ITFOR Inc. FY2027 Q1 Earnings Report

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Executive Summary

The key point of the results was that Operating Income increased on Revenue growth and improved gross margin, while higher non-operating expenses, mainly due to equity-method investment losses, restrained growth in Ordinary Income and Net Income. Revenue was ¥46.2B (+9.2% YoY), Operating Income was ¥5.5B (+28.5%), Ordinary Income was ¥5.1B (+3.5%), and Net Income attributable to owners of the parent for the quarter was ¥3.7B (+5.1%). The improvement in gross margin to 38.8% from 35.6% in the same period of the previous year was the primary driver of the increase in Operating Income. Meanwhile, an equity-method investment loss of ¥0.98B increased non-operating expenses, limiting growth below Operating Income.

Factors Affecting Results

【Revenue】Revenue was ¥46.2B, representing a +9.2% increase YoY. System Development and Sales increased to ¥21.9B (+10.5%), while Recurring Revenue increased to ¥24.6B (+7.7%). Recurring Revenue accounted for 53.1% of the sales mix, exceeding System Development and Sales at 46.9%.

【Profit and Loss】Operating Income increased to ¥5.5B, up +28.5% YoY, and the Operating Margin improved to 12.0% from 10.2% in the same period of the previous year, a 1.8pt improvement. The primary factor was the improvement in gross margin from 35.6% to 38.8%. Although SG&A expenses increased by +15.4% YoY, outpacing Revenue growth, the effect of the improved gross margin more than offset the increase. Ordinary Income increased to ¥5.1B, up only +3.5%, due to higher non-operating expenses, including an equity-method investment loss of ¥0.98B. Net Income was ¥3.7B, up +5.1%, indicating higher Revenue and profit.

Segment Analysis

System Development and Sales recorded Revenue of ¥21.9B (+10.5% YoY), Segment Profit of ¥2.5B (+31.6%), and a Profit Margin of 11.3%. Recurring Revenue recorded Revenue of ¥24.6B (+7.7%), Segment Profit of ¥3.1B (+25.6%), and a Profit Margin of 12.6%. Both segments achieved profit growth exceeding their respective Revenue growth rates, resulting in higher profit accompanied by improved profitability. Recurring Revenue is positioned as the core business in terms of both Profit Margin and its share of total profit. Its recurring revenue base, centered on maintenance and operations, cloud services, and BPO, supports the stability of Group profit.

Key Financial Indicators

【Profitability】The Operating Margin was 12.0%, improving by 1.8pt from 10.2% in the same period of the previous year, while the Net Profit Margin edged down to 7.7% from 8.4%. Gross margin improved by 320bp to 38.8% from 35.6%, serving as the primary driver of profit growth.【Cash Quality】Comprehensive Income was ¥7.1B, exceeding Net Income of ¥3.7B, mainly due to a ¥3.4B increase in the valuation difference on other securities.【Investment Efficiency】ROE (annualized) was 7.3% and consists of three components: Net Profit Margin, Total Asset Turnover, and Financial Leverage.【Financial Soundness】The Equity Ratio remained high at 79.9%, up from 73.6% in the previous year. Interest-bearing debt was extremely small relative to total assets, indicating low financial risk.

Cash Flow Analysis

As the disclosure does not include detailed statements of cash flows, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥62.7B, down from ¥78.1B in the same period of the previous year. However, current securities remained substantial at ¥61.9B, and liquid assets comprising the two totaled 48.7% of total assets, indicating sufficient liquidity. Accounts receivable declined substantially to ¥30.0B, while accounts payable also decreased to ¥7.4B, suggesting that changes in the timing of billing and collection as well as purchasing and payments at the quarter-end affected working capital. Inventories increased to ¥8.4B, with the accumulation of equipment and product inventories for Revenue expansion absorbing a portion of funds. Contract liabilities increased to ¥12.8B (+42.1% YoY), with the accumulation of deferred revenue supplementing the funding position.

Quality of Earnings

The increase in Operating Income was based on the recurring factor of improved gross margin, with limited impact from one-time gains or losses. Meanwhile, the fact that growth in Ordinary Income and Net Income did not keep pace with growth in Operating Income was attributable to the equity-method investment loss of ¥0.98B included in non-operating expenses. This loss has a non-recurring nature, as it depends on fluctuations in the performance of affiliated companies. Non-operating income was ¥0.6B, mainly consisting of dividend income of ¥0.4B, and was small at 1.3% of Revenue, indicating that earnings are primarily dependent on the core business. Comprehensive Income of ¥7.1B exceeded Net Income of ¥3.7B due to the increase in the valuation difference on other securities. This reflects unrealized asset valuation changes and does not indicate recurring earnings power.

Earnings Forecast and Guidance

The full-year forecast calls for Revenue of ¥280.0B (+21.2% YoY), Operating Income of ¥48.0B (+24.4%), and Ordinary Income of ¥49.0B (+20.9%). As of Q1, progress rates were 16.5% for Revenue and 11.6% for Operating Income, both below the simple quarterly run-rate of 25%. Operating Income progress in particular was 13.4pt below that benchmark, and achievement of the full-year plan depends on the accumulation of project progress and improvement in profitability during the second half of the year. The earnings forecast and dividend forecast were both maintained without revision.

Shareholder Returns

The full-year dividend forecast is ¥80.00 per share, resulting in a Payout Ratio of 62.3% based on forecast full-year EPS of ¥128.48. This figure is a Payout Ratio based solely on dividends and is not a Total Return Ratio including share repurchases. Although 62.3% is slightly above the general benchmark of 60%, the Company has substantial financial capacity to maintain dividends, given its Equity Ratio of 79.9%, cash and deposits of ¥62.7B, and interest-bearing debt of ¥2.1B.

Risk Factors

1. Impact of equity-method investment losses: An equity-method investment loss of ¥0.98B was recorded in non-operating expenses, limiting growth in Ordinary Income to +3.5% compared with the +28.5% increase in Operating Income. The risk that fluctuations in the performance of affiliated companies could affect consolidated Net Income has become apparent.

2. Delayed progress toward the full-year forecast: Progress toward the full-year Operating Income forecast of ¥48.0B was 11.6% in Q1, 13.4pt below the standard 25%. Dependence on project progress and the accumulation of Recurring Revenue in the second half of the year is high.

3. Increased SG&A expenses and pressure on profitability: SG&A expenses increased by +15.4% YoY, exceeding the +9.2% Revenue growth rate. If difficulties in hiring IT personnel and rising wages continue, maintaining profit margins could become challenging once the benefits of improved gross margin diminish.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Return

Profitability exceeded the industry median, with both the Operating Margin and Net Profit Margin positioned in the upper range of the industry.

Growth and Capital Efficiency

The Revenue growth rate was approximately in line with the industry median, placing the Company’s growth pace at a standard level within the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The Operating Margin improved by 1.8pt from the same period of the previous year to 12.0%. The primary factor was the improvement in gross margin (+320bp), making improved profitability in the core business the central change in Q1.

2. Recurring Revenue exceeded System Development and Sales, with a 53.1% share of Revenue and a Segment Profit Margin of 12.6%, increasing its weight as a recurring revenue base.

3. The equity-method investment loss of ¥0.98B resulted in a structure whereby the increase in Operating Income was not fully reflected in Ordinary Income and Net Income. Project progress in the second half of the year and trends in equity-method investment gains or losses will be key to achieving the full-year forecast.

Theoretical Share Price (For Reference)

Sensitivity: ¥904–¥955 at Cost of Equity ±1%, and ¥925–¥935 at ω±0.1.

Notes:

• Net assets as of the quarter-end are used (there is a timing mismatch with the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of the market share price or recommendations for specific investment actions, and do not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The 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 with professionals as necessary.

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