Advance Create (8798) FY2026 Q1 Earnings Report

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Executive Summary

In Q1 of the fiscal year ending September 2026, the Company returned to operating profitability due to a sharp recovery in its core insurance agency business; however, the Company remained in a net loss position, primarily due to impairment losses. Revenue was ¥17.8B (¥12.1B in the previous year, +47.1% YoY), Operating Income was ¥0.4B (a loss of ¥6.5B in the previous year), Ordinary Income was ¥0.3B (a loss of ¥7.3B in the previous year), and Net Income was a loss of ¥0.4B (a loss of ¥10.1B in the previous year). While revenue growth and a 10.9% reduction in SG&A expenses contributed to the return to operating profitability, extraordinary losses of ¥0.65B, including a ¥0.6B impairment loss in the insurance agency business, pushed bottom-line earnings back into the red.

Factors Affecting Performance

【Revenue】Revenue increased 47.1% YoY to ¥17.8B. The core insurance agency business led overall performance, generating ¥12.8B in revenue (72.2% of total revenue, +55.1% YoY), of which life insurance accounted for ¥11.2B and non-life insurance for ¥1.6B. The media rep business generated ¥1.1B (+137.8% YoY), while the media business generated ¥0.5B (+323.7% YoY), both showing strong growth but remaining small in scale. The reinsurance business generated ¥2.6B (+3.5% YoY), with growth slowing and its contribution to overall Company growth limited.

【Profit and Loss】Operating Income was ¥0.4B, improving by ¥6.9B from the ¥6.5B loss recorded in the previous year, while the operating margin improved significantly from -54.3% in the previous year to 2.3%. The gross margin also rose to 77.6% (approximately 70.0% in the previous year), reflecting improvements in the cost and SG&A expense structure in addition to revenue growth. Ordinary Income turned positive at ¥0.3B; however, interest expenses of ¥0.3B accounted for more than 60% of Operating Income, indicating a heavy financial cost burden. Extraordinary losses of ¥0.65B, including a ¥0.6B impairment loss due to declining profitability in the insurance agency business, were recognized as a temporary factor, resulting in a loss before tax of ¥0.4B and a Net Loss of ¥0.4B. Although the Company achieved revenue and profit growth at the operating and ordinary income levels, it remained in a net loss position due to temporary losses.

Segment Analysis

The insurance agency business generated revenue of ¥12.8B (72.2% of total revenue) and segment profit of ¥0.27B (a 2.0% margin), turning profitable from a ¥6.79B loss in the previous year and becoming the primary driver of overall improvement. The ASP business was the most profitable segment, generating revenue of ¥0.7B but segment profit of ¥0.25B, representing a 35.1% margin. The reinsurance business generated revenue of ¥2.6B and profit of ¥0.22B (an 8.6% margin), although profit declined YoY. The media rep business expanded to ¥1.1B in revenue but continued to post a segment loss of ¥0.42B (a -18.3% margin), indicating that revenue growth has not translated into profit. The advertising agency business generated revenue of ¥0.5B, with profit approximately breakeven.

Key Financial Indicators

【Profitability】The operating margin was 2.3% and the net profit margin was -2.2%, representing substantial improvements from -54.3% and -83.7%, respectively, in the same period of the previous year; however, profitability has not yet become firmly established. The gross margin was 77.6%, up approximately 7.6pt YoY. 【Cash Flow Quality】Accounts receivable of ¥29.3B represented 32.6% of total assets, while cash and cash equivalents of ¥33.1B decreased 38.0% YoY, requiring attention to the balance between cash inflows and outflows. 【Investment Efficiency】Annualized ROE was -29.3%. With an Equity Ratio of 6.0%, the Company’s thin capital base means that even modest fluctuations in profit and loss can have a significant impact on shareholder returns. Basic EPS was a loss of ¥0.57, a substantial improvement from the ¥45.13 loss in the previous year. 【Financial Soundness】The Equity Ratio was 6.0%, and short-term borrowings of ¥46.4B accounted for approximately 51.6% of total assets. Interest expenses consumed a substantial portion of Operating Income, indicating that high financial leverage may readily offset the benefits of an earnings recovery.

Cash Flow Analysis

Although individual disclosures in the cash flow statement are limited, an analysis of cash trends based on changes in the balance sheet shows that cash and deposits decreased by ¥20.3B from ¥33.1B in the same period of the previous year (¥53.4B in the previous year), representing a decline of 38.0%. Meanwhile, accounts receivable remained high at ¥29.3B, and accounts payable increased from ¥0.75B to ¥1.23B, suggesting that the accumulation of working capital associated with business expansion may have contributed to the decline in cash and deposits. Short-term borrowings of ¥46.4B exceeded cash and deposits by ¥13.3B. Thus, while the business continues to move toward operating profitability, its cash management remains highly dependent on short-term financing.

Quality of Earnings

The return to profitability at the ordinary income level resulted from recurring factors, namely revenue growth and SG&A expense reductions. Although foreign exchange gains of ¥0.1B provided a partial contribution in non-operating income, non-operating expenses of ¥0.4B, including interest expenses of ¥0.3B, pressured Ordinary Income. Meanwhile, ¥0.6B of the ¥0.65B in extraordinary losses represented an impairment loss in the insurance agency business, a temporary factor involving a review of carrying amounts due to declining profitability. This extraordinary loss was the primary cause of the ¥0.39B Net Loss. Accordingly, the recurring recovery in earnings capacity represented by operating profitability should be clearly distinguished from the temporary loss recognition resulting from impairment. Comprehensive income was a loss of ¥0.39B, broadly in line with Net Income, and the impact of valuation differences on other securities was immaterial.

Earnings Forecast and Guidance

The full-year plan calls for revenue of ¥79.5B (+20.3% YoY), Operating Income of ¥6.5B, Ordinary Income of ¥5.5B, and forecast EPS of ¥6.51. The Q1 revenue progress rate was 22.3%, a standard level, while the progress rates for Operating Income and Ordinary Income were only 6.3% and 5.3%, respectively, substantially below the 25% benchmark for even quarterly progress toward the full-year plan. No revision to the earnings forecast was made on this occasion. From Q2 onward, continued profitability in the insurance agency business, a reduction in losses in the media rep business, and the presence or absence of additional impairment losses will be the key determining factors for achieving the full-year plan.

Shareholder Returns

The dividend for the fiscal year ending September 2026 remains undecided at this time, and the Company states that it will announce the dividend once disclosure becomes possible. In Q1, the Company recorded a Net Loss attributable to owners of the parent of ¥0.39B, making it impossible to assess the Payout Ratio based on earnings. Given the financial structure of net assets of ¥5.4B and an Equity Ratio of 6.0%, the formulation of a specific dividend policy will be premised on earnings recovery and the securing of liquidity.

Risk Factors

1. Profitability vulnerability: The operating margin remains below 5% at 2.3%, and the absolute level of profit is too small to absorb interest expenses of ¥0.3B and extraordinary losses. Although the insurance agency business returned to profitability, it recorded an impairment loss of ¥0.6B, and the sustainability of its profitability requires verification over the coming quarters.

2. Financial leverage and dependence on short-term funding: The Equity Ratio was 6.0%, while short-term borrowings of ¥46.4B accounted for approximately 51.6% of total assets and exceeded cash and deposits of ¥33.1B. Interest coverage was low at approximately 1.5x, and rising interest rates or a downside in Operating Income could place pressure on the Company’s ability to service interest payments.

3. Profitability of the media rep business: While revenue expanded by +137.8% YoY, the segment continued to post a loss of ¥0.42B. If revenue growth fails to translate into profit, this could impede improvement in the Company-wide operating margin.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (insurance)

Profitability and Return

Both the Company’s operating margin and net profit margin are trending toward profitability and improvement; however, comparative data against the industry median has not been obtained.

Growth and Capital Efficiency

The revenue growth rate was high at +47.1% YoY; however, comparative data against the industry median has not been obtained.

Source: Compiled by the Company

Key Points from the Financial Results

1. Revenue increased 47.1% YoY, and Operating Income improved by ¥6.9B, resulting in a shift from the substantial operating loss recorded in the same period of the previous year to operating profitability. The recovery in revenue and profit in the core insurance agency business led the overall improvement.

2. On the other hand, extraordinary losses of ¥0.65B, including an impairment loss of ¥0.6B in the insurance agency business, resulted in a continuing net loss of ¥0.4B. Operating profitability alone is therefore insufficient to assess earnings stability.

3. The financial structure—including an Equity Ratio of 6.0%, high dependence on short-term borrowings, and a heavy interest expense burden—requires ongoing monitoring as a key constraint during the earnings recovery phase.

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This report is an earnings analysis document automatically generated by AI based on XBRL financial results data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed financial results data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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