SOFTCREATE HOLDINGS CORP. FY2027 Q1 Earnings Report

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Executive Summary

Although revenue and profit increased in Q1, Ordinary Income remained roughly at the previous-year level, while the growth in Profit Before Tax was supported by the one-time factor of gains on the sale of investment securities. Revenue was ¥85.8B (+8.8% YoY), Operating Income was ¥11.9B (+7.7%), and Ordinary Income was ¥13.2B (-1.1%). Net Income on a consolidated basis (Net Income attributable to the period, including non-controlling interests) was ¥9.5B (+3.4%), of which Net Income attributable to owners of the parent was ¥8.5B (+1.4%). Revenue growth was driven by the expansion of both the EcSolution and ItSolution segments, while the sluggish growth in Ordinary Income was primarily attributable to a decline in equity-method investment gains.

Factors Affecting Financial Results

【Revenue】Revenue was ¥85.8B, representing an +8.8% YoY increase. EcSolution grew to ¥46.3B (+7.9% YoY; composition ratio 53.9%), while ItSolution reached ¥40.0B (+9.3% YoY; composition ratio 46.1%), with both segments driving growth. Contract liabilities (advance receipts) increased 22.3% YoY to ¥26.7B, apparently reflecting the expansion of ItSolution’s goods transferred over a certain period (maintenance and subscription-based revenue).

【Profit and Loss】Operating Income was ¥11.9B (+7.7% YoY), and the Operating Margin was 13.9%, down 0.1pt from 14.0% in the previous year. The Gross Profit Margin also declined to 40.0% from 40.8%, a decrease of 0.8pt, primarily due to the deterioration in the EcSolution segment profit margin (described below). Meanwhile, the SG&A Ratio improved to 26.1% from 26.7%, absorbing part of the decline in gross margin. Ordinary Income was ¥13.2B (-1.1% YoY), remaining broadly flat as equity-method investment gains declined approximately 70% to ¥0.5B from ¥1.7B in the previous year. Profit Before Tax increased significantly to ¥15.2B (+14.6%), but this was attributable to the one-time factor of ¥2.1B in gains on the sale of investment securities. Net Income attributable to owners of the parent remained at ¥8.5B (+1.4%), as the tax burden based on an effective tax rate of approximately 37.9% and Net Income attributable to non-controlling interests of ¥0.9B (¥0.7B in the previous year) offset the growth in Profit Before Tax at the net income stage. In conclusion, although the Company posted revenue and profit growth in the quarter, Ordinary Income was effectively flat, and the substance of the profit increase was influenced by segment mix and one-time gains.

Segment Analysis

EcSolution reported Revenue of ¥46.3B (+7.9% YoY; composition ratio 53.9%) and segment profit of ¥9.4B (¥11.4B in the previous year; -16.9% YoY), with its profit margin declining to 20.4% from 26.5%, a decrease of 6.1pt. ItSolution reported Revenue of ¥40.0B (+9.3% YoY; composition ratio 46.1%) and segment profit of ¥6.6B (¥5.2B in the previous year; +25.8% YoY), with its profit margin improving to 16.4% from 14.2%, an increase of 2.2pt. Although both segments continue to post revenue growth, their profitability trends are contrasting: the decline in the profit margin of the core EcSolution business is being partially offset by the improvement in ItSolution. The adjustment for Company-wide expenses and other items was negative ¥2.8B, resulting in consolidated Ordinary Income of ¥13.2B.

Key Financial Indicators

【Profitability】The Operating Margin declined 0.1pt to 13.9% from 14.0%, and the Gross Profit Margin declined 0.8pt to 40.0% from 40.8%. Meanwhile, the SG&A Ratio improved to 26.1% from 26.7%, indicating progress in cost efficiency relative to revenue growth. The Net Profit Margin based on net income attributable to owners of the parent was 9.9%, down 0.7pt from 10.7% in the previous year.【Cash Quality】Contract liabilities (advance receipts) increased 22.3% YoY to ¥26.7B, indicating an accumulation of deferred revenue. At the same time, the increase in Profit Before Tax was supported by the non-recurring item of ¥2.1B in gains on the sale of investment securities, which should be evaluated separately from recurring earnings power.【Investment Efficiency】ROE was 3.2%, while basic EPS was 33.64 yen, slightly down from 33.84 yen in the previous year. Despite a +1.4% increase in Net Income attributable to owners of the parent, EPS declined due to an increase in the weighted-average number of shares outstanding during the period, apparently reflecting a decrease in treasury shares (through disposal or the exercise of rights).【Financial Soundness】The Equity Ratio was high at 71.9%. In addition to ¥137.9B in cash and deposits, the Company held ¥20.0B in current securities, while interest expense was less than ¥0.05B, indicating an extremely light interest-bearing debt burden.

Cash Flow Analysis

From the perspective of changes in the balance sheet, cash and deposits increased to ¥137.9B, up ¥5.7B (+4.3%) from the end of the previous fiscal year. Accounts receivable and notes receivable declined to ¥61.0B, down ¥18.6B (-23.4%) from the end of the previous fiscal year, while accounts payable and notes payable also declined to ¥24.0B, down ¥7.7B (-24.3%), indicating a contraction in receivables and payables at the period-end. Meanwhile, contract liabilities (advance receipts) increased to ¥26.7B, up ¥4.9B (+22.3%), and the accumulation of deferred revenue is considered to have contributed to the stability of cash management. Income taxes payable declined ¥8.7B (-68.9%) from the end of the previous fiscal year, apparently reflecting the payment during the period of taxes for the previous fiscal year and representing a factor in the reduction of current liabilities accompanied by a cash outflow. Investment securities increased ¥5.1B (+6.0%), reflecting either the accumulation of valuation gains or additional acquisitions. Overall, the Company continues to maintain a conservative funding structure with substantial holdings of cash, deposits, and securities.

Quality of Earnings

The Company’s earnings for the quarter were primarily generated by recurring earnings at the Operating Income and Ordinary Income levels. However, it should be noted that the +14.6% growth in Profit Before Tax was supported by the one-time gain of ¥2.1B on the sale of investment securities. Ordinary Income (¥13.2B) was broadly flat at -1.1% YoY, as equity-method investment gains contracted significantly to ¥0.5B from ¥1.7B in the previous year, while total non-operating income also declined to ¥1.3B from ¥2.2B. The divergence between Ordinary Income and Net Income attributable to owners of the parent (¥8.5B) was attributable to the tax burden based on an effective tax rate of approximately 37.9% and ¥0.9B in Net Income attributable to non-controlling interests, and does not indicate any particular abnormality. Comprehensive Income was ¥13.4B, including ¥12.4B attributable to owners of the parent, exceeding Net Income of ¥8.5B. This was primarily due to a ¥4.0B increase in valuation difference on investment securities held, which should be considered separately from the Company’s recurring earnings power for the period.

Earnings Forecast and Guidance

Progress against the full-year plan was 23.2% for Revenue (¥85.8B/¥370.0B), 18.9% for Operating Income (¥11.9B/¥63.0B), 20.1% for Ordinary Income (¥13.2B/¥65.5B), and 20.3% for Net Income attributable to owners of the parent (¥8.5B/¥42.0B). Compared with the 25% benchmark for simple quarterly progress, all indicators were below target, with the -6.1pt shortfall in Operating Income particularly notable. This was attributable to the decline in EcSolution’s profit margin and the contraction in equity-method investment gains included in Ordinary Income. As of the end of the quarter, neither the earnings forecast nor the dividend forecast had been revised, and the full-year plan (Revenue +7.6%, Operating Income +1.5%, Ordinary Income +0.1%) remains unchanged.

Shareholder Returns

The full-year dividend forecast is 62 yen per share, representing a Payout Ratio of approximately 37.4% against forecast EPS of 165.75 yen. The previous year’s dividend is believed to have been 31 yen for the interim period, and the full-year plan of 62 yen indicates a dividend policy broadly in line with the previous year. No revision has been made to the dividend forecast as of the end of the quarter. Given the financial foundation of ¥137.9B in cash and deposits and an Equity Ratio of 71.9%, the stability of the funding source for the planned dividend is considered secure.

Risk Factors

1. Segment concentration and deterioration in the profitability of the core business: EcSolution is the core business, accounting for 53.9% of Revenue, but its segment profit margin declined 6.1pt to 20.4% from 26.5% in the previous year. Accordingly, fluctuations in project mix and outsourcing costs could have a significant impact on consolidated earnings.

2. Reliance on one-time gains: The +14.6% growth in Profit Before Tax was supported by ¥2.1B in gains on the sale of investment securities, while Ordinary Income excluding this factor was broadly flat at -1.1% YoY. This one-time factor should be excluded when evaluating recurring earnings power.

3. Valuation fluctuations in securities held: Investment securities amounted to ¥90.4B, representing a certain proportion of assets, while deferred tax liabilities increased to ¥10.0B (+57% from the end of the previous fiscal year) in line with the increase in valuation difference. Market fluctuations could affect both net assets and the tax burden.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Margin and Net Profit Margin significantly exceed the industry median, placing the Company’s profitability among the higher levels within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is slightly below the industry median but remains within the IQR range, placing the Company at an average level within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Although the trend of revenue and profit growth has been maintained, Ordinary Income was broadly flat at -1.1% YoY, affected by the contraction in equity-method investment gains. The growth in Profit Before Tax was largely attributable to the one-time factor of gains on the sale of investment securities, and it is noteworthy that the actual growth from the perspective of recurring earnings power was limited.

2. By segment, EcSolution’s profit margin declined to 20.4% from 26.5%, while ItSolution’s improved to 16.4% from 14.2%. Changes in the mix of the core businesses therefore determine the trend in consolidated profitability.

3. Progress against the full-year plan was 23.2% for Revenue and 18.9% for Operating Income, both below the 25% benchmark for quarterly progress, with the delay in Operating Income particularly pronounced. The earnings and dividend forecasts remain unchanged, making progress from Q2 onward a key focus.

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 five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: 1,312 yen–1,388 yen at ±1% for the cost of equity, and 1,345 yen–1,356 yen at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from 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 forecast 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 available earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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