IID (6038) FY2026 Q2 Earnings Report

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Executive Summary

Cumulative Q2 results for FY2026 showed declines in both revenue and earnings, with the deterioration in core business profitability being the defining feature. Revenue was ¥2.995B (down 2.7% YoY), Operating Income was ¥0.223B (down 34.3%), and Ordinary Income was ¥0.249B (down 27.3%). Meanwhile, interim Net Income attributable to owners of the parent increased significantly to ¥0.340B (up 68.0% YoY), largely due to the impact of corporate income taxes and a ¥0.016B gain on the sale of investment securities; this does not reflect an improvement on an Operating Income basis. The primary factor was the deterioration in gross margin and profit margin in the core Creator Platform Business.

Factors Affecting Earnings

【Revenue】Revenue was ¥2.995B, down 2.7% from the same period of the previous year. By segment, the core Creator Platform Business posted revenue of ¥2.766B (down 3.4%), while the Creator Solutions Business increased revenue to ¥0.230B (up 6.7%). The Creator Platform Business accounted for 92.3% of the revenue mix, and its revenue decline was the primary factor depressing consolidated revenue.

【Profit and Loss】Operating Income was ¥0.223B (down 34.3%), and the Operating Margin narrowed to 7.4% from 11.0% in the same period of the previous year, a contraction of approximately 3.6pt. The gross margin declined to 45.0% (46.9% in the previous year), while the SG&A ratio increased to 37.6% (35.9% in the previous year), resulting in negative operating leverage. Ordinary Income was ¥0.249B (down 27.3%). Meanwhile, a ¥0.016B gain on the sale of investment securities (extraordinary income) and a ¥0.006B valuation loss on investment securities (extraordinary loss) occurred as one-time factors. In addition, the decline in corporate income taxes and other taxes reduced the tax burden year over year, resulting in interim Net Income attributable to owners of the parent of ¥0.340B (up 68.0%). The divergence between Ordinary Income and Net Income was attributable to tax effects and gains on the sale of securities and should be evaluated separately from core earnings power. In conclusion, the quarter was characterized by declines in both revenue and earnings.

Segment Analysis

The Creator Platform Business reported revenue of ¥2.766B (down 3.4% YoY), segment profit of ¥0.242B (down 30.4%), and a profit margin of 8.7%, down approximately 3.4pt from 12.1% in the previous year, making it the primary contributor to the decline in consolidated Operating Income. The Creator Solutions Business increased revenue to ¥0.230B (up 6.7%), but its segment loss widened to ¥0.018B from a loss of ¥0.008B in the same period of the previous year. The segment experienced an expansion of losses despite revenue growth, highlighting the challenge of monetizing growth investments.

Key Financial Metrics

【Profitability】The Operating Margin was 7.4%, narrowing by approximately 3.6pt from 11.0% in the same period of the previous year, while the gross margin also declined to 45.0% (46.9% in the previous year). The Net Profit Margin was high at 11.3%, but it includes the effects of lower corporate income taxes and other taxes and gains on the sale of investment securities; therefore, it must be evaluated together with the Operating Margin, which indicates the profitability of the core business. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥0.021B, and the OCF/Net Income ratio was only 0.06x relative to interim Net Income of ¥0.340B, indicating weak cash conversion. The main factor was an increase in accounts receivable of ¥0.083B. 【Investment Efficiency】Annualized ROE was 14.2% and was supported by the Net Profit Margin and asset turnover, but a qualitative assessment is required because it was accompanied by a decline in the Operating Margin. 【Financial Soundness】The Equity Ratio was 77.9%, and the Current Ratio was approximately 445% (current assets of ¥4.412B/current liabilities of ¥0.992B), both extremely high. Interest-bearing debt consisted only of ¥0.273B in long-term borrowings, indicating low leverage.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥0.021B, down 6.8% from the same period of the previous year, and the cash conversion rate was low relative to interim Net Income of ¥0.340B. Factors included an increase in accounts receivable of ¥0.083B, a decrease in accounts payable of ¥0.028B, and corporate income taxes and other taxes paid of ¥0.065B. Investing Cash Flow was -¥0.082B, including capital expenditures of -¥0.017B, expenditures related to business acquisitions, and purchases of investment securities. As a result, free cash flow was -¥0.060B, indicating that accounting profits were not sufficiently converted into cash flow. Financing Cash Flow was -¥0.240B, primarily due to dividend payments of ¥0.105B and repayments of long-term borrowings of ¥0.124B, while cash and cash equivalents decreased by ¥0.301B during the period. On the other hand, cash and deposits remained substantial at ¥3.30B, limiting concerns regarding short-term liquidity.

Earnings Quality

The earnings structure for the current period comprised a mixture of recurring earnings power and one-time factors. Both Operating Income and Ordinary Income declined, clearly indicating a deterioration in core earnings power from the same period of the previous year. Meanwhile, the increase in interim Net Income attributable to owners of the parent was largely supported by temporary and non-recurring factors, including a ¥0.016B gain on the sale of investment securities (extraordinary income) and a lower corporate tax burden. Other operating income included ¥0.020B in gains from the operation of investment business partnerships, but this was also not derived from the core business. From an accrual perspective, the ¥0.083B increase in accounts receivable put pressure on OCF, creating a divergence between the increase in profit reported on the income statement and cash flow trends. Accordingly, the increase in earnings for the current period should be assessed cautiously from the perspective of earnings quality.

Earnings Forecast and Guidance

Against the full-year earnings forecasts of revenue of ¥6.40B, Operating Income of ¥0.60B, and Ordinary Income of ¥0.60B, first-half progress rates were 46.8% for revenue, 37.2% for Operating Income, and 41.5% for Ordinary Income, all below the standard progress rate of 50%. Progress toward the full-year plan was particularly low for Operating Income and Ordinary Income, and achieving the full-year plan will require the Operating Margin to improve from 7.4% in the first half to approximately 11% in the second half. Meanwhile, the progress rate for full-year Net Income attributable to owners of the parent was high at 91.4%, but because this includes tax effects and gains on the sale of investment securities, greater emphasis should be placed on progress rates for Operating Income and Ordinary Income, which reflect core business progress. There were no revisions to either the earnings forecast or the dividend forecast.

Shareholder Returns

As of the end of Q2, the dividend was ¥0 per share, while the full-year dividend forecast was ¥22.0 per share. Based on the full-year Net Income forecast of ¥0.372B, the forecast Payout Ratio was approximately 28.8%, below the level generally regarded as a benchmark for sustainability. On the balance sheet, cash and deposits of ¥3.30B and low interest-bearing debt of ¥0.273B in long-term borrowings indicate substantial dividend-paying capacity. However, first-half free cash flow was -¥0.060B, and it should be monitored that cash generation during the first half alone did not sufficiently support the source of dividend funding.

Risk Factors

1. Deterioration in the profitability of the core business: The Creator Platform Business reported revenue down 3.4% YoY and segment profit down 30.4%, with its profit margin declining to 8.7% from 12.1% in the previous year. If recovery in the profitability of the core business is delayed, the impact on consolidated results will persist.

2. Weak cash conversion of earnings: The OCF/Net Income ratio was 0.06x, and free cash flow was -¥0.060B, primarily due to the ¥0.083B increase in accounts receivable. If improvement in working capital is delayed, weak cash flow may persist.

3. Delay in monetizing the growth business: The Creator Solutions Business increased revenue by 6.7%, but its segment loss widened to ¥0.018B. If losses continue to expand despite revenue growth, a delay in recovering investments is a concern.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The Operating Margin was substantially below the industry median and ranked toward the lower end of the industry, while the Net Profit Margin was near the median level.

Growth and Capital Efficiency

The Revenue Growth Rate was substantially below the industry median and diverged from the industry’s growth trend.

※Source: Compiled by the company

Key Points from the Financial Results

1. The core business experienced declines in revenue and Operating Income, and the Operating Margin declined by approximately 3.6pt YoY. Recovery in the profitability of the core Creator Platform Business will be the key to second-half performance.

2. The increase in Net Income was largely attributable to tax effects and gains on the sale of investment securities. The fact that the progress rates for Operating Income and Ordinary Income (37.2% and 41.5%, respectively) were below the standard progress rate against the full-year plan is a key structural point of focus.

3. While financial soundness was high, with an Equity Ratio of 77.9% and a Current Ratio of approximately 445%, the OCF/Net Income ratio was only 0.06x, indicating weak cash conversion of earnings and requiring monitoring from an earnings-quality perspective.

Theoretical Share Price (Reference Value)

Sensitivity: ¥964–¥1,019 at ±1% for the cost of equity, and ¥990–¥991 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥18.1 per share is added back to earnings (for non-cash expense treatment and comparability with IFRS companies).
• Because Net Income progress against the full-year forecast (91%) exceeds the standard level (50%), forecast EPS is adjusted upward within a maximum range of +10% (because companies whose progress is ahead of schedule tend to exceed forecasts. Adjustments may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).
• Because 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 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price, a recommendation of any specific investment action, or a prediction or guarantee of the future share price.)

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This report is an automatically generated earnings analysis document in which AI analyzed XBRL earnings report data. It does not recommend investment in any specific security. 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 you should consult a professional as necessary.

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