Komo looks ahead to Japan's IT services and telecommunications sector earnings season: cybersecurity is the focus, and unpopular stocks are waiting to fight back

The Zhitong Finance App learned that J.P. Morgan analyst Matthew Henderson released the latest research report and gave a comprehensive outlook on the upcoming July-September quarterly earnings report for the Japanese IT service and telecommunications industry. The report points out that cybersecurity has recently become the core focus of the IT service industry. Since September 2026, the number of cyber attacks on Japanese companies has risen sharply, and any announcement implying that profits will benefit from cybersecurity topics may become a qualitative catalyst. At the individual stock level, J.P. Morgan believes that Otsuka & Co., Ltd. is the only company that is expected to bring a profit surprise, while BIPROGY and NTT may trigger a negative reaction from the market.

Cybersecurity topics are heating up, and Otsuka Shokai may be the only one to exceed expectations

J.P. Morgan Chase pointed out in the report that the number of cyber attacks on Japanese companies has increased dramatically since September 2026. Analysts believe that rising demand for cybersecurity will bring potential profit catalysts to relevant businesses. Otsuka & Co., Ltd. is the only company that J.P. Morgan Chase expects to bring a profit surprise in its financial reports.

Specifically, J.P. Morgan predicts that Otsuka Corporation's sales for the third quarter of fiscal year 2026 (up to December 2026) will be 318.9 billion yen (up 2.7% year over year), higher than the general market forecast of 316.7 billion yen; operating profit is expected to be 201 billion yen (up 15.8% year over year), which is significantly higher than the general forecast of 18.3 billion yen.

J.P. Morgan Chase pointed out that the difference between the bank's expectations and market consensus mainly reflects the two's different assumptions about software gross margin for the first fiscal quarter — J.P. Morgan's assumption was 17%, up 1.6 percentage points from the previous year, and is expected to benefit from the decline in special demand (related to GIGA school projects with low profit margins and PC sales to large companies) in the previous year.

Furthermore, the SCS evaluation system (used to rate corporate IT infrastructure countermeasures) to be implemented in the second half of fiscal year 2026 is expected to boost the demand for security services by small and medium-sized enterprises, which are the core customer base of the Otsuka Chamber of Commerce.

NRI is expected to be viewed positively by the market, and BIPROGY and NTT may trigger negative reactions

The Nomura Research Institute (NRI) is viewed by J.P. Morgan as a beneficiary of security needs. The bank indicated that if NRI can explain its order prospects and demonstrate its ability as a system integrator to address the shortage of manpower, the market may evaluate it positively.

J.P. Morgan predicts NRI's second-fiscal quarter sales of 218.2 billion yen (general forecast is 214.1 billion yen) and operating profit of 45.2 billion yen (market forecast is 45.7 billion yen), and believes that NRI has almost no risk of falling short of common expectations or causing negative surprises. Market expectations for NRI are low, and any safety-related order growth could be an upward catalyst for stock prices.

In contrast, J.P. Morgan expects BIPROGY and NTT to trigger a negative reaction from the market.

On the BIPGY side, J.P. Morgan Chase predicted sales for the second fiscal quarter to be 117.7 billion yen (general forecast is 120.9 billion yen) and operating profit of 12.4 billion yen (market forecast is 13.4 billion yen), which is lower than market consensus. Expenses and year-on-year decline factors to be wary of include internal system-related costs of about 200 million yen, PPA amortization of about 1 billion yen for Catalina Marketing Japan, and the loss of BankVision's one-time revenue of about 1 billion yen in the same period of the previous year.

J.P. Morgan predicts NTT's operating profit for the second fiscal quarter to be 439.8 billion yen (down 18.5% year over year), which is lower than the general forecast of 464.4 billion yen. It is expected to decline due to the high base of data center sales revenue of about 130 billion yen in the previous year, and NTT announced a price increase in September, so the stock price catalyst is insufficient in the short term.

OBIC Business Consultant may face a profit settlement, Trend Micro is concerned about ARR acceleration

J.P. Morgan also warned of possible profit settlement pressure from OBIC Business Consultants. The stock has absorbed the price increases announced in the first fiscal quarter, and upside may be limited in the near future.

J.P. Morgan predicts sales of 14.3 billion yen and operating profit of 6.3 billion yen for the second fiscal quarter, all in line with market expectations. However, J.P. Morgan believes that there is still room for improvement in the 2027 fiscal year (J.P. Morgan predicts operating profit of 35.4 billion yen, market expectations of 33.2 billion yen), but the results for the second fiscal quarter themselves may lack highlights, because the catalysts brought about by price increases have already been announced in advance.

On Trend Micro's side, the market's focus will be on the accelerated growth of ARR (Annual Recurring Revenue) and management's comments on profit prospects.

J.P. Morgan predicts that sales for the third fiscal quarter will be 75.7 billion yen (up 10% year on year) and operating profit of 10.6 billion yen (down 33.8% year over year). Operating profit is roughly in line with general expectations. ARR increased 4.3% year-on-year in the first fiscal quarter and 5.7% in the second fiscal quarter. J.P. Morgan believes that confirming 8% growth in the third fiscal quarter and any comments suggesting an acceleration to 10% in the fourth fiscal quarter would be a positive sign. But on the other hand, although it can be confirmed that ARR is accelerating in America and Europe, ARR growth in Japan is still limited, and this trend is not expected to change.

OBIC's profit is steady, NS Solutions benefits from a one-time factor

On the OBIC side, J.P. Morgan Chase predicts sales of 37.3 billion yen and operating profit of 25 billion yen for the second fiscal quarter, which is in line with general market expectations. Profits are strong, and the possibility of poor performance is low. J.P. Morgan has a positive view of the company's high-quality growth and positive shareholder returns, and believes that there is still room for appreciation in the valuation.

J.P. Morgan predicts NS Solutions' second-fiscal quarter sales of 106.9 billion yen (up 11.7% year over year) and operating profit of 12.6 billion yen (up 28.7% year over year), which is in line with the company's first-half year guidelines, mainly due to Ministry of Defense project orders and 900 million yen mergers and acquisitions and PPA costs brought about by InfoCom mergers and acquisitions. J.P. Morgan expects profits to rise sharply in the second fiscal quarter due to one-time positive factors, but believes this has been digested by general expectations.

TIS, BayCurrent, SHIFT and other companies' outlook

J.P. Morgan predicts that TIS sales for the second fiscal quarter will be 158.9 billion yen (the general forecast is 156.7 billion yen) and operating profit of 20.9 billion yen (market forecast is 20.4 billion yen), which is in line with market consensus. The second fiscal quarter is expected to raise the full-year guide by 15-20 billion yen (sales of 620 billion yen, operating profit of 81 billion yen), reflecting that progress in the first half of the year exceeded expectations, but the bank doubts whether this will act as a catalyst for stock prices.

As for BayCurrent, J.P. Morgan predicts sales for the second fiscal quarter to be 45.7 billion yen (up 33.8% year over year) and operating profit of 13.6 billion yen (up 22.9% year over year), slightly lower than the general forecast of 14.1 billion yen. J.P. Morgan believes that most of its strong fundamentals have been priced, and there is limited room for stock price increases due to exceeding expectations.

J.P. Morgan predicts SHIFT's fourth fiscal quarter (up to August 2026) sales of 45.7 billion yen (up 32.8% year over year), gross margin of 33%, and operating profit of 4.6 billion yen (up 23.6% year over year). The estimated adjusted operating profit for the full year is 19.3 billion yen (guidance is 20 billion yen), which is slightly lower than the guideline. J.P. Morgan believes that gross margin for the fourth fiscal quarter is unlikely to improve significantly year-on-year due to temporary seasonal increases due to the company's focus on large-scale projects. The adjusted operating profit target for the 2027 fiscal year announced by SHIFT in the third fiscal quarter is a minimum of 25.5 billion yen and an ideal target of 30 billion yen, which is in line with J.P. Morgan's forecast of 27.5 billion yen, but the gross margin target range of 34.5%-35% appears to be somewhat high for J.P. Morgan (its forecast is 34%).

Telecom sector: KDDI and SoftBank

In the telecommunications sector, J.P. Morgan Chase predicts KDDI's operating profit for the second fiscal quarter to be 304.6 billion yen (generally expected to be 314 billion yen). Although the expected profit is lower than market consensus, it believes that a strong number of smartphone users will support stock prices.

J.P. Morgan predicts SoftBank's operating profit for the second fiscal quarter to be 333.8 billion yen (down 1.3% year over year), and the market forecast is 339.2 billion yen. SoftBank's positive catalyst may be the confirmation that the net decline in smartphone contracts has bottomed out. Furthermore, SoftBank is expected to record sales revenue of approximately 80 billion yen of SB Energy Global shares in the second fiscal quarter (included in the non-operating profit forecast).