Neural Group (4056) Q2 FY2026 Earnings Deep Dive Report

Neural Group Co., Ltd. (Securities Code: 4056), a company driving the social implementation of AI technology, has announced its financial results for the second quarter of the fiscal year ending December 2026. The results demonstrate the robust progress of the company's strategy: " The fusion of AI technology with entertainment and existing businesses through serial M&A. "

This report provides a comprehensive and detailed analysis of the company's recent performance highlights, shifts in revenue structure, post-merger integration (PMI) track record, and the growth narrative leading toward the full-year forecast, centered on 10 key topics from the earnings presentation.

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1. Performance Highlights: Revenue Expansion and the Start of Profitability Recovery

Performance for the second quarter of FY2026 (cumulative/Q2 standalone) showed significant year-on-year revenue growth, with clear signs of profit improvement heading into the second half.

• Net Sales : 1,104 million JPY (887 million JPY in the same period last year, +217 million JPY increase )
• Operating Profit : -113 million JPY (10 million JPY in the same period last year)
• EBITDA : -66 million JPY (49 million JPY in the same period last year)
• EBITDA excluding M&A-related expenses : -14 million JPY (49 million JPY in the same period last year)

Despite the impact of one-time M&A-related expenses recorded in the first quarter, net sales recovered rapidly in the second quarter, and EBITDA excluding M&A-related expenses has rebounded to near break-even levels (-14 million JPY).

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2. Revenue Structure Analysis: A Model for Rapid Performance Ramp-up in H2

The most significant characteristic of the company's FY2026 earnings structure is its seasonality and mid-term structure, where " M&A and AI application are advanced in the first half, leading to a rapid surge in profitability in the second half. "

As shown in the slide above (page 5), net sales recorded a significant increase from 676 million JPY in Q1 2026 to 1,104 million JPY in Q2 . Even more important is the trajectory of "EBITDA excluding M&A-related expenses." While it posted a loss of -151 million JPY in Q1, it narrowed to -14 million JPY in Q2, showing a sharp rebound in profit terms.

This graph reflects the start of earnings contributions from newly consolidated group companies (Pomato Pro, Cactus, Mahou, etc.) from the second quarter onward, as well as the fact that one-time costs associated with M&A were largely concentrated in the first half. Significant revenue growth is planned for the third and fourth quarters in line with the expansion of business scale.

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3. Strengthening the M&A Sourcing System and Pipeline Accumulation

To support the "serial M&A" strategy that serves as the company's growth engine, the foundation for sourcing deals is expanding rapidly.

• Number of M&A Advisors : 406 advisors / 140 firms (+93 advisors added during Q2)
• Number of Corporate Information Received : 729 total (accelerating with 196 received in Q2 )
• Number of Corporate Information Adopted (Initial Review Started) : 30 total (8 adopted in Q2)
• Number of Group Companies : 5 (as of August 6, 2026)
• Partner Financial Institutions : 33 banks

With the network of M&A advisors expanding to 140 firms and 406 individuals, the deal pipeline remains extremely robust, with 196 new deal opportunities received in the second quarter alone.

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4. Financial Foundation and Balance Sheet Trends

The balance sheet is undergoing dynamic changes in line with the execution of serial M&A.

• Total Assets : 4,447 million JPY (+251 million JPY compared to end of Dec 2025)
• Fixed Assets / Goodwill : Fixed assets 1,915 million JPY (including 1,394 million JPY in goodwill , +413 million JPY from previous year-end)
• Cash and Deposits : 1,536 million JPY (2,217 million JPY at end of Dec 2025)
• Interest-bearing Debt : 2,152 million JPY (1,909 million JPY at end of Dec 2025)
• Net Assets : 1,523 million JPY (1,876 million JPY at end of Dec 2025)

With the completion of the acquisition of shares in "Mahou Co., Ltd." and others on June 1, 2026, goodwill increased, and cash and deposits temporarily decreased due to the allocation of acquisition funds. However, according to the company, cash and deposit levels are expected to recover to levels equivalent to interest-bearing debt by the end of the year as operating cash flow is generated from group companies.

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5. Business Succession Market and the "Blue Chip Group" Strategy

The backdrop for Neural Group's M&A strategy is the serious domestic issue of business succession and a shortage of successors . Currently, the average age of Japanese business owners exceeds 61, and over half (50%+) of SMEs lack a successor. Of the approximately 69,000 business closures annually, the majority (35,000) are "profitable closures." The potential demand related to this business succession is estimated at over 13 trillion JPY .

Capturing this massive market opportunity, the company is organizing stable, profitable companies into a "Blue Chip Group" based on clear criteria.

Slide 15 above is an essential framework outlining the company's M&A discipline (participation conditions). Rather than simply chasing revenue scale, they strictly adhere to the following three conditions :

1. Contribution to Group-wide Corporate Value : Must be a highly sustainable and stable profitable company. Acquisition prices are strictly capped at an EV/EBITDA multiple of 5.0x or less to reduce the risk of goodwill impairment.
2. Synergy Creation Among Group Companies : Must allow for the application of the company's AI/Entertainment technology , value provision to mutual customers, and efficiency gains in back-office and development operations.
3. Retention of Outstanding Talent : Continued participation of management and employees, and acquisition of excellent creative talent such as entertainment producers.

This rigorous acquisition discipline and synergy design increase the success probability of the company's M&A.

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6. PMI (Post-Merger Integration) Track Record: Proven by Results

The growth track record of companies that have joined the group (PMI) strongly proves the effectiveness of the company's M&A model.

① Focus Channel Co., Ltd. (Joined Nov 2021)

This company, which develops apartment signage media, grew from 220 installations and 110,000 reach before joining the group to 450 installations and 230,000 reach through aggressive growth investment after joining. It has established a position as an advertising medium for affluent demographics and has won various awards (e.g., Bizpa Award Affluent Category).

② Net Ten Co., Ltd. (Joined Feb 2022)

This company, which handles LED visions and sales promotion support, was seeing growth plateau before joining the group. However, through technical and sales collaboration after joining, it achieved a dramatic resurgence with +60% revenue growth .

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7. Recent M&A Deals and AI Application (Pomato Pro, Cactus, Mahou)

In 2026, the company has rapidly expanded its M&A into the entertainment, event, and gaming sectors.

• Pomato Pro Co., Ltd. (Acquired Feb 2026): Handles large-scale event planning and production such as TOKYO GAME SHOW and the eBASEBALL national tournament. Promotes the digitalization of events and verification of generative AI utilization.
• Cactus Co., Ltd. (Acquired Apr 2026): Strong in urban space and government-linked entertainment, such as "OSAKA Hikari no Renaissance" and projection mapping. Expanding from Kansai to nationwide.
• Mahou Co., Ltd. (Acquired Jun 2026): A long-established game development and amusement company with a 40-year history. Skilled in 3DCG/2D animation and hardware/software synchronization technology, it will integrate Neural Group's generative AI, edge AI, and super-resolution technology to automate game development processes and create new experiences.

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8. Group Management Policy and Synergy Creation Mechanism

Neural Group's PMI policy is a hybrid structure that respects the autonomy of acquired companies while injecting the strengths of a listed corporate group.

• Basic Policy : In principle, maintain the company name, location, and unique culture of group companies, respecting the independence of management and employees.
• Revenue Expansion Synergies : Mutual customer referrals, cross-selling, and high value-added offerings through product fusion.
• Management Efficiency Synergies : Group joint purchasing, standardization of IT systems, integration of back-office functions (accounting, finance, budget management), and mutual human resource support during peak seasons.
• Organizational Strengthening : Recruitment support as a listed group, and opportunities for cross-group representative meetings and personnel transfers.

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9. The Company's AI Technical Prowess and Value Proposition of "AI x Fun"

The company is not merely an M&A roll-up firm, but a tech company with powerful in-house AI development capabilities .

• Autonomous Content Creation/Generative AI : Capability to build large language models and image AI.
• Real-Space Digitization/Edge AI : Image recognition and attribute analysis in streets, stores, and event venues.
• Super-Resolution Technology/Minimizing Transmission Costs : Data analysis and metadata conversion at the edge, dramatically compressing communication costs.

By "actively applying" these technologies to the acquired group of event, game, media, and marketing companies, the company is realizing a transformation into high-margin services (Digital Transformation) that goes beyond simply maintaining existing businesses.

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10. FY2026 Full-Year Earnings Forecast and Key Management Indicators

Finally, here is the full-year consolidated earnings forecast for the fiscal year ending December 2026 and the management indicators the company prioritizes.

As shown in the slide above (page 23), the full-year plan for FY2026 anticipates a significant leap.

• Full-Year Net Sales Forecast : 5,300 million JPY (+2,001 million JPY / +60.0% increase vs. 3,299 million JPY in previous year)
• EBITDA excluding M&A-related expenses Forecast : 400 million JPY (+259 million JPY / +183.0% increase vs. 141 million JPY in previous year)
• EBITDA% : 7.5% (Significant improvement from 4.3% in the previous year)

Meaning of the Management Indicator "EBITDA excluding M&A-related expenses"

The company adopts "EBITDA excluding M&A-related expenses" as its most important indicator showing normalized earning power. The calculation formula is as follows: EBITDA excluding M&A-related expenses = Operating Profit (EBIT) + Depreciation (D) + Amortization of Goodwill (A) + M&A-related expenses

When executing M&A, one-time advisor fees such as brokerage commissions and various due diligence costs are incurred. Since these are temporary expenditures only in the first year of acquisition, this indicator is presented to correctly measure and disclose the "inherent cash-generating power" by excluding them.

With a target of 400 million JPY, a 183% increase year-on-year, the key point to watch going forward is how the synergies from the M&A and AI applications prepared in the first half will bear fruit in the second half.

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Summary

Neural Group's Q2 FY2026 earnings represent a milestone, indicating that the expansion of business scale through serial M&A and the value-added enhancement of businesses through the company's proprietary AI technology have begun to mesh smoothly.

With the maintenance of strict acquisition multiples (EV/EBITDA within 5x), high growth reproducibility backed by past PMI track records, and a plan for a significant performance ramp-up toward the second half, a logical story for the future growth trajectory has been constructed.