Nextgen (3842) FY2026 Q3 Earnings Report

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Executive Summary

In addition to higher revenue from the Communications Technology Solutions and Services Business, operating leverage took effect as revenue growth outpaced the increase in expenses, resulting in higher revenue and profits. Revenue was ¥2.98B (¥2.51B in the same period of the previous year, YoY +18.6%), Operating Income was ¥0.26B (¥0.17B, YoY +53.4%), Ordinary Income was ¥0.25B (¥0.16B, YoY +59.3%), and Net Income was ¥0.22B (¥0.13B, YoY +70.6%). The primary driver of the profit increase was that the rate of increase in selling, general and administrative expenses remained below the revenue growth rate.

Factors Affecting Performance

【Revenue】Revenue increased 18.6% year on year to ¥2.98B. The Company operates as a single segment, the Communications Technology Solutions and Services Business, and expanding demand across the overall business drove the increase in revenue.

【Profit and Loss】Operating Income increased 53.4% year on year to ¥0.26B, Ordinary Income increased 59.3% to ¥0.25B, and Net Income increased 70.6% to ¥0.22B. Cost of sales was ¥1.84B, and the gross margin was 38.3%, slightly below approximately 38.6% in the same period of the previous year. Meanwhile, selling, general and administrative expenses were ¥0.88B, representing an increase of approximately 10.5% year on year and remaining below revenue growth of 18.6%; this was the factor that improved the operating margin to 8.7% from approximately 6.7% in the same period of the previous year. Non-operating income and expenses were immaterial, and no impact from temporary factors on Ordinary Income or Net Income was observed. The key characteristic is that both revenue and profits increased, with the profit growth rate substantially exceeding the revenue growth rate.

Segment Analysis

The Company operates a single segment consisting of the provision of communications technology solutions and services, and does not disclose results by segment.

Key Financial Indicators

【Profitability】The operating margin improved to 8.7% from approximately 6.7% in the same period of the previous year, while the net profit margin improved to 7.3% from approximately 5.1%. Annualized ROE was 12.5%, representing a favorable level.【Cash Quality】Cash and deposits were ¥1.90B, accounting for 52.5% of total assets, while accounts receivable were ¥0.74B, accounting for 20.3% of total assets.【Investment Efficiency】Software accounted for ¥0.54B of intangible fixed assets totaling ¥0.61B, indicating continued investment in future service delivery capabilities.【Financial Soundness】The equity ratio was 64.4%, and current assets of ¥2.85B substantially exceeded current liabilities of ¥1.09B, indicating significant short-term financial headroom. Long-term borrowings decreased from ¥0.29B in the same period of the previous year to ¥0.18B, indicating reduced dependence on interest-bearing debt.

Cash Flow Analysis

Cash and deposits were ¥1.90B, up from ¥1.81B in the same period of the previous year and substantially exceeding interest-bearing debt of ¥0.18B. Long-term borrowings decreased by approximately ¥0.11B from ¥0.29B in the same period of the previous year to ¥0.18B, indicating lower reliance on borrowings. Meanwhile, accounts receivable were ¥0.74B, equivalent to approximately 24.7% of revenue, indicating that a certain amount of funds remained tied up in receivables as revenue increased. Retained earnings were ¥0.48B, up from ¥0.32B in the same period of the previous year, with the accumulation of current-period profit contributing to the strengthening of equity. Overall, the accumulation of internal funds accompanying higher profits and the reduction of borrowings are progressing simultaneously, and the financial base remains stable.

Quality of Earnings

The difference between Ordinary Income of ¥0.25B and Net Income of ¥0.22B was attributable to income taxes and other taxes of ¥0.04B, and no temporary factors such as extraordinary gains or losses were identified. Non-operating income was ¥0.00B and non-operating expenses were ¥0.01B, both relatively small. Ordinary Income was therefore composed at nearly the same level as Operating Income of ¥0.26B, indicating good earnings quality, with the profitability of the core business driving earnings. The improvement in the operating margin was not attributable to an improvement in the gross margin; rather, it was primarily due to cost efficiencies resulting from the increase in selling, general and administrative expenses (+10.5%) remaining below revenue growth (+18.6%). It should be noted that the pace of improvement may change depending on project mix and trends in personnel and outsourcing costs. Comprehensive income was ¥0.22B, broadly in line with Net Income, and the divergence attributable to other comprehensive income components was limited.

Earnings Forecast and Guidance

The Company’s full-year forecast is Revenue of ¥3.80B (YoY +4.9%), Operating Income of ¥0.28B (YoY +6.8%), Ordinary Income of ¥0.27B (YoY +7.8%), and Net Income of ¥0.21B. The cumulative Q3 progress rates were 78.4% for Revenue, 92.5% for Operating Income, 94.1% for Ordinary Income, and 104.0% for Net Income, all exceeding the standard progress rate of 75%. In particular, cumulative Net Income has already exceeded the full-year forecast, suggesting that the full-year forecast may be conservative or that fluctuations in expenses or project profitability are anticipated in Q4.

Shareholder Returns

The Q2 dividend was ¥15.00 per share, while the Company’s full-year forecast for the annual dividend is ¥25.00. Based on cumulative Net Income of ¥0.22B (EPS of ¥70.60), the Payout Ratio calculated using only the interim dividend paid was 21.3%. Based on forecast full-year EPS of ¥67.90 and the forecast annual dividend of ¥25.00, the Payout Ratio is approximately 36.8%, a sustainable level. The financial base, including cash and deposits of ¥1.90B, also supports the continuation of dividends.

Risk Factors

1. Dependence on a single business: The Company operates a single segment, Communications Technology Solutions and Services, meaning that fluctuations in communications investment demand and the timing of customer project acceptance directly affect overall performance.

2. Delays in receivables collection: Accounts receivable of ¥0.74B are equivalent to approximately 24.7% of revenue, and the annualized days sales outstanding are approximately 68 days, exceeding 60 days. Working capital management during periods of revenue growth is an issue.

3. Slight decline in gross margin: The gross margin was 38.3%, slightly below approximately 38.6% in the same period of the previous year. As the improvement in the operating margin depends on the efficiency of selling, general and administrative expenses, the pace of improvement may slow due to fluctuations in project mix and personnel and outsourcing costs.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

Both profitability indicators slightly exceed the industry median but remain at mid-range levels compared with the upper bounds of the IQR.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median and indicates high growth close to the upper bound of the IQR.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Operating leverage was confirmed, with Operating Income increasing 53.4% and Net Income increasing 70.6% against revenue growth of +18.6%, meaning that the profit growth rates substantially exceeded the revenue growth rate. The primary factor was that the increase in selling, general and administrative expenses remained below revenue growth.

2. Progress against the full-year forecast was high, at 92.5% for Operating Income and 104.0% for Net Income, indicating a pace currently ahead of the full-year forecast. However, the slight decline in gross margin and the lengthening of receivables collection days warrant monitoring when assessing the sustainability of profit growth.

3. The financial structure, consisting of an equity ratio of 64.4%, interest-bearing debt of ¥0.18B, and cash and deposits of ¥1.90B, is conservative, with the reduction of borrowings and accumulation of retained earnings progressing simultaneously.

Theoretical Share Price (For Reference)

Sensitivity: ¥716–¥756 at cost of equity ±1%, and ¥735–¥736 at ω±0.1.

Notes:

• Because Net Income progress against the full-year forecast (104%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to exceed forecasts; adjustments may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated at a somewhat higher level.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed 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. 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 professionals as necessary.

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