LEOPALACE21 CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Although revenue increased, operating income declined as the increase in SG&A expenses exceeded the improvement in gross profit. Meanwhile, net income increased substantially due to the absence of the extraordinary loss recorded in the previous year. Revenue was ¥115.9B (+3.7% YoY), operating income was ¥12.12B (-1.1%), ordinary income was ¥12.28B (+6.2%), and net income was ¥7.34B, a substantial increase from ¥0.85B in the previous year. The primary driver of revenue growth was the expansion of rental income and ancillary service revenue in the core Rental Business, while the main factor behind the decline in operating income was the 12.0% increase in SG&A expenses, which exceeded the revenue growth rate.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥115.9B, representing a 3.7% increase from the same period of the previous year. The core Rental Business, which accounted for 96.7% of the total, led company-wide growth with revenue of ¥112.03B, up 3.8%. Rental income of ¥86.54B (+3.7%) was the main contributor, while ancillary services and other revenue of ¥4.998B (+6.3%) also contributed. The Silver Business was essentially flat at ¥3.40B, down 0.2%, while Other Businesses increased 12.0% to ¥0.57B, despite their small scale.

【Profit and Loss】Operating income was ¥12.12B, down 1.1% from the same period of the previous year. Although the gross margin improved to 22.9% from 22.5% in the previous year, SG&A expenses increased 12.0% to ¥14.39B, exceeding revenue growth. As a result, the operating margin was 10.5%, slightly lower than the 10.5% level in the previous year. Ordinary income was ¥12.28B, up 6.2%, as improved non-operating income, including a foreign exchange gain of ¥0.13B, offset the decline in operating income. Net income rose substantially to ¥7.34B, primarily due to the comparative effect of the extraordinary loss recorded in the same period of the previous year, which declined from ¥10.09B to ¥0.01B in the current period. In summary, the results represent higher revenue but lower operating income, while both revenue and ordinary income increased.

Segment Analysis

The Rental Business reported revenue of ¥112.03B (+3.8%), segment profit of ¥14.42B (+1.2%), and a profit margin of 12.9%, slightly down from 13.2% in the previous year. It remains the core contributor to company-wide profits. The Silver Business reported revenue of ¥3.40B (-0.2%) and a segment loss of ¥0.40B, widening from ¥0.355B in the previous year, with losses continuing. The business recorded an impairment loss of ¥0.004B on shared assets during the current period. Other Businesses reported revenue of ¥0.57B (+12.0%), but the segment loss widened to ¥0.68B from ¥0.622B in the previous year. Adjustments for company-wide expenses and other items totaled -¥1.21B, deteriorating from -¥1.02B in the previous year. The increase in unallocated administrative expenses was also a factor behind the decline in consolidated operating income.

Key Financial Metrics

【Profitability】The operating margin was 10.5%, while the net margin was 6.3%, based on net income attributable to owners of the parent. The gross margin improved to 22.9% from 22.5% in the previous year, while the SG&A ratio increased to 12.4%; consequently, the improvement in gross margin did not translate into an improvement in the operating margin.【Cash Flow Quality】Against ordinary income of ¥12.28B, net extraordinary items resulted in only a ¥0.006B loss, and pretax income of ¥12.27B was broadly supported by recurring earnings. Of non-operating income of ¥0.34B, the ¥0.13B foreign exchange gain contains a variable component.【Investment Efficiency】Annualized ROE was 55.2%, and the equity ratio was 29.1%. Financial leverage and the rebound from the one-time loss in the previous year contributed to the level of ROE; interpreting it solely as a measure of profitability could therefore lead to overvaluation.【Financial Soundness】Cash and deposits totaled ¥65.72B, accounting for 36.0% of total assets, while the current ratio was 121.5%, indicating adequate short-term payment capacity. Against long-term borrowings of ¥30.0B, interest expense was only ¥0.16B, indicating a limited interest burden.

Cash Flow Analysis

As the cash flow statement has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased by ¥7.81B to ¥65.72B from ¥57.91B at the end of the same period of the previous year, indicating an accumulation of cash. Retained earnings increased by ¥5.40B to ¥33.51B from ¥28.11B at the end of the same period of the previous year, with profit accumulation during the period supporting the expansion of shareholders’ equity. Long-term borrowings were ¥30.0B, unchanged from the end of the same period of the previous year. A key feature is that the company strengthened its cash position without increasing its reliance on interest-bearing debt. Property, plant and equipment increased only slightly to ¥60.87B, suggesting that the focus is on maintaining and renewing existing assets rather than undertaking large-scale investments.

Earnings Quality

Against ordinary income of ¥12.28B, extraordinary income was ¥0.001B and extraordinary losses were ¥0.007B, both extremely small. Pretax income of ¥12.27B was therefore almost entirely supported by operating and non-operating income. Non-operating income of ¥0.34B represented only 0.3% of revenue, but included a foreign exchange gain of ¥0.13B, which is temporary in nature and may fluctuate depending on foreign exchange conditions. The sharp increase in net income, from ¥0.85B in the previous year to ¥7.34B, was primarily attributable to the comparative one-time effect of the absence of the ¥10.09B extraordinary loss recorded in the same period of the previous year. This should be evaluated separately from the growth in recurring earnings power during the current period. The effective tax rate was high at approximately 40.2%, limiting the conversion of pretax income into net income.

Earnings Forecast and Guidance

There has been no revision to either the full-year earnings forecast or the dividend forecast. The full-year forecasts are revenue of ¥465.0B, operating income of ¥38.50B, ordinary income of ¥38.10B, and net income attributable to owners of the parent of ¥22.20B. Q1 progress rates were 24.9% for revenue, 31.5% for operating income, 32.2% for ordinary income, and 31.7% for net income attributable to owners of the parent, with profit progress exceeding the standard 25%. However, operating income itself declined year on year, and the high progress rates include the comparative effect of the absence of the extraordinary loss recorded in the previous year. The full-year forecast assumes increases of +6.3% in operating income and +8.5% in ordinary income. Control of SG&A expenses and trends in the Rental Business profit margin will be key to achieving these forecasts.

Shareholder Returns

The full-year dividend forecast is ¥15.00 per share, representing an increase from the previous year’s dividend of ¥5. The payout ratio based on forecast full-year EPS of ¥69.87 is approximately 21.5%, indicating relatively conservative shareholder returns compared with the profit level. As no share repurchases have been confirmed as of the end of the current quarter, the payout ratio should be evaluated separately from the total return ratio. Cash and deposits of ¥65.72B and the low forecast payout ratio support flexibility in dividend payments.

Risk Factors

1. Decline in the profitability of the core Rental Business: The segment profit margin declined to 12.9% from 13.2% in the previous year. Company-wide SG&A expenses increased by +12.0%, exceeding the revenue growth rate of +3.7%; improving cost absorption will therefore be a condition for achieving the full-year profit forecast.

2. Widening losses in non-core businesses: The loss in the Silver Business widened to ¥0.40B from ¥0.355B in the previous year, while the loss in Other Businesses widened to ¥0.68B from ¥0.622B. The Silver Business recorded an impairment loss of ¥0.004B on shared assets.

3. High tax burden and size of deferred tax assets: The effective tax rate was high at approximately 40.2%. Deferred tax assets totaled ¥28.56B, accounting for 53.6% of net assets. Depending on the outlook for future taxable income, the risk of a write-down could affect the quality of capital.

Industry Benchmark (For Reference; Company Research)

Profitability and Returns

Both the operating margin and net margin exceeded the industry median, indicating relatively strong profitability within the industry.

Growth and Capital Efficiency

The revenue growth rate was slightly below the industry median but remained within the IQR and was not significantly inferior.

※Source: Company research

Key Takeaways from the Results

1. Despite higher revenue, operating income declined because the increase in SG&A expenses (+12.0%) exceeded revenue growth (+3.7%). The Rental Business segment profit margin also declined by approximately 30bp from the previous year. Cost control trends will be a key point to monitor in future results.

2. The substantial increase in net income was primarily attributable to the comparative one-time effect of the absence of the extraordinary loss recorded in the previous year (¥10.09B). It should be assessed separately from the increase in ordinary income (+6.2%).

3. Full-year profit progress was approximately 32%, exceeding the standard 25%. However, as the full-year forecast assumes earnings growth, trends in SG&A expenses and the effective tax rate, which was 40.2% in the current period, will determine whether the forecast can be achieved.

Theoretical Share Price (Reference Value)

Sensitivity: ¥383–¥408 at ±1% for the cost of equity, and ¥388–¥406 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used; there is a timing difference from the full-year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit five-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)

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This report is an automatically generated earnings analysis document produced 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 available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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