NS Solutions Corporation FY2027 Q1 Earnings Report

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Executive Summary

Although revenue and profit increased in Q1, the rise in the effective tax rate slowed the growth of net income, indicating some weakness in the underlying quality of the revenue and profit growth. Revenue was ¥93.66B (up +13.3% year on year), Operating Income was ¥9.23B (up +8.8%), and Profit Before Tax was ¥9.52B (up +8.0%). Net Income attributable to owners of the parent was limited to ¥5.21B (up +1.9%), below the increase in Operating Income. The primary factors were that the increase in selling, general and administrative expenses (up +24.7% year on year) partially offset the improvement in the gross profit margin (26.5%, versus 25.4% in the previous year), while the effective tax rate rose to 41.7% (from 38.7% in the previous year), placing pressure on net income.

Factors Driving Earnings Changes

【Revenue】Revenue increased to ¥93.66B, up +13.3% year on year. The company operates a single Information Services Business segment, and progress in systems integration and operations and maintenance projects drove overall results. Cost of sales also increased to ¥68.88B (up +11.6%), but revenue growth outpaced the increase, improving the gross profit margin to 26.5%, up 1.1pt from 25.4% in the previous year.

【Profit and Loss】Operating Income was ¥9.23B (up +8.8% year on year). The increase in selling, general and administrative expenses (¥15.55B, up +24.7% year on year) partially absorbed the benefit of gross profit improvement, causing the Operating Income margin to decline to 9.9% from 10.3% in the previous year, a decrease of 0.4pt. Profit Before Tax was ¥9.52B (up +8.0%), while Net Income attributable to owners of the parent was ¥5.21B (up +1.9%). The increase in the effective tax rate to 41.7% from 38.7% in the previous year was the primary cause of the slowdown in net income growth. Non-operating financial income of ¥0.42B and financial expenses of ¥0.13B were small, and no temporary factors equivalent to extraordinary gains or losses were identified. Overall, revenue and profit increased, but profit margins contracted on a bp basis.

Key Financial Indicators

【Profitability】The gross profit margin was 26.5% (+1.1pt from 25.4% in the previous year), the Operating Income margin was 9.9% (-0.4pt from 10.3%), and the Net Income margin attributable to owners of the parent was 5.6% (-0.6pt from 6.2%). This indicates that the improvement in gross profit was offset by increases in selling, general and administrative expenses and the tax burden.【Cash Quality】Operating Cash Flow (OCF) was ¥14.59B, approximately 2.6 times consolidated quarterly profit of ¥5.55B and approximately 2.8 times Net Income attributable to owners of the parent of ¥5.21B, indicating a high level of cash generation relative to earnings.【Investment Efficiency】ROE was 1.9% (quarterly result), with the decline in the Net Income margin resulting from the higher tax burden weighing on capital efficiency.【Financial Soundness】The Equity Ratio was 66.8% (nearly flat from 66.9% in the previous year). Current assets of ¥274.11B versus current liabilities of ¥93.07B indicate substantial liquidity, while cash and cash equivalents were ample at ¥114.95B.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥14.59B, a significant improvement from -¥19.25B in the same period of the previous year. In the previous year, payments of settlement amounts (¥5.0B) and income taxes and other taxes (¥30.30B, including payments related to the previous fiscal year) were substantial, whereas income taxes and other taxes paid in the current period were limited to ¥3.25B, which was the primary driver of the improvement. In terms of working capital, the collection of trade receivables (+¥20.81B) and the increase in trade payables (+¥7.54B) provided sources of funds, while the increase in contract assets (-¥7.79B) and inventories (-¥7.36B) absorbed funds, indicating an accumulation of projects recognized under the percentage-of-completion method. Investing Cash Flow was positive at ¥2.09B, as proceeds from the sale and redemption of other financial assets exceeded capital expenditures of ¥1.92B. Financing Cash Flow was -¥10.50B, with dividend payments of ¥8.23B and repayments of lease liabilities of ¥1.75B being the primary cash outflows. Free Cash Flow was ¥16.68B, comfortably exceeding the approximately ¥10.16B combined amount of dividend payments and capital expenditures.

Quality of Earnings

Profit for the quarter was primarily generated by the core business. Financial income of ¥0.42B and financial expenses of ¥0.13B were negligible relative to revenue, and no temporary extraordinary gains or losses were identified. Against Profit Before Tax of ¥9.52B, Net Income attributable to owners of the parent was ¥5.21B, with the difference primarily attributable to income taxes and other taxes of ¥3.97B. The effective tax rate rose to 41.7% from 38.7% in the previous year. This gap was primarily attributable to the tax burden rather than non-operating factors, and no distortion was observed in the recurring earnings structure itself. Operating Cash Flow (OCF) of ¥14.59B significantly exceeded net income (consolidated quarterly profit of ¥5.55B), indicating a small accrual gap between earnings and cash generation and favorable earnings quality.

Earnings Forecast and Guidance

Q1 progress against the full-year forecast was 22.4% for Revenue (¥93.66B/¥419.00B), 19.0% for Operating Income (¥9.23B/¥48.50B), and 16.1% for Net Income attributable to owners of the parent (¥5.21B/¥32.30B). Compared with the 25% level corresponding to the simple passage of one-quarter of the fiscal year, Revenue was broadly in line, while Operating Income and Net Income were below that level, indicating that progress in profit items is somewhat delayed. The increases in contract assets and inventories indicate an accumulation of projects recognized under the percentage-of-completion method, and progress in acceptance inspections toward the second half of the fiscal year is expected to determine the pace of revenue and profit realization. Operating Income increased +8.8% in the current quarter, broadly consistent with the full-year forecast of +9.6% year on year.

Shareholder Returns

The company paid dividends of ¥8.23B in Q1, which were comfortably covered by Free Cash Flow of ¥16.68B. The full-year forecast dividend per share is ¥43.5, expected to increase from the previous fiscal year's actual dividend of ¥40. Based on forecast EPS of ¥176.52, the Payout Ratio is approximately 24.6% (¥43.5/¥176.52). Given the level of OCF and the cash and cash equivalents balance of ¥114.95B, no concerns have been identified regarding the sustainability of dividend payments. The dividend forecast was not revised during the quarter.

Risk Factors

1. Accumulation of working capital: Inventories increased to ¥40.37B (up +22.5% from the end of the previous fiscal year), while contract assets increased to ¥39.13B (up +24.9%). This indicates an accumulation of completed but unbilled portions of projects recognized under the percentage-of-completion method and inventory awaiting delivery. The pace of cash conversion resulting from future acceptance inspections and shipment progress will be a key focus.

2. Pressure on the Net Income margin from the higher effective tax rate: The effective tax rate rose to 41.7% from 38.7% in the previous year, while Net Income attributable to owners of the parent increased only +1.9% against Profit Before Tax growth of +8.0%. The impact of tax-rate trends on future net income growth needs to be monitored.

3. Delayed progress in profit items against the earnings forecast: Progress rates for Operating Income and Net Income were 19.0% and 16.1%, respectively, below the simple progress level of 25%. The plan assumes progress weighted toward the second half of the fiscal year, and achievement of the full-year plan will depend on acceptance-inspection trends in the second half.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceed the industry median, indicating that profitability is relatively high within the industry.

Growth and Capital Efficiency

The Revenue growth rate exceeds the industry median by 4.0pt, indicating a high pace of revenue growth even within the IT and telecommunications industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Although the company maintained its revenue and profit growth trend, the improvement in the gross profit margin (+1.1pt) was offset by the increase in selling, general and administrative expenses (+24.7%) and the rise in the effective tax rate (41.7%), resulting in bp-based contractions in both the Operating Income and Net Income margins. The trends in cost efficiency and the tax burden will be key factors affecting the quality of profitability going forward.

2. Inventories and contract assets increased +22.5% and +24.9%, respectively, from the end of the previous fiscal year, indicating an accumulation of completed but unbilled portions of projects recognized under the percentage-of-completion method. OCF was ¥14.59B, significantly exceeding Net Income, and cash generation itself was favorable; however, the pace of working-capital utilization could affect cash conversion in the second half of the fiscal year.

3. Progress against the full-year forecast was 22.4% for Revenue, compared with 19.0% for Operating Income and 16.1% for Net Income, indicating that profit items are somewhat delayed and that the plan assumes progress weighted toward the second half of the fiscal year.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥1,603–¥1,699 at ±1% for the Cost of Equity, and ¥1,646–¥1,655 at ±0.1 for ω.

Notes:

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

(Model used: Residual Income Model / Interest Rate Reference Month: 2026-06 / This figure does not predict or guarantee the 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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting a professional adviser as necessary.

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