BASE (4481) FY2026 Q1 Earnings Report

Quick View

Executive Summary

The Q1 of the fiscal year ending December 2026 resulted in lower revenue and lower profit, diverging from the full-year plan for higher revenue and profit. Revenue was ¥5.472B (down 1.6% YoY), operating income was ¥1.437B (down 8.4%), ordinary income was ¥1.454B (down 8.7%), and net income attributable to owners of the parent was ¥1.008B (down 8.6%). As SG&A expenses increased 18.1% despite the decline in revenue, operating leverage deteriorated, with the rate of profit decline exceeding the rate of revenue decline.

Factors Affecting Performance

【Revenue】Revenue was ¥5.472B, a 1.6% decrease YoY. As the Company operates in a single software contract development business, fluctuations in order acquisition and utilization rates directly affect revenue. Q1 progress against the full-year forecast of ¥24.099B, up 10.6% YoY, was 22.7%, slightly below the 25% benchmark for even progress.

【Profit and Loss】Cost of sales was broadly flat at ¥3.735B versus ¥3.739B in the same period last year. Consequently, the decline in revenue directly reduced gross profit by 4.7%, while the gross margin declined by 100bp to 31.8%. In addition, SG&A expenses increased 18.1% to ¥0.300B, resulting in operating income of ¥1.437B (down 8.4%) and an operating margin of 26.3%, down 190bp YoY. Ordinary income slightly exceeded operating income at ¥1.454B, supported by interest income and other factors, while net income was ¥1.008B (down 8.6%) after an effective tax rate of 31.2%. The quarter ended with lower revenue and lower profit.

Segment Analysis

The Company has a single segment, the software contract development business, and segment-level disclosure has been omitted.

Key Financial Indicators

【Profitability】The operating margin of 26.3% and net margin of 18.4% both declined from the same period last year, when they were 28.2% and 19.8%, respectively, but remain at high levels of profitability. Annualized ROE of 27.5% is supported, under DuPont analysis, by the high net margin and asset efficiency, while financial leverage, calculated as total assets divided by net assets, is low.【Cash Flow Quality】Cash and deposits of ¥10.96B accounted for 65.7% of total assets. Non-operating income primarily consisted of ¥0.02B in interest income, indicating limited dependence on non-recurring income.【Investment Efficiency】Work in process was ¥0.09B, an increase of 32.8% YoY, requiring monitoring of its future conversion into revenue.【Financial Soundness】With an equity ratio of 87.3%, current assets of ¥14.25B against current liabilities of ¥2.11B, and a very substantial liquidity buffer, short-term funding risk is extremely low.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is limited, changes in the balance sheet provide insight into cash movements. Cash and deposits declined by ¥1.98B, from ¥12.94B in the same period last year to ¥10.96B, and were the primary driver of the decline in total assets from ¥18.92B to ¥16.70B. Current liabilities contracted substantially, primarily due to decreases in accrued expenses of ¥1.66B and income taxes payable and other liabilities of ¥0.92B, suggesting cash outflows for tax and expense payments. Meanwhile, net assets remained broadly in line with the previous year at ¥14.57B, indicating a stable capital base even after dividend payments.

Quality of Earnings

Non-operating income primarily consisted of ¥0.02B in interest income, with no special gains or losses or temporary factors identified. Earnings were therefore composed mainly of profits from recurring business activities. Ordinary income of ¥1.454B only slightly exceeded operating income of ¥1.437B, indicating a high degree of dependence on the core business. The 32.8% YoY increase in work in process warrants attention from an accrual perspective. Earnings quality can be assessed by monitoring project progress and acceptance status, as well as the future conversion into revenue and cost recognition. Comprehensive income was ¥1.04B, slightly above net income of ¥1.00B, primarily due to foreign currency translation adjustments of ¥0.03B. The small gap versus net income does not indicate any significant concerns regarding earnings quality.

Earnings Forecast and Guidance

Q1 progress against the Company’s full-year forecast was 22.7% for revenue, 22.6% for operating income, 22.9% for ordinary income, and 22.1% for net income. All were slightly below the 25% benchmark for even progress, but the variance was less than 3pt. The full-year forecast calls for revenue of ¥24.099B, up 10.6% YoY, and operating income of ¥6.349B, up 10.4%, implying higher revenue and profit. A recovery from the lower revenue and profit recorded in Q1 will require accelerated revenue growth from Q2 onward. No revisions were made to the earnings or dividend forecasts during the quarter.

Shareholder Returns

The annual dividend forecast for the fiscal year ending December 2026 is ¥186 per share. The Company plans to pay a regular dividend of ¥63 and a commemorative dividend of ¥30 at both the end of Q2 and the fiscal year-end, for a total of ¥93 at each payment date. Based on the weighted-average number of shares outstanding during the period of 18,138 thousand shares, total annual dividends are estimated at approximately ¥3.37B, resulting in a payout ratio of approximately 74.0% against the full-year net income forecast of ¥4.563B. Excluding the commemorative dividend of ¥60 and using the regular dividend of ¥126, the payout ratio declines to approximately 50.1%. Although the 74.0% payout ratio exceeds the generally cited sustainability benchmark of 60%, payment capacity is supported by cash and deposits of ¥10.96B and a low debt ratio. This report uses a payout ratio based solely on dividends; data for the total return ratio, including share repurchases, has not been disclosed.

Risk Factors

1. Business concentration risk: As the Company operates in a single software contract development segment, trends in IT investment by major customers and delays in project commencement directly affect revenue and utilization rates. Q1 revenue declined 1.6% YoY.

2. Cost increase risk: SG&A expenses increased 18.1% YoY, moving counter to the decline in revenue. If increases in personnel expenses and other costs continue, the recovery of the full-year operating margin from its current level of 26.3%, compared with 28.2% in the same period last year, may be constrained.

3. Work-in-process monetization risk: Work in process was ¥0.091B, an increase of 32.8% YoY. It represents the primary component of inventory given the nature of the contract development business. However, because it increased while revenue declined, project progress and acceptance status should be monitored.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

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

Growth and Capital Efficiency

The revenue growth rate is substantially below the industry median, indicating that the Company is lagging within the industry in terms of growth.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The operating margin of 26.3%, net margin of 18.4%, and annualized ROE of 27.5% indicate high profitability well above the industry median. However, all three declined YoY and therefore warrant close monitoring as potential inflection points in the profitability trend.

2. Q1 progress rates for revenue and operating income were 22.7% and 22.6%, respectively, diverging from the full-year plan for higher revenue and profit, consisting of revenue growth of +10.6% and operating income growth of +10.4%. A recovery in revenue growth from Q2 onward will be key to achieving the plan.

3. The payout ratio is approximately 50.1% based on the regular dividend and approximately 74.0% including the commemorative dividend. The dividend policy after the end of the commemorative dividend will be a key structural point to monitor in the Company’s future shareholder return policy.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,301–¥1,373 for ±1% in the cost of equity, and ¥1,324–¥1,354 for ±0.1 in ω.

Notes:

• Net assets as of the quarter-end are used; there is a timing difference versus the full-year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of the market share price or recommendations of any specific investment action, and do not predict or guarantee future share prices.)

---

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

---End of Report---