CELSYS (3663) FY2026 Q2 Earnings Report

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Executive Summary

This was a strong earnings period in which Operating Income and Net Income grew faster than the double-digit increase in Revenue, resulting in a significant improvement in profitability. Revenue was ¥55.6B (+17.4% YoY), Operating Income was ¥22.2B (+44.8%), Ordinary Income was ¥22.4B (+46.4%), and Net Income was ¥15.0B (+72.6%). In addition to the expansion in gross margin to 69.6% and the resulting strong operating leverage, the reversal of extraordinary losses, including the valuation loss on investment securities recorded in the same period of the previous year, contributed to the sharp growth in Net Income.

Factors Affecting Performance

【Revenue】Revenue increased 17.4% YoY to ¥55.6B. It is progressing at a pace exceeding the full-year company forecast (+14.1% YoY), with the first-half progress rate at 51.5%, above the standard level.

【Earnings】Gross profit increased 35.8% YoY to ¥38.7B, expanding faster than Revenue growth, while the gross margin improved by 950bp from 60.1% to 69.6%. SG&A expenses increased 25.4% to ¥16.5B, but the increase in gross profit absorbed this rise, resulting in Operating Income of ¥22.2B (+44.8% YoY). Ordinary Income was ¥22.4B (+46.4%), while non-operating income remained limited to ¥0.3B, primarily consisting of dividend income, indicating high earnings quality. Whereas the same period of the previous year included extraordinary losses, including a ¥4.8B valuation loss on investment securities, no extraordinary gains or losses were recorded in the current period, resulting in a significant increase in Net Income to ¥15.0B (+72.6%). The key characteristic is that both Revenue and earnings increased, with the earnings growth rate substantially exceeding Revenue growth.

Key Financial Indicators

【Profitability】Operating margin improved significantly to 39.9% (32.4% in the same period of the previous year), while Net Profit Margin improved to 27.0% (18.4%). Annualized ROE was 55.3%, which can be decomposed into Net Profit Margin of 27.0% × total asset turnover of 1.207x × financial leverage of 1.70x, with high profitability being the primary driver.【Cash Flow Quality】The tax burden coefficient was approximately 0.670, and the effective tax rate was approximately 33.0%; non-operating gains and losses had almost no adverse impact on earnings.【Investment Efficiency】Intangible assets were ¥14.8B, accounting for 16.0% of total assets, while software under construction increased to ¥5.06B, indicating continued progress in development investment.【Financial Soundness】The Equity Ratio was 58.3% (54.0% in the same period of the previous year), and the current ratio was 198.3%. Cash and deposits totaled ¥54.1B, approximately 1.67 times current liabilities, demonstrating a strong financial base.

Cash Flow Analysis

As figures from the cash flow statement have not been disclosed, cash movements are analyzed based on changes in the balance sheet. Cash and deposits increased ¥13.2B (+32.4%) from ¥40.9B in the same period of the previous year to ¥54.1B, while retained earnings increased ¥10.9B from ¥43.8B to ¥54.7B. This increase reflects the accumulation of first-half Net Income of ¥15.0B; on the asset side, development investment also continued, with software under construction increasing by ¥2.3B. Cash and deposits accounted for 58.7% of current assets, indicating that earnings are being converted into cash and that sufficient financial capacity has been established to support both growth investment and shareholder returns.

Earnings Quality

Regarding the factors behind the divergence between Ordinary Income and Net Income, no extraordinary gains or losses were recorded in the current period, and Profit Before Tax of ¥22.4B was therefore almost equal to Ordinary Income of ¥22.4B. In contrast, the same period of the previous year included extraordinary losses, including a ¥4.8B valuation loss on investment securities, as well as extraordinary income of ¥1.9B; these temporary factors reduced Net Income in the previous year. This reversal contributed to the high 72.6% YoY growth in current-period Net Income, and it would not be appropriate to treat this growth rate as recurring earnings growth. Non-operating income of ¥0.3B consisted primarily of dividend income and interest income, was small at 0.6% of Revenue, and indicates high earnings quality from Operating Income to Ordinary Income. In the core business, the 950bp improvement in gross margin drove growth at the operating level, while an improvement in recurring earnings power, excluding temporary factors, was also evident.

Earnings Forecasts and Guidance

The full-year company forecasts are Revenue of ¥108.1B (+14.1% YoY), Operating Income of ¥40.0B (+34.8%), Ordinary Income of ¥40.0B (+36.3%), and Net Income of ¥26.7B (+58.8%). The cumulative first-half progress rates are 51.5% for Revenue, 55.5% for Operating Income, 56.0% for Ordinary Income, and 56.3% for Net Income, all exceeding the standard quarterly progress rate of 50%. Progress in Operating Income and Net Income is particularly strong; however, the full-year forecast earnings growth rates (+34.8%, +58.8%) are set below the first-half results (+44.8%, +72.6%), suggesting that the plan incorporates normalization of the earnings growth rate in the second half. There is no change to the dividend forecast.

Shareholder Returns

The Q2 dividend was ¥20.00 per share, including a ¥10 commemorative dividend marking the company’s listing on the Tokyo Stock Exchange Prime Market. Based on first-half Net Income of ¥15.0B (converted into total dividends), the Payout Ratio was 46.3%. The full-year forecast dividend is ¥50.00, including a ¥10 commemorative dividend marking the company’s 35th anniversary in the year-end dividend. Based on forecast EPS of ¥90.06, the forecast Payout Ratio is approximately 55.5%. Cash and deposits of ¥54.1B and net assets of ¥54.4B provide sufficient capital capacity to support continued dividend payments; however, it should be noted that the full-year dividend includes a temporary commemorative dividend component.

Risk Factors

1. Increase in the earnings growth rate due to special factors: Extraordinary losses, including a ¥4.8B valuation loss on investment securities recorded in the same period of the previous year, were not recorded in the current period, and the +72.6% YoY increase in Net Income includes this reversal effect. The +44.8% increase in Operating Income is a more representative indicator of recurring earnings growth.

2. Rising SG&A expenses: SG&A expenses increased +25.4% YoY, exceeding the Revenue growth rate of +17.4%. Although the current period’s +35.8% increase in gross profit absorbed this increase, a slowdown in Revenue growth could place downward pressure on the Operating margin.

3. Profitability of intangible assets: Intangible assets were ¥14.8B, accounting for 16.0% of total assets, while software under construction also increased to ¥5.1B. If the monetization of development assets falls below expectations, future impairment could become a factor contributing to earnings volatility.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Operating margin and Net Profit Margin significantly exceed the industry median, placing the company among the industry leaders in profitability.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median, placing the company in the middle to lower range of the industry in terms of growth speed.

※Source: Compiled by the Company

Key Takeaways from the Earnings

1. Operating Income increased +44.8% against Revenue growth of +17.4%, confirming the emergence of operating leverage driven by a 950bp improvement in gross margin.

2. The +72.6% YoY increase in Net Income includes the reversal of extraordinary losses, including the ¥4.8B valuation loss on investment securities recorded in the same period of the previous year. The difference from the full-year forecast earnings growth rate of +58.8% indicates the normalization of this temporary factor.

3. First-half progress against the full-year forecast was above standard levels, at 55.5% for Operating Income and 56.3% for Net Income. The financial base of cash and deposits of ¥54.1B and an Equity Ratio of 58.3% supports the company’s capacity to pursue growth investment and shareholder returns in the second half.

Theoretical Share Price (Reference Value)

Sensitivity: ¥420–¥445 at cost of equity ±1%, and ¥425–¥443 at ω±0.1.

Notes:

• Because forecast ROE is high, ROE is capped at 50% for calculation purposes (differences between scenarios may therefore appear small).
• Net assets as of the quarter-end are used (there is a timing mismatch with 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 / This is a 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 release 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, and you should consult a professional as necessary.

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