| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥135.8B | ¥132.1B | +2.8% |
| Operating Income / Operating Profit | ¥8.6B | ¥9.5B | -8.9% |
| Ordinary Income | ¥6.3B | ¥4.5B | +40.3% |
| Net Income / Net Profit | ¥4.3B | ¥1.3B | +234.1% |
| ROE | 1.2% | 0.4% | - |
For FY2026 March Q1 results, Revenue was ¥135.8B (YoY +¥3.8B +2.8%), Operating Income ¥8.6B (YoY -¥0.9B -8.9%), Ordinary Income ¥6.3B (YoY +¥1.8B +40.3%), and Quarterly net income attributable to owners of parent ¥3.7B (YoY +¥3.2B +234.1%). The results show a twofold nature: higher revenue but lower operating profit, while ordinary and final profit increased significantly. Revenue was supported by domestic IT +0.9% (modest) and overseas IT +9.2%, with the new consolidation of JEMS Co., Ltd. contributing to the top line. Gross margin improved to 26.6% (about +0.8pt YoY), but SG&A ratio rose to 20.2% (prior 18.6%), causing operating margin to decline to 6.4% from 7.2% (‑0.8pt). At the ordinary income stage, a reduction in losses from investment partnerships (¥630M → ¥300M) and foreign exchange gains ¥60M contributed, yielding Ordinary Income +40.3% YoY. Special gains included a gain on sale of investment securities ¥190M, bringing profit before tax to ¥820M (YoY +82.9%). Despite a high effective tax rate of 47.6%, net income rose substantially. Comprehensive income was negative ¥330M, impacted by valuation differences on available-for-sale securities of -¥690M. Q1 progress toward the full-year revenue forecast of ¥51.5B is 26.4%, on plan.
[Revenue] Revenue was ¥135.8B (YoY +2.8%). By segment, Domestic IT was ¥98.0B (72.2% of total, YoY +0.9%) showing only slight growth, while Overseas IT was ¥42.0B (30.9% of total, YoY +9.2%) demonstrating near double-digit growth. This period included the new consolidation of JEMS Co., Ltd., generating goodwill of ¥19.0B (provisional allocation) in Domestic IT and reflecting external growth capture. Gross margin improved to 26.6% from 25.8% a year earlier (≈+0.8pt), indicating improved project mix. Inter-segment internal sales rose to ¥420M from ¥350M prior year, showing expanding group collaboration.
[Profitability] Operating Income was ¥8.6B (YoY -8.9%), a decline. Despite improved gross margin, SG&A increased to ¥27.4B from ¥24.6B (＋11.8%), raising the SG&A ratio to 20.2% (prior 18.6%). Segment profit for Domestic IT was ¥9.5B (YoY +8.9%, margin 9.7%) securing profit growth, while Overseas IT was ¥3.7B (YoY -10.1%, margin 8.7%) declining. Corporate expense adjustments widened to -¥460M (prior -¥330M), with holding company costs and M&A-related expenses pressuring operating profit. Ordinary Income turned positive to ¥6.3B (YoY +40.3%). Non-operating income was ¥160M versus non-operating expenses ¥400M, mainly due to a large reduction in investment partnership losses to ¥300M (prior ¥630M). Foreign exchange gains ¥60M also contributed, improving non-operating result to -¥240M from -¥500M. Adding special gains ¥190M (gain on sale of investment securities) resulted in profit before tax ¥820M (YoY +82.9%). After corporate taxes ¥390M (effective tax rate 47.6%) and subtracting non-controlling interests ¥60M, net income attributable to owners of parent was ¥370M (prior ¥50M, YoY +234.1%). In summary: while operating profit declined amid higher SG&A, ordinary and final profits rose due to improvements in non-core items and special gains.
Domestic IT: Revenue ¥98.0B (external customers ¥96.2B, YoY +0.9%), Segment Profit ¥9.5B (YoY +8.9%), margin 9.7%. Margin improved 0.7pt from 9.0% due to better project profitability and efficiency gains. Overseas IT: Revenue ¥42.0B (external customers ¥39.6B, YoY +9.2%), Segment Profit ¥3.7B (YoY -10.1%), margin 8.7%. Margin deteriorated 1.9pt from 10.6%, and lower margin offset revenue growth. Domestic IT accounts for about 72% of group operating profit, serving as a stable earnings base. Overseas IT is the growth engine but needs margin recovery. Corporate expense adjustments -¥460M widened from -¥330M prior year, including holding company costs related to JEMS integration.
[Profitability] Operating margin 6.4% (prior 7.2% -0.8pt), Net profit margin 2.7% (prior 1.0% +1.7pt). Gross margin improved to 26.6% from 25.8%, but rising SG&A ratio 20.2% (prior 18.6%) pressured operating results. [Cash Quality] Days Sales Outstanding (DSO) 330 days, significantly worse than prior 283 days. Inventories including work-in-process are light (¥50M) but receivables are high at ¥12,300M, indicating material cash tie-up. [Investment Efficiency] ROE 1.2% (improved from 0.4% but still low), Total asset turnover 0.24x (prior 0.25x). Goodwill ¥6,620M and intangible assets ¥7,750M account for 25.6% of total assets, indicating increased intangibilization. [Financial Soundness] Equity Ratio 62.9% (down from 66.7% but still high), Current Ratio 253.3% indicating ample liquidity. Interest-bearing debt ¥6,720M (mainly long-term borrowings ¥6,100M), D/E ratio 0.19x, Debt/Capital 14.7%—conservative. Interest Coverage Ratio 71.9x, showing strong interest resilience. Cash and deposits ¥10,700M and short-term securities ¥3,970M provide abundant liquidity.
Cash flow statement data are undisclosed, but balance sheet movements provide insight. Accounts receivable rose to ¥12,300M from ¥10,220M (＋¥2,080M), increasing far faster than revenue growth (＋¥380M), indicating significant receivables accumulation. DSO worsened to 330 days from 283 days, lengthening collection terms and tying up working capital. Inventories are light at ¥50M, limiting product inventory risk. Cash and deposits decreased to ¥10,700M from ¥11,770M (‑¥1,070M), and short-term securities fell to ¥3,970M from ¥4,470M (‑¥500M), suggesting some liquidity was used for the JEMS acquisition. Long-term borrowings rose to ¥6,100M from ¥1,630M (＋¥4,470M), materially changing the financial structure due to M&A funding. Comprehensive income was -¥330M, below net income ¥370M, with valuation differences on available-for-sale securities -¥690M pressuring equity. Non-core items such as special gains (gain on sale of investment securities ¥190M) and FX gains ¥60M supplemented cash generation this period, but core cash generation depends on working capital management (notably receivables collection).
Core recurring earnings center on Operating Income ¥8.6B from IT services, i.e., gross profit ¥36.1B less SG&A ¥27.4B. Non-operating improvements—principally reduced investment partnership losses ¥300M (prior ¥630M)—boosted Ordinary Income, but such investment gains/losses are volatile and of questionable sustainability. FX gains ¥60M are market-dependent. One-off items like special gains ¥190M (sale of investment securities) inflated profit before tax. Non-operating income ¥160M / Revenue ¥135.8B = 1.2% (less than 5% of revenue) but offset by non-operating expenses ¥400M, making non-operating items a destabilizing factor for Ordinary Income. The gap between Ordinary Income ¥6.3B and net income ¥3.7B is mainly due to a high tax rate (effective tax rate 47.6%, taxes ¥390M on profit before tax ¥820M). Comprehensive income -¥330M is primarily due to valuation losses on securities -¥690M, reducing book equity. Overall, core operating performance shows improved gross margin but is weighed down by rising SG&A; Ordinary and net results are materially influenced by non-core items and high taxes, so earnings quality requires close scrutiny.
Full-year guidance: Revenue ¥51.5B (YoY +1.8%), annual dividend maintained at ¥50. Q1 revenue ¥13.58B equals 26.4% of the full-year forecast, slightly above a standard 25% progression. Full-year Operating Income and Ordinary Income forecasts are undisclosed; if the Q1 pattern of lower operating profit but higher ordinary income persists, the probability of full-year operating margin improvement is uncertain. As of this quarter, there are no revisions to earnings or dividend guidance; company confidence in the full-year outlook appears maintained.
Annual dividend forecast remains ¥50 per share, unchanged from prior year. Q1 net income ¥370M with average shares outstanding 17.1 million yields EPS ¥21.64. Assuming annual dividend ¥50 per share, the payout ratio based on Q1 net income is 231.0% (reflecting that this calculation uses Q1 standalone net income). Full-year payout ratio based on the prior full-year net income would be at a more realistic level. Available liquidity (cash and deposits ¥10,700M + short-term securities ¥3,970M = ¥14,670M) against interest-bearing debt ¥6,720M yields net cash ¥7,950M, ample. Total annual dividends are estimated at approximately ¥860M (¥50 × 17.1 million shares), which can be comfortably covered by available funds. No share buyback is disclosed; the current return policy is dividend-focused. Operational risks from working capital tie-up and high tax rates constrain cash generation; medium-term sustainability depends on collection improvement and core profit growth.
Working capital tie-up risk: Accounts receivable ¥12,300M and DSO 330 days (worsened from 283 days) — prolonged collection terms could strain operating cash flow and impede both investment capacity and shareholder returns. Cash tied up equivalent to CCC 192 days vs. revenue ¥13.58B undermines capital efficiency.
M&A integration risk: Goodwill ¥1,900M (provisional allocation; total goodwill ¥6,620M), intangible assets increase ¥7,750M. Post-PPA amortization burden and delayed synergy realization pose impairment risk. Long-term borrowings ¥6,100M funded M&A, increasing leverage (＋¥4,470M from prior ¥1,630M). While interest coverage is adequate, interest rate sensitivity rises.
Margin pressure risk: SG&A ratio 20.2% (prior 18.6% +1.6pt) with SG&A growth (+11.8%) far outpacing revenue growth (+2.8%). Expanded corporate expense adjustments (-¥460M) also lowered operating margin to 6.4%. Overseas IT margin deterioration to 8.7% (prior 10.6%) poses further risk; without margin recovery, low ROIC 1.5% and ROE 1.2% may become entrenched.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 6.4% | 6.2% (4.2%–17.2%) | +0.1pt |
| Net Profit Margin | 3.2% | 2.8% (0.6%–11.9%) | +0.4pt |
Profitability metrics slightly exceed industry medians but have large room for improvement relative to the IQR upper bound.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 2.8% | 20.9% (12.5%–25.8%) | -18.1pt |
Revenue growth lags industry median significantly; accelerating organic growth remains a challenge even after accounting for M&A effects.
※ Source: Company compilation
Integration execution after M&A and margin improvement are key: JEMS consolidation recognized goodwill ¥1,900M (provisional allocation) and intangible assets +¥2,030M, with long-term borrowings up ¥4,470M changing the financial structure. Although gross margin improved to 26.6%, SG&A ratio rose to 20.2% (prior 18.6%), reducing operating margin to 6.4%. If synergies materialize and SG&A absorption progresses, there is significant upside to operating margin recovery. Monitor amortization burden after PPA finalization and margin trends in the second half.
Correction of working capital management is critical for mid-term ROIC: DSO 330 days (worse from 283 days) and accounts receivable ¥12,300M tie up cash. Liquidity is ample (cash and equivalents ¥14.7B) limiting short-term risk, but low capital efficiency (ROIC 1.5%, ROE 1.2%) is primarily driven by working capital tie-up. Shortening collection terms, enforcing advance/milestone billing, and other operational improvements are pivotal for ROIC improvement and dividend sustainability.
Recovery of Overseas IT profitability is necessary for portfolio balance: Overseas IT grew revenue +9.2% but margin fell to 8.7% (prior 10.6%), producing operating profit decline -10.1%. To reduce concentration risk from Domestic IT (72% of revenue) and achieve both growth and profitability, stronger profitability control on overseas projects is essential.
This report is an AI-generated financial analysis document based on XBRL financial statement data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company from public financial statements. Investment decisions are your own responsibility; consult a professional advisor as needed.