W TOKYO (9159) FY2026 Q2 Earnings Report

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Executive Summary

Q2 resulted in higher revenue but lower earnings, with the key point being the decline in profit margins despite revenue growth. Revenue was ¥20.1B (¥18.6B in the previous year, +8.4% YoY), Operating Income was ¥1.4B (¥1.9B in the previous year, -24.0% YoY), Ordinary Income was ¥1.4B (¥1.8B in the previous year, -23.5% YoY), and Net Income was ¥0.8B (¥1.1B in the previous year, -22.9% YoY). SG&A expenses increased more rapidly than revenue, causing the Operating Income margin to decline to 7.0%.

Factors Affecting Performance

【Revenue】Revenue was ¥20.1B, representing an 8.4% increase year on year. Given that accounts receivable increased substantially from the previous year, the expansion of credit sales may have contributed to the revenue increase.

【Profit and Loss】Gross profit was ¥6.7B, with a gross margin of 33.2%, showing no significant change from the previous year. However, SG&A expenses increased more rapidly than revenue to ¥5.26B (SG&A ratio: 26.2%), reducing Operating Income to ¥1.4B (-24.0% YoY). Ordinary Income also declined to ¥1.4B (-23.5% YoY), while Net Income fell to ¥0.8B (-22.9% YoY). Extraordinary losses were limited to ¥0.03B in impairment losses on investment securities, and the difference between Ordinary Income and Net Income was primarily attributable to income taxes and other taxes (¥0.5B). Overall, the company recorded higher revenue but lower earnings, with the pace of SG&A growth acting as a constraint on earnings growth.

Key Financial Indicators

【Profitability】The Operating Income margin was 7.0%, and the SG&A burden (SG&A ratio: 26.2%) is weighing on profitability relative to the gross margin of 33.2%. The Net Income margin was 4.2%, down from the previous year.【Cash Flow Quality】Operating Cash Flow was negative at -¥0.9B, while Free Cash Flow was also negative at -¥1.2B, showing a clear divergence from Net Income of ¥0.8B. The negative OCF was primarily attributable to a ¥5.4B increase in trade receivables (accounts receivable), indicating that the conversion of earnings into cash is lagging.【Investment Efficiency】Annualized ROE was 10.3%. Total assets were ¥28.9B and net assets were ¥16.6B, while asset efficiency is trending downward due to the increase in trade receivables.【Financial Soundness】The Equity Ratio was high at 57.4%. With cash and deposits of ¥16.8B against long-term borrowings of ¥4.2B, financial leverage remains conservative. Current assets were ¥24.3B compared with current liabilities of ¥8.1B, indicating sound short-term payment capacity.

Cash Flow Analysis

Operating Cash Flow deteriorated significantly to -¥0.9B from ¥3.3B in the previous year. The primary factor was a ¥5.4B increase in trade receivables (accounts receivable), with the expansion of credit sales accompanying revenue growth delaying cash conversion. Accounts payable increased by ¥3.2B, providing a certain degree of support for cash management through adjustments on the payment side. Investing Cash Flow was -¥0.3B, limited to small-scale investments including ¥0.1B in capital expenditures. Financing Cash Flow was -¥0.5B, primarily reflecting repayments of long-term borrowings. Free Cash Flow, calculated as the sum of OCF and Investing Cash Flow, was -¥1.2B, and the period’s funding needs were primarily absorbed by cash and deposits (¥16.8B at period-end). Although the cash balance itself remains high, the negative cash generation from operating activities requires monitoring from a cash management perspective.

Quality of Earnings

The current-period earnings are Ordinary Income under JGAAP. Non-operating income and expenses were limited, consisting of ¥0.1B in non-operating income and ¥0.1B in non-operating expenses, resulting in a limited impact on Ordinary Income. Extraordinary losses consisted solely of ¥0.03B in impairment losses on investment securities, so the impact of one-time factors was immaterial. Meanwhile, OCF of -¥0.9B was substantially below Net Income of ¥0.8B. The significant accrual difference—the gap between accounting earnings and cash—is an important observation when assessing earnings quality. This difference was primarily attributable to the increase in trade receivables, indicating a timing mismatch between revenue recognition and cash collection. Goodwill declined from ¥0.85B in the previous year to ¥0.48B, with the progress of amortization affecting the asset composition.

Earnings Forecast and Guidance

The company has disclosed its full-year earnings forecasts of Revenue of ¥40.5B (+3.2% YoY), Operating Income of ¥5.2B (+48.1% YoY), Ordinary Income of ¥5.2B (+51.7% YoY), and Net Income of ¥3.3B (+92.9% YoY). Cumulative Q2 Revenue of ¥20.1B represents approximately 49.6% of the full-year forecast, indicating a broadly mid-range progress rate. Meanwhile, Operating Income of ¥1.4B represents only approximately 26.9% of the full-year forecast of ¥5.2B, implying a plan that anticipates substantial earnings growth in the second half. The transition from the first-half earnings decline to the substantial full-year earnings growth plan appears to depend on controlling SG&A expenses and improving the collection of trade receivables in the second half. The feasibility of achieving the forecast will need to be assessed through future quarterly data.

Shareholder Returns

The dividend was ¥0 for both the interim and year-end payments, and the company continues to pay no dividends. The full-year dividend forecast is also ¥0, with no revision to the dividend forecast as of the current quarter. Share repurchases were extremely small at -¥0.0B in the cash flow statement, and no meaningful shareholder returns were made. Given that OCF was negative and Free Cash Flow was also -¥1.2B, the scope for dividends and shareholder returns appears limited at present.

Risk Factors

1. Trade Receivables Collection Risk: Accounts receivable increased from ¥1.4B in the same period of the previous year to ¥6.9B, expanding at a pace exceeding revenue growth. If collection delays continue, pressure on Operating Cash Flow may persist.

2. Earnings Quality Risk: OCF was -¥0.9B, moving in the opposite direction from Net Income of ¥0.8B, creating a clear divergence between accounting earnings and cash generation. If this condition continues over multiple periods, it may affect the assessment of earnings sustainability.

3. Goodwill and Intangible Asset Risk: Goodwill declined from ¥0.85B in the previous year to ¥0.48B. In addition to the progress of amortization, future impairment reviews may affect the asset composition.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability metrics are below the industry median and are at a low level within the IT and telecommunications industry.

Growth and Capital Efficiency

The Revenue growth rate is also below the industry median, placing the company relatively low within the industry in terms of growth.

※Source: Compiled by the Company

Key Points in the Financial Results

1. Despite higher revenue (+8.4%), Operating Income (-24.0%) and Net Income (-22.9%) declined during the current period, confirming that the increase in SG&A expenses exceeded the benefit of revenue growth.

2. Operating Cash Flow was -¥0.9B, below Net Income, primarily due to the sharp increase in trade receivables (+¥5.4B), as indicated by the financial results data. The timing mismatch between earnings and cash generation is a key point when evaluating the financial results.

3. The full-year earnings forecast anticipates substantial earnings growth in the second half (Operating Income +48.1%). The gap between first-half results and the full-year plan is an item that should be monitored in future financial disclosures.

Theoretical Share Price (Reference Value)

Sensitivity: ¥932–¥992 at ±1% for the Cost of Equity, and ¥952–¥975 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥27.9 per share has been added back to earnings (to account for non-cash expenses and comparability with IFRS companies).
• Net assets as of the quarter-end have been used (there is a timing difference from the full-year forecast).
• Since 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 or a recommendation of any specific investment action, nor does it forecast 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 with a professional as necessary.

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