fonfun (2323) FY2026 Q3 Earnings Report

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Executive Summary

The nine months ended Q3 FY2026 delivered strong profitability, supported by the high margins of the core Cloud Solutions Business. Revenue was ¥14.01B, Operating Income was ¥1.95B, Ordinary Income was ¥2.31B, and Net Income attributable to owners of the parent was ¥2.54B. Profitability was favorable, with an Operating Margin of 13.9% and a Net Profit Margin of 18.1%; however, Net Income also included non-recurring factors such as equity-method investment gain of ¥0.40B and a gain on step acquisition of ¥0.11B. Progress against the full-year plan was 66.7% for Revenue versus 78.0% for Net Income, indicating that profit progress is ahead of revenue progress.

Factors Affecting Business Performance

【Revenue】Revenue was ¥14.01B, consisting of ¥7.23B from the Cloud Solutions Business (51.6% of total) and ¥6.79B from the DX Solutions Business (48.4% of total), representing a nearly balanced composition. The DX Solutions Business acquired an IT freelancer matching business, while the Cloud Solutions Business acquired the “Rakushin” business; expansion through M&A contributed to revenue in both cases. Progress against the full-year Revenue plan of ¥21.01B was 66.7%, below the standard quarterly progress benchmark of 75%.

【Profit and Loss】Compared with Operating Income of ¥1.95B (Operating Margin of 13.9%), Ordinary Income was ¥2.31B, reflecting the difference between non-operating income of ¥0.48B (including equity-method investment gain of ¥0.40B) and non-operating expenses of ¥0.12B (including interest expense of ¥0.11B). In addition, extraordinary income of ¥0.13B (including a gain on step acquisition of ¥0.11B) and negative income taxes of ¥0.10B (tax refund) resulted in Net Income of ¥2.54B, exceeding Ordinary Income. Extraordinary income and tax effects are temporary factors, and underlying earnings power should therefore be assessed at the Operating Income level. Although confirming revenue growth is difficult, earnings are trending toward higher revenue and higher profit, led by the highly profitable Cloud Solutions Business (segment profit margin of 35.3%).

Segment Analysis

The Cloud Solutions Business generated Revenue of ¥7.23B and segment profit of ¥2.55B (margin of 35.3%), making it the core business and accounting for 77.1% of total segment profit of ¥3.31B. The DX Solutions Business generated Revenue of ¥6.79B and segment profit of ¥0.76B (margin of 11.1%); despite representing 48.4% of the revenue mix, it accounted for only 22.9% of segment profit. The adjustment from total segment profit to consolidated Operating Income consists of general and administrative expenses of ¥1.36B. Whether segment profit growth in the two businesses can absorb these head office costs will be key to future operating leverage.

Key Financial Indicators

【Profitability】The Operating Margin was 13.9% and the Net Profit Margin was 18.1%. The Company secured an Operating Margin after deducting an SG&A ratio of 26.7% from a gross margin of 40.6%. The Net Profit Margin exceeded the Operating Margin due to the contribution of non-recurring factors, including equity-method investment gain, extraordinary income, and tax refunds.【Cash Flow Quality】Cash and deposits were ¥6.43B, covering 80.5% of current liabilities of ¥7.99B. Accounts receivable of ¥3.25B represented 23.2% of Revenue, with annualized accounts receivable days of 64 days.【Investment Efficiency】Annualized ROE was 28.1%, decomposed into three components: Net Profit Margin of 18.1%, total asset turnover of 0.707x, and financial leverage of 2.19x. The low total asset turnover reflects the accumulation of goodwill and intangible assets associated with M&A.【Financial Soundness】The Equity Ratio was 45.6%, and interest-bearing debt was ¥7.03B (including long-term borrowings of ¥6.20B), resulting in a debt-to-equity ratio of 1.19x. Meanwhile, goodwill of ¥11.86B represented 98.4% of net assets of ¥12.05B, while intangible fixed assets of ¥13.00B represented 49.2% of total assets of ¥26.44B, indicating that the asset composition is heavily dependent on M&A-related assets.

Cash Flow Analysis

As a cash flow statement has not been disclosed, fund flows are assessed based on changes in the balance sheet. Cash and deposits were ¥6.43B, equivalent to 2.17x short-term liabilities of ¥2.96B, comprising short-term borrowings of ¥0.83B and current maturities of long-term borrowings of ¥2.13B; short-term funding capacity is therefore secured. Long-term borrowings of ¥6.20B are the primary source of financing and are considered to reflect funding needs for M&A associated with the IT freelancer matching business, the “Rakushin” business, and the conversion of Microwave Digital into a consolidated subsidiary. Accounts receivable of ¥3.25B represented 23.2% of Revenue, with annualized DSO of 64 days. Trends in billing and collection periods associated with business expansion may affect future funding efficiency.

Earnings Quality

Net Income of ¥2.54B exceeded income before tax of ¥2.44B, resulting in a negative effective tax rate of 4.3%. This was attributable to income taxes of negative ¥0.10B (tax refund) and cannot be regarded as a recurring tax burden. In addition, extraordinary income of ¥0.13B included a gain on step acquisition of ¥0.11B, a temporary accounting gain associated with the conversion of Microwave Digital into a consolidated subsidiary. Of non-operating income of ¥0.48B, equity-method investment gain of ¥0.40B could become a recurring source of earnings; however, underlying earnings power excluding extraordinary income and tax effects should be assessed based on Operating Income of ¥1.95B and Ordinary Income of ¥2.31B. Comprehensive income of ¥2.54B was broadly in line with Net Income, with no significant divergence between Net Income and comprehensive income.

Earnings Forecast and Guidance

The full-year plan calls for Revenue of ¥21.01B, Operating Income of ¥2.66B, Ordinary Income of ¥3.00B, and Net Income attributable to owners of the parent of ¥3.26B. Progress for the nine months ended Q3 was 66.7% for Revenue, 73.3% for Operating Income, 77.0% for Ordinary Income, and 78.0% for Net Income, with profit progress exceeding revenue progress. No revisions were made to the earnings forecast during the quarter. Revenue of ¥6.99B is required in Q4, and the challenge will be to achieve sufficient growth to make up for the delay in revenue progress relative to the standard quarterly progress benchmark of 75%.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the full-year forecast dividend is also ¥0 per share, resulting in a Payout Ratio of 0%. The dividend was also ¥0 in the same period of the previous year. No disclosure has been made regarding share repurchases. Profits are expected to be retained and allocated to post-acquisition integration following M&A, debt repayment, and the maintenance of the value of acquired assets.

Risk Factors

1. Concentration Risk in Goodwill and Intangible Assets: Goodwill of ¥11.86B represented 98.4% of net assets of ¥12.05B, while intangible fixed assets of ¥13.00B represented 49.2% of total assets of ¥26.44B. These acquired assets relate to the IT freelancer matching business, the “Rakushin” business, and the conversion of Microwave Digital into a consolidated subsidiary. If the earnings plans for the acquired businesses are not achieved, impairment losses could significantly erode shareholders’ equity.

2. Segment Profit Concentration Risk: The Cloud Solutions Business accounted for 77.1% of total segment profit of ¥3.31B, while the DX Solutions Business’s profit margin of 11.1% was substantially below the Cloud Solutions Business’s 35.3%. Changes in the competitive environment or customer cancellations in the core business could therefore have a substantial impact on consolidated profit.

3. Dependence on Accounts Receivable Collection and Non-Recurring Income: Annualized accounts receivable days were 64 days, requiring close monitoring of collections on accounts receivable of ¥3.25B, equivalent to 23.2% of Revenue. In addition, Net Income includes the positive impact of extraordinary income of ¥0.13B and negative income taxes of ¥0.10B; underlying earnings power excluding these factors should be assessed at the Operating Income and Ordinary Income levels.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Return

Both the Operating Margin and Net Profit Margin exceed the industry median, placing the Company among the more profitable companies in the IT and telecommunications industry.

※Source: Company compilation

Key Takeaways from the Financial Results

1. Profitability indicators—Operating Margin of 13.9%, Net Profit Margin of 18.1%, and annualized ROE of 28.1%—are above the industry median. However, Net Income includes non-recurring factors such as extraordinary income and tax refunds, and it is therefore appropriate to assess underlying earnings power at the Operating Income and Ordinary Income levels.

2. Goodwill of ¥11.86B represented 98.4% of net assets, while intangible fixed assets of ¥13.00B represented 49.2% of total assets, reflecting an asset composition shaped by multiple M&A transactions involving the IT freelancer matching business, the “Rakushin” business, and Microwave Digital. Under JGAAP, goodwill is subject to amortization; whether earnings contributions from the acquired businesses exceed the amortization burden will remain an ongoing point of focus in the financial results.

3. Progress against the full-year plan was 66.7% for Revenue and 78.0% for Net Income, with profit progress exceeding revenue progress. The pace of Revenue accumulation in Q4 will be closely watched from the perspective of achieving the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: 91円〜97円 at Cost of Equity ±1%, and 93円〜95円 at ω±0.1.

Notes:

• Goodwill represents a high proportion of net assets, and the assumptions would change substantially if impairment occurs.
• Net assets as of the quarter-end are used (there is a timing gap relative to the full-year forecast).
• As 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; it 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）

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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