Sockets (3634) FY2026 Q3 Earnings Report

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Executive Summary

The most important point for the cumulative Q3 FY2026 results is the return to profitability from the operating loss recorded in the same period of the previous year, driven by higher revenue and reductions in SG&A expenses. Revenue was ¥7.96B (¥7.22B in the same period of the previous year, YoY +10.2%), Operating Income was ¥0.29B (a loss of ¥1.02B in the same period of the previous year, YoY +128.4%), Ordinary Income was ¥0.31B (a loss of ¥1.02B in the same period of the previous year, YoY +130.4%), and Net Income was ¥0.38B (a loss of ¥0.92B in the same period of the previous year, YoY +141.3%). In addition to higher revenue, simultaneous improvements in the gross profit margin and reductions in SG&A expenses were the primary factors behind the return to profitability. Net Income includes the temporary impact of a gain of ¥0.08B from the reversal of stock acquisition rights.

Factors Affecting Performance

【Revenue】Revenue increased 10.2% YoY to ¥7.96B. Progress against the full-year company forecast (¥11.00B, YoY +5.8%) was 72.4%, slightly below the standard quarterly progress line (75%), requiring approximately ¥3.04B in revenue recognition in Q4.

【Profit and Loss】Gross profit was ¥3.88B (gross profit margin: 48.7%), improving from the same-period prior-year gross profit margin of 44.5%. SG&A expenses were ¥3.58B, a decrease of ¥0.66B from ¥4.24B in the same period of the previous year, resulting in the SG&A ratio declining to 44.9% (58.7% in the same period of the previous year). As a result, Operating Income was ¥0.29B, representing a turnaround from the ¥1.02B loss recorded in the same period of the previous year. Ordinary Income was ¥0.31B and Net Income was ¥0.38B, with both turning profitable. A gain of ¥0.08B from the reversal of stock acquisition rights was recorded as extraordinary income in Net Income; excluding this item, pretax income would be approximately ¥0.32B. The simultaneous combination of higher revenue, an improved gross profit margin, and reduced SG&A expenses was the primary factor behind the return to profitability, supporting the conclusion that the Company achieved both revenue growth and profit growth.

Key Financial Indicators

【Profitability】The Operating Income margin improved substantially to 3.6% from negative 14.1% in the same period of the previous year, although it remains low in absolute terms. The Net Income margin turned positive at 4.8%, compared with negative 12.7% in the same period of the previous year.【Cash Quality】Cash and deposits were ¥5.85B, accounting for 68.5% of total assets and increasing by ¥1.20B YoY. Meanwhile, accounts receivable decreased by ¥0.52B to ¥1.54B; the reduction in receivables despite revenue growth represents a positive change in terms of cash collection.【Investment Efficiency】Annualized ROE was 8.9%, reflecting the effect of the return to profitability against Net Assets of ¥5.71B and Net Income of ¥0.38B. However, because current-period Net Income includes a temporary gain from the reversal of stock acquisition rights, attention should be paid to its sustainability.【Financial Soundness】The Equity Ratio was 66.9%, while the current ratio and quick ratio were equivalent to 500.0%, indicating substantial liquidity. The debt-to-equity ratio remained at 0.50x. The primary component of non-current liabilities was the retirement benefit provision of ¥1.30B, which accounted for the majority of total non-current liabilities.

Cash Flow Analysis

Because individual items in the statement of cash flows are not included in the disclosed information, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits increased by ¥1.20B YoY to ¥5.85B, accounting for 68.5% of total assets. While Revenue increased 10.2%, accounts receivable decreased by ¥0.52B to ¥1.54B, suggesting that the collection of trade receivables did not place pressure on cash management even during a period of revenue growth. Work in process was ¥0.006B, representing approximately 0.1% of total assets, indicating that the amount of cash tied up through working capital was limited. Retained earnings improved from negative ¥1.39B in the same period of the previous year to ¥0.39B, with the elimination of accumulated losses contributing to a stronger capital base. These balance sheet changes can be regarded as supplementary indicators suggesting that the conversion of operating profits into cash is progressing.

Quality of Earnings

The return to profitability in the current period reflects both recurring factors arising from improved core earnings and temporary factors. Operating Income of ¥0.29B and Ordinary Income of ¥0.31B were only minimally affected by non-operating income and expenses and broadly reflect the Company’s core earnings power. On the other hand, pretax income of ¥0.40B includes a gain of ¥0.08B from the reversal of stock acquisition rights recorded as extraordinary income, a temporary factor accounting for approximately one-fifth of pretax income. Excluding this extraordinary income, pretax income would be approximately ¥0.32B, meaning that part of Net Income of ¥0.38B was boosted by a temporary gain. The effective tax rate was low at 2.3%, and income taxes and other taxes amounted to only ¥0.01B, which also affected the level of Net Income for the current period. Accordingly, when evaluating Net Income growth (YoY +141.3%), it is necessary to distinguish between the recurring factor of improving Operating Income and Ordinary Income and the temporary factor of the gain from the reversal of stock acquisition rights.

Earnings Forecast and Guidance

Progress against the full-year company forecast was 72.4% for Revenue, 76.3% for Operating Income, 77.5% for Ordinary Income, and 95.0% for Net Income. Revenue progress was 2.6pt below the standard cumulative Q3 progress line (75%), requiring approximately ¥3.04B in revenue recognition in Q4. Progress for Operating Income and Ordinary Income was slightly above the standard line, indicating that the hurdle for achieving the full-year forecast is relatively low on a core operating basis. The high 95.0% progress for Net Income largely reflects the contribution of the temporary gain of ¥0.08B from the reversal of stock acquisition rights; recurring earnings generation should therefore be evaluated based on progress for Operating Income and Ordinary Income.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year dividend forecast is ¥5.00 per share. Based on forecast EPS of ¥16.37 per share, the forecast Payout Ratio based solely on dividends is 30.5%, below the sustainability benchmark of approximately 60%. Based on 2,477,400 shares outstanding, the estimated annual total dividend is approximately ¥0.12B, providing ample earnings coverage against forecast Net Income of ¥0.40B. Because no share repurchases were confirmed for the current period, shareholder returns are evaluated using the Payout Ratio. Cash and deposits of ¥5.85B and the high current ratio provide support for dividend funding; however, because Net Income includes a temporary gain, dividend sustainability will depend on the stabilization of recurring earnings at an appropriate level going forward.

Risk Factors

1. Low Operating Income margin: The Operating Income margin was only 3.6%, below the industry median of 8.3%. A slight shortfall in revenue, deterioration in project profitability, or increases in personnel and outsourcing expenses could cause the Company to return to a loss-making position.

2. Quarterly earnings volatility risk: Information, communications, and content-related services have a business structure in which revenue recognition can vary by quarter due to fluctuations in customers’ IT and content investments and the timing of contract renewals.

3. Reliance on temporary factors: The ¥0.08B gain from the reversal of stock acquisition rights included in Net Income of ¥0.38B is a temporary factor, and excluding it, the earnings level would be relatively small. Attention is also required regarding the sustainability of annualized ROE of 8.9%.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s profitability was below the industry median, with its Operating Income margin ranking particularly low within the industry.

Growth and Capital Efficiency

The Revenue growth rate was approximately in line with the industry median.

※Source: Company analysis

Key Takeaways from the Results

1. The turnaround from an Operating Loss of ¥1.02B in the same period of the previous year to Operating Income of ¥0.29B resulted from the simultaneous combination of revenue growth, an improved gross profit margin (44.5%→48.7%), and reduced SG&A expenses (¥4.24B→¥3.58B).

2. The financial base is conservative. Cash and deposits of ¥5.85B, a current ratio equivalent to 500.0%, and a debt-to-equity ratio of 0.50x indicate strong resilience to business volatility.

3. Although Net Income progress of 95.0% for the full year is high, it includes the temporary factor of the gain from the reversal of stock acquisition rights. Accordingly, the effective likelihood of achieving the full-year forecast should be evaluated based on progress for Operating Income and Ordinary Income (76.3% and 77.5%, respectively).

Theoretical Share Price (Reference Value)

Sensitivity: ¥208–¥220 at ±1% for the cost of equity, and ¥213–¥215 at ±0.1 for ω.

Notes:

• Because Net Income progress against the full-year forecast (95%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with leading progress tend to outperform forecasts; adjustments may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below Book Value Per Share.
• Net Assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because 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 automatically generated earnings analysis document produced by AI based on 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 responsibility, after consulting professionals as necessary.

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