CTS Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

The first quarter of FY2027 ending March 2027 was characterized by modest increases in revenue and earnings, with the growth rates of ordinary income and net income exceeding that of operating income, suggesting an increased contribution from non-operating income such as dividend income and equity in earnings of affiliates. Revenue was ¥29.6B (+1.1% YoY), operating income was ¥6.8B (+1.0%), ordinary income was ¥8.5B (+2.5%), and net income attributable to owners of the parent was ¥6.0B (+1.9%). The operating margin remained high at 23.0%, while the gross margin was also stable at 51.0%. Growth in revenue and earnings from the core DigitalDataService (DDS) Business drove overall performance, while the SurveyingMeasurementSystem (SMS) Business secured higher earnings despite lower revenue.

Factors Affecting Performance

【Revenue】Revenue was ¥29.6B, representing a 1.1% increase YoY. By segment, DigitalDataService (DDS) was the largest and fastest-growing segment, with revenue of ¥17.7B (59.9% composition ratio, +5.0%). SurveyingMeasurementSystem (SMS) recorded revenue of ¥8.5B (28.8% composition ratio, -6.1%), while Other Businesses generated ¥3.3B (11.2% composition ratio, +1.5%). Expansion in DDS was the primary driver of company-wide revenue growth and offset the decline in SMS.

【Income Statement】Operating income was ¥6.8B (+1.0% YoY), and the operating margin was 23.0%, largely unchanged from the same period last year. DDS posted operating income of ¥4.8B (27.2% margin), while SMS posted ¥1.5B (17.6% margin, profit +4.9%). SMS secured higher earnings despite lower revenue through improved margins resulting from cost efficiencies and other factors. Ordinary income was ¥8.5B (+2.5%), exceeding the growth rate of operating income, due to increased non-operating income, including dividend income of ¥1.4B and equity in earnings of affiliates of ¥0.4B. Net income was ¥6.0B (+1.9%), with the effective tax rate remaining at a standard level of 29.8%. Overall, the company achieved higher revenue and earnings, with the expansion of non-operating income particularly contributing to growth below the operating income level.

Segment Analysis

DigitalDataService (DDS) generated revenue of ¥17.7B (+5.0%) and operating income of ¥4.8B (+1.3%), with a 27.2% margin. It is the largest and most profitable segment, accounting for 59.9% of revenue and 70.7% of operating income. SurveyingMeasurementSystem (SMS) recorded lower revenue of ¥8.5B (-6.1%), but operating income increased to ¥1.5B (+4.9%), with the margin improving to 17.6%; the segment secured higher earnings despite lower revenue through cost efficiencies and other measures. Other Businesses, including rentals and construction, generated revenue of ¥3.3B (+1.5%) and operating income of ¥0.5B (-9.1%), with a 15.0% margin, the lowest among the three segments. Dependence on DDS for earnings is high, and demand trends in this business have a relatively significant impact on company-wide performance.

Key Financial Indicators

【Profitability】The operating margin of 23.0% and net profit margin of 20.2% were both largely unchanged from the same period last year, while the gross margin also remained high at 51.0%. 【Cash Flow Quality】Comprehensive income was ¥14.6B, substantially exceeding net income of ¥6.0B. The primary reason for the difference was an ¥8.6B increase in valuation difference on securities, which surged from ¥0.5B in the same period last year. Non-operating income was equivalent to 6.2% of revenue, with dividend income of ¥1.4B and equity in earnings of affiliates of ¥0.4B supporting ordinary income. 【Investment Efficiency】ROE was 3.6%, while investment securities of ¥109.2B accounted for 51.6% of total assets of ¥211.4B, with the asset composition serving as one factor constraining capital efficiency. 【Financial Soundness】The equity ratio was 77.8%, up from 76.2% a year earlier, while the current ratio was 327.7% and the quick ratio was 301.8%, indicating strong short-term payment capacity. Interest expense was also limited, with interest coverage equivalent to approximately 52x.

Cash Flow Analysis

As the company does not disclose a statement of cash flows, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥36.3B, down 13.0% from ¥41.7B in the same period last year, while investment securities increased to ¥109.2B from ¥96.3B (+13.4%), suggesting that funds may have been allocated toward increasing holdings of investment assets. On the liabilities side, accounts payable and notes payable decreased to ¥4.4B from ¥6.6B (-33.6%), while income taxes payable decreased to ¥2.2B from ¥6.1B (-63.0%). Shorter payment terms and settlement of taxes for the previous fiscal year were short-term factors contributing to cash outflows. Meanwhile, liquidity remained robust, with a current ratio of 327.7% and a quick ratio of 301.8%, and no concerns have arisen regarding funding for business operations.

Earnings Quality

Recurring earnings power is centered on operating income from both the DDS and SMS businesses, with the operating margin remaining stable at 23.0%. Meanwhile, non-operating income amounted to ¥1.8B, equivalent to 6.2% of revenue, primarily consisting of dividend income of ¥1.4B and equity in earnings of affiliates of ¥0.4B. This contributed to ordinary income growth of +2.5% exceeding operating income growth of +1.0%. Although income from held shares and equity-method affiliates has a certain degree of recurrence, it differs in nature from pure operating income in that it may be affected by market conditions and dividend policies. In addition, comprehensive income of ¥14.6B substantially exceeded net income of ¥6.0B, with most of the difference attributable to the ¥8.6B increase in valuation difference on securities. It should be noted that this represents market-linked valuation gains. The difference between ordinary income and net income was attributable to income taxes (effective tax rate of 29.8%), with no particular irregularities observed.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year plan—revenue of ¥135.0B, operating income of ¥35.3B, ordinary income of ¥38.9B, and net income of ¥27.2B—were 21.9% for revenue, 19.3% for operating income, 21.9% for ordinary income, and 22.0% for net income. Compared with the simple benchmark of 25% based on equal quarterly allocation, the company was behind by 5.7pt for operating income and approximately 3pt for revenue, ordinary income, and net income. However, the company’s businesses are believed to have seasonal characteristics, including rental revenue and timing differences in construction projects, and the recognition of earnings weighted toward the second half may have had an impact. Neither the earnings forecast nor the dividend forecast was revised during the quarter.

Shareholder Returns

The annual dividend forecast is ¥15, an increase from the previous year’s actual dividend of ¥14, and the payout ratio is expected to be approximately 22.7% based on forecast EPS of ¥66.07. With a robust financial base, including an equity ratio of 77.8% and a current ratio of 327.7%, the company is considered to have sufficient resources to support its current dividend plan. No revision was made to the dividend forecast during the quarter.

Risk Factors

1. Market price volatility risk associated with the asset composition: Investment securities account for 51.6% (¥109.2B) of total assets of ¥211.4B, while valuation difference on securities increased +33.8% YoY to ¥8.6B. Market fluctuations therefore have a relatively significant impact on net assets and comprehensive income.

2. Segment concentration risk: The DDS Business accounts for 59.9% of revenue and 70.7% of operating income, resulting in a high degree of sensitivity of company-wide performance to demand fluctuations in this business. SMS revenue declined by -6.1% during the quarter, and the impact of a continued downturn requires monitoring.

3. Dependence on non-operating income: Non-operating income accounts for 6.2% of revenue, and the growth rate of ordinary income (+2.5%) exceeds that of operating income (+1.0%). Dependence on income that may be non-recurring, such as dividend income and equity in earnings of affiliates, has increased somewhat.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin substantially exceed the industry median, placing the company among the high-profitability group within the industry.

Growth and Capital Efficiency

Revenue growth was below the industry median, indicating that the company’s growth pace is relatively moderate compared with its high level of profitability.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The operating margin of 23.0% remained substantially above the industry median, but growth was limited to +1.0%, roughly in line with revenue growth of +1.1%.

2. The fact that the growth rates of ordinary income and net income exceeded that of operating income indicates that non-operating factors, such as dividend income and equity in earnings of affiliates, contributed to a certain extent to the improvement in performance.

3. Full-year progress rates were 21.9% for revenue and 19.3% for operating income, slightly below the simple benchmark based on equal quarterly allocation. Confirming full-year achievement in light of the seasonality of rental revenue and construction projects remains an ongoing point of focus.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from 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: ¥480–¥509 at ±1% for the cost of equity, and ¥492–¥498 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 values 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)

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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 discretion and responsibility, after consulting a professional as necessary.

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