NEOJAPAN Inc. FY2027 Q1 Earnings Report

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Executive Summary

In Q1 FY2027, revenue and earnings increased, driven by the highly profitable Software Business. Revenue was ¥20.77B (+4.1% YoY), Operating Income was ¥6.83B (+6.2%), Ordinary Income was ¥7.13B (+9.0%), and Quarterly Net Income Attributable to Owners of the Parent was ¥4.87B (+9.0%). While the gross profit margin improved from 57.9% to 62.1%, SG&A expenses increased 18.2%, expanding at a faster pace than revenue growth and offsetting part of the margin improvement.

Factors Affecting Earnings

【Revenue】Revenue was ¥20.77B (+4.1% YoY). By segment, the Software Business generated ¥15.78B (+5.4%), the Systems Development Services Business generated ¥4.79B (+0.5%), and the Overseas Business generated ¥0.21B (+16.5%). The Software Business accounted for 76.1% of the revenue mix and led growth.

【Profit and Loss】Operating Income was ¥6.83B (+6.2% YoY), Ordinary Income was ¥7.13B (+9.0%), and Net Income was ¥4.87B (+9.0%). Although the gross profit margin improved by 420bp, the SG&A ratio deteriorated by 350bp (25.6%→29.1%), limiting the improvement in the Operating Income margin to 60bp (32.3%→32.9%). Ordinary Income grew faster than Operating Income due to non-operating income, including ¥0.20B in interest income and ¥0.07B in foreign exchange gains; however, non-operating income amounted to only 1.4% of revenue, and the core of earnings remains the high profitability of the principal business. In conclusion, both revenue and earnings increased.

Segment Analysis

The Software Business generated revenue of ¥15.78B (+5.4% YoY) and segment profit of ¥6.95B (+6.5%), with a profit margin of 44.0% (43.6% in the previous year), making it the core of consolidated earnings. Its segment profit represented 101.6% of consolidated Operating Income. The Systems Development Services Business generated revenue of ¥4.79B (+0.5%) and segment profit of ¥0.13B (+22.2%); although its profit margin remained low at 2.7% (2.2% in the previous year), it improved. The Overseas Business expanded revenue to ¥0.21B (+16.5%), but its segment loss widened to ¥0.24B (¥0.19B in the previous year), resulting in a profit margin of -116.8%. The widening loss in the Overseas Business was a factor weighing on consolidated earnings, and the fact that revenue growth has not led to profitability remains a key focus going forward.

Key Financial Indicators

【Profitability】The Operating Income margin was 32.9% (32.3% in the previous year), while the Net Income margin was 23.5% (22.4% in the previous year); both improved modestly. The gross profit margin increased by 420bp to 62.1% (57.9% in the previous year), while the SG&A ratio rose by 350bp to 29.1% (25.6% in the previous year), meaning that the gross margin improvement partly offset the increase in SG&A expenses.【Cash Quality】The difference between Ordinary Income and Operating Income was ¥0.30B, attributable to non-operating income such as interest income and foreign exchange gains. This amounted to only 1.4% of revenue, indicating that the substance of earnings is dependent on the profitability of the core business.【Investment Efficiency】Annualized ROE was 25.8% and the Equity Ratio was 73.1%, both high levels, demonstrating high capital efficiency under low leverage.【Financial Soundness】Current assets of ¥73.9B versus current liabilities of ¥24.0B resulted in a current ratio of approximately 308%. Cash and deposits totaled ¥62.4B, accounting for 60.2% of total assets, indicating an extremely stable financial base.

Cash Flow Analysis

As the statement of cash flows has not been disclosed, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits totaled ¥62.38B, down from ¥64.27B in the same period of the previous year, but still representing 60.2% of total assets and maintaining substantial financial resources. On the current liabilities side, income taxes payable decreased 56.8% YoY and the provision for bonuses declined 39.6%, suggesting cash outflows associated with tax payments and bonus payments. Meanwhile, contract liabilities increased to ¥15.00B (+7.5% YoY), with advance payments received from customers supporting the cash position. In addition to the ¥4.87B in net income generated by the core business, the asset composition, including ¥17.58B in investment securities, supports financial flexibility for business investment and shareholder returns.

Earnings Quality

Ordinary Income of ¥7.13B exceeded Operating Income of ¥6.83B by ¥0.30B, primarily due to interest income of ¥0.20B and foreign exchange gains of ¥0.07B; both remained limited in scale at approximately 1.4% of revenue. No extraordinary gains or losses were recorded, and the core of earnings growth was the expansion of Operating Income, namely the profitability of the principal business. While the 420bp improvement in the gross profit margin contributed to the increase in the Operating Income margin, SG&A expenses rose 18.2%, outpacing revenue growth, and the impact of changes in the cost structure on earnings quality requires close monitoring going forward. Comprehensive income was ¥5.3B, exceeding net income of ¥4.9B. The difference was attributable to valuation differences on securities of ¥0.3B and foreign currency translation adjustments of ¥0.1B, indicating that changes in the valuation of non-operating assets contributed an additional amount to net income.

Earnings Forecast and Guidance

Q1 progress toward the full-year forecast was 24.1% for revenue (¥20.77B/¥86.19B), 25.5% for Operating Income (¥6.83B/¥26.80B), 26.0% for Ordinary Income (¥7.13B/¥27.42B), and 26.0% for Net Income. All were tracking around the simple progress benchmark of 25%, indicating that the initial performance was generally in line with plan. The full-year forecast calls for revenue growth of +4.7% and Operating Income growth of +7.3%, with Operating Income planned to grow faster than revenue, consistent with the improvement in the Operating Income margin in Q1 (+60bp). There were no revisions to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The full-year dividend forecast is ¥54.00 per share, representing an increase from the previous-year dividend of ¥21 (actual amount before the combined interim and year-end dividends). Based on the full-year EPS forecast of ¥133.88, the forecast Payout Ratio is 40.3%, below the generally regarded sustainable level of approximately 60%. Based on the average number of shares outstanding during the period of 14,017,873 shares, the estimated annual total dividend is approximately ¥0.757B, equivalent to approximately 40% of the full-year Net Income forecast of ¥1.876B. Financial resources of ¥62.38B in cash and deposits and a current ratio of approximately 308% support the sustainability of the dividend. There was no revision to the dividend forecast during the quarter.

Risk Factors

1. Concentration of earnings in the Software Business: Segment profit from this business is equivalent to 101.6% of consolidated Operating Income, creating a structure in which consolidated earnings are susceptible to trends in sales and renewals in this business.

2. Deterioration in the profitability of the Overseas Business: Although revenue increased by +16.5% YoY, the segment loss widened to ¥0.24B (¥0.19B in the previous year), indicating that revenue growth has not translated into improved profitability.

3. Pressure on margins from higher SG&A expenses: SG&A expenses increased +18.2% YoY, significantly exceeding revenue growth of +4.1%, and the SG&A ratio deteriorated by 350bp. If the improvement in the gross profit margin slows, this could lead to stagnation in the Operating Income margin.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Operating Income margin and Net Income margin are significantly above the industry median, indicating a level of profitability that is high even within the IT and telecommunications industry.

Growth and Capital Efficiency

The revenue growth rate is below the industry median, placing growth momentum below the industry average despite the company’s high profitability.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. An Operating Income margin of 32.9% and a Net Income margin of 23.5% are significantly above the industry median, demonstrating a highly profitable and efficient business structure under low leverage (Equity Ratio of 73.1%).

2. The core Software Business has a high profit margin of 44.0% and serves as the center of consolidated earnings, while the Overseas Business has experienced widening losses despite revenue growth, increasing the profitability gap between segments.

3. SG&A expenses are increasing at a pace (+18.2%) exceeding revenue growth, and whether the improvement in the gross profit margin (+420bp) can continue to absorb this increase will be a key point in assessing future margin trends.

Theoretical Share Price (Reference Value)

Sensitivity: ¥792–¥839 at ±1% for the cost of equity, and ¥808–¥826 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Valuation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it 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 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 with a professional as necessary.

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