Sun* (4053) FY2026 Q1 Earnings Report

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Executive Summary

The Q1 of the fiscal year ending December 2026 delivered strong results, with both higher revenue and improved margins, driving Operating Income to 2.1 times the previous year's level. Revenue was ¥44.1B (+24.6% YoY), Operating Income was ¥6.2B (+113.2%), Ordinary Income was ¥6.7B (+62.6%), and Net Income was ¥4.2B (+83.3%). Gross profit margin improved to 50.3% (46.1% in the previous year), while SG&A expenses grew more slowly than revenue, resulting in a significant increase in Operating Income margin to 14.1% (8.2% in the previous year). Meanwhile, the growth rates of Ordinary Income and Net Income were below that of Operating Income, affected by non-recurring factors such as the absence of the foreign exchange gain recorded in the previous year and an impairment loss on investment securities of ¥0.4B.

Factors Affecting Performance

【Revenue】Revenue increased 24.6% YoY to ¥44.1B. Although there is no segment disclosure because the Company operates a single Digital Creative Studio Business, accounts receivable also increased 25.4% YoY, broadly in line with revenue growth, indicating no excessive acceleration in revenue recognition.

【Profit and Loss】Operating Income increased 113.2% YoY to ¥6.2B. The gross profit margin improved by 420bp to 50.3% (46.1% in the previous year), while the SG&A ratio declined by 170bp to 36.2% (37.9% in the previous year). The Operating Income margin expanded by 590bp to 14.1% (8.2% in the previous year), indicating higher revenue and profit supported by improved cost efficiency. However, Ordinary Income was limited to ¥6.7B (+62.6%), as the absence of the ¥0.9B foreign exchange gain recorded in the previous year acted as a downward pressure. Profit Before Tax was ¥6.2B, while extraordinary losses of ¥0.4B, including an impairment loss on investment securities of ¥0.4B, constrained the conversion to Net Income, which came to ¥4.2B (+83.3%).

Segment Analysis

The Company operates a single segment, the Digital Creative Studio Business, and does not disclose segment-level operating income or loss.

Key Financial Metrics

【Profitability】The Operating Income margin of 14.1% improved by 590bp from 8.2% in the same period of the previous year, while the Net Income margin also increased by 310bp from 6.4% to 9.5%. Annualized ROE was 14.9%, indicating a favorable level of profitability.【Cash Flow Quality】Profit Before Tax of ¥6.2B was slightly below Ordinary Income of ¥6.7B, with extraordinary losses of ¥0.4B, including an impairment loss on investment securities of ¥0.4B, being the primary cause of the difference.【Investment Efficiency】Intangible assets increased 66.4% YoY to ¥15.9B, while goodwill increased 51.1% YoY to ¥13.7B, reflecting business expansion, including newly consolidated subsidiaries, in the asset composition.【Financial Soundness】The Equity Ratio was 58.3% (66.2% in the previous year). Cash and deposits of ¥126.8B were substantial relative to interest-bearing debt of ¥43.1B, and the current ratio of 271.7% indicates strong short-term payment capacity.

Cash Flow Analysis

Although an individual cash flow statement disclosure is not available, fund movements can be inferred from changes in the balance sheet. Cash and deposits increased from ¥105.6B in the previous year to ¥126.8B, indicating an expanded funding base. Total assets increased from ¥161.1B to ¥192.7B, while liabilities also increased from ¥54.5B to ¥80.5B, with interest-bearing debt reaching ¥43.1B, primarily consisting of short-term borrowings of ¥26.0B. The combined increase in intangible assets and goodwill amounted to approximately ¥11.0B, suggesting that investment activity associated with new consolidations contributed to the expansion of both assets and liabilities. Cash and deposits were approximately 2.9 times interest-bearing debt, indicating that liquidity on hand has been maintained while investment and financing activities proceeded.

Earnings Quality

Ordinary Income was ¥6.7B compared with Operating Income of ¥6.2B. The primary component of non-operating income of ¥0.7B was interest income of ¥0.7B, which accounted for only 1.7% of revenue, indicating a high degree of reliance on recurring operating revenue. Profit Before Tax of ¥6.2B was slightly below Ordinary Income, primarily due to extraordinary losses of ¥0.4B, including an impairment loss on investment securities of ¥0.4B. This impairment loss should be distinguished from the Company's underlying earnings power as a temporary factor, and Net Income of ¥4.2B was consequently relatively restrained compared with the growth in Operating Income (+113.2%). The effective tax rate was 32.7%, also acting as a factor depressing the Net Income margin from the perspective of the tax burden coefficient.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year plan (Revenue of ¥182.0B, Operating Income of ¥17.1B, and Net Income of ¥13.9B) were 24.2% for Revenue, 36.3% for Operating Income, and 30.0% for Net Income. While Revenue was broadly in line with the standard quarterly progress rate of 25%, Operating Income and Net Income exceeded the standard progress rate. The Q1 Operating Income margin of 14.1% exceeded the full-year plan-based Operating Income margin of 9.4%, suggesting that the full-year plan may incorporate higher expenses in subsequent quarters or conservative assumptions. The Company has not revised either its earnings forecast or dividend forecast.

Shareholder Returns

The full-year dividend forecast is ¥10.0 per share, implying a Payout Ratio of approximately 27.2% based on forecast full-year Net Income of ¥13.9B and forecast EPS of ¥36.73. Q1 EPS was ¥10.81, up 77.2% from ¥6.10 in the previous year, while the dividend forecast remains conservative relative to earnings growth. Cash and deposits of ¥126.8B exceeded interest-bearing debt of ¥43.1B by ¥83.7B, providing substantial financial capacity to support continued dividend payments. The Company holds treasury shares of ¥6.8B, but no acquisitions during the current period have been disclosed; therefore, the Payout Ratio is described based solely on dividends.

Risk Factors

1. Concentration risk in a single business: The Company operates as a single-segment Digital Creative Studio Business, creating a structure in which fluctuations in revenue, utilization rates, and talent acquisition directly affect overall performance.

2. Risk associated with increases in goodwill and intangible assets: Goodwill increased 51.1% YoY to ¥13.7B, while intangible assets increased 66.4% to ¥15.9B. If newly consolidated subsidiaries fail to contribute earnings as expected after integration, amortization expenses or impairment losses may arise under JGAAP.

3. Risk related to the short-term liability structure: The short-term liability ratio of 60.3% exceeds the cautionary benchmark of 40%. However, cash and deposits are approximately 4.9 times short-term borrowings of ¥26.0B, providing a substantial liquidity buffer at present. The management of refinancing and repayment timing remains an ongoing monitoring item.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Operating Income margin exceeds the industry median, while the Net Income margin is slightly below the median, partly due to the impact of extraordinary losses.

Growth and Capital Efficiency

The Revenue growth rate is well above the industry median and represents a high-growth level close to the upper bound of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Operating Income growth of +113.2%, exceeding Revenue growth of +24.6%, indicates the emergence of operating leverage through a 420bp improvement in gross profit margin and a 170bp decline in the SG&A ratio. Whether this improvement in profitability can be sustained in subsequent quarters will determine the quality of full-year plan achievement.

2. Full-year progress rates are ahead of schedule, with Operating Income at 36.3% and Net Income at 30.0% compared with Revenue at 24.2%. The full-year plan-based Operating Income margin of 9.4% is more conservative than the Q1 actual result of 14.1%. This difference should be monitored as a potential reflection of future investment and personnel expense increases.

3. The increase in intangible assets and goodwill reflects business expansion involving newly consolidated subsidiaries. Progress in earnings contributions following integration may have a structural impact on future financial metrics.

Theoretical Share Price (For Reference)

Sensitivity: ¥309–¥328 at Cost of Equity ±1%, and ¥318–¥319 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap relative to 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 are not forecasts of the market share price or recommendations for specific investment actions, 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 discretion and responsibility, after consulting professionals as necessary.

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