HIKARI TSUSHIN,INC. FY2027 Q1 Earnings Report

Quick View

Executive Summary

Although revenue and profit increased in Q1, growth in operating income slowed relative to revenue growth, while net income rose significantly due to increases in financial income and equity-method investment gains. Revenue was ¥192.56B (+15.2% year on year), operating income was ¥29.18B (+6.1%), profit before tax was ¥49.95B (+40.5%), and quarterly profit attributable to owners of the parent was ¥36.66B (+30.1%). The primary drivers of revenue growth were the expansion of Electricity & Gas (+29.5%) and Financial Services (+42.3%), while the increase in net income was attributable to financial income of ¥24.19B and a ¥6.50B increase in equity-method income.

Factors Affecting Performance

【Revenue】Revenue increased to ¥192.56B (+15.2% year on year). By segment, Electricity & Gas was the largest segment at ¥83.29B (43.3% of total, +29.5%), while Financial Services at ¥13.27B (+42.3%) and Insurance at ¥9.79B (+20.6%) also posted strong growth. In contrast, Agency Sales declined to ¥25.37B (-2.3%), and Solutions declined to ¥6.16B (-9.2%).

【Profitability】Operating income increased to ¥29.18B (+6.1% year on year), below the rate of revenue growth, and the operating margin declined to 15.2% from the previous year. While the gross margin declined to 48.3% from 52.1% a year earlier, the SG&A ratio improved to 33.2% from 36.5%, partially absorbing the decline in operating-level margins. By segment, operating income from Electricity & Gas declined to ¥6.42B (-17.9%), with its margin falling to 7.7%. Meanwhile, Financial Services maintained high profitability, with operating income of ¥7.81B (+69.3%) and a margin of 58.9%, while Telecommunications generated ¥8.34B (+8.2%), making the largest contribution to company-wide profit. At the profit-before-tax level, financial income of ¥24.19B and equity-method income of ¥6.50B were added, bringing net income to ¥36.66B (+30.1%). Overall, revenue and profit increased, but operating income growth lagged revenue growth, while net income was substantially boosted by investment income.

Segment Analysis

Of the seven segments, Telecommunications, Beverages, Insurance (excluding profit), and Financial Services recorded increases in both revenue and profit, while Electricity & Gas reported lower profit despite revenue growth. The Financial Services segment had the highest margin among all segments at 58.9%. Although its revenue contribution was only 6.9%, its contribution to total operating income was substantial (equivalent to ¥7.81B out of unadjusted company-wide operating income of ¥30.9B). Electricity & Gas was the largest segment, accounting for 43.3% of revenue, but had the lowest margin at 7.7%, with profit declining 17.9% year on year due to procurement and unit-price conditions. Telecommunications recorded the largest profit among all segments, with a margin of 25.3% and operating income of ¥8.34B, making it the core of the business portfolio. Under IFRS 17, Insurance recorded insurance revenue of ¥8.42B and insurance service expenses of ¥7.85B, while operating income declined to ¥1.68B (-16.1%), resulting in a lower margin than the previous year.

Key Financial Metrics

【Profitability】The operating margin declined to 15.2% from the previous year, while the net margin improved to 19.0% from 17.5%. The gross margin declined to 48.3% from 52.1%, whereas the SG&A ratio improved to 33.2% from 36.5%, limiting the decline in the operating margin.【Cash Flow Quality】Operating cash flow (OCF) was -¥18.08B, substantially below net income of ¥36.66B, resulting in an OCF-to-net-income ratio of -0.49x. The primary factors were increased income tax payments (-¥43.99B) and a decrease in trade payables (-¥25.87B), reflecting significant seasonal and payment-timing effects.【Investment Efficiency】ROE was low at 2.9%, consisting of a total asset turnover ratio of 0.067 and financial leverage of 2.24. EBIT-based interest coverage was approximately 2.8x (¥2.92B/¥1.05B, or 291.8/105.2 in units of ¥100 million before conversion), a borderline level.【Financial Soundness】The equity ratio improved to 43.5% from 41.5% in the previous year. With current assets of ¥956.71B and current liabilities of ¥452.79B, the current ratio was approximately 211%, indicating a sound position. Cash and cash equivalents were ample at ¥433.61B, providing sufficient short-term funding capacity.

Cash Flow Analysis

Cash flow from operating activities was -¥18.08B, a significant deterioration from +¥14.43B in the same period of the previous year. The primary factors were an increase in income tax payments to ¥43.99B from ¥21.05B in the previous year and a decrease in trade payables (-¥25.87B), while the subtotal of operating cash flow itself remained positive at ¥6.23B. Cash flow from investing activities was -¥90.75B. Acquisitions of investment securities (-¥148.51B) exceeded proceeds from sales (¥60.72B), indicating continued active portfolio rotation. Cash flow from financing activities was -¥1.68B, as dividend payments (-¥8.16B) and share repurchases (-¥3.88B) were partially offset by proceeds from short-term interest-bearing debt (+¥13.32B). Consequently, free cash flow (OCF + investing cash flow) recorded a substantial outflow of -¥108.84B. However, cash and cash equivalents stood at ¥433.61B at period-end, limiting the short-term impact on liquidity.

Earnings Quality

In addition to core operating income of ¥29.18B, the current period’s earnings included financial income of ¥24.19B (12.6% of revenue) and equity-method investment income of ¥6.50B. Non-operating income components therefore accounted for a substantial portion of profit before tax of ¥49.95B. Investment income, including dividends received of ¥20.31B and interest received of ¥2.53B, was the core component of non-operating income. These are highly volatile revenue sources linked to market conditions and the performance of investees, which warrants attention. Meanwhile, OCF was -¥18.08B, substantially below net income of ¥36.66B, resulting in an OCF-to-net-income ratio of -0.49x. Although this was primarily attributable to seasonal and timing-related factors, including tax payments and the decrease in trade payables, the delayed conversion of earnings into cash should be monitored when assessing earnings quality.

Earnings Forecast and Guidance

Progress toward the full-year plan was 24.8% for revenue (¥192.56B/¥775B), approximately in line with the standard quarterly progress rate of 25%. Operating income progress was 22.5% (¥29.18B/¥130B), slightly behind the standard pace, while the dividend forecast remained unchanged at ¥800. The delayed progress appears to have been caused by margin deterioration in the Electricity & Gas segment and a decline in the company-wide gross margin. Meanwhile, net income is progressing ahead of schedule due to the boost from financial income and equity-method income. From the next quarter onward, changes in procurement and unit-price conditions in Electricity & Gas, as well as the normalization of seasonal factors related to tax payments and accounts payable, will be key to achieving the earnings forecast.

Shareholder Returns

The Q1 dividend was ¥200 per share, resulting in a payout ratio of approximately 23.9% against current-period EPS of ¥837.15. For the full year, the payout ratio based on the dividend forecast of ¥800 and forecast EPS of ¥2742.77 is approximately 29.2%, representing no significant change from the previous year’s actual results. Although the report states that a revision to the dividend forecast was made during the quarter, the full-year dividend forecast itself remains unchanged from the previous year. Share repurchases amounted to ¥3.88B, a substantial increase from ¥0.01B in the same period of the previous year. Total shareholder returns, including dividends, amounted to ¥12.04B, equivalent to a total return ratio of approximately 32.8% of profit attributable to owners of the parent of ¥36.66B. Given cash and cash equivalents of ¥433.61B, the level of returns during the quarter appears to be within the company’s cash resources.

Risk Factors

1. Declining profitability in the Electricity & Gas segment: While revenue expanded to ¥83.29B (+29.5%), operating income declined to ¥6.42B (-17.9%), and the margin fell to 7.7%. If procurement and unit-price conditions remain volatile, they could exert further downward pressure on the company-wide gross margin (48.3%, compared with 52.1% in the previous year).

2. Dependence on financial income and equity-method income: Financial income of ¥24.19B and equity-method income of ¥6.50B accounted for a substantial portion of profit before tax of ¥49.95B. As these items are linked to market conditions and investee performance, a market reversal could reduce the growth rate of net income.

3. Weak operating cash flow: OCF was -¥18.08B, substantially below net income of ¥36.66B, resulting in an OCF-to-net-income ratio of -0.49x. Although temporary factors, namely income tax payments and the decrease in trade payables, were the primary causes, any continuation over multiple periods would require close monitoring due to its potential impact on shareholder return capacity.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The company’s profitability substantially exceeds the industry median, with both its operating margin and net margin ranking among the highest in the industry.

Growth and Capital Efficiency

Revenue growth also exceeds the industry median and is close to the upper end of the IQR (16.9%), placing the company among the industry’s high-growth group.

Source: Company analysis

Key Points from the Earnings Results

1. Operating-level margins contracted due to the decline in the gross margin (-381bp), but the expansion of financial income and equity-method income boosted net income. This resulted in a contrasting progress rate of 30.5% for net income attributable to owners of the parent versus 22.5% for operating income against the full-year plan.

2. Although Electricity & Gas has the largest revenue contribution (43.3%), it has the lowest margin (7.7%). Accordingly, trends in procurement and unit-price conditions in this segment will determine the trajectory of company-wide profitability.

3. OCF substantially below net income (OCF/net income of -0.49x) was primarily attributable to temporary factors, namely tax payments and the decrease in trade payables. Whether this divergence continues over multiple periods will be important in assessing the sustainability of the funding plan for continued acquisitions of investment securities.

Theoretical Share Price (Reference Value)

Sensitivity: ¥28,441–¥30,127 for a ±1% change in the cost of equity, and ¥29,250–¥29,288 for a ±0.1 change in ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing gap 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 solely from 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.)

---

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 benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility and, where necessary, after consulting with a professional advisor.

---End of Report---