| Indicator | Current Period | Prior Year Same Period | YoY |
|---|---|---|---|
| Revenue | ¥135.2B | ¥130.8B | +3.4% |
| Operating Income | ¥17.9B | ¥23.4B | -23.6% |
| Ordinary Income | ¥18.2B | ¥23.6B | -23.0% |
| Net Income | ¥12.9B | ¥17.5B | -26.2% |
| ROE | 9.9% | 13.4% | - |
The FY2026 full-year results delivered Revenue of ¥135.2B (YoY +¥4.4B +3.4%) but showed a significant profit decline: Operating Income ¥17.9B (YoY -¥5.5B -23.6%), Ordinary Income ¥18.2B (YoY -¥5.4B -23.0%), and Net Income ¥12.9B (YoY -¥4.6B -26.2%). An increase in cost of sales ratio (69.6% from 66.1%, +3.5pt) and higher SG&A (+10.9%) compressed the operating margin by 4.6pt from 17.9% to 13.3%. Although a special gain of ¥1.4B from sale of investment securities was recorded, Profit Before Tax (ordinary income before tax adjustments) was ¥18.2B (-27.1%). Operating Cash Flow (OCF) of ¥19.1B is 1.5x Net Income, supporting the profit level, but investments in intangible and tangible assets of ¥22.4B resulted in Free Cash Flow (FCF) of ▲¥3.2B. Total assets were ¥145.2B and Equity Ratio remained strong at 90.3%, but cash and deposits decreased by ¥16.9B to ¥24.7B. The company paid dividends of ¥25 (Payout Ratio 37.7%) and executed share buybacks of ¥7.0B, reducing liquidity on hand.
[Revenue] Revenue reached ¥135.2B (YoY +3.4%), achieving growth. Segment disclosure is not provided, but stable growth centered on the core ISP Business is presumed. However, Cost of Sales rose to ¥94.1B (+8.9%), substantially outpacing revenue growth, pushing the cost ratio up from 66.1% to 69.6% (+3.5pt). This is mainly attributable to higher line procurement costs and increased variable costs associated with new service launches. Gross margin fell to 30.4% (down 3.6pt from 34.0% prior year), revealing that top-line growth did not translate into bottom-line gains.
[Profitability] SG&A rose to ¥23.2B (+10.9%), a double-digit increase, lifting the SG&A ratio to 17.1% (prior year 16.0%, +1.1pt). The combination of lower gross margin and higher SG&A compressed Operating Income to ¥17.9B (-23.6%) and operating margin to 13.3% (prior year 17.9%, -4.6pt). Non-operating income was small at ¥0.3B (dividends received ¥0.1B, interest received ¥0.1B), so Ordinary Income ¥18.2B (-23.0%) could not offset the operating decline. A special gain of ¥1.4B from sale of investment securities was recorded, but this is a one-off and does not reflect recurring earning power. Profit before tax was ¥18.2B (-27.1%), and with an effective tax rate of 29.0%, Net Income was ¥12.9B (-26.2%). In conclusion, results show revenue growth but profit decline.
[Profitability] Operating margin was 13.3%, down 4.6pt from 17.9% prior year, and Net Income margin was 9.6%, down 3.8pt from 13.4% prior year. The deterioration in gross margin to 30.4% (prior year 34.0%, -3.6pt) dragged down overall profitability, with noticeable impact from line costs and new investment costs. ROE was 9.9%, down from 13.7% prior year (down 3.8pt), mainly due to compressed Net Income margin.
[Cash Quality] OCF of ¥19.1B is 1.5x Net Income ¥12.9B, indicating good cash backing of profits. EBITDA was ¥30.6B (Operating Income ¥17.9B + Depreciation & Amortization ¥12.7B), and OCF/EBITDA was 0.63x; cash conversion efficiency is somewhat weak due to tax payments of ¥9.0B and other OCF items.
[Investment Efficiency] Total asset turnover was 0.93x (Revenue ¥135.2B ÷ Total Assets ¥145.2B). ROA (on Ordinary Income basis) was 12.4%, down 3.9pt from 16.3% prior year. Intangible fixed assets totaled ¥43.1B (29.7% of total assets), indicating concentration of investment in intangible assets; short-term contribution to earnings is limited and progress on investment recovery will be key.
[Financial Soundness] Equity Ratio was 90.3% (prior year 88.5%, +1.8pt), current ratio 488%, and effectively debt-free, indicating extremely high financial safety. Cash and deposits ¥24.7B plus short-term securities ¥5.0B total ¥29.7B, versus current liabilities ¥14.1B, so there is no short-term liquidity concern.
OCF was ¥19.1B (prior year ¥24.6B, -22.3%), declining but still ¥6.2B above Net Income ¥12.9B, preserving profit backing. Operating cash subtotal was ¥28.0B (prior year ¥30.2B); working capital changes were minor, while corporate tax payments ¥9.0B (prior year ¥5.7B) were the main differential. Investing Cash Flow was ▲¥22.4B and active: ¥18.5B for intangible asset acquisitions (mainly software in progress), ¥8.9B for capital expenditures, and ¥5.0B inflow from redemption of securities. Investment continues to exceed depreciation (¥12.7B), indicating a growth investment phase. FCF was ▲¥3.2B, widening from ▲¥0.6B prior year. Financing Cash Flow was ▲¥13.6B, reflecting shareholder returns: dividends ¥6.6B and share buybacks ¥7.0B. As a result, cash decreased ¥16.9B to an ending balance of ¥24.7B. While liquidity on hand remains healthy, capacity to simultaneously invest and return capital is gradually narrowing; recovery of OCF and conversion to positive FCF will be focal points going forward.
Core recurring earnings are anchored by Operating Income ¥17.9B, supported by stable ISP Business revenue. Non-operating income ¥0.3B (dividends and interest) is small at 0.2% of Revenue and has minimal impact on Ordinary Income. However, a special gain of ¥1.4B from sale of investment securities accounted for approximately 7.7% of Profit before tax ¥18.2B. OCF ¥19.1B is 1.5x Net Income ¥12.9B, indicating healthy cash backing, but OCF/EBITDA of 0.63x reflects weak cash conversion, influenced by tax payments ¥9.0B and other OCF ▲¥2.6B. Changes in receivables, payables, and inventories were minor and working capital management is stable. Overall earnings quality is high, but dependence on special gains and low OCF/EBITDA point to short-term weaknesses in earnings and cash generation.
Against full-year guidance (Revenue ¥140.0B, Operating Income ¥18.0B, Ordinary Income ¥18.3B, Net Income ¥13.0B), actuals were Revenue 96.6%, Operating Income 99.5%, Ordinary Income 99.5%, and Net Income 99.4% — revenue slightly missed while profits landed close to plan. The slight revenue shortfall is likely due to delayed new customer acquisitions toward year-end and slower growth of existing services, but expense control and one-off gains helped secure operating, ordinary, and net income at guidance levels. The company projects Revenue growth of +3.6% and Operating Income growth of +0.5% for the next fiscal year, implying modest growth. Given the recent rise in cost ratios and higher SG&A, recovery of gross margin and efficiency improvements are prerequisites for profit growth.
The annual dividend is ¥25 (interim ¥12.5, year-end ¥12.5 forecast) with a Payout Ratio of 37.7%. Dividends total ¥6.6B against Net Income ¥12.9B, representing returns within earnings. With FCF of ▲¥3.2B, paying ¥6.6B in dividends resulted in FCF coverage of ▲0.49x (negative), meaning dividends were funded from OCF and cash on hand. Additionally, ¥7.0B of share buybacks were executed, bringing total returns to ¥13.6B (dividends + buybacks) and a Total Return Ratio of 105.4%, exceeding Net Income. Total return as a percentage of OCF (¥19.1B) is 71.2%, within cash generation capacity, but sustainability of this return level is a concern given heavy investment. Strong equity ratio of 90.3% and debt-free status reduce short-term dividend risk, but mid-term sustainability depends on investment monetization and OCF expansion.
Risk of continued decline in gross margin: Gross margin fell from 34.0% to 30.4% (down 3.6pt), driven by higher line procurement costs and price competition. Cost of sales ratio at 69.6% exceeds industry average; if cost pressures persist, further compression of operating margin (currently 13.3%) is a concern. Failure to renegotiate procurement prices or pass costs onto customers risks structural deterioration in profitability.
Risk of delayed recovery from intangible asset investments: Intangible fixed assets have increased to ¥43.1B (29.7% of total assets), with growth investments progressing including software in progress of ¥849B. Meanwhile, operating margin has declined and short-term revenue contribution is not yet evident. If investment returns lag plan, amortization burden and potential impairment risk could damage future profitability.
Risk of weakening cash conversion efficiency: OCF/EBITDA is 0.63x, indicating weak cash conversion; tax payments and other operating cash items are pressuring cash generation. With FCF at ▲¥3.2B, the company has continued dividends and share buybacks, reducing cash by ¥16.9B. If the investment pace continues, liquidity could tighten and balancing returns with investment may become difficult.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 13.2% | 8.1% (3.6%–16.0%) | +5.1pt |
| Net Income Margin | 9.6% | 5.8% (1.2%–11.6%) | +3.7pt |
Operating margin 13.2% exceeds the industry median of 8.1% by 5.1pt, and Net Income margin 9.6% also exceeds the median 5.8% by 3.7pt, placing the company toward the upper range in profitability within the industry.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 3.4% | 10.1% (1.7%–20.2%) | -6.7pt |
Revenue growth of 3.4% trails the industry median of 10.1% by 6.7pt, indicating relatively lower growth, consistent with a stable-growth business profile.
※ Source: Internal aggregation based on public financial statements
Recovery of gross margin and operating margin is the top priority: Gross margin is 30.4% (prior year 34.0%, -3.6pt) and operating margin is 13.3% (prior year 17.9%, -4.6pt), reflecting dual pressure from higher line costs and rising SG&A. Although the company’s operating margin of 13.2% exceeds the industry median of 8.1%, the year-over-year deterioration suggests weakening of the profit structure. Price revisions, procurement cost corrections, and efficiency measures will be catalysts for margin recovery.
Verification of progress and monetization of intangible asset investments: Intangible fixed assets increased to ¥43.1B (29.7% of total assets), with ¥18.5B in intangible acquisitions and ¥8.9B in capital expenditures continuing growth investment. However, short-term operating profit decline and weak OCF/EBITDA of 0.63x indicate investment returns have not yet materialized. Completion of software in progress ¥849B, service launches, and faster customer acquisition are key to investment recovery and margin improvement. Delays in monetization raise amortization and impairment risks that could impair future earnings.
Balance between shareholder returns and liquidity: With a Payout Ratio of 37.7% and Total Return Ratio of 105.4% (dividends + buybacks), the company has been generous with returns, but with FCF at ▲¥3.2B and cash down ¥16.9B, liquidity on hand is shrinking. Strong equity ratio and debt-free status support financial resilience, but sustaining returns depends on OCF expansion and possible adjustment of investment pace.
This report is an earnings analysis document automatically generated by AI based on XBRL financial statement data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information aggregated by our firm from public financial statements. Investment decisions are your responsibility; please consult a professional advisor as needed.