HIKARI TSUSHIN (9435) FY2026 Q3 Earnings Report

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Executive Summary

Although the company posted increases in both revenue and profit, the growth in Operating Income fell below revenue growth, highlighting a noticeable gap between the revenue growth rate and profit growth rate. Revenue was ¥5,425.0B (+8.8% YoY), Operating Income was ¥885.0B (+2.2%), Profit Before Tax was ¥1,559.5B (+8.2%), and Net Income attributable to owners of the parent was ¥1,126.7B (+9.6%). The growth in Net Income was supported by the expansion of financial income of ¥662.4B and equity-method gains of ¥193.8B, presenting a contrast with the 2.2% growth rate in Operating Income, which indicates the earning power of the core business.

Factors Affecting Performance

【Revenue】Revenue increased 8.8% YoY to ¥5,425.0B. Gross profit was ¥2,721.9B, while the gross profit margin declined slightly to 50.2% (50.8% in the previous year), suggesting that cost increases may have partially offset the impact of higher revenue.

【Profit and Loss】While Operating Income was ¥885.0B (+2.2%), SG&A expenses increased 9.5% YoY to ¥1,865.3B, outpacing revenue growth, and the Operating Income margin declined to 16.3% (17.4% in the previous year). Meanwhile, financial income of ¥662.4B (+22.1% YoY) and equity-method gains of ¥193.8B (+61.0%) boosted Profit Before Tax. Profit Before Tax was ¥1,559.5B (+8.2%), while Net Income attributable to owners of the parent was ¥1,126.7B (+9.6%). This was a results period characterized by increases in both revenue and profit, with financial and equity-method income driving bottom-line profit amid sluggish growth at the operating level.

Key Financial Indicators

【Profitability】Although the Operating Income margin declined somewhat to 16.3% (17.4% in the previous year), the Net Income margin, based on income attributable to owners of the parent, remained high at 20.8%. The gross profit margin was 50.2%, remaining almost flat year on year.【Cash Flow Quality】Operating Cash Flow was ¥361.2B, representing approximately 0.31x Net Income of ¥1,163.2B (consolidated total), a low ratio indicating a divergence between accounting profit and cash-generation capacity. Trade receivables reached ¥3,856.4B, increasing 16.1% from the previous year, creating a structure in which a lengthening collection cycle is placing pressure on OCF.【Investment Efficiency】ROE (annualized) was 13.3%. Total asset turnover was approximately 0.20x, a low level, reflecting the fact that large financial assets and an investment and financing portfolio, including equity-method investments of ¥3,064.5B and other financial assets of ¥1,412.49T, are driving up total assets.【Financial Soundness】The Equity Ratio improved to 41.7% (38.6% in the previous year), while net assets expanded 23.2% to ¥11,627.0B (¥9,435.7B in the previous year). Cash and cash equivalents stood at ¥3,885.4B, providing a certain degree of flexibility for short-term funding.

Cash Flow Analysis

Operating Cash Flow was ¥361.2B, down 34.4% YoY and moving in the opposite direction from Net Income growth. The primary causes of the decline were deterioration in working capital due to an increase in trade receivables (-¥445.3B cash-flow pressure) and a decrease in trade payables (-¥270.6B). Investing Cash Flow was significantly negative at -¥1,812.7B, primarily because purchases of investment securities of -¥3,455.6B exceeded proceeds from sales of ¥2,016.6B; capital expenditures were ¥137.0B, a relatively small amount within total investing activities. Financing Cash Flow was positive at ¥564.2B. Although the company paid dividends of ¥238.2B and conducted share repurchases of ¥21.8B, financing raised through borrowings and other means exceeded these outflows. As a result, Free Cash Flow (OCF + Investing CF) was significantly negative at -¥1,451.5B. The period’s investing activities were not supported solely by cash generated from operating activities and were supplemented by cash on hand and external financing, a characteristic of the company’s funding structure that warrants attention.

Earnings Quality

The composition of earnings in the current period is notable in that, relative to Operating Income from the core business of ¥885.0B, non-operating items—financial income of ¥662.4B and equity-method gains of ¥193.8B—accounted for more than half of Profit Before Tax of ¥1,559.5B. These items tend to fluctuate in line with market conditions and the performance of affiliated companies. The fact that Net Income growth (+9.6%) exceeded Operating Income growth (+2.2%) was largely attributable to the expansion of these non-operating sources of income. In addition, Operating Cash Flow of ¥361.2B was only approximately 0.31x Net Income (¥1,163.2B on a consolidated basis), indicating weak cash backing for accounting profit, mainly due to the increase in trade receivables. Comprehensive Income was ¥2,446.0B (¥2,402.7B attributable to owners of the parent), substantially exceeding Net Income. The primary factor was a ¥1,150.1B fair value gain on other financial assets recognized in FVOCI (Other Comprehensive Income). Accordingly, the increase in Comprehensive Income for the period was significantly influenced by valuation-related factors and should be distinguished from recurring earnings power.

Earnings Forecasts and Guidance

The company disclosed full-year forecasts of Revenue of ¥7,600.0B, Operating Income of ¥1,150.0B (+9.5% YoY), and forecast EPS of ¥2,733.04. Cumulative Q3 Revenue of ¥5,425.0B had reached 71.4% of the full-year forecast, while Operating Income of ¥885.0B had reached 77.0% of the full-year forecast. The progress rate for Operating Income exceeded that for Revenue, suggesting that the full-year plan is within reach if revenue growth moderates during the remaining quarter.

Shareholder Returns

Disclosed quarterly dividends were ¥156 in Q1, ¥161 in Q2, and ¥167 in Q3, increasing each quarter. The full-year dividend forecast is ¥746 (the forecast value for DividendPerShare), while total dividends paid amounted to ¥238.2B according to the cash flow statement. The Payout Ratio, calculated based on total dividends relative to Net Income attributable to owners of the parent of ¥1,126.7B, was approximately 21%, a conservative level. In addition, the company conducted share repurchases of ¥21.8B. Since total shareholder returns, including dividends and share repurchases, exceeded the period’s Free Cash Flow, the source of shareholder returns was dependent not on cash generated from operating activities but on cash on hand and external financing.

Risk Factors

1. Risk of Earnings Not Converting to Cash: Operating Cash Flow was ¥361.2B, a low ratio of approximately 0.31x relative to consolidated Net Income of ¥1,163.2B. Trade receivables increased 16.1% YoY to ¥3,856.4B, and the lengthening collection period is placing pressure on cash-generation capacity.

2. Dependence on Financial Income and Equity-Method Gains: Of Profit Before Tax of ¥1,559.5B, financial income of ¥662.4B and equity-method gains of ¥193.8B together accounted for approximately 55%. As these items are linked to market conditions and the performance of affiliated companies, they may contribute to earnings volatility.

3. Cash Outflows from Investing Activities: Investing Cash Flow was significantly negative at -¥1,812.7B, and Free Cash Flow was negative at -¥1,451.5B. Ongoing investments in securities are placing a burden on the funding structure, and the timing of investment recoveries may affect future liquidity.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability is substantially above the industry median, positioning the company among the higher-ranking companies in the industry.

Growth and Capital Efficiency

The Revenue growth rate was slightly below the industry median, placing the company around the middle of the industry in terms of growth.

※Source: Company analysis

Key Points from the Financial Results

1. Net Income growth (+9.6%) was greater than Operating Income growth (+2.2%), and the fact that the primary drivers of profit growth were the expansion of financial income and equity-method gains rather than the core business is noteworthy when assessing earnings quality.

2. Operating Cash Flow declined 34.4% YoY, and the divergence from Net Income widened, primarily due to the increase in trade receivables. The lack of alignment between accounting profit growth and cash-generation capacity requires monitoring.

3. While the Equity Ratio improved to 41.7% (38.6% in the previous year) and net assets expanded 23.2%, cash outflows from investing activities continued. The impact of expanding asset scale on capital efficiency, including total asset turnover of 0.20x, warrants ongoing observation.

Theoretical Share Price (Reference Value)

Sensitivity: ¥26,808–¥28,408 for Cost of Equity ±1%; ¥27,546–¥27,656 for ω±0.1.

Notes:

• As progress toward full-year forecast Net Income (94%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of forecast tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the quarter-end are used (there is a timing difference relative to 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 future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmark is reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting a professional where necessary.

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