| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥182.6B | ¥173.2B | +5.4% |
| Operating Income | ¥34.3B | ¥33.4B | +3.0% |
| Ordinary Income | ¥35.1B | ¥32.5B | +7.9% |
| Net Income | ¥23.6B | ¥20.0B | +18.0% |
| ROE | 3.7% | 3.2% | - |
FY2026 Q1 results landed at Revenue ¥182.6B (YoY +¥9.4B +5.4%), Operating Income ¥34.3B (YoY +¥1.0B +3.0%), Ordinary Income ¥35.1B (YoY +¥2.6B +7.9%), and Net Income ¥23.6B (YoY +¥3.6B +18.0%), marking revenue and profit growth. The expansion at the net income level was notable, driven by increases in non-operating income and a reduction in the effective tax rate, improving the net income margin to 12.9% (prior 11.5%). The operating margin remained flat at 18.8% (prior 18.8%); although gross margin declined to 45.9% (prior 46.9%, -1.0pt), the SG&A ratio improved to 27.1% (prior 27.6%, -0.5pt) which offset the decline. The core IT Consulting & Services segment accounted for 90.6% of revenue and drove the top-line increase, while the Business Innovation segment continued to narrow its losses.
[Revenue] Revenue was ¥182.6B (YoY +5.4%), showing steady performance. The core IT Consulting & Services business recorded ¥165.4B (+6.5%), representing 90.6% of total revenue. This segment comprises ¥165.4B of external customer sales plus ¥0.03B of intersegment internal transactions, and resilient customer demand supported the revenue increase. Conversely, the Business Innovation business declined to ¥16.9B (-5.1%), representing 9.3% of revenue. Other segments surged to ¥3.0B (+82.4%) but are non-core activities such as handball team management and securities investments, so their contribution to the whole is limited. Gross profit was ¥83.8B (gross margin 45.9%), down 1.0pt from prior gross margin 46.9%. Changes in project mix and a higher outsourcing ratio likely pressured gross margins.
[Profitability] Operating Income was ¥34.3B (+3.0%), securing an increase in profit but lagging the revenue growth rate of +5.4%. SG&A was ¥49.5B (SG&A ratio 27.1%), improving 0.5pt from 27.6% the prior year, indicating effective fixed-cost control. SG&A containment, including goodwill amortization of ¥2.4B and depreciation of ¥2.9B, contributed to protecting operating-level profit. Ordinary Income was ¥35.1B (+7.9%), outpacing operating profit growth, reflecting notable improvement on the non-operating front. Non-operating income doubled to ¥1.4B (prior ¥0.7B), contributed by Equity-method investment gains ¥0.8B (prior ¥0.4B) and interest income ¥0.3B (prior ¥0.1B). Non-operating expenses halved to ¥0.7B (prior ¥1.5B), with a reduction in foreign exchange losses as an improving factor. Pre-tax income of ¥35.1B faced income taxes of ¥11.5B (effective tax rate 32.8%, prior 38.6%), reducing tax burden and leading to a strong Net Income increase to ¥23.6B (+18.0%). No extraordinary gains or losses were reported, indicating limited one-off impacts. Conclusion: revenue and profit growth.
The IT Consulting & Services segment posted Revenue ¥165.4B (+6.5%) and Operating Income ¥35.4B (-0.4%), securing a margin of 21.4%. Despite revenue growth, slight profit decline suggests changes in project mix and rising personnel and outsourcing costs. The Business Innovation segment recorded Revenue ¥16.9B (-5.1%) and an Operating Loss of ¥0.2B (loss narrowed 78.8% from prior loss ¥1.2B), reflecting progress in fixed-cost containment and business restructuring. Others posted Revenue ¥3.0B (+82.4%) and Operating Income ¥0.4B (+163.1%, margin 13.6%), showing high growth but representing only 1.6% of overall revenue. High dependence on the core segment persists, and early profitability of Business Innovation is key to mid-term portfolio diversification.
[Profitability] Operating margin 18.8% remained broadly unchanged year-over-year, with gross margin 45.9% (prior 46.9%, -1.0pt) offset by SG&A ratio 27.1% (prior 27.6%, -0.5pt). Net margin 12.9% improved 1.4pt from 11.5% prior, aided by improved non-operating items and lower tax rate. ROE was 3.7%, above prior 3.2%, but remains modest for an IT services firm. [Cash Quality] Non-operating income ¥1.4B represents 0.8% of revenue, indicating limited reliance on non-core income. Interest income ¥0.3B and equity-method investment gains ¥0.8B supported ordinary-level profits. [Investment Efficiency] Total assets were ¥940.2B, with intangible assets ¥226.6B (24.1% of total assets) and goodwill ¥102.3B (16.2% of equity), reflecting M&A-derived intangible asset utilization in building the business base. R&D expense was ¥3.4B (1.8% of sales), modest, leaving room to expand investment in proprietary product development and solution differentiation. [Financial Soundness] Equity Ratio 67.4% (prior 64.4%, +3.0pt) and cash and deposits ¥280.3B (52.8% of current assets) indicate a strong financial base. Long-term borrowings ¥114.3B and total interest-bearing debt ¥117.1B (including short-term borrowings ¥2.9B) result in a Debt/Equity ratio of 18.5%, remaining low.
Cash flow statement data is not disclosed; therefore, funding trends are analyzed from balance sheet movements. Cash and deposits were ¥280.3B, down ¥47.7B (-14.5%) from prior ¥328.0B. One main factor is that accounts payable for corporate tax and similar items fell to ¥13.5B (prior ¥35.5B, down ¥22.0B), suggesting progress in paying prior-period corporate taxes. Bonus provisions increased to ¥18.7B, a rise of ¥15.4B (+466%), indicating possible advance booking of expenses at the quarter end. Long-term borrowings decreased to ¥114.3B from prior ¥121.4B, compressing by ¥7.1B and reducing interest-bearing debt. Investment securities rose to ¥136.9B (prior ¥125.4B, +¥11.4B), likely due to valuation differences or additional investments. Total assets were ¥940.2B, down ¥34.7B from prior ¥974.9B, suggesting slight improvement in asset efficiency. The balance between decreased cash and reduced interest-bearing debt suggests prudent cash management that maintains financial flexibility while progressing debt repayment.
From Ordinary Income ¥35.1B and Net Income ¥23.6B, evaluate pre-tax earnings quality. Operating Income ¥34.3B was supplemented by non-operating income ¥1.4B (including equity-method investment gains ¥0.8B, interest income ¥0.3B, and forex gains ¥0.2B), resulting in ordinary-level profit ¥0.8B higher than operating profit. Non-operating expenses ¥0.7B included interest expense ¥0.4B and forex losses ¥0.5B but were halved from ¥1.5B prior, with reduced forex impact contributing. The effective tax rate of 32.8% (prior 38.6%, -5.8pt) may reflect tax strategy effects or reassessment of deferred tax assets. Comprehensive income ¥26.4B exceeded Net Income by ¥2.8B, driven by an increase in valuation difference on securities of ¥2.8B. Most non-operating income stems from equity-method investments and financial income, and no one-off special gains are confirmed, so the income structure appears to be largely recurring. The 18.0% increase in Net Income reflects operating-level growth (+3.0%) combined with non-operating improvement and tax rate reduction; sustainability of earnings depends on continued operating-level improvement.
Full Year guidance remains unchanged: Revenue ¥806.0B (+6.1%), Operating Income ¥175.0B (+8.2%), Net Income ¥118.0B, EPS forecast 133.07円, Dividend forecast 24.00円. Versus Q1 results, revenue progress rate is 22.7% (¥182.6B/¥806.0B), operating income progress rate 19.6% (¥34.3B/¥175.0B), and net income progress rate 20.0% (¥23.6B/¥118.0B). Considering seasonality, revenue progress is standard, whereas operating and net income lag the typical 25% progress. Achieving guidance assumes accumulating high-margin projects and improving utilization rates from Q2 onward to boost margins. The dividend forecast ¥24.00 implies a payout ratio of about 18% (based on EPS forecast ¥133.07) and is conservative; there is ample room for dividend increases, but the policy this fiscal year is to maintain the dividend.
As of Q1, there were no interim dividends; full-year forecast is ¥24.00 (up ¥1.00 from prior ¥23.00, +4.3%). The payout ratio based on EPS forecast ¥133.07 is approximately 18%, a low level, and given cash and deposits ¥280.3B and financial flexibility, dividend sustainability is high. No disclosure on share buybacks; shareholder returns appear to be dividend-centric. Increasing the payout ratio or introducing share buybacks could be considered to improve ROE and capital efficiency over the medium term.
Project mix changes and gross margin decline risk: Gross margin declined from 46.9% to 45.9% (-1.0pt), suggesting a reduction in high-margin projects or increased outsourcing. Continued project-mix shifts could pressure gross margins and make it difficult to maintain operating margins.
Core-segment concentration risk: IT Consulting & Services accounts for 90.6% of revenue, concentrating the business portfolio. A demand downturn or intensified competition in this segment would directly affect company performance. Business Innovation remains unprofitable; delayed turnaround and diversification pose concerns.
Working capital efficiency and collection delay risk: Accounts receivable ¥217.8B is relatively high compared with quarterly revenue ¥182.6B, suggesting timing of acceptance for long-term projects or concentration of uncollected receivables. Prolonged collection delays could worsen the cash conversion cycle and increase working capital burden, impacting liquidity.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 18.8% | 6.2% (4.2%–17.2%) | +12.6pt |
| Net Margin | 12.9% | 2.8% (0.6%–11.9%) | +10.1pt |
The company's operating and net margins substantially exceed the IT & Communications industry medians, placing it among the top performers in the sector on profitability.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 5.4% | 20.9% (12.5%–25.8%) | -15.5pt |
Revenue growth rate lags the industry median by 15.5pt, positioning the company from mid- to lower-tier in terms of growth.
※ Source: Company compilation
The strong Net Income growth (+18.0%) was mainly due to non-operating improvements and a lower tax rate, creating a large gap with operating profit growth (+3.0%). Sustainable profit growth requires improving gross margins (higher project pricing and greater insourcing) and continued SG&A efficiency gains.
Financial soundness is very high (Equity Ratio 67.4%, Cash and Deposits ¥280.3B), providing ample room for business investment and enhanced shareholder returns. With a payout ratio around 18%, options for shareholder return enhancements via dividend increases or buybacks remain available to improve capital efficiency.
High dependence on the core IT Consulting & Services segment (90.6% of revenue) persists. Although the Business Innovation segment’s loss has narrowed, it has not yet turned profitable. Diversifying the business portfolio and cultivating a secondary revenue pillar are key to sustaining medium-term growth.
This report is an AI-generated earnings analysis document produced by analyzing XBRL earnings release data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company based on publicly disclosed financial statements. Investment decisions are your responsibility; consult a professional as needed before making any investment decisions.