| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥192.7B | ¥181.5B | +6.2% |
| Operating Income / Operating Profit | ¥24.5B | ¥25.2B | -2.9% |
| Ordinary Income | ¥24.8B | ¥25.2B | -1.8% |
| Net Income / Net Profit | ¥16.5B | ¥16.8B | -1.7% |
| ROE | 18.9% | 20.5% | - |
For the nine-month cumulative period of FY2026 Q3, Revenue was ¥192.7B (YoY +¥11.2B +6.2%), Operating Income was ¥24.5B (YoY -¥0.7B -2.9%), Ordinary Income was ¥24.8B (YoY -¥0.4B -1.8%), and Quarterly Net Income attributable to owners of the parent was ¥16.5B (YoY -¥0.3B -1.7%), resulting in higher revenue but lower profit. Top-line performance was supported by the core Software Development Business at +5.7% and the System Sales Business at +18.7%, but Gross Margin declined to 25.1% (from 25.9% a year earlier, -0.8pt) and Operating Margin fell to 12.7% (from 13.9%, -1.2pt). Margin compression was driven by a lag in price adjustments against rising personnel and subcontracting costs. Ordinary Income showed a limited decline due to a modest improvement in non-operating income/expenses, and Net Income margin fell to 8.6% (from 9.2%, -0.6pt).
[Revenue] Revenue expanded solidly to ¥192.7B (+6.2%). The Software Development Business recorded ¥185.3B (+5.7%) and the System Sales Business ¥7.6B (+18.7%), with both segments growing. The Software Development Business remains dominant at a 96.0% revenue mix, supported by progress in acceptance testing for contracted projects. The System Sales Business showed high growth of +18.7%, indicating signs of improvement in the product-sales mix. Gross Profit was ¥48.3B (+2.9%), with Gross Margin down to 25.1% from 25.9% in the prior year (-0.8pt). This is attributed primarily to changes in project mix (higher proportion of front-loaded initial-fee projects) and increases in personnel and subcontracting costs. Accounts receivable rose to ¥40.7B (from ¥37.4B a year earlier, +8.9%), outpacing revenue growth, and average collection days extended to 77 days, suggesting concentration in acceptance timing.
[Profitability] Selling, general and administrative expenses (SG&A) were ¥23.9B (+9.5%), increasing faster than revenue growth, pushing SG&A ratio to 12.4% (from 12.0%, +0.4pt). This appears driven by headcount additions, training investments, and upfront recruitment costs. Operating Income fell to ¥24.5B (-2.9%), with Operating Margin at 12.7% (from 13.9%, -1.2pt), indicating a period where operating leverage is not functioning effectively in the short term. Non-operating income was ¥0.5B (prior year ¥0.3B) and non-operating expenses were ¥0.2B (prior year ¥0.2B), both small, resulting in Ordinary Income of ¥24.8B (-1.8%) with a limited decline. Interest income ¥0.1B and subsidy income ¥0.2B were the main non-operating income items, while fees paid ¥0.1B comprised most non-operating expenses. Extraordinary items were essentially neutral, with ¥0.0B gain on sales of investment securities. Income taxes were ¥8.3B, leading to an effective tax rate of 33.5%, and Quarterly Net Income attributable to owners of the parent was ¥16.5B (-1.7%), with Net Income margin declining to 8.6% (from 9.2%, -0.6pt). In conclusion, revenue increased but profits decreased, as margin pressure weighed on earnings despite solid top-line trends.
The Software Development Business reported Revenue ¥185.3B (+5.7%), Operating Income ¥23.3B (-5.3%), and Margin 12.6%; revenue remained firm but margin declined. As the core segment, it accounted for 96.0% of revenue and 95.1% of operating profit, heavily influencing consolidated results. Margin compression is attributed to higher personnel and subcontracting costs and a lag in price adjustments. The System Sales Business delivered Revenue ¥7.6B (+18.7%), Operating Income ¥1.2B (+94.4%), and Margin 15.6% (from 9.5%, +6.1pt), showing high growth and markedly improved profitability. Better inventory management and sales mix revisions contributed to operating profit doubling from ¥0.6B in the prior year. Comparing segments, the System Sales Business achieved higher margins, offering upside to consolidated margins as its mix improves.
[Profitability] Operating Margin 12.7% (from 13.9%, -1.2pt), Net Income Margin 8.6% (from 9.2%, -0.6pt), Gross Margin 25.1% (from 25.9%, -0.8pt) — profitability metrics all declined. SG&A Ratio rose to 12.4% (from 12.0%, +0.4pt), with expense growth outpacing revenue and weakening operating leverage. [Cash Quality] Accounts receivable collection days averaged 77 days; accounts receivable growth (+8.9%) exceeded revenue growth (+6.2%), indicating delayed cash conversion. Inventories rose sharply to ¥1.0B (from ¥0.4B, +131.6%) but remain small at 0.8% of total assets. Work-in-progress accounted for 96.3% of inventories, reflecting uneven project acceptance timing. [Investment Efficiency] ROE at 18.9% (from 18.8%, flat) remains high. Total Asset Turnover at 1.61x is healthy, and Financial Leverage at 1.37x is low, indicating a balanced mix of solvency and capital efficiency. [Financial Soundness] Equity Ratio 73.1% (from 71.6%, +1.5pt), Current Ratio 345%, Quick Ratio 342% — extremely strong. Interest-bearing debt consisted only of bonds ¥0.1B (including maturities within one year), D/E ratio 0.037x — effectively debt-free. Interest Coverage approximately 2,751x, indicating ample headroom and minimal financial risk. Cash and deposits were ¥54.8B (from ¥53.5B, +2.4%), ensuring sufficient liquidity against short-term liabilities of ¥29.0B.
Cash flow statement details for this quarter are not disclosed; cash trends are analyzed from balance sheet movements. Cash and deposits were ¥54.8B, a modest increase of ¥1.2B (+2.4%) from ¥53.5B a year earlier. Despite Revenue growth of +6.2%, cash growth was muted, attributable to working capital stagnation. Accounts receivable increased by ¥3.3B (+8.9%) to ¥40.7B, outpacing revenue growth, with average collection days of 77, and delays in acceptance/invoicing timing likely slowed cash conversion. Inventories rose sharply to ¥1.0B (+¥0.5B +131.6%), reflecting inventory accumulation in the System Sales Business and project progress timing. Work-in-progress made up 96.3% of inventories, indicating elevated balances of unaccepted projects. Accounts payable increased to ¥9.8B (+¥1.2B +14.2%), possibly due to extended payment cycles or higher subcontracting costs. Interest-bearing debt remained effectively unchanged at bonds ¥0.2B, so financing cash flows had minimal impact. Retained earnings increased to ¥86.4B (from ¥81.7B, +¥4.7B +5.7%), demonstrating steady internal capital accumulation. Overall, operating profitability is intact, but working capital delays are constraining cash generation; revising collection terms and strengthening billing controls are key to improving free cash flow.
Assessing earnings quality, Operating Income ¥24.5B and Ordinary Income ¥24.8B are close, indicating high dependency on core operations. Of Non-operating Income ¥0.5B, Interest Income ¥0.1B and Subsidy Income ¥0.2B are the main items, so recurring elements predominate and reliance on one-off gains is low. Non-operating Expenses ¥0.2B are mainly fees paid ¥0.1B, at a normal level. Extraordinary items were neutral, with Gain on Sales of Investment Securities ¥0.0B, and Net Income ¥16.5B is supported by recurring earnings. Comprehensive Income was ¥16.7B, only ¥0.2B different from Net Income ¥16.5B; Other Comprehensive Income comprised Foreign Currency Translation Adjustments ¥0.3B and Net Changes in Valuation of Securities -¥0.1B. The small divergence between Comprehensive Income and Net Income indicates minor impact from valuation gains/losses. Average collection days of 77 suggest a lag between revenue recognition and cash collection, implying some accrual timing differences. High work-in-progress ratio of 96.3% in inventories also suggests timing mismatches between revenue recognition and cash conversion. Overall, earnings quality is fundamentally driven by core operations and recurring, with low dependence on one-off items; however, working capital stagnation delays cash conversion and presents room for improvement.
Full Year / FY guidance: Revenue ¥260.0B (+7.6%), Operating Income ¥30.5B (+1.2%), Ordinary Income ¥30.5B (+0.7%). Net Income attributable to owners of the parent is not disclosed, but implied from EPS guidance of ¥74.70 to be approximately ¥22.0B. Progress toward the FY target at the Q3 cumulative is: Revenue 74.1%, Operating Income 80.2%, Ordinary Income 81.3%, which is roughly in line with the standard progress rate of 75% (9 months / 12 months). Higher operating profit progress may reflect concentration of acceptance recognition in the second half or earlier-than-expected realization of profitability improvements in the System Sales Business. To achieve the full year, the company needs Revenue ¥67.3B (quarterly average ¥22.4B) and Operating Income ¥6.0B in the remaining three months; considering historical performance and seasonality, this is achievable. Dividend guidance remains unchanged at Annual ¥19.00 (post-split basis; pre-split equivalent year-end ¥38.00, annual equivalent ¥75.00). Accounting for progress and seasonal concentration of acceptances, the likelihood of meeting full-year guidance is assessed as high.
Interim dividend of ¥37.00 (pre-split basis; a 1-for-2 stock split was implemented on January 1, 2026) has been paid. Full-year dividend guidance is Annual ¥19.00 (post-split basis; pre-split equivalent year-end ¥38.00, annual equivalent ¥75.00). Using Quarterly Net Income attributable to owners of the parent ¥16.5B and weighted average shares outstanding during the period of 29,448 thousand shares, EPS is ¥55.57, yielding a payout ratio against the interim dividend of ¥37.00 (pre-split basis) of approximately 66.6%. Against the full-year EPS guidance ¥74.70 (post-split basis; pre-split equivalent ~¥149.40), the annual dividend of ¥75.00 (pre-split equivalent) implies a payout ratio of about 50.2%, consistent with historical levels. With cash and deposits of ¥54.8B, effective debt-free status, and ROE 18.9%, the balance sheet is robust and dividend-paying capacity is not a concern. No share buybacks are disclosed; shareholder returns are concentrated on dividends. The interim payout ratio is somewhat high, but the full-year payout ratio of about 50% is acceptable, and the company is assessed to pursue stable dividends while balancing profit growth and retained earnings.
Margin Decline Risk: Gross Margin 25.1% (from 25.9%, -0.8pt) and Operating Margin 12.7% (from 13.9%, -1.2pt) indicate deteriorating profitability. Primary causes are lagging price adjustments to rising personnel and subcontracting costs and changes in project mix (higher proportion of front-loaded initial-fee projects). SG&A Ratio also rose to 12.4% (from 12.0%, +0.4pt) with expense growth outpacing revenue, reducing operating leverage. Recovery of margins depends on progress in price pass-through and increasing the share of higher-value-added projects.
Working Capital Stagnation Risk: Collection days of 77 are somewhat long; Accounts Receivable ¥40.7B (+8.9%) increased more than Revenue (+6.2%). Inventories rose to ¥1.0B (+131.6%), with Work-in-progress ratio at 96.3% remaining elevated. Uneven acceptance/delivery timing may delay cash conversion, and despite Operating Income ¥24.5B, cash increased by only ¥1.2B. Revising collection terms, increasing milestone acceptance, and strengthening billing and credit controls are key to improving cash conversion.
Concentration in Core Business Risk: The Software Development Business represents 96.0% of revenue and 95.1% of operating profit, signaling high concentration. Performance fluctuations in the core business directly impact consolidated results, and changes in major customers’ investment cycles or variability in order/acceptance timing can materially affect profits. Although the System Sales Business is growing rapidly (+18.7%) and improving margins, its scale is small at 4.0% of revenue, so reducing dependency on the core business will take time.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 12.7% | 8.2% (3.6%–18.0%) | +4.5pt |
| Net Income Margin | 8.6% | 6.0% (2.2%–12.7%) | +2.6pt |
Profitability metrics exceed industry medians, placing the company relatively strong within the IT & Communications sector.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 6.2% | 10.4% (-1.1%–19.5%) | -4.2pt |
Revenue growth lags the industry median, indicating a somewhat more moderate growth pace within the IT & Communications sector.
※ Source: Company aggregation
Short-term phase of higher revenue but lower profit; margin recovery is the focal point. Declines of -0.8pt in Gross Margin and -1.2pt in Operating Margin are primarily driven by rising personnel and subcontracting costs and a lag in price revisions; progressing price adjustments and increasing the share of higher-value-added projects are keys to margin recovery in the second half. The System Sales Business’s high-growth, high-margin trend is notable and suggests early signs of product-sales mix improvement.
Significant room exists to improve working capital efficiency, which could boost cash generation. With Accounts Receivable collection days at 77, Work-in-progress ratio 96.3%, and Inventories up +131.6%, cash collection delays are evident. If collection terms are revised, billing/credit controls strengthened, and milestone acceptance increased, cash generation relative to Operating Income ¥24.5B should improve, expanding resources for shareholder returns and growth investments. ROE of 18.9% is strong, and improving working capital efficiency could further enhance capital efficiency.
Financial foundations are extremely solid, providing capacity for growth investment and shareholder returns. Equity Ratio 73.1%, effectively debt-free, Cash and Deposits ¥54.8B, and Interest Coverage about 2,751x — financial headroom is ample and able to withstand downside scenarios. Dividend payout ratio of about 50% on a full-year basis is sustainable, supporting continued stable dividends. Progress toward full-year guidance is on track, and the probability of achieving the FY plan is assessed as high.
This report is an earnings analysis document automatically generated by AI based on XBRL financial statement data. It is not a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company from publicly available financial statements. Investment decisions are your own responsibility; consult a professional advisor as needed.