CORE (2359) FY2027 Q1 Earnings Report

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Executive Summary

All three business segments posted revenue growth during the quarter, resulting in higher revenue and income accompanied by an improved gross margin. Revenue was ¥66.7B (¥59.3B in the same period of the previous year, +12.4% YoY), Operating Income was ¥8.3B (+21.6%), Ordinary Income was ¥8.8B (+23.5%), and Net Income attributable to owners of the parent was ¥5.9B (+18.8%). The Operating Income margin improved to 12.5% (11.6% in the previous year), primarily due to margin improvements in the core Industrial Technology Solutions Business and the high-growth Future Society Solutions Business.

Factors Affecting Business Performance

【Revenue】Revenue was ¥66.7B (¥59.3B in the previous year, +12.4%), with all three segments posting growth. The Industrial Technology Solutions Business, which accounts for 51.2% of the composition, grew +9.4%; the Customer Co-Creation Business, accounting for 32.4%, grew +13.3%; and the Future Society Solutions Business, accounting for 16.7%, grew +20.9%. All three expanded in a balanced manner, with the particularly strong growth of the Future Society Solutions Business serving as the primary growth driver.

【Profit and Loss】Gross profit was ¥19.1B, and the gross margin improved to 28.6% (26.9% in the previous year, +1.7pt). SG&A expenses increased to ¥10.7B (16.1% of revenue, compared with 15.4% in the previous year, +0.7pt); however, the benefit of the gross margin improvement exceeded this increase, causing the Operating Income margin to expand to 12.5% (11.6% in the previous year, +0.95pt). In the same period of the previous year, a gain on the sale of investment securities of ¥0.19B was recorded as extraordinary income. No similar one-off gain or loss occurred in the current period, and therefore Ordinary Income of ¥8.8B (+23.5%) and Net Income of ¥5.9B (+18.8%) consist more substantially of earnings generated by recurring operating activities. In conclusion, the Company achieved higher revenue and income.

Segment Analysis

The Industrial Technology Solutions Business generated revenue of ¥34.2B (+9.4%) and Operating Income of ¥5.8B (+31.9%), with a margin of 16.9% (14.1% in the previous year, +2.8pt). As the core business generating approximately 69% of total Company-wide Operating Income, it also served as a driver of margin improvement. The Future Society Solutions Business recorded revenue of ¥11.1B (+20.9%) and Operating Income of ¥1.1B (+72.0%), with a margin of 10.2% (7.1% in the previous year, +3.1pt), representing the strongest growth and the largest margin improvement. Meanwhile, the Customer Co-Creation Business secured revenue growth to ¥21.6B (+13.3%), but profitability declined, with Operating Income of ¥1.4B (-21.1%) and a margin of 6.7% (9.6% in the previous year, -2.9pt), becoming a factor weighing down the Company-wide margin. The segment mix contributed to improvement in the Company-wide profit margin, as expansion in the high-margin businesses exceeded deterioration in the low-margin business.

Key Financial Metrics

【Profitability】The Operating Income margin improved to 12.5% (11.6% in the previous year, +0.95pt), the Net Income margin to 8.9% (8.4% in the previous year, +0.5pt), and the gross margin to 28.6% (26.9% in the previous year, +1.7pt). Profitability improved across the board, raising the earnings base while absorbing higher costs. 【Cash Quality】Cash and deposits increased to ¥95.9B (¥82.0B in the previous year, +17.0%), while accounts receivable declined to ¥67.0B (¥91.9B in the previous year, -27.1%), indicating improvement in working capital health through progress in collections. Inventories were only ¥1.4B, representing 0.5% of total assets, and the inventory burden was minimal. 【Investment Efficiency】ROE (based on Net Income attributable to owners of the parent, quarterly) was 2.9%. Total asset turnover and financial leverage showed no significant change from the previous year, making improved profitability the primary driver. 【Financial Soundness】The Equity Ratio was high at 74.0% (73.5% in the previous year), while the current ratio was 268.0% (current assets of ¥172.3B / current liabilities of ¥64.3B). Interest-bearing debt remained below ¥0.9B in total, consisting of ¥0.8B in short-term borrowings and ¥0.1B in long-term borrowings, while cash of ¥95.9B substantially exceeded this amount, maintaining a virtually debt-free balance sheet.

Cash Flow Analysis

Although individual data from the cash flow statement were not provided, the changes in the balance sheet suggest improved capital efficiency. Cash and deposits increased +17.0% to ¥95.9B from ¥82.0B in the same period of the previous year, while short-term borrowings decreased -50.6% to ¥7.8B from ¥15.7B in the previous year. This indicates a trend of reducing interest-bearing debt while building up on-hand liquidity. Accounts receivable declined -27.1% to ¥67.0B from ¥91.9B in the previous year, and the progress in collections likely eased working capital requirements. Inventories remained at a modest ¥1.4B, indicating limited cash tied up in inventory. Taken together, earnings generated from operating activities contributed both to the accumulation of cash on hand and to debt reduction, and the quality of cash management can be assessed as stable.

Quality of Earnings

The current-period earnings consist more substantially of recurring operating activities. In the same period of the previous year, a gain on the sale of investment securities of ¥0.19B was recorded as extraordinary income, creating a difference between Ordinary Income and Profit Before Tax. No such one-off item was recorded in the current period, and the near alignment of Ordinary Income of ¥8.8B and Profit Before Tax of ¥8.8B is positive from a quality-of-earnings perspective. Other operating income of ¥0.5B consisted primarily of dividend income of ¥0.3B and did not include highly volatile items. Comprehensive Income was ¥7.0B, exceeding Net Income of ¥5.9B. The main reason for the difference was a ¥1.1B increase in the valuation difference on securities, with unrealized gains from the increase in the market value of held shares constituting part of the accrual-based earnings. The substantial -27.1% decrease in accounts receivable suggests that earnings are being converted into cash, providing support for the quality of earnings.

Earnings Forecast and Guidance

Progress against the full-year earnings forecasts (Revenue of ¥290.0B, Operating Income of ¥42.0B, Ordinary Income of ¥43.0B, and Net Income of ¥30.0B) was 23.0% for Revenue, 19.9% for Operating Income, 20.4% for Ordinary Income, and 19.8% for Net Income in Q1. Although all were below the standard quarterly progress rate of 25%, the levels can be viewed as within an acceptable range at this stage, taking into account the second-half concentration characteristic of SI and contract-based businesses, where customer acceptance is concentrated in the second half. There was no revision to the earnings forecast figures themselves; however, a revision to the dividend forecast (in the direction of an increase) was announced during the quarter.

Shareholder Returns

The full-year dividend forecast is ¥15.00 per share, and a revision to the dividend forecast (an increase) was announced during the quarter. Based on the full-year forecast EPS of ¥208.81, the Payout Ratio is approximately 7.2% (¥15.00 / ¥208.81), remaining at a conservative level. Based on the number of shares outstanding (approximately 14.36M shares after deducting treasury shares), the total annual dividend is estimated at approximately ¥0.22B, representing a minimal burden relative to cash and deposits of ¥95.9B. Given the Company’s net cash position and high Equity Ratio of 74.0%, constraints on funding remain limited even following the revision of its dividend policy.

Risk Factors

1. Segment concentration risk: The Industrial Technology Solutions Business accounts for 51.2% of revenue and approximately 69% of Operating Income contribution, meaning that fluctuations in demand for this business have a relatively significant impact on Company-wide performance.

2. Declining profitability in the Customer Co-Creation Business: The segment margin declined -2.9pt from 9.6% to 6.7%, and Operating Income decreased -21.1%. This was a decline in earnings despite revenue growth, suggesting that changes in the cost mix or project composition may be pressuring margins.

3. Full-year progress and second-half concentration: Progress against the full-year forecast was 23.0% for Revenue, 19.9% for Operating Income, and 19.8% for Net Income, all below the standard progress rate of 25%. Accelerated progress in the second half will therefore be necessary to achieve the plan, which assumes customer acceptance will be concentrated in the second half.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin both exceed the industry median and are positioned within the upper range of the industry.

Growth and Capital Efficiency

The Revenue growth rate also exceeds the industry median, but has not reached the upper limit of the IQR (16.9%), placing the Company from the middle to upper range of the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The +1.7pt improvement in gross margin was the primary factor behind the +0.95pt improvement in the Operating Income margin. Improved profitability in the Industrial Technology Solutions Business (margin +2.8pt) and the Future Society Solutions Business (margin +3.1pt) lifted the Company-wide profit margin.

2. The margin of the Customer Co-Creation Business declined from 9.6% to 6.7%; whether profitability in this business reverses will be a focus in determining future expansion of the Company-wide margin.

3. The Company has a virtually debt-free balance sheet, with cash of ¥95.9B versus interest-bearing debt of less than ¥1B. Against the backdrop of a conservative 7.2% Payout Ratio, the announcement of a revision to the dividend forecast (an increase) during the quarter is noteworthy as a change in the Company’s approach to shareholder returns.

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: ¥1,644–¥1,746 at cost of equity ±1%, and ¥1,687–¥1,703 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: residual income model / interest rate reference month: 2026-06 / this value 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, and you should consult a professional advisor as necessary.

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AI Financial Analysis

Executive Summary

FY2027 Q1 was a strong start, with revenue growth translating into faster operating and net-profit growth. Revenue rose 12.4% YoY to ¥6.67bn. Operating income increased 21.6% to ¥834m, outperforming sales growth by 9.2 percentage points. Ordinary income rose 23.5% to ¥878m. Net income expanded 18.8% to ¥593m, and basic EPS was ¥41.32. Gross profit increased 19.5% to ¥1.91bn. The gross margin improved 169bp YoY to 28.6%, indicating favorable project mix, pricing, utilization, or delivery efficiency. The operating margin improved 96bp to 12.5%, placing profitability within the good 8-15% benchmark range. The net margin rose 47bp to 8.9%, also within the good benchmark range. Non-operating income of ¥52m, including ¥27m of dividend income, supported ordinary income but was modest relative to revenue. The prior-year period included a ¥19m gain on sales of investment securities, whereas the current quarter did not report an extraordinary gain, supporting the underlying quality of the YoY profit increase. Industrial Technology Solutions remained the core business, contributing 69.2% of consolidated segment operating income. Future Society Solutions delivered the strongest segment profit growth, while Customer Co-Creation Business posted revenue growth but lower segment profit. Q1 revenue progress against full-year guidance was 23.0%, slightly below the standard 25% pace. Operating-income progress was 19.9% and net-income progress was 19.8%, indicating that the full-year earnings plan requires a stronger contribution after Q1. The balance sheet remains highly liquid and conservatively capitalized, with ¥9.59bn of cash against ¥859m of interest-bearing debt. The principal balance-sheet issues to monitor are the 92-day receivables cycle and the predominantly short-term composition of debt, although cash coverage substantially mitigates refinancing exposure. The increase in the full-year DPS forecast to ¥65 signals a more shareholder-return-oriented policy while retaining a moderate forecast payout burden.

Profitability Analysis

The reported annualized DuPont ROE is 11.4%, comprising an 8.9% net profit margin, 0.950x asset turnover, and 1.35x financial leverage. This is a good ROE outcome under the 10-15% benchmark, and it is driven primarily by operating profitability and business turnover rather than aggressive leverage. Financial leverage is restrained: equity finances 73.9% of total assets, while interest-bearing debt is only ¥859m. Gross margin expanded to 28.6% from 26.9% in the prior-year quarter, a 169bp improvement. Operating margin rose to 12.5% from 11.6%, a 96bp expansion, as operating income grew 21.6% versus revenue growth of 12.4%. SG&A rose 17.9% YoY to ¥1.07bn, faster than revenue, but the gross-profit increase of 19.5% more than absorbed this cost increase; consequently, operating leverage remained positive. The tax burden was 0.675, equivalent to a 32.4% effective tax rate, which limited the conversion of pre-tax profit into net income versus the 0.70 normal benchmark. The interest burden was 1.053 because non-operating income exceeded interest expense, and interest coverage was a very strong 185.5x. The profitability improvement appears operationally grounded because gross profit, operating income, ordinary income, and net income all increased at double-digit rates.

Growth Assessment

Growth was broad-based across all three reporting segments. Industrial Technology Solutions, the core business by operating-income contribution, generated revenue of ¥3.40bn, up 9.5% YoY, and segment profit of ¥577m, up 31.9%; its segment margin expanded 290bp to 17.0%. Future Society Solutions generated revenue of ¥1.11bn, up 20.6%, and segment profit of ¥113m, up 72.0%; its segment margin rose 3.0 percentage points to 10.2%. Customer Co-Creation Business generated revenue of ¥2.16bn, up 13.3%, but segment profit declined 21.1% to ¥144m; its segment margin compressed 290bp to 6.7%. Accordingly, the group’s earnings growth was concentrated in Industrial Technology Solutions and Future Society Solutions, while Customer Co-Creation Business diluted the consolidated margin trajectory. Full-year guidance calls for revenue of ¥29.0bn, up 9.3%, operating income of ¥4.2bn, up 10.0%, ordinary income of ¥4.3bn, and net income attributable to owners of ¥3.0bn. Q1 revenue progress is 23.0%, 2.0 percentage points below the standard 25% pace. Q1 operating-income progress is 19.9%, 5.1 percentage points below the standard pace, while ordinary-income progress is 20.4% and net-income progress is 19.8%. The Q1 shortfall versus a straight-line run rate is not greater than the 10-percentage-point deviation threshold, but maintaining full-year guidance requires acceleration in subsequent quarters. Segment naming was changed from Customer Business Integration to Customer Co-Creation Business, with no change to the segment’s underlying scope.

Financial Health

Financial health is strong. The current ratio was 268.0% and the quick ratio was 265.8%, substantially above healthy liquidity benchmarks and indicating that current liabilities of ¥6.43bn are well covered by liquid current assets. Working capital was ¥10.80bn. Cash and deposits totaled ¥9.59bn, equal to 34.2% of total assets and 12.36x short-term loans of ¥776m. Interest-bearing debt was limited to ¥859m, consisting of ¥776m of short-term loans and ¥83m of long-term loans. Debt-to-equity was a conservative 0.35x, debt-to-capital was 4.0%, and no high-leverage warning is indicated. Interest coverage of 185.5x confirms that financing costs are immaterial relative to operating profit. The refinancing-risk alert arises because 90.3% of interest-bearing debt is short-term, materially above the 40% alert threshold. This maturity structure creates a potential rollover requirement, but its practical impact is currently low because cash exceeds short-term debt by more than 12x and the group has substantial net cash. Accounts receivable declined ¥2.49bn, or 27.1% YoY, to ¥6.70bn, improving the absolute working-capital balance. However, the 92-day DSO remains above the 60-day alert threshold, requiring continued scrutiny of collection timing, customer credit terms, and project billing milestones. Goodwill was ¥405m, only 2.0% of equity and 1.4% of total assets, so acquisition-related balance-sheet dependency and impairment sensitivity are low. Intangible assets were 1.7% of assets, also indicating limited intangible-asset concentration.

Notable B/S Changes

Accounts receivable: -¥2.49bn (-27.1% YoY) to ¥6.70bn - a favorable absolute working-capital movement, although the 92-day DSO indicates that collection-cycle efficiency remains a key monitoring item. Short-term loans: -¥795m (-50.6% YoY) to ¥776m - deleveraging reduced financing exposure, but 90.3% of total debt remains short term and therefore subject to refinancing management. Provision for bonuses: +¥565m (+41.0% YoY) to ¥1.94bn - a material increase in accrued employee compensation obligations that should be assessed alongside personnel costs and delivery capacity.

Cash Flow Quality

Dividend Sustainability

The company revised its dividend outlook upward and forecasts full-year DPS of ¥65. Based on forecast EPS of ¥208.81, the forecast dividend payout ratio is 31.1%. This is materially below the 60% sustainability benchmark and leaves substantial earnings retention capacity. Retained earnings were ¥19.78bn, equivalent to 95.2% of total equity, providing a strong capital buffer. The conservative debt burden, high liquidity, and forecast payout ratio support the financial capacity for the revised dividend. The sustainability of the dividend outlook will primarily depend on delivery of the ¥3.0bn full-year net-income plan and on maintaining disciplined working-capital management.

Risk Assessment

Business risks include Customer Co-Creation Business: revenue increased 13.3% YoY but segment profit fell 21.1%, reducing its segment margin to 6.7% from 9.6%. Further margin pressure in this business could constrain consolidated earnings growth., Project execution and staffing risk: as an IT solutions provider, profitability depends on project delivery, utilization, pricing discipline, and the ability to recruit and retain specialized technical personnel., Technology and cybersecurity risk: demand and contract competitiveness may be affected by rapid technology shifts, cybersecurity incidents, and customer requirements for secure system integration and managed services., Receivables management: DSO of 92 days exceeds the 60-day alert level, exposing the group to longer collection cycles and potential customer-credit or project-acceptance delays..

Financial risks include Refinancing risk: 90.3% of interest-bearing debt is short-term, above the 40% alert threshold. The risk is mitigated substantially by ¥9.59bn of cash and a 12.36x cash-to-short-term-debt ratio., Market-value risk in securities: accumulated valuation gains on securities were ¥693m, and changes in market prices can affect comprehensive income and equity., Tax-rate sensitivity: the 32.4% effective tax rate reduced the tax burden factor to 0.675, so changes in taxable income composition or tax rates can affect net-income conversion..

Key concerns include Whether Industrial Technology Solutions can sustain its 17.0% segment margin, which is central to the group’s Q1 profit outperformance., Whether Customer Co-Creation Business can restore margin while preserving its double-digit revenue growth., Whether receivable days decline from 92 days despite the ¥2.49bn YoY reduction in receivables., Whether operating-income progress improves from 19.9% in Q1 toward the full-year ¥4.2bn target..

Investment Implications

Key takeaways include Revenue, operating income, ordinary income, and net income all grew at double-digit rates, with operating income rising faster than sales., Gross-margin expansion of 169bp and operating-margin expansion of 96bp demonstrate favorable earnings leverage., Industrial Technology Solutions is the core earnings driver, producing ¥577m of segment profit and a 17.0% margin., The group has a net-cash-oriented balance sheet, with ¥9.59bn of cash versus ¥859m of interest-bearing debt., The full-year dividend forecast of ¥65 implies a moderate 31.1% forecast payout ratio..

Metrics to watch include Industrial Technology Solutions segment revenue growth and margin, Customer Co-Creation Business segment margin recovery, Receivable days and receivables collection trend, Q2 and subsequent-quarter progress toward full-year operating-income guidance, Short-term debt rollover and cash-to-short-term-debt coverage, Gross margin and SG&A growth relative to revenue growth.

Regarding relative positioning, The company combines good annualized ROE of 11.4%, a good 12.5% operating margin, strong interest coverage, and conservative leverage. Its main relative strengths are balance-sheet resilience and margin expansion, while the principal operational issue is uneven segment profitability, particularly the margin contraction in Customer Co-Creation Business.