COVER Corp — FY2026/3 Valuation Workbench v3 (data compiled on May 14, 2026

COVER Corp 5253.T

FY2026/3 Annual · Non-consolidated · Japanese GAAP · cover_valuation_v3_annual

Integrity Scout Active

May 14, 2026 · Filed

Fast Action Signals

Revenue vs Guidance

¥49,330M

Guidance: ¥52,500M est.

▼ Miss · +13.7% YoY actual

Operating Profit vs Guidance

¥7,056M

Guidance: ¥8,200M est.

▼ Miss · -11.8% YoY

Net Profit

¥3,016M

FY2025: ¥5,559M

▼ -45.7% YoY · Impairment driven

Gross Margin

47.6%

FY2025: 50.2%

▼ -260bps · Compressed

Operating Cash Flow

¥7,204M

FY2025: ¥5,285M

▲ +36.3% YoY · Strong

Cash Position

¥16,008M

FY2025: ¥11,498M

▲ +¥4,510M · Fortress

📢

Subsequent Event — Share Buyback Announced: Up to 3,000,000 shares (4.6% of float) for up to ¥3,000M. Acquisition period: May 15 – July 8, 2026 via market purchase on TSE. Management is buying back stock the morning after filing. This is a direct capital efficiency signal under the new management structure.

Income Statement

Statement of Income Non-consolidated · ¥M

Line Item	FY2025/3	FY2026/3	YoY Δ
Net Sales	43,401	49,330	+13.7%
Cost of Sales	21,596	25,823	+19.6%
Gross Profit	21,805	23,507	+7.8%
Gross Margin %	50.2%	47.6%	-260bps
SG&A Expenses	13,803	16,450	+19.2%
SG&A as % of Revenue	31.8%	33.4%	+160bps
Operating Profit	8,001	7,056	-11.8%
Operating Margin %	18.4%	14.3%	-410bps
Impairment Loss	11	3,199	▲ Holoearth
Profit Before Tax	7,448	3,817	-48.7%
Net Profit	5,559	3,016	-45.7%

Integrity Scout — SG&A Efficiency Audit

🔍 Vivio · Integrity Scout · Active

SG&A Deep Audit · FY2026/3

SG&A Absolute (FY2026/3) ¥16,450M

SG&A Absolute (FY2025/3) ¥13,803M

YoY SG&A Growth +¥2,647M / +19.2%

Revenue Growth (same period) +13.7%

SG&A as % Revenue (FY2025/3) 31.8%

SG&A as % Revenue (FY2026/3) 33.4%

SG&A Leverage vs Revenue NEGATIVE · SG&A outpaced revenue by 550bps

Operating Margin Compression 18.4% → 14.3% (-410bps)

Scout Verdict INVESTMENT PHASE — Confirmed intentional

SG&A Growth Outpacing Revenue — Structural or Intentional?

SG&A grew 19.2% against revenue growth of 13.7% — negative operating leverage of ~550bps. However, management explicitly declared FY2027/3 an "investment period for strengthening our growth foundation" with intensive allocation toward creative production environment upgrades and talent management systems. The pattern is consistent with deliberate front-loading, not operational drift. The question for FY2027/3 is whether SG&A growth decelerates toward or below revenue growth. If it doesn't, the margin story becomes structurally challenged.

Gross Margin Compression — Cost of Sales Outpacing Revenue

Cost of Sales grew 19.6% vs revenue at 13.7%, compressing gross margin from 50.2% → 47.6% (-260bps). Primary driver: inventory write-downs on SKU expansion from 2023-2024, plus the Merchandising segment's strong growth (which carries lower margins than Streaming). The inventory position collapsed from ¥3,131M → ¥958M — the clean-out is substantially complete. This cost pressure should not repeat at the same scale in FY2027/3.

Operating Cash Flow — The Real Story This Year

While net profit fell sharply, operating cash flow rose 36.3% to ¥7,204M. The impairment loss of ¥3,199M is non-cash — it flows back through depreciation/amortization and impairment add-backs in the cash flow statement. Cash generation was robust. The ¥16,008M cash fortress (+¥4,510M YoY) funds the buyback comfortably without touching operations. This is the number the market will eventually reprice toward.

NERD Inc. Inference Tracker

Three-Signal Inference Framework Inference Only · Not Confirmed

Signal 1 · Extraordinary Losses

Threshold: > ¥700M triggers inference

¥3,199M

⚠ TRIGGERED

Impairment attributed entirely to Holoearth shift in development policy. No separate NERD line item. Holoearth explanation is credible and sufficient — but the threshold is exceeded.

Signal 2 · Capital Investment

Threshold: > ¥200M triggers inference

¥2,128M

⚠ TRIGGERED

¥2,128M purchase of intangible assets (software). Software in progress rose ¥229M. Consistent with platform/tech buildout. Attribution ambiguous — could include NERD-adjacent tooling.

Signal 3 · Retained Earnings

Clean expectation: ~¥20,456M

¥17,772M

⚠ SHORTFALL ¥2,684M

Retained earnings below clean expectation by ¥2,684M. Consistent with the impairment charge impact. No buyback executed in FY2026/3 — shortfall explained by net profit compression.

Scout Inference: All three signals triggered, but all three are sufficiently explained by the Holoearth impairment narrative alone. NERD Inc. partnership costs, if present, are absorbed within Holoearth/platform write-down language and not separately disclosed. This is consistent with management's stated language of "minor" and "absorbable range." Classification: Ambiguous — Holoearth sufficient but cannot rule out NERD contribution.

Valuation Models · FY2026/3 Annual Data

Multi-Model Intrinsic Value Estimates Current Price: ~¥1,336

EPV · Earnings Power Value

¥1,291

Based on normalized operating profit ¥7,056M, WACC ~8.5%, adjusted for cash ¥16,008M and shares 65.65M. Current price slightly above EPV — market pricing modest growth optionality.

EV/EBITDA Relative

¥1,480

EBITDA: Operating profit ¥7,056M + D&A ¥1,517M = ¥8,573M. Peer multiple 10x → EV ¥85,730M, less net cash adj. → ~¥69,722M equity / 65.65M shares.

P/E Relative

¥1,150

Normalized net profit ex-impairment: ~¥5,415M (applying FY2025 effective tax rate to pre-impairment PBT). Peer P/E 14x → ¥75,810M / 65.65M shares. Depressed by write-down year.

DCF · EBITDA Exit

¥2,280

5-yr FCF projection at 4% CAGR from ¥7,204M OCF base, WACC 8.5%, terminal EV/EBITDA 10x. Bull case with execution on FY2027 guidance trajectory.

DCF · Growth Exit

¥3,640

Conditional bull: 8% revenue CAGR through 2030, operating leverage recovery to 17% margin, terminal growth 2.5%. Requires margin stabilization in FY2027 and successful media-mix scaling.

Current Market Price ~¥1,336 · Trading between EPV (¥1,291) and EV/EBITDA (¥1,480) — market sees fair value on current earnings, no growth premium priced in.

FY2027/3 Guidance · Management Forecast

Guidance vs FY2026/3 Actuals

FY2026/3 Actuals

Revenue¥49,330M

Operating Profit¥7,056M

Operating Margin14.3%

Net Profit¥3,016M

Basic EPS¥45.95

FY2027/3 Guidance

Revenue¥51,350M (+4.1%)

Operating Profit¥7,000M (-0.8%)

Operating Margin13.6% (implied)

Net Profit¥4,900M (+62.4%)

Basic EPS¥74.64

Key Tension: Revenue +4.1% but operating profit -0.8% — margin compression continuing into FY2027/3. Net profit recovery (+62.4%) is almost entirely from the absence of the one-time impairment charge, not operational improvement. The margin story has not yet turned.

Scout Summary — Key Watchpoints for Analysis

What's Working · Confirmed Positives

Cash generation: OCF ¥7,204M (+36.3%) is the strongest in company history. Cash position ¥16,008M is a fortress. Merchandising & Licensing: Both growing double-digits (+15.6% and +25.3%) — diversification working. Events: +18.7% with successful world tour execution. Buyback: 4.6% float reduction starting tomorrow signals management conviction at current prices. Inventory clean-out: ¥3,131M → ¥958M — the SKU rationalization is done. This cost drag ends here.

What to Watch · FY2027/3 Inflection Tests

SG&A leverage: Needs to decelerate below revenue growth in FY2027/3. Guidance implies continued compression — this is the primary margin risk. Streaming/Content: Only segment that declined (-2.0%). Talent lineup changes and community environment cited. New debuts and FLOW GLOW maturation are the recovery levers — watch Q1 FY2027. Gross margin recovery: Inventory headwind is resolved. If CoS growth normalizes, 47.6% should recover toward 49-50%. If it doesn't, structural mix shift toward lower-margin Merchandising is the explanation. hololive Dreams: First major smartphone game — FY2027 wildcard. No revenue modeled yet in guidance.

What Concerns Me · Structural Questions Remaining

Operating margin guidance for FY2027/3 is 13.6% implied — lower than FY2026/3's already-compressed 14.3%. Management is not guiding for margin recovery; they are guiding for continued investment spending. This is consistent with their stated strategy, but it means the market is being asked to wait another full year before seeing leverage. The EPV at ¥1,291 is essentially at current price — there is no margin of safety at ¥1,336 on current earnings alone. Upside requires execution on growth optionality. The accumulation zone of ¥990–¥1,200 remains valid as a better risk/reward entry.

cover_valuation_v3_annual · Vivio Integrity Scout · May 14, 2026 · Non-consolidated data only (Japanese GAAP) · Valuation models use reported figures; EPV and DCF estimates are analytical constructs, not price targets · All yen figures in millions unless noted · Script confirmed against filed document header · Numbers cross-verified with Fate (Value Guardian) prior to execution · For investment decision support only — not financial advice