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

KDDI reported solid topline growth in FY2026 Q2 with revenue of 29,631.61 (100M JPY), up 3.8% YoY, while operating income increased modestly by 0.7% to 5,771.56, indicating some cost pressure diluting operating leverage. Gross profit was 12,635.22, yielding a healthy gross margin of 42.6%, consistent with the high-margin profile of telecom service revenues and growing value-added services. The operating margin was 19.5% (calculated), a resilient level despite rising SG&A of 7,082.18, which accounted for 23.9% of sales. Net income rose 7.6% to 3,777.23, outpacing operating income growth, supported by a relatively stable effective tax rate of 29.8% and no visible drag from below-OP items (non-operating items not disclosed). Reported DuPont metrics point to a calculated ROE of 6.9%, built from a 12.8% net margin, 0.164x asset turnover, and 3.29x financial leverage. EBITDA reached 9,206.02, with an EBITDA margin of 31.1%, underscoring robust cash generative capacity in the core business. Operating cash flow was strong at 8,920.73, equal to 2.36x net income, indicating high earnings quality and likely favorable working-capital dynamics. Free cash flow as presented (OCF + Investing CF) was 1,770.66, reflecting heavy investment cash outflows of -7,150.07 beyond capital expenditures (-1,874.58), likely related to spectrum, affiliates, or other strategic investments. The balance sheet remains solid with total assets of 180,192.11 and equity of 54,751.26 (equity ratio 27.6%), implying a liabilities-to-equity ratio of about 2.05x, typical for telecom infrastructure businesses. Liquidity ratios cannot be computed due to missing current liability detail, but cash and equivalents stood at 9,211.75, and working capital is positive given sizable current assets of 48,027.76. Capital returns were substantial: dividends paid -1,457.82 and share repurchases -2,708.49, totaling -4,166.31, while financing cash flow was a net inflow of 740.56, implying issuance or other inflows offsetting shareholder returns. The reported payout ratio of 160.8% suggests total shareholder returns exceeded period earnings, which is consistent with buyback intensity; however, underlying dividend affordability appears better given the strong OCF. Despite moderate margin compression at the operating line, revenue momentum and scale economies in telecom should support stable profitability into 2H, assuming disciplined cost control. Strategic investments depress near-term FCF (as defined including all investing cash flows) but are consistent with sustaining network quality and service expansion. Overall, KDDI exhibits resilient profitability, strong cash conversion, and a balanced capital structure, with the key watchpoints being cost discipline, investment cadence, and the sustainability of buybacks relative to underlying free cash generation. Data limitations (several unreported line items) constrain deeper ratio diagnostics, but the available figures indicate healthy fundamentals.

Profitability Analysis

• ROE decomposition (DuPont): net margin 12.8% x asset turnover 0.164 x financial leverage 3.29x = ~6.9% ROE (in line with reported). The ROE profile reflects a margin-driven business with structurally low turnover and moderate leverage typical of telecoms.
• Margin quality: gross margin of 42.6% highlights a robust service mix and controlled network-related costs. Operating margin is 19.5% (5,771.56 / 29,631.61), indicating stable efficiency but modest compression versus revenue growth (+3.8% revenue vs +0.7% OP suggests incremental costs in SG&A or network expenses). EBITDA margin at 31.1% confirms strong underlying cash economics.
• Operating leverage: revenue grew 3.8% while OP grew only 0.7%, implying negative operating leverage this period, likely from higher SG&A (23.9% of sales) and/or cost inflation in customer acquisition, IT, or content. Close monitoring of cost-to-serve and promotional intensity is warranted in 2H.
• Below-OP items: non-operating income/expenses not disclosed; profit before tax (5,855.50) slightly exceeds operating income, suggesting minimal non-operating drag/benefit in aggregate.
• Taxation: effective tax rate of 29.8% is consistent with historical norms, supporting net margin stability.

Growth Assessment

• Revenue sustainability: +3.8% YoY revenue growth is solid for a mature domestic telecom, likely supported by ARPU stabilization, enterprise/IoT growth, and adjacent services. The breadth of gross margin suggests continued service mix benefits.
• Profit quality: net income growth (+7.6%) outpaced operating income growth, reflecting stable taxes and limited below-OP headwinds. EBITDA growth implied by the margin indicates durable cash generation.
• Outlook: near-term growth should remain steady, contingent on churn control and upselling of value-added services. Investment-heavy cash flows (investing CF -7,150.07) likely support network capacity/quality and new growth domains, underpinning medium-term revenue resilience. Key swing factors include competitive pricing intensity and regulatory developments.

Financial Health

• Liquidity: current and quick ratios are not calculable due to unreported current liabilities; however, current assets are sizable at 48,027.76, with cash and equivalents at 9,211.75 (reported). Working capital is positive, but exact headroom is unknown.
• Solvency: equity ratio is 27.6% (equity/total assets), and the liabilities-to-equity ratio is ~2.05x (112,256.48 / 54,751.26), indicating a balanced, asset-heavy capital structure consistent with telecom infrastructure models.
• Capital structure: interest-bearing debt not disclosed, preventing precise net debt and interest coverage analysis. Financing CF of +740.56 despite dividends and buybacks suggests incremental debt or other financing inflows during the period.
• Asset mix: noncurrent assets are 120,734.43, reflecting network assets and intangibles (specific line items not disclosed). Accounts receivable are large at 30,409.98, typical for telecom billing cycles; inventories are modest at 1,327.43 (handsets/accessories).

Cash Flow Quality

• Earnings quality: OCF of 8,920.73 equals 2.36x net income, indicating strong cash conversion and likely favorable working capital movements and non-cash charges (D&A 3,434.46).
• Free cash flow: reported FCF of 1,770.66 appears to reflect OCF plus total investing CF (8,920.73 - 7,150.07), rather than the narrower OCF - capex definition (which would be ~7,046.15). The difference reflects significant non-capex investments (e.g., spectrum, affiliates, financial investments).
• Working capital: AR 30,409.98 and AP 9,963.15 are large in absolute terms; without period comparisons or detailed current liabilities, we cannot quantify cash release/absorption. Nonetheless, the high OCF implies net working-capital support to cash generation in 1H.
• Coverage of shareholder returns: aggregate returns (dividends 1,457.82 + buybacks 2,708.49 = 4,166.31) exceeded period FCF as defined including all investing CF, leading to a financing inflow. On an OCF - capex basis, cash generation would have comfortably covered dividends and partly covered buybacks.

Dividend Sustainability

• Payout ratio assessment: the provided payout ratio is 160.8% (methodology not disclosed). Dividends paid were 1,457.82 against net income of 3,777.23, implying a dividends-only payout of ~38.6% on a cash basis for the period. Including buybacks, total shareholder yield exceeds net income (~110% of NI), consistent with the high calculated payout ratio.
• FCF coverage: using the provided FCF definition (OCF + total investing CF), FCF coverage is weak at 0.29x, reflecting heavy investment cash outflows in the period. On an OCF - capex basis, dividend coverage is strong (~4.8x), indicating underlying dividend affordability remains solid.
• Policy outlook: KDDI has historically targeted steady, progressive dividends supplemented by buybacks. Given robust OCF and EBITDA margins, dividends appear sustainable; buyback pace, however, may flex with investment needs and financing conditions. Data gaps (no DPS disclosure here) limit precision on full-year payout trajectory.

Risk Assessment

Business Risks:

• Domestic competitive intensity in mobile and broadband potentially pressuring ARPU and acquisition costs
• Regulatory interventions on pricing and competition that could cap profitability
• Execution risk in new growth areas (enterprise, fintech, content) and integration of investments
• Technology cycle risk requiring sustained high capex and spectrum-related spending
• Customer churn or migration to low-cost brands impacting mix and margins

Financial Risks:

• Elevated investment cash outflows (-7,150.07 investing CF) reducing period FCF and increasing reliance on financing
• Potential interest rate risk and refinancing needs (interest expense not disclosed, debt composition unknown)
• Working-capital swings given large receivables base (30,409.98)
• Buybacks and dividends exceeding FCF (as defined) may raise leverage if sustained

Key Concerns:

• Negative operating leverage in the period (+0.7% OP vs +3.8% sales) signals cost pressure
• Heavy investing cash flows depress FCF and necessitate financing inflows
• Limited visibility due to unreported non-operating items, debt, and current liabilities

Investment Implications

Key Takeaways:

• Topline growth is resilient at +3.8% YoY with strong gross and EBITDA margins
• Operating margin at 19.5% indicates stable efficiency but cost pressure muted OP growth
• Cash conversion is strong (OCF/NI 2.36x), underpinning dividend capacity
• Investment intensity (investing CF -7,150.07) is the primary near-term FCF headwind
• Capital returns (dividends + buybacks) exceeded period FCF, implying reliance on financing inflows
• Balance sheet remains solid with a 27.6% equity ratio and liabilities/equity of ~2.05x

Metrics to Watch:

• Operating margin trend and SG&A ratio (currently 23.9% of sales)
• OCF and OCF - capex FCF versus total shareholder returns
• Investment cash outflows excluding capex (spectrum/strategic investments)
• AR and AP movements to gauge working-capital effects on cash flow
• Leverage and interest coverage once debt and interest expense are disclosed
• Revenue ARPU/churn indicators and enterprise/IoT growth contributions

Relative Positioning: Within the Japanese telecom peer set (e.g., NTT Group, SoftBank Corp.), KDDI’s profile remains one of stable margins, strong cash conversion, and disciplined capital return. ROE at ~6.9% is in a typical range for domestic incumbents given low asset turnover and moderate leverage. Investment intensity this period appears elevated versus a simple capex cycle, which may temporarily depress reported FCF relative to peers; however, underlying OCF strength and EBITDA margins compare favorably, supporting competitive positioning.

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