INTELLIGENT WAVE INC. FY2026 FY Earnings Report

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Executive Summary

Although the company delivered higher revenue and earnings year on year, the significant decline in operating cash flow indicates that the increasing working capital burden behind the earnings growth is the key point of focus. Revenue increased to ¥17.25B (¥15.60B in the previous year, +10.6% YoY), operating income to ¥2.08B (+12.3%), ordinary income to ¥2.13B (+12.6%), and net income to ¥1.49B (+10.2%). The operating margin improved slightly to 12.0% from 11.9% in the previous year, while the gross margin declined to 28.7% from 29.9%, with the reduction in the SG&A ratio offsetting this decline. Against the company’s plan (revenue of ¥17.70B, operating income of ¥2.20B, and net income of ¥1.53B), achievement rates were 97.4%, 94.4%, and 97.2%, respectively, resulting in a slight shortfall.

Factors Affecting Performance

【Revenue】Revenue increased 10.6% YoY to ¥17.25B. Progress against the company’s plan of ¥17.70B was 97.4%, resulting in a slightly below-plan full-year outcome. Although segment-level disclosure is not available, the significant increase in accounts receivable (discussed below) suggests that project recognition and acceptance progress toward the end of the fiscal year contributed to revenue.

【Profitability】Operating income increased 12.3% YoY to ¥2.08B, and the operating margin improved by +0.1pt to 12.0% from 11.9% in the previous year. The gross margin declined by approximately 1.2pt to 28.7% from 29.9%, but the company secured operating-level earnings growth by containing the SG&A ratio at 16.7%. Ordinary income increased 12.6% to ¥2.13B, supported marginally by non-operating income of ¥0.07B, primarily consisting of dividend income of ¥0.05B. Net income increased 10.2% to ¥1.49B, with the gap from ordinary income attributable to extraordinary losses of ¥0.03B (loss on disposal of fixed assets of ¥0.02B and impairment loss on investment securities of ¥0.01B) and income taxes of ¥0.62B (effective tax rate of 29.4%). This was a higher-revenue, higher-earnings result in which the decline in gross margin was absorbed through SG&A control.

Key Financial Indicators

【Profitability】The operating margin was 12.0% (+0.1pt from 11.9% in the previous year), while the net margin was 8.6% (almost unchanged from 8.6% in the previous year), confirming a structure in which the decline in gross margin was offset by SG&A containment.【Cash Flow Quality】Operating cash flow (OCF) was only 0.21 times net income. Even relative to the EBITDA level, including depreciation and amortization of ¥1.71B, cash generation capacity was weak, indicating a delay in converting earnings into cash.【Investment Efficiency】ROE was 14.8% (+0.4pt from 14.4% in the previous year), while ROA based on ordinary income was 11.8% (+1.2pt from 10.6% in the previous year). Both the reduction in total assets (¥17.33B versus ¥18.69B in the previous year) and earnings growth contributed to these results.【Financial Soundness】The equity ratio rose by +7.4pt to 58.1% from 50.7% in the previous year. While liquidity remains ample, with current assets of ¥9.88B versus current liabilities of ¥6.44B, cash and deposits declined year on year to ¥4.64B.

Cash Flow Analysis

Operating cash flow was ¥0.31B, a significant decrease of -92.7% from ¥4.26B in the previous year, and its ratio to net income of ¥1.49B was only 0.21 times. The primary factors were an increase in accounts receivable (cash flow impact of -¥2.03B) and higher income tax payments (-¥1.26B), with the accumulation of working capital delaying the conversion of earnings into cash. Investing cash flow was -¥1.73B, primarily reflecting investment in fixed assets and intangible assets, including capital expenditures of ¥0.52B. Financing cash flow was -¥0.98B, with dividend payments being the main source of outflow. As a result, free cash flow (operating CF + investing CF) was -¥1.42B, meaning that the company’s funding situation during the period involved drawing down cash on hand.

Quality of Earnings

Non-operating income was ¥0.07B, primarily consisting of dividend income of ¥0.05B, and was limited to 0.4% of revenue. The majority of earnings therefore consisted of recurring income generated by the core business. Extraordinary items were modest at net -¥0.023B (extraordinary income of ¥0.003B and extraordinary losses of ¥0.026B, including a loss on disposal of fixed assets of ¥0.017B and an impairment loss on investment securities of ¥0.009B), and their impact on performance was limited to temporary factors. The difference between ordinary income of ¥2.13B and net income of ¥1.49B was attributable to the income tax burden at an effective tax rate of 29.4% and the extraordinary losses described above. From an accrual perspective, however, operating CF was only 0.21 times net income, and the accumulation of working capital, primarily due to the increase in accounts receivable, impeded the conversion of earnings into cash. This point warrants attention when assessing earnings quality.

Earnings Forecast and Guidance

Against the company’s plan (revenue of ¥17.70B, operating income of ¥2.20B, ordinary income of ¥2.24B, and net income of ¥1.53B), actual results were ¥17.25B (achievement rate of 97.4%), ¥2.08B (94.4%), ¥2.13B (95.0%), and ¥1.49B (97.2%), respectively, representing slight shortfalls across all metrics. The shortfall at the operating income level was somewhat larger, potentially reflecting the decline in gross margin and discrepancies in project progress and collection timing, as indicated by the increase in accounts receivable and decrease in advances received. In the next period, normalization of trade receivables collections and improvement in the product mix will be factors determining the degree to which the company achieves its plan.

Shareholder Returns

The annual dividend was ¥37 (¥17 interim and ¥20 year-end), representing a significant increase from the previous year’s annual dividend of ¥15. The payout ratio was 65.2%, slightly below 67.9% in the previous year, but the company continues to maintain a high level of shareholder returns. Share repurchases were minimal, with virtually no acquisition amount recorded, and dividends remained the primary form of shareholder returns. Free cash flow for the period was negative at -¥1.42B, and total dividends of ¥0.97B could not be covered solely by cash generated from operating activities. However, the company held cash and deposits of ¥4.64B and investment securities of ¥1.36B, and there are no concerns regarding its near-term ability to meet payments.

Risk Factors

1. Decline in cash generation capacity: Operating CF was ¥0.31B, only 0.21 times net income of ¥1.49B, representing a year-on-year decrease of -92.7%. The primary factor was the increase in accounts receivable to ¥2.85B (+69.3% YoY), and the key focus will be whether the delay in converting earnings growth into cash persists.

2. Decline in gross margin: The gross margin was 28.7%, down approximately 1.2pt from 29.9% in the previous year. Although the operating margin improved through SG&A containment, changes in the product and project mix and a potential increase in the outsourcing ratio may be contributing factors, and sustainability will depend on future trends.

3. Reliance on intangible assets and restrained investment: Intangible fixed assets were ¥3.45B, representing 19.9% of total assets of ¥17.33B. Capital expenditures and intangible asset investments remained limited relative to depreciation and amortization of ¥1.71B, making the balance between amortization costs and future investment an area requiring ongoing monitoring.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the operating margin and net margin exceed the industry median, indicating that profitability is relatively strong within the industry.

Growth and Capital Efficiency

The revenue growth rate was broadly in line with the industry median and was positioned around the middle of the industry range of 1.8%–20.2%.

※Source: Company compilation

Key Points from the Financial Results

1. The top line increased 10.6%, and the operating margin also improved to 12.0%, placing profitability at a favorable level relative to the industry average. Meanwhile, the gross margin declined by approximately 1.2pt, suggesting that changes in the project mix accompanying revenue growth may have affected the earnings structure.

2. Operating CF decreased -92.7% year on year, and the ratio to net income (OCF/NI) was only 0.21 times. The primary factor was the significant increase in accounts receivable (+69.3%), and the divergence between earnings growth reported in the financial results and cash flow trends is an important observation when evaluating earnings quality.

3. The payout ratio was relatively high at 65.2%, while free cash flow for the period was negative. Considering cash and deposits on hand and securities holdings, there are no near-term concerns regarding the company’s ability to make payments. However, working capital trends will be closely monitored when assessing future capacity for shareholder returns.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type, with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥427–¥450 at ±1% for the cost of equity, and ¥437–¥440 at ±0.1 for ω.

（Calculation model: Residual income model / Interest rate reference month: 2026-07 / This figure does not forecast or guarantee future share prices）

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

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