| Metric | Current Period | Prior Period | YoY |
|---|---|---|---|
| Revenue | ¥389.3B | ¥397.5B | -2.1% |
| Operating Income | ¥26.3B | ¥24.3B | +8.1% |
| Ordinary Income | ¥25.8B | ¥22.8B | +13.4% |
| Net Income | ¥12.1B | ¥6.7B | +80.9% |
| ROE | 12.2% | 7.2% | - |
For the fiscal year ended March 2026, Revenue was ¥389.3B (YoY -¥8.2B -2.1%), Operating Income was ¥26.3B (YoY +¥2.0B +8.1%), Ordinary Income was ¥25.8B (YoY +¥3.0B +13.4%), and Net Income was ¥12.1B (YoY +¥5.4B +80.9%). The company recorded lower revenue but higher profits, driven by improved profitability at the core DH Group (Operating Income margin to 9.7% +1.3pt) and a reduction in SG&A ratio (to 18.9% -0.6pt), lifting the operating margin to 6.7% (prior 6.1%). Net Income rose sharply YoY (+80.9%) due to improved extraordinary items (prior extraordinary loss ¥12.6B → current ¥7.3B) and lower tax burden. EPS improved to 53.00円 (prior 28.25円, +87.6%), and ROE increased to 12.2% from 7.2% (+5.0pt). Operating Cash Flow (OCF) was ¥32.2B (YoY +3.4%), generating 2.7x Net Income, indicating high quality of earnings. Investment Cash Flow expanded to -¥37.2B due to M&A investment (acquisition of subsidiary shares -¥18.9B), resulting in Free Cash Flow (FCF) of -¥5.0B. Total annual dividend was ¥25 (payout ratio 81.4%). Guidance for the next fiscal year forecasts revenue and profit growth (Revenue +5.5%, Operating Income +4.0%, Net Income +56%), with profitability improvement at the AGEST Group being key.
[Revenue] Revenue of ¥389.3B (-2.1%) represented the first decline in two years. By segment, the core DH Group recorded ¥231.3B (-3.2%) and the AGEST Group recorded ¥159.9B (-1.0%), with both segments down. DH Group’s game debugging and localization services account for 59.4% of its revenue, but revenue fell short of prior year due to the completion of certain title projects and project price adjustments. AGEST Group, centered on enterprise system testing and ERP support, saw slight revenue decline due to project postponements and downsizing. Regionally, domestic operations remain dominant and FX effects were limited (foreign currency translation adjustment in comprehensive income +¥0.6B). Gross margin improved slightly to 25.7% (prior 25.5%, +0.2pt), aided by optimization of project mix and cost optimization.
[Profitability] Operating Income of ¥26.3B (+8.1%) marked three consecutive periods of operating profit growth. SG&A decreased to ¥73.7B (prior ¥77.1B, -4.4%) in line with lower revenue, improving the SG&A ratio to 18.9% (prior 19.4%, -0.5pt). DH Group Operating Income was ¥22.5B (+15.7%) with a margin of 9.7% (prior 8.4%, +1.3pt), driving earnings as the core business contributing 85.5% of consolidated Operating Income. Conversely, AGEST Group Operating Income declined to ¥3.8B (-22.1%) with a margin of 2.4% (prior 3.0%, -0.6pt). The profitability gap between segments widened, making project selection and utilization improvements at AGEST necessary for sustained margin expansion company-wide. Ordinary Income of ¥25.8B (+13.4%) benefited from improved non-operating items (non-operating expenses ¥1.7B, prior ¥2.1B). Equity-method investment losses were -¥0.8B (prior -¥0.4B) but limited in scale. Pre-tax profit of ¥18.6B was adjusted by extraordinary items (extraordinary gains ¥6.3B, extraordinary losses ¥7.3B), narrowing extraordinary losses from prior ¥12.6B. Reduced impairment/valuation losses on investment securities (-¥3.4B vs prior -¥11.8B) contributed. Tax expense was ¥6.4B (effective tax rate 34.7%), down from prior ¥9.8B, leading to Net Income of ¥12.1B (+80.9%) primarily from improvement in extraordinary items and reduced tax burden. Net income attributable to owners of the parent was ¥11.8B (excluding ¥0.3B attributable to non-controlling interests), indicating improved profit quality despite revenue decline.
DH Group recorded Revenue ¥231.3B (-3.2%), Operating Income ¥22.5B (+15.7%), and Operating Income margin 9.7% (prior 8.4%, +1.3pt); despite lower revenue, margins improved significantly. Margin expansion resulted from price normalization in game debugging/localization projects, higher utilization, and fixed-cost control. As the segment generating 85.5% of consolidated Operating Income, its earnings base is solid. AGEST Group recorded Revenue ¥159.9B (-1.0%), Operating Income ¥3.8B (-22.1%), and margin 2.4% (prior 3.0%, -0.6pt), with profitability deterioration driven by weaker enterprise project margins, project mix shifts, and some personnel cost increases. AGEST’s profitability remains below industry average; project selection, automation investment, and utilization improvements are urgent. The gap in segment operating margins widened to 7.3pt, making AGEST margin recovery essential for sustained company-wide profitability.
[Profitability] Operating Income margin 6.7% (prior 6.1%, +0.6pt) improved for three consecutive periods, led by DH Group’s higher margins (9.7%). Net Income margin 3.1% (prior 1.7%, +1.4pt) improved significantly due to better extraordinary items and lower tax burden. Gross margin 25.7% (prior 25.5%, +0.2pt) edged up on project mix and cost optimization. ROE 12.2% (prior 7.2%, +5.0pt) exceeded 10%, reaching investment-grade levels. ROA (Ordinary Income/Total Assets) improved to 12.5% from 11.1%, indicating better asset efficiency. [Cash Quality] OCF ¥32.2B generated 2.7x Net Income, with OCF/EBITDA cash conversion of 1.02x indicating high quality. From OCF subtotal ¥39.8B, changes in working capital contributed +¥2.4B (inventory +¥1.3B, receivables collection +¥3.0B), absorbing corporate tax payments of -¥10.4B. Accruals were limited and earnings quality is high. [Investment Efficiency] Total asset turnover declined to 1.81x (prior 1.99x) due to lower revenue. Capex ¥2.9B was 0.53x depreciation expense ¥5.5B, keeping tangible investment restrained. Intangible asset investment ¥4.9B mainly reflects M&A-related goodwill and customer assets, indicating investment bias toward M&A/intangibles. [Financial Soundness] Equity Ratio 46.3% (prior 46.4%) remained stable. Debt/EBITDA 1.59x (short-term borrowings ¥56.7B / EBITDA ¥35.6B) is within acceptable range. Interest coverage 52.6x (EBIT ¥26.3B / interest ¥0.5B) shows minimal interest burden. Current ratio 125.4%, quick ratio 124.8%, and cash/short-term debt 1.26x indicate good short-term liquidity, though short-term borrowing ratio of 100% poses maturity mismatch risk.
OCF was ¥32.2B (prior ¥31.2B, +3.4%), generated from OCF subtotal ¥39.8B (prior ¥37.8B), changes in working capital +¥2.4B, and corporate tax payments -¥10.4B. Working capital movements included inventory increase +¥1.3B and receivables collection +¥3.0B, partially offset by decrease in payables -¥3.8B. OCF reached 2.7x Net Income, indicating high earnings quality. Investment Cash Flow was -¥37.2B (prior -¥0.1B), mainly due to acquisition of subsidiary shares -¥18.9B (M&A), purchase of investment securities -¥4.9B, and intangible asset acquisitions -¥4.9B, partially offset by proceeds from subsidiary sale +¥16.0B. Capex -¥2.9B remained 0.53x depreciation ¥5.5B, keeping tangible investment restrained. Financing Cash Flow was -¥0.9B, with short-term borrowings +¥4.7B nearly offsetting dividend payments -¥5.3B. FCF was negative ¥5.0B, mainly due to one-off M&A spending; recurring cash generation (OCF ¥32.2B) remains intact. Ending cash balance was ¥71.3B, down ¥4.6B from opening ¥75.9B, but liquidity remains ample, covering short-term debt at 1.26x.
Ordinary Income was ¥25.8B while Net Income was ¥12.1B, reflecting the impact of extraordinary items (extraordinary gains ¥6.3B, extraordinary losses ¥7.3B, net -¥1.0B) and tax expense ¥6.4B. Major items in extraordinary losses included valuation loss on investment securities -¥3.4B (prior -¥11.8B) and impairment loss -¥2.4B, an improvement from prior extraordinary losses of ¥12.6B. One-off items accounted for about 20% of Net Income, lower than the prior year but still indicating reliance on non-recurring items. Non-operating items were minor (non-operating expenses ¥1.7B: interest ¥0.5B, FX loss ¥0.1B), and equity-method loss -¥0.8B was limited. Operating Income ¥26.3B reflects recurring earning power, supported by OCF ¥32.2B. On accruals, OCF/Net Income of 2.7x shows cash generation well above accounting profits; receivable collection +¥3.0B and inventory increase +¥1.3B suggest limited signs of manipulative working capital management. Comprehensive income ¥12.3B closely matched Net Income ¥12.1B, with other comprehensive income (FX translation +¥0.6B, securities valuation -¥0.4B) being minor. Recurring earnings are underpinned by improved margins at DH Group, while AGEST still has room for margin recovery; variability in extraordinary items continues to affect Net Income stability. Normalization of extraordinary items and AGEST margin improvement will be key to enhancing earnings quality next fiscal year.
Company guidance for the fiscal year ending March 2027 forecasts Revenue ¥410.8B (+5.5%), Operating Income ¥27.3B (+4.0%), Ordinary Income ¥27.3B (+5.7%), and Net Income ¥18.5B (+56%). Revenue is expected to reverse the current decline to +5.5% growth. Operating margin is forecast at 6.6% (current 6.7%, -0.1pt), essentially flat, expecting profit expansion from revenue growth and operating leverage. The planned Net Income increase of +56% assumes normalization of extraordinary items (from current net -¥1.0B) and tax normalization. EPS forecast is 82.96円 (current 53.00円, +56%). Progress ratios are high: Revenue 94.8% (¥389.3B/¥410.8B) and Operating Income 96.3% (¥26.3B/¥27.3B), indicating limited upside to the initial plan. Achieving next fiscal year’s targets requires AGEST Group margin recovery (improving from 2.4%), maintenance of DH Group’s high margins, and reduction of extraordinary losses (shrinking extraordinary losses of ¥7.3B). Dividend forecast is ¥12.5 (half of current ¥25), presumed to exclude a ¥2 commemorative dividend; on a normal dividend basis it implies an increase from 10.5円 to 12.5円, maintaining an upward trend.
Total dividend for the year was ¥25 (interim ¥11.5, year-end ¥13.5), with a payout ratio of 81.4%. Dividend payout totaled ¥5.35B (based on weighted average shares outstanding of 22,294 thousand). Payout ratio 81.4% is high but measured against Net Income ¥12.1B (parent attributable ¥11.8B excluding non-controlling interests ¥0.3B), it is within a sustainable range on a net income basis. The year-end dividend of ¥13.5 includes a ¥2 commemorative dividend; the ordinary dividend is ¥10.5, unchanged from prior year. FCF was negative ¥5.0B and the current dividend was not covered by FCF, but this is largely due to one-off M&A investment -¥18.9B; OCF ¥32.2B generates more than six times the dividend, indicating sufficient recurring cash generation. Ending cash ¥71.3B (cash/short-term borrowings 1.26x) provides ample liquidity and supports dividend sustainability. No share buybacks were identified; total shareholder returns comprised dividends only. Next fiscal year dividend forecast ¥12.5 (ordinary dividend basis) is flat YoY; given the projected Net Income increase (+56%), payout ratio should decline and dividend capacity is expected to improve. DOE is reported at 0.059, but effectively, with parent shareholders’ equity of ¥96.3B and dividends ¥5.35B, this corresponds to approximately 5.6%, indicating shareholder returns are reasonable relative to equity.
Segment concentration risk: DH Group accounts for 85.5% of consolidated Operating Income, making revenues highly dependent on game market cycles and title release schedules. The game debugging/localization business is concentrated in several large titles, and termination or postponement of specific projects could materially affect results. If customer diversification and service expansion do not progress, earnings could decline sharply in market downturns.
AGEST Group profitability weakness: Operating margin 2.4% (prior 3.0%) is below industry average; project margin deterioration and utilization decline persist. Enterprise system testing and ERP support face intense competition and pricing pressure, with rising personnel and subcontracting costs not being absorbed. AGEST’s Operating Income ¥3.8B accounts for only 14.5% of consolidated Operating Income while representing 41% of revenue, widening the margin gap with DH by 7.3pt. Delays in AGEST margin recovery could hinder company-wide sustainable margin improvement and jeopardize next fiscal year’s Operating Income target (+4.0%).
Short-term debt concentration and liquidity risk: Short-term borrowings of ¥56.7B constitute 48.8% of total debt and mature within one year. Although current ratio 125.4% and cash ¥71.3B secure near-term liquidity, rising interest rates or widening credit spreads could increase refinancing costs, and changes in bank lending stance could impede refinancing. While interest coverage is strong at 52.6x, the 100% short-term debt ratio constrains financial flexibility and could limit M&A or capital expenditure agility and pressure dividend capacity.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income Margin | 6.7% | 8.1% (3.6%–16.0%) | -1.4pt |
| Net Income Margin | 3.1% | 5.8% (1.2%–11.6%) | -2.7pt |
Company Operating Income margin 6.7% and Net Income margin 3.1% are below IT & Communications industry medians, placing profitability below industry average. DH Group’s margin 9.7% demonstrates competitiveness, but AGEST’s low margin (2.4%) drags down consolidated averages, placing the company in the mid-to-lower range within the industry.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -2.1% | 10.1% (1.7%–20.2%) | -12.2pt |
Company revenue growth -2.1% is well below the industry median +10.1%, indicating weaker growth. While the industry continues double-digit growth, the company experienced a decline; achieving the projected +5.5% next year will require further acceleration to catch up to industry levels.
※Source: Company compilation
DH Group high-margin performance underpins consolidated earnings: The core DH Group’s margin improvement to 9.7% (+1.3pt) is notable, contributing 85.5% of consolidated Operating Income and providing a solid earnings base. Despite declining revenue, DH achieved +15.7% Operating Income growth, confirming strengthened profit profile from cost control and project-mix optimization. Maintaining DH’s high margins is pivotal to next fiscal year’s growth plan; monitor project pricing and utilization. However, high dependence on the game market (59% of revenue, 85% of Operating Income) presents risk; progress in customer diversification and service expansion is essential for long-term stable growth.
AGEST Group margin recovery as next growth driver: AGEST’s Operating margin of 2.4% (prior 3.0%, -0.6pt) shows continued deterioration and remains far below industry average. Competitive pressure, pricing declines, and rising personnel costs are weighing on profits. Achieving next fiscal year’s consolidated Operating Income +4.0% depends on AGEST profitability correction. Strengthening project selection, investing in automation tools, and improving utilization to target mid-single-digit margins would materially boost consolidated margins. AGEST’s revenue share of 41% versus Operating Income share of 14.5% highlights significant improvement potential.
Balance between cash generation and investment allocation: OCF ¥32.2B (2.7x Net Income, cash conversion 1.02x) demonstrates strong recurring cash generation. However, Investment Cash Flow -¥37.2B driven by M&A and intangible investments led to FCF -¥5.0B. Managing the maturity profile of short-term borrowings ¥56.7B and normalizing Capex (Capex/Depreciation reverting to 0.53x) are necessary to balance financial flexibility and dividend sustainability. Payout ratio 81.4% is high, but supported by OCF and cash balance ¥71.3B; with Net Income projected to rise +56% next year, dividend capacity is expected to improve. Goodwill from M&A ¥17.9B (18.0% of net assets) is within a reasonable range, but impairment risk and monitoring of investment returns remain ongoing priorities. Optimizing investment allocation and sustaining OCF generation are keys to enhancing shareholder value.
This report is an AI-generated earnings analysis created by analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are compiled by the company based on public financial statements and are for reference only. Investment decisions are your own responsibility; consult a professional advisor as needed.