| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥353.0B | ¥314.1B | +12.4% |
| Operating Income / Operating Profit | ¥-4.0B | ¥41.5B | +368.7% |
| Ordinary Income | ¥1.1B | ¥40.6B | -97.4% |
| Net Income / Net Profit | ¥0.6B | ¥24.0B | -97.6% |
| ROE | 0.2% | 7.9% | - |
In Q4 of FY2026, Revenue reached ¥353.0B (YoY +¥38.9B, +12.4%), securing double-digit growth. However, profitability deteriorated sharply due to front-loaded depreciation and power costs associated with large-scale capital expenditures. Operating Income turned negative to ¥-4.0B (prior year ¥41.5B), with an operating margin of -1.1% (prior year +13.2%), a contraction of 1,430bp. Ordinary Income was ¥1.1B (prior year ¥40.6B, -97.4%), and Net Income was ¥0.6B (prior year ¥24.0B, -97.6%), both sharply down. Extraordinary gains of ¥144.7B and extraordinary losses of ¥143.3B largely offset each other, leaving minimal impact on Net Income; the primary driver is deterioration in core business profitability. Despite Revenue growth of +12.4%, gross margin fell to 22.5% (prior year 35.8%), down 1,330bp, and SG&A rose to ¥83.6B (+17.9% YoY), outpacing revenue growth and revealing negative operating leverage. Tangible fixed assets increased by ¥132.5B (+39.6%) to ¥467.2B, and Construction in Progress rose by ¥28.1B to ¥51.7B, highlighting accelerated growth investment such as data center expansion.
【Revenue】 Revenue of ¥353.0B (YoY +¥38.9B, +12.4%) achieved steady top-line growth. As a single-segment company (Internet Infrastructure Business), there are no detailed sub-segment breakdowns, but data center capacity expansion and customer base enlargement are estimated drivers. Tangible fixed assets increased by ¥132.5B (+39.6%) and Construction in Progress accumulated ¥28.1B, indicating revenue contribution from the commissioning of new facilities. Advances received increased to ¥86.6B (prior ¥61.5B, +¥25.1B), building a pipeline of future revenue. Accounts receivable decreased to ¥48.1B (prior ¥75.8B, -¥27.7B), and the shortened receivable period contributed to working capital improvement.
【Profit & Loss】 Cost of sales rose to ¥273.5B (cost of sales ratio 77.5%, prior 64.2%), a deterioration of 1,330bp, leaving Gross Profit at ¥79.6B (gross margin 22.5%). Depreciation and amortization surged to ¥77.4B (prior ¥47.7B, +¥29.7B, +62.3%), with accelerated CAPEX pressuring costs. Rising power costs likely contributed to the worsening cost ratios. SG&A totaled ¥83.6B (23.7% of Revenue, prior 22.5%), up ¥12.8B, driven by increased personnel expenses ¥29.4B (prior ¥21.8B), lease expenses ¥3.4B (prior ¥2.9B), and fees ¥16.1B (prior ¥14.6B), reflecting headcount strengthening and expanded sales activities. As a result, Operating Income fell to ¥-4.0B (prior ¥41.5B), turning to a loss, and operating margin contracted to -1.1% (prior +13.2%), a 1,430bp decline. Non-operating income was ¥10.6B, primarily subsidies ¥6.2B (prior ¥1.6B) and equity-method investment income ¥0.8B. Interest expense of ¥5.4B (prior ¥2.6B, +¥2.8B) weighed on earnings, compressing Ordinary Income to ¥1.1B (prior ¥40.6B, -97.4%). Extraordinary items—extraordinary gains ¥144.7B (including ¥1.6B gain on sale of investment securities) and extraordinary losses ¥143.3B (including ¥143B impairment of fixed assets)—largely offset, resulting in Profit Before Tax of ¥2.4B. Income taxes were low with an effective tax rate of 3.9%, and Net Income was ¥0.6B (prior ¥24.0B, -97.6%), representing a substantial revenue-plus-large-profit-decline outcome.
【Profitability】ROE was 0.2% (prior 15.0%), and ROA (based on Ordinary Income) dropped to 0.1% (prior 7.3%). Operating margin was -1.1% (prior +13.2%), Net Margin 0.2% (prior 5.8%), indicating rapid deterioration in core earning power due to front-loaded depreciation and power costs from prior investments. EBITDA was ¥73.4B (Operating Income ¥-4.0B + Depreciation ¥77.4B), and the EBITDA margin was 20.8%, indicating maintained cash-generating capacity. 【Cash Quality】Operating Cash Flow (OCF) was ¥62.2B, positive, and OCF/Net Income was 28.8x, a high level supporting the reality of cash generation. OCF/EBITDA was 0.85x, slightly below the 0.9 benchmark, affected by working capital movements, taxes, and interest payments. The accrual ratio was -7.3%, indicating Net Income is backed by cash. Free Cash Flow (FCF) was ¥-184.2B (OCF ¥62.2B – Investing CF ¥-246.4B), a large negative driven by CAPEX of ¥363.4B. CAPEX/Depreciation was 4.7x, a high level consistent with an expansionary investment cycle. 【Investment Efficiency】Total asset turnover was 0.43x (prior 0.39x), a slight increase, but asset base expansion from large investments means future utilization rates are key. 【Financial Soundness】Equity Ratio was 36.8% (prior 36.9%), nearly flat. Debt/Capital was 35.2%, and Debt/EBITDA was 2.24x, within investment-grade range. Interest coverage (EBIT basis) was -0.75x, a warning level, but EBITDA-based interest coverage was 13.6x, indicating maintained ability to service interest. Current Ratio was 77.6% (prior 103.4%), and Quick Ratio was 76.3%, both below 100%, tightening short-term liquidity. Cash and deposits were ¥153.9B, 1.44x short-term borrowings of ¥106.9B, easing near-term funding needs. Short-term liabilities ratio was 65.0%, warranting moderate attention to refinancing risk.
OCF was ¥62.2B (prior ¥57.9B, +7.5%), remaining positive. The pre-working-capital subtotal of operating cash was ¥80.6B (prior ¥63.3B); major contributors were a decrease in accounts receivable ¥27.6B (prior -¥43.4B) and an increase in advances received ¥25.5B (prior +¥11.1B), partly offset by a decrease in accounts payable -¥5.4B (prior +¥10.5B) and an increase in inventories -¥4.9B (prior -¥0.4B). Income taxes paid increased to ¥13.3B (prior ¥3.0B), but OCF remained positive YoY. Investing CF was ¥-246.4B (prior ¥-83.2B), expanding significantly due to CAPEX of ¥363.4B (prior ¥176.6B). Investment in intangibles was ¥11.1B (prior ¥9.0B), accelerating growth investments in data centers, servers, and network equipment. Proceeds from sale of investment securities ¥1.9B (prior ¥0.008B) and purchases ¥-2.2B (prior ¥-0.1B) had minor contributions. Financing CF was ¥43.2B (prior ¥267.6B), driven by net increase in short-term borrowings ¥17.1B (prior +¥200.7B), long-term borrowings procured ¥81.1B (prior ¥57.3B), long-term debt repayments ¥-33.4B (prior ¥-42.8B), and lease liability repayments ¥-26.5B (prior ¥-18.4B). Equity issuance proceeds ¥179B (same as prior year) are presumed net of issuance costs, indicating limited net raise this period. Dividend payments were ¥1.6B, and treasury stock purchases were ¥0.003B, negligible. FCF was ¥-184.2B (OCF ¥62.2B + Investing CF ¥-246.4B), a large negative with growth investment consuming cash. Cash and deposits decreased by ¥-140.9B during the period to ¥153.9B, reducing liquidity buffer. CAPEX/Depreciation at 4.7x is high, and recovery of invested capital depends on future utilization rate increases and price optimization.
With Net Income of ¥0.6B and OCF of ¥62.2B, OCF/Net Income is 28.8x, indicating earnings are backed by cash. Extraordinary gains ¥144.7B and extraordinary losses ¥143.3B nearly offset (net +¥1.4B), having minimal impact on Net Income. Of non-operating income ¥10.6B (3.0% of Revenue), subsidies ¥6.2B (prior ¥1.6B) are largely one-off, and equity-method income ¥0.8B (prior ¥0.3B) requires attention regarding stability. Interest expense ¥5.4B (prior ¥2.6B) is the main non-operating expense and represents an ongoing burden. Profit Before Tax ¥2.4B was subject to income taxes of ¥0.1B (effective tax rate 3.9%), aided by deferred tax assets of ¥13.1B (prior ¥8.5B). Comprehensive income ¥1.4B approximates Net Income ¥0.6B, with other comprehensive income impact minimal. Decrease in accounts receivable +¥27.6B and increase in advances received +¥25.5B boosted OCF, but advances received are a prepayment of future revenue and may reverse as revenue recognition progresses, posing risk. Accrual ratio -7.3% is low, indicating high cash backing of earnings, but increased reliance on non-operating and extraordinary items suggests structural weakness in core earning power.
Progress against full-year plan: Revenue 78.4% (¥353.0B/¥450.0B), Operating Income -26.7% (¥-4.0B/¥15.0B), Ordinary Income 8.8% (¥1.1B/¥12.0B), Net Income 25.4% (¥2.2B/¥8.5B). Revenue progress is near a normal pace (about 80% at end of Q4), but profitability is significantly behind, implying assumptions of heavy back-end weighting. With Operating Income starting from a negative base, achieving plan assumes H2 improvements in gross margin, utilization increases, and sustained non-operating income. Depreciation burden will continue, so revenue growth and price measures are key. Dividend forecast is set at 0円 conservatively, suggesting a cash-priority stance.
A year-end dividend of 5円 was paid, with total annual dividends of ¥1.61B (prior ¥1.25B). Based on weighted average shares outstanding of 40,017 thousand shares, EPS was 5.40円 and payout ratio was 92.6% (5円 / 5.40円), high. Against total dividends ¥1.61B, OCF ¥62.2B provides an apparent coverage of 38.6x, but FCF is ¥-184.2B, indicating dividends are funded by on-hand or external financing rather than internally generated cash. FCF-based dividend coverage is -114.4x, raising sustainability concerns. Share buybacks were ¥0.003B, negligible, so dividends remain the primary shareholder return. While payout ratio of 92.6% is high, with ROE at 0.2% and FCF negative, sustainability is doubtful; a policy review is likely depending on earnings recovery and investment pace control. Cash and deposits of ¥153.9B and Debt/Capital of 35.2% provide some financial headroom, but with Current Ratio 77.6% and tightening short-term liquidity, continuation of dividends depends on EBITDA growth and gross margin recovery.
Risk of Prolonged Profitability Deterioration: Operating margin -1.1%, gross margin 22.5% (prior 35.8%, -1,330bp) reflect rapid weakening of core earning power. Heavy depreciation of ¥77.4B (prior ¥47.7B, +62.3%) and rising power and input costs are primary causes; delays in utilization ramp-up or price pass-through risk prolonged losses. SG&A increase +17.9% outpaces revenue growth +12.4%, revealing negative operating leverage. While EBITDA margin at 20.8% is at a reasonable level, converting to operating profit will require fixed cost reductions and margin improvement.
Liquidity and Refinancing Risk: Current Ratio 77.6% (prior 103.4%), Quick Ratio 76.3% below 100% indicate tightened short-term liquidity. Short-term liabilities ratio 65.0% shows a maturity mismatch between short-term borrowings ¥106.9B and current liabilities ¥338.5B versus current assets ¥262.6B. Cash and deposits ¥153.9B are 1.44x short-term borrowings, but continued FCF deficit of ¥-184.2B could erode liquidity. Lease liabilities ¥146.6B (current ¥31.0B, non-current ¥114.6B) and asset retirement obligations ¥8.34B create fixed cash outflows, and rising interest costs (interest expense ¥5.4B, +¥2.8B YoY) increase burden. Interest coverage (EBIT basis) -0.75x is a warning; deteriorating refinancing terms or funding environment changes could raise refinancing risk.
Uncertainty in Investment Payback: Large CAPEX ¥363.4B (CAPEX/Depreciation 4.7x) has been executed, yet ROIC is -1.2%, well below cost of capital. Accumulation of tangible fixed assets +¥132.5B and Construction in Progress +¥28.1B are growth drivers, but delayed utilization ramp or price optimization would extend payback periods. Advances received ¥86.6B (prior ¥61.5B, +¥25.1B) indicate a future revenue pipeline but could reverse in OCF contribution as revenue recognition progresses. Total asset turnover 0.43x (prior 0.39x) rose only slightly; improving asset efficiency requires accelerated demand generation (new customers, upsell). Power price volatility and technology obsolescence also pose risks to asset value.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | -1.1% | 8.1% (3.6%–16.0%) | -9.2pt |
| Net Margin | 0.2% | 5.8% (1.2%–11.6%) | -5.7pt |
Profitability metrics are substantially below industry peers, placing the company in the lower tier due to front-loaded investment burden.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 12.4% | 10.1% (1.7%–20.2%) | +2.3pt |
Revenue growth exceeds the industry median, indicating solid growth, but conversion to profit is a challenge.
※ Source: Company aggregation
Trade-off between accelerated growth investment and short-term profitability: Revenue +12.4% and accumulation of tangible fixed assets +¥132.5B (+39.6%), Construction in Progress +¥28.1B, and advances received +¥25.1B indicate accelerated growth investment such as data center expansion. Conversely, depreciation burden +¥29.7B (+62.3%) and a 1,330bp deterioration in gross margin drove operating loss, placing the company in a front-loaded investment phase sacrificing near-term profit and cash. CAPEX/Depreciation 4.7x and CAPEX ¥363.4B (prior ¥176.6B) show doubled investment scale; utilization ramp and price optimization are keys to future recovery. EBITDA margin 20.8% remains at a certain level, and medium-term reversal of operating leverage is expected, but attention is needed on fixed power and personnel costs.
Liquidity and refinancing management: Current Ratio 77.6%, Quick Ratio 76.3%, Short-term liabilities ratio 65.0% signal tightened short-term liquidity; cash and deposits decreased by ¥-140.9B, shrinking the liquidity buffer. Continued FCF deficit ¥-184.2B and dividend ¥1.6B are funded by external sources rather than internal generation. Debt/EBITDA 2.24x and EBITDA interest coverage 13.6x indicate some financial capacity, but EBIT-based interest coverage -0.75x and interest expense increase +¥2.8B are warning signals. Going forward, managing refinancing terms, stabilizing OCF, and controlling investment pace are prerequisites for maintaining financial soundness. Lease liabilities ¥146.6B and asset retirement obligations ¥8.34B add fixed cash outflows, making cash management a high priority.
This report is an earnings analysis document automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company based on public financial statements. Investment decisions are your responsibility; consult a professional advisor as necessary.