H.I.S. (9603) FY2026 Q1 Earnings Report

Quick View

Executive Summary

FY2026 Q1 was characterized by higher revenue but lower margins, resulting in a slight increase in profit despite revenue growth. The decline in gross margin was the primary factor suppressing profitability. Revenue was ¥1012.4B (+8.5% YoY), Operating Income was ¥53.2B (+2.2%), Ordinary Income was ¥51.6B (-2.1%), and Net Income (consolidated net income for the period) was ¥40.9B (-0.9%). As the increase in cost of sales (+10.8%) exceeded revenue growth, gross margin declined from 33.0% to 31.6%. Increases in interest expense and the recognition of foreign exchange losses outside operating activities led to a decline in Ordinary Income.

Factors Affecting Performance

【Revenue】Revenue increased 8.5% YoY to ¥1012.4B. The core Travel Business accounted for the largest share at ¥836.8B (+8.2%), followed by the Hotel Business at ¥74.8B (+14.4%) and the Kyushu Sanko Group at ¥71.3B (+9.0%); all contributed to higher revenue.

【Profit and Loss】Operating Income remained at ¥53.2B (+2.2%), representing a profit growth rate substantially below the revenue growth rate. As cost of sales increased +10.8% YoY, exceeding revenue growth, gross margin declined by 140bp. Although the rate of increase in SG&A expenses (+4.1%) was contained below revenue growth, this was insufficient to offset the decline. By segment, Operating Income in the Travel Business declined to ¥36.4B (-10.2%), with its margin falling to 4.4%. In contrast, the Hotel Business achieved significant profit growth, with Operating Income of ¥17.7B (+42.4%; margin of 23.7%), while the Kyushu Sanko Group also recorded higher profit at ¥4.1B (+25.7%), supplementing the decline in the Travel Business. Ordinary Income was ¥51.6B (-2.1%) due to increases in non-operating expenses, including interest expense of ¥5.1B and foreign exchange losses of ¥1.2B, resulting in a divergence between the growth rates of Operating Income and Ordinary Income. Profit Before Tax, including extraordinary income of ¥2.0B, was ¥53.6B; however, Net Income remained subdued at ¥40.9B (-0.9%). In conclusion, although the Company is in a phase of revenue and profit growth, the extremely limited profit growth relative to revenue growth warrants an assessment of slight profit growth despite higher revenue.

Segment Analysis

The Travel Business is the largest segment, with revenue of ¥836.8B (82.7% composition ratio, +8.2% YoY), but Operating Income declined to ¥36.4B (-10.2%), and its margin fell from 5.3% to 4.4%. The Hotel Business recorded revenue of ¥74.8B (+14.4%) and Operating Income of ¥17.7B (+42.4%), achieving profit growth exceeding its revenue growth rate; its margin improved from 19.4% to 23.7%. The Kyushu Sanko Group remained solid, with revenue of ¥71.3B (+9.0%) and Operating Income of ¥4.1B (+25.7%). Other Businesses recorded revenue of ¥41.5B (+1.8%), while Operating Income declined sharply to ¥0.9B (-55.2%), becoming an adjustment factor for consolidated profit. If profitability in the largest segment, the Travel Business, continues to deteriorate, profit growth in other segments may not be sufficient to offset the decline.

Key Financial Indicators

【Profitability】Operating margin was 5.3%, down from 5.6% in the same period of the previous year, while Net Profit Margin also declined from 3.8% to 3.4%. Gross margin was 31.6%, deteriorating by approximately 140bp from 33.0% in the same period of the previous year. The increase in cost of sales (+10.8%) was the primary factor suppressing profitability.【Cash Quality】Cash and deposits were ¥1095.5B, a decrease of ¥43.8B YoY, while accounts receivable increased to ¥357.1B (+29.5%), exceeding revenue growth, indicating a decline in the speed of cash conversion.【Investment Efficiency】Annualized ROE was 22.5%, but this level was supported by high financial leverage, as indicated by an Equity Ratio of 18.4%; the contributions of Net Profit Margin and asset turnover were limited.【Financial Soundness】Against an Equity Ratio of 18.4% (improved from 17.4% in the same period of the previous year), long-term borrowings increased to ¥696.5B, up +47.4% YoY. Current liabilities of ¥2231.4B exceeded current assets of ¥1858.1B, resulting in negative working capital.

Cash Flow Analysis

Although direct data from the cash flow statement was not provided, an examination of fund movements based on balance sheet changes shows that cash and deposits decreased by ¥43.8B YoY to ¥1095.5B, while long-term borrowings increased by ¥224.1B (+47.4%) to ¥696.5B, indicating a funding structure dependent on borrowing. Accounts receivable increased by ¥81.3B (+29.5%) YoY to ¥357.1B, expanding at a pace exceeding revenue growth (+8.5%), which may indicate delays in the collection of funds generated from operating activities. Net assets increased by ¥54.6B YoY to ¥726.6B, supported by accumulated retained earnings and an increase in foreign currency translation adjustments. Overall, the Company appears to be covering funding needs associated with investment and business expansion through borrowing, while its cash position has declined somewhat.

Earnings Quality

Operating Income increased +2.2% YoY, but Ordinary Income declined -2.1% due to deterioration in non-operating expenses, indicating that the earnings benefits from the core business were offset by non-operating factors. Non-operating income was ¥5.9B, while non-operating expenses were ¥7.5B; interest expense of ¥5.1B and foreign exchange losses of ¥1.2B were the main components on the expense side. Profit Before Tax, including extraordinary income of ¥2.0B and with extraordinary losses such as impairment losses virtually zero, was ¥53.6B, exceeding Ordinary Income. The extraordinary income recorded during the period was therefore a temporary factor that slightly boosted final profit. The 29.5% increase in accounts receivable, exceeding revenue growth, warrants some attention regarding earnings quality from an accruals perspective. Comprehensive income was ¥59.4B, exceeding Net Income of ¥40.9B, primarily due to foreign currency translation adjustments of +¥20.0B; it should therefore be evaluated separately from recurring business profit and loss.

Earnings Forecast and Guidance

The full-year plan calls for revenue of ¥4200.0B (+12.6% YoY), Operating Income of ¥140.0B (+20.4%), and Ordinary Income of ¥140.0B (+23.0%); there have been no revisions to the earnings or dividend forecasts. Q1 results represented 24.1% of the full-year revenue target, 38.0% of the Operating Income target, and 36.9% of the Ordinary Income target. Progress in Operating Income and Ordinary Income was more than 10 points above the simple one-quarter benchmark of 25%. However, achieving the full-year plan requires securing Operating Income of ¥86.8B over the remaining 3 quarters, making the recovery of profitability in the Travel Business, which recorded lower profit in Q1, the key to achieving the plan.

Shareholder Returns

The full-year dividend forecast is 25.00 yen per share, with no revision to the dividend forecast. Based on the full-year EPS forecast of 120.42 yen, the payout ratio based solely on dividends is approximately 20.8%. The annual total dividend based on the average number of shares outstanding during the period is approximately ¥1.87B, representing a modest burden relative to the full-year Net Income forecast of ¥90.0B. As no data on share repurchases has been provided, the assessment is based on the Payout Ratio. Given the high financial leverage and a current ratio of approximately 83%, dividend sustainability will depend on the degree to which the future earnings plan is achieved and on the management of borrowings and working capital.

Risk Factors

1. Deterioration in Travel Business profitability: Despite revenue growth of +8.2%, the core Travel Business recorded a -10.2% decline in Operating Income, and its margin fell from 5.3% to 4.4%. It is necessary to determine whether the deterioration in the cost structure and sales mix is structural or temporary.

2. Financial leverage and liquidity: Long-term borrowings increased to ¥696.5B (+47.4% YoY), while current liabilities of ¥2231.4B exceeded current assets of ¥1858.1B, resulting in negative working capital. Cash and deposits of ¥1095.5B substantially exceeded short-term borrowings of ¥79.1B, but interest expense increased to ¥5.1B.

3. Increase in accounts receivable and foreign exchange exposure: Accounts receivable increased +29.5% YoY, expanding at a pace exceeding revenue growth. In addition, the Company recorded foreign exchange losses of ¥1.2B and is susceptible to the impact of foreign exchange fluctuations on businesses involving overseas-related transactions.

Industry Benchmark (For Reference; Company Research)

Profitability and Return

Both Operating Margin and Net Profit Margin are below the industry median, indicating that profitability is relatively low within the industry.

Growth and Capital Efficiency

The revenue growth rate is also below the industry median, positioning the Company’s revenue growth pace at below the middle of the industry.

※Source: Company research

Key Earnings Highlights

1. The fact that Operating Income growth remained at +2.2% despite higher revenue, while gross margin declined by approximately 140bp, suggests that changes in the cost structure and sales mix centered on the Travel Business may be affecting consolidated profitability.

2. Profit growth in the Hotel Business (Operating Income +42.4%) and the Kyushu Sanko Group (+25.7%) supplemented the decline in the Travel Business (-10.2%), indicating a change in the profit structure among segments.

3. Operating Income progress against the full-year plan was 38.0%, exceeding the standard 25%; however, the increase in long-term borrowings (+47.4%) and the condition in which current liabilities exceed current assets warrant monitoring as changes in the Company’s funding structure going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥940–¥997 at cost of equity ±1%; ¥964–¥975 at ω±0.1.

Notes:

• As Net Income progress against the full-year forecast (38%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a range of up to +10% (because companies ahead of schedule tend to exceed forecasts; adjustments may be excessive for businesses with strong seasonality).
• Net assets as of the quarter-end have been used (there is a timing gap relative to the full-year forecast).

(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.)

---

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.

---End of Report---