ALPHA SYSTEMS INC. FY2027 Q1 Earnings Report

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Executive Summary

Q1 FY2027 delivered higher revenue and earnings, with solid demand for the core Software Development Business driving performance. Revenue was ¥101.3B (¥96.0B in the previous year, YoY +5.5%), Operating Income was ¥12.2B (¥11.7B in the previous year, YoY +3.8%), Ordinary Income was ¥12.6B (+4.5%), and Net Income was ¥8.5B (+3.2%). The gross profit margin declined slightly to 24.4% from 24.7% in the previous year; however, Operating Income increased as SG&A expenses were contained below the rate of revenue growth. Progress toward the Full-Year plan was in the 23% range for both revenue and earnings, broadly in line with standard quarterly progress of 25%.

Factors Affecting Performance

【Revenue】Revenue was ¥101.3B, representing a 5.5% year-on-year increase. Software development-related operations, the core business, accounted for the majority at ¥99.4B (98.2% of the total, +4.9%) and drove growth. Other Businesses, while small at ¥1.8B, recorded high growth of +48.0%, attracting attention as an early indication of business diversification.

【Profit and Loss】Operating Income was ¥12.2B (+3.8%). Although the gross profit margin declined to 24.4% from 24.7% in the previous year, earnings growth was maintained as SG&A expenses remained controlled at ¥12.6B. Ordinary Income was ¥12.6B (+4.5%), with non-operating income, including ¥0.3B in interest income, making a slight contribution. Extraordinary items resulted in only a minor net loss, mainly due to losses on the disposal of fixed assets and other items. Against Profit Before Tax of ¥12.5B, the effective tax rate was approximately 32.2%, within a normal range. Net Income was ¥8.5B (+3.2%), with the difference from Ordinary Income primarily attributable to the tax burden. Revenue and earnings both exceeded the prior-year levels, indicating stable earnings foundations.

Segment Analysis

By segment, software development-related operations are the core business, generating revenue of ¥99.4B (+4.9%), Operating Income of ¥11.8B (+2.1%), and a profit margin of 11.9%, and accounting for the majority of company-wide earnings. Although the segment maintained higher revenue and earnings, profit growth fell below revenue growth, suggesting potential margin pressure from project mix and rising personnel expenses. Other Businesses generated revenue of ¥1.8B (+48.0%), Operating Income of ¥0.4B (+102.6%), and a profit margin of 23.0%, making it a highly profitable segment that significantly exceeds the company-wide average. However, its revenue composition remains limited at 1.8%, and its contribution to company-wide performance is limited. The gap in profit margins between segments is substantial. While an increasing contribution from the highly profitable Other Businesses suggests room for medium-term improvement in the company-wide margin, the structure’s reliance on the core segment for 98.2% of revenue also highlights business concentration risk.

Key Financial Metrics

【Profitability】The Operating Income margin declined slightly to 12.0% from 12.2% in the previous year, while the Net Income margin declined to 8.4% from 8.6%; nevertheless, both remained at favorable levels. The gross profit margin was 24.4%, down approximately 31bp from 24.7% in the previous year, suggesting the impact of rising personnel expenses and changes in project mix.【Cash Quality】Extraordinary items remained a slight net loss, mainly due to losses on the disposal of fixed assets and other items. Non-operating income was also primarily interest income and highly recurring in nature, indicating good earnings repeatability.【Investment Efficiency】ROE was 1.9%. Against a Net Income margin of 8.4%, low total asset turnover and substantial asset holdings, including ¥224.5B in cash and deposits and ¥53.0B in investment securities, are weighing on capital efficiency.【Financial Soundness】The Equity Ratio was an extremely high 87.4% (85.2% in the previous year). With current assets of ¥318.7B against current liabilities of ¥63.9B, the company has a substantial liquidity surplus, indicating a high level of short-term payment capacity and financial safety.

Cash Flow Analysis

As no cash flow statement has been disclosed, cash trends are reviewed based on changes in the balance sheet. Cash and deposits were ¥224.5B, remaining broadly flat from ¥227.7B in the previous year, indicating stable liquidity. On the current liabilities side, accounts payable declined substantially to ¥6.9B (¥11.2B in the previous year, -38.5%), while the provision for bonuses fell to ¥5.1B (¥17.8B in the previous year, -71.4%). Differences in the timing of payments and bonus disbursements appear to have affected working capital. Meanwhile, other current liabilities increased to ¥5.1B from ¥3.9B in the previous year, confirming an accumulation of accrued expenses and deposits received. Non-current liabilities were also significantly reduced to ¥1.3B from ¥4.4B in the previous year, limiting cash outflow factors related to long-term debt. Overall, the company maintained its cash and deposits, while seasonal effects and timing differences were reflected in working capital items.

Quality of Earnings

Current-period earnings were primarily generated by recurring business operations, and earnings quality can be assessed as high. The main component of non-operating income of ¥0.4B was interest income of ¥0.3B, equivalent to 0.4% of revenue and stable in nature. Extraordinary items consisted solely of a gain on the sale of fixed assets of ¥0.02B and a loss on the disposal of fixed assets of ¥0.05B, resulting in only a slight net loss (-¥0.03B) and having a minimal impact on Ordinary Income of ¥12.6B. The difference between Ordinary Income and Net Income of ¥8.5B was primarily attributable to the recognition of ¥4.0B in income taxes and other taxes, resulting in an effective tax rate of approximately 32.2%, a normal level. No significant accounting adjustments or temporary revenue recognition were identified, and earnings repeatability and sustainability appear favorable.

Earnings Forecasts and Guidance

Q1 progress toward the Full-Year company plan was 23.8% for revenue (¥101.3B against ¥425.0B), 23.9% for Operating Income (¥12.2B against ¥51.0B), 23.8% for Ordinary Income (¥12.6B against ¥53.0B), and 23.3% for Net Income (¥8.5B against ¥36.5B). Although all were slightly below standard quarterly progress of 25%, there was no significant deviation, and progress was broadly in line with the plan. The company plan calls for higher revenue and higher Operating Income (revenue +4.4%, Operating Income +3.1%), while forecasting a 2.7% decline in Net Income, suggesting that tax burdens and conservative assumptions have been incorporated. No revisions to the earnings forecast had been made as of the current quarter.

Shareholder Returns

Under the company plan, the forecast dividend per share is ¥140 and forecast EPS is ¥260, implying a Payout Ratio of approximately 53.8%. In light of the financial foundation consisting of ¥224.5B in cash and deposits and an Equity Ratio of 87.4%, there is little concern regarding the availability of funds for dividends. The virtual absence of interest-bearing debt and the resulting lack of a material interest burden also support the financial sustainability of dividends.

Risk Factors

1. Margin dilution trend: The gross profit margin was 24.4%, down approximately 31bp from 24.7% in the previous year, while the Operating Income margin also contracted to 12.0% from 12.2%. Rising personnel expenses and changes in project mix are considered to be the background factors, and future trends should be monitored.

2. Business concentration risk: The software development-related segment accounts for 98.2% of revenue, creating a structure in which changes in demand trends and the competitive pricing environment for this business could materially affect company-wide performance.

3. Working capital timing differences: While accounts payable declined sharply by -38.5% year on year and the provision for bonuses decreased by -71.4%, other current liabilities increased by +31.8%. Changes in the timing of payments and disbursements could affect short-term funding needs.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceeded the industry median, placing profitability in the upper tier of the industry.

Growth and Capital Efficiency

The revenue growth rate was below the industry median, indicating a relatively moderate position within the industry in terms of growth speed.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Although revenue and earnings increased, margins diluted slightly. The trends of a -31bp change in the gross profit margin and a -19bp change in the Operating Income margin warrant close monitoring as signals of project mix and personnel cost trends.

2. The financial foundation, consisting of an Equity Ratio of 87.4% and cash and deposits of ¥224.5B, is at a high level even within the industry, making strong financial safety a key characteristic of the earnings results. Meanwhile, ROE of 1.9% reflects low total asset turnover, indicating room for improvement in terms of asset efficiency.

3. Progress toward the Full-Year plan was in the low 23% range and broadly in line with the plan. By segment, the Other Businesses’ +102.6% growth in Operating Income is noteworthy as a potential indication of medium-term changes in the earnings structure.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥3,017–¥3,188 at ±1% in the cost of equity, and ¥3,097–¥3,103 at ±0.1 in ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference relative to the Full-Year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / 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 release data. It does not recommend investment in any specific security. 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 a professional as necessary.

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