%, making it the pillar of consolidated earnings. The Funeral Services Business recorded revenue of ¥3.96B, profit of ¥0.78B, and a profit margin of 19.7%; despite lower revenue, profit increased from ¥0.72B in the same period of the previous year. The Human Resources Business recorded a segment loss of ¥0.01B against revenue of ¥3.92B. Although the loss narrowed from ¥0.07B in the same period of the previous year, the business has not yet returned to profitability. The Asset Consulting Business recorded revenue of ¥0.27B and profit of ¥0.01B, with both revenue and profit declining sharply year on year, reflecting significant fluctuations in project recognition. Overall, the recovery of profitability in the Information Business and the progress of project recognition in the Asset Consulting Business will determine the future direction of consolidated earnings.

Key Financial Indicators

【Profitability】The Operating Income margin of 17.3% and Net Income margin of 12.9% were both high, but each narrowed from approximately 21.1% and approximately 15.8%, respectively, in the same period of the previous year, reflecting weaker fixed-cost absorption amid declining revenue.【Cash Quality】Cash and deposits were ¥13.53B, equivalent to 4.1 times Net Income, indicating ample on-hand liquidity. However, work in process of ¥1.00B accounted for 73.9% of total inventories of ¥1.36B, representing a quality-related point requiring attention because it may indicate stalled project progress or delays in revenue recognition.【Investment Efficiency】ROE was 7.7%. Although the Net Income margin of 12.9% and debt-to-equity ratio of 0.49x were favorable, total asset turnover remained at 0.403x. The asset-intensive structure centered on property, plant and equipment of ¥38.54B, including land of ¥18.85B, was a factor depressing ROE.【Financial Soundness】With an Equity Ratio of 67.3%, a current ratio of 204.2%, and interest expenses of ¥0.21B against interest-bearing debt of ¥10.69B, resulting in interest coverage of approximately 20.8x, the financial base was conservative and robust.

Cash Flow Analysis

Although individual disclosure of the cash flow statement is not available, the balance sheet indicates ample financial capacity. Cash and deposits increased to ¥13.53B from ¥11.71B in the same period of the previous year and remained above interest-bearing debt of ¥10.69B (short-term debt of ¥1.40B and long-term debt of ¥9.29B). The conversion rate from Operating Income of ¥4.46B to Net Income of ¥3.33B was 74.4%, mainly reflecting income taxes and other taxes of ¥1.04B and net non-operating expenses of ¥0.11B. The impact of extraordinary gains and losses was limited, as extraordinary gains of ¥0.13B and extraordinary losses of ¥0.12B largely offset one another. Against current assets of ¥20.81B, current liabilities were ¥10.19B, resulting in working capital of ¥10.62B and strong short-term funding resilience. Meanwhile, work in process of ¥1.00B accounted for the majority of inventories, leaving room for improved working-capital efficiency and cash generation if projects are completed and collected.

Earnings Quality

Net Income of ¥3.33B resulted from Operating Income of ¥4.46B less net non-operating expenses of ¥0.11B, primarily consisting of interest expenses of ¥0.21B, and income taxes and other taxes of ¥1.04B. As extraordinary income of ¥0.13B and extraordinary loss of ¥0.12B were broadly balanced, the boost from one-time gains and losses was limited. Non-operating income was ¥0.25B, primarily consisting of dividend income of ¥0.03B, and represented only 1.0% of revenue, indicating an earnings structure highly dependent on recurring business profits. Comprehensive Income was ¥3.35B, nearly equal to Net Income of ¥3.33B, while the impacts of valuation difference on securities of ¥0.03B and foreign currency translation adjustments of -¥0.01B were small. Nevertheless, the concentration of work in process, which accounted for 73.9% of inventories, should be monitored as an accrual-related factor that carries future risks related to completion, acceptance inspection, and impairment losses.

Earnings Forecast and Guidance

Progress toward the full-year company forecasts (Revenue of ¥39.75B, Operating Income of ¥8.35B, Ordinary Income of ¥8.05B, and Net Income of ¥5.38B) was 65.0% for Revenue, 53.5% for Operating Income, 54.1% for Ordinary Income, and 61.7% for Net Income. Compared with the standard Q3 cumulative progress benchmark of 75%, Operating Income progress was particularly low, trailing by 21.5pt, indicating a high degree of dependence on Q4 for earnings. To achieve the full-year forecasts, Q4 alone must generate Revenue of ¥13.91B and Operating Income of ¥3.89B, requiring revenue growth and a substantial increase in profit compared with the Q4 results of the previous year. The focus for achieving the full-year plan will be the recovery of profitability in the Information Business and progress in project recognition in the Asset Consulting Business.

Shareholder Returns

The Q2 dividend was ¥6.67 per share, while the company’s full-year dividend forecast is ¥13.34 per share. Based on forecast EPS of ¥38.09, the forecast Payout Ratio is approximately 35.0%, which is within a sustainable range for returns through dividends alone. The Payout Ratio calculated based on cumulative Q3 Net Income of ¥3.33B is approximately 29.0%. Financial capacity, including cash and deposits of ¥13.53B and an Equity Ratio of 67.3%, supports dividend payments. The amount of share repurchases conducted during the current period was not disclosed in the available information; accordingly, this assessment is based solely on the dividend Payout Ratio.

Risk Factors

1. Deterioration in Information Business profitability: The Information Business, the largest segment accounting for 38.5% of consolidated revenue, saw its segment profit margin decline to 0.5% (segment profit down 62.5% year on year). Any delay in profitability recovery would weigh on consolidated earnings.

2. Accumulation of work in process: Work in process accounted for ¥1.00B, or 73.9%, of inventories of ¥1.36B. This inventory structure carries risks related to prolonged project execution, delays in completion and acceptance inspection, and future impairment losses.

3. Fourth-quarter concentration in the full-year plan: Operating Income progress was only 53.5%, 21.5pt below the standard progress benchmark of 75%. Achieving the full-year forecast requires a substantial year-on-year increase in profit in Q4 and will also depend on project recognition trends in the Asset Consulting Business.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability metrics significantly exceed the industry median, positioning it among the higher-profitability group within the industry.

Growth and Capital Efficiency

The company’s revenue growth rate is significantly below the industry median, placing it among the minority of companies in the industry experiencing declining revenue.

Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The Operating Income margin of 17.3% and Net Income margin of 12.9% are significantly above the industry median and remain high; however, they narrowed by approximately 378bp and approximately 282bp, respectively, year on year, highlighting a deteriorating trend in profitability.

2. The Public Services Business serves as a pillar of consolidated earnings with a segment profit margin of 33.1%, while the Information Business, which has the highest revenue, saw its profit margin decline to 0.5%. The divergence in profitability between the two businesses is creating variability in consolidated performance.

3. The 53.5% Operating Income progress rate against the full-year forecast is below the standard progress benchmark, resulting in a plan structure in which performance is concentrated in Q4. In addition, the concentration of work in process at 73.9% of inventories is a monitoring item when assessing the conversion of profit into cash.

Implied Share Price (Reference Value)

Sensitivity: ¥347–¥368 at ±1% for the cost of equity, and ¥357–¥358 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing gap relative to the full-year forecast).
• As net assets include non-controlling interests, the implied value may be calculated somewhat on the high side.

(Calculation 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 through analysis of 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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AI Financial Analysis

Executive Summary

FY2026 Q3 performance was solid in absolute profitability but materially weaker year on year, with the shortfall concentrated in the high-profit funeral-related business. Revenue declined 5.8% YoY to ¥25.84bn. Operating income fell 22.7% to ¥4.46bn, while profit attributable to owners declined 22.8% to ¥3.32bn. The operating margin compressed by 378bp to 17.3% from 21.1% in the prior-year period. Gross margin declined by 398bp to 37.9% from 41.9%, representing the principal source of the operating-profit contraction. SG&A expenses fell 6.8% to ¥5.33bn and the SG&A-to-sales ratio improved by roughly 20bp to 20.6%, partially offsetting the gross-margin decline. Net margin fell 283bp to 12.8% from 15.7%, although it remains above the 10% benchmark generally associated with excellent profitability. Ordinary income decreased 22.1% to ¥4.36bn, broadly tracking the operating-income decline. Net income benefited from a lower effective tax rate of 23.7%, compared with approximately 25.1% in the prior-year period. Extraordinary income of ¥129m and extraordinary loss of ¥117m were broadly offsetting, leaving reported profit principally reflective of ordinary operations. Fixed-asset disposal losses of ¥101m were the principal extraordinary loss and were modest at around 3% of net income. The core 葬祭収益 segment generated ¥7.73bn of sales and ¥2.56bn of segment profit, retaining a very high segment margin despite a 12.5% YoY profit decline. The Information segment’s revenue fell 4.4% and its segment profit contracted sharply to ¥48m from ¥128m, indicating meaningful earnings sensitivity in a lower-margin activity. The Human Resources segment remained marginally loss-making, although its loss narrowed substantially to ¥9m from ¥71m. Financial risk is contained: the current ratio is 204.2%, debt-to-equity is 0.49x, and interest coverage is 20.76x. Full-year guidance requires a substantial Q4 acceleration, particularly in sales and operating income, making the recovery in funeral-related demand and segment margins central to the outlook.

Profitability Analysis

Annualized DuPont ROE is 10.3%, decomposed into a 12.8% net profit margin, 0.537x annualized asset turnover, and 1.49x financial leverage. The largest adverse movement is the profit-margin deterioration rather than balance-sheet leverage: operating margin declined 378bp and net margin declined 283bp year on year. Revenue declined 5.8%, but operating income fell 22.7%, demonstrating negative operating leverage caused by gross-profit pressure. Gross profit decreased 14.1% to ¥9.80bn, whereas SG&A declined 6.8% to ¥5.33bn. Consequently, gross-margin pressure was only partly mitigated by disciplined overhead spending. The 17.3% EBIT margin remains above the 15% excellent-profitability benchmark, and the 12.8% net margin also remains strong. The five-factor analysis shows a 0.760 tax burden and 0.978 interest burden, confirming that taxes and financing costs did not materially erode EBIT conversion. Interest expense was essentially stable at ¥215m, while EBIT declined to ¥4.46bn; nevertheless, 20.76x interest coverage remains highly comfortable. Segment trends were mixed. 葬祭公益 revenue declined 3.8% to ¥3.96bn, but segment profit increased 8.3% to ¥779m, lifting its segment margin to 19.7% from 17.5%. The core 葬祭収益 business increased revenue 3.6% to ¥7.73bn, but segment profit fell 12.5% to ¥2.56bn; its segment margin nevertheless remained highest among disclosed businesses at 33.1%. Information revenue declined 4.4% to ¥9.96bn and segment profit fell 62.5% to ¥48m, reducing its margin to 0.5% from 1.2%. Human Resources revenue was nearly flat at ¥3.92bn, while its segment loss narrowed to ¥9m from ¥71m. Asset Consulting revenue declined 81.8% to ¥269m and segment profit declined to ¥10m from ¥1.24bn, suggesting that prior-period profitability included a far larger contribution from this activity. Segment-profit reconciliation improved, with the positive adjustment increasing to ¥1.08bn from ¥840m, but the consolidated earnings trend remains dependent on restoring gross-margin performance in the largest profit contributor.

Growth Assessment

The revenue decline reflects divergent business momentum rather than a uniform group-wide downturn. 葬祭収益 delivered 3.6% sales growth and remained the core business by segment-profit contribution, accounting for approximately 57% of aggregate segment profit before adjustments. 葬祭公益 also preserved profitability, with segment profit growth despite lower revenue. In contrast, Information and Asset Consulting were the principal drags on consolidated revenue and segment earnings. The sharp contraction in Asset Consulting revenue and profit raises the earnings-volatility sensitivity of this smaller business. Full-year guidance calls for revenue of ¥39.75bn, operating income of ¥8.35bn, ordinary income of ¥8.05bn, and owner-attributable net income of ¥5.38bn. Q3 cumulative progress is 65.0% for revenue, 53.5% for operating income, 54.1% for ordinary income, and 61.7% for net income, each below the standard 75% Q3 progress level. The implied Q4 requirement is ¥13.91bn in revenue and ¥3.89bn in operating income. This means Q4 revenue would need to equal 53.8% of the first-nine-month revenue base, while required Q4 operating income would equal 87.0% of Q3 cumulative operating income. The implied Q4 operating margin is approximately 27.9%, well above the 17.3% achieved in Q3 cumulative results. Guidance therefore appears dependent on substantial seasonality, a recovery in revenue mix, and/or improved gross margins in the final quarter. The full-year plan nevertheless implies 3.8% revenue growth and 0.6% operating-income growth, indicating management expects the year-on-year earnings decline through Q3 to reverse at the full-year level.

Financial Health

Liquidity is strong, with current assets of ¥20.81bn against current liabilities of ¥10.19bn. The current ratio of 204.2% and quick ratio of 202.8% substantially exceed healthy thresholds, while working capital totals ¥10.62bn. Cash and deposits of ¥13.53bn alone exceed short-term loans of ¥1.40bn by 9.67x. Interest-bearing debt totals ¥10.69bn, comprising ¥1.40bn of short-term loans and ¥9.29bn of long-term loans. The short-term debt ratio is low at 13.1%, and the maturity profile is supported by current assets, reducing refinancing and maturity-mismatch risk. Debt-to-equity is a conservative 0.49x, while debt-to-capital is 19.9%, both comfortably below risk thresholds. Interest coverage of 20.76x provides substantial capacity to absorb financing costs. Total liabilities declined by ¥8.31bn year on year to ¥21.01bn, principally reflecting lower borrowings. Short-term loans fell ¥5.00bn, or 78.1%, to ¥1.40bn, while long-term loans declined ¥2.09bn to ¥9.29bn. Total assets declined ¥13.12bn to ¥64.14bn, while cash and deposits increased ¥1.82bn to ¥13.53bn. Treasury stock increased in absolute balance by ¥6.26bn to negative ¥7.86bn, materially reducing reported equity and indicating significant capital deployment through share repurchases. Equity remains substantial at ¥43.13bn and the capital adequacy ratio improved to 65.9% from 60.8%. Property, plant and equipment represents 60.1% of total assets, including land of ¥18.85bn, so asset values and returns remain important to capital efficiency.

Notable B/S Changes

Total assets: -¥13.12bn (-17.0%) to ¥64.14bn - a substantial contraction in the balance-sheet base, with implications for asset turnover and capital deployment. Total liabilities: -¥8.31bn (-28.3%) to ¥21.01bn - deleveraging has strengthened solvency and reduced refinancing exposure. Treasury stock: increased by ¥6.26bn in absolute balance to -¥7.86bn (-391.7%) - significant repurchase-related capital deployment reduces equity but can enhance per-share capital efficiency. Short-term loans: -¥5.00bn (-78.1%) to ¥1.40bn - materially lower short-term refinancing exposure and a stronger debt maturity profile. Intangible assets: +¥477m (+101.1%) to ¥949m - still only 1.5% of total assets, limiting intangible-asset concentration risk. Investment securities: +¥457m (+26.0%) to ¥2.22bn - a moderate increase in financial-asset exposure that should be assessed against strategic return objectives. Land: +¥2.71bn (+16.8%) to ¥18.85bn - land remains a large 29.4% of total assets, reinforcing the importance of asset utilization and valuation discipline.

Cash Flow Quality

Reported earnings are predominantly operating in character: operating income was ¥4.46bn and ordinary income was ¥4.36bn, with the ¥109m gap equivalent to only 2.4% of operating income. Non-operating income totaled ¥249m, or 1.0% of revenue, and therefore does not represent an outsized contributor to earnings. Interest expense of ¥215m exceeded interest and dividend income of ¥36m, but the resulting net financing burden was modest relative to EBIT. Extraordinary gains and losses were nearly matched, at ¥129m and ¥117m respectively. The principal extraordinary charge was ¥101m of losses on disposal or retirement of fixed assets, which is modest relative to ¥3.32bn of owner-attributable net income. Working-capital balances appear liquid, with trade receivables of ¥4.14bn, trade payables of ¥1.67bn, and very low reported finished-goods inventory of ¥143m. Manufacturing-detail inventory composition indicates raw materials of ¥211m, work in process of ¥1.00bn, and finished goods of ¥143m. The high work-in-process ratio quality alert is material: WIP represents 73.9% of manufacturing-detail inventory, materially above the 40% warning threshold. This concentration can indicate production bottlenecks, longer project completion cycles, or delayed conversion of production costs into billable sales. The risk is especially relevant because consolidated revenue and gross margin declined in the period. Inventory execution and timely completion of WIP should therefore be monitored as indicators of future margin and cash-conversion resilience.

Dividend Sustainability

The Q2 dividend was ¥6.67 per share. Using the calculated payout ratio of 29.0%, dividends represent a conservative proportion of the ¥3.32bn owner-attributable net income generated through Q3. The full-year dividend forecast is ¥13.34 per share, equal to twice the interim dividend and indicating no incremental year-end dividend beyond the indicated annual total. Based on forecast EPS of ¥38.09, the forecast dividend payout ratio is approximately 35.0%. This is well below the 60% sustainability benchmark and leaves earnings retention capacity for debt management, investment, and other capital-allocation priorities. The balance sheet also supports the distribution, with ¥13.53bn in cash and deposits and a current ratio above 2.0x. However, the ¥6.26bn increase in the absolute treasury-stock balance indicates that repurchases have been a significant capital-allocation action. Dividends should therefore be considered separately from repurchases: the dividend payout ratio is conservative, while total shareholder return would be higher once buybacks are included. Sustained dividend growth will depend primarily on achieving the substantial implied Q4 earnings recovery embedded in full-year guidance.

Risk Assessment

Business risks include High priority: Gross margin declined 398bp to 37.9%, driving a 22.7% fall in operating income despite only a 5.8% revenue decline. A failure to restore pricing, sales mix, or cost absorption would constrain earnings recovery., High priority: The core 葬祭収益 segment's profit fell 12.5% to ¥2.56bn despite 3.6% revenue growth, implying lower segment margin and making the quality of revenue growth a key issue., High priority: Work in process accounted for 73.9% of manufacturing-detail inventory, versus a 40% warning level. Elevated WIP can signal production bottlenecks or delayed revenue conversion and may create cost-overrun or valuation risk if projects are not completed efficiently., Medium priority: Asset Consulting revenue fell 81.8% to ¥269m and segment profit declined from ¥1.24bn to ¥10m, illustrating a material source of volatility in non-core earnings., Medium priority: Information segment profit fell 62.5% to ¥48m on a 4.4% revenue decline, demonstrating limited margin resilience in this business., Medium priority: Funeral-service demand, local competitive conditions, staffing costs, and facility utilization can affect volume and margin performance in the funeral-related businesses..

Financial risks include Low priority: Interest-bearing debt of ¥10.69bn remains meaningful relative to the asset base, but leverage is controlled at 0.49x debt-to-equity, 19.9% debt-to-capital, and 20.76x interest coverage., Low priority: PPE accounts for 60.1% of total assets and land represents ¥18.85bn, creating sensitivity to utilization, maintenance needs, and asset-value realization., Medium priority: Treasury stock increased by ¥6.26bn in absolute balance, which reduces equity and may limit balance-sheet flexibility if capital returns remain elevated while earnings are declining..

Key concerns include Full-year guidance requires Q4 operating income of ¥3.89bn and an implied 27.9% operating margin, materially above the 17.3% Q3 cumulative margin., Consolidated operating income declined much faster than revenue, confirming adverse operating leverage., The WIP ratio alert requires close monitoring because inventory conversion can influence both future gross margin and operating cash generation., The earnings mix has become more concentrated in 葬祭収益 as Asset Consulting and Information profitability weakened..

Investment Implications

Key takeaways include Profitability remains high in absolute terms, with a 17.3% operating margin, 12.8% net margin, and 10.3% annualized ROE., The year-on-year earnings decline was primarily a gross-margin issue; SG&A control was relatively effective., 葬祭収益 is the core earnings engine, producing ¥2.56bn of segment profit and a 33.1% segment margin., Liquidity and solvency are strong, supported by ¥13.53bn of cash, a 204.2% current ratio, and 20.76x interest coverage., The full-year plan requires an unusually strong fourth quarter, raising execution sensitivity around seasonal demand, mix, and margin recovery., The ordinary dividend burden is modest, while treasury-stock growth points to a more significant role for buybacks in capital allocation..

Metrics to watch include Consolidated gross margin and operating margin versus the Q3 levels of 37.9% and 17.3%, Q4 revenue and operating-income delivery against the ¥13.91bn and ¥3.89bn implied requirements, 葬祭収益 segment profit margin and revenue growth, Information segment profitability and Human Resources segment progress toward sustained profitability, Work-in-process balance and conversion into completed sales, Treasury-stock movements, total shareholder return, and net debt trajectory.

Regarding relative positioning, The company combines above-benchmark profitability with a conservative balance sheet, but its near-term relative earnings profile is weakened by sharp margin compression, volatile contributions from Asset Consulting, and a full-year outlook that requires a markedly stronger fourth quarter.