Systena Corporation FY2027 Q1 Earnings Report

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Executive Summary

Revenue and earnings increased, with operating income growing at a faster pace than revenue and profitability improving, which were the key points for the quarter. Revenue was ¥238.0B (+5.5% YoY), operating income was ¥38.3B (+9.0%), ordinary income was ¥39.8B (+6.3%), and net income attributable to owners of the parent was ¥26.7B (+3.1%). The primary drivers of earnings growth were expansion in the high-margin Financial and Social Infrastructure-Related Systems and Solution Design segments, with the gross margin improving to 27.7% from the previous year. Meanwhile, net income growth remained more moderate than operating and ordinary income growth due to an increase in the effective tax rate.

Factors Affecting Results

【Revenue】Revenue was ¥238.0B, representing a 5.5% YoY increase. By segment, the Financial and Social Infrastructure-Related Systems Business increased 25.4% to ¥32.4B, while the Solution Design Business grew 17.2% to ¥21.8B. The Online Solutions Business expanded sharply by 638.2% to ¥2.5B, partly due to a change in the classification of a subsidiary. In contrast, the Next-Generation Mobility Business declined 8.6% to ¥33.4B, indicating uneven growth across the business portfolio. The Business Solutions Business, the largest segment, increased 1.5% to ¥85.8B, representing relatively modest growth.

【Profit and Loss】Operating income was ¥38.3B, up 9.0% YoY, and the operating margin improved to 16.1% from the previous year. The gross margin increased to 27.7% from 26.4%, supported by a higher contribution from the high-margin Solution Design Business (40.1% margin) and Financial and Social Infrastructure-Related Systems Business (24.3% margin). Meanwhile, the SG&A ratio increased slightly to 11.6%, with share-based compensation expenses and costs related to new locations recorded as common expenses. Ordinary income was ¥39.8B (+6.3%), with non-operating income and expenses broadly neutral. Net income attributable to owners of the parent was ¥26.7B (+3.1%), below the growth rate of ordinary income due to the higher effective tax rate, with no extraordinary gains or losses recorded. The period ended with higher revenue and earnings than the previous year.

Segment Analysis

The Financial and Social Infrastructure-Related Systems Business posted revenue of ¥32.4B (+25.4%), operating income of ¥7.9B (+36.9%), and a margin of 24.3%. Both revenue and earnings grew significantly in this high-margin segment, contributing to the improvement in the overall margin. The Solution Design Business recorded revenue of ¥21.8B (+17.2%), operating income of ¥8.7B (+23.5%), and a margin of 40.1%, maintaining the highest profitability among all segments. The IT & DX Services Business achieved higher revenue and earnings, with revenue of ¥57.3B (+5.5%) and operating income of ¥7.9B (+13.3%). The Business Solutions Business, the largest segment, reported revenue of ¥85.8B (+1.5%) and operating income of ¥7.3B (+3.5%), reflecting modest growth; its 8.5% margin was the lowest among all segments. The Next-Generation Mobility Business was the only segment to report a revenue decline, with revenue of ¥33.4B (-8.6%), but maintained high profitability with operating income of ¥7.7B (-1.8%) and a margin of 23.2%. The DX & Stock-Based Business posted nearly flat revenue of ¥6.1B (-1.4%), while operating income increased sharply by 210.0% to ¥0.9B. Beginning in Q1, the classification of reportable segments was changed, including the establishment of the Online Solutions Business and the transfer of subsidiaries to the Next-Generation Mobility Business. Accordingly, the figures for the same period of the previous year have been reclassified for comparison.

Key Financial Metrics

【Profitability】The operating margin of 16.1% and net profit margin of 11.2% both improved from the same period of the previous year, primarily due to the increase in the gross margin to 27.7%. 【Cash Quality】Operating Cash Flow (OCF) was ¥18.8B, representing approximately 0.7x net income of ¥26.7B. Increases in trade receivables, the reversal of the provision for bonuses, and higher income tax payments weighed on cash generation. 【Investment Efficiency】ROE was 6.6%. Improvement in total asset turnover, supported by revenue growth despite total assets declining from ¥610.8B to ¥581.1B, made a positive contribution, while slower net margin growth and lower financial leverage were offsetting factors. 【Financial Soundness】The equity ratio remained high at 69.3%. Current assets of ¥516.2B, including cash and deposits of ¥265.8B, substantially exceeded current liabilities of ¥175.6B, indicating that the financial foundation is generally sound.

Cash Flow Analysis

Operating Cash Flow was ¥18.8B, an increase of 41.4% YoY. However, it declined substantially from the OCF subtotal before changes in working capital of ¥52.2B, as cash was tied up through changes in trade receivables of ¥18.9B, the reversal of the provision for bonuses, and income tax payments of ¥33.5B. Investing Cash Flow was positive at ¥2.4B, primarily due to the replacement of securities and related transactions. Financing Cash Flow was -¥28.1B, mainly due to dividend payments and other items. Free cash flow, calculated as the sum of OCF and Investing Cash Flow, was positive at ¥21.2B, but remained below dividend payments of ¥28.4B during the same period. On a standalone quarterly basis, dividends were therefore not fully covered by free cash flow. Cash and cash equivalents stood at ¥291.4B at the end of the period, a slight decrease from ¥298.2B at the end of the same period of the previous year.

Quality of Earnings

The earnings increase for the quarter was driven by the core business, with no extraordinary gains or losses recorded; recurring factors therefore accounted for the majority of earnings. Non-operating income was ¥3.0B, equivalent to only 1.3% of revenue, and primarily consisted of dividend income of ¥0.1B and other non-operating income of ¥0.9B, with virtually no foreign exchange gains. Non-operating expenses were also modest at ¥1.5B, and the overall balance remained broadly neutral, including interest expenses of ¥0.1B. Comprehensive income was ¥26.8B, only slightly above net income attributable to owners of the parent of ¥26.7B, indicating a limited impact from foreign currency translation adjustments and other items of other comprehensive income. However, the fact that OCF remained approximately 0.7x net income warrants attention from an accruals perspective. Increases in trade receivables and the reversal of the provision for bonuses created timing differences between earnings and cash, resulting in a certain gap between profit recognition and cash collection.

Earnings Forecast and Guidance

Progress toward the full-year forecast was 24.3% for revenue (¥238.0B/¥980.0B), 24.0% for operating income (¥38.3B/¥159.6B), and 25.1% for net income (¥26.7B/¥106.3B), broadly in line with the 25% benchmark based on simple quarterly equalization. As of the end of the quarter, no revisions had been made to the earnings or dividend forecasts. The full-year ordinary income forecast is expected to decline 1.1% YoY, making the extent to which the earnings growth trend in the first half can continue into the second half a key focus going forward.

Shareholder Returns

The full-year dividend forecast is ¥9 per share, representing a planned increase from the ¥6 per share paid in the previous fiscal year. The payout ratio based on forecast EPS of ¥29.74 is approximately 30.3%, a level considered sustainable. No share repurchases were identified, and dividends remain the primary form of shareholder returns. Although dividend payments of ¥28.4B during the quarter exceeded free cash flow of ¥21.2B, the substantial cash and deposits of ¥265.8B and low level of interest-bearing debt suggest that financial constraints are not significant.

Risk Factors

1. Declining working capital efficiency: Changes in trade receivables tied up ¥18.9B of cash, while OCF remained approximately 0.7x net income. Trends in the trade receivables collection cycle will remain an important point for monitoring the sustainability of cash generation.

2. Continued revenue decline in the Next-Generation Mobility Business: Revenue in this business declined 8.6% to ¥33.4B, making it the only segment with lower revenue. A prolonged demand adjustment phase could affect the earnings mix.

3. Fluctuations in common expenses: Share-based compensation expenses related to paid stock options of ¥2.1B and costs related to new locations of ¥0.4B were recorded as adjustments. Changes in expenses with performance-linked or temporary characteristics could become a factor affecting the operating margin.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The company’s operating margin and net profit margin both substantially exceed the industry median, placing its profitability among the highest in the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median, indicating that growth is relatively moderate compared with the company’s high profitability.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Operating income is growing at a faster pace than revenue, and the improvement in the gross margin to 27.7% reflects a higher contribution from high-margin segments, namely the Solution Design Business and Financial and Social Infrastructure-Related Systems Business. The impact of changes in the segment mix on the margin trend will remain an area to monitor.

2. OCF remaining approximately 0.7x net income indicates a timing difference between profit recognition and cash generation. How quarterly fluctuations in working capital items, such as trade receivables and the provision for bonuses, normalize over the full year will be an important consideration in assessing the quality of earnings.

3. The financial foundation is solid, with an equity ratio of 69.3% and current assets substantially exceeding current liabilities. Progress toward the full-year forecast for both revenue and earnings is also broadly in line with standard benchmarks. This financial flexibility is relevant when assessing resilience to changes in the external environment.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥173–¥184 at ±1% for the cost of equity, and ¥176–¥181 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end were used (there is a timing difference from the full-year forecast).

（Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This figure does not forecast or guarantee a future share price）

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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 available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting professionals as necessary.

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