Altech (4641) FY2026 Q1 Earnings Report

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Executive Summary

For Q1 of the year ending March 2026, Revenue was ¥133.0B (YoY +¥8.1B +6.5%), recording top-line growth, while Operating Income was ¥13.1B (YoY -¥0.9B -7.1%), Ordinary Income was ¥13.1B (YoY -¥1.5B -10.2%), and Quarterly Net Income attributable to owners of the parent was ¥9.0B (YoY -¥0.7B -7.8%), marking declines in profitability. Gross profit margin declined by 1.4pt from 23.4% to 22.0%. SG&A increased to ¥16.2B (YoY +¥1.4B +9.2%), outpacing revenue growth, and Operating Margin deteriorated by 1.4pt from 11.2% to 9.8%. The core OutSourcingService business performed steadily with Revenue of ¥122.0B (+6.7%) but its operating margin fell from 11.2% to 10.1%. The Global business saw Operating Income decline sharply by -39.8%, pressuring company-wide margins.

Drivers of Performance

[Revenue] Revenue was ¥133.0B (YoY +6.5%), showing steady progress. By segment, the OutSourcingService business led growth with ¥122.0B (share 91.9%, YoY +6.7%). The Global business recorded ¥10.8B (share 8.1%, YoY +3.8%), remaining modest. Gross profit increased to ¥29.2B (prior year ¥28.9B), but gross profit margin fell 1.4pt from 23.4% to 22.0% due to rising cost of sales. Increases in personnel costs and subcontracting expenses likely pressured gross margin.

[Profitability] Operating Income declined to ¥13.1B (YoY -7.1%). SG&A was ¥16.2B (YoY +9.2%), outpacing revenue growth (+6.5%), raising SG&A ratio by 0.3pt from 11.9% to 12.2%. Increases in recruitment/training expenses and indirect costs compressed operating leverage. Operating margin worsened by 1.4pt from 11.2% to 9.8%. Non-operating items included interest received ¥0.1B and foreign exchange gains ¥0.2B, while foreign exchange losses ¥0.2B occurred, leaving net non-operating income at ¥0.1B. Ordinary Income was ¥13.1B (YoY -10.2%), and Profit Before Tax was ¥13.1B (YoY -10.2%). Income taxes were ¥4.1B (effective tax rate 31.1%), resulting in Quarterly Net Income attributable to owners of the parent of ¥9.0B (YoY -7.8%). Net profit margin fell 1.0pt from 7.8% to 6.8%. Overall, the company delivered higher revenue but lower profits.

Segment Analysis

The OutSourcingService business recorded Revenue ¥122.0B (YoY +6.7%), Operating Income ¥12.3B (YoY -3.7%), and Operating Margin 10.1% (down 1.1pt from 11.2%). Revenue expanded steadily, but profitability was hit by rising personnel and subcontracting costs. The Global business posted Revenue ¥10.8B (YoY +3.8%) but Operating Income fell to ¥0.9B (YoY -39.8%). Its Operating Margin plunged by 6.4pt from 14.5% to 8.1%, with upfront investments and changes in price mix significantly compressing profitability. The OutSourcingService business accounts for approximately 94% of consolidated Operating Income, so improving its profitability is key to corporate performance recovery.

Key Financial Metrics

[Profitability] Operating Margin was 9.8% (down 1.4pt from 11.2%), Net Profit Margin was 6.8% (down 1.0pt from 7.8%), and ROE was 4.5% (down 0.3pt from 4.8%), indicating deterioration across profitability metrics. The decline in gross margin and rise in SG&A ratio were the main drivers. [Cash Quality] Operating Cash Flow (OCF) data is undisclosed, but Accounts Receivable was ¥76.5B (YoY +¥3.7B +5.1%), broadly tracking revenue growth (+6.5%). Cash and deposits remained high at ¥137.3B (YoY -¥3.9B -2.8%). [Investment Efficiency] Total Asset Turnover annualized improved to 1.78x (prior year 1.70x). [Financial Soundness] Equity Ratio was 67.3% (down 2.2pt from 69.5%) and interest-bearing debt was ¥2.1B (short- and long-term combined), extremely light. Current ratio was 243.3% and quick ratio 243.1%, both very high, indicating no short-term liquidity concerns.

Cash Flow Analysis

Cash flow statement data is undisclosed, but balance sheet trends were used to assess funds. Cash and deposits were ¥137.3B, a ¥3.9B decrease YoY, yet representing substantial liquidity equal to 45.8% of total assets. Accounts Receivable rose ¥3.7B to ¥76.5B, suggesting increased working capital needs with revenue expansion. Accounts Payable increased ¥1.3B to ¥3.6B (+55.2%), which may reflect changes in procurement/subcontracting terms or extended payment sites providing temporary cash retention. Bonus reserves rose ¥14.5B to ¥33.8B, indicating increased short-term liabilities due to higher personnel cost provisions. Deferred tax assets increased ¥5.6B (+76.6%) to ¥13.1B, showing expanded tax-effect accounting impact. Interest-bearing debt was minimal at ¥2.1B (short-term ¥2.1B), yielding very high interest coverage and negligible interest-burden risk. The company holds sufficient cash to fund dividends and growth investments, but improving receivables collection efficiency and optimizing working capital remain challenges to strengthen future cash generation.

Quality of Earnings

Ordinary Income ¥13.1B and Operating Income ¥13.1B are nearly identical, indicating earnings are driven by core operations. Non-operating income totaled ¥0.4B (interest received ¥0.1B, forex gains ¥0.2B, etc.), and non-operating expenses were ¥0.3B (forex losses ¥0.2B, etc.), leaving net non-operating income contribution at ¥0.1B. Extraordinary items were minimal, with only ¥0.0B gain on sale of fixed assets. Comprehensive income was ¥9.2B (¥0.2B above quarterly net income ¥9.0B), contributed by ¥0.1B valuation gains on other securities and ¥0.1B foreign currency translation adjustments. The gap between comprehensive income and net income is small, indicating limited distortion from valuation changes. Earnings quality is healthy and core-driven, but declining gross and operating margins reduce the company's intrinsic earnings power.

Outlook & Guidance

Full Year guidance is maintained at Revenue ¥555.0B (YoY +5.4%), Operating Income ¥57.0B (YoY +5.6%), Ordinary Income ¥58.0B (YoY +4.6%), and Net Income attributable to owners of the parent ¥39.0B. Q1 progress ratios are: Revenue 24.0% (¥133.0B of ¥555.0B), Operating Income 23.0% (¥13.1B of ¥57.0B), Ordinary Income 22.6% (¥13.1B of ¥58.0B), and Net Income 23.1% (¥9.0B of ¥39.0B), indicating a broadly steady start. However, Q1 Operating Margin of 9.8% is 0.5pt below the FY forecast of 10.3%, meaning margin improvement in Q2 and beyond is a precondition for achieving the full-year guidance. Containing SG&A growth, improving utilization rates, and price adjustments are required to restore margins.

Shareholder Returns

At the end of Q1, the dividend forecast is a year-end dividend of ¥54 per share (post stock split), representing an increase from the prior year’s total dividend of ¥47. The payout ratio versus full-year EPS of ¥66.27 is approximately 81.5%, a high level. The dividend forecast reflects a stock split effective July 1, 2026, of 1 share into 3 shares. Strong financial position with Cash and deposits ¥137.3B and interest-bearing debt ¥2.1B supports dividend continuity, but the high payout ratio leaves limited margin for safety if earnings weaken. Sustained earnings growth and cash generation are prerequisites for a stable dividend.

Risk Factors

1. Continued margin pressure: Gross profit margin declined 1.4pt YoY and SG&A ratio rose 0.3pt, resulting in Operating Margin deterioration to 9.8% (prior year 11.2%). Rising personnel and subcontracting costs compressed gross margin, while recruitment/training SG&A rose faster (+9.2%) than revenue growth (+6.5%). The Global business’s Operating Margin dropped sharply to 8.1% (from 14.5%), and delayed profitability recovery there could postpone company-wide margin restoration.

2. Segment concentration: The OutSourcingService business accounts for 91.9% of Revenue and about 94% of Operating Income, creating a high concentration. Demand swings, price declines, or utilization drops in this core business would materially affect consolidated results. Limited diversification reduces resilience to changes in the main business environment.

3. Working capital efficiency: Accounts Receivable increased to ¥76.5B (YoY +5.1%), and Accounts Payable rose significantly to ¥3.6B (+55.2%). While higher payables may indicate temporary cash retention or changed payment terms, sustainability is uncertain. Continued lengthening of receivable collection or rising working capital needs could weaken operating cash generation and affect the stable funding of dividends and growth investments.

Industry Benchmark (Reference, Company Analysis)

Profitability & Returns

Profitability is well above the industry median, placing the company in the upper range within the sector.

Growth & Capital Efficiency

Revenue growth is well below the industry median, placing the company in the lower-growth group within the sector.

※Source: Company compilation

Earnings Highlights to Watch

1. Priority is improving core business profitability: With the OutSourcingService business accounting for 94% of Operating Income and its Operating Margin falling from 11.2% to 10.1%, measures such as utilization improvement, price correction, and efficiency in recruitment/training costs will be key to achieving FY guidance from Q2 onward. The Global business’s Operating Margin plunged to 8.1% (from 14.5%); progress in margin recovery there will significantly affect portfolio-wide profitability.

2. Balancing financial soundness and dividend policy: A robust balance sheet—Equity Ratio 67.3%, Cash ¥137.3B, Interest-bearing debt ¥2.1B—supports dividend continuity. However, a payout ratio of about 81.5% is high, leaving limited safety in case of downside. Improving working capital efficiency (e.g., stabilizing receivable collection) to enhance cash generation is essential to sustain both stable dividends and growth investments.

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This report was automatically generated by AI analyzing XBRL financial statement data. It is not a recommendation to invest in specific securities. Industry benchmarks are reference information compiled by the company based on public financial statements. Investment decisions are your own responsibility; consult a professional advisor as needed.

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AI Financial Analysis

Executive Summary

FY2026 Q1 performance was mixed: sales expanded, but profitability declined as cost pressure and higher SG&A more than offset revenue growth. Revenue increased 6.5% YoY to ¥13.30bn. Operating income declined 7.1% to ¥1.31bn. Net income attributable to owners fell 7.5% to ¥0.90bn. Gross profit rose 1.3% to ¥2.92bn, materially trailing sales growth. The gross margin contracted 110bp YoY to 22.0% from 23.1%. SG&A expenses rose 9.2% YoY to ¥1.62bn, faster than revenue growth. Consequently, the operating margin compressed by 143bp to 9.8% from 11.2%. The net margin also fell by 101bp to 6.8% from 7.8%. Ordinary income declined more sharply than operating income, down 10.2% YoY to ¥1.31bn, reflecting a ¥0.17bn foreign-exchange loss versus a foreign-exchange gain in the prior-year quarter and lower subsidy income. Earnings remained fundamentally operating-profit driven, as non-operating items were small relative to revenue. The outsourcing services operation remained the core business, contributing approximately 93% of segment profit, although its profit margin declined. The global business posted only modest sales growth but experienced a substantial profit contraction, representing the principal segment-level earnings pressure. Balance-sheet liquidity remains exceptionally strong, supported by ¥13.73bn of cash and a 243.2% current ratio. Debt is immaterial relative to capital, despite all interest-bearing borrowings being short term. Management maintained full-year guidance, which requires a meaningful acceleration in operating-profit growth after a soft first quarter. Q1 sales progress is broadly in line with the annual plan, while operating-profit and net-income progress are modestly below the normal 25% quarterly run rate. The near-term focus is whether staffing utilization, pricing, and cost control can restore margins in the outsourcing and global operations.

Profitability Analysis

The supplied annualized DuPont ROE is 17.9%, consisting of a 6.8% net profit margin, 1.776x annualized asset turnover, and 1.49x financial leverage. This is a high ROE by the stated benchmark, but it is driven primarily by efficient asset utilization and a solid net margin rather than aggressive leverage. Financial leverage is modest, consistent with the company's low debt burden and 67.1% capital adequacy ratio. The largest adverse change in Q1 was margin: operating margin fell 143bp YoY to 9.8%, while net margin contracted 101bp to 6.8%. Gross-margin compression of 110bp indicates that the earnings pressure began in direct operating costs rather than solely in overhead. SG&A grew 9.2% YoY, exceeding the 6.5% revenue increase and creating negative operating leverage in the quarter. The cost-of-sales increase of 8.1% YoY also exceeded revenue growth. The outsourcing services segment generated ¥12.20bn of external sales, up 6.7% YoY, and ¥1.23bn of segment profit, down 3.7%; its segment margin fell 110bp to 10.1%. The global business generated ¥1.07bn of external sales, up 4.0% YoY, but segment profit fell 39.8% to ¥0.87bn; its segment margin compressed 579bp to 8.1%. The outsourcing services segment is the core business by operating-income contribution and remains profitable, but its margin deterioration needs to reverse for group earnings to meet the full-year target. The other business, the serviced senior-housing operation, remained loss-making, although its loss narrowed to ¥0.11bn from ¥0.17bn. The effective tax rate was 31.1%, producing a tax burden of 0.687, slightly below the 0.70 normal benchmark but not indicative of an unusual tax outcome. Interest burden was 1.005 and interest coverage was 2,338.7x, confirming that financing costs have no material effect on profitability.

Growth Assessment

Revenue growth of 6.5% YoY demonstrates continued demand expansion across the principal engineering outsourcing and global operations. However, Q1 profit growth did not keep pace with sales: operating income declined 7.1%, ordinary income declined 10.2%, and net income declined 7.5%. This divergence indicates that current growth is lower quality from a margin perspective than in the prior-year quarter. The outsourcing services business added ¥0.77bn of sales YoY, accounting for most consolidated revenue growth, but its ¥0.05bn decline in segment profit shows that incremental revenue carried lower profitability. The global business added ¥0.04bn of sales but lost ¥0.06bn of segment profit, making it the most material drag on consolidated margin. Full-year company guidance calls for revenue of ¥55.50bn, up 5.4% YoY, operating income of ¥5.70bn, up 5.6%, ordinary income of ¥5.80bn, up 4.6%, and net income attributable to owners of ¥3.90bn. Q1 revenue represents 24.0% of the full-year sales plan, close to the standard 25% first-quarter progress rate. Q1 operating income represents 22.9% of full-year guidance and Q1 net income represents 23.1%, both moderately below a 25% run rate. The full-year operating-income target implies a 10.3% operating margin, above the Q1 9.8% result, so margin recovery is necessary. With no forecast revision disclosed, management appears to expect improvement in later quarters. The outlook therefore depends less on top-line expansion and more on restoring gross margin, containing SG&A growth, and stabilizing profitability in the global business.

Financial Health

Financial health is strong. Current assets of ¥22.85bn exceeded current liabilities of ¥9.39bn, resulting in working capital of ¥13.45bn and a current ratio of 243.2%. The quick ratio was similarly robust at 243.0%, as inventories are immaterial relative to current assets. Cash and deposits totaled ¥13.73bn, equal to 45.8% of total assets and substantially exceeding short-term loans of ¥0.21bn. Cash covered short-term debt by 65.8x. Interest-bearing debt was only ¥0.21bn, equivalent to a 1.0% debt-to-capital ratio. Although all interest-bearing debt is short term, refinancing risk is economically limited because cash is far in excess of debt and current assets comfortably cover current liabilities. The quality alert for the 100% short-term debt ratio should nevertheless be monitored: the maturity profile provides no structural debt tenor, but the balance-sheet liquidity buffer makes this a low-impact funding risk at present. Total liabilities represented 32.7% of total assets, while total equity was ¥20.16bn. Goodwill was only ¥0.58bn, or 0.3% of equity and 0.2% of assets, leaving the balance sheet minimally exposed to acquisition-value retention or goodwill impairment risk. Intangible assets were also low at 0.6% of assets. Trade payables increased ¥0.13bn, or 55.2% YoY, to ¥0.36bn; the rise modestly supports operating funding but is small in absolute terms relative to cash and revenue. Provisions for bonuses of ¥33.81bn constitute a large current-liability component and should be monitored for the timing of cash settlement, although the liquidity position is sufficient to absorb this obligation.

Notable B/S Changes

Accounts payable: +¥0.13bn (+55.2%) to ¥0.36bn - modest additional supplier financing, but immaterial relative to ¥13.73bn of cash and ¥13.45bn of working capital. Provision for bonuses: +¥14.49bn (+75.0%) to ¥33.81bn - a substantial increase in current obligations that raises seasonal settlement requirements and warrants monitoring against operating cash generation. Deferred tax assets: +¥5.60bn (+74.4%) to ¥13.14bn - a notable increase in tax-related assets that should be monitored for recoverability through future taxable income. Accounts receivable: +¥3.74bn (+5.1%) to ¥76.52bn - receivables remain a material 25.5% of total assets, making collection and billing conversion key working-capital indicators.

Cash Flow Quality

Quarterly earnings quality appears operationally grounded because operating income of ¥1.31bn was converted into ¥0.90bn of net income without reliance on material non-operating or extraordinary gains. Non-operating income was only ¥0.37bn, equivalent to 0.3% of revenue, and therefore does not distort the underlying earnings profile. The small extraordinary gain on asset sales of ¥0.0007bn was immaterial. Conversely, the ¥0.17bn foreign-exchange loss and lower subsidy income contributed to the greater decline in ordinary income relative to operating income. Working-capital monitoring should focus on receivables of ¥7.65bn, equal to 25.5% of total assets, given the labor-services business model and the importance of timely client collections. Inventory exposure is low in aggregate, but work in process was ¥2.07bn, representing 41.2% of manufacturing inventory. The high-WIP-ratio quality alert warrants attention because elevated work in process can signal project-completion, billing, or cost-estimation risk. In this case, the impact on group liquidity is moderated by the company’s large cash position and the small finished-goods balance of ¥0.23bn. The increase in trade payables may temporarily support working capital, but it is too small to be a material driver of the earnings profile.

Dividend Sustainability

The company resolved to implement a three-for-one stock split effective July 1, 2026. The disclosed note states that the FY2026 forecast year-end dividend per share is presented on a post-split basis, with no annual aggregate dividend amount shown. Retained earnings of ¥157.17bn provide a substantial equity reserve relative to quarterly net income of ¥0.90bn. The capital structure is conservative, with only ¥0.21bn of interest-bearing debt and ¥13.73bn of cash. Future shareholder distributions should be assessed against the pace of margin recovery and the company’s ability to preserve its net-cash balance while funding personnel-related and operating commitments.

Risk Assessment

Business risks include Margin pressure in engineering outsourcing: revenue grew 6.5% YoY while gross margin fell 110bp and operating margin fell 143bp, indicating that pricing, personnel costs, utilization, or delivery mix may be unfavorable., Global business execution risk: segment sales increased 4.0% YoY but segment profit declined 39.8%, reducing its margin by 579bp to 8.1%. A sustained weak performance in this business would constrain group profit growth., Project accounting and delivery risk: work in process represented 41.2% of manufacturing inventory, requiring monitoring of project completion, cost control, and conversion to billable revenue., Labor-market risk: as an engineering outsourcing provider, the company is exposed to technical-talent recruitment, wage inflation, retention, and utilization risk; these factors can quickly pressure gross margin., Foreign-exchange volatility: Q1 included a ¥0.17bn FX loss, compared with an FX gain in the prior-year quarter, demonstrating sensitivity of ordinary income to currency movements..

Financial risks include Short-term debt concentration: 100% of interest-bearing debt is short term. The likelihood of material refinancing stress is low given cash coverage of 65.8x, but the maturity profile remains concentrated., Receivable collection exposure: accounts receivable totaled ¥7.65bn, or 25.5% of total assets, making collection discipline important to liquidity and earnings conversion., Bonus-settlement timing: bonus provisions totaled ¥33.81bn within current obligations, creating seasonal cash requirements that should be considered alongside operating cash generation..

Key concerns include Full-year guidance requires operating-margin recovery from 9.8% in Q1 to approximately 10.3% for the full year., SG&A growth of 9.2% YoY exceeded sales growth of 6.5%, producing unfavorable operating leverage., The 100% short-term debt ratio quality alert is a technical maturity-risk flag, though its investment impact is currently limited by the net-cash balance., The high-WIP-ratio quality alert is more relevant operationally than financially and could become material if project delays or cost overruns emerge..

Investment Implications

Key takeaways include Q1 revenue growth remained healthy at 6.5% YoY, but profit declined across operating, ordinary, and net-income levels., The core outsourcing services business remained strongly profitable but experienced a 110bp segment-margin decline., The global business was the principal segment-level earnings weakness, with profit down 39.8% YoY., Balance-sheet risk is low: cash of ¥13.73bn materially exceeds ¥0.21bn of interest-bearing debt., The unchanged full-year forecast places emphasis on a later-quarter recovery in gross margin and SG&A efficiency..

Metrics to watch include Outsourcing services segment margin and engineer utilization, Global business segment profit margin, Gross margin and SG&A growth relative to revenue growth, Receivables collection and work-in-process conversion, Progress toward the ¥5.70bn full-year operating-income forecast, Foreign-exchange gains or losses within non-operating income.

Regarding relative positioning, The company combines above-benchmark annualized ROE of 17.9%, a good 9.8% operating margin, very strong liquidity, and negligible leverage. Relative positioning is therefore supported by financial resilience and asset efficiency, while the principal differentiator to monitor is whether operating-margin pressure proves temporary or becomes embedded in the cost structure.