MTI Ltd. FY2026 Q3 Earnings Report

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Executive Summary

During the quarter, the Company secured revenue growth while recording a slight decline in operating income. However, ordinary income and net income increased, driven by a sharp expansion in equity-method investment gains, with the boost at the non-operating level supporting overall performance. Revenue was ¥232.8B (+4.4% year on year), operating income was ¥22.7B (-3.0%), ordinary income was ¥28.2B (+18.6%), and net income attributable to the period (consolidated) was ¥22.7B (+5.9%; of which net income attributable to owners of the parent was ¥21.75B, up +5.6%). The +10.0% increase in cost of sales exceeded revenue growth, causing the gross profit margin to decline to 73.1% from 74.5% in the previous year, which was the primary cause of the decline in operating income. Meanwhile, equity-method investment gains expanded from ¥0.6B to ¥5.5B, pushing up ordinary income.

Factors Behind Earnings Changes

【Revenue】Revenue was ¥232.8B, an increase of +4.4% year on year. By segment, SchoolDX increased +30.6%, Healthcare grew +19.3%, and Other rose +7.5%, while Content, the largest segment, recorded a revenue decline of -4.4%. Content accounted for 50.4% of total segment revenue (¥245.1B), and Company-wide growth was driven by the expansion of SchoolDX and Healthcare.

【Profit and Loss】Operating income was ¥22.7B, a decrease of -3.0% year on year. The primary factor was the +10.0% increase in cost of sales, which caused the gross profit margin to decline by 1.4pt from 74.5% to 73.1%; the SG&A ratio improved to 63.4% from 64.0% in the previous year, partially offsetting this impact. Ordinary income rose significantly to ¥28.2B (+18.6%), driven by the approximately ninefold increase in equity-method investment gains from ¥0.6B to ¥5.5B. Although the Company recorded an impairment loss on investment securities of ¥2.0B as a temporary factor under extraordinary losses, limiting profit before tax to ¥26.6B, net income attributable to the period (consolidated) reached ¥22.7B (+5.9%), partly due to the low effective tax rate of 14.6%. Revenue, ordinary income, and net income all increased, while only operating income declined; overall, the results are classified as higher revenue and higher earnings.

Segment Analysis

Despite lower revenue, Content maintained high profitability, with operating income up +10.6% and a margin of 27.2%, and remains the core contributor to Company-wide earnings. SchoolDX is expanding as a high-growth, high-profitability segment, with revenue up +30.6%, operating income up +66.9%, and a margin of 36.2%. Despite revenue growth of +19.3%, Healthcare’s operating result turned from a profit of ¥0.76B in the previous year to a loss of ¥5.66B. The combined operating income of the four segments reached ¥42.6B; however, after deducting Company-wide expenses not allocated to individual segments (approximately ¥19.9B), consolidated operating income was ¥22.7B. The structure in which Company-wide expenses weigh on the earnings mix therefore remains in place.

Key Financial Indicators

【Profitability】The operating margin was 9.8%, down -0.7pt from 10.5% in the previous year, primarily due to the decline in the gross profit margin caused by the increase in cost of sales (73.1%, compared with 74.5% in the previous year). The net profit margin based on consolidated net income attributable to the period was 9.7%, improving slightly by +0.1pt from 9.6% in the previous year, as the increase in equity-method investment gains offset the decline at the operating level.【Cash Flow Quality】Contract liabilities increased to ¥33.9B (+24.4% year on year), confirming the accumulation of deferred revenue, while accounts receivable remained broadly flat at ¥40.9B.【Investment Efficiency】Total asset turnover was approximately 0.70x, and ROE was 9.8%. Net assets were ¥231.9B against total assets of ¥334.5B, maintaining a high equity ratio of 69.3%.【Financial Soundness】The current ratio was 280% (current assets of ¥220.5B/current liabilities of ¥78.7B), while long-term borrowings decreased to ¥4.0B from ¥9.6B in the previous year, a decline of -57.8%, further reducing dependence on interest-bearing debt. Cash and deposits remained ample at ¥161.2B.

Cash Flow Analysis

Although a standalone cash flow statement has not been disclosed, funding trends can be assessed from changes in the balance sheet. Cash and deposits were ¥161.2B, down -9.5% from ¥178.2B in the previous year. Repayment of long-term borrowings (-¥5.5B, -57.8%), increases in investment securities (+¥6.5B, +13.8%), and higher investment in property, plant and equipment (+¥2.3B) were sources of cash outflow. Meanwhile, contract liabilities increased to ¥33.9B (+24.4%), and the accumulation of deferred revenue contributed positively from a working capital perspective. Accounts receivable remained broadly flat, with no sharp deterioration in collections. Net assets expanded to ¥231.9B, primarily due to a +¥10.7B (+11.9%) increase in retained earnings, indicating continued accumulation of equity through retained earnings.

Quality of Earnings

While operating income, which indicates recurring earnings power, was ¥22.7B, down -3.0% year on year, ordinary income expanded to ¥28.2B (+18.6%) due to the increase in equity-method investment gains (¥0.6B → ¥5.5B). Attention should be paid to the fact that the higher dependence on equity-method income, which has a high degree of non-recurring volatility, contributed to the increase in ordinary income. Under extraordinary gains and losses, the Company recorded an impairment loss on investment securities of ¥2.0B as a temporary factor and recognized extraordinary income of ¥0.4B, including gains on the sale of shares in subsidiaries. As a result, profit before tax was limited to ¥26.6B. The effective tax rate remained relatively low at 14.6%, calculated as corporate income taxes of ¥3.9B divided by profit before tax of ¥26.6B, supporting consolidated net income attributable to the period of ¥22.7B, including ¥21.75B attributable to owners of the parent. Comprehensive income was ¥23.8B, including ¥22.9B attributable to owners of the parent. The difference from net income was mainly attributable to foreign currency translation adjustments of +¥0.6B and the share of OCI of equity-method affiliates of +¥0.7B, with the divergence remaining limited. The increase in contract liabilities (+24.4%) indicates the accumulation of deferred revenue from an accrual perspective and can be viewed as a factor supporting the conversion of earnings into cash.

Earnings Forecast and Guidance

Progress against the full-year plan was 73.9% for revenue (¥232.8B/¥315.0B), 84.2% for operating income (¥22.7B/¥27.0B), 90.9% for ordinary income (¥28.2B/¥31.0B), and 81.2% for net income attributable to owners of the parent (¥21.75B/¥26.8B). While revenue has progressed broadly in line with the plan, earnings—particularly ordinary income—are progressing at a pace above plan, apparently supported by the increase in equity-method investment gains. The Company revised its earnings forecast during the quarter, but did not revise its dividend forecast. The full-year plan calls for operating income to decline -8.4% year on year, while ordinary income is expected to increase +2.4%.

Shareholder Returns

The interim dividend remains ¥10, and the full-year forecast, including the year-end dividend, remains ¥20, with no revision to the dividend forecast during the quarter. Based on the forecast of net income attributable to owners of the parent of ¥2.68B and forecast EPS of ¥48.25, the payout ratio is approximately 41.4% (¥20/¥48.25). Given the financial structure of cash and deposits of ¥161.2B and long-term borrowings of ¥4.0B, dividend funding is supported by cash on hand in addition to the operating base. No share repurchase has been disclosed.

Risk Factors

1. Segment concentration risk: Content accounts for 50.4% of total segment revenue (¥245.1B) and is also the leading segment in terms of operating income. Revenue from this business declined -4.4% year on year, and its high dependence on content and platform trends represents a risk factor in the earnings structure.

2. Deterioration in Healthcare’s profit and loss: Healthcare’s operating result turned from a profit of ¥0.76B in the previous year to a loss of ¥5.66B in the current period, a YoY change of -848.0%. Revenue increased +19.3%, apparently due to front-loaded investment, but the progress of monetization requires monitoring.

3. Dependence on highly non-recurring income: The increase in ordinary income (+18.6%) relies heavily on the sharp expansion in equity-method investment gains (¥0.6B → ¥5.5B). Together with the valuation fluctuation risk associated with investment securities of ¥53.4B (16.0% of total assets), this is a factor increasing earnings volatility.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Company’s operating margin and net profit margin exceed the industry median, placing its profitability relatively high within the industry.

Growth and Capital Efficiency

The revenue growth rate is below the industry median, indicating that the Company is somewhat behind its industry peers in terms of growth.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The gross profit margin declined to 73.1% from 74.5% in the previous year, and rising costs pushed down the operating margin (-0.7pt). Meanwhile, the SG&A ratio improved to 63.4% from 64.0% in the previous year, indicating that the cost structure reflects a tug-of-war between cost pressures and SG&A efficiency improvements.

2. With Healthcare turning to an operating loss, the Company-wide earnings mix has become even more dependent on the highly profitable Content and SchoolDX segments. SchoolDX is achieving both high growth and high profitability, with operating income up +66.9% and a margin of 36.2%, strengthening its position as the next earnings driver.

3. Contract liabilities increased to ¥33.9B (+24.4%), indicating a deeper recurring revenue base accompanied by deferred revenue. Together with the increased dependence on equity-method investment gains, this underscores the importance of continuously monitoring changes in the earnings mix.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type, with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥433–¥458 for cost of equity ±1%, and ¥445–¥446 for ω±0.1.

Notes:

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

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value does not predict or guarantee the future share price)

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

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