Smartvalue (9417) FY2026 Q2 Earnings Report

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Executive Summary

The key points of the current results are revenue growth and a narrowing operating loss driven by the rapid expansion of Smart Venue, while Ordinary and net losses widened due to interest expenses and impairment losses. Revenue increased +56.7% YoY to ¥28.3B, and the operating loss narrowed to ¥-0.5B from ¥-1.5B in the same period of the previous year. However, Ordinary Income deteriorated to ¥-5.0B from ¥-1.6B, and net income attributable to owners of the parent deteriorated to ¥-6.3B from ¥-1.9B, primarily due to a sharp increase in interest expenses to ¥4.5B.

Factors Affecting Performance

【Revenue】Revenue increased significantly to ¥28.3B, up +56.7% YoY. By segment, Smart Venue led the rapid expansion, with revenue of ¥22.2B (78.4% of total revenue), up +275.6% YoY, while Mobility & Services remained solid at ¥6.3B (up +7.0%). The Digital Government Business, which existed through the previous year, was integrated into Mobility & Services from the current period in connection with a partial transfer, and the reported segments were changed to two categories.

【Profit and Loss】The operating loss narrowed to ¥0.5B from ¥1.5B in the previous year, while the SG&A ratio also declined to 32.1% from 42.5%, indicating progress in fixed-cost absorption. On the other hand, the gross profit margin declined to 30.4% from 34.1%, suggesting that part of the revenue growth may have involved a lower-margin revenue mix. Among non-operating expenses, interest expenses surged to ¥4.5B from ¥0.1B, expanding the Ordinary loss to ¥5.0B. An impairment loss of ¥0.7B associated with the relocation of the Osaka headquarters was recorded under extraordinary losses, resulting in a net loss attributable to owners of the parent of ¥6.3B. The results represent higher revenue accompanied by lower earnings, or an expanded loss.

Segment Analysis

Mobility & Services is the core business and continues to grow, maintaining high profitability with revenue of ¥6.3B, segment profit of ¥1.3B, and a profit margin of 21.0%, while segment profit increased +29.4% YoY. Smart Venue achieved rapid expansion, with revenue of ¥22.2B, up +275.6% YoY, and its segment loss narrowed substantially to ¥0.1B from ¥1.4B in the previous year. The combined profit of the two segments was ¥1.2B, but unallocated corporate expenses of ¥1.7B could not be absorbed, resulting in a consolidated operating loss. Further scale expansion or cost reductions will be necessary to recover corporate expenses.

Key Financial Indicators

【Profitability】The operating margin improved by approximately 670bp to -1.7% from -8.4% in the same period of the previous year, but remains significantly below industry levels. The gross profit margin declined by approximately 370bp to 30.4% from 34.1%, making profitability management during the revenue growth phase a key challenge. ROE (annualized) was substantially negative at -70.3% due to the net loss. 【Cash Flow Quality】Operating Cash Flow (OCF) was -¥0.9B. Although EBITDA is believed to be in positive territory, interest expenses of ¥4.5B and income taxes and other payments of ¥4.7B pressured operating cash flow, resulting in free cash flow of -¥1.6B. 【Investment Efficiency】Capital expenditures were limited to ¥0.5B, substantially below depreciation and amortization expenses of ¥5.4B, indicating a high degree of dependence on existing leased assets and equipment. 【Financial Soundness】The Equity Ratio declined to 8.7% from approximately 12.0% in the previous year, while net assets decreased to ¥20.4B. Fixed liabilities of ¥187.6B consist largely of lease obligations, and the heavy interest burden represents a financial constraint.

Cash Flow Analysis

Operating Cash Flow (OCF) was -¥0.9B, with the outflow widening from -¥0.5B in the same period of the previous year. Although the subtotal of OCF before changes in working capital was positive at ¥8.3B, interest expenses of ¥4.5B and income taxes and other payments of ¥4.7B substantially exceeded this amount, ultimately resulting in net cash outflow. Investing Cash Flow was -¥0.8B, consisting mainly of expenditures including ¥0.5B in capital expenditures; compared with depreciation and amortization expenses of ¥5.4B, renewal investment was restrained. Financing Cash Flow was -¥4.9B, with share repurchases of ¥1.6B and repayments of lease obligations and borrowings serving as cash outflow factors. As a result, free cash flow was -¥1.6B, and cash and deposits at the end of the period declined to ¥34.7B, indicating that cash generation remains fragile even amid an earnings recovery.

Quality of Earnings

The current period’s results combine improvements in recurring business earnings with non-recurring factors. While the narrowing operating loss was supported by the structural factor of a lower SG&A ratio, the expansion of the Ordinary and net losses was primarily attributable to the financial factor of ¥4.5B in interest expenses and does not necessarily reflect the underlying strength of the business. Extraordinary losses of ¥0.7B included an impairment loss associated with the relocation of the Osaka headquarters, which should be distinguished as a temporary factor. Comprehensive income was -¥7.2B, broadly consistent with the net loss attributable to owners of the parent of -¥6.3B, with no significant divergence arising from other comprehensive income. Contract liabilities increased +¥1.0B YoY, providing a certain basis for future revenue; however, they should not be overvalued as a recurring source of earnings because they involve performance obligations.

Earnings Forecasts and Guidance

The earnings outlook for the current period has been revised relative to the full-year forecast. Against full-year forecast revenue of ¥59.4B, first-half results were ¥28.3B, representing progress of 47.7%, which is broadly a standard level. In contrast, against full-year forecast operating income of ¥2.6B, the first half recorded a loss of ¥0.5B, requiring operating income of more than ¥3.1B in the second half. Ordinary Income and net income losses had already reached approximately 79% of the full-year forecasts of -¥6.3B and -¥7.9B, respectively, as of the first half. Trends in interest expenses and fixed costs in the second half will therefore be key to achieving the forecasts. The annual dividend forecast remains unchanged at 10 yen.

Shareholder Returns

The annual dividend forecast remains unchanged at 10 yen, including a Q2 dividend of 0 yen. With a full-year net loss of ¥7.9B forecast, the Payout Ratio lacks earnings support, making its sustainability difficult to assess. The Company conducted share repurchases of ¥1.6B during the first half, resulting in estimated total shareholder returns of approximately ¥2.6B when combined with dividends. Given that free cash flow was negative at -¥1.6B, attention should be paid to the priorities of capital allocation.

Risk Factors

1. Insufficient interest coverage: Interest expenses of ¥4.5B substantially exceeded the operating loss of ¥0.5B and were the primary factor behind the expansion of the Ordinary loss. Reducing the interest burden is a prerequisite for improving earnings in the second half.

2. Financial leverage and declining capital buffer: The Equity Ratio declined to 8.7%, and net assets contracted to ¥20.4B. Retained earnings shifted from ¥5.4B in the previous year to negative ¥1.7B, indicating that continuing losses are reducing the capital buffer.

3. Establishment of profitability at Smart Venue: Revenue expanded rapidly by +275.6% YoY and the loss narrowed, but the consolidated gross profit margin declined by 370bp. Changes in the project and revenue mix may determine whether the Company achieves operating profitability in the second half.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Profitability is substantially below the industry median and ranks in the lower tier within the IT and communications industries.

Growth and Capital Efficiency

The revenue growth rate is substantially above the industry median and ranks among the higher growth rates within the industry.

※Source: Compiled by the Company

Key Points in the Results

1. The operating loss improved by ¥1.0B from the previous year, indicating structural improvement through a lower SG&A ratio; however, the Ordinary and net losses expanded due to a sharp increase in interest expenses. The weight of financial costs in the earnings structure is a defining feature of the results.

2. Mobility & Services maintained a profit margin of 21.0%, while Smart Venue also achieved rapid revenue growth and a narrower loss, indicating signs of improvement at the business level. Absorption of corporate expenses will be the focus going forward.

3. Achieving the full-year forecast requires operating income of more than ¥3.1B in the second half. Compared with revenue progress of 47.7%, progress on the earnings front is at a more challenging level. The extent of profitability improvement in the second half warrants close monitoring.

Theoretical Stock Price (Reference Value)

Sensitivity: 35 yen–36 yen at cost of equity ±1%, and 33 yen–37 yen at ω±0.1.

Notes:

• 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 gap 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: 2026-08 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market stock price or a recommendation of any specific investment action, nor does it predict or guarantee future stock 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. 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 professionals as necessary.

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