Quick View
| Metric | Current Period | Same Period Last Year | YoY |
|---|---|---|---|
| Revenue | ¥181.7B | ¥167.2B | +8.7% |
| Operating Income | ¥22.7B | ¥19.3B | +17.4% |
| Ordinary Income | ¥23.5B | ¥20.1B | +16.9% |
| Net Income | ¥13.8B | ¥11.9B | +16.1% |
| ROE | 2.6% | 2.3% | - |
Executive Summary
The Q1 of the fiscal year ending April 2026 was a high-quality quarter, with revenue growth accompanied by operating leverage, resulting in earnings growth exceeding the rate of sales growth. Revenue was ¥181.7B (¥167.2B in the same period last year, +8.7%), Operating Income was ¥22.7B (¥19.3B, +17.4%), and Ordinary Income was ¥23.5B (¥20.1B, +16.9%). Net Income on a consolidated basis (consolidated net income including the portion attributable to non-controlling interests) was ¥13.8B (+16.1%), while Net Income attributable to owners of the parent was ¥11.7B (¥10.1B in the same period last year, +15.8%). The primary drivers of earnings growth were cost efficiency improvements stemming from an improved gross margin (21.6%, +87bp) and controlled growth in selling, general and administrative expenses, with improved profitability in the Japan Segment driving overall earnings.
Factors Affecting Business Performance
【Revenue】Revenue of ¥181.7B (+8.7%) was driven by the Japan Segment, which accounts for more than 90% of the composition (¥179.4B, +12.5% on a segment-total basis), as well as double-digit overseas growth in the Americas and Europe (¥11.6B, +21.0%) and Asia and Oceania (¥7.4B, +13.7%). The fact that the overall growth rate of Revenue from external customers (+8.7%) was slightly below the growth rate on a segment-total basis was due to an increase year on year in the elimination of intersegment internal transactions.
【Profit and Loss】Operating Income of ¥22.7B (+17.4%) expanded at a pace exceeding sales growth, reflecting operating leverage from an improved gross margin of 21.6% (+87bp) and the effect of containing the SG&A ratio at 9.1%. Ordinary Income of ¥23.5B (+16.9%) broadly tracked the growth in Operating Income, while the contribution from non-operating income and expenses was limited, including foreign exchange gains of ¥0.4B, which declined year on year. Net Income attributable to owners of the parent of ¥11.7B (+15.8%) was slightly below the growth in profit before tax (+17.0%), primarily due to the persistently high effective tax rate of 41.3% (40.8% in the previous year) and the deduction of ¥2.1B in net income attributable to non-controlling interests (+17.5%). Extraordinary income of ¥0.3B and extraordinary losses of ¥0.2B were both small, and their impact as temporary factors was limited. In conclusion, the company achieved increases in both revenue and earnings, and the quality of earnings growth can be assessed as favorable.
Segment Analysis
The Japan Segment posted revenue of ¥179.4B (+12.5%) and Operating Income of ¥30.7B (+40.4%). Its profit margin improved by +3.4pt to 17.1% from 13.7% in the previous year, making it the primary driver of overall earnings growth. The Americas and Europe posted revenue of ¥11.6B (+21.0%) and Operating Income of ¥2.5B (+56.5%), with a profit margin of 21.4% (+4.9pt from 16.6% in the previous year), representing the highest profitability and the largest improvement among the regions. Asia and Oceania posted revenue of ¥7.4B (+13.7%) and Operating Income of ¥1.5B (+23.2%), with a profit margin of 20.1% (+1.5pt from 18.5% in the previous year). Both overseas locations maintained high margins exceeding 20%. All segments achieved growth in both revenue and earnings, as well as margin improvement, raising profitability across regions. However, the revenue mix continues to be highly concentrated in Japan.
Key Financial Indicators
【Profitability】The Operating Income margin was 12.5%, improving by +93bp from 11.6% in the same period last year, while the Ordinary Income margin also rose by +91bp to 12.9%. The Net Income margin improved to 6.5% on a basis attributable to owners of the parent (6.1% in the previous year), although the persistently high effective tax rate of 41.3% (40.8% in the previous year) limited the extent of the improvement. ROE was 2.6% on a quarterly basis (not annualized). 【Cash Quality】Cash and deposits increased by +6.9% year on year to ¥300.0B, while the growth rate of trade receivables (¥67.0B) was +1.7%, below sales growth (+8.7%), indicating no significant deterioration in collection efficiency. 【Investment Efficiency】Total asset turnover remained at 0.216x on a quarterly basis, indicating that sales remain small relative to the asset base and that room remains to improve asset efficiency. 【Financial Soundness】The Equity Ratio (net assets/total assets) declined by -1.2pt from 63.8% in the previous year to 62.6%, but remained at a high level. The current ratio was 173.1%, ensuring ample liquidity. Meanwhile, short-term borrowings increased to ¥77.0B (¥60.0B in the previous year, +28.3%), and interest-bearing debt is weighted toward short-term obligations.
Cash Flow Analysis
As the company does not disclose a statement of cash flows, funding trends were assessed based on changes in the balance sheet. Cash and deposits increased by +6.9% from the end of the previous year to ¥300.0B. Contract liabilities (equivalent to advances received) accumulated to ¥52.2B (¥46.9B in the previous year, +11.4%), indicating that advance receipts associated with business expansion are supporting cash management. Meanwhile, short-term borrowings increased to ¥77.0B (¥60.0B in the previous year, +28.3%), suggesting the use of short-term financing to meet working capital needs or secure a cash liquidity buffer. Income taxes payable declined to ¥8.6B (¥17.2B in the previous year), indicating progress in the payment of taxes determined for the previous fiscal year. Overall, the use of short-term borrowings was added to cash generation in line with the expansion of Operating Income, while liquidity remained at a robust level.
Quality of Earnings
The earnings growth in Q1 was primarily driven by recurring earnings expansion through improvements in the gross margin and Operating Income margin from the core business, while the impact of extraordinary income and losses was limited. Extraordinary income was ¥0.3B, including a gain of ¥0.1B on the sale of investment securities, while extraordinary losses were ¥0.2B, including losses on the disposal of fixed assets. Their net impact on profit before tax was limited to +¥0.05B. Non-operating income of ¥1.7B was primarily composed of interest on securities of ¥0.9B, while foreign exchange gains declined to ¥0.4B (¥0.6B in the previous year, -25.4%). Accordingly, the growth in Ordinary Income (+16.9%) was primarily supported by the growth in Operating Income (+17.4%). Against Ordinary Income of ¥23.5B, Net Income attributable to owners of the parent was limited to ¥11.7B. The primary reasons for the discrepancy were the high effective tax rate of 41.3% (40.8% in the previous year) and the deduction of ¥2.1B in net income attributable to non-controlling interests (out of consolidated net income of ¥13.8B). Comprehensive income was ¥16.9B, exceeding consolidated net income of ¥13.8B, with the difference attributable to increases in other comprehensive income, including foreign currency translation adjustments of +¥1.5B and valuation differences on securities of +¥1.5B. Comprehensive income attributable to owners of the parent was also ¥14.9B, exceeding Net Income attributable to those shareholders of ¥11.7B. The addition of valuation-related unrealized gains should be noted as a potential risk of future reversal due to market fluctuations.
Earnings Forecast and Guidance
Progress against the full-year company plan was 23.9% for Revenue (¥181.7B/¥760.0B), 23.7% for Operating Income (¥22.7B/¥96.0B), 23.7% for Ordinary Income (¥23.5B/¥99.3B), and 19.8% for Net Income attributable to owners of the parent (¥11.7B/¥59.2B). Revenue, Operating Income, and Ordinary Income were broadly in line with simple one-quarter progress (25%), while Net Income was somewhat behind, primarily due to the high effective tax rate. Although the full-year Ordinary Income plan calls for an increase of only +1.6% from the previous fiscal year, Ordinary Income in Q1 increased +16.9%, progressing at a substantially faster pace. This may indicate that the plan incorporates a slowdown in earnings growth from Q2 onward. As of Q1, no revisions had been made to the earnings forecast or dividend forecast.
Shareholder Returns
The full-year dividend forecast is ¥14.00 per share, representing a planned increase of ¥1.00 (+7.7%) from the previous fiscal year's actual dividend of ¥13.00. Based on planned Net Income attributable to owners of the parent of ¥59.2B and 124,734,777 shares, calculated by deducting treasury shares from issued shares, the annual total dividend is approximately ¥1.75B, implying a Payout Ratio of approximately 29.5%. Given the financial foundation of cash and deposits of ¥300.0B and an Equity Ratio of 62.6%, the company has sufficient capacity to pay the planned dividend. No information regarding share repurchases was identified, and shareholder returns are centered on dividends.
Risk Factors
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Regional concentration risk: The Japan Segment accounts for more than 90% of overall revenue, and Operating Income is also primarily generated by this segment. Economic conditions and demand fluctuations in the domestic market therefore have a relatively significant impact on business performance.
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Dependence on short-term financing: Short-term borrowings increased to ¥77.0B (¥60.0B in the previous year, +28.3%), and interest-bearing debt is weighted toward short-term obligations. Cash and deposits of ¥300.0B provide a buffer, but rollover trends require monitoring.
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Persistently high effective tax rate: The effective tax rate in Q1 remained high at 41.3% (40.8% in the previous year), suppressing the growth in Net Income attributable to owners of the parent (+15.8%) relative to the growth in profit before tax (+17.0%).
Industry Benchmark (Reference; Compiled by the Company)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income margin | 12.5% | 8.0% (2.2%–15.8%) | +4.5pt |
| Net Income margin | 7.6% | 5.8% (1.5%–10.7%) | +1.9pt |
The company's Operating Income margin and Net Income margin both exceed the industry median, indicating relatively high profitability within the industry.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue growth rate (year on year) | 8.7% | 9.3% (0.2%–16.9%) | −0.6pt |
The Revenue growth rate is slightly below the industry median but is at a mid-range level within the IQR.
※Source: Compiled by the Company
Key Takeaways from the Results
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Operating Income margins improved across all segments, with the +3.4pt improvement in the Japan Segment serving as the primary driver of overall earnings growth. This indicates an enhancement of the earnings structure.
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While short-term borrowings increased +28.3% and interest-bearing debt became more weighted toward short-term obligations, cash and deposits of ¥300.0B provide a substantial buffer. This change in the financing structure warrants continued monitoring.
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The persistently high effective tax rate of 41.3% has slightly suppressed the growth in Net Income attributable to owners of the parent (+15.8%) relative to the growth in profit before tax (+17.0%), making the tax rate trend a key point of focus for the full year.
Theoretical Share Price (Reference Value)
This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.
| Scenario | Theoretical Share Price |
|---|---|
| bear | ¥439 |
| base | ¥449 |
| bull | ¥462 |
| Calculation Assumption | Value |
|---|---|
| Book value per share (BPS) | ¥423 |
| Adjusted forecast EPS | ¥49.8 |
| Cost of equity capital r | 9.65% (10-year government bond 2.65% + equity risk premium 6.00% + size premium 1.00%) |
| Residual income persistence coefficient ω / explicit forecast period | 0.62 / 5 years |
| Assumed Payout Ratio | 29.5% |
| Forecast EPS confidence adjustment | ×1.049 (based on the historical guidance achievement rate of peer companies in the same industry) |
| Implied PBR / PER | 1.06x / 9.0x |
Sensitivity: ¥436–¥462 at ±1% for the cost of equity capital, and ¥448–¥450 at ±0.1 for ω.
Notes:
- Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
- Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.
(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value does not forecast or guarantee the future share price)
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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AI Financial Analysis
Executive Summary
FY2027 Q1 was a solid start, with revenue growth translating into faster operating-profit growth and a meaningful margin improvement. Revenue increased 8.7% YoY to ¥18.17bn. Operating income rose 17.4% to ¥2.27bn. Ordinary income grew 16.9% to ¥2.35bn. Profit attributable to owners of the parent increased 15.9% to ¥1.17bn. The operating margin expanded by approximately 90bp YoY to 12.5% from 11.6%. Gross margin also improved by approximately 90bp to 21.6%, indicating that the profit uplift was primarily driven by a better gross-profit structure rather than only lower overhead intensity. SG&A expenses increased 8.2% YoY to ¥1.66bn, slightly below revenue growth, reducing the SG&A-to-sales ratio by roughly 10bp to 9.1%. Japan remained the core business, accounting for 93.0% of external revenue and delivering a 40.4% increase in segment profit. The Americas and Europe segment posted the fastest segment-profit growth, up 56.5%, alongside 15.4% external revenue growth. Asia and Oceania segment profit rose 23.2%, although external revenue declined 11.4%, suggesting that profitability improved despite softer third-party sales. Full-year company guidance was maintained, with Q1 revenue progress of 23.9% and operating-income progress of 23.7%, both broadly consistent with the standard 25% first-quarter run rate. Liquidity is strong, supported by ¥30.00bn of cash and a 173.1% current ratio. However, all interest-bearing debt consists of short-term borrowings, which increased 28.3% YoY to ¥7.70bn and requires continued refinancing discipline. The tax burden on profit attributable to owners was elevated at 49.8%, while the reported tax expense relative to profit before tax was also high at 41.3%, limiting conversion of pre-tax earnings into attributable profit. Overall, the quarter supports the company's earnings-growth trajectory, but sustained margin expansion, short-term debt management, tax normalization, and the pace of Japan-led growth remain the principal items to monitor.
Profitability Analysis
Annualized DuPont ROE was 8.9%, comprising a 6.5% net profit margin, 0.862x asset turnover, and 1.60x financial leverage. This indicates that the return profile is principally supported by moderate operating profitability and a conservative-to-moderate capital structure rather than aggressive leverage. The 12.5% EBIT margin is within the "good" 8-15% benchmark range, while the 6.5% net margin is also in the benchmark "good" range. Margin expansion was the main quarterly improvement: the consolidated operating margin increased approximately 90bp YoY, as gross margin expanded approximately 90bp and SG&A grew more slowly than revenue. Gross profit increased 13.3% YoY to ¥3.93bn, outpacing the 8.7% rise in revenue. SG&A increased 8.2% YoY to ¥1.66bn, evidencing modest positive operating leverage. Japan is the core business by segment operating-income contribution, generating ¥3.07bn of segment profit, or 88.5% of aggregate segment profit before eliminations and corporate costs. Japan segment revenue, including intersegment sales, increased 12.5% to ¥17.94bn, while segment profit increased 40.4%; its segment margin improved to 17.1% from 13.7%. Americas and Europe segment revenue increased 21.0% to ¥1.16bn and segment profit increased 56.5% to ¥0.25bn, lifting its segment margin to 21.4% from 16.6%. Asia and Oceania segment revenue increased 13.7% to ¥0.74bn and segment profit increased 23.2% to ¥0.15bn, with margin improving to 20.1% from 18.5%. The rise in internal sales and the larger elimination adjustment mean consolidated earnings should be assessed primarily on external revenue and reported operating income. Financial leverage of 1.60x and D/E of 0.60x remain restrained, so there is scope for returns to improve through higher margins or asset utilization without requiring materially greater balance-sheet risk. Interest coverage of 112.0x confirms that current earnings comfortably absorb interest costs.
Growth Assessment
Revenue growth of 8.7% YoY was above the full-year forecast growth rate of 7.2%, providing a constructive opening to the fiscal year. Operating-income growth of 17.4% was more than double revenue growth and exceeded the 8.2% full-year operating-income growth assumption. The earnings profile therefore shows favorable early operating leverage, driven by gross-margin improvement and SG&A discipline. Japan's external revenue increased 8.9% YoY to ¥16.89bn, reinforcing the resilience of the domestic business that dominates group sales. Americas and Europe external revenue increased 15.4% to ¥0.89bn, making it the strongest reported external-sales growth contributor on a percentage basis. Asia and Oceania external revenue declined 11.4% to ¥0.39bn, creating a regional concentration risk despite a higher segment-profit outcome. Q1 revenue represents 23.9% of the ¥76.00bn full-year forecast, only 1.1 percentage points below the conventional 25% Q1 progress benchmark. Q1 operating income represents 23.7% of the ¥9.60bn full-year forecast, 1.3 percentage points below the standard Q1 benchmark. Q1 ordinary income represents 23.7% of the ¥9.93bn full-year forecast, and attributable profit represents 19.8% of the ¥5.92bn forecast. The lower attributable-profit progress reflects the elevated tax burden rather than weak operating execution. Maintained guidance for revenue, operating income, ordinary income, dividends, and earnings indicates that management has not yet incorporated an acceleration beyond its initial full-year assumptions. The sustainability of the Q1 margin improvement will depend on continued gross-profit gains and whether the strong profit growth in Japan and the Americas/Europe can offset volatility in Asia/Oceania.
Financial Health
The balance sheet is liquid and adequately capitalized. The current ratio was 173.1% and the quick ratio was 172.7%, both comfortably above standard liquidity thresholds. Working capital was ¥20.75bn. Cash and deposits totaled ¥30.00bn, equivalent to 3.90x short-term debt and 35.6% of total assets. Total liabilities were ¥31.52bn against total equity of ¥52.78bn, producing a D/E ratio of 0.60x and debt-to-capital ratio of 12.7%, both consistent with a conservative solvency profile. Interest-bearing debt was ¥7.70bn, entirely composed of short-term loans. This 100.0% short-term debt ratio is a refinancing-risk alert: the company must roll over or repay all debt within the near term, even though its cash balance provides substantial coverage. Short-term loans increased by ¥1.70bn, or 28.3% YoY, and should be assessed against the purpose and durability of the associated funding needs. Cash coverage materially mitigates the maturity mismatch because cash exceeds short-term debt by ¥22.30bn. Contract liabilities were ¥5.22bn, providing operating funding but also requiring delivery of contracted services. Asset retirement obligations were ¥2.24bn, equal to 7.1% of total liabilities and above the quality-alert threshold of 5%; this creates a meaningful long-dated restoration or settlement obligation, particularly relative to the asset base. Goodwill was limited at ¥0.49bn, only 0.9% of equity and 0.6% of assets, minimizing M&A-related balance-sheet dependency and impairment exposure. Intangible assets represented 4.6% of total assets, a balanced level relative to the stated 20% benchmark.
Notable B/S Changes
Short-term loans: +¥1.70bn (+28.3%) to ¥7.70bn - all interest-bearing debt is short term, increasing refinancing dependence, although ¥30.00bn of cash provides 3.90x coverage. Contract liabilities: +¥0.53bn (+11.4%) to ¥5.22bn - increased advance customer funding supports working capital but requires continued service delivery and revenue recognition. Cash and deposits: +¥1.93bn (+6.8%) to ¥30.00bn - strengthens liquidity and provides substantial capacity to cover short-term debt. Investment securities: +¥1.54bn (+14.5%) to ¥10.76bn - a sizable 12.8% of assets, exposing equity and comprehensive income to market-value movements. Goodwill: -¥0.02bn (-4.5%) to ¥0.49bn - low and declining goodwill limits acquisition-related impairment risk.
Cash Flow Quality
Dividend Sustainability
The full-year dividend forecast is ¥28.00 per share, unchanged from the initial outlook. Based on forecast EPS of ¥47.46, the implied dividend payout ratio is approximately 59.0%. This is just within the stated sub-60% sustainability benchmark and leaves a modest earnings retention buffer. The forecast dividend requirement is approximately ¥3.49bn when applied to the Q1 average share count of 124.7 million shares. Forecast attributable profit of ¥5.92bn would cover this dividend requirement by approximately 1.70x. Retained earnings of ¥410.32bn provide a substantial accounting capital buffer relative to the expected dividend. The unchanged dividend outlook is consistent with management's maintained earnings forecast. Dividend capacity should remain linked to preservation of the current operating-margin gains, control of the elevated effective tax rate, and continued liquidity coverage of short-term borrowings.
Risk Assessment
Business risks include Regional concentration: Japan accounts for 93.0% of external revenue, making group growth highly dependent on domestic demand and execution., Asia and Oceania external revenue declined 11.4% YoY to ¥0.39bn; continued weakness could reduce geographic diversification and constrain growth., For an IT and business-process services operator, customer-service quality, labor availability and wage inflation can pressure delivery capacity and gross margin., Foreign-exchange movements affect overseas operations; Q1 included ¥0.44bn of FX gains within non-operating income, which may not recur consistently., The high work-in-process ratio alert of 43.7% of inventory indicates that project execution, billing timing, and conversion of work in progress warrant monitoring..
Financial risks include Short-term debt represents 100.0% of interest-bearing debt, creating a refinancing-risk alert despite strong cash coverage of 3.90x., Short-term loans increased 28.3% YoY to ¥7.70bn, raising the importance of monitoring borrowing purpose, rollover terms, and interest-rate sensitivity., The owner-attributable tax burden was 49.8%, while tax expense was 41.3% of profit before tax; persistently high taxation would constrain earnings conversion and ROE improvement., Asset retirement obligations of ¥2.24bn represent 7.1% of liabilities, above the quality-alert threshold, and may require future cash settlement..
Key concerns include Highest impact: sustaining the approximately 90bp consolidated operating-margin expansion while revenue growth normalizes toward the 7.2% full-year forecast., High likelihood and moderate impact: short-term debt refinancing needs, mitigated by ¥30.00bn of cash and low 12.7% debt-to-capital., Moderate likelihood and impact: whether Asia/Oceania can restore external revenue growth without sacrificing its improved segment margin., Moderate likelihood and impact: elevated tax burden causing attributable-profit progress to trail operating-profit progress., The work-in-process and asset-retirement-obligation quality alerts should be monitored for their implications for project conversion and future liability settlement..
Investment Implications
Key takeaways include Q1 operating income grew 17.4% YoY, materially faster than 8.7% revenue growth, reflecting improved gross profitability and controlled SG&A growth., Consolidated operating margin reached 12.5%, up approximately 90bp YoY and firmly within the good benchmark range., Japan is the earnings anchor, while Americas and Europe delivered the strongest external-sales growth and the fastest segment-profit increase., The balance sheet is liquid, with cash covering short-term debt by 3.90x, although debt maturity is entirely short term., The ¥28 per-share full-year dividend implies an approximately 59.0% payout ratio based on forecast EPS, leaving limited but positive earnings headroom..
Metrics to watch include Operating margin and gross margin relative to the Q1 levels of 12.5% and 21.6%, Japan segment profit growth and its 17.1% segment margin, Asia and Oceania external revenue trend following the Q1 11.4% decline, Short-term loans, refinancing terms, and cash-to-short-term-debt coverage, Effective tax rate and owner-attributable tax burden, Work-in-process conversion and asset retirement obligation movements, Progress toward full-year revenue of ¥76.00bn, operating income of ¥9.60bn, and attributable profit of ¥5.92bn.
Regarding relative positioning, The company combines good operating profitability, a strong liquidity position, low balance-sheet leverage, and limited goodwill exposure. Its annualized ROE of 8.9% is below the 10% threshold generally associated with a strong return profile, indicating that further value creation depends principally on sustaining margin improvement and enhancing asset utilization rather than increasing leverage.