| Metric | Current Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥70.1B | ¥80.0B | -12.4% |
| Operating Income / Operating Profit | ¥17.2B | ¥26.1B | -33.9% |
| Ordinary Income | ¥16.9B | ¥26.1B | -35.1% |
| Net Income / Net Profit | ¥10.2B | ¥22.2B | -53.9% |
| ROE | 15.3% | 34.8% | - |
For FY2026, Revenue was ¥70.1B (YoY -¥9.9B, -12.4%), Operating Income was ¥17.2B (YoY -¥8.9B, -33.9%), Ordinary Income was ¥16.9B (YoY -¥9.2B, -35.1%), and Net Income was ¥10.2B (YoY -¥12.0B, -53.9%). In addition to the revenue decline, gross margin fell to 41.1% from 48.4% a year ago (down 7.3pt), compressing the operating margin substantially to 24.6% (down 8.0pt from 32.6%). Special losses of ¥0.7B (impairment losses ¥0.5B, loss on disposal of fixed assets ¥0.2B) reduced net income. Total assets were ¥73.8B, total equity ¥66.8B, and Cash and Deposits were ¥52.9B, maintaining a robust balance sheet with an Equity Ratio of 90.5% and ROE of 15.3%, indicating high financial soundness and profitability. Operating Cash Flow (OCF) was ¥7.8B, only 0.76x Net Income, weighed down by concentrated corporate tax payments of ¥8.8B and an increase in work in progress (WIP) from ¥0.1B to ¥0.7B that reduced cash conversion efficiency. Dividends were ¥70 at year-end (total ¥8.1B), exceeding FCF of ¥7.5B, resulting in a Payout Ratio of 45.5% and partially drawing on cash for dividend funding this period. Despite reduced revenue and profit, the company preserves high profitability and a strong financial base; however, margin deterioration and improvement in cash conversion efficiency will be focal points next term.
[Revenue] Revenue declined to ¥70.1B (YoY -¥9.9B, -12.4%). As a single-segment WEB Marketing Business, the decline is primarily attributed to external conditions and customer reductions in advertising and promotion budgets. WIP surged to ¥0.7B (prior year ¥0.1B, +409%), suggesting increased in-progress balances of contracted projects or delays in acceptance timing that deferred revenue recognition. Accounts receivable decreased to ¥8.2B (prior year ¥9.9B, -17%), reflecting lower revenue and progress in collections.
[Profit & Loss] Cost of sales was ¥41.3B, yielding a gross margin of 41.1% (prior year 48.4%), down 7.3pt, with higher subcontracting costs and worse cost structure pressuring profitability. SG&A declined to ¥11.6B (prior year ¥12.7B, -8.7%), but reductions were limited relative to the -12.4% revenue decline, raising the SG&A ratio to 16.5% (prior year 15.9%, +0.6pt). As a result, Operating Income was ¥17.2B (-33.9%) and Operating Margin 24.6% (down 8.0pt from 32.6%). Non-operating income was ¥0.1B (interest income ¥0.1B) while non-operating expenses were ¥0.4B, reducing Ordinary Income to ¥16.9B (-35.1%). Special income of ¥0.1B (gain on sale of investment securities) was offset by Special losses of ¥0.7B (impairment losses ¥0.5B, loss on disposal of fixed assets ¥0.2B), bringing Profit Before Tax to ¥16.2B. After deducting corporate taxes of ¥5.2B (effective tax rate 31.8%), Net Income was ¥10.2B (-53.9%). The weight of special losses and tax burden significantly compressed Net Income, resulting in a year of revenue and earnings decline.
[Profitability] Operating Margin 24.6% (down 8.0pt from 32.6%), Net Profit Margin 14.6% (down 13.2pt from 27.8%) — profitability deteriorated substantially. ROE 15.3% (down 12.7pt from 28.0%) remains at a high level but declined mainly due to lower Net Profit Margin. EBITDA (Operating Income + Depreciation + Amortization of goodwill) was ¥18.2B, with an EBITDA Margin of 26.0%, maintaining high profitability but down 10.4pt from 36.4% a year ago. [Cash Quality] OCF was ¥7.8B, 0.76x Net Income (¥10.2B); concentrated corporate tax payments of ¥8.8B and WIP increases hampered cash conversion. FCF was ¥7.5B, below dividend payments of ¥8.1B, producing an FCF Coverage of 0.93x. [Investment Efficiency] Total Asset Turnover declined to 0.95x/year (prior year 1.06x), as rising WIP and lower revenue impaired asset efficiency. Capital expenditures were ¥0.0B, extremely low, and with depreciation of ¥0.6B, CapEx/Depreciation was only 0.8%, indicating continued investment restraint. [Financial Soundness] Equity Ratio 90.5% (up 5.7pt from 84.8%), Current Ratio 983%, Cash and Deposits ¥52.9B — the company maintains a very strong financial position. Interest-bearing debt is effectively zero, D/E 0.0x, minimizing financial risk.
OCF was ¥7.8B (YoY -61.1%). Starting from Profit Before Tax of ¥16.2B, adding back Depreciation ¥0.6B and goodwill amortization ¥0.3B produced subtotal OCF of ¥16.4B, from which corporate tax payments of ¥8.8B were a large deduction. Decrease in trade receivables of ¥1.7B supported cash, while reductions in accrued consumption taxes and decreases in accrued corporate taxes (a ¥7.8B reduction in the payable account on the balance sheet) pressured cash. An increase in WIP of ¥0.6B also worsened working capital. Investing Cash Flow was -¥0.2B, reflecting minimal activity: CapEx ¥0.0B, acquisition of intangible assets ¥0.3B, proceeds from sale of investment securities ¥1.1B, acquisition of subsidiary shares ¥1.1B, etc. FCF of ¥7.5B was ¥0.6B less than dividend payments of ¥8.1B, and Cash and Deposits fell from opening ¥53.5B to closing ¥52.9B (decrease ¥0.6B). Financing Cash Flow was -¥8.1B, mainly due to dividend payments of ¥8.1B and ¥2.3B cash outflow related to gaining control of a subsidiary. The decline in cash conversion efficiency appears driven by temporary concentrated tax payments and WIP increases, but the inability to fully fund dividends from FCF merits attention for medium-term sustainability.
Recurring earnings are centered on Operating Income of ¥17.2B, with reliance on non-operating income minimal (¥0.1B interest income, representing 0.2% of sales). One-off items included Special income ¥0.1B (gain on sale of investment securities) and Special losses ¥0.7B (impairment losses ¥0.5B, loss on disposal of fixed assets ¥0.2B), which reduced pre-tax profit by about ¥0.6B. The gap between Ordinary Income ¥16.9B and Net Income ¥10.2B (a 39.6% divergence) is mainly due to corporate taxes of ¥5.2B (effective tax rate 31.8%) and the special losses. Comprehensive income of ¥11.1B exceeded Net Income by ¥0.9B, with minor changes in accumulated other comprehensive income. OCF at 0.76x Net Income was mainly due to concentrated corporate tax payments of ¥8.8B (prior year ¥8.1B), and accruals are generally appropriate aside from the WIP increase of ¥0.6B. Excluding special losses, recurring earnings quality is high, but improvement in cash conversion efficiency will be a key evaluation metric next term.
Full-year guidance is maintained at Revenue ¥72.0B (YoY +2.7%), Operating Income ¥18.0B (+4.6%), Ordinary Income ¥17.6B (+4.0%), and Net Income ¥12.0B (+8.1%). Progress against the current-period results is Revenue 97.4%, Operating Income 95.6%, Ordinary Income 96.0%, and Net Income 85.2% — Revenue and Operating Income are roughly on plan, while Net Income fell short due to special losses. To achieve the full-year target requires an incremental ¥1.9B in revenue remaining (¥0.6B per quarter, +9.0% growth per quarter) and ¥1.8B in accumulated Net Income. Recovery of gross margin, prevention of recurrence of special losses, and accelerated WIP realization are preconditions; the likelihood of achieving operating-level targets is high, but Net Income remains subject to volatility from one-off factors.
Year-end dividend is ¥70 (total ¥8.1B), resulting in a Payout Ratio of 45.5%. No share buybacks were executed, so Total Return Ratio equals the Payout Ratio. With FCF ¥7.5B versus dividend payments ¥8.1B, FCF Coverage was 0.93x, meaning dividend payments exceeded FCF by ¥0.6B this period. With Cash and Deposits of ¥52.9B (79.2% of Net Assets), liquidity for short-term payments is ample, but if OCF ¥7.8B continues to be insufficient to cover dividends of ¥8.1B, dividend sustainability becomes a medium-term issue. The company appears to prioritize stable dividends, but if cash conversion efficiency does not improve and investment levels do not normalize, consideration may be required to lower the Payout Ratio or reallocate funds toward growth investment.
Gross Margin Decline Risk: Gross margin declined to 41.1% from 48.4% a year ago (down 7.3pt), with higher subcontracting costs and deteriorating cost mix pressuring profitability. The rise in Cost of Sales ratio to 58.9% (prior year 51.6%) suggests structural factors such as intensified price competition, higher subcontracting ratio, and adverse project mix. While Operating Margin remains high at 24.6%, the 8.0pt contraction signals a risk of weakening earnings base. If price revisions, subcontracting cost control, and a shift toward higher value-added projects do not progress, further margin erosion is a concern.
Cash Conversion Efficiency Risk: OCF of ¥7.8B is only 0.76x Net Income (¥10.2B), with concentrated corporate tax payments of ¥8.8B and WIP increase of ¥0.6B hindering conversion. FCF ¥7.5B was below dividend payments ¥8.1B (FCF Coverage 0.93x), so current cash generation did not cover dividends. WIP surged to ¥0.7B (prior year ¥0.1B, +409%), and delays in order acceptance and project acceptance timing have worsened turnover of both revenue and cash. If WIP digestion and billing are delayed, concerns over cash shortages and dividend sustainability will rise.
Demand Cyclicality Risk for WEB Marketing: Concentration in a single segment (WEB Marketing Business) entails risk that performance will be sensitive to customers’ advertising and promotion budgets. Revenue fell substantially YoY (-12.4%), and demand suppression in adverse external or recessionary conditions directly impacts results. Large variability in order intake and acceptance timing can amplify quarter-to-quarter volatility through WIP changes and revenue recognition timing. Diversifying the customer base and securing revenue sources with higher recession resilience are key challenges.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 24.6% | 8.1% (3.6%–16.0%) | +16.5pt |
| Net Profit Margin | 14.6% | 5.8% (1.2%–11.6%) | +8.8pt |
The company’s Operating Margin 24.6% and Net Profit Margin 14.6% greatly exceed the IT & Communications industry medians (Operating Margin 8.1%, Net Profit Margin 5.8%), positioning it among the higher-profitability firms in the sector.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | -12.4% | 10.1% (1.7%–20.2%) | -22.5pt |
Revenue growth of -12.4% lags the industry median of +10.1% significantly, placing the company at the lower end of growth within the industry and operating counter to industry trends.
※Source: Company compilation
Maintenance of High Profitability and Financial Soundness: With Operating Margin 24.6%, ROE 15.3%, Equity Ratio 90.5%, and Cash ¥52.9B, the company preserves industry-leading profitability and a strong financial base despite the earnings decline. Excluding temporary charges such as impairments and disposals, recurring earnings power remains high; compared with industry benchmarks, Operating Margin is +16.5pt and Net Profit Margin +8.8pt, demonstrating a dominant advantage. The near-term focus is on stabilizing gross margin and restoring operating leverage; price adjustments, subcontractor cost containment, and increasing the share of high-value projects are key to profit recovery.
Monitor Cash Conversion Efficiency and Dividend Sustainability: OCF ¥7.8B is 0.76x Net Income, and FCF ¥7.5B is below dividend payments ¥8.1B. The sharp increase in WIP (+409%) suggests variability in order and acceptance timing, making improvement in cash conversion a critical metric next term. Although cash balances are ample and short-term dividend payment capacity is intact, if OCF and FCF do not recover, sustaining a Payout Ratio of 45.5% while maintaining growth investments will be a medium-term challenge. Accelerating WIP realization, smoothing tax payments, and strengthening working capital management are essential to normalize cash generation.
This report is an AI-generated financial analysis document created by analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed financial statements. Investment decisions should be made at your own responsibility and, where necessary, after consulting a professional advisor.