Japan Communications Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.63B
• Operating Income: ¥582M
• Net Income: ¥225M
• EPS: ¥2.67

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Japan Communications Co., Ltd. (9424) delivered a strong FY2026 Q2, with topline growth translating into outsized profit expansion, indicating meaningful operating leverage. Revenue increased 32.3% YoY to ¥5.632bn, while operating income rose 76.9% YoY to ¥582m and net income grew 80.1% YoY to ¥444m. Gross profit of ¥1.837bn implies a 32.6% gross margin, and operating margin reached approximately 10.3%, signaling improved cost discipline and/or better mix. DuPont metrics point to a solid ROE of 10.16%, driven by a 7.88% net margin, asset turnover of 0.714x, and modest financial leverage of 1.81x. The company’s interest burden is minimal (interest expense ¥1.1m), yielding a very high interest coverage of about 511x, underscoring low financial risk from debt service. Liquidity appears robust with a current ratio of 329% and sizable working capital of ¥3.834bn, supported by ¥5.507bn in current assets. Operating cash flow of ¥219m trails net income (OCF/NI of 0.49), suggesting weaker cash conversion this period, likely reflecting working capital investment typical in growth phases. Investing cash flow is presented as zero and cash & equivalents are shown as zero; these should be viewed as unreported items rather than true zeros. Similarly, the equity ratio is shown as 0.0% in the snapshot, which does not reconcile with reported equity of ¥4.369bn and assets of ¥7.892bn; leverage and solvency should be assessed using the non-zero disclosed values. No dividend was paid (DPS ¥0), consistent with a reinvestment stance while scaling earnings. The combination of strong revenue momentum, operating margin expansion, and manageable leverage supports the current earnings trajectory, albeit with a need to monitor cash conversion. Effective tax expense of ¥62m on ordinary income of ¥577m implies a low interim tax burden; the bridge from ordinary to net income also suggests other below-the-line items in the quarter. Overall, profitability trends are favorable, liquidity is ample, and balance sheet leverage is moderate, but sustained free cash flow generation will be key to validating earnings quality. Data gaps (e.g., cash balance, investing cash flows, share data) limit precision in some ratios and per-share analytics. Management’s demonstrated operating leverage provides a cushion, yet maintaining this trajectory will likely require continued revenue scale and disciplined cost control. Near-term, monitoring working capital intensity and the trajectory of OCF relative to EBIT will be critical for assessing durability.

Profitability Analysis

ROE of 10.16% decomposes into Net Margin 7.88% × Asset Turnover 0.714 × Financial Leverage 1.81. Gross margin stands at 32.6% (¥1.837bn/¥5.632bn), indicating healthy unit economics for an MVNO/telecom services model. Operating margin is approximately 10.3% (¥582m/¥5.632bn), up sharply given operating income grew faster than revenue (+76.9% vs +32.3%), evidencing operating leverage from scale and fixed-cost absorption. EBITDA of ¥672m implies an EBITDA margin of 11.9%, with D&A at ¥90m modest relative to revenue, supporting cash earnings. Ordinary income of ¥577m is close to operating income, suggesting limited drag from non-operating items this period; interest cost is de minimis (¥1.1m). The strong interest coverage (~511x) highlights that earnings are not burdened by financing costs. Margin quality appears to have improved YoY given the disproportionate growth in operating profit; sustaining double-digit operating margins will depend on churn, ARPU/mix, interconnect and network cost trends. Tax expense of ¥62m implies a low interim tax rate, while the gap between ordinary and net income indicates below-the-line items or minority interests affecting the bottom line under JGAAP interim reporting. Overall, profitability momentum is positive, with evidence of both gross margin stability and operating leverage.

Growth Assessment

Revenue expanded 32.3% YoY to ¥5.632bn, indicating strong demand and/or customer base expansion. Operating income rose 76.9% YoY to ¥582m, materially outpacing sales growth, reflecting operating leverage and effective cost control. Net income growth of 80.1% to ¥444m confirms that efficiency gains are flowing through to the bottom line. The EBITDA margin of 11.9% and operating margin of ~10.3% suggest scale benefits; sustainability will hinge on maintaining growth while keeping variable network and sales costs in check. With asset turnover at 0.714x, the company is improving utilization of its asset base alongside growth. Profit quality is mixed near term: accounting earnings are strong, but OCF/NI of 0.49 signals working capital drag or timing effects; monitoring the persistence of this gap is key. Outlook considerations include continued expansion in enterprise/IoT SIMs and MVNO services, where incremental margins can be attractive at scale, balanced against competition-driven pricing and potential wholesale cost changes. Given the interim nature of the figures, sequential seasonality and contract timing could influence both revenue and cash conversion in the second half. Overall growth appears robust and strategically consistent, with the task ahead being to convert this into durable free cash flow.

Financial Health

Liquidity is strong: current assets of ¥5.507bn against current liabilities of ¥1.673bn yield a current (and quick) ratio of 329%, supported by sizable working capital of ¥3.834bn. Total assets are ¥7.892bn and equity is ¥4.369bn, implying a book leverage (assets/equity) of ~1.81x and liabilities/equity of ~0.79x. Interest expense is minimal (¥1.1m), and interest coverage is extremely high (~511x), indicating very low short-term solvency risk. While the equity ratio is shown as 0.0% in the snapshot, the disclosed totals imply an equity ratio around 55% (¥4.369bn/¥7.892bn), suggesting a conservatively capitalized balance sheet; we rely on the non-zero components provided. Cash and equivalents are shown as zero (treated as unreported), so point-in-time liquidity buffers cannot be precisely assessed, but the overall current asset base appears ample. No large financing flows are indicated (financing CF of -¥7m), consistent with self-funded operations. Overall solvency appears comfortable with moderate leverage and strong coverage, though clarity on cash composition and any interest-bearing debt mix would refine the view.

Cash Flow Quality

Operating cash flow of ¥219m is 0.49x net income of ¥444m, indicating weaker cash conversion in the period and likely reflecting working capital build (e.g., receivables growth or timing of payables). EBITDA of ¥672m versus OCF of ¥219m suggests sizable non-cash-to-cash timing differences; monitoring the OCF to EBITDA bridge will be important. Investing cash flow is reported as zero (treated as unreported), so capex and capitalized development cannot be assessed; consequently, the reported Free Cash Flow of zero should be viewed as a placeholder rather than an economic measure. With depreciation and amortization at ~¥90m, maintenance capex needs are unknown; if maintenance capex approximates D&A, normalized FCF would likely be below net income but could still be positive depending on working capital trends. The gap between ordinary income and net income also hints at below-the-line items that may not impact cash the same way as accounting profit. In sum, earnings quality is improving on the income statement, but cash realization lagged this quarter; confirmation of improved cash conversion in subsequent periods would strengthen the quality assessment.

Dividend Sustainability

DPS is ¥0.00 and the payout ratio is 0.0%, indicating retention of earnings to fund growth and/or preserve balance sheet flexibility. With reported FCF shown as 0 (due to unreported investing cash flows), FCF coverage metrics are not meaningful for this period. Given strong operating profit growth, moderate leverage, and ample working capital, capacity to initiate or increase dividends over time will depend on sustained positive OCF and visibility on capex needs. Under JGAAP interim reporting, dividend policy often aligns with full-year visibility; maintaining a no-dividend stance appears consistent with reinvestment while scaling. A shift toward regular dividends would require improved cash conversion and clarity on long-term capital needs.

Risk Assessment

Business Risks:

• Price competition in MVNO/telecom services compressing ARPU and margins
• Wholesale access cost changes impacting gross margins
• Customer churn and acquisition cost volatility affecting operating leverage
• Regulatory shifts in mobile and IoT connectivity
• Concentration in specific enterprise/IoT verticals leading to demand cyclicality

Financial Risks:

• Subpar cash conversion (OCF/NI 0.49) indicating working capital sensitivity
• Unreported cash and investing flows limiting visibility on liquidity buffers and capex
• Potential below-the-line items creating volatility between ordinary and net income
• Reliance on scale for margin sustainability; margin compression could reduce coverage headroom

Key Concerns:

• Sustainability of operating leverage as growth normalizes
• Improvement in OCF relative to EBIT to validate earnings quality
• Visibility on capex trajectory and true free cash flow generation
• Maintaining gross margin amid potential changes in wholesale rates

Investment Implications

Key Takeaways:

• Topline growth of +32.3% translated into +76.9% operating profit growth, evidencing strong operating leverage
• ROE of 10.16% supported by higher net margin and modest leverage
• Interest burden is negligible with ~511x coverage, reducing solvency risk
• Liquidity is ample (current ratio 329%; working capital ¥3.834bn)
• Cash conversion lagged (OCF/NI 0.49); watch for normalization in H2
• Capex and cash balances are unreported this quarter, constraining FCF analysis
• No dividend allocation; earnings are being retained for growth

Metrics to Watch:

• OCF/EBIT and OCF/NI ratios for cash conversion
• Gross and operating margin trajectory amid scale
• Asset turnover and customer growth indicators
• Capex/Revenue once investing cash flows are disclosed
• Net debt and cash balance clarity, if reported in subsequent filings

Relative Positioning: Within Japan’s MVNO/enterprise connectivity space, the company exhibits above-peer operating leverage and strong coverage with moderate balance sheet risk; sustained advantage hinges on maintaining scale-driven margins and improving cash conversion relative to peers.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis