GAKKEN HOLDINGS (9470) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of FY2026, the core business recorded higher revenue and operating income, while net income declined due to deterioration in extraordinary gains and losses and a high tax burden. Revenue was ¥1,559.4B (+6.3% YoY), Operating Income was ¥58.6B (+14.3%), and Ordinary Income was ¥55.9B (+18.0%), indicating improved core-business profitability. Meanwhile, Net Income attributable to owners of the parent declined to ¥26.5B (-3.2% YoY). The primary reasons that the increase in Operating Income did not translate into Net Income were that extraordinary losses of ¥8.3B (including impairment losses of ¥3.1B and valuation losses on investment securities of ¥2.5B) exceeded extraordinary gains of ¥2.6B, while the effective tax rate was also high at 45.6%.

Factors Driving Earnings Changes

【Revenue】Revenue increased 6.3% YoY to ¥1,559.4B. By segment, the Education field generated ¥831.5B (+3.4% YoY; 53.3% composition ratio), the Healthcare and Welfare field generated ¥706.3B (+9.9% YoY; 45.3% composition ratio), and Other generated ¥72.5B (-9.6% YoY). Growth in the Healthcare and Welfare field drove overall growth.

【Profit and Loss】Operating Income increased 14.3% YoY to ¥58.6B, outpacing revenue growth, and the Operating Income margin improved to 3.8% from 3.5% in the same period of the previous year. The gross profit margin was approximately flat at 26.8%; the improvement in profitability resulted from a decline in the SG&A expense ratio to 23.0% from 23.3% in the previous year and a reduction in corporate-wide expenses. Ordinary Income increased further to ¥55.9B (+18.0% YoY), but extraordinary gains and losses shifted from a net gain of ¥1.3B in the previous year to a net loss of ¥5.7B in the current period. In addition, the effective tax rate was high at 45.6%, resulting in Net Income declining to ¥26.5B (-3.2% YoY). In conclusion, this financial performance represents higher revenue and profit at the Operating Income and Ordinary Income levels, while Net Income alone declined due to temporary factors.

Segment Analysis

The Education field generated revenue of ¥831.5B (+3.4% YoY) and segment profit of ¥40.0B (+1.5% YoY), maintaining the highest profitability among the three segments with a 4.8% margin. The Healthcare and Welfare field generated revenue of ¥706.3B (+9.9% YoY) and segment profit of ¥26.9B (+10.9% YoY), achieving profit growth in line with its revenue increase and making the largest contribution to overall growth, with a 3.8% margin. Other, including logistics, contracted, generating revenue of ¥72.5B (-9.6% YoY) and segment profit of ¥2.7B (-14.2% YoY), making it a factor weighing on overall growth. From Q1, certain segment classifications were changed, including the integration of childcare, early-childhood-related businesses, and overseas businesses into the Education field. However, the comparative figures for the same period of the previous year have already been reclassified under the revised classifications, ensuring comparability.

Key Financial Indicators

【Profitability】The Operating Income margin of 3.8% improved from 3.5% in the same period of the previous year, while the gross profit margin of 26.8% was broadly flat; the improvement was attributable to a decline in the SG&A expense ratio to 23.0% from 23.3% in the previous year. The Net Income margin declined to 1.7% from 1.9% in the same period of the previous year. 【Cash Flow Quality】Cash and deposits were ¥240.1B, approximately ¥12B higher than in the same period of the previous year, maintaining liquidity. Accounts receivable of ¥271.4B and inventories of ¥109.6B both increased YoY, requiring continued monitoring to determine whether working capital is accumulating faster than revenue growth. 【Investment Efficiency】Annualized ROE was 6.0%, remaining at a level determined by the combination of the Net Income margin and leverage. The EBIT margin of 3.8% indicates that operating efficiency remains under improvement. 【Financial Soundness】The Equity Ratio improved to 42.4% from the equivalent of 41.2% in the same period of the previous year, indicating a stable financial foundation. While short-term borrowings increased substantially to ¥95.5B from ¥27.5B in the same period of the previous year, long-term borrowings declined to ¥184.1B, indicating a shortening of the maturity structure of borrowings that warrants monitoring of financing trends.

Cash Flow Analysis

As detailed cash flow statement information is not included in the disclosed scope, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥240.1B, approximately ¥12B higher than in the same period of the previous year, maintaining the liquidity buffer. Meanwhile, accounts receivable increased to ¥271.4B (+¥10.9B YoY), inventories increased to ¥109.6B (+¥6.0B YoY), and accounts payable declined to ¥62.3B (-¥8.5B YoY), potentially indicating a moderate increase in the working capital burden associated with operating activities. Short-term borrowings increased substantially to ¥95.5B, up ¥68.0B YoY (+247.3%), while long-term borrowings declined to ¥184.1B, indicating progress toward shorter-term financing. Against Operating Income of ¥58.6B, Net Income attributable to owners of the parent was only ¥26.5B. In assessing the conversion of earnings into cash, the impact of extraordinary gains and losses, including non-cash items such as impairment losses and valuation losses on investment securities, must be considered.

Earnings Quality

The core earnings capacity is supported by increases in Operating Income and Ordinary Income, and the recurring earnings base has strengthened from the previous year. Meanwhile, the decline in Net Income was primarily attributable to temporary factors: extraordinary losses of ¥8.3B, including impairment losses of ¥3.1B and valuation losses on investment securities of ¥2.5B, exceeded extraordinary gains of ¥2.6B, including gains on sales of investment securities of ¥2.4B. This does not represent the underlying trend of the core business. Non-operating income of ¥5.8B included dividend income of ¥1.1B, while non-operating expenses of ¥8.6B included interest expenses of ¥4.9B, resulting in a net non-operating expense of ¥2.8B. The effective tax rate was high at 45.6%; the recognition of income taxes of ¥22.9B against Profit Before Tax of ¥50.2B was a factor weighing on Net Income. Comprehensive income was ¥36.5B, including ¥31.1B attributable to owners of the parent. The difference from Net Income of ¥26.5B was primarily attributable to a positive contribution of ¥9.0B from foreign currency translation adjustments.

Earnings Forecast and Guidance

The full-year company forecasts are revenue of ¥2,050.0B (+3.0% YoY), Operating Income of ¥85.0B (+3.2% YoY), and Ordinary Income of ¥83.0B (+6.3% YoY). No revisions were made to the earnings forecast or dividend forecast during the quarter. The cumulative Q3 progress ratios were 76.1% for revenue, 68.9% for Operating Income, and 67.3% for Ordinary Income. While revenue slightly exceeded the standard progress level of 75%, profit progress was below this level. Achieving approximately ¥490.6B in revenue and approximately ¥26.4B in Operating Income in Q4, implying a required Operating Income margin of approximately 5.4%, will be the focus for meeting the full-year plan. This is above the cumulative Operating Income margin of 3.8%.

Shareholder Returns

The Q2 dividend was ¥14.50 per share, resulting in a Payout Ratio of approximately 24.4% based solely on this dividend. The full-year company forecast for the annual dividend is ¥29.00 per share, representing a Payout Ratio of approximately 30.0% against forecast EPS of ¥96.77. The amount of share repurchases has not been disclosed, and the Total Return Ratio has not been calculated. Given the level of cash and deposits at ¥240.1B and the trend of increasing Operating Income, the current Payout Ratio is at a level that supports sustainability from an earnings and funding perspective. However, if extraordinary losses continue to be recognized or the high tax burden persists, the capacity to pay dividends on a Net Income basis will require attention.

Risk Factors

1. Weak conversion of earnings due to the high tax burden: The effective tax rate of 45.6% resulted from the recognition of income taxes of ¥22.9B against Profit Before Tax of ¥50.2B, meaning that growth in Operating Income and Ordinary Income has not been sufficiently reflected in Net Income (-3.2% YoY). If this condition continues, it may constrain growth in ROE and funds available for dividends.

2. Sharp increase in short-term borrowings and changes in the financing structure: Short-term borrowings increased by ¥68.0B (+247.3%) to ¥95.5B from ¥27.5B in the same period of the previous year, while long-term borrowings declined to ¥184.1B. Cash and deposits of ¥240.1B are approximately 2.5 times short-term borrowings, securing near-term liquidity; however, the shortening of the borrowing maturity structure is an item requiring monitoring.

3. Repeated recognition of extraordinary gains and losses and impairment: In the current period, extraordinary losses of ¥8.3B were recorded, including impairment losses of ¥3.1B and valuation losses on investment securities of ¥2.5B. Goodwill of ¥90.2B accounts for 14.8% of net assets and, together with intangible assets of ¥195.2B, corresponds to approximately 19.8% of total assets. If the profitability of acquired businesses deteriorates, additional impairment risk exists.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Compared with the industry median, both the Operating Income margin and Net Income margin are at lower levels, indicating room for improvement in profitability.

Growth and Capital Efficiency

The Revenue growth rate is slightly below the industry median. Although it falls within the IQR range, the pace of growth is relatively moderate.

Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Core-business profitability is on an improving trend. The Operating Income margin improved from 3.5% in the same period of the previous year to 3.8%, accompanied by a decline in the SG&A expense ratio. The fact that both principal segments, Education and Healthcare and Welfare, achieved higher revenue and profit demonstrates the diversification benefits of the business portfolio.

2. The decline in Net Income (-3.2%) was attributable to temporary and non-recurring factors, namely deterioration in extraordinary gains and losses and a high tax burden, and differs in nature from the upward trend in Operating Income and Ordinary Income. From the next period onward, the extent of Net Income recovery will depend on the occurrence of extraordinary losses and the level of the effective tax rate.

3. The sharp increase in short-term borrowings (+247.3%) indicates a shortening of the financing structure. Trends in borrowing terms and interest rates will be key points in interpreting changes in the financial structure.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,314–¥1,390 at ±1% in the Cost of Equity, and ¥1,347–¥1,354 at ±0.1 in ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (Net Income ÷ Operating Income 47%). This value reflects that compression at face value; if the factors are temporary, the underlying earnings power may be higher.
• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets at 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 (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / 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 financial results 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 financial results data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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