Sun* (4053) FY2026 Q2 Earnings Report

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Executive Summary

For the cumulative Q2 period of the fiscal year ending December 2026, earnings increased alongside higher revenue and an improved gross margin, clearly indicating a recovery in profitability. Revenue was ¥8.88B (+25.8% YoY), Operating Income was ¥1.00B (+141.8%), Ordinary Income was ¥1.19B (+163.1%), and Net Income attributable to owners of the parent was ¥0.79B (+128.0%). The gross margin improved from 45.4% to 49.8%, while the SG&A ratio also declined, allowing the impact of higher revenue to translate substantially into Operating Income.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥8.88B (+25.8% YoY), maintaining a high growth rate. Growth from the level in the same period of the previous year exceeded the industry median of 22.5%, apparently reflecting the expansion of projects and the expansion of the scope of consolidation through M&A.

【Profit and Loss】Operating Income was ¥1.00B (+141.8% YoY), Ordinary Income was ¥1.19B (+163.1%), and Net Income was ¥0.79B (+128.0%), representing substantial earnings growth across all measures. The gross margin improved to 49.8% (+4.4pt from 45.4% in the previous year), while SG&A expenses increased by 22.6%, below the revenue growth rate; consequently, the SG&A ratio declined to 38.5% (-1.0pt YoY). Ordinary Income exceeding Operating Income by ¥0.185B was attributable to interest income of ¥0.16B, and the contribution of non-operating financial income should be evaluated separately. Extraordinary losses of ¥0.07B (including an impairment loss on investment securities of ¥0.06B) were a temporary factor that reduced Profit Before Tax. Overall, this represents high-quality earnings growth accompanied by higher revenue, improved gross profit, and disciplined SG&A expenses.

Key Financial Metrics

【Profitability】The Operating Income margin improved substantially to 11.3% (+5.4pt from 5.9% in the previous year), while the Net Income margin improved to 8.9% (+4.0pt from 4.9% in the previous year). Annualized ROE was 13.3%, driven primarily by the improvement in the Net Income margin and the maintenance of total asset turnover. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥0.57B, and the ratio to Net Income of ¥0.79B was only 0.72x, indicating that cash generation has not kept pace with earnings growth. The primary factor was a ¥0.46B increase in accounts receivable. 【Investment Efficiency】Capital expenditures were ¥0.05B, while depreciation was ¥0.05B, remaining at nearly the same level and limited to investment for the renewal of existing facilities. Meanwhile, increases in intangible assets and goodwill indicate expansionary investment through M&A. 【Financial Soundness】The Equity Ratio was 61.4% (down from 66.2% in the previous year), while total assets expanded to ¥19.30B (from ¥16.11B in the previous year). Cash and deposits were substantial at ¥12.27B, indicating strong short-term payment capacity.

Cash Flow Analysis

Operating Cash Flow was ¥0.57B, up +97.3% YoY, but stood at only 0.72x Net Income of ¥0.79B, indicating a somewhat gradual pace of earnings conversion into cash. The factors were a ¥0.46B increase in accounts receivable and contract assets and a ¥0.04B decrease in accounts payable, with the buildup of working capital associated with higher revenue placing pressure on cash. Investing Cash Flow was -¥3.96B, of which an increase in time deposits accounted for ¥3.25B and the acquisition of shares in subsidiaries accounted for ¥0.61B; capital expenditures themselves were small at ¥0.05B. As a result, Free Cash Flow was -¥3.39B, but this reflected the transfer of funds into time deposits and M&A investment rather than a deterioration in the business’s cash-generation capacity. Financing Cash Flow was +¥1.56B, primarily due to a net increase of ¥1.78B in short-term borrowings, indicating that investment activities were financed through borrowings. Cash and cash equivalents declined from the previous year, but the cash and deposits balance remained substantial at ¥12.27B, and there is limited concern regarding near-term funding.

Quality of Earnings

Ordinary Income of ¥1.19B exceeded Operating Income of ¥1.00B by ¥0.185B, but the majority was attributable to interest income of ¥0.16B; non-operating income accounted for 2.7% of revenue. Operating Income is therefore the more appropriate basis for assessing core earning power. Extraordinary losses of ¥0.07B (including an impairment loss on investment securities of ¥0.06B) were a temporary factor, reducing Profit Before Tax to ¥1.12B from Ordinary Income of ¥1.19B. Comprehensive Income was ¥1.09B, exceeding Net Income of ¥0.79B. The difference was primarily attributable to foreign currency translation adjustments of ¥0.22B and valuation differences on securities of ¥0.08B, indicating that non-operating valuation factors boosted Comprehensive Income. OCF/Net Income remained at only 0.72x, and the increase in accounts receivable remains as a working-capital accrual; therefore, monitoring of cash conversion is necessary when assessing earnings quality.

Earnings Forecast and Guidance

The full-year forecast is Revenue of ¥18.20B and Operating Income of ¥1.71B, with progress rates for the first half of 48.8% and 58.6%, respectively. The progress rates for Operating Income and Net Income (58.6% and 57.0%) exceed the standard first-half progress rate of 50%, while first-half Operating Income margin of 11.3% exceeds the full-year forecast Operating Income margin of 9.4%. The company’s plan appears to incorporate a decline in the profit margin in the second half, making the project mix and personnel expenses in the second half key to achieving the plan. Neither the earnings forecast nor the dividend forecast was revised at the time of the full-year financial results.

Shareholder Returns

As of the end of Q2, the dividend was ¥0, and no interim dividend was paid. The full-year dividend forecast is ¥10 per share, and comparative data with the previous fiscal year’s actual results has not been disclosed. Based on the full-year Net Income forecast of ¥1.39B, the approximate Payout Ratio is about 28%. Cash flow after maintaining operations and capital expenditures in the first half (OCF ¥0.57B - capital expenditures ¥0.05B = ¥0.52B) exceeds the level of the total annual forecast dividend. No share repurchases were identified; accordingly, this assessment concerns the Payout Ratio rather than the Total Return Ratio.

Risk Factors

1. Delay in cash conversion due to increased working capital: Accounts receivable increased +30.0% YoY to ¥2.32B, and OCF/Net Income remained at 0.72x. It is necessary to determine whether this is a temporary increase associated with higher revenue or a lengthening of collection periods.

2. Integration risk associated with increased M&A activity and goodwill: The company acquired shares in a subsidiary for ¥0.61B, and goodwill reached ¥1.16B, up +27.9% YoY. Although goodwill/equity remains low at 9.8%, progress in post-merger integration and potential future impairment indicators require monitoring.

3. Greater reliance on short-term borrowings: Financing Cash Flow included a net increase of ¥1.78B in short-term borrowings, indicating that funding for investing activities (increases in time deposits and M&A) was provided through borrowings. Cash and deposits remain substantial, and near-term liquidity risk is limited.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Profitability remains below the industry median, although the degree of improvement from the same period of the previous year was substantial.

Growth and Capital Efficiency

The Revenue growth rate exceeded the industry median and was near the upper bound of the IQR.

※Source: Compiled by the Company

Key Points in the Financial Results

1. Higher revenue and an improved gross margin (45.4%→49.8%) progressed simultaneously, expanding the Operating Income margin to 11.3% (+5.4pt). The fact that revenue growth was not accompanied by deteriorating profitability is a notable point in the financial results data.

2. Progress rates for Operating Income and Net Income against the full-year forecast both exceeded the standard first-half level, but OCF/Net Income remained at 0.72x, resulting in a gap between the pace of earnings growth and cash generation. The trend in accounts receivable collection during the second half will be a key point to monitor.

3. Total assets expanded to ¥19.30B (¥16.11B in the previous year), and growth investment through M&A can be confirmed from the increase in intangible assets and goodwill. The transition to IFRS from the fiscal year ending December 2026 will also change comparability with JGAAP results, including the discontinuation of goodwill amortization, and this is another point to note in the financial results data.

Theoretical Share Price (Reference Value)

Sensitivity: ¥329–¥348 at cost of equity ±1%, and ¥337–¥339 at ω±0.1.

Notes:

• Goodwill amortization of ¥3.1 per share has been added back to earnings (as a non-cash expense and for comparability with IFRS companies).
• Net assets as of the quarter-end have been used (there is a time gap relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-08 / This is a mechanically calculated value based solely on publicly disclosed data; it 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 financial results 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 financial results data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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