KONAMI GROUP CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

The company achieved higher revenue and earnings, with a significant improvement in profitability driving results, including a substantial expansion in the operating margin from 28.6% in the previous year to 35.0%. Revenue was ¥1,295.2B (¥969.6B in the previous year, +33.6% YoY), Operating Income was ¥452.9B (+63.3%), and Net Income attributable to owners of the parent was ¥325.7B (+64.2%). The primary driver of revenue growth was the expansion of the core Digital Entertainment Business (+36.4%), while the main factor behind earnings growth was an improved cost mix resulting from the higher gross margin (54.2%, up approximately +470bp from 49.5% in the previous year).

Factors Affecting Performance

【Revenue】Company-wide Revenue was ¥1,295.2B (+33.6%). By segment, the Digital Entertainment Business, which accounted for 77.1% of the revenue mix, led overall growth with Revenue of ¥998.3B (+36.4%). The Gaming & Systems Business recovered significantly, with Revenue of ¥123.8B (+64.9%); the Arcade Games Business recorded Revenue of ¥40.7B (+9.8%); and the Sports Business recorded Revenue of ¥126.2B (+4.6%), with each segment achieving higher revenue. By region, Japan grew to ¥1,037.0B (¥712.1B in the previous year, +45.6%), raising its share of the revenue mix to 80.1% (73.4% in the previous year), while Europe declined to ¥39.2B (¥58.5B in the previous year, △32.9%), indicating differences in supply and demand across regions.

【Profit and Loss】Gross Profit was ¥702.4B, and the gross margin improved to 54.2%, approximately +470bp from 49.5% in the previous year. SG&A expenses were ¥255.4B (SG&A ratio of 19.7%, improved from 20.9% in the previous year), growing by only +25.8%, below Revenue growth of +33.6%, resulting in positive operating leverage. Consequently, the operating margin expanded by approximately +6.4pt to 35.0% (28.6% in the previous year). Net financial income was positive at ¥9.3B (compared with a negative ¥0.2B in the previous year), boosting Profit Before Tax, which reached ¥464.5B (+66.6%). After deducting income taxes of ¥138.8B (effective tax rate of 29.9%), Net Income was ¥325.7B (+64.2%). Both Revenue and earnings increased.

Segment Analysis

By segment, the Digital Entertainment Business formed the core of company-wide performance, with Revenue of ¥998.3B (77.1% of the mix) and Operating Income (segment profit) of ¥438.7B (98.1% of the mix), while maintaining a high margin of 43.9%. The Gaming & Systems Business showed a clear recovery, with Revenue of ¥123.8B (+64.9%) and Operating Income of ¥8.3B, representing a significant swing to profitability from a loss in the previous year and a margin of 6.7%. The Arcade Games Business generated Revenue of ¥40.7B (+9.8%) and Operating Income of ¥9.3B (+58.8%), reflecting high profitability with a margin of 22.8%. The Sports Business recorded Revenue of ¥126.2B (+4.6%) and Operating Income of ¥7.6B (+79.3%), with earnings improving more than revenue and a margin of 6.1%. Company-wide Operating Income of ¥452.9B represents the level obtained by adding and subtracting adjustments for corporate expenses and other items (△¥17.2B) and other income and expenses (+¥5.9B) from total segment profit of ¥447.0B. The company is characterized by its high degree of dependence on the Digital Entertainment Business.

Key Financial Indicators

【Profitability】The operating margin improved to 35.0% (28.6% in the previous year, +6.4pt), the Net Income margin improved to 25.1% (20.4% in the previous year, +4.7pt), and the gross margin improved to 54.2% (49.5% in the previous year), indicating that an improved content mix is supporting profitability. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥163.4B, representing only 0.50x Net Income of ¥325.7B. Increased income tax payments (¥301.2B, +52.1% YoY) and higher working capital delayed cash conversion. 【Investment Efficiency】Quarterly ROE was 5.6%, based on Total Assets of ¥7,517.7B and Net Assets of ¥5,797.9B. 【Financial Soundness】The Equity Ratio was high at 77.1% (75.4% in the previous year, +1.7pt). Against interest-bearing debt of ¥399.4B, the company maintained ample liquidity, with Cash and Cash Equivalents of ¥3,161.1B.

Cash Flow Analysis

Operating Cash Flow was ¥163.4B (+55.4% YoY), Investing Cash Flow was △¥83.8B, primarily reflecting capital expenditures of ¥86.9B and maintaining an investment level roughly in line with the previous year, and Financing Cash Flow was △¥203.6B, mainly due to dividend payments of ¥187.2B and lease liability repayments of ¥16.3B. Free Cash Flow (Operating Cash Flow + Investing Cash Flow) therefore amounted to only ¥79.6B. Cash and Cash Equivalents were ¥3,161.1B, down ¥114.5B from the end of the previous fiscal year. The growth in Operating Cash Flow (+55.4%) was below Net Income growth (+64.2%), leaving the ratio to Net Income at only 0.50x. The primary factors were increased income tax payments (¥301.2B, compared with ¥198.0B in the previous year) and working capital pressure from an increase in inventories (△¥34.0B) and a decrease in trade payables (△¥47.6B). Meanwhile, contract liabilities increased by +¥51.6B, indicating that the accumulation of deferred revenue supports the recognition of future Revenue.

Quality of Earnings

Current-period Operating Income of ¥452.9B and Profit Before Tax of ¥464.5B included almost no special or temporary gains and losses. Recurring operating results were at the center of performance, with other income and expenses contributing a net gain of only ¥5.9B. Net financial income of ¥9.3B, comprising financial income of ¥10.8B and financial expenses of ¥1.5B, boosted Profit Before Tax and improved from the negative ¥0.2B net financial result in the previous year. Comprehensive Income was ¥340.2B, a difference of ¥14.5B from Net Income of ¥325.7B. The primary factor was a +¥15.1B foreign currency translation adjustment for foreign operations, reflecting foreign exchange factors associated with the translation of overseas subsidiaries rather than the underlying business itself. The +¥51.6B increase in contract liabilities indicates an accumulation of deferred revenue, while inventories increased by +¥34.0B. The somewhat widening time lag between accrual-based earnings and cash generation is a point to consider when evaluating earnings quality.

Earnings Forecast and Guidance

Progress toward the full-year forecasts—Revenue of ¥5,050.0B, Operating Income of ¥1,430.0B, and Net Income of ¥1,010.0B—was 25.6% for Revenue, 31.7% for Operating Income, and 32.3% for Net Income. Profitability is therefore progressing at a pace above the simple quarterly allocation of 25%. There were no revisions to the earnings or dividend forecasts during the quarter. Compared with the full-year plan’s Revenue growth rate of +2.3% and Operating Income growth rate of +5.2%, the growth rates achieved in Q1—Revenue +33.6% and Operating Income +63.3%—were substantially higher. Although the full-year plan may have been set conservatively, progress must be monitored in light of fluctuations associated with the timing of new title launches and business seasonality from the second half onward.

Shareholder Returns

Dividends paid during the quarter totaled ¥187.2B, representing payment of the year-end dividend for FY2026. No share repurchases were conducted (¥0.0B). The full-year dividend forecast is ¥112 per share. Based on forecast EPS of ¥745.08, the Payout Ratio is approximately 15.0%. As no share repurchases are planned, the Total Return Ratio is also expected to be at the same level. Given the financial base of an Equity Ratio of 77.1% and Cash and Cash Equivalents of ¥3,161.1B, constraints on the company’s ability to make recurring dividend payments appear limited.

Risk Factors

1. Business Segment Concentration: The Digital Entertainment Business accounts for 77.1% of the revenue mix and 98.1% of company-wide profit on a segment-profit basis, resulting in a high degree of dependence on the performance of major titles and the timing of new title launches.

2. Cash Flow Quality: Operating Cash Flow was ¥163.4B, only 0.50x Net Income of ¥325.7B. Increased income tax payments (+52.1%), higher inventories (+¥34.0B), and lower trade payables (△¥47.6B) delayed cash conversion.

3. Regional Demand Fluctuations: Japan’s share of the revenue mix increased to 80.1% (73.4% in the previous year), while Europe declined by △32.9% YoY to ¥39.2B, indicating variations in demand across regions.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The company’s Operating Margin and Net Income Margin both substantially exceed the industry median, placing it among the top performers in terms of profitability.

Growth and Capital Efficiency

The Revenue growth rate also substantially exceeds the industry median, placing the company among the top performers in terms of growth.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The operating margin improved by +6.4pt to 35.0% (28.6% in the previous year), while the gross margin expanded to 54.2% (49.5% in the previous year). The quantitative improvement in profitability resulting from a better digital content mix has been confirmed.

2. Progress toward the full-year forecast was 31.7% for Operating Income and 32.3% for Net Income, exceeding the simple quarterly allocation of 25%. This indicates that earnings are progressing ahead of schedule.

3. Operating Cash Flow remained at only 0.50x Net Income, with income tax payments and changes in working capital—particularly inventories and trade payables—constraining cash conversion. The time lag between earnings growth and cash generation should be monitored going forward.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥5,533–¥5,878 at ±1% for the Cost of Equity, and ¥5,663–¥5,761 at ±0.1 for ω.

Notes:

• Net Assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This figure does not 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 summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with professionals as necessary.

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