KSK (9687) FY2026 Q3 Earnings Report

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Executive Summary

This earnings report shows that, in addition to revenue growth, the control of SG&A expenses contributed to growth in Operating Income and below that significantly outpacing revenue growth. Revenue was ¥190.6B (+10.3% YoY), Operating Income was ¥21.7B (+31.7%), Ordinary Income was ¥22.7B (+32.9%), and Net Income was ¥17.1B (¥12.3B in the previous year, +38.9%). The primary driver of earnings growth was an improvement in the SG&A ratio (14.1%→12.0%) that more than offset a slight decline in the gross profit margin (23.6%→23.3%), resulting in strong operating leverage.

Factors Affecting Financial Performance

【Revenue】Revenue increased 10.3% YoY to ¥190.6B. By segment, NetworkService accounted for the largest share at ¥111.9B (58.7% of total), followed by ITSolusion at ¥44.5B and SystemCore at ¥34.2B. All segments have profit margins exceeding 20%, representing a highly profitable business portfolio.

【Profit and Loss】Gross profit was ¥44.5B (¥40.7B in the previous year), and the gross profit margin declined by approximately 26bp from 23.6% to 23.3%. Meanwhile, SG&A expenses decreased by ¥1.5B to ¥22.8B, and the SG&A ratio improved by approximately 210bp from 14.1% to 12.0%. As a result, the Operating Income margin rose from 9.5% to 11.4%, and the ¥5.2B increase in Operating Income exceeded the ¥3.7B increase in gross profit. Non-recurring gains and losses were minimal (gain of ¥0.01B), with a negligible impact on results, and Ordinary Income of ¥22.7B was almost identical to Profit Before Tax of ¥22.7B. This was an earnings report featuring both revenue and profit growth, with SG&A efficiency improvements in addition to revenue growth driving higher profit.

Segment Analysis

NetworkService is the core business, with revenue of ¥111.9B and Operating Income of ¥24.4B (profit margin of 21.8%), accounting for more than half of total revenue and profit. ITSolusion generated revenue of ¥44.5B and Operating Income of ¥12.1B (profit margin of 27.1%), the highest profit margin among the three segments. SystemCore generated revenue of ¥34.2B and Operating Income of ¥8.0B (profit margin of 23.4%), with all segments demonstrating a highly profitable business structure exceeding 20%.

Key Financial Metrics

【Profitability】The Operating Income margin of 11.4% (9.5% in the previous year) and Net Income margin of 9.0% (7.1% in the previous year) both improved, while annualized ROE stood at a favorable level of 12.7%. ROE consists of a 9.0% Net Income margin × approximately 1.06x total asset turnover × approximately 1.34x financial leverage, supported by profitability that does not rely on the use of debt.【Cash Flow Quality】Annualized DSO for accounts receivable was 72 days, indicating an extension of the collection period amid revenue growth.【Investment Efficiency】Accounts receivable decreased from ¥54.0B in the previous year to ¥49.9B, but the DSO level itself remains subject to management of the billing and acceptance cycles.【Financial Soundness】The company maintains a conservative capital structure, with an Equity Ratio of 73.7%, a current ratio of 360.4%, and a debt-to-equity ratio of 0.34x, providing substantial financial capacity even during a period of earnings growth.

Cash Flow Analysis

As cash flow statement data is not included in the disclosed information, funding trends are assessed based on changes in the balance sheet. Cash and deposits were ¥57.7B, an increase of ¥4.5B from ¥53.2B in the previous year, while investment securities also increased to ¥71.5B (¥60.0B in the previous year). Total assets expanded by ¥70.9B to ¥240.5B, and net assets also increased to ¥179.6B, with accumulated earnings and changes in asset values driving growth on both the asset and capital sides. Accounts receivable were ¥49.9B, slightly down from ¥54.0B in the previous year. Although the accounts receivable balance itself is trending downward even amid revenue growth, the annualized DSO of 72 days indicates a lengthy collection cycle.

Earnings Quality

Ordinary Income of ¥22.7B was almost identical to Profit Before Tax of ¥22.7B, while non-recurring gains and losses amounted to only a ¥0.01B gain. Accordingly, the earnings growth for the current period can be considered to have been generated almost entirely by core operating activities. Non-operating income was ¥1.0B, a small amount equivalent to 0.5% of revenue, primarily comprising interest income of ¥0.7B and dividend income of ¥0.3B, with no apparent reliance on temporary sources of income. The effective tax rate was approximately 24.5%, within the normal range. Comprehensive income was ¥19.3B, slightly exceeding Net Income of ¥17.1B. The difference was primarily attributable to a ¥1.9B increase in the valuation difference on securities, indicating that changes in the market value of investment securities are reflected in net assets separately from business profit and loss.

Earnings Forecasts and Guidance

Progress against the full-year company forecast was 75.0% for revenue (in line with the standard progress rate of 75%), 82.7% for Operating Income, 84.0% for Ordinary Income, and 87.0% for Net Income, with profit progress exceeding revenue progress. In particular, Net Income progress was more than 10pt above the standard level, and achievement of the full-year plan will depend on Q4 expense recognition, tax burden, and project profitability. The required Q4 revenue to achieve the full-year plan is calculated at ¥63.4B, while required Q4 Operating Income is ¥4.5B.

Shareholder Returns

The full-year forecast for annual dividends is ¥163.0 per share, resulting in a forecast Payout Ratio of approximately 50.1% against forecast full-year EPS of ¥325.09. The Q2 dividend was ¥0, indicating that a large proportion of the annual dividend is allocated to the year-end dividend. With retained earnings of ¥151.7B and cash and deposits of ¥57.7B, the company has substantial capacity to pay dividends, and a Payout Ratio at the 50% level is not excessive relative to earnings. The results and plans for share repurchases are not included in the disclosed information, and therefore the Total Return Ratio has not been calculated.

Risk Factors

1. Extension of the accounts receivable collection period: Annualized DSO is 72 days, exceeding the general soundness benchmark of 60 days. If working capital accumulation progresses during a period of revenue growth, the conversion of profit into cash may be delayed.

2. Slight decline in the gross profit margin: The gross profit margin declined by approximately 26bp from 23.6% to 23.3%. If the improvement in the SG&A ratio that boosted the Operating Income margin proves temporary, the pace of future earnings growth may slow.

3. Securities exposure: Investment securities amount to ¥71.5B, representing 29.7% of total assets. Market price fluctuations affect net assets and Comprehensive Income through the valuation difference on other securities.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability exceeds the industry median, but remains below the upper IQR of 18.6%, positioning the company in the upper-middle range.

Growth and Capital Efficiency

The revenue growth rate is approximately in line with the industry median, placing growth within the industry-average range.

※Source: Compiled by the Company

Key Takeaways from the Earnings

1. Revenue increased 10.3%, while Operating Income and Net Income increased 31.7% and 38.9%, respectively, confirming strong operating leverage primarily driven by an improvement in the SG&A ratio (14.1%→12.0%).

2. The Operating Income margin of 11.4% and annualized ROE of 12.7% exceed the industry median Operating Income margin of 8.3%, while financial safety is also high, with an Equity Ratio of 73.7% and a current ratio of 360.4%.

3. Net Income progress toward the full-year forecast was 87.0%, approximately 12pt above the standard progress rate, making trends in Q4 expenses, tax burden, and project profitability key structural areas to monitor in assessing achievement of the full-year plan.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥2,986–¥3,153 at ±1% in the cost of equity capital, and ¥3,065–¥3,071 at ω±0.1.

Notes:

• Because Net Income progress against the full-year forecast (87%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of plan tend to exceed forecasts; in businesses with strong seasonality, the adjustment may be excessive).
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat on the high side.

(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 stock price or a recommendation of any specific investment action, and does not predict or guarantee future stock prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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, consulting a professional as necessary.

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