Fixstars (3687) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for Q3 of FY2026 secured higher revenue and higher profits, driven by the expansion of the Solution Business; however, net income attributable to owners of the parent declined due to an extraordinary loss related to head office relocation costs. Revenue was ¥7.92B (¥7.07B in the same period of the previous year, YoY +11.9%), Operating Income was ¥2.22B (¥2.09B, YoY +6.5%), and Ordinary Income was ¥2.22B (¥2.09B, YoY +6.4%), demonstrating an expansion in core earnings power. Meanwhile, Net Income attributable to owners of the parent was ¥1.32B (¥1.63B in the previous year, YoY -19.2%), primarily due to the recognition of an extraordinary loss of ¥0.23B in head office relocation costs. Progress against the full-year company forecasts (Revenue of ¥10.80B and Operating Income of ¥3.10B) was 73.3% for Revenue and 71.7% for Operating Income, with no significant deviation from the standard progress rate of 75%.

Factors Affecting Performance

【Revenue】Revenue was ¥7.92B, representing a year-on-year increase of +11.9%. By segment, the Solution Business accounted for the majority at ¥7.44B (93.9% composition ratio, YoY +9.9%), while the SaaS Business recorded high growth at ¥0.64B (8.1% composition ratio, YoY +23.6%). By revenue recognition category, point-in-time transfer revenue accounted for 75.0% of total revenue, indicating that the existing solution-provision business model remains the core.

【Profit and Loss】Operating Income was ¥2.22B, an increase of YoY +6.5%. Although the gross profit margin improved from the previous year to 55.2%, SG&A expenses increased 23.6% year on year, exceeding the revenue growth rate, and the Operating Income margin was 28.1% (approximately 1.4pt lower year on year). By segment, the Solution Business maintained a high profit margin of 36.3%, while the SaaS Business’s operating loss expanded to ¥0.47B (loss margin of 73.5%). Ordinary Income was ¥2.22B, almost at the same level as Operating Income; however, Profit Before Tax was limited to ¥1.99B due to the recognition of an extraordinary loss of ¥0.23B related to head office relocation costs. As a result of this temporary factor, Net Income attributable to owners of the parent declined to ¥1.32B (YoY -19.2%). In conclusion, the Company achieved higher revenue and higher profits on a core operating basis, but Net Income declined due to the impact of the extraordinary loss.

Segment Analysis

The Solution Business is the core contributor to overall profit, with Revenue of ¥7.44B (YoY +9.9%), Operating Income of ¥2.70B (YoY +12.0%), and a profit margin of 36.3%. The profit margin also improved from 35.7% in the same period of the previous year, indicating a steady strengthening in the profitability of the core business. The SaaS Business continued to achieve high growth, with Revenue of ¥0.64B (YoY +23.6%), but its operating loss expanded to ¥0.47B (compared with a loss of ¥0.32B in the previous year). The loss margin improved from 101.1% in the previous year to 73.5%, indicating progress in fixed-cost absorption accompanying revenue growth; nevertheless, the business remains structurally dilutive to overall profits. The structure in which profits from the Solution Business absorb the SaaS Business’s investment losses remains in place.

Key Financial Indicators

【Profitability】The Operating Income margin remained high at 28.1%, although it declined slightly year on year due to the increase in SG&A expenses. The Net Income margin was 16.6%, down from 23.0% in the same period of the previous year, with the difference primarily attributable to the extraordinary loss related to head office relocation costs. 【Cash Quality】Cash and deposits were ¥6.29B, accounting for 57.8% of total assets, and the current ratio was approximately 613%, indicating extremely high liquidity. Accounts receivable were ¥2.39B, making collection efficiency an item that should be monitored going forward. 【Investment Efficiency】ROE (annualized) was high at 19.5%, demonstrating the Company’s ability to generate profits efficiently from shareholders’ equity. BPS was ¥281.70, up from the previous year. 【Financial Soundness】The Equity Ratio was high at 85.7%, indicating extremely low reliance on debt. Fixed liabilities were only ¥0.01B, meaning that the long-term funding burden is limited.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is not available, an analysis of cash trends based on changes in the balance sheet indicates that cash and deposits increased by ¥1.11B, from ¥5.18B in the previous year to ¥6.29B, suggesting that cash generation from business activities has continued. Property, plant and equipment increased by ¥0.17B, from ¥0.26B to ¥0.43B, indicating that capital expenditures, including investments related to operating locations, were likely made. Investment securities also increased from ¥0.12B to ¥0.19B, suggesting that a portion of surplus funds was allocated to investments. The cash ratio relative to total assets was high at 57.8%, indicating a high level of financial flexibility.

Earnings Quality

Ordinary Income was ¥2.22B, almost at the same level as Operating Income of ¥2.22B, indicating a limited impact from non-operating income and expenses. Non-operating income was ¥0.01B, mainly consisting of interest income and similar items, and no significant profit contribution from sources outside the core business was observed. Meanwhile, Profit Before Tax was ¥1.99B, ¥0.23B below Ordinary Income, with the entire difference attributable to the extraordinary loss related to head office relocation costs. This extraordinary loss, combined with an effective tax rate of 31.3%, resulted in Net Income attributable to owners of the parent being substantially below Ordinary Income. Accordingly, the decline in Net Income for the period does not indicate a deterioration in operating earnings power; rather, it can be interpreted as primarily resulting from a gap between profit levels caused by temporary expenses.

Earnings Forecasts and Guidance

Progress against the full-year company forecasts was 73.3% for Revenue, 71.7% for Operating Income, and 71.6% for Ordinary Income, representing a deviation of only several percentage points from the standard progress rate of 75%. To achieve the full-year forecasts, Q4 requires Revenue of ¥2.88B and Operating Income of ¥0.88B (required Operating Income margin of approximately 30.5%), slightly above the Q3 cumulative Operating Income margin of 28.1%. The Company has not revised either its earnings forecasts or dividend forecasts.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year forecast for the annual dividend is ¥19.00. Based on the average number of shares outstanding during the period of 32,283 thousand shares, the forecast total dividend is approximately ¥0.61B, resulting in a Payout Ratio of approximately 31.5% against the full-year Net Income forecast of ¥1.95B. The Company holds treasury shares valued at ¥1.22B, equivalent to 11.2% of net assets; however, the amount of share repurchases conducted during the period cannot be confirmed from the disclosed information. Therefore, only the Payout Ratio is presented. Cash and deposits of ¥6.29B and the low level of debt provide a foundation supporting dividend sustainability.

Risk Factors

1. Prolonged collection of accounts receivable: The Company holds accounts receivable of ¥2.39B and contract assets of ¥0.28B. Management of the collection cycle accompanying revenue growth may affect working capital efficiency.

2. Expansion of SaaS Business losses: The SaaS Business’s operating loss expanded to ¥0.47B (¥0.32B in the previous year), representing a loss margin of 73.5% against Revenue of ¥0.64B. The balance between revenue growth and monetization warrants monitoring.

3. Temporariness of the extraordinary loss: Head office relocation costs of ¥0.23B are a temporary factor; however, changes in the fixed-cost structure following the relocation may affect future profit margins.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Operating Income margin and Net Income margin are significantly above the industry median, placing the Company among the more profitable companies in the industry.

Growth and Capital Efficiency

The Revenue growth rate is slightly above the industry median, indicating an average to somewhat above-average growth level within the industry.

※Source: Company analysis

Key Points from the Earnings Results

1. The Company is characterized by its ability to combine high profitability and financial soundness, with an Operating Income margin of 28.1% and an Equity Ratio of 85.7%. The profit margin of the core Solution Business improved from the previous year, indicating qualitative improvement in the business.

2. The decline in Net Income attributable to owners of the parent was caused by the temporary factor of head office relocation costs. The continuation of the upward trend in Ordinary Income is important for understanding the structure of the earnings results.

3. While the SaaS Business continues to achieve high growth, its losses are expanding. The timing of growth investment and monetization is a structural point of focus that may affect the overall profit margin going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥383–¥406 for cost of equity ±1%, and ¥391–¥399 for 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 values based solely on publicly disclosed data; these are not forecasts of the market share price or recommendations of specific investment actions, and do 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 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 with professionals as necessary.

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