JPMorgan anticipates earnings season for Japanese IT services and telecommunications: cybersecurity in focus, under-the-radar stocks poised for breakout

According to news from Zhitong Finance APP, Morgan Stanley analyst Matthew Henderson released the latest research report providing a comprehensive outlook on the upcoming July-September quarterly financial reports for Japan’s IT services and telecommunications sectors. The report highlights that cybersecurity has become the core focus in the recent IT services industry, noting a sharp increase in network attacks on Japanese enterprises since September 2026. Any announcements suggesting profits will benefit from the cybersecurity theme may act as qualitative catalysts. At the individual stock level, Morgan Stanley believes that Otsuka Corporation is the only company likely to deliver an earnings surprise, while BIPROGY and NTT may trigger negative market reactions.

Cybersecurity Theme Heats Up, Otsuka Corporation May Be the Only to Beat Expectations

Morgan Stanley points out in the report that since September 2026, the number of cyberattacks on Japanese enterprises has surged. Analysts believe that the rising demand for cybersecurity will be a potential catalyst for profit in related companies. Otsuka Corporation is expected by Morgan Stanley to be the only company likely to deliver an earnings surprise in its financial reports.

Specifically, Morgan Stanley forecasts Otsuka Corporation’s FY2026 Q3 (ending December 2026) sales at 318.9 billion yen (a year-on-year increase of 2.7%), higher than the market consensus of 316.7 billion yen; operating profit is expected to be 20.1 billion yen (a year-on-year increase of 15.8%), significantly above the consensus forecast of 18.3 billion yen.

Morgan Stanley notes that the difference between their forecast and the market consensus mainly reflects differing assumptions regarding the first fiscal quarter’s software gross margin—their estimate is 17%, up 1.6 percentage points year-on-year, likely benefiting from the dissipation of special demand in the previous year (related to the low-margin GIGA School Project and PC sales to large corporations).

In addition, the launch of the SCS evaluation system (used for corporate IT infrastructure countermeasure ratings) in the second half of FY2026 is expected to boost security service demand among SMEs, which are the core customer base for Otsuka Corporation.

NRI May Receive Positive Market Response, BIPROGY and NTT May See Negative Reactions

Nomura Research Institute (NRI) is regarded by Morgan Stanley as a beneficiary of increasing security demand. If NRI can elaborate on its order prospects and demonstrate its ability to solve workforce shortages as a system integrator, the market might give it a positive evaluation.

Morgan Stanley forecasts NRI’s Q2 sales at 218.2 billion yen (consensus: 214.1 billion yen), and operating profit at 45.2 billion yen (market consensus: 45.7 billion yen), viewing downside risk as minimal. Market expectations for NRI are low, and any order growth related to security could be a catalyst for a share price rally.

Conversely, Morgan Stanley expects BIPROGY and NTT may provoke negative market responses.

For BIPROGY, Morgan Stanley forecasts Q2 sales at 117.7 billion yen (consensus: 120.9 billion yen) and operating profit at 12.4 billion yen (market consensus: 13.4 billion yen), both below consensus. Key areas to monitor include internal systems-related costs of about 200 million yen, PPA amortization for Catalina Marketing Japan of about 1 billion yen, and the absence of the one-off 1 billion yen BankVision gain from the same period last year.

Morgan Stanley forecasts NTT Q2 operating profit at 439.8 billion yen (down 18.5% year-on-year), below the consensus of 464.4 billion yen. This is expected to be weighed down by a high base effect from last year's data center sales gains of about 130 billion yen, and since NTT announced price hikes in September, there is a lack of catalysts for the stock in the short term.

OBIC Business Consultant May See Profit-Taking, Trend Micro Focuses on ARR Acceleration

Morgan Stanley also warns of possible profit-taking pressure in OBIC Business Consultant. The stock has already priced in the impact of Q1-announced price hikes, so near-term upside may be limited.

Morgan Stanley forecasts Q2 sales at 14.3 billion yen and operating profit at 6.3 billion yen, both matching market expectations. However, Morgan Stanley believes that the FY2027 consensus could still be revised upwards (they forecast operating profit of 35.4 billion yen vs. the market’s 33.2 billion yen), but Q2 results themselves may lack highlights as the pricing catalyst has been pre-announced.

For Trend Micro, the market’s focus will center on the acceleration of ARR (Annual Recurring Revenue) growth and management’s commentary on profitability prospects.

Morgan Stanley forecasts its Q3 sales at 75.7 billion yen (up 10% year-on-year) and operating profit at 10.6 billion yen (down 33.8% year-on-year), with operating profit roughly in line with consensus. ARR grew 4.3% in Q1 and 5.7% in Q2 year-on-year; Morgan Stanley believes confirmation of 8% growth in Q3 and any indication of a further acceleration to 10% in Q4 would be positive signals. On the other hand, although ARR acceleration in the Americas and Europe can be confirmed, ARR growth in Japan remains limited and the trend is not expected to change.

OBIC Earnings Remain Solid, NS Solutions Benefits from One-off Factors

For OBIC, Morgan Stanley forecasts Q2 sales of 37.3 billion yen and operating profit of 25 billion yen, consistent with market consensus. Profits are strong, with little risk of negative earnings surprises. Morgan Stanley holds a positive view on the company’s high-quality growth and active shareholder returns, and believes there is still upside to valuation.

Morgan Stanley forecasts NS Solutions’ Q2 sales at 106.9 billion yen (up 11.7% year-on-year) and operating profit at 12.6 billion yen (up 28.7% year-on-year), in line with the company’s first-half guidance, mainly thanks to Ministry of Defense project orders and the 900 million yen M&A/PPA costs from the Infocom acquisition. The Q2 profit is expected to see a sharp rise due to these one-off positive factors, but Morgan Stanley thinks these have already been priced in by the market.

Outlook for TIS, BayCurrent, SHIFT, and Other Companies

Morgan Stanley forecasts TIS Q2 sales at 158.9 billion yen (consensus: 156.7 billion yen) and operating profit at 20.9 billion yen (market consensus: 20.4 billion yen), in line with consensus. They expect full-year guidance to be raised by 1.5-2 billion yen (sales 620 billion yen, operating profit 81 billion yen) to reflect better than expected progress in the first half, though the firm doubts whether this will be a catalyst for the share price.

As for BayCurrent, Morgan Stanley forecasts Q2 sales of 45.7 billion yen (up 33.8% year-on-year) and operating profit of 13.6 billion yen (up 22.9% year-on-year), slightly below the consensus of 14.1 billion yen. Morgan Stanley believes that most of its strong fundamentals are already priced in, thus the potential for share price upside from positive surprises is limited.

Morgan Stanley forecasts SHIFT’s Q4 (ending August 2026) sales at 45.7 billion yen (up 32.8% year-on-year), gross margin at 33%, and operating profit at 4.6 billion yen (up 23.6% year-on-year). Full-year adjusted operating profit is expected to be 19.3 billion yen (guidance: 20 billion yen), slightly below guidance. Morgan Stanley believes that due to a focus on large projects, there is a temporary seasonal increase, and Q4 gross margin is unlikely to see significant year-on-year improvement. SHIFT announced in Q3 a target of at least 25.5 billion yen (ideal target 30 billion yen) in adjusted operating profit for FY2027, which matches Morgan Stanley’s forecast of 27.5 billion yen, but the 34.5%-35% gross margin target appears somewhat aggressive (they forecast 34%).

Telecom Sector: KDDI and Softbank

In the telecom sector, Morgan Stanley forecasts KDDI’s Q2 operating profit at 304.6 billion yen (consensus: 314 billion yen). Although earnings are expected to fall short of market consensus, the strong number of smartphone users is believed to support the share price.

Morgan Stanley forecasts Softbank’s Q2 operating profit at 333.8 billion yen (down 1.3% year-on-year), while the market expects 339.2 billion yen. A potential positive catalyst for Softbank is confirmation that the net decline in smartphone contracts has bottomed. In addition, Softbank is expected to record about 80 billion yen in gains from the sale of SB Energy Global shares in Q2 (already included in non-operating profit forecasts).