Quick View
| Metric | Current Period | Same Period of Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥367.0B | ¥324.3B | +13.2% |
| Operating Income | ¥248.6B | ¥214.8B | +15.7% |
| Ordinary Income | ¥320.5B | ¥272.4B | +17.7% |
| Net Income | ¥227.0B | ¥195.1B | +16.3% |
| ROE | 4.6% | 3.8% | - |
Executive Summary
In addition to higher revenue and earnings, a key feature of the current quarter was that Ordinary Income and Net Income grew faster than Operating Income. Revenue was ¥367.0B (+13.2% year on year), Operating Income was ¥248.6B (+15.7%), Ordinary Income was ¥320.5B (+17.7%), and Net Income was ¥227.0B (+16.3%). In addition to the expansion of the core SystemSupport Business, non-operating income, including dividend income of ¥29.2B and gains on sales of securities of ¥20.0B, boosted the growth rate at the Ordinary Income level. Progress against the full-year plan was 24.7% for Revenue and 28.0% for Ordinary Income, indicating somewhat accelerated progress at the Ordinary Income level.
Factors Affecting Performance
【Revenue】Revenue increased 13.2% year on year to ¥367.0B. By segment, SystemSupport was the largest growth driver at ¥195.9B (+15.5%, representing 53.4% of the total), followed by SystemIntegration at ¥151.4B (+11.8%, representing 41.3% of the total). OfficeAutomation maintained revenue growth at ¥19.8B (+2.1%), although its scale remained small.
【Profitability】Operating Income was ¥248.6B (+15.7%), and the Operating Income margin improved to 67.7% from 66.2% in the same period of the previous year. This improvement was attributable to an increase in the gross margin to 79.5% from 78.8% and the containment of the SG&A expense ratio at 11.8%. Ordinary Income grew faster than Operating Income, increasing 17.7% to ¥320.5B, driven by non-operating income of ¥75.7B, equivalent to 20.6% of Revenue, including dividend income of ¥29.2B and gains on sales of securities of ¥20.0B. Net Income increased 16.3% to ¥227.0B, with earnings growth secured even after the burden of an effective tax rate of 29.2%, compared with 28.4% in the same period of the previous year. This was a financial result characterized by higher revenue and earnings across both the top and bottom lines.
Segment Analysis
SystemSupport was the largest segment driving up the Company-wide profit margin, with Revenue of ¥195.9B (+15.5%), Operating Income of ¥145.9B (+16.6%), and an Operating Income margin of 74.5%. SystemIntegration maintained the second-highest profitability, with Revenue of ¥151.4B (+11.8%), Operating Income of ¥95.9B (+14.3%), and a margin of 63.3%. OfficeAutomation had Revenue of ¥19.8B (+2.1%), Operating Income of ¥6.9B (+17.3%), and a margin of 34.7%; although smaller than the other two segments, it recorded the highest earnings growth rate. Profit margins ranked in the order of SystemSupport, SystemIntegration, and OfficeAutomation, while the increasing contribution of the highly recurring SystemSupport Business contributed to improved Company-wide profitability.
Key Financial Metrics
【Profitability】The Operating Income margin was 67.7% (66.2% in the same period of the previous year), the Net Income margin was 61.9% (60.2%), and the gross margin was 79.5% (78.8%); all improved from the previous year.【Cash Flow Quality】Operating Cash Flow (OCF) was only 0.65 times Net Income, as corporate income tax payments of ¥170.8B and an increase in trade receivables of ¥16.6B constrained cash conversion.【Investment Efficiency】ROE was 4.6%. Despite the high Net Income margin, the total asset turnover ratio remained low, which constrained asset efficiency.【Financial Soundness】The Equity Ratio was 84.4% (83.4% in the same period of the previous year), with current assets of ¥2165.3B versus current liabilities of ¥300.1B, indicating an exceptionally strong financial position.
Cash Flow Analysis
Operating Cash Flow was ¥148.5B, up 5.5% year on year, but remained only 0.65 times Net Income of ¥227.0B, as corporate income tax payments of ¥170.8B and an increase in trade receivables of ¥16.6B constrained cash conversion. Investing Cash Flow was positive at +¥24.2B, owing to sales of investment securities and other items, while capital expenditures remained small at ¥1.7B. As a result, Free Cash Flow was ¥172.7B, while Financing Cash Flow was -¥303.7B, primarily due to dividend payments of ¥203.7B and share repurchases of ¥100.0B. Shareholder returns were therefore implemented on a scale exceeding the current quarter’s Free Cash Flow. This difference was absorbed by the Company’s ample holdings of cash and cash equivalents and investment securities.
Quality of Earnings
The core of recurring earnings consists of Operating Income from the SystemSupport and SystemIntegration segments, which together provide a stable earnings base accounting for the majority of Operating Income. Meanwhile, non-operating income of ¥75.7B, representing the difference between Ordinary Income of ¥320.5B and Operating Income of ¥248.6B, was substantial at 20.6% of Revenue. It primarily comprised dividend income of ¥29.2B and gains on sales of securities of ¥20.0B, both of which have a temporary nature and are susceptible to the effects of the securities portfolio and market conditions. The divergence between Ordinary Income and Net Income (¥320.5B→¥227.0B) was primarily attributable to corporate income taxes of ¥93.5B, resulting in an effective tax rate of 29.2%. The fact that Operating Cash Flow remained at 0.65 times Net Income indicates somewhat sluggish conversion of earnings into cash. Considering the effects of tax payments and the increase in trade receivables, it is important to assess the sustainability of the underlying earnings power at the operating level.
Earnings Forecasts and Guidance
Against the full-year forecasts of Revenue of ¥1487.0B, Operating Income of ¥980.0B, and Ordinary Income of ¥1145.0B, progress in the current Q1 was 24.7% for Revenue, 25.4% for Operating Income, 28.0% for Ordinary Income, and 27.7% for Net Income. Progress at the Operating Income level was broadly in line with the simple 25% progress benchmark, while progress at the Ordinary Income and Net Income levels was somewhat higher, due to contributions from non-operating income such as dividend income and gains on sales of securities. Neither the earnings forecast nor the dividend forecast has been revised.
Shareholder Returns
Against the Company’s forecast EPS of ¥189.23, DPS was ¥47.00, resulting in a calculated Payout Ratio of approximately 24.8%. During the current quarter, the Company repurchased ¥100.0B of its own shares, resulting in total shareholder returns of ¥303.7B when combined with dividend payments of ¥203.7B. This total return amount represented a Total Return Ratio of approximately 133.8% relative to Net Income of ¥227.0B for the current quarter, and exceeded Free Cash Flow of ¥172.7B, reflecting the use of ample cash and cash equivalents and investment securities for shareholder returns.
Risk Factors
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Segment concentration risk: SystemSupport accounts for 53.4% of Revenue and 58.7% of total Operating Income (¥145.9B/¥248.6B), indicating a high degree of earnings dependence on a single segment.
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Sensitivity to securities market conditions: Investment securities totaled ¥3095.5B, representing 53.0% of total assets. Other comprehensive income for the current quarter was ¥71.3B, substantially below Net Income of ¥227.0B, primarily due to valuation differences on securities of -¥150.2B. The asset composition is therefore susceptible to the impact of equity market fluctuations on net assets.
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Slower cash conversion: Operating Cash Flow remained at 0.65 times Net Income, while corporate income tax payments of ¥170.8B and the ¥16.6B increase in trade receivables placed pressure on working capital. Total shareholder returns through dividends and share repurchases amounted to ¥303.7B, exceeding Free Cash Flow of ¥172.7B.
Industry Benchmark (For Reference; Compiled by the Company)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income Margin | 67.7% | 8.1% (2.5%–15.8%) | +59.7pt |
| Net Income Margin | 61.8% | 5.8% (1.6%–10.7%) | +56.0pt |
Both the Operating Income margin and Net Income margin substantially exceeded the industry median, placing the Company among the highest profitability levels in the IT and telecommunications sector.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (Year on Year) | 13.2% | 9.3% (0.2%–16.9%) | +3.9pt |
The Revenue growth rate exceeded the industry median but did not reach the upper bound of the industry IQR (16.9%), placing the growth rate within the upper range of the industry.
Source: Compiled by the Company
Key Takeaways from the Earnings Results
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The fact that the growth rates of Ordinary Income and Net Income (+17.7% and +16.3%) exceeded the growth rate of Operating Income (+15.7%) was attributable to contributions from non-operating income such as dividend income of ¥29.2B and gains on sales of securities of ¥20.0B. The somewhat accelerated progress rates for Ordinary Income and Net Income against the full-year plan are important considerations when evaluating the quality of the earnings results.
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While Operating Cash Flow remained at 0.65 times Net Income, total shareholder returns for the current quarter (dividends + share repurchases totaling ¥303.7B) exceeded Free Cash Flow of ¥172.7B. The fact that this difference was funded through the use of cash and cash equivalents and investment securities is noteworthy from a cash flow perspective.
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The Operating Income margin of 74.5% in the SystemSupport segment lifted the Company-wide Operating Income margin to 67.7%. The segment’s concentration, representing 53.4% of Revenue, is an important point to monitor when evaluating the sustainability of Company-wide profitability.
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 available earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.
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AI Financial Analysis
Executive Summary
Obic delivered a strong FY2027 Q1 result, combining double-digit sales growth with faster operating-profit growth and exceptionally high profitability. Revenue increased 13.2% YoY to ¥36.70bn, while operating income rose 15.7% to ¥24.86bn. Ordinary income grew 17.7% to ¥32.05bn and net income increased 16.3% to ¥22.70bn. The operating margin expanded by 147bp YoY to 67.7%, reflecting positive operating leverage. Gross margin improved by 68bp to 79.5%, indicating continued favorable pricing, product mix, and delivery economics. SG&A rose only 5.8% YoY to ¥4.33bn, materially below revenue growth, reducing the SG&A-to-sales ratio by about 81bp to 11.8%. The System Support segment remained the core business by operating-income contribution, generating ¥14.59bn of segment profit, or 58.7% of consolidated operating income. System Integration also performed well, with segment profit up 14.3% YoY to ¥9.59bn. Non-operating income of ¥7.57bn was substantial at 20.6% of revenue and lifted ordinary income above operating income. Dividend income of ¥2.92bn provides a portfolio-derived recurring element, while the ¥2.00bn gain on investment securities is non-recurring and should not be extrapolated into core earnings. Net margin was an outstanding 61.9%, supported by both the operating business and investment-related income. Annualized ROE was 18.4%, exceeding the 15% high-return benchmark, despite modest financial leverage of only 1.19x. Cash conversion was the main earnings-quality qualification: operating cash flow was ¥14.85bn, equal to 0.65x net income. Cash generation was restrained by ¥17.08bn of income-tax payments and a ¥1.66bn increase in trade receivables. The balance sheet remains extremely liquid, with cash and deposits of ¥194.29bn and a current ratio of 721.5%. Full-year guidance was unchanged, and Q1 revenue and operating-income progress are broadly in line with a normal 25% first-quarter run rate. The principal forward-looking issues are sustaining high-margin recurring support growth, conversion of accounting earnings into cash after taxes and working-capital movements, capital-investment discipline, and market-value volatility in the large securities portfolio.
Profitability Analysis
Annualized DuPont ROE is 18.4%, decomposed into a 61.9% net profit margin, 0.251x asset turnover, and 1.19x financial leverage. The dominant driver of return is margin rather than leverage, consistent with an asset-light, high-value enterprise-software and systems-support model. Asset turnover is restrained by the large investment-securities portfolio, which represented 53.0% of total assets, rather than by operating-asset intensity. Financial leverage is conservative and contributes only modestly to ROE, leaving returns principally underpinned by business profitability and investment income. Operating margin rose to 67.7% from 66.2% in the prior-year quarter, a 147bp expansion. Gross margin increased to 79.5% from 78.8%, while SG&A increased only 5.8% against 13.2% revenue growth, demonstrating favorable operating leverage. The System Support segment is the core business, with revenue of ¥19.59bn (+15.5% YoY), operating income of ¥14.59bn (+16.6%), and a 74.5% margin, up about 78bp YoY. System Integration reported revenue of ¥15.15bn (+11.8%), operating income of ¥9.59bn (+14.3%), and a 63.3% margin, up about 145bp. Office Automation generated revenue of ¥1.96bn (+2.2%), operating income of ¥0.69bn (+17.3%), and a 34.9% margin, up about 472bp, though its contribution remains comparatively small. The tax burden was normal at 0.708, equivalent to a 29.2% effective tax rate. The interest burden of 1.289x exceeds 1.0x because non-operating income substantially exceeded financing costs; this is a positive contributor to reported ROE but also shows that returns are partly influenced by portfolio income and securities gains. EBITDA was ¥25.54bn and EBITDA margin was 69.6%, reinforcing the very high cash-profitability of the operating model before tax and working-capital effects.
Growth Assessment
Growth was broad-based across the two principal software-related segments. System Support's 15.5% revenue growth is particularly constructive because its 74.5% segment margin makes incremental revenue highly earnings-accretive. System Integration revenue grew 11.8%, supporting demand for enterprise-system implementation and related solutions. Combined revenue growth in these two segments was 13.8% YoY, ahead of the 2.2% growth in Office Automation. Consolidated operating income growth of 15.7% exceeded revenue growth of 13.2%, evidencing positive operating leverage. Full-year guidance calls for revenue of ¥148.70bn (+10.0% YoY), operating income of ¥98.00bn (+10.3%), ordinary income of ¥114.50bn (+9.3%), and net income of ¥82.00bn. Q1 progress versus full-year guidance was 24.7% for revenue, 25.4% for operating income, 28.0% for ordinary income, and 27.7% for net income. These rates are close to the standard 25% Q1 progress benchmark; none deviates by more than 10 percentage points. The above-normal ordinary-income and net-income progress partly reflects the quarter's ¥2.00bn investment-securities gain, which should not be treated as a recurring operational growth driver. Dividend income of ¥2.92bn and equity-method earnings of ¥1.81bn supplement profit growth but also link earnings to investee performance and portfolio distributions. The unchanged guidance indicates management has not yet embedded a material Q1 beat into its full-year assumptions. Sustained growth will depend primarily on continued customer IT investment, successful execution of integration projects, and the scale-up of high-margin support revenues.
Financial Health
Financial health is exceptionally strong. The current ratio of 721.5% and quick ratio of 721.3% indicate ample coverage of current liabilities by highly liquid assets. Current assets of ¥216.53bn exceeded current liabilities of ¥30.01bn by ¥186.52bn. Cash and deposits were ¥194.29bn, equal to 6.5x current liabilities. The debt-to-equity ratio was only 0.19x, well below the 2.0x warning threshold and consistent with a conservative capital structure. Total liabilities were only 15.6% of total assets, while total equity represented 84.4% of assets. There is no apparent short-term liquidity or maturity-mismatch pressure given the large cash balance and limited current liabilities. Investment securities were ¥309.55bn, equivalent to 53.0% of total assets, creating material exposure to market-price movements despite the company's strong solvency. Deferred tax liabilities were ¥52.72bn, substantially linked to the portfolio's unrealized gains and therefore partly offset the economic value of those gains. Total equity declined ¥23.24bn YoY to ¥492.77bn, notwithstanding quarterly net income, because valuation differences on securities fell ¥15.55bn through other comprehensive income and shareholder distributions reduced capital. Inventories increased 30.2% YoY to ¥0.56bn, but remain immaterial relative to total assets and revenue. Work in process of ¥2.26bn is 77.1% of production inventory, which is a quality alert because a high WIP mix requires timely project completion, acceptance, and conversion into billable revenue; this is operationally relevant for system-integration activities, although the absolute balance is modest. Provision for bonuses increased to ¥4.18bn from ¥2.78bn, reflecting higher accrued personnel-related obligations alongside business expansion.
Notable B/S Changes
Investment securities: -¥228.27bn YoY (-6.9%) to ¥309.55bn - still 53.0% of total assets; securities-market valuation remains a major driver of OCI and equity volatility. Total assets: -¥348.23bn YoY (-5.6%) to ¥583.97bn - primarily reflects lower cash and investment-security balances rather than deterioration in operating liquidity. Cash and deposits: -¥130.98bn YoY (-6.3%) to ¥194.29bn - remains exceptionally ample at 6.5x current liabilities despite shareholder distributions. Total equity: -¥232.39bn YoY (-4.5%) to ¥492.77bn - negative securities valuation movements and capital returns outweighed retained quarterly earnings in the comparison. Accumulated other comprehensive income: -¥155.70bn YoY (-10.8%) to ¥128.78bn - principally reflects a decline in valuation differences on securities, highlighting portfolio sensitivity. Deferred tax liabilities: -¥67.98bn YoY (-11.4%) to ¥52.72bn - consistent with lower unrealized gains in the investment-securities portfolio. Inventories: +¥0.13bn YoY (+30.2%) to ¥0.56bn - immaterial in absolute size, but the WIP-heavy project inventory mix warrants monitoring of execution and billing conversion.
Cash Flow Quality
Operating cash flow was ¥14.85bn, equivalent to 0.65x net income of ¥22.70bn, below the 0.8x quality threshold. This divergence is the principal earnings-quality concern for the quarter because reported earnings did not fully translate into operating cash flow. The shortfall was materially affected by ¥17.08bn of income-tax payments, which exceeded the current period's ¥9.35bn income-tax expense, as well as a ¥1.66bn increase in trade receivables. Interest and dividend receipts totaled ¥4.70bn, while dividend and interest income was adjusted in operating cash flow, which also affects the relationship between cash flow and accounting profit. The accruals ratio was only 1.3%, however, which is favorable and does not indicate broad-based earnings inflation through accrual accounting. Cash conversion, measured as operating cash flow divided by EBITDA, was 0.58x and below the 0.7x alert threshold; the quarter therefore requires monitoring for a rebound in post-tax cash generation over subsequent quarters. Reported free cash flow was ¥17.27bn, providing positive internally generated liquidity despite the weaker OCF-to-net-income ratio. Capital expenditures were only ¥0.17bn, or 0.25x depreciation and amortization of ¥0.68bn. This CapEx/depreciation ratio is below the 0.7x underinvestment alert threshold and could indicate deferred replacement or growth investment if sustained. For an IT-services business, limited tangible capex can be structurally appropriate, but management should demonstrate that software development, cybersecurity, delivery capacity, and workplace infrastructure are adequately funded. The high WIP ratio is a secondary working-capital monitoring point: delayed project milestones or customer acceptance could extend cash-conversion cycles. Financing cash outflow of ¥30.37bn, including ¥20.37bn of cash dividends and ¥10.00bn of share repurchases, exceeded operating cash flow, reducing cash by ¥13.10bn during the quarter.
Dividend Sustainability
The full-year dividend forecast is ¥94 per share, unchanged from the prior disclosure. Against forecast EPS of ¥189.23, the implied dividend payout ratio is 49.7%, comfortably below the 60% sustainability benchmark. The forecast payout therefore appears supportable by forecast net income of ¥82.00bn. Quarterly cash dividends paid were ¥20.37bn, and share repurchases were ¥10.00bn. Combined quarterly shareholder distributions were ¥30.37bn, equal to an approximate 133.8% total return ratio relative to Q1 net income of ¥22.70bn. That quarterly comparison is affected by dividend-payment timing, since cash dividends generally relate to prior-period earnings, but it nevertheless shows that capital returns exceeded current-quarter earnings and operating cash flow. Reported free cash flow of ¥17.27bn did not fully cover the quarter's dividends plus repurchases. The substantial cash balance of ¥194.29bn and low leverage provide a significant buffer for distributions. Treasury shares of 61.06 million, equivalent to 12.4% of issued shares, also show that repurchases have been a meaningful component of capital allocation. Dividend sustainability is strong under the stated earnings plan, while the pace of additional buybacks should be assessed against recurring cash generation and the need to preserve flexibility amid securities-market volatility.
Risk Assessment
Business risks include Enterprise IT spending risk: slower corporate digital-investment budgets, delayed implementation decisions, or customer project deferrals could affect System Integration revenue growth and project utilization., Project execution risk: the ¥2.26bn work-in-process balance and 77.1% WIP ratio within production inventory require timely completion and customer acceptance to avoid margin pressure or slower receivables conversion., Talent and delivery-capacity risk: sustained double-digit growth in high-margin systems integration and support requires continued recruitment, retention, and productivity of skilled IT personnel., Cybersecurity and service-continuity risk: system providers face reputational, contractual, and remediation costs if customer systems or internal platforms experience cyber incidents or outages., Competitive risk: maintaining premium margins depends on product differentiation, customer switching costs, implementation quality, and the ability to evolve with cloud, AI, and changing enterprise-software architectures..
Financial risks include Portfolio-market risk is material because investment securities of ¥309.55bn represent 53.0% of total assets; changes in market values can materially affect OCI, equity, and comprehensive income., Comprehensive income fell 77.6% YoY to ¥7.13bn as a ¥15.57bn negative OCI movement, principally securities valuation changes, offset strong net income., Earnings composition risk exists because non-operating income was ¥7.57bn, including ¥2.00bn of gains on investment securities that are not recurring operating earnings., Cash-conversion risk remains elevated in the quarter, with OCF/net income at 0.65x and OCF/EBITDA at 0.58x., Capital-allocation risk should be monitored because dividends and buybacks totaled ¥30.37bn in the quarter, exceeding both net income and reported free cash flow..
Key concerns include High impact / medium likelihood: a sustained equity-market decline could reduce the value of the securities portfolio and pressure comprehensive income and book value., Medium impact / medium likelihood: continuation of OCF trailing net income could weaken the quality of otherwise exceptional reported profitability., Medium impact / medium likelihood: persistently low CapEx/depreciation of 0.25x could eventually constrain service capacity, systems renewal, or growth investment., Medium impact / low-to-medium likelihood: a slowdown in corporate IT demand or execution delays in integration projects could reduce operating leverage., Low impact / medium likelihood: the inventory increase is small in absolute size, but the WIP-heavy composition should be monitored for project-completion and billing discipline..
Investment Implications
Key takeaways include Q1 operating performance was strong: revenue grew 13.2%, operating income grew 15.7%, and operating margin expanded to 67.7%., System Support is the core earnings engine, contributing 58.7% of consolidated operating income with a 74.5% segment margin., Annualized ROE of 18.4% is high and is achieved with conservative 1.19x financial leverage., Non-operating income meaningfully enhances reported earnings; the ¥2.00bn securities gain should be separated from recurring operating performance., The company has exceptional liquidity and low leverage, but its large securities portfolio creates meaningful OCI and book-value sensitivity., Cash-flow conversion and sustained low investment intensity are the principal areas requiring follow-through..
Metrics to watch include System Support revenue growth and segment margin versus the Q1 levels of 15.5% and 74.5%, System Integration project completion, work-in-process conversion, receivable days, and operating margin, OCF/net income ratio relative to the 0.65x Q1 result, OCF/EBITDA cash conversion relative to the 0.58x Q1 result, Capital expenditures relative to depreciation after the 0.25x Q1 ratio, Investment-securities valuation movements, OCI, and deferred-tax-liability trends, Full-year operating-income progress relative to the ¥98.00bn forecast, Total return ratio, including the scale of future share repurchases.
Regarding relative positioning, Obic is positioned as an exceptionally profitable and conservatively financed Japanese IT-services company, with operating margins and annualized ROE materially above common industry profitability thresholds. Its relative strengths are recurring support economics, high cash reserves, low leverage, and positive operating leverage. Relative considerations are the unusually large investment-securities exposure, non-operating contribution to profit, and Q1 cash conversion below the level implied by reported earnings.