SUGIMOTO & (9932) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative Q3 results showed declines in both revenue and earnings, with the particularly significant decline in operating income being the most important point. Revenue was ¥362.8B (down -2.3% YoY), operating income was ¥16.0B (down -22.5%), ordinary income was ¥19.5B (down -19.1%), and net income was ¥13.7B (down -14.5%). The decline in earnings substantially exceeded the revenue decline, indicating that reduced SG&A cost absorption or deteriorating margins pressured performance more significantly than the top line.

Factors Affecting Performance

【Revenue】Revenue was ¥362.8B, down 2.3% YoY. By segment, West was the largest at ¥159.8B (44.1% of total), followed by Central at ¥103.5B (28.5%), East at ¥85.1B (23.5%), and Overseas at ¥14.4B (4.0%). The three domestic segments—West, Central, and East—accounted for 96% of total revenue, creating a business structure in which domestic demand trends determine performance.

【Profit and Loss】Operating income was ¥16.0B, down 22.5% YoY, and the operating margin declined by approximately 1.15pt from the previous year to 4.4%. Segment operating margins were 7.6% for Overseas, 5.1% for West, 3.7% for Central, and 3.4% for East; all segments other than West were below a 5% margin. Ordinary income was ¥19.5B, with non-operating income of ¥3.96B (including ¥0.7B in dividend income, etc.) exceeding non-operating expenses of ¥0.46B and supplementing operating income. Net income of ¥13.7B benefited from extraordinary income of ¥1.22B, including a gain on the sale of investment securities of ¥1.09B; accordingly, recurring earnings power should appropriately be evaluated at the ordinary income level. In conclusion, this was a decline in both revenue and earnings, with earnings deteriorating more than revenue. SG&A expenses accounted for 15.7% of revenue versus a gross margin of 20.1%, suggesting that reduced cost absorption was the primary cause of margin deterioration.

Segment Analysis

West, with revenue of ¥159.8B and operating income of ¥8.2B (5.1% margin), is the core segment, generating more than half of total company operating income. Central has revenue of ¥103.5B, making it the second-largest segment after West, but its margin remained at 3.7%. East generated revenue of ¥85.1B and had the lowest margin among the four segments at 3.4%. Overseas is small in terms of revenue at ¥14.4B but had the highest margin at 7.6%, making it a relatively efficient business in terms of profitability. Overall, there are significant margin disparities among the three domestic regions, leaving room for improvements in Central and East profitability to raise the overall company margin.

Key Financial Indicators

【Profitability】The operating margin of 4.4% and net profit margin of 3.8% both declined from the previous year. SG&A expenses accounted for 15.7% of revenue versus a gross margin of 20.1%, and weak cost absorption is pressuring margins.【Cash Flow Quality】The Company holds accounts receivable of ¥114.1B and electronically recorded monetary claims of ¥52.0B; collection performance and bad-debt trends during a period of declining revenue will affect earnings quality. Inventories were ¥22.1B, only 5.1% of total assets, indicating limited signs of inventory buildup.【Investment Efficiency】ROE of 4.1% was calculated under a conservative capital structure with an equity ratio of 76.2%; low financial leverage is one factor contributing to the relatively low capital efficiency.【Financial Soundness】Cash and deposits of ¥64.9B exceeded interest-bearing debt of ¥23.0B, while current assets of ¥254.6B substantially exceeded current liabilities of ¥89.4B, indicating ample liquidity. Although the equity ratio of 76.2% declined from 83.7% in the previous year, it remains at a high level.

Cash Flow Analysis

As cash flow statement figures are not included in the disclosed information, funding trends are assessed based on changes in the balance sheet. Cash and deposits declined from ¥73.2B in the previous year to ¥64.9B, while investment securities increased from ¥42.8B to ¥61.4B, suggesting that a portion of surplus funds may have been redirected into securities investments. Interest-bearing debt consists solely of ¥23.0B in short-term borrowings, and cash and deposits substantially exceed this amount; therefore, no significant near-term funding concerns are likely to arise. Retained earnings increased from ¥323.1B in the previous year to ¥326.6B, indicating that internal reserves continued to accumulate even after dividend payments.

Earnings Quality

Net income of ¥13.7B included extraordinary income of ¥1.22B, comprising a gain on the sale of investment securities of ¥1.09B and a gain on the sale of fixed assets of ¥0.13B; these items should be distinguished as temporary factors. Ordinary income of ¥19.5B resulted from operating income of ¥16.0B being increased by a positive non-operating balance of ¥3.50B. Although non-operating income included dividend income of ¥0.68B, it was not excessive in scale at 1.1% of revenue. Comprehensive income was ¥19.1B, ¥5.4B above net income of ¥13.7B, primarily due to a ¥5.7B increase in valuation difference on available-for-sale securities. This difference resulted from changes in the market value of held shares and must be distinguished from recurring earnings power based on business activities. Overall, recurring earnings power should be evaluated based on operating income and ordinary income, while net income was partially supported by temporary gains on asset sales.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥518.0B (up +4.7% YoY), operating income of ¥23.8B (down -0.7%), and ordinary income of ¥29.6B (up +1.8%). The cumulative Q3 progress rates were 70.0% for revenue, 67.3% for operating income, 65.9% for ordinary income, and 70.8% for net income, all below the standard progress rate of 75%. The delay in operating income progress was particularly significant at 7.7pt, creating a situation in which revenue recovery and improved cost absorption are required in Q4. The full-year forecast itself also assumes that operating income will remain nearly flat despite revenue growth, indicating limited assumptions for a recovery in profitability.

Shareholder Returns

The Q2 dividend was ¥27.00 per share, and the full-year forecast dividend is ¥54.00 per share. The forecast payout ratio based on forecast EPS of ¥101.01 is approximately 53.5%. The annual dividend total calculated using the period-average number of shares outstanding of 18,187 thousand shares is approximately ¥9.8B, representing a payout ratio of approximately 50.8% against forecast full-year net income of ¥19.35B. Given the level of cash and deposits of ¥64.9B and the low Debt/Capital ratio, the payout ratio is consistent with financial capacity. As the amount of share repurchases is not included in the disclosed information, no assessment has been made of the Total Return Ratio.

Risk Factors

1. Deteriorating profitability: The operating margin of 4.4% declined by approximately 1.15pt from the previous year, while the 22.5% decline in operating income substantially exceeded the 2.3% decline in revenue. Given the SG&A expense ratio of 15.7%, failure to improve cost absorption could affect the likelihood of achieving the full-year operating income forecast.

2. Collection period for trade receivables: The Company holds accounts receivable of ¥114.1B and electronically recorded monetary claims of ¥52.0B. Collection performance and credit management during a period of declining revenue may affect working capital efficiency.

3. Dependence on short-term borrowings: Interest-bearing debt of ¥23.0B consists entirely of short-term borrowings, requiring confirmation of refinancing terms. However, cash and deposits of ¥64.9B exceed this amount, so the impact on near-term funding is limited.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company’s margins exceed the industry median, but the downward trend from the previous year warrants attention.

Growth and Capital Efficiency

The Company’s revenue growth rate is substantially below the industry median, representing a relatively weak top-line trend within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The decline in operating income reached 22.5%, compared with a 2.3% decline in revenue, making flexibility in the cost structure the key to restoring profitability. The progress rate toward the full-year operating income forecast was 67.3%, below the standard progress rate of 75%.

2. The equity ratio was 76.2%, and current assets/current liabilities, corresponding to the current ratio, was equivalent to 284.8%; the financial foundation is conservative even within the industry. Interest-bearing debt consists solely of ¥23.0B in short-term borrowings, while cash and deposits of ¥64.9B exceed this amount.

3. Net income included extraordinary income of ¥1.22B, including gains on the sale of investment securities. Therefore, the trends in operating income and ordinary income should be emphasized when evaluating recurring earnings power.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,643–¥1,736 at ±1% for the cost of equity, and ¥1,682–¥1,693 at ±0.1 for ω.

Notes:

• As 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 gap relative to 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 / These are mechanically calculated values based solely on publicly disclosed data and do not constitute a forecast of the market share price, a recommendation of any specific investment action, or a prediction or guarantee of 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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