S-Pool (2471) FY2026 Q2 Earnings Report

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Executive Summary

Cumulative results for Q2 FY2026 showed higher revenue but lower earnings. Revenue increased slightly to ¥12.68B (+1.5% YoY), while Operating Income fell significantly to ¥0.65B (-19.6%), and Net Income attributable to owners of the parent declined substantially to ¥0.28B (-30.9%). Although the gross profit margin improved to 36.6% from 35.4% in the same period of the previous year, SG&A expenses increased by +8.8%, outpacing revenue growth, causing the operating margin to decline to 5.1% from 6.4%. Higher finance costs also pressured Profit Before Tax, with the decline in earnings becoming more pronounced at the Net Income level.

Factors Affecting Performance

【Revenue】Revenue was ¥12.68B (+1.5% YoY). By segment, BusinessSolution expanded to ¥8.29B (+9.0%) and drove overall performance, while HumanSolution declined to ¥4.39B (-10.2%), restraining overall growth.

【Profitability】Gross profit was ¥4.65B, with a gross profit margin of 36.6%, improving from 35.4% in the previous year, indicating an improvement in cost performance. However, SG&A expenses increased to ¥4.02B, with the SG&A ratio deteriorating to 31.7% from 29.6%, at a pace exceeding revenue growth. Segment profit remained solid in BusinessSolution at ¥1.51B (+6.0%, profit margin 18.2%), but deteriorated significantly in HumanSolution to ¥0.28B (-23.6%, profit margin 6.4%). Finance costs also increased to ¥0.19B (+39.0% YoY), resulting in Profit Before Tax of ¥0.46B (-31.2%) and Net Income of ¥0.28B (-30.9%), with the magnitude of the decline widening further down the income statement. In conclusion, the Company recorded higher revenue but lower earnings, clearly indicating a structure in which revenue growth has not been converted into profit growth.

Segment Analysis

BusinessSolution recorded revenue of ¥8.29B (+9.0%), Operating Income of ¥1.51B (+6.0%), and a profit margin of 18.2%, demonstrating favorable profitability and growth and serving as the core contributor to consolidated profit. In contrast, HumanSolution recorded revenue of ¥4.39B (-10.2%), Operating Income of ¥0.28B (-23.6%), and a profit margin of 6.4%, with both revenue and earnings declining and becoming a factor hindering overall earnings growth. The profit margin gap between the two segments reached 11.8pt, and the imbalance in the business mix is weighing on consolidated profitability.

Key Financial Indicators

【Profitability】The operating margin declined to 5.1% from 6.4%, and the net profit margin declined to 2.2% from 3.3%. Despite a 120bp improvement in the gross profit margin, the 210bp increase in the SG&A ratio led to deterioration. Annualized ROE was 5.8% and annualized ROIC was 4.5%, neither of which can be considered sufficiently above the cost of capital. 【Cash Quality】Operating Cash Flow (OCF) was ¥3.29B, approximately 11.6 times Net Income of ¥0.28B, indicating strong cash-generation capacity. However, the contribution from one-time factors, such as the collection of trade receivables of ¥0.398B and other working capital changes of ¥1.412B, was significant, and these should be distinguished from recurring cash-generation capacity. 【Investment Efficiency】The Company secured Free Cash Flow of ¥1.65B while making capital expenditures of ¥1.51B, covering investment and shareholder returns. 【Financial Soundness】The Equity Ratio declined to 22.3% from 24.5%. Current liabilities were approximately ¥12.80B against current assets of ¥7.09B, leaving the current ratio at approximately 55%. The heavy debt structure, including short-term borrowings of ¥5.28B and lease liabilities (current ¥1.66B and non-current ¥16.13B), is notable.

Cash Flow Analysis

Operating Cash Flow was ¥3.29B (-10.7% YoY), substantially exceeding Net Income of ¥0.28B. However, it included inflows from a ¥0.398B decrease in trade receivables and ¥1.412B in other working capital changes, suggesting that recurring cash-generation capacity is smaller after excluding these factors. Investing Cash Flow was -¥1.63B, of which capital expenditures accounted for ¥1.51B, consistent with the expansion of right-of-use assets to ¥17.75B. Financing Cash Flow was -¥2.77B, with the primary outflows consisting of ¥0.71B in repayments of long-term borrowings, ¥0.78B in dividend payments, and ¥1.28B in lease payments. Free Cash Flow (Operating Cash Flow + Investing Cash Flow) was ¥1.65B, securing funds for dividend payments and debt repayments. However, cash and cash equivalents decreased by ¥1.12B from the previous year to ¥2.46B.

Earnings Quality

The current period’s earnings were accompanied by a negative accrual ratio, and the fact that cash generation exceeded accounting profit provides some support for earnings quality. However, of the ¥3.89B subtotal of Operating Cash Flow, ¥1.412B of inflows from decreases in trade receivables and other working capital changes excluding trade payables and inventories made a significant contribution. Cash-generation capacity after excluding these one-time working capital effects is therefore considered more limited. Outside operating income, finance costs increased to ¥0.19B (+39.0% YoY), representing a structural increase in the burden rather than a temporary factor pressuring Profit Before Tax. Inventories increased substantially by +58.4% (+¥0.29B) YoY, becoming a source of cash outflow in Operating Cash Flow. Overall, the high Operating Cash Flow/Net Income ratio for the period was highly dependent on working capital factors, which must be assessed separately when evaluating sustainable earnings-generation capacity.

Earnings Forecast and Guidance

The cumulative Q2 progress rates against the full-year Company forecasts of Revenue of ¥26.84B, Operating Income of ¥2.73B, and Net Income of ¥1.66B were 47.2%, 23.7%, and 17.1%, respectively. Revenue progress was close to a broadly standard level, while Operating Income and Net Income progress were substantially below the standard 50%. The Company forecasts full-year increases of +13.0% in Operating Income and +14.9% in Net Income, requiring a reversal of the first-half earnings decline during the second half. Neither the earnings forecast nor the dividend forecast was revised during the quarter.

Shareholder Returns

The dividend at the end of Q2 was ¥0 per share, while the full-year annual dividend forecast is ¥10.0 per share. Based on the average number of shares outstanding during the period of 78,104 thousand shares, the estimated total annual dividend is approximately ¥0.78B, resulting in an estimated Payout Ratio of approximately 47.1% against the full-year Net Income forecast of ¥1.66B. Cumulative dividend payments for the period of ¥0.78B represented approximately 47% of Free Cash Flow of ¥1.65B, indicating that dividends were covered by cash flow as of the current period. However, achieving the full-year forecast depends on earnings improvement in the second half. Given the low current ratio and high level of lease liabilities, dividend sustainability depends on the recovery of second-half performance and the repeatability of Operating Cash Flow.

Risk Factors

1. Structural deterioration in profitability risk: SG&A expenses increased by +8.8% against revenue growth of +1.5%, and the operating margin declined to 5.1% from 6.4%. If this trend continues, achieving the full-year earnings growth plan will become increasingly difficult.

2. Financial leverage and short-term liquidity risk: The Equity Ratio declined to 22.3% from 24.5%. Current liabilities were approximately ¥12.80B against current assets of ¥7.09B, leaving the current ratio at approximately 55%. Dependence on short-term debt is high, including short-term borrowings of ¥5.28B and current lease liabilities of ¥1.66B.

3. Risk of missing the full-year plan: The Q2 progress rate against the full-year Operating Income forecast was 23.7%, while the Net Income progress rate was 17.1%, both substantially below the standard 50% progress level. If a significant improvement in profitability is not achieved in the second half, the variance from the full-year plan may widen.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s profitability is substantially below the industry median and is positioned near the lower bound of the IQR.

Growth and Capital Efficiency

The revenue growth rate is also substantially below the industry median and is below the lower bound of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The gross profit margin improved by +120bp YoY, but the +210bp increase in the SG&A ratio offset this improvement, resulting in a -134bp decline in the operating margin. The inability to convert cost improvements into profit is a key structural issue.

2. Operating Cash Flow was ¥3.29B, approximately 11.6 times Net Income. However, the contribution from temporary cash inflows due to the collection of trade receivables and other working capital changes was significant, requiring separate evaluation from recurring cash-generation capacity.

3. The full-year plan anticipates double-digit growth in both Operating Income and Net Income, but cumulative Q2 progress rates were low at 23.7% and 17.1%, respectively. The extent to which profitability recovers in the second half will be central to evaluating performance.

Theoretical Share Price (Reference Value)

Sensitivity: ¥150–¥158 at Cost of Equity ±1%, and ¥153–¥155 at ω ±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only 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.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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, and you should consult a professional as necessary.

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