SOFTCREATE HOLDINGS (3371) FY2026 FY Earnings Report

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Executive Summary

Revenue and profit increased, driven by higher revenue from both the EC Solutions and IT Solutions businesses, as well as operating leverage resulting from restrained growth in selling, general and administrative expenses. Revenue was ¥34.39B (+11.1% YoY), Operating Income was ¥6.21B (+12.9%), Ordinary Income was ¥6.54B (+13.5%), and Net Income (consolidated net income for the period) was ¥4.65B (+11.2%). While revenue increased 11.1%, SG&A expenses rose only 5.7%, resulting in an improvement in the operating margin to 18.1% from 17.8% in the prior year.

Factors Affecting Performance

【Revenue】Revenue was ¥34.39B (+11.1% YoY), with both segments driving revenue growth. EcSolution generated revenue of ¥18.09B (+8.8%), accounting for 52.6% of total revenue, while ItSolution generated ¥16.30B (+13.7%), representing 47.4%. ItSolution recorded the higher growth rate. By revenue disaggregation, revenue recognized over a certain period amounted to ¥28.28B, accounting for 82.2% of revenue, indicating that the Company continues to maintain a highly recurring revenue structure.

【Profit and Loss】Operating Income was ¥6.21B (+12.9%), and Ordinary Income was ¥6.54B (+13.5%), with both exceeding the rate of revenue growth. The gross margin declined slightly year on year to 40.8%; however, the operating margin improved to 18.1% from 17.8% in the prior year as the SG&A ratio was contained at 22.7%. Non-operating income and expenses resulted in a net gain of ¥0.34B, with items such as dividend income of ¥0.11B contributing to the result. Consolidated Net Income was ¥4.65B (+11.2%), while net income attributable to owners of the parent was ¥4.17B (+17.6%), representing a higher growth rate excluding the portion attributable to non-controlling interests. Extraordinary income of ¥0.12B was a temporary factor that boosted profit before tax. In conclusion, the Company achieved higher revenue and higher profit.

Segment Analysis

EcSolution is a highly profitable segment, with revenue of ¥18.09B (+8.8%), segment profit on an Ordinary Income basis of ¥4.49B (+10.3%), and a profit margin of 24.8%. ItSolution recorded revenue of ¥16.30B (+13.7%), segment profit of ¥3.23B (+7.8%), and a profit margin of 19.8%; although its revenue growth rate was higher, profit growth lagged revenue growth. In ItSolution, amortization of goodwill (¥0.029B) and integration costs related to newly consolidated subsidiaries may be weighing on the profit margin. Both segments are limited to domestic operations, and regional revenue composition has not been disclosed.

Key Financial Metrics

【Profitability】Both the Operating Income margin, at 18.1% (17.8% in the prior year), and the net income attributable to owners of the parent margin, at 12.1% (11.5% in the prior year), are trending upward. ROE remained at a high level of 15.9% (the figure shown in the financial metrics section). 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥5.54B, or 1.33 times net income attributable to owners of the parent of ¥4.17B, indicating strong cash backing for earnings. However, accounts receivable increased 19.2% year on year, outpacing revenue growth, making trends in the collection cycle an area requiring monitoring. 【Investment Efficiency】Capital expenditures of ¥0.09B were substantially below depreciation and amortization expense of ¥1.44B, while funds were directed toward software and M&A investments, including the acquisition of intangible assets of ¥1.77B and the acquisition of shares in subsidiaries of ¥1.53B. 【Financial Soundness】The Equity Ratio was 69.4%, cash and deposits were ¥13.22B, and long-term borrowings were limited to ¥0.14B, indicating an extremely conservative financial base.

Cash Flow Analysis

Operating Cash Flow was ¥5.54B, up 11.0% year on year, increasing at a faster pace than net income. From a working capital perspective, the increase in trade receivables was a negative factor of ¥1.13B, while increases in trade payables of ¥0.81B and contract liabilities of ¥0.27B partially offset this impact. Investing Cash Flow represented an outflow of ¥5.40B, consisting primarily of the acquisition of short-term investment securities, the acquisition of intangible assets of ¥1.77B, and the acquisition of shares in subsidiaries of ¥1.53B, demonstrating that funds were allocated to growth investments and M&A. Financing Cash Flow was an outflow of ¥0.87B, mainly due to dividend payments. As a result, Free Cash Flow, calculated as Operating Cash Flow plus Investing Cash Flow, was limited to ¥0.14B, meaning that internally generated funds for the period were almost entirely absorbed by aggressive investment activity. Nevertheless, given cash and deposits of ¥13.22B and the low level of interest-bearing debt, concerns regarding liquidity are limited.

Earnings Quality

Recurring earnings power is sound. Of ¥0.35B in non-operating income, dividend income of ¥0.11B and equity-method investment income of ¥0.09B were the primary contributors, and non-operating income and expenses remained at a level that did not substitute for the core business. Extraordinary income of ¥0.12B and extraordinary losses of ¥0.01B were small, limiting their impact on profit before tax of ¥6.66B. Operating Cash Flow of ¥5.54B was 1.33 times net income attributable to owners of the parent of ¥4.17B, indicating no excessive reliance on accrual-based earnings and strong cash conversion. However, the increase in trade receivables exceeded the revenue growth rate, requiring continued monitoring of accounts receivable collection trends as an aspect of earnings quality. Comprehensive income was ¥5.41B, exceeding net income of ¥4.65B, primarily due to a positive contribution of ¥0.73B from valuation differences on securities; accordingly, attention should be paid to the fact that this result includes support from market price movements.

Earnings Forecast and Guidance

The Company disclosed its forecast for the next fiscal year ending March 2027: revenue of ¥37.00B (+7.6% YoY), Operating Income of ¥6.30B (+1.5%), and Ordinary Income of ¥6.55B (+0.1%). Although revenue is expected to continue increasing, the plan calls for a significant slowdown in the growth of Operating Income and Ordinary Income, with the operating margin expected to decline from 18.1% in the current period to approximately 17.0% in the next fiscal year. This is interpreted as a conservative plan incorporating cost increases related to fluctuations in the gross margin, personnel and development investments, and M&A-related expenses. Forecast EPS is ¥165.75, slightly below actual EPS of ¥167.14 for the current period.

Shareholder Returns

The annual dividend was ¥62 (interim dividend of ¥31 and year-end dividend of ¥31), an increase from ¥58.5 in the prior year (interim dividend of ¥27.5 and year-end dividend of ¥31). Based on net income attributable to owners of the parent of ¥4.17B and total dividends of ¥1.56B, the Payout Ratio is calculated at 37.1%, a sustainable level below 60%. Share repurchases were virtually not conducted (¥0.0B in the cash flow statement), and shareholder returns during the period consisted solely of dividends; therefore, the Payout Ratio is the appropriate measure for evaluation. Operating Cash Flow of ¥5.54B covered approximately 3.6 times total dividends, indicating a light dividend burden relative to operating cash flow. The dividend forecast for the next fiscal year remains unchanged at ¥62.

Risk Factors

1. Increase in trade receivables and lengthening DSO: Accounts receivable increased to ¥7.96B, up +19.2% year on year, faster than the 11.1% revenue growth rate. If the collection cycle continues to lengthen, this could place pressure on Operating Cash Flow.

2. Increase in goodwill and intangible assets: Goodwill increased from ¥1.45B in the prior period to ¥1.89B, while intangible assets increased from ¥2.57B to ¥4.75B. These increases resulted from the acquisition of newly consolidated subsidiaries. If integration progress or future monetization does not proceed as expected, this could lead to amortization expenses or impairment risk.

3. Financial capacity after investment activities: Investing Cash Flow represented an outflow of ¥5.40B, leaving Free Cash Flow, after combining Operating Cash Flow and Investing Cash Flow, at only ¥0.14B. If the acquisition of intangible assets, M&A, and securities investments continue, the balance of fund allocation between investment and shareholder returns will become an issue.

Industry Benchmark (For Reference; Based on Our Research)

Profitability and Returns

Both the Company's Operating Income margin and Net Income margin substantially exceed the industry median, placing it among the highly profitable companies in the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly above the industry median; however, compared with the upper end of the IQR at 20.2%, the Company does not belong to the group of high-growth companies.

※Source: Based on our research

Key Points from the Earnings Results

1. Operating Income increased 12.9% against revenue growth of 11.1%, indicating that operating leverage from restrained SG&A growth contributed to maintaining profitability above the industry average, with an Operating Income margin of 18.1%.

2. Operating Cash Flow was 1.33 times net income attributable to owners of the parent, indicating strong cash backing for earnings; however, the fact that the rate of increase in accounts receivable exceeded the revenue growth rate is a key point to monitor when assessing future working capital trends.

3. The Company's plan for the next fiscal year anticipates higher revenue (+7.6%), while Operating Income is expected to increase only +1.5%, incorporating a decline in the profit margin. Attention will be focused on the monetization of M&A investments accompanied by increases in goodwill and intangible assets.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,190–¥1,260 at Cost of Equity ±1%; ¥1,219–¥1,233 at ω±0.1.

Notes:

• Goodwill amortization of ¥1.1 per share is added back to earnings (to account for the non-cash expense and comparability with IFRS companies).

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of the market share price or recommendations for specific investment actions, and do not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by our company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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