ZENRIN CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In addition to the decline in revenue, the simultaneous decrease in the gross margin and increase in the SG&A ratio resulted in wider operating and ordinary losses year on year, which was the key point of this quarter’s results. Revenue was ¥13.73B (¥14.19B in the previous year, YoY -3.3%), operating income was ¥-1.01B (¥-0.30B in the previous year), and ordinary income was ¥-0.87B (¥-0.06B in the previous year), with losses widening in each case. Net loss attributable to owners of the parent was limited to ¥0.24B (compared with a ¥0.12B loss in the previous year), but this was the result of the loss being reduced by the recognition of ¥0.52B in extraordinary income, including a ¥0.12B gain on the sale of investment securities and a ¥0.39B gain on step acquisitions. The company’s recurring earning power from its core business has therefore deteriorated.

Factors Affecting Performance

【Revenue】Revenue was ¥13.73B, a year-on-year decline of -3.3% (-¥0.46B). As the company operates in a single segment, the “Location Information Services-Related Business,” changes by business are not disclosed; however, differences in the timing of project acceptance inspections and other factors may have had an impact.

【Profit and Loss】The cost-of-sales ratio increased to 65.3% (61.6% in the previous year), while the gross margin declined to 34.7% (38.4% in the previous year, -3.7pt). SG&A expenses were ¥5.77B, nearly flat compared with ¥5.76B in the previous year; however, due to the decline in revenue, the SG&A ratio rose to 42.0% (40.6% in the previous year, +1.4pt), revealing negative operating leverage. As a result, the operating loss widened to ¥1.01B (compared with a ¥0.30B loss in the previous year). Non-operating income was limited to ¥0.19B due to a decline in dividends received (¥0.06B, compared with ¥0.225B in the previous year), while non-operating expenses included a ¥0.04B foreign exchange loss, resulting in the ordinary loss widening to ¥0.87B (compared with a ¥0.06B loss in the previous year). The recognition of ¥0.52B in extraordinary income (¥0.39B gain on step acquisitions and ¥0.12B gain on the sale of investment securities) reduced the loss before income taxes to ¥0.36B. Together with negative tax expenses (a tax burden reduction effect of ¥0.11B), net loss attributable to owners of the parent was ¥0.24B. In conclusion, these results represent decreases in both revenue and profit.

Key Financial Indicators

【Profitability】The operating margin was -7.4% ( -2.1% in the previous year, deteriorating by -5.3pt), while the net profit margin (on an attributable-to-owners-of-the-parent basis) was -1.8% (approximately -0.8% in the previous year). The decline in the gross margin to 34.7% (38.4% in the previous year) and increase in the SG&A ratio to 42.0% (40.6% in the previous year) were the background factors behind the deterioration in profitability. 【Cash Flow Quality】Although detailed disclosure of the statement of cash flows is not available, cash and deposits increased to ¥11.86B (¥11.54B in the previous year), indicating that liquidity remained stable even amid an operating loss. 【Investment Efficiency】ROE was -0.5%, primarily due to the deterioration in the net profit margin, while the total asset turnover ratio (revenue / total assets) remained low at 0.195. 【Financial Soundness】The equity ratio remained high at 68.5% (67.9% in the previous year, +0.6pt). Although total assets of ¥70.27B (¥72.01B in the previous year) and net assets of ¥48.14B (¥48.90B in the previous year) both decreased, interest-bearing debt (short-term borrowings of ¥1.28B and long-term borrowings of ¥0.30B, for a total of ¥1.58B) was only 2.2% of total assets, indicating a conservative financial foundation.

Cash Flow Analysis

As the statement of cash flows is not disclosed, cash flow trends are assessed based on changes in the balance sheet. Cash and deposits were ¥11.86B, an increase of ¥0.32B from ¥11.54B in the same period of the previous year. Accounts receivable were ¥7.59B, a decrease of ¥4.73B from ¥12.33B in the previous year, suggesting progress in collections or a change in the project mix. Meanwhile, advances received were ¥9.96B, an increase of ¥1.38B from ¥8.57B in the previous year, indicating that contract-based deferred revenue is accumulating. Accounts payable were ¥1.75B, a decrease of ¥0.68B from ¥2.43B in the previous year. Intangible fixed assets, including software, were ¥15.98B, an increase of ¥0.80B from ¥15.17B in the previous year, indicating that development investment is continuing. The maintenance of cash balances despite the recognition of an operating loss suggests that asset sales, including the sale of investment securities, and the accumulation of advances received may have provided support.

Earnings Quality

The operating loss was ¥1.01B, indicating that recurring business earning power deteriorated from the previous year. Of the ¥0.19B in non-operating income, dividends received were ¥0.06B, a substantial decline from ¥0.225B in the previous year, while non-operating expenses included a ¥0.04B foreign exchange loss. Extraordinary income of ¥0.52B consisted of a ¥0.39B gain on step acquisitions and a ¥0.12B gain on the sale of investment securities, both of which were non-recurring factors. As a result of recognizing this extraordinary income, the loss before income taxes was reduced to ¥0.36B. Together with negative tax expenses (a tax burden reduction effect of ¥0.11B), net loss attributable to owners of the parent narrowed to ¥0.24B. Comprehensive income was positive at ¥0.23B, creating a divergence from the net loss; however, this was due to a ¥0.51B increase in valuation difference on securities and does not indicate an improvement in the recurring earning power of the business.

Earnings Forecast and Guidance

No revisions were made to either the earnings forecast or the dividend forecast against the full-year forecast (revenue of ¥66.0B, operating income of ¥3.6B, ordinary income of ¥3.9B, and net income of ¥2.5B). The Q1 revenue progress rate was 20.8% (¥13.73B / ¥66.0B), 4.2pt below the simple one-quarter benchmark of 25%. Both operating income and ordinary income were negative, and progress toward the full-year profit plan is substantially behind schedule. The accumulation of advances received (¥9.96B) indicates potential for future revenue recognition, while progress in project acceptance inspections during the second half of the fiscal year is a prerequisite for achieving the plan.

Shareholder Returns

The dividend forecast is ¥21 per share, unchanged from the previous year’s actual dividend of ¥21. Based on approximately 53.39 million shares after deducting treasury shares from issued shares, the annual total dividend is estimated at ¥1.12B, resulting in a payout ratio of approximately 45% against the full-year net income plan of ¥2.5B. Given the level of cash and deposits at ¥11.86B, this payout ratio is considered to be within a sustainable range at present.

Risk Factors

1. Negative operating leverage: While revenue declined by -3.3% year on year, SG&A expenses remained nearly flat, causing the SG&A ratio to rise to 42.0% (40.6% in the previous year, +1.4pt) and the operating margin to deteriorate to -7.4% (-2.1% in the previous year). The rigidity of fixed costs amid declining revenue is putting pressure on profitability.

2. Earnings structure dependent on extraordinary income: The net loss attributable to owners of the parent of ¥0.24B was reduced by ¥0.52B in extraordinary income, including a ¥0.39B gain on step acquisitions and a ¥0.12B gain on the sale of investment securities. Excluding these items, recurring earning power is at an even more challenging level than the ¥0.36B loss before income taxes.

3. Monitoring associated with the increase in goodwill: Goodwill increased to ¥1.67B (¥0.99B in the previous year, +68.4%), reflecting the expansion of the scope of consolidation through step acquisitions. Although goodwill is not currently high at 3.5% of net assets, it should be closely monitored from an impairment-risk perspective if the deterioration in profitability continues.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the operating margin and net profit margin were significantly below the industry median, placing the company at a disadvantage within the industry.

Growth and Capital Efficiency

Revenue growth also fell below the industry median, with the company’s revenue decline standing out against the industry average, which is on a growth trajectory.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The operating loss widened from ¥0.30B in the previous year to ¥1.01B, with negative operating leverage becoming evident as the gross margin declined by -3.7pt while the SG&A ratio increased by +1.4pt.

2. Extraordinary income of ¥0.52B (¥0.39B gain on step acquisitions and ¥0.12B gain on the sale of investment securities) reduced the final loss to ¥0.24B; however, the extent of recovery in recurring earning power excluding these items will be the focus going forward.

3. Against the full-year plan (revenue of ¥66.0B and operating income of ¥3.6B), Q1 revenue progress was limited to 20.8% ( -4.2pt versus the standard 25%), while profit remained negative. Project execution and improvement in profitability during the second half of the fiscal year are therefore prerequisites for achieving the plan.

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 model with an explicit five-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: 777 yen–821 yen at ±1% for the cost of equity, and 795 yen–801 yen at ±0.1 for ω.

Notes:

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

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value 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. 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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