NTT (9432) FY2026 FY Earnings Report

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Executive Summary

Although NTT maintained revenue and profit growth, this was a fiscal year in which attention should be paid to earnings quality due to the sharp expansion of assets and liabilities and the increase in financial expenses. Operating revenue was ¥14,409.1B (+5.1% YoY), operating income was ¥1,706.2B (+3.4%), profit before tax was ¥1,581.9B (+1.1%), and consolidated net income was ¥1,082.64B (+0.0% YoY, essentially flat). Net income attributable to owners of the parent increased by +3.7% YoY to ¥1,037.0B, while the decline in net income attributable to non-controlling interests (-¥36,813M YoY) was the factor behind the divergence in growth rates between consolidated net income and income attributable to owners of the parent. Profit growth was driven by a substantial increase in profit from the Global Solutions Business, while financial expenses increased and profit margins declined slightly.

Factors Affecting Performance

【Revenue】Operating revenue was ¥14,409.1B, up +5.1% YoY, with revenue growth across all segments. The Integrated ICT Business (42.6% of total revenue) grew +4.0%, the Global Solutions Business (33.0%) grew +7.4%, the Regional Communications Business (17.7%) grew +4.2%, and Other Businesses (6.6%) grew +3.9%. Growth in the Global Solutions Business exceeded the overall growth rate and was the primary driver of revenue growth.

【Profit and Loss】Operating income increased +3.4% YoY to ¥1,706.2B, but the operating margin declined to 11.8% from 12.0% in the previous period. Operating income in the Integrated ICT Business declined 7.7% YoY to ¥942.1B, with its margin falling to 15.3%, while the Global Solutions Business delivered substantial profit growth of +50.7% to ¥488.2B and was the primary driver of company-wide profit growth. Below operating income, financial expenses increased by ¥70.6B YoY to ¥240.1B, exceeding the ¥56.6B increase in operating income. The increase in profit before tax was limited to +¥17.2B, indicating that the rise in financial expenses was a substantial downward pressure. Gains on sales of fixed assets of ¥74.1B and gains on sales of shares of affiliates of ¥133.6B supplemented profit before tax as temporary factors and should be excluded when evaluating the following period’s comparison. Impairment losses of ¥80.2B, including goodwill impairment of ¥57.5B, were also recognized. Overall, revenue and profit increased, but the deterioration in profitability at the core Integrated ICT Business was offset by higher profit from the Global Solutions Business, indicating that earnings quality was not uniform.

Segment Analysis

The Integrated ICT Business generated revenue of ¥6,146.2B (+4.0%) and operating income of ¥942.1B (-7.7%). Although its 15.3% margin remained the highest company-wide, it was on a deteriorating trend. The Global Solutions Business generated revenue of ¥4,754.7B (+7.4%) and operating income of ¥488.2B (+50.7%), delivering substantial profit growth and improving its margin to 10.3%. The Regional Communications Business maintained stable revenue and profit growth, with revenue of ¥2,555.2B (+4.2%) and operating income of ¥307.4B (+4.0%). Other Businesses, including real estate and energy, generated revenue of ¥953.0B (+3.9%) but posted an operating loss of ¥1.6B, turning to a loss from profit of +¥55.8B in the previous period, making it the only segment with a decline in profit. Segment assets in the Integrated ICT Business increased sharply to 2.3 times the previous period’s level, primarily due to the recognition of assets related to the banking business, indicating a significant change in the asset composition.

Key Financial Indicators

【Profitability】ROE was 10.4%, the operating margin was 11.8%, and the net income margin attributable to owners of the parent was approximately 7.2%. All were slightly lower or broadly flat compared with the previous period (ROE 10.0%, operating margin 12.0%, net income margin 7.3%).【Cash Flow Quality】Operating Cash Flow (OCF) was approximately 1.43 times net income attributable to owners of the parent, indicating solid cash backing for earnings. However, OCF/EBITDA remained at 0.42x, as increases in trade receivables (+¥634.7B) and banking loans (+¥1,009.9B) placed pressure on operating cash flow.【Investment Efficiency】Capital expenditures were ¥2,326.0B, equivalent to 1.30 times depreciation and amortization of ¥1,791.0B, reflecting continued investment in network and IT infrastructure. EPS was ¥12.61 (¥11.96 in the previous period, +5.4%), while BPS was ¥119.47 (¥123.54 in the previous period, -3.3%).【Financial Soundness】The equity ratio was 20.8%, down significantly from 34.0% in the previous period. Total assets increased by ¥16,658.8B, while shareholders’ equity attributable to owners of the parent decreased by ¥494.0B. The sharp expansion of assets and liabilities was primarily attributable to the consolidation of assets and deposits related to the banking business, confirming an increase in financial leverage.

Cash Flow Analysis

Operating Cash Flow was ¥1,485.2B, down 37.2% YoY, while free cash flow (OCF + investing CF) was ¥461.8B. The decline in OCF was primarily due to funds absorbed by increases in trade receivables of ¥634.7B, inventories of ¥136.7B, and banking loans of ¥1,009.9B. Payments for income taxes and other taxes also increased YoY to ¥495.3B. Investing CF was -¥1,023.4B. Although capital expenditures of ¥2,326.0B exceeded OCF, temporary cash inflows, including ¥1,438.9B from the acquisition of control of subsidiaries, reduced the magnitude of the investing CF deficit. Financing CF shifted to +¥441.3B from -¥343.0B in the previous period, as proceeds of ¥5,797.4B from increases in long-term borrowings exceeded the acquisition of subsidiary interests from non-controlling interests of ¥2,395.7B, dividend payments of ¥434.0B, and share buybacks of ¥204.9B. Operating cash flow after capital expenditures was negative, and it should be noted that a portion of shareholder returns and investments during the period was supported by external financing.

Earnings Quality

Net income for the period included multiple temporary factors in addition to recurring operating results. Gains on sales of fixed assets of ¥74.1B and gains on sales of shares of affiliates of ¥133.6B were non-recurring items that boosted profit before tax and should be excluded when evaluating the following period’s comparison. Meanwhile, impairment losses of ¥80.2B, including goodwill impairment of ¥57.5B, increased substantially from ¥20.1B in the previous period and were recognized as a downward pressure on profit. Below operating income, financial expenses increased +¥70.6B YoY, significantly exceeding the +¥15.4B increase in financial income, confirming a rise in recurring funding costs. Comprehensive income was ¥1,767.7B, substantially exceeding net income attributable to owners of the parent of ¥1,037.0B. The difference was attributable to increases in other comprehensive income, including +¥202.7B from the remeasurement of defined benefit plans and +¥249.4B from foreign currency translation adjustments. The divergence between net income and comprehensive income widened from the previous period, indicating that non-recurring capital movements, including foreign exchange and interest rate fluctuations, affected the recognition of total earnings for the period.

Performance Forecasts and Guidance

The company’s FY2027 forecast is operating revenue of ¥15,060.0B (+4.5% YoY), operating income of ¥1,710.0B (+0.2%), and EPS of ¥12.10. Compared with the current-period results (operating revenue +5.1%, operating income +3.4%, EPS ¥12.61), revenue is expected to continue growing next period, while operating income is forecast to remain broadly flat, representing a cautious forecast that does not assume margin expansion. The forecast dividend is ¥5.40, implying a Payout Ratio of approximately 44.6% against forecast EPS of ¥12.10, slightly higher than the current-period actual ratio of 42.0%.

Shareholder Returns

The annual dividend was ¥5.30 per share (interim ¥2.65, year-end ¥2.65), with a Payout Ratio of 42.0% based on net income attributable to owners of the parent. Total dividend payments were ¥434.0B, and the coverage ratio against free cash flow of ¥461.8B was approximately 1.06x, remaining broadly at the same level. Share buybacks of ¥204.9B were conducted, resulting in a Total Return Ratio of approximately 61.6% when dividends and share buybacks are combined. Total dividends and share buybacks of ¥638.8B exceeded free cash flow, requiring monitoring of the sustainability of total shareholder returns in light of the recovery trend in OCF. The FY2027 forecast dividend is ¥5.40, representing a planned dividend increase and confirming a continued commitment to shareholder returns.

Risk Factors

1. Deterioration in working capital and capital efficiency: Trade receivables were ¥5,551.2B, an increase of +¥634.7B YoY, while OCF declined 37.2% YoY. OCF/EBITDA remained at 0.42x, and the increase in banking loans also placed pressure on operating cash flow, confirming a decline in cash conversion efficiency.

2. Higher financial leverage and increased financial expenses: The equity ratio was 20.8%, down significantly from 34.0% in the previous period. Short-term borrowings increased by +¥1,573.1B, while long-term borrowings increased by +¥4,128.5B. Financial expenses increased +¥70.6B YoY, exceeding the ¥56.6B increase in operating income, confirming greater interest-rate sensitivity.

3. Profitability gap between segments: Operating income in the core Integrated ICT Business declined 7.7% YoY, with its margin falling to 15.3%, while substantial profit growth in the Global Solutions Business, with a 10.3% margin, supported company-wide profit growth. Improving profitability in the Integrated ICT Business and the sustainability of profit growth in the Global Solutions Business will be key areas of focus.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

The operating margin and net income margin exceed the industry median, while ROE is slightly below the median, reflecting low asset efficiency.

Growth and Capital Efficiency

The revenue growth rate is below the industry median, reflecting the characteristics of a business composition centered on mature telecommunications operations.

※Source: Compiled by the Company

Key Points in the Financial Results

1. While the core Integrated ICT Business posted a decline in profit of 7.7% YoY, the Global Solutions Business achieved profit growth of +50.7% and drove company-wide profit growth, indicating a significant change in the profit composition of the business portfolio.

2. Total assets increased by +¥16,658.8B from the end of the previous period, while the equity ratio declined from 34.0% to 20.8%. The consolidation of assets and deposits related to the banking business was the primary factor behind the expansion of assets and liabilities, and the change in the financial structure affects the interpretation of financial indicators.

3. OCF declined 37.2% YoY, and OCF/EBITDA remained at 0.42x. Capital expenditures of ¥2,326.0B exceeded OCF, while shareholder returns (total dividends and share buybacks of ¥638.8B) were made at a level exceeding free cash flow.

Theoretical Share Price (Reference Value)

Sensitivity: ¥122–¥129 at Cost of Equity ±1%, and ¥126–¥126 at ω±0.1.

（Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / These are mechanically calculated values based solely on publicly disclosed data and do not constitute a forecast of the market share price or a recommendation of any specific investment action, nor do they 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 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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