Neural Group Inc.

Business Details

Under the mission of "Creating an exciting future with AI," the company is composed of two domains: the Innovation Domain (advanced AI research and development, including AI Agents and LLMs) and the Core Service Domain (providing mature AI technologies as services and products). The company provides marketing support and human resource utilization support to a wide range of clients, from small and medium enterprises to large corporations nationwide. It is actively pursuing business expansion through M&A and accelerating its expansion into the entertainment, event, and gaming machine sectors.

Recent Overview

Q1 net sales fell 18%, operating loss widened, but the company expects a recovery in the second half driven by aggressive M&A

In Q1 of FY2026 (ending December 2026), net sales came to ¥676 million (down 18.0% year on year) and the company posted an operating loss of ¥239 million (compared with a loss of ¥9 million in the same period of the prior year), representing a significant deterioration. This was mainly due to selling, general and administrative expenses swelling to ¥627 million (from ¥538 million in the same period of the prior year). On the other hand, during Q1 the company brought Pomato Pro Inc. and Cactus Inc. into the group (the latter becoming a subsidiary effective April 1, 2026). Furthermore, as a subsequent event, the company resolved to make Mahou Co., Ltd. and Pegasus Inc. subsidiaries effective June 1, 2026 (estimated advisory costs of ¥53 million). Given the tendency for existing businesses to be weighted toward the second half of the fiscal year and the anticipated earnings contribution from the new subsidiaries, the company is maintaining its full-year forecast (net sales of ¥5,300 million and adjusted EBITDA of ¥400 million).

Key Products

Growth Drivers

• Rising demand for corporate DX and operational efficiency investment amid the rapid proliferation of generative AI and AI Agents
• Business scale expansion through an aggressive M&A strategy (Pomato Pro and Cactus became subsidiaries in Q1; Mahou and Pegasus are scheduled to become subsidiaries in Q2)
• Diversification of the Core Service Domain and creation of synergies through expansion into the entertainment, event, and gaming machine LCD sectors
• Strengthening cost competitiveness through horizontal deployment of operational and cost optimization know-how to new group companies and mutual customer referrals
• Expected revenue expansion from Q2 onward due to the tendency of existing businesses to be weighted toward the second half of the fiscal year
• Enhancement of the added value of core services through the integration of NEURAL.LLM and ASR technology into KizunaNavi

Risks

• Q1 net sales declined sharply by 18.0% year on year, making it highly challenging to achieve the full-year forecast (up 60.6% year on year), which requires a rapid concentration of earnings in the second half
• Operating loss widened to ¥239 million due to an increase in selling, general and administrative expenses (up 16.7% year on year), posing a risk of delayed cost control
• Risk of profit pressure from increased goodwill recognition and acquisition-related expenses associated with M&A execution (goodwill balance of ¥853 million; Cactus acquisition advisory expenses of ¥37 million; Mahou/Pegasus acquisition advisory expenses of ¥53 million)
• Risk of rising financial leverage, as the equity ratio declined from 44.1% to 37.4% and long-term borrowings increased (from ¥844 million to ¥1,077 million)
• Risk of intensifying competition and obsolescence of existing services due to the rapid evolution of generative AI technology
• Risk of delayed strengthening of the development organization due to intensifying competition for hiring AI engineers
• Risk of dispersion of management resources associated with the integration and PMI of M&A target companies