Digital Information Technologies Corporation FY2026 FY Earnings Report

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Executive Summary

The key point of this earnings report is that, although revenue increased, the Company recorded higher revenue but lower net income due to declining margins in its core business and a temporary valuation loss. Revenue was ¥255.5B (+5.7% YoY), Operating Income was ¥30.5B (+1.3%), Ordinary Income was ¥30.8B (+1.6%), and Net Income attributable to owners of the parent was ¥21.1B (-3.9%). The Operating Margin declined slightly to 12.0% from 12.5% in the previous year, while the decrease in Net Income was primarily attributable to the recognition of a ¥0.8B impairment loss on investment securities.

Factors Affecting Business Performance

【Revenue】Revenue increased 5.7% YoY to ¥255.5B, maintaining its growth trajectory. By segment, the core SoftwareDevelopment segment, which accounted for 96.0% of total revenue, posted revenue of ¥245.7B (+5.5%), while SystemSales reported revenue of ¥10.1B (+11.6%); both segments recorded revenue growth.

【Profit and Loss】Operating Income increased 1.3% to ¥30.5B, but growth remained below the rate of revenue growth. In the core SoftwareDevelopment segment, Operating Income declined 0.6% despite revenue growth of +5.5%, indicating margin softening, while the SG&A ratio remained elevated at 13.2% (13.2% in the previous year). Meanwhile, SystemSales improved substantially, with Operating Income increasing 69.0% and a profit margin of 13.3%, supporting the Company-wide profit margin. Ordinary Income increased 1.6% to ¥30.8B, broadly in line with the growth of the core business; however, following the recognition of a ¥0.8B valuation loss on investment securities as an extraordinary loss, Net Income was ¥21.1B (-3.9%, based on the Company’s data). In conclusion, the Company recorded higher revenue but lower net income.

Segment Analysis

SoftwareDevelopment (revenue of ¥245.7B, revenue mix of 96.0%, Operating Income of ¥29.2B, profit margin of 11.9%) recorded a 5.5% increase in revenue but a 0.6% decline in Operating Income, as margins softened due to pressure from the balance among pricing, utilization, and personnel expenses. SystemSales (revenue of ¥10.1B, revenue mix of 4.0%, Operating Income of ¥1.3B, profit margin of 13.3%) improved substantially, with revenue increasing 11.6% and Operating Income increasing 69.0%; although small in scale, the improvement in profitability contributed to raising the Company-wide profit margin. Because the core segment accounts for 96% of total revenue, its pricing power and utilization management are likely to have a significant impact on overall business performance.

Key Financial Metrics

【Profitability】Both the Operating Margin, at 12.0% (12.5% in the previous year), and the Net Profit Margin, at 8.2% (9.0% in the previous year), declined slightly. The Gross Margin also deteriorated marginally to 25.2% (25.4% in the previous year). 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥25.3B, approximately 1.2 times Net Income of ¥21.1B, indicating generally good earnings cash conversion; however, OCF/EBITDA remained at approximately 0.81 times, as increases in receivables and contract assets and a decrease in accounts payable partly constrained cash generation. 【Investment Efficiency】ROE remained high at 22.9% even with an Equity Ratio of 74.7%, primarily reflecting the Company’s high asset efficiency. 【Financial Soundness】Total assets were ¥122.9B and net assets were ¥91.8B, maintaining a conservative capital structure with an Equity Ratio of 74.7% (72.6% in the previous year). Total liabilities were modest at ¥31.1B.

Cash Flow Analysis

Operating Cash Flow was ¥25.3B (+5.7% YoY), demonstrating cash-generation capacity exceeding Net Income of ¥21.1B. Investing Cash Flow was -¥7.4B, primarily due to purchases of investment securities (-¥4.0B), while capital expenditures themselves were limited to ¥0.1B. Financing Cash Flow was -¥12.5B, with dividend payments (-¥11.8B) representing the primary outflow. After these items, Free Cash Flow was positive at ¥17.9B, broadly sufficient to cover dividend payments, although the margin of safety is not substantial. In terms of working capital, increases in receivables and contract assets (-¥0.2B) and a decrease in accounts payable (-¥0.3B) slightly constrained cash generation; management of collection and payment cycles represents an area for potential improvement.

Quality of Earnings

Earnings are primarily generated by the core business, and both non-operating income of ¥0.7B and non-operating expenses of ¥0.4B were less than 0.3% of revenue, indicating a limited impact. Meanwhile, the Company recognized a ¥0.8B valuation loss on investment securities as an extraordinary loss, which reduced Net Income as a temporary factor. The gap between Ordinary Income of ¥30.8B and Net Income of ¥21.1B can be explained primarily by this valuation loss and income taxes of ¥8.9B, representing an effective tax rate of approximately 29.7%; structural distortions are limited. The fact that OCF exceeded Net Income indicates good accrual quality, but the OCF/EBITDA ratio remained below 1.0 times due to the impact of working capital changes, leaving room to improve the speed of earnings cash conversion.

Earnings Forecast and Guidance

For the following fiscal year ending June 2027, the Company forecasts Revenue of ¥267.0B (+4.5% YoY), Operating Income of ¥32.0B (+4.8%), and Ordinary Income of ¥32.0B (+4.0%), indicating higher revenue and higher profit across all metrics compared with the current fiscal year’s results. Forecast EPS is ¥74.33, representing an improvement from actual EPS of ¥71.06 in the current fiscal year. Although Net Income declined in the current fiscal year due to margin softening and a temporary valuation loss, the following fiscal year’s forecast appears to be based on assumptions excluding temporary factors such as valuation losses. Continued profitability improvement in SystemSales and management of pricing and utilization in the core business will be key to achieving the forecast.

Shareholder Returns

The Company paid annual dividends of ¥37 for the interim period and ¥19 at fiscal year-end, resulting in a Payout Ratio of 53.6% (based on the Company’s data). A dividend of ¥42.00 is forecast for the following fiscal year, implying a forward Payout Ratio of approximately 56.5% based on forecast EPS of ¥74.33. Dividend payments of approximately ¥11.8B were broadly covered by Free Cash Flow of ¥17.9B; however, improving working capital efficiency would be desirable to balance growth investment and shareholder returns. In addition, the Company conducted a 2-for-1 stock split of its common shares effective January 1, 2026.

Risk Factors

1. Business concentration risk: The SoftwareDevelopment business accounts for 96.0% of revenue, creating a structure in which pricing, utilization rates, and personnel expense trends in this business have a significant impact on Company-wide performance.

2. Market fluctuation risk related to investment securities: Investment securities increased to ¥8.1B from ¥5.2B in the previous year, and the Company recognized a valuation loss of ¥0.8B during the current fiscal year. As the balance increases, the risk of recurring valuation losses in the event of market deterioration is a concern.

3. Declining cash conversion: The OCF/EBITDA ratio has declined, while increases in receivables and contract assets and decreases in accounts payable have partly constrained cash generation. Management of collection and payment cycles remains an issue.

Industry Benchmark (Reference; Company Research)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Operating Margin and Net Profit Margin exceed the industry median, placing the Company’s profitability relatively high within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is below the industry median, indicating that the Company’s growth rate is relatively moderate despite its profitability advantage.

※Source: Company research

Key Takeaways from the Earnings Report

1. Revenue growth has continued, but the increase in Operating Income was modest due to margin softening in the core business, while Net Income declined because of the impact of the valuation loss on investment securities. Given the business structure, the effectiveness of pricing and utilization management will determine future profit growth.

2. Financial soundness remains strong, with an Equity Ratio of 74.7% and substantial liquidity, including cash of ¥61.7B; dependence on leverage is low. However, the increasing balance of investment securities and the resulting somewhat higher sensitivity to market fluctuations warrant monitoring.

3. The forecast for the following fiscal year calls for higher revenue and higher profit, with the forward Payout Ratio expected to increase slightly to approximately 56.5% from 53.6% in the current fiscal year. The key focus will be whether continued profitability improvement in the SystemSales segment leads to a structural improvement in the Company-wide margin.

Theoretical Share Price (Reference Value)

Sensitivity: ¥455–¥481 at Cost of Equity ±1%; ¥464–¥473 at ω±0.1.

Notes:

• Goodwill amortization of ¥5.5 per share has been added back to profit (to account for a 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 figures do not constitute 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 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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