GAKKEN HOLDINGS (9470) FY2026 Q1 Earnings Report

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Executive Summary

Operating Income and Ordinary Income increased significantly due to revenue growth and improved gross margin, but profit attributable to owners of the parent declined due to extraordinary losses and a higher tax burden. Revenue was ¥487.2B (+6.0% YoY), Operating Income was ¥12.0B (+85.7%), and Ordinary Income was ¥11.6B (+120.2%), while Net Income (attributable to owners of the parent) remained at ¥4.0B (△50.4% YoY). The primary drivers of the earnings increase were improved profitability in the Education field and a lower SG&A ratio, while the primary drivers of the earnings decline were the shift from net extraordinary income in the same period of the previous year to net extraordinary loss in the current period and the increase in the effective tax rate.

Factors Affecting Earnings

【Revenue】Revenue increased 6.0% YoY to ¥487.2B. Both segments recorded higher revenue, with the Education field at ¥254.5B (+5.9% YoY) and the Medical and Welfare field at ¥225.2B (+6.9% YoY), while Other Businesses (including logistics) remained at ¥8.4B (+0.8% YoY). Although the Medical and Welfare field showed a slightly higher growth rate, the Education field accounted for the largest share of revenue in absolute terms.

【Profit and Loss】Operating Income increased significantly to ¥12.0B (+85.7% YoY), while Ordinary Income rose to ¥11.6B (+120.2%). The gross margin improved to 26.2%, up 83bp from 25.3% in the previous year, while the SG&A ratio declined 23bp to 23.7%, resulting in operating leverage. Segment profit in the Education field increased significantly to ¥8.3B (+120.3% YoY), leading consolidated earnings growth. On the other hand, Net Income (attributable to owners of the parent) was ¥4.0B (△50.4% YoY), affected by the shift from net extraordinary income of ¥5.95B in the same period of the previous year to net extraordinary loss of ¥2.7B in the current period, primarily due to a ¥1.7B impairment loss on investment securities and other factors. In addition, the effective tax rate was high at 46.4%, reducing the conversion efficiency from Profit Before Tax of ¥8.97B to Net Income. In conclusion, the current results show higher revenue and earnings at the Operating Income and Ordinary Income levels, but lower Net Income due to extraordinary items and the tax burden.

Segment Analysis

The Education field recorded Revenue of ¥254.5B (+5.9% YoY), segment profit of ¥8.3B (+120.3% YoY), and a profit margin of 3.3% (up 169bp from 1.6% in the previous year). In addition to revenue growth, its profit margin improved significantly, making it the central driver of consolidated earnings. The Medical and Welfare field recorded Revenue of ¥225.2B (+6.9% YoY), segment profit of ¥6.6B (+7.7% YoY), and a profit margin of 2.9% (approximately flat YoY), indicating higher revenue and profit but relatively moderate profit growth. The company-wide expense adjustment was △¥3.65B, an improvement from △¥5.38B in the previous year, contributing to the increase in the consolidated Operating Income margin. In addition, from the current period, certain childcare and early childhood-related businesses and portions of the overseas education business have been reclassified into the Education field; the results for the same period of the previous year have been restated based on the revised classification.

Key Financial Metrics

【Profitability】The Operating Income margin improved to 2.5% from 1.4% in the same period of the previous year, while the Net Income margin (on an attributable-to-owners-of-the-parent basis) declined to 0.8% from 1.8% in the previous year. Annualized ROE was 3.3% (company-provided metric), while GPT-estimated annualized ROE was 2.7%, indicating that capital efficiency remains low. 【Cash Quality】Non-operating income was ¥1.6B, equivalent to only 0.3% of Revenue, indicating no dependence on non-recurring income; however, interest expense of ¥1.5B within non-operating expenses of ¥1.9B is weighing on the quality of Ordinary Income. 【Investment Efficiency】Annualized ROIC is estimated at 4.2%, suggesting limited room for returns in excess of the cost of capital. Total asset turnover is approximately 1.36x on an annualized basis. 【Financial Soundness】The Equity Ratio was 41.1% and the Current Ratio was 165.0%, both healthy levels; however, short-term borrowings increased 178.2% YoY to ¥76.5B, indicating a change in the degree of dependence on short-term funding.

Cash Flow Analysis

As the cash flow statement items are not disclosed in this material, funding trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥243.1B from ¥229.2B in the same period of the previous year, while short-term borrowings increased ¥49.0B YoY to ¥76.5B, suggesting that funding may have been secured through external financing. Current assets were ¥738.6B and current liabilities were ¥447.6B, resulting in positive working capital of ¥291.0B, with no short-term liquidity issues observed. Property, plant and equipment, goodwill, investment securities, and other non-current assets were approximately flat YoY, suggesting that large-scale capital expenditure and impairment were limited. Long-term borrowings of ¥189.6B and bonds of ¥70.1B were the main sources of funding, while the increase in short-term borrowings appears to have supplemented these sources.

Quality of Earnings

Although Ordinary Income increased significantly to ¥11.6B (+120.2% YoY), Profit Before Tax declined to ¥9.0B (△20.1% YoY), indicating a divergence in the direction of the two measures. This was because the company recorded net extraordinary income of ¥5.95B in the same period of the previous year, comprising extraordinary income of ¥7.1B and extraordinary loss of ¥1.1B, whereas the current period shifted to net extraordinary loss of ¥2.67B, comprising extraordinary income of ¥0.06B and extraordinary loss of ¥2.73B. Extraordinary losses consisted of a ¥1.7B impairment loss on investment securities, a ¥0.8B loss on disposal and sale of fixed assets, a ¥0.16B loss on sale of investment securities, and an impairment loss of ¥0.05B, all of which were temporary factors. Non-operating income of ¥1.6B was only 0.3% of Revenue, indicating limited dependence on non-recurring income; however, interest expense of ¥1.5B within non-operating expenses affected the quality of Ordinary Income. The gap between Ordinary Income of ¥11.6B and profit attributable to owners of the parent of ¥4.0B was approximately 65%, primarily due to extraordinary losses, income taxes of ¥4.2B, and profit attributable to non-controlling interests of ¥0.8B. Accordingly, although profitability at the Operating Income and Ordinary Income levels has improved, attention should be paid to the significant impact of extraordinary items and the tax burden on fluctuations in Net Income.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year plan were 23.8% for Revenue (¥487.2B/¥2,050.0B), 14.2% for Operating Income (¥12.0B/¥85.0B), 14.0% for Ordinary Income (¥11.6B/¥83.0B), and 10.1% for profit attributable to owners of the parent (¥4.0B/¥40.0B). Revenue was approximately in line with the standard progress rate of 25%, but all profit measures were more than 10pt below the standard progress rate. To achieve the full-year Operating Income plan, ¥73.0B must be accumulated from Q2 onward; ¥71.4B is required to achieve the Ordinary Income plan, and ¥36.0B is required to achieve the plan for profit attributable to owners of the parent. The forecast full-year Operating Income margin is 4.1%, requiring an improvement of approximately 165bp from the Q1 result of 2.5%. No revision to the dividend forecast has been announced.

Shareholder Returns

The full-year dividend forecast is ¥29.0 per share. The Payout Ratio against forecast full-year EPS of ¥96.77 is approximately 30.0%. On the basis of total annual dividends of approximately ¥12.0B, calculated from forecast full-year profit attributable to owners of the parent of ¥40.0B and average shares outstanding during the period of 41,416 thousand shares, the Payout Ratio is also approximately at the same level. The forecast Payout Ratio is below 60%, and assuming that planned profit is achieved, there are no significant concerns regarding dividend sustainability. However, as the Q1 progress rate for profit attributable to owners of the parent was only 10.1%, the extent of profit recovery from Q2 onward will be important in assessing the funding source for dividends. There is no disclosure regarding share buybacks, and this report discusses only the Payout Ratio.

Risk Factors

1. Risk of failing to achieve the full-year profit plan: The Operating Income progress rate was 14.2%, 10.8pt below the standard rate of 25%, requiring an accumulation of ¥72.97B in Operating Income over the remaining three quarters. Sustaining profitability improvements, particularly in the Education field, will be key to achieving the back-end-loaded plan.

2. Interest burden and changes in the funding mix: Short-term borrowings increased 178.2% YoY to ¥76.5B (+¥49.0B), while interest expense increased 52.0% YoY to ¥1.49B. The interest burden coefficient is estimated at 0.746, placing pressure on the conversion from EBIT to Profit Before Tax. Continued dependence on short-term funding could affect interest-rate sensitivity and financial flexibility.

3. Fluctuations in Net Income due to extraordinary items and the tax burden: The company recorded net extraordinary loss of ¥2.67B in the current period, primarily due to a ¥1.7B impairment loss on investment securities and other factors, while the effective tax rate was also high at 46.4%. In contrast, the same period of the previous year recorded net extraordinary income, making the reversal in extraordinary items a significant driver of fluctuations in profit attributable to owners of the parent.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Return

The company's profitability is significantly below the industry median, with both its Operating Income and Net Income margins positioned at low levels.

Growth and Capital Efficiency

The Revenue growth rate is also below the industry median, indicating a relatively moderate level of growth.

※Source: Company compilation

Key Takeaways from the Results

1. Profitability at the Operating Income level has clearly improved. Against Revenue growth of +6.0%, Operating Income increased +85.7%, and the Operating Income margin improved 106bp. The primary factor was a 169bp YoY improvement in the Education field's segment profit margin, indicating a structural improvement in the profitability of the core business.

2. Improvements at the Operating Income and Ordinary Income levels have not been sufficiently reflected in Net Income. Profit attributable to owners of the parent declined △50.4% YoY, primarily due to temporary factors: the reversal in extraordinary items from net extraordinary income to net extraordinary loss and the increase in the effective tax rate to 46.4%. This does not indicate deterioration in recurring profitability.

3. Short-term borrowings increased +178.2% YoY, representing a change in the funding mix. Although current liquidity is secured, with a Current Ratio of 165.0% and cash and deposits of ¥243.1B, continued dependence on short-term funding should be monitored from the perspective of interest-rate sensitivity.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,279–¥1,354 at ±1% for the cost of equity, and ¥1,312–¥1,318 at ±0.1 for ω.

Notes:

• Net Income is significantly compressed relative to Operating Income due to the tax burden, acquisition-related expenses, non-controlling interests, and other factors (Net Income ÷ Operating Income 47%). This value reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end 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 at a somewhat high level.

(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 predict 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 the company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

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