Kanamic Network (3939) FY2026 Q2 Earnings Report

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Executive Summary

The Company posted higher revenue and earnings, with profit growth outpacing revenue growth, driven by the expansion of its healthcare and nursing-care cloud platform business and healthy life expectancy extension business. Revenue was ¥31.3B (¥26.6B in the same period of the previous year, +17.8%), Operating Income was ¥10.0B (¥7.6B in the same period of the previous year, +30.9%), Ordinary Income was ¥10.1B (¥7.6B in the same period of the previous year, +32.1%), and Net Income was ¥6.7B (¥5.2B in the same period of the previous year, +29.2%). The Operating Income growth rate exceeded the revenue growth rate by 13.1pt, indicating clear operating leverage. While the core cloud business expanded while improving its profit margin, the fact that the solution development business turned loss-making is a structural point requiring attention.

Factors Affecting Results

【Revenue】Revenue was ¥31.3B, up +17.8% year on year. The healthcare and nursing-care cloud platform business accounted for the largest share at ¥20.9B (66.6% of total revenue, YoY+16.9%), while the healthy life expectancy extension business recorded the highest revenue growth rate at ¥7.1B (22.7% of total revenue, YoY+29.6%). The solution development business generated ¥4.1B (13.1% of total revenue, YoY+20.0%), although growth from external customers was limited.

【Profit and Loss】Operating Income was ¥10.0B (YoY+30.9%), and the Operating Income margin improved to 31.9% from 28.7% in the same period of the previous year, an improvement of 3.2pt. The Company maintained a high gross-profit structure, with a cost-of-sales ratio of 36.4% and a gross margin of 63.6%; selling, general and administrative expenses grew below the rate of revenue growth (+5.4%), lifting the profit margin. By segment, the cloud business margin expanded to 45.5% from 41.3% in the same period of the previous year, while the healthy life expectancy extension business margin expanded to 15.6% from 10.4%. In contrast, the solution development business deteriorated to a segment loss of ¥0.2B. Ordinary Income and Net Income also grew at nearly the same rates, indicating limited impact from temporary factors. In conclusion, the Company achieved higher revenue and earnings.

Segment Analysis

The healthcare and nursing-care cloud platform business is the main contributor to Company-wide profit, with revenue of ¥20.9B (YoY+16.9%), Operating Income of ¥9.5B (YoY+28.9%), and a profit margin of 45.5%. The healthy life expectancy extension business expanded sharply, with revenue of ¥7.1B (YoY+29.6%), Operating Income of ¥1.1B (YoY+94.1%), and a profit margin of 15.6%, achieving profit growth above its revenue growth. The solution development business generated revenue of ¥4.1B (YoY+20.0%), while its operating result turned to a loss of ¥0.2B (YoY-136.9%). The business recorded provisional goodwill of ¥4.0B in connection with the acquisition of THE WORLD MANAGEMENT PTE LTD, making profitability improvement following acquisition integration a key focus going forward.

Key Financial Indicators

【Profitability】The Operating Income margin of 31.9% (28.7% in the same period of the previous year) and Net Income margin of 21.4% (19.5% in the same period of the previous year) both improved. Annualized ROE of 26.8% remains high even under the low-leverage condition represented by an Equity Ratio of 71.5%. The DuPont decomposition consists of a Net Income margin of 21.4% × total asset turnover of 0.89x × financial leverage of 1.40x, indicating that the high profit margin is the primary driver of ROE.【Cash Flow Quality】Operating Cash Flow (OCF) of ¥8.2B was 1.23x Net Income of ¥6.7B, indicating that earnings were generally supported by cash. However, accounts receivable increased to ¥4.3B, up +103.6% year on year, creating a burden on working capital.【Investment Efficiency】Capital expenditures of ¥0.8B were below depreciation and amortization of ¥1.7B; however, total investments including the acquisition of intangible assets exceeded depreciation and amortization, indicating a software-centered investment posture.【Financial Soundness】The Equity Ratio was 71.5%, cash and deposits were ¥34.2B, and interest-bearing debt was limited. The current ratio was also high, indicating substantial financial capacity.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥8.2B, an increase of +48.8% from ¥5.5B in the same period of the previous year, generating cash in excess of Net Income of ¥6.7B. Although the ¥2.2B increase in accounts receivable represented a working capital outflow, the ¥0.8B increase in accounts payable and ¥0.3B increase in contract liabilities partially offset it. Investing Cash Flow was an outflow of ¥2.4B, primarily consisting of ¥0.8B in capital expenditures and the acquisition of intangible assets, and is viewed as growth investment for a cloud and software business. Financing Cash Flow was an outflow of ¥5.2B, mainly attributable to repayments of long-term borrowings and dividend payments. As a result, free cash flow was positive at ¥5.9B, indicating that investment and shareholder returns can be fully absorbed by cash generation.

Quality of Earnings

The difference between Ordinary Income and Net Income was attributable to income taxes and other taxes of ¥3.4B (effective tax rate of 33.6%); almost no temporary factors such as extraordinary gains or losses were observed. Non-operating income of ¥0.2B and non-operating expenses of ¥0.1B were both small, each representing less than 1% of revenue, indicating an earnings structure highly dependent on Operating Income from the core business. Operating Cash Flow (OCF) was 1.23x Net Income, demonstrating that accounting earnings were generally supported by cash flow. On the other hand, accounts receivable increased at a pace exceeding revenue growth, and if this trend continues, it could constrain future OCF growth. Comprehensive income was ¥7.2B, and the ¥0.5B difference from Net Income of ¥6.7B was mainly attributable to foreign currency translation adjustments; this does not materially affect the assessment of the profitability of the underlying business.

Earnings Forecast and Guidance

The full-year Company forecasts are revenue of ¥63.5B (YoY+15.4%), Operating Income of ¥20.5B (YoY+27.5%), and Ordinary Income of ¥20.5B (YoY+27.1%). No revisions have been made to either the earnings forecast or dividend forecast. Progress for the current interim period was 49.4% for revenue and 48.8% for Operating Income, both near 50% and in line with standard progress. Sustaining growth in the cloud business and improving the profitability of the loss-making solution development business in the second half of the year will be key to achieving the plan.

Shareholder Returns

The interim dividend was ¥0, while the full-year Company forecast is an annual dividend of ¥9.00 per share. Based on forecast EPS of ¥28.87, the forecast Payout Ratio is approximately 31.2%, calculated solely on the basis of dividends. Interim free cash flow of ¥5.9B exceeded the estimated annual dividend forecast amount (in the ¥4B range), indicating that current cash-generation capacity is sufficient to support the dividend source. No disclosure regarding share repurchases has been identified.

Risk Factors

1. Continued losses in the solution development business and goodwill valuation: The business recorded an Operating Loss of ¥0.2B against revenue of ¥4.1B. Provisional goodwill of ¥4.0B, out of total goodwill of ¥7.7B, was recorded in connection with the acquisition of THE WORLD MANAGEMENT PTE LTD. Progress in integration and profitability improvement could affect the valuation of goodwill.

2. Increase in accounts receivable and working capital management: Accounts receivable increased to ¥4.3B, up +103.6% year on year, substantially exceeding the revenue growth rate of 17.8%. Trends in collection periods will be a factor affecting future OCF.

3. Maintaining the profit margin of the core cloud business: The healthcare and nursing-care cloud platform business has a high profit margin of 45.5%; however, customer IT investment trends, competitive conditions, and regulatory changes may affect the ability to maintain margins going forward.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

The Company's profitability is substantially above the industry median, positioning it among the more profitable companies in the IT and communications sector.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median, indicating a structure in which the Company’s relative strength lies in profit margins rather than growth.

※Source: Company analysis

Key Takeaways from the Results

1. Operating Income increased +30.9% against revenue growth of +17.8%, and the 3.2pt year-on-year improvement in the Operating Income margin indicates that scale effects centered on the cloud business are taking effect.

2. OCF was 1.23x Net Income, and free cash flow of ¥5.9B was secured. While earnings are well supported by cash, the sharp increase in accounts receivable warrants close monitoring going forward.

3. Of the three businesses, two—the cloud business and healthy life expectancy extension business—achieved higher revenue and earnings while improving their profit margins. In contrast, the solution development business turned loss-making, making variation in the business mix a defining feature of these results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥174–¥185 for cost of equity ±1%, and ¥177–¥183 for ω±0.1.

Notes:

• Goodwill amortization of ¥2.1 per share is added back to earnings (to account for a non-cash expense and comparability with IFRS companies).
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical values may be calculated somewhat higher.

（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 values are not forecasts of the market share price or recommendations for any specific investment action, 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 release 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, and after consulting a professional advisor as necessary.

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