NAC CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In Q1, the Company made a challenging start toward its full-year plan, as the operating loss and net loss widened amid declining revenue. Revenue was ¥12.53B (¥13.08B in the same period last year, YoY -4.1%), operating income was ¥-0.06B (¥-0.04B last year), ordinary income was ¥-0.06B (¥-0.03B last year), and net income was ¥-0.27B (¥-0.02B last year), with losses widening across all measures. Although the gross profit margin improved to 51.5% from the previous year, this was offset by an increase in the SG&A expense ratio, resulting in an operating loss. The primary reason for the expanded net loss was the recognition of ¥0.19B in corporate income taxes despite a loss before tax.

Factors Affecting Results

【Revenue】Revenue was ¥12.53B, down 4.1% year on year. By segment, the CreCla Business at ¥3.88B (+2.8%), Rental Business at ¥4.57B (+2.2%), and Beauty & Health Business at ¥1.58B (+1.9%) secured revenue growth. However, Architectural Consulting at ¥0.79B (-29.0%) and the Housing Business at ¥1.33B (-27.6%) experienced significant revenue declines, driving the overall decrease.

【Profit and Loss】Gross profit was ¥6.45B (-1.6%), and the gross profit margin improved by +1.3pt year on year to 51.5%. However, because the decline in SG&A expenses of ¥6.51B (-1.4%) was smaller than the decline in revenue, the SG&A expense ratio rose by +1.5pt to 51.9%, causing operating income to deteriorate to ¥-0.06B. On a segment-profit basis, the total was profitable at ¥0.31B, but company-wide expenses of ¥0.36B exceeded this amount, resulting in a consolidated operating loss. Ordinary income also deteriorated to ¥-0.06B due to an increase in interest expenses, among other factors (¥0.02B, up from slightly less than ¥0.02B in the previous year). Net income widened to ¥-0.27B because corporate income taxes of ¥0.19B were recognized against a loss before tax of ¥-0.07B. In conclusion, the Company experienced declines in both revenue and profit.

Segment Analysis

The Rental Business and CreCla Business are the earnings pillars, and both segments achieved revenue and profit growth. The Rental Business generated revenue of ¥4.57B (+2.2%), segment profit of ¥0.36B (+34.7%), and a profit margin of 8.0%. The CreCla Business generated revenue of ¥3.88B (+2.8%), segment profit of ¥0.43B (+35.9%), and the highest profitability, with a profit margin of 11.2%. In contrast, Architectural Consulting deteriorated significantly, with revenue of ¥0.79B (-29.0%) and segment loss worsening to ¥-0.24B (¥-0.06B in the previous year). The Housing Business also reported revenue of ¥1.33B (-27.6%), with segment loss widening to ¥-0.23B (¥-0.20B in the previous year). Beauty & Health generated nearly flat profit of ¥0.07B on revenue of ¥1.58B (+1.9%). Against total segment profit of ¥0.31B, unallocated company-wide expenses amounted to ¥0.36B, representing the primary cause of the consolidated operating loss.

Key Financial Indicators

【Profitability】The operating margin was -0.4% (compared with -0.3% in the previous year), while the net profit margin was -2.1%; both remained in negative territory. Although the gross profit margin of 51.5% improved by +1.3pt year on year, this was offset by the increase in the SG&A expense ratio to 51.9%. 【Cash Quality】Corporate income taxes of ¥0.19B were recognized against a loss before tax of ¥-0.07B, significantly distorting the effective tax rate; consequently, the change in net income was larger than the underlying operating performance would suggest. 【Investment Efficiency】Annualized ROE was -5.0%. While the asset turnover ratio remained at a relatively favorable level, the negative net profit margin weighed on profitability. 【Financial Soundness】The equity ratio remained high at 58.5% (59.5% in the previous year). The current ratio was approximately 197%, providing substantial liquidity, and there are no concerns regarding short-term payment capacity.

Cash Flow Analysis

Although the cash flow statement was not disclosed, funding trends can be confirmed from changes in the balance sheet. Cash and deposits were ¥4.93B, down ¥3.55B (-41.9%) from ¥8.48B in the previous year, suggesting net cash outflows over the most recent year. Meanwhile, short-term borrowings were flat at ¥2.70B, while long-term borrowings were ¥2.29B, slightly down from ¥2.59B in the previous year, indicating that some funds may have been used to reduce interest-bearing debt. Treasury stock also increased from ¥2.17B in the previous year to ¥2.91B, suggesting that cash expenditures for share repurchases were another factor behind the decline in cash. With a current ratio of 197.0% and cash still secured at 1.8 times short-term borrowings, there are no significant immediate liquidity concerns; however, the magnitude of the decline in cash warrants monitoring from the perspective of financial flexibility.

Earnings Quality

The current period’s results reflect both deterioration in recurring operating earnings and distortions caused by non-recurring and accounting factors. Extraordinary losses, including losses on the disposal of fixed assets, were small at ¥0.01B, and their impact on net income was limited. On the other hand, corporate income taxes of ¥0.19B, including ¥0.12B in deferred tax expense, were recognized against a loss before tax of ¥-0.07B. As a result, net income widened to ¥-0.27B and the effective tax rate became significantly negative. This tax expense does not accurately reflect the Company’s operating earnings power for the current period, and caution is required when comparing net income across periods. Non-operating income and expenses included recurring income such as dividend income of ¥0.01B, while expenses included interest expenses of ¥0.02B and foreign exchange losses of ¥0.01B, leaving non-operating income and expenses broadly balanced. Overall, the current period’s results were depressed by both the structural factor of deteriorating segment earnings and the accounting factor of tax expenses.

Earnings Forecast and Guidance

The full-year plan remains unchanged at revenue of ¥63.50B (YoY +7.8%), operating income of ¥2.80B (YoY +12.7%), ordinary income of ¥2.80B (YoY +12.6%), and net income of ¥1.70B (no forecast revision during the current quarter). Q1 revenue progress was 19.7% (¥12.53B/¥63.50B), below the simple 25% benchmark, while the progress rate for operating income was negative because it was in the red. Achieving the full-year plan will require a significant earnings recovery from Q2 onward, including improvement in losses in the Architectural Consulting and Housing Businesses.

Shareholder Returns

The full-year dividend forecast remains unchanged at ¥22.00 per share (no revision). The payout ratio against forecast EPS of ¥40.67 is 54.1%. Based on average shares outstanding during the period of 41,124 thousand shares, total annual dividends are estimated at approximately ¥0.90B, representing coverage of approximately 1.9 times against forecast full-year net income of ¥1.70B. Treasury stock increased year on year from ¥2.17B to ¥2.91B, suggesting that shareholder returns through share repurchases were also implemented; however, data on repurchases during the current quarter alone is unavailable, and the Total Return Ratio cannot be calculated. As the Company recorded a net loss in Q1, dividend sustainability depends on the achievement of the full-year plan.

Risk Factors

1. Deterioration in earnings of the Architectural Consulting and Housing Businesses: Architectural Consulting recorded a 29.0% decline in revenue, with segment loss widening to ¥-0.24B, while the Housing Business recorded a 27.6% decline in revenue, with loss widening to ¥-0.23B. Weakness in both businesses is weighing on consolidated earnings.

2. Deterioration in operating leverage due to inflexible SG&A expenses: While revenue declined by 4.1%, the decline in SG&A expenses was limited to 1.4%, causing the SG&A expense ratio to rise to 51.9%. Company-wide expenses of ¥0.36B exceeded total segment profit of ¥0.31B, representing the primary cause of the operating loss.

3. Volatility in net income due to the divergence between earnings and tax expenses: Corporate income taxes of ¥0.19B were recognized against a loss before tax of ¥-0.07B, causing the net loss to widen to ¥-0.27B. The impact of deferred tax expense was significant, requiring caution when comparing results across periods.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s profitability was significantly below the industry median, with both its operating and net profit margins in negative territory.

Growth and Capital Efficiency

The revenue growth rate was also significantly below the industry median, positioning the Company in a revenue-decline phase within the industry.

※Source: Company compilation

Key Takeaways from the Financial Results

1. Although the gross profit margin improved to 51.5%, the increase in the SG&A expense ratio offset this improvement, resulting in an operating loss. The flexibility of SG&A expenses will be a key focus for the earnings structure going forward.

2. The Rental Business and CreCla Business are revenue and profit growth drivers, while widening losses in the Architectural Consulting and Housing Businesses are weighing on consolidated earnings, widening the profitability gap across the business portfolio.

3. The full-year plan assumes revenue growth of +7.8% and operating income growth of +12.7%; however, Q1 revenue progress was 19.7% and operating income was negative. Significant earnings improvement over the remaining three quarters is therefore a prerequisite for achieving the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥492–¥520 at ±1% for the cost of equity, and ¥505–¥506 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing mismatch with the full-year forecast).

(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, nor does it 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 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 with professionals as necessary.

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