eGuarantee (8771) FY2026 FY Earnings Report

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Executive Summary

Although revenue growth in the credit guarantee business continued, earnings growth slowed due to higher costs, resulting in a change in the quality of profit margins. Revenue was ¥110.3B (+7.9% YoY), Operating Income was ¥52.0B (+1.9%), Ordinary Income was ¥53.0B (+1.9%), and Net Income was ¥36.7B (+3.0%). Revenue growth of 7.9% exceeded Operating Income growth of 1.9%, making weaker profit conversion from revenue growth the defining feature of the current fiscal year.

Factors Affecting Business Performance

【Revenue】Revenue increased 7.9% YoY to ¥110.3B. The single credit guarantee business accounts for more than 90% of revenue, and revenue by region is limited to Japan, with no overseas revenue. Revenue concentration among specific customers is also below 10%, indicating that the business portfolio itself remains stable.

【Profit and Loss】Cost of sales increased 22.9% YoY to ¥29.6B, substantially exceeding revenue growth, resulting in a decline in the gross margin to 73.2% (approximately 76.5% in the previous year). SG&A expenses increased 5.8% YoY to ¥28.7B, below the rate of revenue growth, indicating that fixed-cost absorption functioned to a certain extent. Operating Income was ¥52.0B (+1.9%), while Ordinary Income was ¥53.0B (+1.9%); non-operating income of ¥1.7B, primarily comprising ¥1.5B in interest income, provided a slight supplement to Ordinary Income. Extraordinary losses were minor, consisting of a ¥0.3B loss on disposal of fixed assets. Net Income was ¥36.7B (+3.0%), while Net Income attributable to owners of the parent, excluding ¥0.8B attributable to non-controlling interests, was ¥35.9B (+2.8%). In conclusion, although the company achieved revenue and profit growth, the growth was accompanied by margin compression due to higher costs.

Key Financial Indicators

【Profitability】The Operating Income margin declined 2.7pt from 49.9% in the previous year to 47.2%, while the gross margin also declined to 73.2%. The primary factor was that cost of sales growth of +22.9% exceeded revenue growth of +7.9%, while SG&A growth was contained at +5.8%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥40.1B, only approximately 1.1 times Net Income of ¥36.7B, indicating that profits are supported by cash generation. OCF before changes in working capital was ¥57.4B, with corporate income taxes paid of ¥18.7B serving as the primary deduction. 【Investment Efficiency】ROE was 16.4% and the Equity Ratio was 76.3%. Capital expenditures of ¥0.6B were below depreciation and amortization of ¥0.9B, indicating an asset-light level of investment. 【Financial Soundness】Current assets of ¥151.2B substantially exceeded current liabilities of ¥68.6B, while non-current liabilities were extremely small at ¥1.2B. Cash and deposits were ¥127.1B, representing a high proportion of total assets of ¥294.0B, and the financial foundation remains conservative.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥40.1B, down -2.1% YoY, and was slightly above Net Income of ¥36.7B, indicating generally sound cash conversion of earnings. Investing Cash Flow was positive at ¥12.0B, while capital expenditures were only ¥0.6B; consequently, free cash flow totaled ¥52.1B, calculated as the sum of OCF and Investing Cash Flow. Financing Cash Flow represented a substantial outflow of -¥77.2B, of which share repurchases accounted for ¥60.0B. As capital returns, including dividend payments, exceeded FCF, cash and cash equivalents began to decline. Cash and deposits decreased by ¥36.0B from ¥163.2B in the previous year to ¥127.1B, making the significant reduction in cash resulting from large-scale capital returns the key feature of the current period’s funding dynamics.

Quality of Earnings

Current-period earnings were primarily generated by recurring income from the core credit guarantee business. Extraordinary losses were minor, consisting only of a ¥0.3B loss on disposal of fixed assets, and the impact of one-time factors on earnings was limited. Interest income accounted for ¥1.5B of non-operating income of ¥1.7B, creating a structure in which substantial holdings of cash, deposits, and investment securities supplemented Ordinary Income. Meanwhile, equity-method investment losses were -¥0.7B, deteriorating from -¥0.02B in the previous year, and the decline in earnings contributions from affiliated companies slightly reduced Ordinary Income. From an accruals perspective, OCF of ¥40.1B exceeded Net Income of ¥36.7B, while changes in trade receivables and trade payables were also limited, providing little indication of excessive anticipation of earnings. However, the details of the increase in cost of sales underlying the decline in gross margin cannot be determined in detail from the disclosed information. Assessing whether this increase is structural will therefore be a key issue in evaluating earnings quality going forward.

Earnings Forecasts and Guidance

For the full-year forecast, the company projects Revenue of ¥119.0B (+7.9% YoY), Operating Income of ¥55.0B (+5.7%), Ordinary Income of ¥56.0B (+5.6%), and Net Income of ¥38.0B (+5.8%). Current-period actual results (cumulative) reached ¥110.3B in Revenue, or 92.7% of the full-year forecast; ¥52.0B in Operating Income, or 94.6%; and ¥36.7B in Net Income, or 96.6%, indicating generally solid progress. However, the Operating Income margin implied by the full-year forecast is approximately 46.2%, and a clear rebound from the current-period actual margin of 47.2% is not incorporated into the forecast.

Shareholder Returns

The annual dividend for the current period was ¥40.00 per share, with total dividends of ¥17.8B and a Payout Ratio of 51.4%. In addition, the company conducted share repurchases of ¥60.0B. Total returns, including dividends and share repurchases, reached ¥77.8B, resulting in a Total Return Ratio of approximately 216.7% relative to Net Income attributable to owners of the parent of ¥35.9B. Dividends alone were sufficiently covered by FCF of ¥52.1B; however, total returns including share repurchases exceeded FCF, and cash and deposits declined by ¥36.0B from the previous year. The company’s dividend forecast for the next fiscal year is ¥84.00 per share, and the Payout Ratio relative to forecast EPS of ¥83.82 is expected to be approximately 100.2%. It is noteworthy that even dividends alone are expected to reach a level that would be difficult to fully fund from earnings.

Risk Factors

1. Margin compression due to higher cost ratio: Cost of sales increased +22.9% YoY, substantially exceeding revenue growth of +7.9%. As a result, both the gross margin and Operating Income margin declined, and the key issue going forward is whether this increase is temporary or structural.

2. Business concentration risk: The company has a high degree of dependence on a single credit guarantee business, and revenue by region is limited to Japan. This structure makes performance susceptible to domestic corporate credit conditions and economic fluctuations.

3. Capital returns and declining cash levels: Total returns of ¥77.8B, comprising dividends and share repurchases, exceeded FCF of ¥52.1B, and cash and deposits declined by ¥36.0B. If large-scale returns continue, financial flexibility may deteriorate.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (insurance)

Profitability and Return

The company’s Operating Income margin and Net Profit margin substantially exceed the industry median, highlighting its highly profitable business profile.

Growth and Capital Efficiency

While revenue growth across the industry tends to be stagnant, the company secured revenue growth well above the industry median.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The company maintained high profitability, with an Operating Income margin of 47.2% and ROE of 16.4%. However, the decline in profit margins from the previous year resulted from the growth rate of cost of sales exceeding the growth rate of Revenue, and the extent to which this structure becomes established will be a key focus going forward.

2. The Payout Ratio of 51.4% is sustainable when viewed independently, but the Total Return Ratio, including ¥60.0B in share repurchases, reached approximately 216.7%, and cash and deposits declined by ¥36.0B during the current period. Balancing large-scale capital returns with the maintenance of financial flexibility will be a key focus of future capital policy.

3. Progress toward the full-year forecast was solid, with both revenue and profit reaching the upper 90% range. However, the Operating Income margin of 46.2% assumed in the company’s forecast is below the current-period actual margin, making margin trends from the second half onward the key to achieving the earnings forecast.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.