GAKKEN HOLDINGS (9470) FY2026 Q2 Earnings Report

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Executive Summary

During the interim period, the Company recorded revenue growth but lower net income, with the monetization of higher revenue and the impact of one-time losses determining the quality of earnings. Revenue increased to ¥1048.8B (+6.1% YoY), Operating Income to ¥46.7B (+2.8%), and Ordinary Income to ¥44.5B (+5.7%), maintaining a trend of higher revenue and profit; however, Net Income attributable to owners of the parent remained at ¥20.9B (-14.0% YoY). As Operating Income growth lagged Revenue growth, the Operating Margin declined to 4.5%. In addition, extraordinary losses totaling ¥7.7B, including an impairment loss of ¥2.9B and an impairment loss on investment securities of ¥2.5B, weighed on final profit.

Factors Affecting Performance

【Revenue】Revenue increased 6.1% YoY to ¥1048.8B. The Medical and Welfare field led growth at ¥463.1B (+9.3% YoY), while the Education field also posted higher revenue of ¥571.6B (+3.7% YoY). Growth in the Medical and Welfare field was the primary driver of consolidated revenue growth.

【Profit and Loss】Operating Income increased 2.8% YoY to ¥46.7B, and Ordinary Income increased 5.7% to ¥44.5B, securing higher profit. However, segment profit in the Education field declined 3.8% to ¥40.3B, and its margin fell 55bp to 7.05%. The Medical and Welfare field maintained higher revenue and profit, with profit of ¥12.8B (+7.3% YoY). Extraordinary losses totaled ¥7.7B, including an impairment loss of ¥2.9B and an impairment loss on investment securities of ¥2.5B. Even after offsetting these against extraordinary gains of ¥2.5B, including a gain on the sale of investment securities of ¥2.4B, a net loss of ¥5.1B remained. Consequently, Profit Before Tax was 11.6% below Ordinary Income, and the high effective tax burden of 45.1% further contributed to the decline in Net Income to ¥20.9B (-14.0% YoY). In conclusion, the Company recorded higher revenue and profit at the operating and ordinary income levels, but lower profit at the final stage due to one-time factors and the high tax burden—in other words, higher revenue and operating profit but lower net income.

Segment Analysis

The Education field recorded revenue of ¥571.6B (+3.7% YoY) and segment profit of ¥40.3B (-3.8% YoY). Its margin of 7.05% was the highest among the three segments, although it declined from the previous year. It made the largest contribution to consolidated Operating Income of ¥46.7B and is positioned as the core business. The Medical and Welfare field secured higher revenue and profit, with revenue of ¥463.1B (+9.3% YoY) and profit of ¥12.8B (+7.3% YoY). Its margin of 2.77% was below that of the Education field, but the decline from the previous year was smaller. The Other segment contracted, with revenue of ¥47.6B (-10.8% YoY) and profit of ¥1.6B (-34.8% YoY). The adjustment for corporate expenses and other items was negative ¥8.1B, improving from negative ¥11.0B in the previous year.

Key Financial Indicators

【Profitability】The Operating Margin of 4.5% and Net Profit Margin of 2.0% both declined from the previous year, while the Gross Margin of 27.3% was nearly flat compared with 27.3% in the previous year. Annualized ROE was 7.1%.【Cash Quality】Operating Cash Flow (OCF) was ¥6.9B, representing only 0.33x Net Income of ¥20.9B, primarily due to a ¥47.5B increase in trade receivables.【Investment Efficiency】Investing Cash Flow was a net outflow of ¥43.1B, resulting in negative Free Cash Flow of ¥36.3B.【Financial Soundness】The Equity Ratio was 40.8% and the Current Ratio was approximately 162.7%, securing short-term stability. However, short-term borrowings increased sharply from ¥27.5B in the previous year to ¥113.5B, indicating greater dependence on liabilities.

Cash Flow Analysis

Operating Cash Flow was ¥6.9B, down 44.9% YoY, and the cash conversion ratio relative to Net Income of ¥20.9B was only 0.33x. The primary factors were a ¥47.5B increase in trade receivables and ¥21.9B in income taxes paid, while the ¥5.2B increase in trade payables provided only partial offset. Investing Cash Flow was a net outflow of ¥43.1B, mainly due to ¥23.5B in purchases of investment securities and ¥16.1B in purchases of tangible and intangible fixed assets. As a result, Free Cash Flow (OCF + Investing Cash Flow) was negative ¥36.3B. Financing Cash Flow was an inflow of ¥56.7B, with an ¥86.0B increase in short-term borrowings offsetting the Free Cash Flow shortfall. This indicates rising dependence on external funding relative to the Company’s ability to generate operating cash.

Quality of Earnings

Non-operating income was ¥3.0B, equivalent to only 0.3% of Revenue, indicating low dependence on non-operating income. Of non-operating expenses of ¥5.2B, interest expense of ¥3.1B reduced Ordinary Income by ¥2.2B from Operating Income. Profit Before Tax of ¥39.4B was 11.6% below Ordinary Income of ¥44.5B, reflecting a net loss of ¥5.1B from extraordinary losses of ¥7.7B—including an impairment loss of ¥2.9B and an impairment loss on investment securities of ¥2.5B—less extraordinary gains of ¥2.5B, including a gain on the sale of investment securities of ¥2.4B. The gain on the sale of investment securities included in extraordinary gains should be distinguished from recurring business income as a one-time item. Although OCF was below Net Income, this was primarily attributable to the increase in trade receivables, and no significant concern is apparent regarding the measurement quality of accrual-based earnings themselves.

Earnings Forecast and Guidance

The full-year forecast remains unchanged. Progress against the Revenue plan of ¥2050.0B was 51.2%, progress against the Operating Income plan of ¥85.0B was 54.9%, progress against the Ordinary Income plan of ¥83.0B was 53.6%, and progress against the Net Income plan of ¥40.0B was 52.2%; all exceeded the standard interim-period progress rate of 50%. Progress at the Operating Income and Ordinary Income levels is favorable, but given declining profitability in the Education field and weak OCF, improvement in the second-half margin and cash generation will be key to achieving the plan.

Shareholder Returns

The interim dividend was ¥14.50 per share, and the full-year dividend forecast is ¥29.00. Based on the full-year EPS forecast of ¥96.77, the Payout Ratio is approximately 30.0%; provided that profit in line with the Company’s plan is secured, the dividend burden is not excessive. No share repurchases have been confirmed, and the current situation should be evaluated based on the Payout Ratio alone rather than the Total Return Ratio. Meanwhile, Free Cash Flow for the interim period was negative ¥36.3B, meaning that the current dividend is not directly covered by OCF or Free Cash Flow. Cash on hand of ¥252.1B and a sound Current Ratio support short-term payment capacity, but recovery in full-year OCF will be an important consideration in assessing dividend sustainability.

Risk Factors

1. Deteriorating profitability in the Education field: The Education field, which accounts for more than 86% of consolidated Operating Income, recorded a 3.8% decline in segment profit despite 3.7% Revenue growth, and its margin was 7.05%, down 55bp YoY. If the decline in profitability of the core business continues, improvement in the consolidated margin will be difficult.

2. Lower operating cash conversion: OCF was only 0.33x Net Income, primarily due to the ¥47.5B increase in trade receivables. If collection delays continue, dependence on short-term borrowings may increase further.

3. Sharp increase in short-term borrowings and dependence on liabilities: Short-term borrowings increased 312.7% from ¥27.5B in the previous year to ¥113.5B, becoming a major source of Financing Cash Flow. Although liquidity indicators remain sound, changes in the liability structure should be monitored if the Free Cash Flow deficit continues.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

The Company’s profitability ranks in the lower tier within the IT and telecommunications industry and is substantially below the median.

Growth and Capital Efficiency

Revenue growth also fell substantially below the industry median, placing the Company in the lower tier in terms of growth.

※Source: Company analysis

Key Takeaways from the Financial Results

1. The results combine higher revenue and profit at the operating and ordinary income levels with lower final profit. The ¥7.7B in extraordinary losses, including impairment losses and impairment losses on investment securities, together with the high effective tax burden of 45.1%, reduced Net Income. This is an important consideration in assessing the quality of earnings.

2. Although the core Education field remains the center of consolidated profit, its margin has declined, while the Medical and Welfare field continues to record higher revenue and profit. Changes in the earnings structures of these two fields are structural factors that will determine the direction of the consolidated margin going forward.

3. The funding structure shows that weak OCF and a Free Cash Flow deficit are being offset by increased short-term borrowings. Although full-year progress exceeded 50% at the profit level, recovery in second-half cash generation will be the focus in assessing the sustainability of performance.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,391–¥1,472 at Cost of Equity ±1%, and ¥1,430–¥1,432 at ω±0.1.

Notes:

• Goodwill amortization of ¥29.1 per share is added back to profit (to account for a non-cash expense and comparability with IFRS companies).
• Due to the tax burden, acquisition-related expenses, non-controlling interests, and other factors, Net Income is significantly compressed relative to Operating Income (Net Income ÷ Operating Income 47%). This figure reflects that compression at face value; if these factors are temporary, intrinsic earnings power may be higher than this.
• 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 slightly higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-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, 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 a professional as necessary.

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