SoftBank Corp. (shares of preferred stock) (9434) FY2027 Q1

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Executive Summary

Although revenue and profit increased in FY2027 Q1, profit growth fell below revenue growth and profitability declined slightly. Revenue was ¥18,147B (+9.4% YoY), Operating Income was ¥3,023B (+4.0%), and consolidated Net Income was ¥2,014.9B (+10.5%), of which ¥1,500.7B (+3.3%) was attributable to owners of the parent. Due to rising costs, the gross profit margin declined to 49.0% from 49.5% in the same period of the previous year, while the Operating Income margin fell 87bp from 17.5% to 16.7%. Meanwhile, an increase in Net Income attributable to non-controlling interests supported the growth in consolidated Net Income.

Factors Affecting Results

【Revenue】Revenue was ¥18,147B, up +9.4% YoY, with all reported segments recording revenue growth. Finance (+26.8%) and Distribution (+20.3%) showed high growth, while the core Consumer (+4.4%) and Enterprise (+8.1%) segments supported growth through their scale.

【Profit and Loss】Operating Income was ¥3,023B, up +4.0% YoY, below the revenue growth rate. Cost of sales increased +10.5%, outpacing revenue growth and pressuring the gross profit margin, while SG&A expenses were contained at +8.4%, resulting in an improvement in the SG&A ratio. By segment, Finance (Operating Income +76.0%, margin 29.5%) and Enterprise (+27.5%, margin 25.5%) led profit growth, while Consumer (-0.6%) and Media & EC (-5.7%) recorded profit declines. Profit Before Tax was ¥2,811.7B, and consolidated Net Income was ¥2,014.9B, with an increase in Net Income attributable to non-controlling interests lifting consolidated Net Income. In conclusion, both revenue and profit increased.

Segment Analysis

Consumer (external revenue ¥7,454B, composition ratio 41.1%, YoY +4.4%) reported Operating Income of ¥1,529B (-0.6% YoY), with its margin declining to 20.5%. Enterprise (external revenue ¥2,444B, composition ratio 13.5%, YoY +8.1%) posted Operating Income of ¥622B (+27.5% YoY), with its margin improving to 25.5%, supported by the expansion of cloud- and AI-related businesses. Media & EC (external revenue ¥4,410B, composition ratio 24.3%, YoY +10.1%) recorded Operating Income of ¥667B (-5.7% YoY), with its margin declining to 15.1%. Finance (external revenue ¥1,077B, composition ratio 5.9%, YoY +26.8%) reported Operating Income of ¥318B (+76.0% YoY), with a margin of 29.5%, the highest level among all segments and a key factor behind the improvement in profitability. Distribution (external revenue ¥2,514B, composition ratio 13.9%, YoY +20.3%) posted Operating Income of ¥129B (+8.2% YoY), with a relatively low margin of 5.1%. The structure is one in which profit growth in Finance and Enterprise offsets profit declines in Consumer and Media & EC.

Key Financial Metrics

【Profitability】The Operating Income margin was 16.7%, down from 17.5% in the same period of the previous year, while the gross profit margin also declined to 49.0% from 49.5%. The primary factor was the +10.5% growth in cost of sales, which exceeded the +9.4% revenue growth.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥1,004.2B, and its ratio to Net Income attributable to owners of the parent of ¥1,500.7B was only approximately 0.67x. A decrease in operating liabilities and an increase in income tax payments pressured cash generation.【Investment Efficiency】ROE (annualized) was 17.4%. Basic EPS was ¥3.09 (¥3.00 in the previous year, YoY +3.0%). Unlike the consolidated Net Income growth rate of 10.5%, EPS growth was moderate, reflecting changes in the number of shares and an increase in Net Income attributable to non-controlling interests.【Financial Soundness】The Equity Ratio declined to 15.1% from 16.0% in the previous year, while total interest-bearing debt increased to ¥74,213B (current ¥24,618B, non-current ¥49,596B). Cash and cash equivalents were ¥16,458B.

Cash Flow Analysis

Operating Cash Flow was ¥1,004.2B, down 49.1% from ¥1,971.2B in the same period of the previous year. A ¥1,104.7B decrease in operating liabilities, ¥1,554.7B in income tax payments, and an increase in loans in the banking business pressured cash flow. Investing Cash Flow was an outflow of ¥3,779.5B, driven by capital expenditures of ¥1,643.6B and acquisitions of investments of ¥2,229.9B. Free Cash Flow, calculated as the sum of Operating Cash Flow and Investing Cash Flow, was an outflow of ¥2,775.3B. Financing Cash Flow was an inflow of ¥4,802.5B, primarily reflecting a net increase in interest-bearing debt, which covered funding needs. Although capital expenditures were below depreciation and amortization of ¥2,023.3B, Operating Cash Flow alone was insufficient to cover the combined funding needs of capital expenditures and dividend payments (¥2,040.7B). The Company therefore had a funding structure highly dependent on borrowings during the quarter.

Earnings Quality

Other operating income amounted to ¥3.74B out of Operating Income of ¥3,023.0B, representing only 0.2% of revenue, indicating that Operating Income was primarily generated by the core business. Financial expenses of ¥298.9B exceeded financial income of ¥101B, causing Profit Before Tax to fall ¥211.3B below Operating Income. Share of profit or loss of investments accounted for using the equity method was a loss of ¥13.1B, with a limited impact on the current period. After deducting income taxes of ¥796.7B from Profit Before Tax of ¥2,811.7B, consolidated Net Income was ¥2,014.9B, representing an effective tax rate of 28.3%. The ¥514.2B difference from Net Income attributable to owners of the parent of ¥1,500.7B mainly represents the portion attributable to non-controlling interests. Although Operating Cash Flow was below Net Income attributable to owners of the parent, this was primarily due to changes in working capital and the timing of tax payments, rather than indicating a substantial accumulation of non-cash accruals.

Earnings Forecasts and Guidance

The full-year Company forecast is revenue of ¥75,000B (+6.6% YoY) and Operating Income of ¥11,000B (+5.5% YoY). The Q1 progress rates were 24.2% for revenue and 27.5% for Operating Income. Compared with the standard quarterly progress rate of 25%, revenue was slightly below pace, while Operating Income was ahead of pace. Neither the earnings forecast nor the dividend forecast has been revised.

Shareholder Returns

The full-year dividend forecast is ¥8.80 per share, implying a Payout Ratio of 76.3% based on the full-year EPS forecast of ¥11.54. Dividend payments during the quarter amounted to ¥2,040.7B, exceeding Net Income attributable to owners of the parent of ¥1,500.7B. However, this reflects the timing of dividend payments based on the previous fiscal year’s results and cannot be assessed through a simple comparison with current-quarter profit. No share buybacks were conducted during the quarter (expenditure on share buybacks: ¥0B), and shareholder returns consisted solely of dividends. There was no revision to the dividend forecast.

Risk Factors

1. High financial leverage: Total interest-bearing debt reached ¥74,213B, while the Equity Ratio declined to 15.1% from 16.0% in the previous year. During the quarter, total short- and long-term interest-bearing debt increased by ¥9,367B, indicating a structure in which investment and dividend funding was supplemented by borrowings.

2. Declining cash conversion: Operating Cash Flow was ¥1,004.2B, below Net Income attributable to owners of the parent of ¥1,500.7B, resulting in a ratio of only approximately 0.67x. A decrease in operating liabilities and an increase in income tax payments pressured cash generation, resulting in Free Cash Flow of ¥2,775.3B outflow.

3. Declining profitability in core segments: Consumer (Operating Income -0.6%) and Media & EC (-5.7%) recorded profit declines despite revenue growth. The impact of the competitive environment and changes in the sales mix on profit margins will be a factor influencing full-year profitability trends.

Industry Benchmark (Reference; Company Research)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability is significantly above the industry median and ranks among the higher levels within the industry.

Growth and Capital Efficiency

The revenue growth rate is almost in line with the industry median and ranks around the middle of the industry.

※Source: Company research

Key Points from the Earnings Results

1. The 87bp YoY decline in the Operating Income margin despite revenue growth indicates that rising costs have outweighed SG&A efficiency improvements. The structure in which high growth and improved profitability in Finance and Enterprise support consolidated profitability has become clear.

2. Operating Cash Flow declined 49.1% YoY, and Free Cash Flow was an outflow of ¥2,775.3B. The funding structure in which capital expenditures and dividends are financed through borrowings makes the recovery of Operating Cash Flow and the status of investment discipline over the full year key areas to monitor.

3. Full-year progress rates were 24.2% for revenue and 27.5% for Operating Income, with Operating Income progressing ahead of the standard pace. However, if the decline in profit margins at Consumer and Media & EC continues, it may affect the pace of full-year profit growth.

Theoretical Share Price (Reference Value)

Sensitivity: ¥73–¥77 for ±1% in the cost of equity, and ¥75–¥76 for ±0.1 in ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burden, acquisition-related expenses, non-controlling interests, and other factors (Net Income ÷ Operating Income 51%). This value reflects that compression at face value; if these factors are temporary, the underlying earnings power may be higher.
• Goodwill represents a high proportion of net assets, and the assumptions would change significantly if impairment occurred.
• Net assets as of the end of the quarter are used (there is a time lag between these figures and the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary 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 responsibility, after consulting with a professional as necessary.

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