Keio (9008) FY2026 Q3 Earnings Report

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Executive Summary

The most important point of these financial results is that, despite higher revenue, profit margins declined, resulting in an increase in revenue but a decrease in profit. Revenue was ¥360.16B (+7.5% year on year), Operating Income was ¥48.12B (down 2.9%), Ordinary Income was ¥47.49B (down 3.3%), and Net Income was ¥33.39B (down 15.0%). Revenue growth was driven by expansion in the Real Estate, Hotel, and Construction and Facilities businesses. However, increased operating expenses, including those in the core Transportation business, prevented the increase in revenue from being sufficiently converted into profit. In addition, the shift in extraordinary gains and losses from a net gain in the previous year to a net loss expanded the decline in Net Income.

Factors Affecting Results

【Revenue】Revenue was ¥360.16B, an increase of +7.5% year on year, maintaining revenue growth. By segment, the Real Estate business (¥80.31B, +18.7%) and Construction and Facilities business (¥52.66B, +17.4%) posted strong growth, while the Hotel business (¥45.54B, +6.9%) also expanded. Meanwhile, the Transportation business, the largest segment (¥100.97B, +2.3%), recorded relatively slower revenue growth.

【Profit and Loss】Operating Income was ¥48.12B (down 2.9%), and Ordinary Income was ¥47.49B (down 3.3%). The Operating Income margin declined to 13.4% from 14.8% in the same period of the previous year, a decrease of 1.45pt. Operating Income in the Transportation business was ¥16.75B, down 12.9%, representing the largest decline among all segments and serving as the primary factor depressing consolidated profit. In contrast, the Construction and Facilities business posted profit of ¥3.09B, an increase of +83.4%, while the highly profitable Hotel business, with a profit margin of 22.1%, provided support to the Real Estate business. Extraordinary gains and losses shifted from a net gain of ¥0.96B in the same period of the previous year to a net loss of ¥0.71B in the current period, further magnifying the decline in Profit Before Tax. Net Income was ¥33.39B (down 15.0%), and the Net Income margin declined to 9.2% from 11.7% in the previous year. Overall, the results can be characterized as an increase in revenue but a decrease in profit.

Segment Analysis

The Transportation business recorded revenue of ¥100.97B (+2.3%), Operating Income of ¥16.75B (down 12.9%), and a profit margin of 16.6%. Although it was the largest contributor to profit, profitability deteriorated. The Real Estate business recorded revenue of ¥80.31B (+18.7%), profit of ¥14.01B (down 3.5%), and a profit margin of 17.4%; despite higher revenue, profit declined due to the impact of the property mix and costs. The Hotel business recorded revenue of ¥45.54B (+6.9%), profit of ¥10.06B (+1.3%), and a profit margin of 22.1%, maintaining the highest profitability among all segments. The Construction and Facilities business posted revenue of ¥52.66B (+17.4%) and profit of ¥3.09B (+83.4%), representing substantial profit growth, although its profit margin was relatively low at 5.9%. The decline in profit in the Transportation business determined the decline in consolidated profit overall, while revenue and profit growth in the other businesses partially offset it.

Key Financial Indicators

【Profitability】The Operating Income margin was 13.4%, down 1.45pt from 14.8% in the same period of the previous year, while the Net Income margin was 9.2%, down 2.46pt from 11.7% in the previous year. ROE was 7.6% (cumulative figure), which translates to approximately around 10% on an annualized basis. The decline in the Net Income margin was the primary factor behind the decline in ROE.【Cash Flow Quality】Net Income was ¥33.39B against Ordinary Income of ¥47.49B, representing a 29.9% gap. Taxes of ¥13.39B and the ¥0.71B net loss from extraordinary gains and losses contributed to this difference.【Investment Efficiency】Total asset turnover was 0.316x on a cumulative basis, remaining at approximately 0.42x on an annualized basis, reflecting the capital-intensive business structure.【Financial Soundness】The Equity Ratio was 38.6%, improving from 36.9% in the previous year. Interest-bearing debt was approximately ¥272.08B, while interest expense increased by +21.1% year on year to ¥3.43B. The Current Ratio was 98.3%, and the cash-to-short-term liabilities ratio against cash and deposits of ¥40.98B was 0.40x, both relatively low levels in terms of short-term liquidity.

Cash Flow Analysis

As the figures for Operating Cash Flow, Investing Cash Flow, and Financing Cash Flow have not been disclosed in these financial results, funding trends are analyzed based on changes in the balance sheet. Inventories increased by +31.4% year on year to ¥51.11B, while work in process remained at a high level of ¥121.77B, indicating that working capital tied up in connection with construction and real estate projects has increased. Construction in progress was ¥112.09B, an increase of +6.3% year on year, indicating an expansion in the scale of capitalized development investments. Cash and deposits declined to ¥40.98B from ¥48.25B in the same period of the previous year, indicating relatively high dependence on short-term funding, including short-term borrowings, commercial paper, and bonds due for redemption within one year. Treasury stock decreased substantially from negative ¥34.76B in the same period of the previous year to negative ¥9.08B, suggesting a change in the capital structure through the disposal or retirement of treasury stock.

Earnings Quality

Ordinary Income was ¥47.49B against Operating Income of ¥48.12B, representing only a small difference, and indicating that the enhancement of profit through non-operating items was limited. Of non-operating income of ¥3.11B, dividend income accounted for ¥2.14B, while most of non-operating expenses of ¥3.74B consisted of interest expense of ¥3.43B; financial income and expenses therefore represented a substantive burden. Extraordinary income was ¥1.11B, mainly comprising a gain on the sale of fixed assets of ¥0.40B, while extraordinary losses were ¥1.82B, mainly comprising a loss on disposal of fixed assets of ¥0.42B, resulting in a net loss of ¥0.71B. In the same period of the previous year, extraordinary gains and losses represented a net gain of ¥0.96B, so this difference acted as a temporary factor expanding the decline in Profit Before Tax. Net Income was ¥33.39B against Profit Before Tax of ¥46.78B. In addition to taxes of ¥13.39B, the deterioration in extraordinary gains and losses contributed to the decline in profit, resulting in a structure in which Net Income is more susceptible to temporary factors than profit at the Ordinary Income stage. Comprehensive Income was ¥42.50B, exceeding Net Income of ¥33.28B, primarily due to valuation differences on investment securities of ¥9.18B. Accordingly, the divergence between Comprehensive Income and Net Income was attributable to market fluctuation factors.

Earnings Forecasts and Guidance

The progress rates for the nine-month cumulative period against the full-year earnings forecasts (Revenue of ¥502.00B, Operating Income of ¥51.00B, and Ordinary Income of ¥49.70B) were 71.7% for Revenue, 94.3% for Operating Income, and 95.6% for Ordinary Income. The progress rates for Operating Income and Ordinary Income substantially exceeded the standard 75% level after taking seasonality into account, suggesting that the company has incorporated conservative profitability assumptions for Q4. Neither the earnings forecasts nor the dividend forecasts were revised during the quarter, and the full-year plan remains unchanged. The Net Income progress rate was 79.2%, lower than those at the Operating Income and Ordinary Income stages, indicating that the tax burden and trends in extraordinary gains and losses in Q4 will determine the degree to which the full-year Net Income target is achieved.

Shareholder Returns

The Q2 dividend was ¥55.00 per share, and the full-year company forecast calls for an annual dividend of ¥110.00. Based on total annual dividends of approximately ¥13.17B against forecast full-year Net Income of ¥42.00B, the Payout Ratio is approximately 31.4%, below the generally sustainable benchmark of 60%. The ratio of the Q2 dividend to nine-month cumulative Net Income was 19.8%, and achieving the dividend forecast is premised on securing the full-year Net Income plan. Treasury stock decreased substantially from negative ¥34.76B in the same period of the previous year to negative ¥9.08B, suggesting that treasury stock was disposed of or retired. As the status of share repurchases has not been explicitly disclosed, the Payout Ratio should be described based solely on dividends and evaluated separately from the Total Return Ratio.

Risk Factors

1. Declining profitability in the core business: While operating revenue in the Transportation business increased by only +2.3% year on year, segment profit declined by 12.9%, as rising operating costs pressured the profit margin. As the segment with the largest impact on consolidated profit, trends in cost management will determine future profitability.

2. Declining short-term liquidity: The Current Ratio was 98.3%, and the cash-to-short-term liabilities ratio was 0.40x, both below generally sound levels (a Current Ratio of 100% or higher and the latter ratio of 0.5x or higher). The refinancing status of short-term funding, including short-term borrowings, commercial paper, and bonds due for redemption within one year, is a key financial monitoring point.

3. Working capital tied up: Inventories increased by +31.4% year on year to ¥51.11B, while work in process reached ¥121.77B (work-in-process ratio of 69.3%), and construction in progress also increased to ¥112.09B (+6.3%). If construction and real estate projects are delayed in terms of construction periods or delivery timing, this could affect funding requirements and profitability.

Industry Benchmark (Reference; Compiled by Our Company)

Industry Benchmark (transport)

Profitability and Returns

The Operating Income margin substantially exceeded the industry median, while the Net Income margin was slightly below the industry median, indicating that extraordinary gains and losses and the tax burden had a relatively greater impact at the Net Income stage.

Growth and Capital Efficiency

The Revenue growth rate was within the industry median range, although it was slightly below the median level.

Source: Compiled by Our Company

Key Takeaways from the Financial Results

1. Although Revenue increased by +7.5%, the Operating Income margin declined to 13.4% from 14.8% in the same period of the previous year, a decrease of 1.45pt. The fact that higher revenue was not sufficiently converted into profit is a key structural point in these financial results.

2. The full-year progress rates for Operating Income and Ordinary Income were high at 94.3% and 95.6%, respectively. While the earnings forecast remains unchanged and conservative assumptions have been incorporated for Q4, the Net Income progress rate was relatively low at 79.2%, indicating a structure in which fluctuations in the tax burden and extraordinary gains and losses will affect full-year results.

3. The shift in extraordinary gains and losses from a net gain in the same period of the previous year to a net loss of ¥0.71B in the current period, together with working capital tied up by increases in inventories, work in process, and construction in progress, represents a structural change observable in the financial data.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,732–¥3,953 at ±1% for the Cost of Equity, and ¥3,838–¥3,843 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference relative to 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 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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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 our 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

Keio delivered solid top-line growth through FY2026 Q3, but profit conversion weakened as operating income, ordinary income, and net income all declined year on year. Consolidated revenue increased 7.5% year on year to ¥360.2bn. Operating income decreased 2.9% to ¥48.1bn despite the revenue expansion. The operating margin contracted by 145bp to 13.4% from 14.8% in the prior-year period. Ordinary income fell 3.3% to ¥47.5bn, reflecting a ¥0.6bn increase in net non-operating expenses. Net income attributable to owners declined 15.0% to ¥33.3bn. The net margin narrowed by 246bp to 9.2% from 11.7%, with the decline amplified by a higher effective tax rate and less favorable extraordinary-item balance. The effective tax rate rose to 28.6% from approximately 21.6% in the prior-year period. Transportation remained the largest segment by operating-profit contribution and therefore the core business, but its segment profit fell 12.9% despite revenue growth. Real estate also produced high profitability, although its segment profit declined 3.5% amid strong revenue growth. Hotel earnings continued to expand, while construction equipment posted the strongest profit growth among the reported segments. The ¥2.1bn rise in dividend income supported non-operating income, but interest expense increased 21.1% to ¥3.4bn. The balance sheet remains capital intensive, with property, plant and equipment representing 61.9% of total assets. Liquidity is tight, as current liabilities modestly exceed current assets and cash covers only 0.40x short-term debt. Full-year guidance was unchanged, but Q3 operating-income progress is already 94.3% of the annual forecast, materially above the standard 75% seasonal pace. This implies a subdued Q4 operating-income run rate under unchanged guidance, making cost trends, transport demand, real-estate monetization, and construction-project execution central to the year-end outcome.

Profitability Analysis

Annualized ROE was 10.1%, a good but not high return level, and the DuPont decomposition is net profit margin of 9.2% × asset turnover of 0.421x × financial leverage of 2.59x. Financial leverage is the principal support for shareholder returns because the group operates a large rail, property, and infrastructure asset base with modest asset turnover. The largest adverse year-on-year change was margin compression: the operating margin declined 145bp to 13.4%, while the net margin fell 246bp to 9.2%. Revenue growth did not translate into operating-profit growth, indicating that operating-cost growth exceeded the incremental revenue contribution. SG&A expense rose 4.8% to ¥44.6bn, slower than revenue growth, so the earnings pressure appears concentrated in cost of sales and operating expenses rather than overhead alone. Transportation operating revenue grew 2.3% to ¥101.0bn, but segment profit fell 12.9% to ¥16.8bn and its margin compressed 290bp to 16.6%. Real-estate revenue increased 18.7% to ¥80.3bn, while segment profit declined 3.5% to ¥14.0bn, reducing its margin by 410bp to 17.4%. Hotel revenue rose 6.9% to ¥45.5bn and segment profit increased 1.3% to ¥10.1bn, though the margin eased 120bp to 22.1%. Construction equipment revenue increased 17.4% to ¥52.7bn and segment profit rose 83.4% to ¥3.1bn, lifting the margin by 210bp to 5.9%. Living services revenue increased 1.5% to ¥107.8bn and segment profit increased 0.7% to ¥4.6bn, leaving a low 4.3% margin. The five-factor DuPont profile shows a normal tax burden of 0.711 and a resilient interest burden of 0.972, indicating that the main pressure is operating profitability rather than debt-service strain. Interest coverage of 14.03x remains strong, although rising interest expense warrants monitoring given the group’s debt-funded asset base.

Growth Assessment

Revenue growth was broad based, led by real estate and construction equipment, while hotel growth remained positive and transportation revenue continued to expand. The segment revenue total rose 7.5% to ¥387.3bn before intersegment eliminations, consistent with consolidated revenue growth. Real estate’s 18.7% revenue growth is strategically meaningful because it supplements the more mature railway franchise and is a major contributor to segment profit. Construction equipment’s 17.4% revenue growth and 83.4% segment-profit increase indicate improved project profitability, although the business is likely more sensitive to project timing and execution than recurring transport operations. Transportation’s 2.3% revenue growth was insufficient to offset cost pressure, making margin recovery more important than revenue growth alone for the core business. Hotel segment profit expanded modestly, supporting diversification into visitor and leisure demand. Full-year revenue guidance is ¥502.0bn, and the Q3 cumulative progress rate is 71.7%, broadly close to the standard 75% progress rate. Operating-income progress is 94.3% versus the ¥51.0bn full-year forecast, 19.3 percentage points above the standard Q3 pace. Ordinary-income progress is 95.6% versus the ¥49.7bn forecast, 20.6 percentage points above the standard pace. Net-income progress is 79.2% versus the ¥42.0bn forecast, 4.2 percentage points above the standard pace. The unchanged forecast therefore embeds a materially weaker Q4 operating-profit contribution than the average of the first three quarters. Management’s unchanged outlook, despite the unusually high operating-income progress, suggests caution around fourth-quarter cost, project, or seasonal factors rather than an assumption that Q3 run-rate profitability will persist.

Financial Health

The balance sheet is supported by ¥440.7bn of total equity and a 38.6% capital adequacy ratio, improving from 36.9% a year earlier. Total liabilities were ¥700.0bn, equivalent to 61.4% of total assets, which is consistent with the capital-intensive railway and property asset base. Interest-bearing debt was ¥272.1bn, comprising ¥103.4bn of short-term loans and ¥168.7bn of long-term loans. Debt-to-equity was 1.59x, below the 2.0x aggressive-leverage warning threshold, while debt-to-capital was 38.2%, within the 40% investment-grade benchmark. Interest coverage of 14.03x indicates ample current earnings capacity to service reported interest expense. Liquidity nevertheless requires explicit caution: the current ratio was 0.98x, below 1.0x, and working capital was negative ¥4.9bn. Current assets of ¥284.0bn were slightly below current liabilities of ¥289.0bn, creating a modest maturity mismatch. The quick ratio was 0.81x, indicating that liquid assets excluding inventories do not fully cover current liabilities. Cash and deposits of ¥41.0bn covered only 0.40x of short-term debt, below the 0.5x liquidity-stress threshold. This position increases reliance on refinancing capacity, operating cash receipts, and access to capital markets. Inventory increased 31.4% year on year to ¥51.1bn, while work in process increased to ¥121.8bn from ¥101.2bn. The high work-in-process ratio alert, at 69.3% of inventory, indicates capital is tied up in unfinished projects and increases exposure to project delays, cost overruns, or slower monetization. Treasury stock declined in absolute value from negative ¥34.8bn to negative ¥9.1bn, increasing equity; this strengthens reported capital but should be assessed alongside the group’s future capital-allocation actions. Investment securities increased 17.7% to ¥101.2bn, and valuation gains lifted accumulated other comprehensive income to ¥39.6bn from ¥30.5bn, adding sensitivity of equity to market-price movements.

Notable B/S Changes

Treasury stock: improved by ¥25.7bn, from negative ¥34.8bn to negative ¥9.1bn (+73.9%) - increases reported equity and changes the capital-allocation profile. Inventories: +¥12.2bn (+31.4%) to ¥51.1bn - higher inventory requires monitoring for working-capital absorption and completion/monetization timing. Work in process: +¥20.6bn (+20.4%) to ¥121.8bn - elevated unfinished-project exposure reinforces execution, cost-overrun, and cash-conversion risk. Investment securities: +¥15.2bn (+17.7%) to ¥101.2bn - increased market-value exposure, while valuation gains contributed to higher accumulated other comprehensive income. Deferred tax liabilities: +¥3.9bn (+105.5%) to ¥7.7bn - consistent with greater unrealized valuation gains and increased sensitivity of equity to market movements. Property, plant and equipment: -¥11.3bn (-1.6%) to ¥706.7bn, while construction in progress increased ¥6.6bn (+6.3%) to ¥112.1bn - indicates continuing capital-project deployment within an already asset-intensive balance sheet.

Cash Flow Quality

Dividend Sustainability

The interim dividend was ¥55 per share, compared with ¥50 per share in the prior-year interim period. The calculated dividend payout ratio is 19.8% based on the ¥55 interim dividend and Q3 net income attributable to owners of ¥33.3bn. This is conservative relative to the 60% sustainability benchmark and leaves substantial earnings retention capacity. Full-year dividend guidance is ¥110 per share, implying that the year-end dividend is expected to match the interim dividend. Based on full-year EPS guidance of ¥355.53, the indicated full-year dividend payout ratio is approximately 30.9%, still conservative. The dividend is therefore well covered by forecast earnings. Retained earnings were ¥319.0bn and increased year on year, providing an additional balance-sheet buffer. The principal consideration for dividend capacity is not the accounting payout ratio but the group’s capital-intensive railway, property, and construction-project funding needs alongside tight short-term liquidity. The unchanged dividend outlook indicates management is maintaining shareholder distributions while retaining financial flexibility for investment and debt management.

Risk Assessment

Business risks include Transportation is the core business by segment operating income, and its profit declined 12.9% year on year despite 2.3% revenue growth; persistent labor, energy, maintenance, or network costs could further compress margins., Railway demand remains exposed to commuter patterns, consumer activity, tourism flows, weather disruption, safety incidents, and competing transport modes., Real-estate revenue rose 18.7%, but segment profit declined 3.5%; weaker development economics, leasing conditions, construction costs, or project timing could limit monetization., Construction equipment has a high work-in-process exposure, creating risk of schedule slippage, cost inflation, customer acceptance delays, and margin volatility., Hotel performance is exposed to domestic leisure demand, inbound tourism, labor availability, and room-rate competition..

Financial risks include Current ratio of 0.98x is below 1.0x, meaning current assets do not fully cover current liabilities., Cash-to-short-term-debt of 0.40x is below the 0.5x stress threshold, increasing dependence on refinancing and recurring operating receipts., Interest expense increased 21.1% year on year to ¥3.4bn; further rate increases could reduce ordinary income, although current interest coverage remains strong at 14.03x., Investment securities of ¥101.2bn and accumulated other comprehensive income of ¥39.6bn expose equity to market valuation changes., The asset base is highly fixed, with property, plant and equipment at 61.9% of assets, reducing balance-sheet flexibility during demand downturns..

Key concerns include Margin deterioration is the highest-priority concern: operating income fell 2.9% on 7.5% revenue growth, and the operating margin contracted 145bp., The high work-in-process ratio alert of 69.3% indicates elevated capital lock-up in unfinished projects; the impact depends on completion timing and cost control., Unchanged full-year guidance despite 94.3% operating-income progress at Q3 creates elevated fourth-quarter execution sensitivity., Net income fell 15.0%, materially faster than operating income, due to a higher tax burden and a less favorable extraordinary-item balance., Industry-specific railway risks include inflation in energy, labor, maintenance, and safety-compliance costs, which are difficult to offset rapidly through fare revisions..

Investment Implications

Key takeaways include Revenue growth is broad based, but earnings conversion weakened materially in the core transportation and real-estate segments., Annualized ROE of 10.1% is supported more by 2.59x financial leverage than by high asset turnover, consistent with a capital-intensive railway and property group., Balance-sheet solvency is adequate, with 38.2% debt-to-capital and 14.03x interest coverage, but short-term liquidity is tight., The indicated full-year dividend payout ratio of approximately 30.9% is conservative relative to forecast earnings., Construction equipment is improving rapidly, but elevated work in process raises execution and cash-conversion sensitivity..

Metrics to watch include Transportation segment margin and cost growth relative to passenger and ancillary revenue growth, Real-estate segment margin, leasing/development progress, and project monetization, Work-in-process balance, project completion timing, and inventory normalization, Current ratio, cash-to-short-term-debt ratio, and refinancing composition, Interest expense and interest coverage as funding costs evolve, Fourth-quarter operating income versus the implied low run rate embedded in unchanged full-year guidance.

Regarding relative positioning, Keio combines a defensible urban transportation franchise with meaningful real-estate, hotel, construction-equipment, and living-services diversification. Its 13.4% operating margin and annualized 10.1% ROE are respectable for a capital-intensive domestic transport group, but current-period margin compression and sub-1.0x current liquidity distinguish its risk profile from peers with stronger short-term funding cushions.