Nomura Research Institute,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Driven by higher revenue and earnings in Financial IT Solutions and IT Infrastructure Services, the Company reported higher revenue and earnings in Q1, accompanied by an improvement in the operating margin. Revenue was ¥210.46B (¥195.77B in the same period last year, YoY +7.5%), Operating Income was ¥41.71B (¥37.25B, YoY +12.0%), Profit Before Tax was ¥42.91B (¥37.98B, YoY +13.0%), and Net Income attributable to owners of the parent was ¥29.21B (¥26.00B, YoY +12.4%). The operating margin improved to 19.8% from 19.0% in the same period last year, an improvement of 0.8pt, primarily due to higher revenue and an improvement in the gross margin (37.4% versus 36.6% in the prior-year period).

Factors Affecting Business Performance

【Revenue】Revenue increased 7.5% YoY to ¥210.46B. By segment, Financial IT Solutions was the core business, accounting for 56.6% of total revenue, with revenue increasing 8.8% YoY to ¥119.09B. IT Infrastructure Services recorded the highest growth rate, with revenue increasing 12.6% YoY to ¥19.87B. Industrial IT Solutions increased 4.3% YoY to ¥56.87B, while Consulting increased 3.2% YoY to ¥13.84B; both segments posted relatively moderate growth. From Q1, NRI Australia and other entities were reclassified from Industrial IT Solutions to Financial IT Solutions, and prior-year figures have been restated based on the revised classification.

【Profit and Loss】Operating Income was ¥41.71B (YoY +12.0%), and the gross profit margin improved to 37.4% from 36.6% in the same period last year, an improvement of 0.8pt. SG&A expenses were ¥37.68B (17.9% of revenue versus 17.8% in the prior-year period), remaining broadly flat, and the improvement in gross profitability directly contributed to the expansion of the operating margin to 19.8% from 19.0%. By segment, IT Infrastructure Services lifted the Company-wide margin with Operating Income of ¥11.10B (YoY +24.8%) and a 55.8% margin. In contrast, Industrial IT Solutions reported Operating Income of ¥6.71B (YoY -10.9%), while Consulting reported Operating Income of ¥2.90B (YoY -8.7%), reflecting an apparent impact from project profitability and higher costs. Financial income of ¥2.22B exceeded financial expenses of ¥1.02B, and Profit Before Tax increased 13.0% YoY to ¥42.91B. The Company achieved higher revenue and earnings, with profitability also improving.

Segment Analysis

Financial IT Solutions generated revenue of ¥119.09B (56.6% of total revenue, YoY +8.8%) and Operating Income of ¥20.74B (YoY +18.9%), with the margin improving to 17.4% from 16.0%. IT Infrastructure Services generated revenue of ¥19.87B (9.4% of total revenue, YoY +12.6%) and Operating Income of ¥11.10B (YoY +24.8%), with its highly profitable business expanding further and leading the improvement in the Company-wide margin. Industrial IT Solutions generated revenue of ¥56.87B (27.0% of total revenue, YoY +4.3%), but Operating Income declined 10.9% YoY to ¥6.71B, and the margin deteriorated to 11.8% from 13.7% despite higher revenue. Consulting generated revenue of ¥13.84B (6.6% of total revenue, YoY +3.2%) and Operating Income of ¥2.90B (YoY -8.7%), with the margin likewise declining to 21.0% from 23.6%. Higher revenue combined with margin expansion was concentrated in IT Infrastructure Services and Financial IT Solutions, while Industrial IT Solutions and Consulting recorded higher revenue but lower earnings.

Key Financial Metrics

【Profitability】The operating margin improved to 19.8% from 19.0% in the same period last year, an improvement of 0.8pt. The net margin, based on Net Income attributable to owners of the parent, improved to 13.9% from 13.3%, an improvement of 0.6pt. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥61.70B, equivalent to 2.1 times Net Income attributable to owners of the parent of ¥29.21B, indicating strong cash backing for earnings. 【Capital Efficiency】ROE was 7.8%; the reduction in equity resulting from the repurchase and retirement of treasury shares is working to reduce the denominator. 【Financial Soundness】The Equity Ratio was 41.2%, down 4.0pt from 45.2% at the end of the prior fiscal year. Interest-bearing debt was ¥204.05B, the D/E ratio to equity was approximately 0.55x, and interest coverage (EBIT/financial expenses) was approximately 40.9x, indicating substantial capacity to absorb interest expenses. The current ratio was approximately 161.8% (current assets of ¥444.94B/current liabilities of ¥275.00B), indicating limited concern regarding short-term liquidity.

Cash Flow Analysis

OCF increased 25.6% YoY to ¥61.70B from ¥49.14B in the same period last year, primarily due to progress in the collection of trade receivables, which generated a cash inflow of +¥57.59B. Investing Cash Flow (ICF) was positive at ¥36.09B, reversing from -¥18.10B in the same period last year. However, this was largely attributable to a temporary cash movement from the withdrawal of time deposits amounting to ¥48.44B. Capital expenditures were ¥3.55B, while acquisitions of intangible assets were ¥8.30B. Free Cash Flow (OCF + ICF) was ample at ¥97.79B, sufficient to cover dividend payments of ¥24.09B and capital expenditures. Financing Cash Flow was -¥99.37B, representing a substantial cash outflow primarily due to the repurchase of treasury shares for ¥71.06B and dividend payments of ¥24.09B. Cash and cash equivalents were ¥131.78B at period-end, remaining broadly flat from ¥132.62B at the beginning of the period. The positive reversal in ICF depended on the temporary factor of time-deposit withdrawals; if the Company continues shareholder returns at the same level, this will require stable accumulation of OCF.

Earnings Quality

Non-operating income and expenses mainly comprised the difference between financial income of ¥2.22B and financial expenses of ¥1.02B, as well as equity-method investment income of ¥0.32B. These items were small relative to revenue, and most of Profit Before Tax of ¥42.91B was derived from recurring earnings represented by Operating Income of ¥41.71B. Temporary items equivalent to extraordinary gains and losses were immaterial, including impairment losses of ¥0.008B, and there was almost no impact from special factors on the composition of earnings. Income taxes were ¥13.60B, and the effective tax rate was approximately 31.7%, broadly flat compared with approximately 31.2% in the same period last year. OCF was ¥61.70B, equivalent to 2.1 times Net Income attributable to owners of the parent of ¥29.21B. Progress in collecting trade receivables and the restraint of increases in contract assets contributed to the result, indicating a small divergence between accrual-based earnings and cash generation and thus good earnings quality.

Earnings Forecast and Guidance

Progress against the Company’s full-year plan was 24.8% for revenue, based on ¥210.46B/¥850.00B, and 23.8% for Operating Income, based on ¥41.71B/¥175.00B. Net Income attributable to owners of the parent was ¥29.21B/¥119.00B (full-year forecast), representing progress of 24.5%. Compared with a simple time-based allocation (Q1 = 25%), Operating Income and Net Income were slightly below the implied levels, but progress was broadly within expectations, and no revisions were made to the earnings or dividend forecasts as of the end of the quarter. The full-year Operating Income forecast represents a substantial earnings growth plan of +200.3% compared with the prior fiscal year. Given the gap between this forecast growth rate and the Q1 growth rate (+12.0%), investors should note that further earnings growth in the second half is incorporated into the plan.

Shareholder Returns

The full-year dividend forecast is ¥42 per share, representing a planned increase of ¥7 from the prior-year actual dividend of ¥35. The Payout Ratio against forecast full-year EPS of ¥209.46 is approximately 20.0%, and the dividend forecast was not revised as of the end of the quarter. During Q1, in addition to dividend payments of ¥24.09B, the Company repurchased treasury shares amounting to ¥71.06B and retired a portion of the acquired shares, equivalent to ¥93.93B. Total shareholder returns, including dividends and share repurchases, amounted to ¥95.15B, resulting in a high Total Return Ratio of 325.7% against Q1 Net Income attributable to owners of the parent of ¥29.21B. FCF of ¥97.79B was sufficient to almost cover total shareholder returns for the quarter; however, the positive ICF depended on the temporary factor of time-deposit withdrawals, and the continuation of share repurchases at this scale will depend on the trend in OCF.

Risk Factors

1. Widening profitability disparity among segments: Industrial IT Solutions achieved revenue growth of +4.3%, but Operating Income declined by -10.9%, and the margin fell to 11.8% from 13.7% in the prior-year period. Consulting also recorded a decline in Operating Income of -8.7%, with the margin falling to 21.0% from 23.6%; improving profitability in both segments will be a key challenge going forward.

2. Concentration of earnings in Financial IT Solutions: This segment accounts for 56.6% of total revenue, and its Operating Income of ¥20.74B is equivalent to approximately half of the Company-wide Operating Income of ¥41.71B. As a result, changes in capital investment trends and the regulatory environment in the financial industry have a relatively significant impact on Company-wide performance.

3. Equity reduction and sustainability of shareholder returns: The Equity Ratio declined 4.0pt from 45.2% to 41.2%, primarily due to the repurchase of treasury shares amounting to ¥71.06B and other factors. Total shareholder returns of ¥95.15B during the quarter partly depended on positive ICF from the withdrawal of time deposits amounting to ¥48.44B. Continuing shareholder returns at the same level will require stable generation of OCF.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company’s profitability is significantly above the industry median and ranks among the higher levels within the IT and telecommunications sector.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median but remains within the IQR and can be viewed favorably as growth accompanied by high profitability.

※Source: Compiled by the Company

Key Earnings Highlights

1. High-profitability, high-growth businesses—IT Infrastructure Services (Operating Income +24.8%, margin 55.8%) and Financial IT Solutions (Operating Income +18.9%, margin 17.4%)—lifted the Company-wide operating margin to 19.8% (+0.8pt), indicating structural progress in improving the profitability of the business portfolio.

2. OCF was ¥61.70B, equivalent to 2.1 times Net Income attributable to owners of the parent, and the progress in collecting trade receivables resulted in only a small divergence between accrual-based earnings and cash generation. Full-year progress was 24.8% for revenue and 23.8% for Operating Income, within the range of seasonal expectations, and no revisions were made to the earnings or dividend forecasts.

3. Following total shareholder returns of ¥95.15B, including treasury-share repurchases of ¥71.06B, the Equity Ratio declined to 41.2% from 45.2% at the end of the prior fiscal year. The aggressiveness of shareholder returns and changes in the balance sheet are two sides of the same coin, making the future direction of capital policy a key point of attention.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,052–¥1,119 at Cost of Equity ±1%; ¥1,072–¥1,103 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model / Interest rate reference month: 2026-06 / This value does not predict or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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