GAKUJO CO.,Ltd. FY2026 Q2 Earnings Report

Quick View

Executive Summary

The cumulative results for Q2 of the fiscal year ending October 2026 reflected higher revenue but lower earnings, with the early increase in SG&A expenses putting pressure on margins as the most important point. Revenue was ¥46.2B (+5.8% YoY), Operating Income was ¥3.5B (-25.8%), Ordinary Income was ¥4.6B (-28.7%), and Net Income was ¥3.1B (-32.1%). The gross margin improved by 130bp YoY to 62.7%, but SG&A expenses increased 15.7% YoY, substantially outpacing revenue growth and becoming the primary cause of the earnings decline. Progress toward the full-year company forecast was low at 13.3% for Operating Income and 15.7% for Net Income, making margin improvement in the second half a prerequisite for achieving the plan.

Factors Affecting Results

【Revenue】Revenue increased 5.8% YoY to ¥46.2B. Progress toward the full-year company plan of +8.9% YoY was 38.5%, representing moderate growth below the standard first-half progress rate of 50%. Although segment-level details cannot be confirmed because the company provides standalone disclosure only, contract liabilities increased 139.8% YoY (+¥2.31B), confirming the accumulation of deferred revenue.

【Profit and Loss】Gross profit was ¥29.0B, with a gross margin of 62.7% (+130bp YoY), indicating improved profitability. However, SG&A expenses increased 15.7% YoY to ¥25.5B, exceeding the revenue growth rate by 9.9pt, resulting in Operating Income declining to ¥3.5B (-25.8%). The Operating Income margin was 7.5%, down approximately 320bp from 10.7% in the previous year. Ordinary Income of ¥4.6B was supported by ¥1.3B in non-operating income, including ¥0.4B in dividend income, ¥0.1B in interest income, and other financial income, but still declined 28.7% YoY. Net Income was ¥3.1B (-32.1% YoY); the gap between Ordinary Income and Net Income was attributable to ¥1.4B in income taxes and other taxes, with no temporary factors identified. In summary, the company achieved higher revenue but lower earnings, with the early increase in SG&A expenses, rather than cost of sales, being the primary cause of the earnings decline.

Key Financial Metrics

【Profitability】The Operating Income margin was 7.5%, down approximately 320bp from 10.7% in the same period of the previous year, while the Net Income margin was 6.8%, down approximately 380bp from 10.6% in the previous year. Annualized ROE was 4.2%; under DuPont analysis, this consisted of a 6.8% Net Income margin × 0.565x total asset turnover × 1.11x financial leverage, with the deterioration in the Net Income margin being the primary factor. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥4.3B, or 1.38x Net Income of ¥3.1B, indicating strong cash conversion, while the accrual ratio was also low at -0.7%. Meanwhile, days sales outstanding (DSO) was 74 days, exceeding 60 days and representing a monitoring item in working capital management. 【Investment Efficiency】Total asset turnover was low at 0.565x, while investment securities of ¥47.7B accounted for 29.2% of total assets, constraining asset efficiency. Capital expenditures/depreciation was 0.67x, below 1x, indicating that investment in the renewal of tangible assets was below depreciation expense. 【Financial Soundness】The Equity Ratio was 90.1%, the current ratio was 579.2%, and the debt-to-equity ratio was 0.11x. Including cash and deposits of ¥53.4B, the financial foundation was extremely conservative.

Cash Flow Analysis

Operating Cash Flow was ¥4.3B, up 8.4% YoY, maintaining a level equivalent to 1.38x Net Income of ¥3.1B. This difference was largely attributable to working capital factors, including a decrease in trade receivables (+¥3.4B). Investing Cash Flow was negative ¥18.2B, with the placement of ¥15.0B in time deposits, the acquisition of ¥5.8B in investment securities, and the acquisition of ¥3.2B in intangible assets (software) expanding cash outflows. As a result, free cash flow was negative ¥13.9B. However, simplified operating cash flow, calculated by deducting only ¥1.2B in capital expenditures, was positive at ¥3.1B, indicating that the primary cause of the cash outflow was cash management and investment allocation rather than deterioration in the profitability of the core business. Financing Cash Flow was negative ¥4.6B, primarily due to dividend payments, while share repurchases were effectively zero. Cash and deposits remained substantial at ¥53.4B, and concerns regarding short-term liquidity were limited.

Earnings Quality

The gap between Ordinary Income and Net Income was attributable to ¥1.4B in income taxes and other taxes, with no temporary factors such as extraordinary gains or losses identified. Non-operating income was ¥1.3B, equivalent to 2.9% of revenue, with financial income centered on ¥0.4B in dividend income and ¥0.1B in interest income supplementing Ordinary Income. This financial income was supported by substantial financial assets, namely ¥47.7B in investment securities and ¥53.4B in cash and deposits. While it can be regarded as a recurring source of income, it also has the aspect of masking the decline in the company’s intrinsic business profitability, namely Operating Income. OCF was 1.38x Net Income and the accrual ratio was low at -0.7%, indicating no excessive dependence on accrual-based earnings. However, the 74-day DSO exceeded 60 days, requiring confirmation that increases in trade receivables or credit risk will not affect earnings quality as sales expand going forward.

Earnings Forecast and Guidance

The full-year company forecast remains unchanged at Revenue of ¥120.0B (+8.9% YoY), Operating Income of ¥26.0B (+11.4%), Ordinary Income of ¥28.0B (+5.5%), and Net Income of ¥20.0B (+5.7%). First-half progress rates were 38.5% for Revenue, 13.3% for Operating Income, 16.4% for Ordinary Income, and 15.7% for Net Income, all substantially below the standard first-half progress rate of 50%. To achieve the plan, the company needs Revenue of ¥73.8B and Operating Income of ¥22.6B in the second half, equivalent to a second-half Operating Income margin of approximately 30.5%. This assumes a substantial improvement from the first-half Operating Income margin of 7.5%; the key to achieving the plan will be whether the company can keep the pace of SG&A expense growth below revenue growth. No revision to the dividend forecast has been made as of this quarter.

Shareholder Returns

The Q2 interim dividend was ¥37.00 per share. Compared with first-half Net Income of ¥3.1B, the payout ratio against the interim dividend amount was 183.9%, indicating that interim dividend payments were not covered by first-half earnings alone. Since share repurchases were effectively zero, this figure should be viewed as the Payout Ratio rather than the Total Return Ratio. For the full year, based on the company’s forecast dividend of ¥75.00 per share and projected Net Income of ¥20.0B, the Payout Ratio is approximately 50.4%. If the full-year plan is achieved, this represents a level at which earnings-based sustainability is secured. The conservative financial foundation, including cash and deposits of ¥53.4B and a debt-to-equity ratio of 0.11x, also supports the company’s ability to maintain dividends in the short term. However, the first-half Net Income progress rate of 15.7% was low, and earnings recovery in the second half is a prerequisite for the full-year dividend forecast.

Risk Factors

1. Decline in margins due to front-loaded SG&A expenses: SG&A expenses increased 15.7% YoY, exceeding the 5.8% revenue growth rate by 9.9pt. As a result, the Operating Income margin declined by approximately 320bp, and the difficulty of achieving the full-year Operating Income plan of ¥26.0B will increase if expense growth continues to outpace revenue growth in the second half.

2. Low progress toward the full-year earnings plan: The Operating Income progress rate of 13.3% and Net Income progress rate of 15.7% were substantially below the standard first-half progress rate of 50%. Achieving the plan requires a second-half Operating Income margin of 30.5%, assuming a substantial improvement from the first-half level of 7.5%.

3. Lengthening collection period for trade receivables: DSO was 74 days, exceeding 60 days. Although OCF is currently strong, continued deterioration in collection terms or changes in the customer mix could lead to increased working capital and higher credit risk.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The profitability metrics were below the industry median, with both the Operating Income margin and Net Income margin ranking low within the industry.

Growth and Capital Efficiency

The Revenue growth rate was substantially below the industry median, indicating a low position within the industry from a growth perspective.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Despite higher revenue, Operating Income declined 25.8% YoY because SG&A expense growth exceeded revenue growth, and the Operating Income margin declined by approximately 320bp. The gross margin improved to 62.7% (+130bp), leaving room for profitability recovery through greater absorption of SG&A expenses and accelerated revenue growth in the second half.

2. OCF was 1.38x Net Income and the accrual ratio was low at -0.7%. While earnings conversion to cash and financial resilience—the current ratio of 579.2% and debt-to-equity ratio of 0.11x—were favorable, free cash flow was negative ¥13.9B due to expanded Investing Cash Flow.

3. First-half progress toward the full-year forecast was low at 13.3% for Operating Income and 15.7% for Net Income, creating a structure that requires substantial margin improvement in the second half, equivalent to an Operating Income margin of approximately 30.5%.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,202–¥1,271 at ±1% for the cost of equity, and ¥1,233–¥1,241 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap from the full-year forecast).
• Since 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 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

---

This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary 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 a professional adviser as necessary.

---End of Report---