| Metric | This Period | Year-Ago Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥54.7B | ¥55.6B | -1.6% |
| Operating Income | ¥14.4B | ¥15.7B | -8.4% |
| Ordinary Income | ¥14.5B | ¥15.9B | -8.7% |
| Net Income | ¥10.0B | ¥11.1B | -9.7% |
| ROE | 6.9% | 7.6% | - |
For Q1 FY2026, Revenue was ¥54.7B (YoY -¥0.9B -1.6%), Operating Income was ¥14.4B (YoY -¥1.3B -8.4%), Ordinary Income was ¥14.5B (YoY -¥1.4B -8.7%), and quarterly Net Income attributable to owners of the parent was ¥10.0B (YoY -¥1.1B -9.7%), representing declines in both top-line and profit. Despite a slight revenue decrease, SG&A surged to ¥3.0B (prior year ¥2.5B, +18.1%), preventing fixed-cost absorption and compressing the operating margin to 26.3% (prior year 28.2%), a 1.9pt contraction. Net profit margin fell 1.5pt to 18.3% (prior year 19.8%) but remains high versus the industry. Progress against the full-year forecast (Revenue ¥241.0B, Operating Income ¥63.5B, Ordinary Income ¥63.5B) stands at Revenue 22.7%, Operating Income 22.6%, and Net Income 22.0%; Net Income is under standard progress (25%) by -11.6%, reinforcing a back-end-weighted (second-half) assumption. The balance sheet is very strong, with Cash and Deposits ¥109.6B, Total Assets ¥167.0B, Equity Ratio 87.3%, and Current Ratio 674%, indicating ample liquidity.
[Revenue] Revenue was ¥54.7B, a slight decrease of ¥0.9B (‑1.6%) versus the prior year. As the company operates a single segment (contracted software development), detailed drivers are not disclosed, but timing shifts in project acceptance and the progress schedule of large projects likely had an impact. Cost of sales was ¥37.4B, with a cost-of-sales ratio of 68.2% (prior year 67.2%), worsening by 1.0pt, and gross margin declined to 31.8% (prior year 32.8%). Adjustments in labor hours and changes in project mix are inferred contributors to higher cost ratios. Work-in-progress increased to ¥0.9B (prior year ¥0.7B, +32.7%), suggesting accumulation of unaccepted projects.
[Profitability] Gross profit decreased to ¥17.4B (prior year ¥18.2B, -4.8%), while SG&A surged to ¥3.0B (prior year ¥2.5B, +18.1%). The SG&A ratio rose 0.9pt to 5.5% (prior year 4.6%), with higher personnel costs and front-loaded spending on recruitment and sales activities increasing fixed-cost burden. Operating Income was ¥14.4B (prior year ¥15.7B, -8.4%), and the operating margin contracted 1.9pt to 26.3% (prior year 28.2%). Non-operating income was ¥0.2B (mainly interest income ¥0.2B and foreign exchange gains ¥0.1B), and non-operating expenses were ¥0.0B (foreign exchange losses ¥0.0B), so the impact from non-operating items was minimal. Ordinary Income was ¥14.5B (prior year ¥15.9B, -8.7%), and the small differential from operating income indicates profits are driven by core operations. No extraordinary items were recorded; income before income taxes of ¥14.5B incurred income taxes of ¥4.5B (effective tax rate 31.2%), yielding Net Income attributable to owners of the parent of ¥10.0B (prior year ¥11.1B, -9.7%). In conclusion, slight revenue decline and higher SG&A caused the revenue and profit declines.
[Profitability] The operating margin of 26.3% declined 1.9pt from 28.2% a year earlier but remains high, and the net margin of 18.3% (prior year 19.8%) is likewise high. ROE of 6.9% is comprised of an asset turnover of 0.328x (annualized 1.31x), financial leverage of 1.15x, and net profit margin of 18.3%, and is constrained by a low-leverage policy. [Cash Quality] Cash and deposits of ¥109.6B represent 65.6% of total assets, and non-operating income of ¥0.2B (mainly interest income ¥0.2B) indicates a profit structure centered on core operations. Receivables turnover days are estimated at 201 days, relatively long, and together with an increase in WIP of ¥0.9B, indicate inefficiencies in working capital. [Investment Efficiency] Total asset turnover of 0.328x (annualized 1.31x) shows improving asset efficiency, while tangible fixed assets increased to ¥1.1B (prior year ¥0.7B, +66.7%), reflecting investment to strengthen development capabilities. Intangible fixed assets remain ¥0.0B, and capital intensity remains low. [Financial Soundness] Equity Ratio 87.3% (prior year 75.3%), Current Ratio 674%, Quick Ratio 674% indicate an extremely conservative balance sheet; interest-bearing debt is effectively zero, D/E ratio is 0.15x, and financial risk is minimal. Net assets are ¥145.7B (prior year ¥146.2B), showing a stable capital base.
Cash flow statement data is not disclosed, but funding movements are analyzed from balance sheet changes. Cash and deposits decreased to ¥109.6B (prior year ¥129.4B, -¥19.8B), mainly due to a large reduction in current liabilities (from ¥42.9B to ¥21.1B, -¥21.8B) driving cash outflows. Accrued expenses fell to ¥2.5B (prior year ¥19.1B, -¥16.6B), and corporate taxes and similar items decreased to ¥0.7B (prior year ¥9.9B, -¥9.2B), reflecting payments of amounts recorded in the prior period. Accounts receivable modestly increased to ¥30.1B (prior year ¥28.7B, +¥1.4B), and extended collection periods (estimated DSO 201 days) are pressuring working capital. Together with the ¥0.9B increase in WIP, delays in project acceptance and billing timing may be delaying cash conversion. Total assets contracted to ¥167.0B (prior year ¥189.2B, -¥22.2B), driven mainly by reductions in current liabilities and cash, shrinking the balance sheet. Investment securities remained flat at ¥10.1B (prior year ¥10.1B), indicating stable surplus-asset management.
The ¥0.1B gap between Ordinary Income ¥14.5B and Operating Income ¥14.4B is minimal, indicating most profit is from core operations. Of non-operating income ¥0.2B, the breakdown is interest income ¥0.2B, foreign exchange gains ¥0.1B, and dividend income ¥0.0B, so one-off or incidental elements are very limited. Non-operating expenses ¥0.0B (foreign exchange losses ¥0.0B) are also small, and earnings at the ordinary level reflect stability in core operations. No extraordinary items were recorded; pre-tax profit ¥14.5B is essentially operating profit. Comprehensive income ¥10.4B (attributable to owners of the parent ¥10.3B) differs from Net Income ¥10.0B by ¥0.3B, with other comprehensive income consisting of currency translation adjustments ¥0.3B and valuation differences on securities ¥0.0B, minor in scale. From an accrual perspective, the increase in WIP ¥0.9B and the modest rise in receivables indicate a time lag between profit recognition and cash conversion, with accumulation of unaccepted/unbilled projects under percentage-of-completion or progress-basis recognition partially weighing on earnings quality.
The full-year forecast is Revenue ¥241.0B (YoY +10.6%), Operating Income ¥63.5B (YoY +10.4%), Ordinary Income ¥63.5B (YoY +9.5%), and Net Income attributable to owners of the parent ¥45.6B; there is no revision at Q1. Progress rates are Revenue 22.7%, Operating Income 22.6%, and Net Income 22.0%, with Net Income under standard progress (25%) by -11.6%. This reinforces a back-end-weighted assumption; achieving targets will require acceleration of acceptance for large projects, utilization-rate improvements, and containment of SG&A growth. With gross margin maintained at 31.8%, controlling SG&A is key to restoring operating margin, and achieving the full-year operating margin of 26.3% (on a forecast basis) presumes improved operating leverage in the second half.
Regarding dividends, the forecast for FY2026 is an interim dividend of ¥93 (ordinary ¥63 + commemorative ¥30) and a year-end dividend of ¥93 (same composition), totaling ¥186 for the full year. With full-year EPS forecast of ¥251.59, the payout ratio is approximately 74.0%, a high level. Considering cash and deposits of ¥109.6B, retained earnings ¥137.9B, and full-year Net Income forecast ¥45.6B, dividend-paying capacity is sufficient and short- to mid-term sustainability is high. Because the total includes two commemorative dividends of ¥30 each, there is a possibility of reverting to a normal dividend (ordinary dividend only) level in the future. No share buyback has been disclosed; shareholder returns are dividend-centric.
Risk of deteriorating working capital efficiency: Estimated DSO 201 days and the ¥0.9B increase in WIP indicate delays in project acceptance and billing timing that are causing working capital inefficiencies. An estimated CCC of 121 days is relatively long, and if cash conversion delays persist, cash generation in the second half and full-year progress could be impacted.
Risk of margin pressure from rising SG&A: SG&A of ¥3.0B (prior year ¥2.5B, +18.1%) has increased at a pace far exceeding revenue growth of -1.6%, reducing the operating margin by 1.9pt. With personnel costs, recruitment, and strengthened sales activities seen as primary drivers, a combination of lower utilization and deteriorating project profitability could make achieving the full-year operating margin of 26.3% (forecast basis) difficult.
Progress risk from back-end weighting: Q1 Net Income progress of 22.0% is -11.6% below the standard progress of 25%, so achieving the full-year forecast assumes concentrated acceptance of large projects and SG&A restraint in the second half. If project timing shifts, specification changes, or acceptance delays occur, the risk of downward revision to full-year results could materialize.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 26.3% | 6.2% (4.2%–17.2%) | +20.0pt |
| Net Margin | 18.3% | 2.8% (0.6%–11.9%) | +15.5pt |
| Profitability is outstanding within the industry and at the upper end. |
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -1.6% | 20.9% (12.5%–25.8%) | -22.5pt |
| Growth rate is substantially below the industry median and ranks in the lower tier. |
※ Source: Company compilation
While maintaining a high-profit, high-liquidity base, Q1 saw declines in revenue and profit driven by SG&A increases and progress delays. Operating margin 26.3% and net margin 18.3% are outstanding within the industry, and Cash and Deposits ¥109.6B and Equity Ratio 87.3% indicate extremely robust financial safety. ROE 6.9% reflects a low-leverage policy; margin recovery is key to improving capital efficiency.
Deterioration in working capital efficiency (estimated DSO 201 days, CCC 121 days, increase in WIP) and a sharp rise in SG&A (+18.1%) have emerged as short-term issues. Achieving the full-year forecast requires accelerated acceptance of large projects in the second half, improved utilization, and SG&A control; therefore, trends in progress rates are a key focus. The payout ratio of approximately 74% is high, but ample cash underpins sustainability in the short to medium term.
This report is an earnings analysis document automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by our firm based on public financial statements. Investment decisions are your responsibility; please consult professionals as necessary before making decisions.