In-Depth Earnings Report: Sincere Co., Ltd. (7782) H1 FY2026

Sincere Co., Ltd. (Securities Code: 7782) reported steady year-on-year revenue growth for the first half of the fiscal year ending December 2026 . However, operating and net profits declined due to upfront investments for future growth and temporary costs associated with business integration. Nevertheless, the progress rate against the full-year plan remains robust, with the expansion of the flagship silicone hydrogel lens series, "Sincere S," and strategic M&A initiatives solidifying the company's growth foundation.

This report extracts 10 key topics from the disclosed financial results to provide a detailed analysis of current performance, the background behind the profit decline, segment-specific trends, and the new shareholder return policy.

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1. Earnings Summary: Revenue Growth via M&A and Profit Decline due to Upfront Investment

For the first half of the fiscal year, the company reported net sales of 3,832 million yen (+7.9% YoY) , operating profit of 240 million yen (-13.0% YoY) , ordinary profit of 250 million yen (-3.4% YoY) , and net income attributable to owners of the parent of 142 million yen (-15.8% YoY) .

On the revenue side, the company achieved growth driven by the color contact lens business acquired from FURYU Corporation at the end of March last year, which contributed 323 million yen in sales , alongside the expansion of the proprietary high-performance "Sincere S" series. On the profit side, results were impacted by a decline in the gross profit margin (from 33.2% to 31.9%) due to exchange rate fluctuations, as well as increased costs related to M&A integration (PMI expenses), personnel, and advertising.

The highlight slide above succinctly illustrates the company's mid-to-long-term growth structure. It visualizes a strategy aimed at achieving sustainable profit growth by absorbing temporary cost increases through three engines: "M&A effects," "Expansion of high-performance 'Sincere S' lenses," and "Launch of new businesses." Notably, the 61.8% progress rate against the full-year operating profit forecast underscores the robustness of the business foundation.

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2. Contact Lens Business Trends: Breakthroughs for "Sincere S" and "Cliché"

The core contact lens business recorded net sales of 3,558 million yen (+7.7% YoY) and segment profit of 315 million yen (-10.6% YoY) .

Breakdown by product category highlights the following:

• Proprietary Brands (In-house products) : Sales grew steadily by 7.5% YoY . In particular, marketing efforts for the silicone hydrogel color lens "Sincere 1-Day S Cliché" were successful, recording a high growth rate of 57.1% YoY in the color lens segment.
• Private Brands (PB/OEM) : Despite an increase in color lens orders from major clients (+27.6% YoY), overall growth was limited to 0.5% YoY due to price competition and intensified promotional activities in the clear lens segment.
• Third-party Products : Benefiting fully from the business transfer from FURYU, this segment achieved significant growth of 54.4% YoY .

The key to the company's growth lies in the expansion of the number of stores handling its products through ophthalmology prescription channels . As shown in the slide above, the number of stores carrying the high-oxygen-permeable "Sincere 1-Day S" increased to 2,988 (approx. 1.2x YoY) , while the color-type "Cliché" expanded rapidly to 2,448 stores (approx. 1.4x YoY) .

This increase in store count indicates that the "Sincere S" series, having earned high praise and trust from ophthalmologists, has established a position not merely as a fashion item, but as "medical contact lenses that prioritize eye health."

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3. Analysis of Operating Profit Fluctuations and Segment Performance

The decline in operating profit from 275 million yen in the same period last year to 240 million yen this period (-35 million yen) is clearly attributed to the following:

• Positive Factors : Increase in gross profit due to higher sales ( +44 million yen ), decrease in goodwill amortization ( +12 million yen ).
• Negative Factors : Increase in shipping costs ( -24 million yen ), increase in personnel expenses ( -22 million yen ), increase in advertising expenses ( -13 million yen ), and other business integration costs ( -32 million yen ).

The rise in personnel and advertising expenses represents proactive growth investment aimed at strengthening the organizational structure following M&A and enhancing brand awareness, which are considered temporary or structural reform costs.

Segment Performance

1. Contact Lens Business : Net sales of 3,558 million yen (+7.7%), profit of 315 million yen (-10.6%). The company launched the new "Sincere 1-Day S Multifocal" in May 2026 to further expand its share in prescription facilities.
2. Consulting Business : Net sales of 37 million yen ( +98.8% YoY ), profit of 21 million yen ( +99.5% YoY ). In addition to reviewing support for medical hair removal clinics, the company launched a full-scale "Pharmaceutical Affairs Consulting Business" to support overseas companies entering the Japanese market, leading to significant revenue and profit growth.
3. System Business : Net sales of 235 million yen (+3.0%), profit of 31 million yen (-42.5%). While strengthening API integration with platforms like "Mercari Shops" and "DMM.Shops," investments in next-generation POS system development for future recurring revenue weighed on current profits.

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4. Full-Year Earnings Forecast and High Progress Rate

The full-year consolidated earnings forecast for the fiscal year ending December 2026 remains unchanged from the initial plan.

• Net Sales : 7,657 million yen (+2.7% YoY)
• Operating Profit : 388 million yen (-25.9% YoY)
• Ordinary Profit : 362 million yen (-29.6% YoY)
• Net Income : 246 million yen (-6.6% YoY)

The progress rates against the full-year targets based on H1 results are 50.0% for net sales , 61.8% for operating profit , 69.2% for ordinary profit , and 57.9% for interim net income . With sales tracking exactly at 50% and profit items significantly outpacing the plan, there is potential for upward revision in the second half and evidence of the company's capacity to absorb upfront investments.

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5. Dramatic Change in Shareholder Returns: New Policy with a 4.0% DOE Floor

One of the most significant topics in this earnings announcement is the change in the shareholder return policy (dividend policy) .

Previously, the company adopted a "performance-linked dividend policy targeting a consolidated payout ratio of 40%." However, it has now shifted to a "stable dividend policy with a DOE (Dividend on Equity) ratio of 4.0% as a lower limit."

This change is highly significant. Under the performance-linked policy, there was a risk that dividends could decrease if net income temporarily declined due to future upfront investments, exchange rate fluctuations, or M&A costs. By introducing DOE based on shareholders' equity, the company enables stable returns unaffected by temporary profit fluctuations . The annual dividend forecast for the fiscal year ending December 2026 is set at 18 yen (equivalent to a 4.1% DOE) , significantly improving the predictability and transparency of returns for investors.

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6. Conclusion and Future Growth Story

Sincere's H1 FY2026 results demonstrate that structural reforms aimed at mid-to-long-term corporate value enhancement are progressing steadily , beyond mere fluctuations in profit and loss figures.

1. Growth of Proprietary High-Value Products : High-margin, high-unit-price silicone hydrogel lenses like "Sincere S" and "Cliché" are expanding rapidly in prescription facility channels.
2. Seeds of Business Diversification : Full-scale launch of pharmaceutical consulting and the transition of the system business toward recurring revenue via next-gen POS development.
3. Balance of Capital Efficiency and Shareholder Returns : While pursuing scale through M&A, the company is signaling a management stance conscious of shareholders' equity by introducing a 4.0% DOE floor.

Short-term profit declines are a necessary process for growth. The focus moving forward will be on how the acquired store base and synergies from the transferred business crystallize into earnings from the second half onward.