eGuarantee,Inc. FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026 (Full Year), Revenue was ¥110.3B (YoY +¥8.0B +7.9%), Operating Income was ¥52.0B (YoY +¥1.0B +1.9%), Ordinary Income was ¥53.0B (YoY +¥1.0B +1.9%), and Net Income attributable to owners of the parent was ¥35.9B (YoY +¥1.1B +3.0%). The company achieved increased revenue and profit, but a relative rise in cost of sales compressed gross margin to 73.2% (prior year 76.4%, -3.2pt) and Operating Margin to 47.2% (prior year 49.9%, -2.7pt). SG&A ratio improved to 26.0% (prior year 26.6%, -0.6pt), reflecting good cost control. Interest income of ¥1.5B contributed to stability at the ordinary income level, and after tax the Net Income margin was 32.6% (prior year 34.1%, -1.5pt). ROE was 16.0% and Equity Ratio 76.3%, both at high levels. The company executed ¥60.0B of share buybacks during the period, bringing the Total Return Ratio to approximately 216%. Results came in below the company full-year plan (Revenue ¥119.0B, Operating Income ¥55.0B, Net Income ¥38.0B) with achievement rates of approximately 93–95% across metrics.

Drivers of Performance

[Revenue] Revenue was ¥110.3B (YoY +¥8.0B +7.9%), a solid increase. The company operates a single segment—Credit Guarantee Business—with domestic guarantee fee income as the core. Contract liabilities (deferred revenue) were ¥50.3B, up ¥2.8B YoY, and the accumulation of projects since the beginning of the period supported top-line growth. However, Cost of Sales rose to ¥29.6B (prior year ¥24.1B, +22.8%), outpacing revenue growth, and Gross Profit was limited to ¥80.7B (YoY +3.2%). Gross Margin declined to 73.2% (YoY -3.2pt), likely driven by increased guarantee-related costs or changes in project mix that pushed up cost rates.

[Profitability] Operating Income was ¥52.0B (YoY +¥1.0B +1.9%). SG&A was ¥28.7B (prior year ¥27.2B, +5.7%), contained below revenue growth, and SG&A ratio improved to 26.0% (prior year 26.6%, -0.6pt). Major SG&A components were Salaries and Allowances ¥9.8B and Rent ¥2.5B; increases tied to business scale expansion were within expected levels. Operating Margin declined to 47.2% (prior year 49.9%, -2.7pt), as the compression in gross margin passed through to the operating level. Non-operating income included Interest Income ¥1.5B, which absorbed Equity Method Losses of ¥0.7B; total non-operating expenses were limited to ¥0.7B. Ordinary Income was ¥53.0B (YoY +¥1.0B +1.9%). Extraordinary losses consisted only of Impairment/Retirement Loss on Fixed Assets ¥0.3B, a minor one-off impact. Profit before income taxes was ¥52.7B (prior year ¥51.7B, +2.1%), and after provision for income taxes of ¥16.0B (effective tax rate 30.4%) and Net Income attributable to non-controlling interests ¥0.8B, Net Income attributable to owners of the parent was ¥35.9B (prior year ¥34.9B, +3.0%). In conclusion, while revenue and profit increased, the decline in gross margin limited profit growth.

Key Financial Metrics

[Profitability] Operating Margin 47.2% (prior year 49.9%) and Net Margin 32.6% (prior year 34.1%) remain at high levels but declined YoY. ROE 16.0% (prior year 15.1%, +0.9pt) is composed of Net Margin 32.6% × Total Asset Turnover 0.38x × Financial Leverage 1.31x; asset contraction (Total Assets prior year ¥330B → ¥294B) improved asset efficiency and supported ROE. ROA (based on Ordinary Income) was 17.0% (prior year 16.5%), remaining strong. [Cash Quality] Operating Cash Flow (OCF) was ¥40.1B, 1.12x of Net Income ¥35.9B, indicating high quality. EBITDA (Operating Income ¥52.0B + Depreciation ¥0.9B) was ¥52.9B; the OCF/EBITDA ratio was 0.76x, somewhat weak, affected by working capital movements (deferred revenue increase +¥2.8B, other receivables increase -¥3.1B). Free Cash Flow was ¥52.1B (OCF ¥40.1B + Investing CF ¥12.0B), 1.45x of Net Income, indicating ample cash generation. [Investment Efficiency] Capital expenditures were ¥0.6B, below depreciation ¥0.9B, with CapEx/Depreciation at 0.68x, reflecting replacement-level investment. The company held Investment Securities ¥113.0B and purchased ¥19.7B during the period. [Financial Soundness] Equity Ratio was 76.3% (prior year 79.9%), and Current Ratio 220.5% (prior year 290.7%), both remaining high. Cash and Deposits were ¥127.1B and Marketable Securities ¥3.0B, providing ample liquidity, though cash decreased ¥36.0B YoY (driven mainly by ¥60.0B share buybacks). Interest-bearing debt was effectively zero, and interest coverage was extremely high.

Cash Flow Analysis

OCF was ¥40.1B (YoY -¥0.9B -2.1%), 1.12x of Net Income ¥35.9B, indicating quality. From subtotal (pre-tax CF) ¥57.4B, after income tax payments ¥18.7B, working capital changes included Deferred Revenue increase +¥2.8B, Trade Receivables decrease -¥0.1B, Accounts Payable increase +¥0.1B, and Other items net outflow -¥3.1B, resulting in a slight decrease in OCF. Investing CF showed a net inflow of ¥12.0B, suggesting proceeds from sale/redemption of investment securities exceeded purchases of ¥19.7B. CapEx was -¥0.6B and including Intangible Asset investments -¥1.0B, total tangible and intangible investments amounted to -¥1.6B. Free Cash Flow was ¥52.1B (OCF ¥40.1B + Investing CF ¥12.0B), which covered Dividend Payments ¥17.7B (Payout Ratio 50.6%) with ¥34.4B of surplus cash remaining. Financing CF was -¥77.2B, driven by Share Buybacks -¥60.0B, Dividend Payments -¥17.7B, and Dividends to Non-controlling Interests -¥1.4B. Although there was Capital Contribution from Non-controlling Interests +¥0.9B, large share repurchases led to a cash decrease of ¥25.0B in the period, and ending cash balance was ¥127.1B (prior year ¥163.2B).

Quality of Earnings

Most earnings derive from recurring income in the Credit Guarantee Business, and non-operating income was ¥1.7B (of which Interest Income was ¥1.5B), representing 1.5% of Revenue and limited in scale. Extraordinary items were minor (Impairment/Retirement Loss on Fixed Assets ¥0.3B). The gap between Ordinary Income ¥53.0B and Net Income ¥35.9B is mainly due to income taxes ¥16.0B (effective tax rate 30.4%); adjustments from special tax effects and Net Income attributable to non-controlling interests ¥0.8B were small. OCF/Net Income ratio of 1.12x and Accrual Ratio -1.4% are in healthy ranges, indicating sound cash realization of profits. Conversely, OCF/EBITDA ratio of 0.76x is somewhat weak; despite deferred revenue increasing +¥2.8B, an increase in other receivables -¥3.1B pressured working capital. The difference between Comprehensive Income ¥36.7B and Net Income ¥35.9B is small, and movements in Accumulated Other Comprehensive Income were limited. Overall, earnings are primarily recurring with few one-off items, and earnings quality is assessed as high.

Guidance and Forecasts

Against the company full-year plan (Revenue ¥119.0B, Operating Income ¥55.0B, Ordinary Income ¥56.0B, Net Income ¥38.0B, EPS ¥83.82, Dividend ¥42), actual results were Revenue ¥110.3B (Achievement Rate 92.7%), Operating Income ¥52.0B (94.6%), Ordinary Income ¥53.0B (94.7%), Net Income ¥35.9B (94.4%), EPS ¥77.89 (92.9%), and Dividend ¥40 (95.2%), missing the plan on all items. Revenue was short by ¥8.7B compared to plan, and Operating Income missed by ¥3.0B. The decline in gross margin and larger-than-expected increase in Cost of Sales are presumed primary causes. Deferred revenue increased ¥2.8B YoY, indicating project backlog accumulation, but changes in unit prices and mix likely pressured profitability. The year-end dividend of ¥40 was ¥2 below the plan of ¥42, a conservative outcome relative to company guidance. Achievement rates in the mid-90% range fell short of standard targets, raising focus on next fiscal year’s planning and execution capability.

Shareholder Returns

A year-end dividend of ¥40 (Payout Ratio 50.6%) was paid. Total dividends amounted to ¥17.7B, coverage relative to Free Cash Flow ¥52.1B was 2.94x, indicating ample capacity. A Payout Ratio of 50.6% is at a sustainable level, suggesting a policy toward stable medium- to long-term dividends. Separately, the company repurchased treasury stock worth ¥60.0B during the period, increasing treasury stock balance from -¥0.01B to -¥14.89B. Combining dividends ¥17.7B and buybacks ¥60.0B, Total Shareholder Return was ¥77.7B, yielding a Total Return Ratio of approximately 216% relative to Net Income ¥35.9B. This high level of return was executed against robust liquidity (Ending Cash ¥127.1B and Investment Securities ¥113.0B) but, on a single-year basis, materially exceeded profits; sustainability will depend on next fiscal year profit levels and FCF generation, requiring flexible adjustments going forward. Treasury stock acquisition reduced the weighted average shares outstanding during the period to 46,090 thousand shares, and shares outstanding at period-end (after deduction of treasury stock) to 44,416 thousand shares, supporting per-share value and shareholder value enhancement.

Risk Factors

1. Risk of Continued Gross Margin Decline (Ongoing Profitability Compression): Cost of Sales increased +22.8% YoY, substantially exceeding Revenue growth +7.9%, leading Gross Margin to decline to 73.2% (prior year 76.4%, -3.2pt). Increased guarantee-related costs or changes in project mix are likely causes; continued decline would pressure Operating Margin. Improvement in SG&A ratio (-0.6pt) has been insufficient to offset this, and Operating Margin decreased to 47.2% (-2.7pt). If macro-driven credit costs rise or price competition intensifies, the company will need to implement price adjustments and stricter risk selection to maintain mid-term margins.

2. Excessive Return Risk (Sustainability of Total Return Ratio 216%): Total returns of ¥77.7B (Dividends ¥17.7B + Buybacks ¥60.0B) equal 2.16x Net Income ¥35.9B, substantially exceeding annual profits. Although executed given abundant cash (Ending Cash ¥127.1B) and Investment Securities ¥113.0B, cash decreased ¥36.0B YoY, slightly reducing near-term investment flexibility. Continuation of similar returns would require balancing with FCF generation and cash levels to remain sustainable.

3. Underinvestment Risk (Weakening Growth Base): CapEx ¥0.6B is below Depreciation ¥0.9B, with CapEx/Depreciation at 0.68x, indicating limited replacement investment. Intangible investments were small at ¥1.0B, suggesting restrained spending on systems and new business initiatives. While this supports short-term cash flow, it may delay product development and operational efficiency improvements over the medium to long term, risking competitiveness. OCF/EBITDA 0.76x and relatively weak cash conversion call for monitoring both working capital management and investment pace.

Industry Benchmark (Reference — Company Analysis)

Profitability & Returns

Profitability is exceptionally high within the insurance sector, with Operating and Net Margins well above medians.

Growth & Capital Efficiency

Growth also exceeds industry medians, placing the company among the top in top-line expansion pace.

※ Source: Company compilation

Key Takeaways from the Results

1. Sustained high ROE and margins and sectoral competitiveness: ROE 16.0%, Operating Margin 47.2%, Net Margin 32.6% significantly exceed insurance sector medians (Operating Margin 8.8%, Net Margin 4.3%). Financial position is robust with Equity Ratio 76.3% and Current Ratio 220.5%. Free Cash Flow ¥52.1B is 1.45x Net Income and supports active shareholder returns (Total Return Ratio 216%). However, Gross Margin declined by -3.2pt YoY, indicating a downward trend in profitability; pricing power and project selection effectiveness will be critical to maintain margins.

2. Missed guidance and focus on next-year execution: Achievement rates of 93–95% vs full-year plan on Revenue and profit, and a dividend of ¥40 vs plan ¥42, highlight conservative outcomes. The larger-than-expected decline in gross margin is a primary cause; analysis of drivers behind cost rate increases (higher guarantee costs, project mix shifts, price competition) is necessary, and assumptions and execution feasibility for next-year guidance should be scrutinized. Deferred revenue increased +¥2.8B, indicating backlog accumulation; the timing of revenue recognition and potential for unit-price improvement will be pivotal for next-year performance.

3. Sustainability of Total Return Ratio and capital allocation policy: Total Return Ratio 216% (Dividends ¥17.7B + Buybacks ¥60.0B) was executed given abundant liquidity (Cash ¥127.1B, Investment Securities ¥113.0B), but materially exceeded profits on a single-year basis. With limited replacement CapEx (¥0.6B) and small intangible investments (¥1.0B), balancing returns and growth investment is a key issue. Going forward, a flexible return policy tied to FCF generation and cash levels, while evaluating room for increasing investments in the growth base, is recommended.

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This report was automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by our firm from public financial statements. Investment decisions are your responsibility; consult professional advisors as needed.