Advanced Media (3773) FY2026 Q3 Earnings Report

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Executive Summary

The most important point is that, despite higher revenue, the profitability of the core business deteriorated slightly, while the increase in net income depended on temporary factors. Revenue was ¥50.2B (+5.3% YoY), Operating Income was ¥9.3B (-2.7%), and Ordinary Income was ¥10.4B (-0.7%). Net Income increased significantly to ¥9.9B (+34.6%), but this was attributable to an extraordinary gain of ¥4.1B from the sale of investment securities. The Operating Income margin declined to 18.6% from 20.2% in the previous year.

Factors Driving Performance Changes

【Revenue】Revenue increased 5.3% YoY to ¥50.2B. As the Company operates as a single Voice Business segment, there are no diversification benefits from its business portfolio, and its performance is structurally influenced by demand trends related to voice-recognition AI. Progress against the full-year forecast of ¥80.0B was 62.7%, below the standard 75%, indicating that additional revenue accumulation in Q4 will be necessary.

【Profit and Loss】Because cost of sales increased 10.5% YoY, exceeding the revenue growth rate, the gross margin declined to 73.0% (-1.3pt YoY). Selling, general and administrative expenses also increased 5.9%, exceeding the revenue growth rate, resulting in a 2.7% decline in Operating Income to ¥9.3B. Ordinary Income was nearly flat at ¥10.4B (-0.7%), partly supported by non-operating income comprising dividend income of ¥0.7B and foreign exchange gains of ¥0.3B. Net Income of ¥9.9B (+34.6%) was boosted by the ¥4.1B gain on the sale of investment securities; on a core-business basis, the Company should be viewed as having higher revenue but lower profit.

Segment Analysis

As the Company operates as a single Voice Business segment, segment-level profit and loss information is not disclosed.

Key Financial Indicators

【Profitability】The Operating Income margin was 18.6%, down 151bp from 20.2% in the previous year. The Net Income margin improved to 19.8% from 15.5% in the previous year, but this was a temporary effect from the ¥4.1B gain on the sale of investment securities. 【Cash Flow Quality】Comprehensive Income was ¥15.7B, exceeding Net Income of ¥9.9B by ¥5.7B, mainly reflecting a ¥6.0B increase in the valuation difference on other securities. 【Investment Efficiency】Annualized ROE was 9.8%, consisting of a 19.8% Net Income margin × total asset turnover of 0.407x × financial leverage of 1.22x. Despite the high Net Income margin, ROE was constrained by low asset turnover and low leverage. 【Financial Soundness】The Equity Ratio was 82.3% (77.1% in the previous year), while long-term borrowings declined significantly to ¥2.9B from ¥10.6B in the previous year, indicating a reduction in financial risk.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is not available, financial trends can be confirmed from changes in the balance sheet. Cash and deposits increased to ¥65.5B from ¥64.1B in the previous year, while the current ratio remained high at 357.9%. Long-term borrowings decreased by ¥7.7B from ¥10.6B to ¥2.9B, indicating progress in reducing interest-bearing debt. Meanwhile, investment securities increased by ¥8.1B from ¥37.7B to ¥45.8B, suggesting that a portion of excess funds was allocated to securities investments. Property, plant and equipment also increased from ¥5.7B to ¥9.1B, indicating continued capital investment. Overall, the Company is simultaneously reducing liabilities through retained earnings and asset rationalization while allocating funds to investment activities.

Earnings Quality

Recurring earnings power should be evaluated based on Operating Income of ¥9.3B and an Operating Income margin of 18.6%. The increase in Net Income to ¥9.9B was supported by the temporary factor of the ¥4.1B gain on the sale of investment securities. Non-operating income of ¥1.2B comprised dividend income of ¥0.7B and foreign exchange gains of ¥0.3B, equivalent to 2.4% of Revenue and not large enough to substitute for core-business profit. Comprehensive Income of ¥15.7B exceeded Net Income, primarily due to the ¥6.0B increase in the valuation difference on other securities. Accordingly, the improvement in earnings during the period was significantly influenced by market fluctuations in securities holdings and should be distinguished from an improvement in sustainable earnings power.

Earnings Forecasts and Guidance

Progress against the full-year Company forecasts for cumulative Q3 was 62.7% for Revenue, 51.9% for Operating Income, 57.8% for Ordinary Income, and 71.0% for Net Income. Operating Income progress was 23.1 percentage points below the standard progress rate of 75%. To achieve the full-year forecast of ¥18.0B (+24.8% YoY), Operating Income of ¥8.65B will be required in Q4. This represents an approximately 79% increase from the approximately ¥4.8B recorded in Q4 of the previous year, making a substantial recovery in Q4 profitability a key challenge. The Net Income progress rate of 71.0% is relatively high, but because it includes the gain on the sale of investment securities, its quality as an indication of progress against the plan is inferior to that of Operating Income and Ordinary Income.

Shareholder Returns

The Q2 dividend was ¥0 per share. The Company’s full-year dividend forecast is ¥30 per share, resulting in a Payout Ratio of approximately 33.5% against full-year forecast EPS of ¥89.54. This level is below the generally accepted sustainability benchmark of 60%, while financial capacity consisting of cash and deposits of ¥65.5B and interest-bearing debt of ¥2.9B also supports the Company’s ability to pay dividends. This metric covers dividends only and represents the Payout Ratio, not the Total Return Ratio, which includes share repurchases.

Risk Factors

1. Deterioration in core-business profitability: The gross margin declined by -1.3pt YoY, while the growth rate of SG&A expenses (+5.9%) exceeded the Revenue growth rate (+5.3%), resulting in a 151bp decline in the Operating Income margin. As the Company operates a single Voice Business, project mix and cost trends directly affect performance.

2. Risk of Q4 concentration in achieving the full-year plan: The Operating Income progress rate of 51.9% was 23.1 percentage points below the standard progress rate, requiring Operating Income in Q4 to increase by approximately 79% YoY. If project acceptance is highly concentrated at the end of the fiscal year, uncertainty regarding achievement of the target will increase.

3. Market sensitivity of securities holdings: Investment securities of ¥45.8B account for 27.9% of total assets, and the increase in Net Income and Comprehensive Income during the period was strongly affected by valuation differences and gains on sales. Fluctuations in market prices may affect net assets and Comprehensive Income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s profitability is significantly above the industry median and ranks among the top performers in the industry.

Growth and Capital Efficiency

The growth rate is below the industry median, indicating that the pace of Revenue expansion is relatively moderate compared with the Company’s high profitability.

Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The Operating Income margin of 18.6% and gross margin of 73.0% are high within the industry, but both declined YoY. The fact that SG&A expense growth exceeded Revenue growth is pressuring margins.

2. The increase in Net Income to ¥9.9B (+34.6%) depended on the ¥4.1B gain on the sale of investment securities. Accordingly, it is appropriate to evaluate recurring earnings power based on Operating Income and Ordinary Income.

3. Progress against the full-year Operating Income forecast was 51.9%, below the standard progress rate, making the presence or absence of a profitability recovery in Q4 the key to achieving the full-year plan. Meanwhile, the financial foundation is strong, with an Equity Ratio of 82.3% and long-term borrowings of ¥2.9B.

Theoretical Share Price (For Reference)

Sensitivity: ¥842–¥891 at ±1% for the Cost of Equity, and ¥866–¥866 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing gap relative to 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 available 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 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 discretion and responsibility, after consulting with a professional as necessary.

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