GAKKYUSHA (9769) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results through Q3 showed higher operating income despite lower revenue. While cost management and improved profitability in the Education Business supported earnings, impairment losses prevented an increase in net income. Revenue was ¥100.98B (-2.3% YoY), Operating Income was ¥24.28B (+3.7%), Ordinary Income was ¥25.09B (+5.4%), and Net Income was ¥16.10B (-4.0%). Although revenue declined in the core Education Business, its segment profit margin improved, driving the increase in operating income.

Factors Affecting Performance

【Revenue】Revenue was ¥100.98B, down 2.3% YoY. External-customer revenue from the Education Business was ¥95.90B (-2.3% YoY), accounting for 94.9% of total revenue and representing the primary cause of the overall decline. The Real Estate Business generated ¥0.55B (-2.7% YoY), while Other Businesses generated ¥4.53B (-1.5% YoY); both declined, indicating sluggish demand across the business as a whole.

【Profitability】Operating Income was ¥24.28B (+3.7% YoY), supported by a gross margin of 39.7% (+150bp from 38.2% in the previous year) and a 1.9% decrease in SG&A expenses. Ordinary Income was ¥25.09B (+5.4% YoY), additionally benefiting from improved non-operating income and expenses, including a foreign exchange gain of ¥0.4B. Meanwhile, Net Income was ¥16.10B (-4.0% YoY), due to extraordinary losses of ¥1.30B, including an impairment loss of ¥0.89B in the Education Business, exceeding extraordinary gains of ¥0.21B. Overall, the Company exhibited both revenue decline with profit growth at the operating and ordinary income levels, and revenue decline with profit decline at the net income level.

Segment Analysis

The Education Business generated revenue of ¥95.90B (-2.3% YoY) and segment profit of ¥22.85B (+6.3% YoY), with a profit margin of 23.8% (+190bp from 21.9% in the previous year). It significantly improved profitability despite lower revenue and remained the core business, accounting for 94.2% of total Company profit. The Real Estate Business was small in scale, with revenue of ¥0.55B (-2.7% YoY) and profit of ¥0.59B (+3.3% YoY), but maintained a high profit margin of 48.2%. Other Businesses, including internet-based entrance examinations and educational information distribution, generated revenue of ¥4.53B (-1.5% YoY) and profit of ¥0.82B (-38.5% YoY), representing a significant deterioration; its profit margin declined to 18.1% from 29.0% in the previous year. Deteriorating profitability in peripheral businesses warrants monitoring going forward.

Key Financial Indicators

【Profitability】The Operating Income Margin was 24.0%, improving from 22.6% in the previous year period, while the Net Income Margin declined slightly to 15.9% from 16.2% in the previous year. The gross margin was 39.7%, up approximately 150bp from 38.2% in the previous year. 【Cash Quality】Cash and deposits increased significantly to ¥35.66B from ¥26.43B in the previous year, while accounts receivable were reduced to ¥0.47B, indicating favorable cash conversion quality relative to earnings. 【Investment Efficiency】Annualized ROE was 27.1%, primarily driven by total asset turnover and the high Net Income Margin. Total assets increased to ¥128.5B, while net assets expanded to ¥79.4B. 【Financial Soundness】The Equity Ratio improved to 61.8% from 60.3% in the previous year. With ¥35.7B in cash and deposits against interest-bearing debt of ¥10.5B, the financial base remains conservative. Asset retirement obligations of ¥5.02B account for 10.2% of total liabilities and should be noted for their potential cash flow and earnings impact during the reorganization of operating locations.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is unavailable, analysis of funding trends based on changes in the balance sheet indicates that cash and deposits increased by ¥9.23B (+34.9%) to ¥35.66B from ¥26.43B in the previous year period. Accounts receivable declined to ¥0.47B, a reduction exceeding the decline in revenue, indicating favorable collection of trade receivables without funds becoming tied up. Inventories also remained low at ¥0.40B. Cash and deposits alone were 1.13 times the level of current liabilities of ¥31.44B, and working capital was positive at ¥13.20B. Long-term borrowings declined to ¥10.50B from ¥11.62B in the previous year, suggesting that funds are being directed toward the accumulation of retained earnings rather than debt repayment.

Quality of Earnings

Profit growth continued at the Operating Income and Ordinary Income levels, and the quality of earnings is relatively high insofar as it is supported by recurring factors such as improved gross margins and control of SG&A expenses. Non-operating income of ¥0.95B included a foreign exchange gain of ¥0.43B, part of which represents a non-recurring element arising from foreign exchange rate fluctuations. Meanwhile, the decline in Net Income was primarily attributable to the temporary factor of a ¥0.89B impairment loss in the Education Business. As extraordinary losses of ¥1.30B exceeded extraordinary gains of ¥0.21B, Profit Before Tax declined 1.0% YoY. Comprehensive income was ¥16.31B, slightly exceeding Net Income of ¥16.10B; the difference was attributable to valuation differences on securities and other items and was not material. Overall, while indicators reflecting underlying operating performance improved, Net Income was affected by the non-recurring impairment loss, necessitating separate evaluation of the two.

Earnings Forecasts and Guidance

Progress against the full-year Company plan was 72.3% for revenue (¥100.98B/¥139.58B), 82.6% for Operating Income (¥24.28B/¥29.40B), 85.2% for Ordinary Income (¥25.09B/¥29.45B), and 81.0% for Net Income (¥16.10B/¥19.87B). Although revenue progress was below the standard 75%, all profit-related indicators exceeded that level, with improved profitability supporting achievement of the full-year plan. The full-year plan calls for revenue growth of +5.0% YoY and Operating Income growth of +12.2%, requiring revenue of ¥38.59B and Operating Income of ¥5.12B in Q4. The full-year planned Operating Income Margin is 21.1%, below the 24.0% recorded for cumulative Q3, indicating that the Q4 plan assumes a decline in the profit margin, including seasonality. There were no revisions to the earnings forecast or dividend forecast during the current quarter.

Shareholder Returns

The Q2 dividend was ¥50 per share, and the full-year dividend forecast is ¥103 per share. Based on the full-year Company-plan EPS of ¥182.91, the Payout Ratio is calculated at approximately 56.3%, slightly below the general sustainability benchmark of 60%. The conservative financial base, consisting of net assets of ¥79.36B, cash and deposits of ¥35.66B, and a Debt/Capital ratio of 11.7%, supports the dividend plan, and no revision was made to the currently disclosed dividend forecast. The Payout Ratio in this report is based solely on dividends and is distinguished from the Total Return Ratio, which includes share repurchases.

Risk Factors

1. Concentration of earnings in the core business: The Education Business accounts for 94.9% of external-customer revenue, creating a structure in which declining birth rates, regional competition, and fluctuations in student acquisition and retention rates directly affect overall Company performance.

2. Impairment risk for fixed assets: The Education Business recorded an impairment loss of ¥89,059 thousand in the current period (¥14,784 thousand in the previous year). Additional impairment losses may arise depending on the profitability of fixed assets such as school facilities and the utilization status of operating locations.

3. Asset retirement obligations as a proportion of liabilities: Asset retirement obligations of ¥5.02B account for 10.2% of total liabilities of ¥49.10B. Upon the closure or relocation of operating locations, concentrated restoration expenditures could affect cash flows and earnings.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Operating Income Margin and Net Income Margin substantially exceeded the industry median, placing profitability at a superior level within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate was substantially below the industry median, indicating an inferior position within the industry in terms of growth.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The increase in Operating Income despite lower revenue was attributable to gross margin improvement (+150bp) and SG&A expense reduction (-1.9%). The improvement in the Education Business segment profit margin to 23.8% (+190bp YoY) drove overall Company profitability.

2. Net Income declined 4.0% YoY due to the ¥0.89B impairment loss in the Education Business, meaning that the improvement at the operating level was not fully reflected in bottom-line profit. Profitability trends for school facility assets warrant attention going forward.

3. Full-year progress was ahead of schedule at 82.6% for Operating Income and 85.2% for Ordinary Income, while revenue progress remained at 72.3%. Securing revenue of ¥38.59B in Q4 will be the key to achieving the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,060–¥1,121 at Cost of Equity ±1%, and ¥1,081–¥1,103 at ω±0.1.

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 disclosed data; it does not constitute a forecast of the market share price or a recommendation of any specific investment action, nor does it 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, after consulting with professionals as necessary.

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