KDDI CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.96T
• Operating Income: ¥577.16B
• Net Income: ¥415.28B
• EPS: ¥96.95

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

Verdict: Solid topline growth with resilient cash generation, but slight operating margin compression and elevated leverage temper the otherwise positive print. Revenue rose 3.8% YoY to 29,631.61, while operating income inched up 0.7% YoY to 5,771.56, and net income advanced a faster 7.6% YoY to 3,777.23. Gross profit reached 12,841.63, implying a gross margin of 43.3%. Operating margin was approximately 19.5%, down around 60 bps YoY given revenue grew faster than operating income. Net margin improved to roughly 12.7–12.8%, expanding by about 40 bps YoY as bottom-line growth outpaced revenue. EBITDA came in at 9,222.17 (31.1% margin), supported by D&A of 3,450.61. Operating cash flow was very strong at 8,226.57, equating to 2.18x net income and signaling high earnings quality. Free cash flow of 3,413.90 covered the cash dividend (1,492.79) but not the combination of dividends and share repurchases (total shareholder returns of ~5,492.83), implying reliance on balance sheet/other cash for buybacks. Equity method income of 217.97 contributed modestly (about 3.7% of profit), suggesting the earnings base is primarily operating rather than affiliate-driven. ROE was 6.9% via DuPont (NPM 12.8% × asset turnover 0.164 × leverage 3.29x). The effective tax rate was 29.1%, broadly in line with expectations. The equity ratio stood at 27.6% and the reported D/E ratio at 2.29x, which is on the high side for the benchmarks provided, though not unusual for a capital-intensive telecom. With ROIC at 7.5% (near a typical 7–8% target range), capital efficiency looks adequate. The slight operating margin compression warrants monitoring of cost discipline and competitive dynamics, but the robust OCF suggests healthy underlying cash generation. Forward-looking, capex discipline and monetization of broadband/5G and adjacent services will be key to sustaining FCF while funding dividends and any ongoing buybacks. Overall, the quarter demonstrates steady fundamentals with strong cash conversion, offset by modest margin pressure and elevated leverage.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.9% = Net Profit Margin 12.8% × Asset Turnover 0.164 × Financial Leverage 3.29x. The biggest driver of YoY change appears to be net margin, which expanded by roughly 40 bps as net income (+7.6% YoY) grew faster than revenue (+3.8% YoY), despite operating margin compression (~-60 bps). The operating margin contraction suggests higher operating costs (e.g., network-related opex, handset costs, or SG&A) outpaced revenue growth, while below-OP items (e.g., affiliate income and/or lower non-operating drag) and a stable tax rate supported the net margin. Business-wise, telecom competition and product mix (handsets vs. service) often pressure operating margin, while stable tax and modest equity-method contributions can smooth net results. Sustainability: operating margin pressure may persist if competition or handset mix remains unfavorable; however, cash discipline and incremental ARPU/service mix improvements could stabilize margins. Watch for SG&A trends—total SG&A was 7,339.58, and given revenue growth of 3.8% vs. operating income growth of 0.7%, cost growth likely ran ahead of revenue in the period, a mild concerning trend that could weigh on operating leverage if sustained.

Growth Assessment

Revenue growth of 3.8% YoY indicates steady momentum, consistent with a mature domestic telecom benefiting from stable connectivity demand and adjacent services. Operating income grew 0.7% YoY, lagging revenue, reflecting cost pressures or mix shifts. Net income rose 7.6% YoY, implying supportive below-OP items and efficiency at the bottom line. EBITDA margin at 31.1% underscores a still-healthy cash earnings base. Equity-method income (217.97) added stability but remains a small portion of profit, indicating limited dependency on affiliates for growth. ROIC at 7.5% indicates capital deployment is roughly meeting a typical corporate hurdle for this industry. Outlook hinges on maintaining service ARPU, scaling value-added services, and disciplined capex to protect FCF. Margin stabilization is the key swing factor: if cost control tightens, operating leverage could improve given steady topline. Risks to growth include pricing competition and regulatory pressures that could cap ARPU. With strong OCF, the company has flexibility to invest in network quality and adjacent businesses to sustain mid-single-digit revenue growth, but profit growth likely remains modest without a clear margin catalyst.

Financial Health

Liquidity: Current ratio and quick ratio are not calculable due to unreported current liabilities and cash; we cannot directly assess short-term liquidity. Working capital is reported as current assets of 51,767.48 (100M JPY), but without current liabilities we cannot determine coverage of short-term obligations. Solvency: D/E ratio of 2.29x exceeds the 2.0x warning threshold; caution is warranted, though telecoms commonly operate with higher leverage given stable cash flows. Equity ratio of 27.6% reflects a leveraged but not uncommon balance sheet for the sector. Maturity mismatch: Short-term loans and current liabilities are unreported, so we cannot assess near-term refinancing risk; receivables of 31,218.97 vs. payables of 9,331.39 suggest favorable trade working capital, but debt maturities are unknown. Off-balance sheet: No disclosures provided on lease obligations, spectrum commitments, or guarantees; absence of data does not imply absence of obligations.

Cash Flow Quality

OCF of 8,226.57 is 2.18x net income, comfortably above the 1.0x benchmark, signaling high earnings quality. FCF of 3,413.90 after capex (-1,537.95) is healthy and supports ongoing investment and dividends. Dividend cash outflow of 1,492.79 is well covered by FCF (coverage ~2.3x), indicating dividend sustainability on current cash generation. Total shareholder returns, including share repurchases of 4,000.04, exceeded FCF (FCF coverage ~0.62x for dividends + buybacks), implying buybacks are partly funded by balance sheet or other cash flows; this is manageable if OCF remains robust and leverage does not rise materially. OCF/NI well above 0.8 shows no immediate earnings quality red flags. Working capital dynamics are not fully visible (no breakdown of cash, current liabilities), but high OCF alongside revenue growth suggests no obvious signs of aggressive working capital management in the period.

Dividend Sustainability

Calculated payout ratio of 160.8% likely reflects total distributions (dividends plus buybacks) relative to net income rather than cash dividends alone. On a cash dividend basis, dividends of 1,492.79 vs. net income of 3,777.23 imply a cash dividend payout of about 40%, within a sustainable range. Dividends are covered by FCF (~2.3x), indicating good resilience. However, when including buybacks (total shareholder returns ~5,492.83), distributions exceed FCF (coverage ~0.62x), which is not sustainable indefinitely without drawing on cash or debt. Given strong and consistent OCF, the dividend appears sustainable; the trajectory of buybacks will likely be calibrated to FCF and leverage targets.

Risk Assessment

Business Risks:

• Service pricing pressure and competitive intensity in the domestic mobile market could compress ARPU and margins.
• Handset sales and subsidy/mix effects can dilute operating margin when device volumes are high.
• Regulatory intervention on pricing and fees (MIC directives) may cap revenue growth or force margin reductions.
• Execution risk in monetizing 5G and adjacent services needed to offset mature market dynamics.

Financial Risks:

• Elevated leverage (D/E 2.29x) relative to benchmark raises sensitivity to interest rate and refinancing conditions.
• Potential capex requirements for network enhancement and spectrum could pressure FCF if elevated.
• Limited visibility on debt maturities and interest burden (interest expense unreported) increases uncertainty on coverage.

Key Concerns:

• Operating margin compression (~-60 bps YoY) despite revenue growth indicates cost pressure.
• Total shareholder returns (dividends + buybacks) exceeded FCF, implying balance-sheet funding of buybacks.
• Data gaps (current liabilities, interest expense, debt composition) limit precision of liquidity and solvency assessment.

Investment Implications

Key Takeaways:

• Topline grew 3.8% YoY with net income up 7.6%—fundamentally resilient demand.
• Operating margin contracted ~60 bps; cost discipline is the key to re-accelerating operating profit.
• OCF strong at 2.18x net income; earnings quality is high.
• Dividend appears well covered by FCF; buybacks outpaced FCF and rely on balance sheet.
• ROE at 6.9% and ROIC at 7.5% indicate adequate but not high returns; room to optimize capital efficiency.
• Leverage (D/E 2.29x) is above the caution threshold; watch for balance-sheet trajectory.

Metrics to Watch:

• Operating margin trend and SG&A growth vs. revenue
• ARPU/service revenue mix and churn indicators
• Capex intensity and FCF conversion
• Leverage (D/E) and any disclosure on interest coverage
• Regulatory developments impacting pricing and fees

Relative Positioning: Within Japan telecom peers, KDDI continues to show strong cash conversion and stable earnings with moderate growth; leverage is on the higher side versus conservative benchmarks but typical for the sector, and dividend coverage appears stronger than the sustainability of elevated buybacks.

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