TANABE CONSULTING GROUP CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The Company reported increases in both revenue and profit for Q1, with top-line expansion flowing through to each level of profit. Revenue was ¥3.84B (¥3.30B in the same period of the previous year, YoY+16.5%), Operating Income was ¥0.29B (up +18.9%), and Ordinary Income was ¥0.29B (up +23.1%), while Net Income declined to ¥0.13B (YoY-3.1%). The decline in Net Income was attributable to fluctuations in profit attributable to non-controlling interests. Net Income attributable to owners of the parent increased to ¥0.16B (YoY+25.9%), indicating that the trend of profit growth through Ordinary Income was also reflected in final profit attributable to owners of the parent.

Factors Affecting Results

【Revenue】Revenue increased 16.5% year on year to ¥3.84B. As the Company operates in a single segment, the Management Consulting Business, a breakdown by business is not disclosed; however, both deeper engagement with existing customers and the acquisition of new projects appear to have contributed to the growth.

【Profit and Loss】Cost of sales was ¥2.01B and SG&A expenses were ¥1.55B, resulting in an improvement in the gross profit margin to 47.7% (approximately 46.5% in the previous year). The Operating Income margin was 7.4%, essentially flat, indicating that the effect of higher revenue largely absorbed the increase in SG&A expenses. Ordinary Income grew in line with core earnings, as non-operating income and expenses were minor (income of ¥0.01B and expenses of less than ¥0.003B). Consolidated Net Income declined 3.1% year on year, but Net Income attributable to owners of the parent increased 25.9% year on year to ¥0.16B, with the difference resulting from a decrease in profit attributable to non-controlling interests. Overall, the results can be assessed as increases in both revenue and profit.

Segment Analysis

The Group operates in a single segment, the Management Consulting Business, and disclosure of segment results has been omitted.

Key Financial Indicators

【Profitability】The Operating Income margin was 7.4%, essentially unchanged from the previous year, while the gross profit margin improved to 47.7%, suggesting an improvement in the quality of the project mix. The Net Income margin based on Net Income attributable to owners of the parent was approximately 4.2%.【Cash Quality】Notes and accounts receivable were ¥1.00B, while cash and deposits stood at a robust ¥6.30B.【Investment Efficiency】ROE was 1.2% and remained low, reflecting low total asset turnover and conservative financial leverage.【Financial Soundness】The Equity Ratio was high at 73.9%. Current liabilities were ¥2.93B against current assets of ¥8.36B, while non-current liabilities were also small at ¥0.95B, indicating a sound balance sheet.

Cash Flow Analysis

Although detailed information from the statement of cash flows has not been disclosed, an analysis of funding trends based on changes in the balance sheet shows that cash and deposits decreased slightly to ¥6.30B from ¥6.49B in the previous year. Notes and accounts receivable declined from ¥1.18B in the previous year to ¥1.00B, indicating progress in collections; however, given the increase in revenue, trends in the collection period should be monitored. Other current liabilities increased from the previous year, suggesting that increases in advances received and contract liabilities may have been a short-term source of cash inflows. Interest-bearing debt, including long-term borrowings of ¥0.44B, has been trending downward from the previous year, indicating limited funding needs on the liability side.

Quality of Earnings

The Company’s earnings for the current period were primarily derived from its core business. Non-operating income was ¥0.01B and extraordinary gains and losses were negligible, indicating limited impact from temporary factors. On the other hand, income taxes and other taxes were ¥0.16B against Profit Before Tax of ¥0.29B, resulting in an effective tax rate above 50% and creating a relatively large gap between Ordinary Income and consolidated Net Income. This heavy tax burden is constraining growth in final profit, making tax-rate trends a factor to monitor as they may affect future profit growth. Comprehensive Income was ¥0.13B, approximately in line with consolidated Net Income, with no significant divergence attributable to other comprehensive income items such as adjustments related to retirement benefits.

Earnings Forecast and Guidance

The full-year plan calls for Revenue of ¥17.20B (YoY+5.6%), Operating Income of ¥1.90B (YoY+4.7%), and Ordinary Income of ¥1.90B (YoY+3.1%). Q1 progress rates were 22.4% for Revenue, 15.0% for Operating Income, and 15.4% for Ordinary Income. Compared with a simple one-quarter benchmark of 25%, profit progress was somewhat slow, potentially reflecting business seasonality and the timing of project completion and recognition. Neither the earnings forecast nor the dividend forecast was revised during the quarter.

Shareholder Returns

The Company’s annual dividend plan is ¥29 (increased from ¥12 in the previous year), representing a Payout Ratio of approximately 80.6% against the Company’s planned EPS of ¥35.97. Although the Payout Ratio is high, given the Company’s financial foundation, including an Equity Ratio of 73.9% and cash and deposits of ¥6.30B, dividend sustainability in the near term is not considered to be impaired. However, because the Payout Ratio is high, the limited buffer available if profit falls short of plan should be monitored.

Risk Factors

1. Delay in profit progress: The progress rate for Operating Income against the full-year plan was 15.0%, below the simple progress benchmark of 25%. Maintaining and improving utilization rates and unit prices in the second half of the year is a prerequisite for achieving the plan.

2. Heavy tax burden: Income taxes and other taxes as a percentage of Profit Before Tax exceeded 50%, constraining growth in consolidated Net Income. Tax-rate trends will be a factor affecting future fluctuations in final profit.

3. Seasonality in project recognition: The Management Consulting Business is noted to tend to be weighted toward the second half of the year, and the low Q1 progress may reflect this seasonality. The business structure is susceptible to the timing of project recognition in the second half of the year.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability is slightly below the industry median.

Growth and Capital Efficiency

The Revenue growth rate is substantially above the industry median and represents a high rate of growth close to the upper limit of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The top line maintained growth of +16.5% year on year, exceeding the industry median, while the gross profit margin also improved, suggesting a balance between growth and earnings quality.

2. The effective tax rate was high at over 50%, resulting in a large step-down from Ordinary Income to Net Income. Tax-rate trends will be a key point when assessing future developments in final profit.

3. Q1 profit progress against the full-year plan was approximately 15%, below the simple progress benchmark. The accumulation of project recognition in the second half of the year will be a key indicator of the likelihood of achieving the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥345–¥363 at ±1% for the cost of equity, and ¥353–¥354 at ±0.1 for ω.

Notes:

• 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 (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly available data; it is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee the future share price.)

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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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