SAN HOLDINGS (9628) FY2026 Q3 Earnings Report

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Executive Summary

Revenue increased due to the expanded contribution from the consolidated Kizuna Group, but profit declined mainly because of the lower gross profit margin and increased amortization of goodwill. Revenue was ¥27.80B (+33.9% YoY), Operating Income was ¥2.44B (-1.8%), Ordinary Income was ¥2.31B (-7.2%), and Net Income was ¥1.39B (-5.7%). Of the ¥7.03B increase in Revenue, the majority was attributable to the consolidation of the Kizuna Group (the group’s Revenue increased by ¥7.08B), while aggregate Revenue from the four existing groups was broadly flat. The gross profit margin declined to 18.1% from 22.6% in the previous year due to the higher cost-of-sales ratio, which was the primary cause of the profit decline despite higher Revenue.

Factors Affecting Results

【Revenue】Revenue was ¥27.80B, up +33.9% YoY, with growth centered on the consolidation of the Kizuna Group. The group’s Revenue was ¥10.35B (+216.6% YoY), accounting for the majority of the consolidated Revenue increase. Meanwhile, existing businesses remained broadly flat: the core Kogisha Group recorded ¥14.52B (-0.3%), the Tarui Group ¥1.52B (+2.1%), and the Sousen Group ¥1.21B (+6.1%).

【Profit and Loss】Operating Income was ¥2.44B (-1.8% YoY), Ordinary Income was ¥2.31B (-7.2%), and Net Income was ¥1.39B (-5.7%), representing declines across all profit measures. The gross profit margin fell 449bp from 22.6% to 18.1%, while higher SG&A expenses (+17.6% YoY, including ¥0.55B in goodwill amortization) also pressured Operating Income. Below the operating line, interest expense increased from ¥0.04B to ¥0.13B, widening the decline in Ordinary Income. Extraordinary gains and losses were limited to a net loss of ¥0.01B. Accordingly, the current period was characterized by higher Revenue but lower profit.

Segment Analysis

Segment profit, based on Ordinary Income, was highest at ¥2.82B for the holding company group. However, most of this consists of dividends received from subsidiaries and is eliminated through consolidated adjustments of negative ¥2.49B, making it unsuitable for evaluating the underlying businesses. The core Kogisha Group’s segment profit declined to ¥1.62B (-16.6% YoY), with its margin falling to 11.1% from 13.3%. The Tarui Group posted profit of ¥0.26B (-21.3%) and a margin of 17.1% versus 22.1% in the previous year; although it had the highest margin among the businesses, it was on a declining trend. The Sousen Group recorded profit of ¥0.11B (+4.8%) and a margin of 9.1%, remaining broadly flat. Against Revenue of ¥10.35B (+216.6%), the Kizuna Group reported a segment loss of ¥0.01B, narrowing the deficit from negative ¥0.19B in the previous year. Establishing sustained profitability at the Kizuna Group, which drove consolidated growth, will be a key focus going forward.

Key Financial Indicators

【Profitability】The Operating Income margin was 8.8%, down from 12.0% in the same period of the previous year, while the Net Income margin also declined to 5.0% from 7.1%. The gross profit margin fell 449bp to 18.1% from 22.6%, making it the primary cause of the deterioration in profitability.【Cash Quality】Cash and deposits were ¥6.86B, down 45.8% YoY, while total liabilities also declined 20.4% YoY, indicating that cash compression and liability reduction progressed in parallel.【Investment Efficiency】Annualized ROE was 4.8%, comprising a 5.0% Net Income margin × total asset turnover of 0.627x × financial leverage of 1.54x. The low Net Income margin and asset turnover constrained the level of ROE.【Financial Soundness】The Equity Ratio improved to 64.8% from 59.0% in the previous year. The current ratio was 164.7% and the quick ratio was 161.5%, indicating sound short-term liquidity. Long-term borrowings were ¥11.73B, accounting for 19.8% of total assets.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is limited, balance sheet trends indicate that Cash and deposits were ¥6.86B, a decline of ¥5.79B (-45.8%) YoY. At the same time, total liabilities declined by ¥5.10B YoY to ¥20.78B, suggesting that repayments of borrowings and other factors contributed to the decline in cash. Net assets increased to ¥38.33B (+¥1.16B YoY), and the Equity Ratio improved from 59.0% to 64.8%. The simultaneous decline in cash and reduction in liabilities is consistent with capital allocation aimed at strengthening the financial position, but the trend in liquidity should continue to be monitored.

Quality of Earnings

Non-operating income was ¥0.04B, equivalent to approximately 0.1% of Revenue, indicating low reliance on non-operating income. Non-operating expenses were ¥0.17B, primarily consisting of ¥0.13B in interest expense, up from ¥0.04B in the same period of the previous year. Extraordinary income of ¥0.03B and extraordinary losses of ¥0.04B had a limited net impact; extraordinary losses included temporary factors such as losses on disposal of fixed assets and disaster-related losses. Net Income of ¥1.39B was approximately 40% below Ordinary Income of ¥2.31B, primarily due to income taxes and other taxes of ¥0.92B and an effective tax rate of 39.8%. Goodwill amortization of ¥0.55B, up from ¥0.196B in the previous year, is recorded as a recurring expense and is not a one-time loss. However, when evaluating earnings power following M&A, the pre-amortization profit level should also be reviewed.

Earnings Forecast and Guidance

Progress against the full-year forecast—Revenue of ¥59.30B, Operating Income of ¥6.47B, Ordinary Income of ¥6.31B, and Net Income of ¥3.52B—was 46.9% for Revenue, 37.7% for Operating Income, 36.6% for Ordinary Income, and 39.4% for Net Income on a cumulative Q3 basis. These figures are significantly below the standard quarterly progress benchmark of 75%. However, because the forecast period is 17 months due to the change in the fiscal year-end, the nine-month actual period represents 52.9% of the forecast period; therefore, a simple comparison with the 75% benchmark is not appropriate. Nevertheless, the fact that profit progress is below Revenue progress indicates that improvement in profitability during the remaining period is necessary to achieve the forecast. There were no revisions to the earnings forecast or dividend forecast.

Shareholder Returns

The full-year forecast dividend is ¥57.00 per share. Based on forecast EPS of ¥171.99, the forecast Payout Ratio is 33.1%, below the guideline level of less than 60%. The Q3 dividend was ¥28.5 per share. The current-period dividend forecast covers the 17-month period from April 2025 to August 2026 resulting from the change in the fiscal year-end; caution is therefore required when making a simple comparison with a normal 12-month dividend. Treasury shares were ¥1.72B, equivalent to 4.5% of Net assets. However, no actual treasury share repurchases for the current period have been disclosed, and the Total Return Ratio, including returns other than dividends, has not been calculated. Retained earnings were substantial at ¥31.88B, ensuring accounting-based capacity to pay dividends.

Risk Factors

1. Declining profitability in existing core businesses: Segment profit at the Kogisha Group declined -16.6% YoY, while the Tarui Group declined -21.3%. The decline in profitability despite broadly flat Revenue suggests that funeral service pricing and personnel and facility costs may be pressuring profit.

2. Lack of sustained profitability at the Kizuna Group: Although Revenue expanded to ¥10.35B (+216.6% YoY), segment profit and loss remained at negative ¥0.01B. Revenue growth has not yet translated sufficiently into improvements in consolidated profit and capital efficiency.

3. Structural burden from goodwill and asset retirement obligations: Goodwill was ¥10.73B, accounting for 28.0% of Net assets. Failure of acquired businesses to meet their earnings plans could lead to future impairment risk. Asset retirement obligations were ¥1.40B, accounting for 6.7% of total liabilities, and may be affected by changes in estimates related to the removal of the facility network and restoration obligations.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Return

The Operating Income margin slightly exceeds the industry median, while the Net Income margin is below the median, indicating a relatively significant impact from the tax burden and non-operating expenses.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeds both the industry median and the upper bound of the IQR, primarily due to the expansion of the consolidated scope through M&A.

※Source: Company analysis

Key Points from the Earnings Results

1. The high growth in consolidated Revenue was primarily driven by the consolidation of the Kizuna Group, while organic growth in existing businesses was limited. This is an important consideration when assessing the quality of growth.

2. Both the Operating Income margin and Net Income margin declined from the previous year, primarily due to the 449bp decline in the gross profit margin. Increased goodwill amortization was also a factor in the profit decline; however, profitability declined even before amortization, making the progress of gross profit margin improvement in the businesses an ongoing point of monitoring.

3. Financial soundness is strong, with an Equity Ratio of 64.8%, a current ratio of 164.7%, and interest coverage of 18.75x. While leverage remains conservative, the establishment of sustained profitability at the Kizuna Group and the monetization of goodwill and acquired assets will determine future capital efficiency.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,797–¥1,902 for Cost of Equity ±1%; ¥1,849–¥1,849 for ω±0.1.

Notes:

• Due to the tax burden, acquisition-related expenses, non-controlling interests, and other factors, Net Income is substantially compressed relative to Operating Income (Net Income ÷ Operating Income 54%). 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 end of the quarter are used, resulting in a timing difference from the full-year forecast.
• Because Net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model (Ohlson-type, explicit five-year fade) / Interest Rate Reference Month: 2026-07 / Mechanically calculated solely from 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 through analysis of 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 responsibility, and you should consult a professional advisor as necessary.

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