S&J (5599) FY2026 Q3 Earnings Report

Quick View

Executive Summary

The Company delivered a high-quality earnings result, with higher revenue accompanied by a significant improvement in profit margins, resulting in increases in both revenue and earnings. Revenue was ¥17.0B (+23.2% YoY), Operating Income was ¥4.3B (+58.2%), Ordinary Income was ¥4.3B (+57.8%), and Net Income was ¥3.0B (+58.6%). The primary factors behind the earnings growth rate significantly exceeding the revenue growth rate were the increase in gross margin from 47.5% to 52.5% and the effect of operating leverage, as the 20.6% increase in SG&A expenses was below the revenue growth rate.

Factors Affecting Results

【Revenue】Revenue was ¥17.0B, an increase of +23.2% YoY. Contract liabilities were ¥5.84B, accounting for 70.9% of current liabilities, indicating a certain degree of visibility into future revenue based on contracted orders.

【Profit and Loss】Operating Income was ¥4.3B (+58.2%), Ordinary Income was ¥4.3B (+57.8%), and Net Income was ¥3.0B (+58.6%), with growth in each case significantly exceeding the revenue growth rate. Gross margin improved by 498bp and Operating Income margin improved by 556bp, indicating that earnings expansion was primarily supported by improved profitability in the core business. Non-operating income and expenses were small on a net basis, and Ordinary Income was approximately at the same level as Operating Income. Against Profit Before Tax of ¥4.3B, the effective tax rate was 31.0%; the ¥1.3B difference from Net Income was primarily attributable to corporate income taxes and other related taxes. In conclusion, the Company achieved increases in both revenue and earnings, with earnings growth exceeding revenue growth.

Key Financial Metrics

【Profitability】Operating Income margin was 25.1% (19.5% in the previous year), while Net Income margin was 17.4% (13.5% in the previous year), with both improving significantly. Gross margin was 52.5%, up from 47.5% in the previous year.【Cash Quality】Cash and deposits were ¥23.2B, accounting for 74.9% of total assets. The scale of non-operating income and expenses was small, and the assets supporting earnings were sound.【Investment Efficiency】Annualized ROE was 17.4%, annualized total asset turnover was 0.732x, and financial leverage was 1.36x. The high ROE was supported by the high profitability of the core business rather than excessive use of debt.【Financial Soundness】The Equity Ratio was 73.4%, the current ratio was 327.4%, and the debt-to-equity ratio was 0.36x, all indicating a conservative financial structure.

Cash Flow Analysis

Although a cash flow statement was not disclosed, funding trends can be assessed from changes in the balance sheet. Cash and deposits increased by ¥3.21B from ¥19.98B in the same period of the previous year to ¥23.19B, accumulating to a level equivalent to 74.9% of total assets. Retained earnings increased by ¥2.20B from ¥10.42B to ¥12.62B, primarily due to the accumulation of Q3 cumulative Net Income of ¥2.96B. Property, plant and equipment decreased by ¥0.60B from ¥3.80B to ¥3.20B, suggesting that large-scale capital expenditures were limited. Treasury stock decreased from negative ¥0.60B to negative ¥0.11B, contributing to the increase in net assets. Overall, the accumulation of earnings generated by operating activities was the primary driver of the increase in funds, indicating that cash has accumulated without materially reducing capital efficiency.

Earnings Quality

The difference between Ordinary Income and Net Income was attributable to corporate income taxes and other related taxes, and no gains or losses resulting from temporary factors were identified. Non-operating income, including interest income, was ¥0.03B, while non-operating expenses, including fees paid, were ¥0.01B; both were small, leaving Ordinary Income approximately at the same level as Operating Income. Accordingly, the earnings growth for the current period resulted from improved profitability in the core business and did not depend on a temporary boost from non-operating items, supporting a favorable assessment of earnings quality. On the other hand, work in process increased from almost zero in the same period of the previous year to ¥0.22B, indicating an increase in costs remaining tied up as projects progressed. Although this represented only approximately 0.7% of total assets, it is necessary to monitor the progression of project profitability together with the provision for loss on orders of ¥0.06B.

Earnings Forecasts and Guidance

The full-year Company forecasts are Revenue of ¥23.2B (+19.4% YoY), Operating Income of ¥5.2B (+23.4%), Ordinary Income of ¥5.2B (+23.1%), and Net Income of ¥3.5B (+13.9%). The Q3 cumulative progress rates were 73.3% for Revenue, 82.1% for Operating Income, 82.3% for Ordinary Income, and 84.1% for Net Income. Compared with the standard progress rate of 75% after taking seasonality into account, Revenue was slightly below while earnings were clearly above. The lead in earnings progress indicates potential upside to the full-year forecasts if the current high profitability continues; however, changes in personnel expenses and project mix in Q4 will determine the sustainability of this progress.

Shareholder Returns

The Q2 dividend was ¥0, and the Company’s full-year dividend forecast is ¥15.0 per share. Based on forecast full-year EPS of ¥63.17, the Payout Ratio is 23.7%, indicating that the dividend is conservatively set relative to the earnings level. The conservative financial base, including cash and deposits of ¥23.2B and a debt-to-equity ratio of 0.36x, supports dividend sustainability. No data regarding share repurchases was identified.

Risk Factors

1. Risk of Margin Reversal: Although Operating Income margin improved by 556bp YoY, the current high gross margin of 52.5% could reverse and decline if there are changes in project mix, increased hiring and enhancements to employee compensation, or increased research and development investment.

2. Project Profitability and Progress Risk: Work in process increased from almost zero in the same period of the previous year to ¥0.22B. If project delays or deterioration in project profitability occur, risks related to cost recovery and provisions may arise. The provision for loss on orders was ¥0.06B.

3. Contract Performance Risk: Contract liabilities of ¥5.84B account for 70.9% of current liabilities and indicate visibility into future revenue. However, delays in performance or stagnation in contract renewals could affect the timing of revenue recognition and project profitability.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin both significantly exceeded the industry median, placing the Company in the high-profitability group within the industry.

Growth and Capital Efficiency

The Revenue growth rate also exceeded the industry median, placing the Company in the high-growth group within the industry.

※Source: Compiled by the Company

Key Earnings Highlights

1. Revenue increased by +23.2%, while Operating Income increased by +58.2%, with improvements of 498bp in gross margin and 556bp in Operating Income margin. The earnings growth exceeding revenue growth was primarily attributable to operating leverage, as the increase in SG&A expenses was below the revenue growth rate.

2. Q3 cumulative progress against the full-year forecasts was 82.1% for Operating Income and 84.1% for Net Income, exceeding the standard progress rate of 75% after taking seasonality into account, indicating solid progress on the earnings front.

3. The financial base was conservative, with cash and deposits of ¥23.2B, a current ratio of 327.4%, and a debt-to-equity ratio of 0.36x. The forecast full-year Payout Ratio of 23.7% is conservatively set relative to the earnings level.

Theoretical Share Price (Reference Value)

Sensitivity: ¥459–¥486 at cost of equity ±1%; ¥470–¥474 at ω±0.1.

Notes:

• Net assets as of the quarter-end are used (there is a time lag relative to the full-year forecasts).
• 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: 2026-07 / Mechanically calculated solely from 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.)

---

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, after consulting professionals as necessary.

---End of Report---