THE ROYAL HOTEL (9713) FY2026 Q3 Earnings Report

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Executive Summary

Operating income improved by more than twofold as revenue recovered significantly, while net income remained approximately at the previous-year level due to the decline in extraordinary gains. Although the company reported higher revenue and operating income, the quality of earnings was mixed. Revenue was ¥22.42B (+22.7% YoY), operating income was ¥1.87B (+140.6%), and ordinary income was ¥1.92B (+137.4%), while net income declined slightly to ¥1.84B (-4.0%). Extraordinary gains recorded in the previous year, including gain on the bargain purchase of negative goodwill (¥1.14B) and gain on step acquisitions (¥0.34B), decreased in the current period, preventing the improvement at the operating level from being fully reflected in net income.

Factors Affecting Performance

【Revenue】Revenue increased 22.7% to ¥22.42B from ¥18.27B in the same period of the previous year. The business consists of a single segment, hotel operations and related services, and the recovery in demand for accommodation, food and beverage services, and banquet facilities appears to have driven the overall increase in revenue. Accounts receivable increased 30.6% YoY, confirming an increase in trade receivables accompanying the expansion in sales.

【Profit and Loss】Operating income increased significantly to ¥1.87B (+140.6% YoY), while ordinary income rose to ¥1.92B (+137.4%). The operating margin improved to 8.3% from 4.2% in the previous year. The rates of increase in cost of sales and SG&A expenses (+9.3% and +19.2%, respectively) were below the 22.7% revenue growth rate, indicating the effects of operating leverage. Meanwhile, net income was ¥1.84B (-4.0% YoY), nearly unchanged from the previous year, primarily due to the decline in extraordinary gains recorded in the same period of the previous year—gain on the bargain purchase of negative goodwill (¥1.14B), gain on step acquisitions (¥0.34B), and other items, totaling ¥1.48B. Extraordinary losses in the current period were limited to ¥0.07B, consisting of impairment losses of ¥0.03B and losses on disposal of fixed assets of ¥0.03B. In conclusion, the company achieved clear revenue and operating income growth, but due to the reversal of extraordinary items, its performance on a net income basis was effectively closer to higher revenue but lower net income.

Segment Analysis

The Group operates hotel businesses and related hotel services as a single business segment, and disclosure of segment information has been omitted. As no disclosure is provided regarding the regional composition of revenue or other relevant information, no segment analysis has been conducted.

Key Financial Metrics

【Profitability】The operating margin improved to 8.3% from 4.2% in the previous year, while the net profit margin was 8.2%. Annualized ROE was 10.0%; under a DuPont decomposition, this comprised a net profit margin of 8.2%, total asset turnover of 0.556x, and financial leverage of 1.65x.【Cash Flow Quality】Considering that extraordinary gains of ¥1.48B in the previous year boosted prior-year net income, the improvement in operating income in the current period reflects an increase in recurring earnings power resulting from business recovery. In this respect, earnings quality has improved compared with the previous year.【Investment Efficiency】Total assets were ¥40.33B and net assets were ¥24.51B, with the equity ratio rising to 60.8% from 56.0% in the previous year. Fixed assets were ¥23.41B, accounting for approximately 58% of total assets, while tangible fixed assets and guarantee deposits and security deposits (¥12.71B) constituted the core of invested capital.【Financial Soundness】Cash and deposits were ¥11.92B, long-term borrowings were ¥0.29B, and short-term borrowings were ¥0.08B, indicating that interest-bearing debt was extremely low and that the capital structure was conservative. Current assets of ¥16.92B compared with current liabilities of ¥4.95B resulted in a high current ratio of approximately 342%.

Cash Flow Analysis

Although disclosure of the statement of cash flows is limited, changes in the balance sheet provide insight into fund movements. Cash and deposits increased to ¥11.92B from ¥11.36B in the previous year, indicating an expansion in financial flexibility. Meanwhile, accounts receivable increased 30.6% YoY (+¥0.63B), and accounts payable increased 89.3% (+¥0.46B), indicating an expansion in working capital associated with revenue growth. Retained earnings were ¥12.78B, up 15.2% from ¥11.097B in the previous year, indicating continued accumulation of retained earnings. Given the low level of interest-bearing debt and limited interest burden, there appear to be few sources of pressure on liquidity management.

Earnings Quality

Of pretax income of ¥1.85B in the current period, income taxes and other taxes amounted to only ¥0.01B, resulting in a light effective tax burden that boosted the net profit margin. In the same period of the previous year, temporary factors totaling ¥1.48B—including gain on the bargain purchase of negative goodwill of ¥1.14B and gain on step acquisitions of ¥0.34B—were recorded as extraordinary gains and significantly boosted net income. In the current period, these temporary items were almost entirely eliminated, with only limited extraordinary losses of ¥0.07B, including impairment losses of ¥0.03B. Consequently, although operating income and ordinary income improved substantially, net income remained at approximately the previous-year level. Compared with the previous year, the composition of current-period earnings has shifted toward greater reliance on recurring earnings. Comprehensive income was ¥1.86B, only slightly higher than net income of ¥1.84B, indicating limited effects from valuation differences on securities and adjustments related to retirement benefits. From an accrual perspective, no significant divergence is apparent.

Earnings Forecast and Guidance

The full-year forecast calls for revenue of ¥29.20B (+16.0% YoY), operating income of ¥0.90B (-1.4%), ordinary income of ¥0.90B (+13.0%), EPS of ¥39.28, and a dividend of ¥5.00. For the nine months through Q3, the company recorded revenue of ¥22.42B and operating income of ¥1.87B, meaning operating income has already exceeded the full-year forecast of ¥0.90B on a cumulative quarterly basis. There is a discrepancy between the full-year forecast assumption of a year-on-year decline in operating income and the substantial increase in operating income for the cumulative quarterly period. The actual progress may fluctuate depending on demand trends in the second half and the presence or absence of temporary factors.

Shareholder Returns

The dividend forecast is ¥5.00 at fiscal year-end, with no interim dividend. Based on the full-year net income forecast of ¥0.60B, the payout ratio is estimated at approximately 4%, remaining at a conservative level. No share buybacks or other forms of shareholder returns have been disclosed, and returns are therefore assessed solely on the basis of dividends. Given the conservative financial structure, comprising cash and deposits of ¥11.92B and interest-bearing debt of ¥0.37B, the company appears to have sufficient capacity to pay dividends.

Risk Factors

1. Risk of reliance on temporary earnings items: Extraordinary gains of ¥1.48B, including gain on the bargain purchase of negative goodwill of ¥1.14B, were recorded in the same period of the previous year, whereas extraordinary losses of ¥0.07B were recorded in the current period, representing a significant change in the composition of temporary items. The impact of these non-recurring items must be considered when comparing net income between fiscal years.

2. Risk of working capital expansion: Accounts receivable increased 30.6% YoY (+¥0.63B), while accounts payable increased 89.3% (+¥0.46B), indicating growing funding needs associated with revenue expansion. Trends in working capital management, including changes in collection and payment terms, warrant close attention.

3. Retirement benefit-related liabilities: Liabilities related to retirement benefits were ¥5.10B, accounting for approximately 12.7% of total assets. Although this was a slight decrease from ¥5.27B in the previous year, it remains a sustained burden as a major component of non-current liabilities.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The operating margin is in line with the industry median, while the net profit margin exceeds the median.

Growth and Capital Efficiency

The revenue growth rate significantly exceeds the industry median and indicates high growth above the upper bound of the IQR.

※Source: Company analysis

Key Points from the Financial Results

1. Operating income and ordinary income improved substantially by +140.6% and +137.4%, respectively, while the operating margin rose to 8.3% from 4.2% in the previous year. The growth in cost of sales and SG&A expenses was relatively contained compared with revenue growth, confirming an improvement in the earnings structure accompanying business recovery.

2. Net income was nearly flat, declining 4.0% YoY. This was attributable to the reversal of extraordinary gains recorded in the same period of the previous year, including gain on the bargain purchase of negative goodwill, totaling ¥1.48B. This should be assessed separately from the improvement trend at the operating level.

3. The equity ratio rose to 60.8% from 56.0% in the previous year, interest-bearing debt was low at ¥0.37B, and the current ratio was also high at approximately 342%. The financial foundation is conservative and highly stable, while ROE remained at 10.0%, indicating room for improvement in terms of asset efficiency.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,225–¥1,296 at ±1% for the cost of equity, and ¥1,249–¥1,267 at ±0.1 for ω.

Notes:

• Because progress toward forecast full-year net income (305%) exceeds the standard level (75%), forecast EPS has been adjusted upward within an upper limit of +10% (because companies with leading progress tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• 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 (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 / 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.)

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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. 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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