JPMorgan analyst Matthew Henderson has released a new research report offering a comprehensive outlook on the upcoming July-September quarterly earnings for Japan's IT services and telecommunications sector.

The report notes that cybersecurity has become the core focus of the IT services industry recently, with corporate cyberattack incidents in Japan rising sharply since September 2026. Any announcement hinting that earnings will benefit from the cybersecurity theme could serve as a qualitative catalyst.

At the individual stock level, JPMorgan believes 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 Beat Candidate

JPMorgan points out in its report that corporate cyberattack incidents in Japan have increased substantially since September 2026. Analysts believe that rising cybersecurity demand will provide a potential earnings catalyst for related companies.

Otsuka Corporation is the only company JPMorgan expects to deliver an earnings surprise in its financial results. Specifically, JPMorgan forecasts Otsuka Corporation's third quarter of fiscal 2026 (ending December 2026) sales at 318.9 billion yen (up 2.7% year-on-year), above the consensus estimate of 316.7 billion yen; operating profit is projected at 20.1 billion yen (up 15.8% year-on-year), significantly exceeding the consensus estimate of 18.3 billion yen.

JPMorgan notes that the gap between its estimates and market consensus mainly reflects differing assumptions about first-quarter software gross margin — JPMorgan assumes 17%, up 1.6 percentage points year-on-year, expected to benefit from the fading of special demand from the prior year (related to the low-margin GIGA school program and PC sales to large enterprises).

Additionally, the SCS assessment system (used for rating enterprise IT infrastructure measures) scheduled to be implemented in the second half of fiscal 2026 is expected to boost demand for security services among small and medium-sized enterprises, which are Otsuka Corporation's core customer base.

NRI Likely to Be Viewed Positively, BIPROGY and NTT May Trigger Negative Reactions

Nomura Research Institute (NRI) is seen by JPMorgan as a beneficiary of security demand. The firm notes that if NRI can articulate its order outlook and demonstrate its capabilities as a systems integrator in addressing labor shortages, the market may give it positive recognition.

JPMorgan forecasts NRI's second-quarter sales at 218.2 billion yen (consensus: 214.1 billion yen) and operating profit at 45.2 billion yen (market expectation: 45.7 billion yen), believing there is almost no risk of NRI falling below consensus or delivering a negative surprise. Market expectations for NRI are low, and any security-related order growth could serve as an upside catalyst for the stock price.

Conversely, JPMorgan expects BIPROGY and NTT may trigger negative market reactions. For BIPROGY, JPMorgan forecasts second-quarter sales at 117.7 billion yen (consensus: 120.9 billion yen) and operating profit at 12.4 billion yen (market expectation: 13.4 billion yen), below market consensus. Costs to watch and year-on-year decline factors include: internal system-related costs of approximately 200 million yen, PPA amortization of approximately 1 billion yen related to Catalina Marketing Japan, and the absence of a one-time gain of approximately 1 billion yen from BankVision in the same period last year.

JPMorgan forecasts NTT's second-quarter operating profit at 439.8 billion yen (down 18.5% year-on-year), below the consensus estimate of 464.4 billion yen. It is expected to decline due to the high base effect from approximately 130 billion yen in data center sales gains in the prior year, and NTT already announced price increases in September, leaving insufficient short-term stock price catalysts.

OBIC Business Consultant May Face Profit-Taking, Trend Micro Focus on ARR Acceleration

JPMorgan also flags potential profit-taking pressure on OBIC Business Consultant. The stock has already priced in the price increase announced in the first quarter, and near-term upside may be limited. JPMorgan forecasts its second-quarter sales at 14.3 billion yen and operating profit at 6.3 billion yen, both in line with market expectations.

However, JPMorgan believes there is still room for upward revision to fiscal 2027 consensus estimates (JPMorgan forecasts operating profit of 35.4 billion yen versus market expectation of 33.2 billion yen), but the second-quarter results themselves may lack highlights, as the price increase catalyst was announced in advance.

For Trend Micro, market focus will center on ARR (annual recurring revenue) acceleration and management commentary on the earnings outlook. JPMorgan forecasts its third-quarter 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% year-on-year in the first quarter and 5.7% in the second quarter. JPMorgan believes that confirming 8% growth in the third quarter and any commentary hinting at acceleration to 10% in the fourth quarter would be positive signals. On the other hand, while ARR acceleration can be confirmed in the Americas and Europe, Japan's ARR growth remains limited, and this trend is not expected to change.

OBIC Delivers Solid Earnings, NS Solutions Benefits from One-Time Factors

For OBIC, JPMorgan forecasts second-quarter sales at 37.3 billion yen and operating profit at 25 billion yen, in line with market consensus. Earnings are strong, and the likelihood of negative earnings surprises is low. JPMorgan holds a positive view on the company's high-quality growth and proactive shareholder returns, and believes there is still room for valuation upside.

JPMorgan forecasts NS Solutions' second-quarter 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), consistent with the company's first-half guidance, mainly driven by Ministry of Defense project orders and 900 million yen in M&A and PPA costs from the Infocom acquisition.

JPMorgan expects second-quarter profit to grow significantly due to one-time positive factors, but believes this has already been priced into consensus expectations.

Outlook for TIS, BayCurrent, SHIFT, and Other Companies

JPMorgan forecasts TIS second-quarter sales at 158.9 billion yen (consensus: 156.7 billion yen) and operating profit at 20.9 billion yen (market expectation: 20.4 billion yen), in line with market consensus. It expects a full-year guidance upgrade of 1.5-2 billion yen in the second quarter (sales of 620 billion yen, operating profit of 81 billion yen), reflecting better-than-expected first-half progress, but the firm is skeptical about whether this can serve as a stock price catalyst.

As for BayCurrent, JPMorgan forecasts second-quarter sales at 45.7 billion yen (up 33.8% year-on-year) and operating profit at 13.6 billion yen (up 22.9% year-on-year), slightly below the consensus estimate of 14.1 billion yen. JPMorgan believes its strong fundamentals are largely priced in, leaving limited upside from an earnings beat.

JPMorgan forecasts SHIFT's fourth quarter (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 projected at 19.3 billion yen (guidance: 20 billion yen), slightly below guidance.

JPMorgan believes that due to the company's focus on large projects causing a temporary seasonal increase, fourth-quarter gross margin is unlikely to improve significantly year-on-year. SHIFT announced in the third quarter a fiscal 2027 adjusted operating profit target of a minimum of 25.5 billion yen and an ideal target of 30 billion yen, consistent with JPMorgan's forecast of 27.5 billion yen, but the 34.5%-35% gross margin target range seems somewhat high to JPMorgan (which forecasts 34%).

Telecom Sector: KDDI and SoftBank

In the telecom sector, JPMorgan forecasts KDDI's second-quarter operating profit at 304.6 billion yen (consensus: 314 billion yen). Although earnings are expected to fall below market consensus, JPMorgan believes strong smartphone subscriber numbers will support the stock price.

JPMorgan forecasts SoftBank's second-quarter operating profit at 333.8 billion yen (down 1.3% year-on-year), versus market expectations of 339.2 billion yen. A positive catalyst for SoftBank could be confirmation that the declining trend in net smartphone contract additions has bottomed out. Additionally, SoftBank is expected to record a gain of approximately 80 billion yen from the sale of SB Energy Global shares in the second quarter (already included in non-operating profit forecasts).