ispace (9348) FY2026 Q3 Earnings Report

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Executive Summary

The lunar development business remained in a phase of upfront investment, with the operating loss expanding despite higher revenue. Revenue was ¥2.74B (+37.9% YoY), progressing steadily at 80.7% of the full-year forecast of ¥3.40B. Meanwhile, operating income was ¥-6.95B, deteriorating by ¥0.52B from ¥-6.43B in the prior year. The primary factor was that the cost of revenue increased by 110.5%, outpacing revenue growth, causing the gross profit margin to deteriorate from +18.5% in the prior year to -24.3%. Ordinary income was ¥-6.24B, an improvement of ¥0.54B from ¥-6.78B in the prior year, while net income was ¥-6.25B, an improvement of ¥1.12B from ¥-7.37B. However, this resulted from an improvement in non-operating income and expenses driven by a foreign exchange gain of ¥2.09B and does not signify a structural shift to operating profitability.

Factors Affecting Performance

【Revenue】Revenue increased 37.9% YoY to ¥2.74B, with progress against the full-year forecast at 80.7%, exceeding the standard 75%. The company operates in a single segment, the lunar development business, and does not disclose factors affecting changes by segment.

【Profit and Loss】The cost of revenue increased 110.5% YoY to ¥3.41B, substantially outpacing the increase in revenue, resulting in a gross loss of ¥0.67B (compared with gross profit of ¥0.37B in the prior year). SG&A expenses decreased 7.7% YoY to ¥6.28B, indicating progress in cost control; however, this was insufficient to absorb the deterioration in gross profit, and the operating loss expanded to ¥6.95B (¥-6.43B in the prior year). Non-operating income included a foreign exchange gain of ¥2.09B, reducing the ordinary loss to ¥6.24B and the net loss to ¥6.25B from the prior year. Overall, the results can be characterized as higher revenue but lower operating earnings, while the improvement in ordinary and net income depended on the temporary factor of foreign exchange gains.

Segment Analysis

The Group operates in a single segment, the lunar development business, and does not disclose performance by segment.

Key Financial Indicators

【Profitability】The operating margin was -253.3%, improving by 7,020bp from -323.5% in the prior year; however, the gross profit margin deteriorated by 4,280bp from +18.5% in the prior year to -24.3%, indicating continuing challenges in cost management. The net profit margin was -227.7%, and the substantial loss structure persists. 【Cash Flow Quality】Comprehensive income was ¥-8.50B, ¥2.25B below the net loss of ¥-6.25B, with foreign currency translation adjustments of ¥-2.25B putting pressure on equity. 【Investment Efficiency】Annualized ROE was -49.4%, while total asset turnover remained low at 0.072x, indicating weak revenue and profit generation relative to the asset base. 【Financial Soundness】The equity ratio was 33.1%. Cash and deposits amounted to ¥34.27B, and the current ratio was approximately 799%, indicating ample short-term liquidity. However, interest-bearing debt, including long-term borrowings of ¥28.98B, expanded, resulting in a D/E ratio of approximately 2.0x. The company is unable to cover ¥1.33B in interest expenses with operating income.

Cash Flow Analysis

Although the statement of cash flows is not directly disclosed, the balance sheet movements indicate that cash and deposits increased by ¥21.16B (+161.3%) to ¥34.27B from ¥13.12B in the prior year. This increase was supported by long-term borrowings, which expanded by ¥12.88B (+80.0%) from the prior year to ¥28.98B. This suggests that the company increased its available liquidity through external financing while operating losses continued. Construction in progress increased to ¥4.96B (+¥0.95B), while investments and other assets increased to ¥6.33B (+¥3.16B), indicating that funds were likely allocated to investment activities related to lunar development. Although cash on hand is ample, the company needs to continuously monitor its reliance on borrowings and the use of funds while operating losses continue.

Quality of Earnings

The reduction in the ordinary and net losses during the current period depended substantially on the temporary non-operating factor of a ¥2.09B foreign exchange gain, rather than an improvement in operating earnings. Almost all of the total non-operating income of ¥2.19B consisted of foreign exchange gains, while interest expenses of ¥1.33B were recorded under non-operating expenses, indicating that the interest burden associated with increased borrowings is rising. Extraordinary gains and losses were limited to a ¥0.00B loss on disposal of fixed assets, and their impact on current-period earnings was immaterial. Comprehensive income of ¥-8.50B was ¥2.25B below the net loss of ¥-6.25B, with worsening foreign currency translation adjustments negatively affecting net assets. Accordingly, although the 7,020bp YoY improvement in the operating margin was partly attributable to SG&A reductions and progress in absorbing fixed costs, the improvement in ordinary and net income was affected by the volatile factor of foreign exchange. Earnings quality therefore warrants a cautious assessment.

Earnings Forecast and Guidance

Progress against the full-year company forecast was 80.7% for revenue, with cumulative revenue of ¥2.74B against the full-year forecast of ¥3.40B, exceeding the standard 75% progress rate as of Q3. In contrast, cumulative operating income was ¥-6.95B against the full-year forecast of ¥-10.00B, representing progress of 69.5% and implying an additional loss of approximately ¥3.05B in Q4. Ordinary income was ¥-6.24B against the full-year forecast of ¥-7.20B, representing progress of 86.7%. Net income was ¥-6.25B against the underlying company forecast of ¥-7.20B, representing progress of 86.8% and assuming that the Q4 loss will be limited to approximately ¥1.0B. The divergence between the operating loss forecast and the ordinary and net loss forecasts indicates that non-operating factors, including foreign exchange gains and losses in Q4, will be key to achieving the full-year targets. The dividend forecast remains unchanged at ¥0, implying no dividend.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the company continues to pay no dividends. The full-year dividend forecast also remains unchanged at ¥0. The current-period net loss was ¥6.25B, and retained earnings showed a deficit of ¥23.17B, indicating that the accumulation of distributable earnings remains under development. Treasury shares were immaterial, and there is no record of share repurchases; therefore, it is not yet meaningful to discuss the Total Return Ratio. For the time being, capital allocation is expected to prioritize capital expenditures related to lunar development and securing working capital.

Risk Factors

1. Business concentration risk: The company operates in a single segment, the lunar development business. Delays in projects or technical issues with missions could affect performance through both the timing of revenue recognition and additional costs. The gross profit margin deteriorated by 4,280bp from +18.5% in the prior year to -24.3% in the current period, indicating uncertainty regarding project profitability.

2. Financial leverage and interest burden risk: Interest-bearing debt reached ¥30.67B, including long-term borrowings of ¥28.98B. The D/E ratio was approximately 2.0x, and the company was unable to cover ¥1.33B in interest expenses with operating income; interest coverage was negative. Cash and deposits of ¥34.27B provide a buffer, but financing conditions while losses continue will determine financial flexibility.

3. Asset efficiency and commissioning risk: Construction in progress of ¥4.96B accounted for 85.2% of property, plant and equipment, while work in process of ¥0.265B accounted for the entirety of inventories. If the start of operations for these assets under development is delayed, the risks of additional investment and impairment losses could materialize.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

Profitability was substantially below the industry median, reflecting the business characteristics of a company in the upfront investment phase.

Growth and Capital Efficiency

The revenue growth rate exceeded the industry median and demonstrated strong growth above the upper bound of the IQR.

※Source: Company analysis

Key Takeaways from the Earnings

1. Revenue increased 37.9% YoY, and progress against the full-year forecast remained solid at 80.7%. However, the cost of revenue increased 110.5%, outpacing revenue growth, and revenue growth did not translate into improved profitability.

2. The reduction in the ordinary and net losses was largely attributable to the ¥2.09B foreign exchange gain and should be evaluated separately from improvement in operating earnings. Although the operating margin improved by 7,020bp from the prior year, its absolute level remains substantially negative.

3. Short-term liquidity is ample, with cash and deposits of ¥34.27B and a current ratio of approximately 799%. However, the 80.0% increase in long-term borrowings resulted in a D/E ratio of approximately 2.0x, and the company remains unable to cover interest expenses with operating income. Progress in commissioning construction in progress and work in process will be key to improving capital efficiency going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥9–¥10 at ±1% for the cost of equity, and ¥9–¥10 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets as of the quarter-end are used; there is a timing difference from the full-year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Valuation 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 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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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