Nagase Brothers (9733) FY2026 Q3 Earnings Report

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Executive Summary

Double-digit revenue growth and the relative containment of SG&A expenses resulted in higher operating income, while net income doubled from the previous year. Revenue was ¥477.2B (+20.9% YoY), operating income was ¥49.0B (+28.4%), ordinary income was ¥48.5B (+60.8%), and net income was ¥32.9B (+98.2%). Fixed-cost absorption from higher revenue improved the operating margin to 10.3%, while the decrease in non-operating expenses and gains from extraordinary items further amplified net income growth.

Factors Affecting Results

【Revenue】Revenue was ¥477.2B, an increase of +20.9% YoY. By segment, the core High School Student Section generated ¥229.5B (48.1% of total, profit margin 23.0%), the Sports Business Section generated ¥134.9B (28.3%, profit margin 4.4%), the Primary and Secondary Student Section generated ¥97.7B (20.5%, profit margin 17.4%), and the Business School Section generated ¥9.0B (1.9%, profit margin ▲20.0%). While both the Education and Sports Businesses drove growth, the Business School Section continued to post an operating loss.

【Profit and Loss】Operating income was ¥49.0B, up +28.4%. SG&A expense growth of +9.4% was below revenue growth of +20.9%, resulting in operating leverage. Ordinary income was ¥48.5B, up +60.8%, exceeding the growth in operating income, largely due to the substantial decrease in non-operating expenses from ¥11.1B in the previous year to ¥4.4B. Net income was ¥32.9B, up +98.2%, also benefiting from the net positive impact of extraordinary income of ¥2.5B and extraordinary losses of ¥0.3B. The Company achieved both revenue and profit growth.

Segment Analysis

Of the four segments, the High School Student Section (revenue ¥229.5B, operating income ¥52.8B, profit margin 23.0%) is the earnings pillar and generates income exceeding the company-wide operating income of ¥49.0B. The Primary and Secondary Student Section (revenue ¥97.7B, profit margin 17.4%) is also highly profitable. The Sports Business Section (revenue ¥134.9B, profit margin 4.4%) has substantial revenue but remains low-margin. The Business School Section (revenue ¥9.0B, operating loss ¥1.8B, profit margin ▲20.0%) continues to post losses despite its small scale and represents an area of concern in the earnings structure.

Key Financial Indicators

【Profitability】The operating margin was 10.3%, improving from approximately 9.7% in the same period of the previous year, while the net profit margin rose significantly to 6.9% from 4.2% in the previous year. Annualized ROE was 12.2%, a level achieved through the use of financial leverage of 2.66x.【Cash Quality】Comprehensive income was ¥75.2B, exceeding net income of ¥32.9B by ¥42.3B. The primary factor was an increase of ¥41.5B in the valuation difference on other securities. Attention is warranted because valuation gains unrelated to business earnings are boosting returns.【Investment Efficiency】Investment securities totaled ¥254.2B, accounting for 26.5% of total assets and increasing by ¥60.6B from the previous year. Total asset turnover is limited by the asset composition, which has a high degree of asset fixedness.【Financial Soundness】The equity ratio was 37.6%, improving from 34.6% in the previous year. The current ratio was approximately 114%, above 100%; however, short-term borrowings increased by +126.3% YoY, requiring monitoring of changes in the funding structure.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is not available, funding trends can be assessed from changes in the balance sheet. Cash and deposits were ¥182.5B, broadly unchanged from ¥185.7B in the same period of the previous year. Short-term borrowings increased by ¥10.0B (+126.3%) YoY, while long-term borrowings decreased by ¥15.0B. This indicates a partial shift from long-term to short-term funding and a change in the financing structure. Investment securities increased by ¥60.6B, suggesting that a portion of cash generated by the business was allocated to investment assets. Retained earnings accumulated to ¥228.3B, confirming the accumulation of internal reserves accompanying profit growth.

Earnings Quality

The +60.8% growth in ordinary income exceeded the +28.4% growth in operating income, owing to the decrease in non-operating expenses from ¥11.1B in the previous year to ¥4.4B. This should be evaluated separately from the growth in the business’s intrinsic earnings power. The +98.2% growth in net income also benefited from a net positive contribution of ¥2.2B from extraordinary income of ¥2.5B and extraordinary losses of ¥0.3B, and therefore includes temporary factors. Non-operating income consisted primarily of dividend income of ¥2.3B, which can be considered stable income from non-operating assets. Comprehensive income of ¥75.2B substantially exceeded net income of ¥32.9B due to the ¥41.5B increase in the valuation difference on other securities. This represents a highly accrual-sensitive component dependent on price fluctuations in the stock market and elsewhere, and its sustainability should be assessed cautiously compared with net income.

Earnings Forecast and Guidance

The full-year company forecasts are revenue of ¥647.6B (+17.2% YoY), operating income of ¥65.3B (+34.1%), and ordinary income of ¥63.7B (+64.3%). The Q3 cumulative progress rates are 73.7% for revenue, 75.1% for operating income, and 76.2% for ordinary income, broadly in line with the standard progress rate of 75%. Net income was ¥32.9B, representing progress of 86.2% against the full-year forecast of ¥38.2B and running ahead of schedule. However, this includes the effects of extraordinary items and improved non-operating income and expenses; accordingly, it is appropriate to focus primarily on progress at the ordinary income level.

Shareholder Returns

The full-year dividend forecast is ¥150 per share, while the full-year EPS forecast is ¥144.91, implying a payout ratio of approximately 103.5%. This payout ratio is based solely on dividends and is not a total return ratio that includes share repurchases. The Q2 dividend was ¥0, with dividends structured to be concentrated at the fiscal year-end. As the payout ratio exceeds 100%, if dividends are funded solely from current-period profit, the calculation implies no increase in retained earnings. However, given retained earnings of ¥228.3B and cash and deposits of ¥182.5B, there is a certain degree of capacity to fund the payment.

Risk Factors

1. Risk of fluctuations in securities prices: Investment securities totaled ¥254.2B, accounting for 26.5% of total assets and increasing by ¥60.6B from the previous year. The valuation difference on other securities had reached ¥134.5B, creating a structure in which changes in market prices directly affect comprehensive income and net assets.

2. Dependence on temporary factors in the earnings structure: The +60.8% growth in ordinary income was significantly attributable to the decrease in non-operating expenses (¥11.1B→¥4.4B), while the +98.2% growth in net income also included a net positive contribution of ¥2.2B from extraordinary items. Caution is warranted in interpreting the profit growth rate exceeding the +28.4% growth in operating income as purely intrinsic business growth.

3. Changes in the funding structure and payout ratio: Short-term borrowings increased by +126.3% YoY, and the current ratio declined from the previous year. In addition, the forecast payout ratio is approximately 103.5%, a level premised on achieving the full-year profit forecast.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (healthcare)

Profitability and Returns

Both the operating margin and net profit margin exceed the industry median, indicating that profitability is relatively high within the industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median, placing the Company among the industry’s top performers in terms of growth velocity.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. SG&A expenses increased by only +9.4% against revenue growth of +20.9%, and the operating margin improved as a result of operating leverage. Whether this structure will continue is a key focus for the future operating margin trend.

2. The +98.2% increase in net income includes the decline in non-operating expenses and the net positive contribution of ¥2.2B from extraordinary items, both of which have low recurrence. At this stage, progress rates for ordinary income and operating income of around 75% should be given greater weight than the net income progress rate of 86.2%.

3. Investment securities account for 26.5% of total assets, and fluctuations in the valuation difference on other securities are the primary factor behind the difference between comprehensive income of ¥75.2B and net income of ¥32.9B. As a factor affecting changes in net assets, it is valuable to continue monitoring the impact of market price fluctuations separately from business earnings.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,365–¥1,436 at ±1% for the cost of equity, and ¥1,399–¥1,401 at ±0.1 for ω.

Notes:

• Because net income progress against the full-year forecast (86%) exceeds the standard rate (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies running ahead of schedule tend to exceed their forecasts. In businesses with strong seasonality, the adjustment may be excessive).
• Net assets as of the quarter-end are used (there is a timing mismatch with 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 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 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 discretion and responsibility, after consulting a professional where necessary.

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