TIS (3626) FY2027 Q1 Earnings Report

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Executive Summary

This was a financial results period in which revenue increased and operating income expanded at a pace exceeding revenue growth, resulting in improved profitability. Revenue was ¥1,501.1B (+7.0% YoY), operating income was ¥183.5B (+12.2%), ordinary income was ¥184.2B (+8.0%), and net income was ¥148.3B (+14.1%). The operating margin improved to 12.2% from the same period of the previous year, while SG&A expense growth remained below revenue growth, supporting profit growth. It should be noted that the increase in net income includes the positive impact of extraordinary income, including gains on the sale of investment securities.

Factors Affecting Financial Results

【Revenue】Revenue was ¥1,501.1B (+7.0% YoY), with all segments recording revenue growth. Wide-Area IT Solutions maintained its position as the largest segment at ¥458.6B (+4.7%), while Offering Services posted the highest revenue growth rate at ¥398.3B (+9.9%). Financial IT (¥258.0B, +9.2%) and Industrial IT (¥340.8B, +5.3%) also grew steadily, indicating that demand is broad-based across the company’s business domains.

【Profit and Loss】Operating income was ¥183.5B (+12.2%), exceeding revenue growth by 5.2pt. Industrial IT led company-wide profit, securing the highest profitability at ¥62.0B (+21.4%, 18.2% margin), while Offering Services recorded higher revenue but lower profit, with operating income of ¥16.4B (-5.0%) and a 4.1% margin, creating the largest profitability gap among the major segments. Ordinary income was ¥184.2B, only slightly above operating income, indicating that non-operating income and expenses were broadly neutral. Profit before tax was ¥210.8B, exceeding ordinary income due to ¥2.85B in extraordinary income, primarily comprising ¥2.49B in gains on the sale of investment securities; this was a temporary factor. Of net income of ¥148.3B, the underlying pace of profit growth excluding the impact of this extraordinary income is considered to have been close to operating income growth (+12.2%). In conclusion, the company recorded both revenue and profit growth.

Segment Analysis

Wide-Area IT Solutions recorded revenue of ¥458.6B (+4.7% YoY), operating income of ¥52.7B (+9.0%), and an 11.5% margin, representing the largest revenue scale. Industrial IT recorded revenue of ¥340.8B (+5.3%), operating income of ¥62.0B (+21.4%), and an 18.2% margin, demonstrating the highest profitability among all segments. Financial IT recorded revenue of ¥258.0B (+9.2%), operating income of ¥35.3B (+18.4%), and a 13.7% margin, clearly achieving both revenue and profit growth. Despite its high revenue growth rate, Offering Services recorded revenue of ¥398.3B (+9.9%) but lower operating income of ¥16.4B (-5.0%), with its 4.1% margin significantly below those of the other segments. BPM was essentially flat, with revenue of ¥110.5B (+3.4%) and operating income of ¥14.4B (+1.0%). The margin gap between Industrial IT and Offering Services reached 14.1pt, making the profitability disparity within the business portfolio a factor affecting company-wide margin fluctuations.

Key Financial Metrics

【Profitability】The operating margin was 12.2% and the net margin was 9.9%, both improving from the same period of the previous year. The gross margin was 27.6%.【Cash Flow Quality】Profit before tax of ¥210.8B was 14.4% higher than ordinary income of ¥184.2B; however, the difference was attributable to extraordinary income, primarily gains on the sale of investment securities of ¥24.9B, and therefore included a temporary factor.【Investment Efficiency】Annualized ROE was high at 19.5%, supported by the improvement in the net margin and total asset turnover. EPS was ¥67.41 (¥54.02 in the previous year, +24.8% YoY).【Financial Soundness】The equity ratio was high at 58.0%, although it declined slightly from 58.9% in the same period of the previous year. Total assets were ¥5,246.6B and net assets were ¥3,042.3B, both decreasing from the same period of the previous year.

Cash Flow Analysis

As detailed disclosure of the cash flow statement is unavailable, cash flow trends are assessed based on changes in the balance sheet. Cash and deposits decreased to ¥820.6B from ¥872.4B in the same period of the previous year, while short-term borrowings increased substantially to ¥513.1B and long-term borrowings decreased to ¥83.0B. This indicates that the maturity structure of funding has become more short term. Treasury stock increased significantly from the same period of the previous year to ¥670.2B, working to reduce shareholders’ equity. Accounts receivable and notes receivable decreased to ¥1,212.6B from ¥1,441.1B in the same period of the previous year, suggesting that progress in collections may have contributed to cash generation. Overall, capital returns and the shortening of the borrowing maturity structure are progressing simultaneously, making it useful to monitor both the uses of cash on hand and the funding policy.

Quality of Earnings

The difference between operating income of ¥183.5B and ordinary income of ¥184.2B was limited to ¥0.8B, and non-operating income and expenses were less than 0.1% of revenue, indicating a limited impact on the recurring earnings structure. Of non-operating income of ¥10.9B, dividend income accounted for ¥7.8B, contributing stable income from investments held. Meanwhile, profit before tax of ¥210.8B exceeded ordinary income by ¥26.5B, with the difference attributable to extraordinary income, primarily gains on the sale of investment securities of ¥24.9B. Accordingly, the increase in net income of ¥148.3B (+14.1% YoY) includes a temporary boost from gains, and it is appropriate to place greater emphasis on operating income and ordinary income growth (+12.2% and +8.0%, respectively) when evaluating recurring earnings power. Comprehensive income was ¥131.4B, below net income, mainly due to a deterioration of the valuation difference on available-for-sale securities (-¥14.2B).

Earnings Forecast and Guidance

The full-year company plan is revenue of ¥6,200.0B (+3.9% YoY), operating income of ¥810.0B (+6.3%), and ordinary income of ¥810.0B (+5.9%). Progress against the full-year plan in Q1 was 24.2% for revenue, 22.7% for operating income, and 22.7% for ordinary income. Revenue was close to the standard quarterly progress rate of 25%, while profit progress was slightly below this level. However, the deviation was limited, and no revisions were made to the earnings forecast. Profitability trends in Offering Services will be a key issue determining the achievement of the full-year profit plan.

Shareholder Returns

The full-year dividend forecast is ¥90.0 per share, and the payout ratio based on forecast EPS of ¥271.7 is approximately 33.1%. This payout ratio uses dividends alone as the numerator and is not the total return ratio, which includes the increase in treasury stock. Treasury stock increased by ¥357.4B YoY to ¥670.2B, indicating that, in addition to dividends, shareholder equity reduction under the capital policy is progressing. No revision was made to the dividend forecast.

Risk Factors

1. Concentration in Short-Term Liabilities: Short-term borrowings surged by +140.5% YoY to ¥513.1B, resulting in a high proportion of short-term liabilities within interest-bearing debt. Although near-term liquidity is secured by cash and deposits of ¥820.6B, refinancing terms and changes in funding costs during periods of rising interest rates should be monitored.

2. Deterioration in Offering Services Profitability: Against revenue of ¥398.3B (+9.9% YoY), operating income was ¥16.4B (-5.0%), resulting in higher revenue but lower profit. The 4.1% margin is significantly below those of the other segments. Improvement in the profitability of this business will determine the scope for sustainable improvement in the company-wide margin.

3. Dependence on Extraordinary Income: Net income of ¥148.3B includes extraordinary income of ¥28.5B, primarily comprising gains on the sale of investment securities of ¥24.9B. Future profit before tax and comprehensive income may fluctuate due to changes in the market prices of investment securities held, totaling ¥563.6B, and the absence of gains on subsequent sales.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The company’s operating margin and net margin both exceed the industry median, placing its profitability at a relatively high level within the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median but remains within the IQR, placing the company’s growth pace in the middle range of the industry.

※Source: Company aggregation

Key Points from the Financial Results

1. Operating income increased by +12.2% against revenue growth of +7.0%. Operating leverage took effect as SG&A expense growth (+3.8%) remained below revenue growth, improving the operating margin from the same period of the previous year.

2. The +14.1% increase in net income includes extraordinary income primarily comprising gains on the sale of investment securities. When evaluating recurring earnings power, it is appropriate to use operating income and ordinary income growth as the benchmarks.

3. There is a 14.1pt margin gap between segments (Industrial IT at 18.2% versus Offering Services at 4.1%). Changes in the profitability structure within the business portfolio are a structural point to monitor because they will affect the company-wide margin going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,861–¥1,973 at ±1% for the cost of equity, and ¥1,904–¥1,934 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).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast 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 aggregated by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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