CELSYS (3663) FY2026 Q1 Earnings Report

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Executive Summary

In addition to higher revenue, substantial profit growth was achieved, primarily due to an improvement in the cost ratio. The result was of high quality, with growth in Operating Income significantly outpacing revenue growth. Revenue was ¥28.0B (+16.7% YoY), Operating Income was ¥12.1B (+59.6%), Ordinary Income was ¥12.1B (+61.7%), and Net Income was ¥8.1B (+18.9%). The fact that Net Income growth was more restrained than Operating Income and Ordinary Income growth reflects the absence in the current period of the ¥1.5B extraordinary gain recorded in the same period of the previous year. Accordingly, current-period earnings are of high quality and primarily derived from the core business.

Factors Affecting Performance

【Revenue】Revenue was ¥28.0B, representing a +16.7% increase YoY. Although segment-level disclosure is not provided, this represents a stronger start than the full-year company forecast revenue growth rate of +5.2%, with the Q1 progress rate at 28.1%, exceeding the standard progress rate of 25%.

【Profit and Loss】Cost of sales decreased 12.9% YoY to ¥8.5B, lifting the gross profit margin by 1,040bp to 69.6% (59.2% in the previous year). SG&A expenses were ¥7.4B (+11.5%), increasing at a pace below revenue growth, while the Operating Income margin expanded by 1,160bp to 43.2% (31.6% in the previous year). Ordinary Income also grew at a similar level, while Net Income growth of +18.9% was below the growth in Operating Income and Ordinary Income. This was due to the absence of the ¥1.5B extraordinary gain recorded in the same period of the previous year, indicating that the current period delivered higher revenue and earnings without reliance on extraordinary items.

Key Financial Indicators

【Profitability】Both the Operating Income margin, at 43.2% (31.6% in the previous year), and the Net Income margin, at 29.0% (28.5% in the previous year), improved from the previous year. The decline in the cost-of-sales ratio, which raised the gross profit margin to 69.6%, was the primary driver of the improvement in profitability.【Cash Flow Quality】Cash and deposits increased +14.8% YoY to ¥46.9B, while accounts receivable of ¥4.3B was broadly in line with revenue growth, and no excessive accumulation was identified. Advances received increased +9.8% YoY to ¥14.6B, supporting working capital.【Investment Efficiency】Annualized ROE was high at 69.7%, decomposed into a Net Income margin of 29.0%, total asset turnover of 1.33x, and financial leverage of 1.81x. Intangible assets accounted for 16.3% of total assets; software investments were ¥9.3B, and software under construction was ¥3.5B.【Financial Soundness】The Equity Ratio was 55.3%, the current ratio was 178.3% (current assets of ¥57.6B / current liabilities of ¥32.3B), and the debt-to-equity ratio remained low at 0.81x.

Cash Flow Analysis

Although individual disclosure of Operating, Investing, and Financing Cash Flows is not provided, the movement of funds can be assessed from changes in the balance sheet. Cash and deposits increased +14.8% from ¥40.9B in the same period of the previous year to ¥46.9B, indicating improved liquidity. The increase in accounts receivable (+16.2%) was broadly consistent with revenue growth (+16.7%), and no expansion of receivables exceeding revenue recognition was observed. Advances received were ¥14.6B (+9.8% YoY), indicating a structure in which customer prepayments support working capital. Non-current liabilities declined substantially from ¥11.4B in the previous year to ¥5.4B, primarily due to changes in the composition of provisions related to retirement benefits. Overall, although cash generation cannot be directly verified, no deterioration in cash management is evident from movements in assets and liabilities.

Earnings Quality

Current-period earnings were driven by growth in Operating Income and Ordinary Income, and earnings quality improved from the same period of the previous year because the earnings structure does not rely on extraordinary items. Since an extraordinary gain of ¥1.5B was recorded in the same period of the previous year, Net Income growth of +18.9% was substantially below Operating Income growth of +59.6%; however, this reflects the absence of a one-time factor and does not indicate a decline in recurring earnings power. Non-operating income was limited to interest income of ¥0.05B, equivalent to 0.2% of revenue, and the contribution of non-operating factors to earnings was limited. Changes in accounts receivable and advances received were broadly consistent with revenue growth, and no abnormalities in accruals supporting reported earnings were identified.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year company forecasts were 28.1% for Revenue, 36.5% for Operating Income, and 37.1% for Net Income, all exceeding the standard progress rate of 25%. However, the full-year forecast Operating Income margin is 33.3%, implying a level below the Q1 actual result of 43.2%. Therefore, it would not be appropriate to extrapolate Q1’s high profit margin directly to the full year, and the company may be factoring in normalization of the cost-of-sales ratio and SG&A ratio in subsequent quarters. The full-year forecasts are Revenue of ¥99.6B (+5.2%), Operating Income of ¥33.2B (+11.8%), and Net Income of ¥21.9B (+30.4%). There was no revision to the dividend forecast for the current quarter.

Shareholder Returns

The full-year forecast annual dividend is ¥38.0 per share, while forecast EPS is ¥73.97, resulting in a Payout Ratio of 51.4%. This Payout Ratio is within a sustainable range around the target level of approximately 60%. The fiscal 2025 Q2 year-end dividend included a ¥10 commemorative dividend for the listing on the Tokyo Stock Exchange Prime Market. Accordingly, the commemorative dividend should be separated when comparing the dividend with the previous year’s actual results. Treasury stock decreased on a book-value basis compared with the same period of the previous year; however, the amount of share repurchases conducted during the current period cannot be confirmed from the disclosed data, and the Total Return Ratio has not been calculated. The financial base, including cash and deposits of ¥46.9B and a debt-to-equity ratio of 0.81x, supports the stability of dividend funding.

Risk Factors

1. Profit Margin Sustainability Risk: The Q1 Operating Income margin of 43.2% significantly exceeds the full-year company forecast of 33.3%, making the sustainability of the improvement in the cost ratio throughout the year a key focus. The cost ratio may rise in the second half of the fiscal year due to changes in platform costs or the sales mix.

2. Advances Received and Working Capital Risk: Advances received were ¥14.6B, accounting for 45% of current liabilities, and increased +9.8% YoY. Future revenue and working capital movements may fluctuate depending on contract renewals and progress in the provision of services.

3. Software Investment Monetization Risk: Software of ¥9.3B and software under construction of ¥3.5B were recorded, with intangible assets accounting for 16.3% of total assets. If product competitiveness declines or monetization is delayed, the company may face amortization burdens or impairment losses.

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 significantly exceed the industry median, placing the company among the high-profitability group within the industry.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median but does not reach the upper bound of the industry IQR (25.6%). Growth is positioned in the middle to upper range within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Operating Income increased +59.6% against revenue growth of +16.7%, representing substantial earnings growth. The emergence of operating leverage, primarily due to a decline in the cost ratio (gross profit margin of 69.6%, +1,040bp YoY), was confirmed.

2. Net Income growth of +18.9% was below Operating Income growth, due to the absence of the ¥1.5B extraordinary gain recorded in the same period of the previous year. The current period’s earnings composition therefore has a higher reliance on the core business than in the previous year.

3. The full-year company forecast Operating Income margin of 33.3% is premised on a level below the Q1 actual result of 43.2%. When evaluating the high progress rates (Operating Income of 36.5% and Net Income of 37.1%), it is necessary to monitor trends in the cost-of-sales ratio and SG&A ratio in subsequent quarters.

Theoretical Share Price (Reference Value)

Sensitivity: ¥366–¥388 for cost of equity ±1%, and ¥371–¥386 for ω±0.1.

Notes:

• Since Net Income progress against the full-year forecast (37%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to outperform forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Since forecast ROE is high, ROE is capped at 50% for calculation purposes (differences between scenarios may appear small).
• Net assets as of the quarter-end are used (there is a time lag relative to the full-year forecast).
• Since 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 solely from publicly available data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does 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 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 professionals as necessary.

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