| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥3447.5B | ¥3155.4B | +9.3% |
| Operating Income | ¥235.1B | ¥211.8B | +11.0% |
| Ordinary Income | ¥243.1B | ¥218.5B | +11.3% |
| Net Income | ¥169.4B | ¥147.2B | +15.1% |
| ROE | 4.3% | 3.7% | - |
FY2026 Q1 (Jan–Mar) results posted Revenue of ¥3,447.5B (YoY +¥292.1B +9.3%), Operating Income of ¥235.1B (YoY +¥23.3B +11.0%), Ordinary Income of ¥243.1B (YoY +¥24.6B +11.3%), and Quarterly Net Income attributable to owners of the parent of ¥166.9B (YoY +¥22.0B +15.1%), delivering revenue and profit growth across all stages. Operating margin improved to 6.8% (up 0.1pt from 6.7% a year earlier) and net margin improved to 4.8% (up 0.1pt from 4.7%), indicating better profitability. The core System Integration Business led high-margin growth with Revenue +9.9% and Operating Income +16.0%, expanding segment profit margin to 8.5% (up 0.5pt from 8.0%). Operating Cash Flow was ¥298.2B (YoY +354.5%), 1.8x Net Income; accounts payable increase of ¥328.9B and inventory decrease of ¥141.8B contributed to improved working capital efficiency. Conversely, accounts receivable increased by ¥259.1B, signalling an extension of the collection cycle. Progress toward the full-year forecast stood at Revenue 26.3%, Operating Income 26.1%, Ordinary Income 27.0%, and Net Income 27.7% (based on company forecast Net Income of ¥611.3B), modestly above the seasonal benchmark pace of 25% and marking a solid start.
[Revenue] Revenue reached ¥3,447.5B (YoY +9.3%), securing near-double-digit growth. By segment, the System Integration Business accounted for ¥2,353.8B (+9.9%), representing 68.3% of total sales and driving top-line expansion. The Service & Support Business posted ¥1,101.4B (+8.0%), a somewhat lower growth rate, but both segments realized broad-based growth. Cost of sales increased to ¥2,792.0B (+21.0%), outpacing revenue growth; gross profit totaled ¥655.5B (+9.1%) with a gross margin stable at 19.0% (prior 19.0%).
[Profitability] Operating Income reached ¥235.1B (YoY +11.0%), achieving profit growth exceeding revenue growth. Selling, general and administrative expenses were contained at ¥420.5B (+8.1%), growing more slowly than revenue; SG&A ratio improved to 12.2% (down 0.1pt from 12.3%). By segment, the System Integration Business posted Operating Income of ¥199.2B (YoY +16.0%) with a margin of 8.5% (up 0.5pt from 8.0%), reflecting higher profitability, while the Service & Support Business recorded ¥71.8B (down 1.1%) with a margin of 6.5% (down 0.6pt from 7.1%), resulting in widening profitability dispersion between segments. Non-operating income was ¥13.1B (including foreign exchange gains ¥4.2B and interest income ¥2.2B); non-operating expenses were limited at ¥5.0B, bringing Ordinary Income to ¥243.1B (+11.3%). Extraordinary losses were minor at ¥0.9B; Profit before tax was ¥242.2B (YoY +10.9%). After corporate taxes of ¥72.8B (effective tax rate 30.1%) and non-controlling interests of ¥2.5B, Net Income attributable to owners of the parent was ¥166.9B (YoY +15.1%). In summary, high-margin growth in the System Integration Business and SG&A efficiency delivered revenue and profit increases.
The System Integration Business reported Revenue ¥2,353.8B (YoY +9.9%), Operating Income ¥199.2B (YoY +16.0%), and margin 8.5% (up 0.5pt from 8.0%), achieving profit growth exceeding revenue growth and margin expansion. As the core business accounting for 73.5% of consolidated Operating Income, acquisition of high-margin projects and improved project mix likely contributed to margin uplift. Conversely, the Service & Support Business posted Revenue ¥1,101.4B (+8.0%) but Operating Income fell to ¥71.8B (down 1.1%), with margin declining to 6.5% (down 0.6pt from 7.1%). Cost increases outpaced revenue growth, compressing profitability. A roughly 2.0pt margin gap exists between the segments; sustaining consolidated margins will depend on maintaining the System Integration Business’s margins and improving the Service & Support Business’s profitability.
[Profitability] Operating margin was 6.8% (up 0.1pt from 6.7% a year earlier) and net margin 4.8% (up 0.1pt from 4.7%), showing gradual improvement. ROE was 4.3%, relatively low, but decomposed as Net Margin 4.8% × Asset Turnover 0.46 × Financial Leverage 1.88, with Net Margin improvement being the main contributor. EBITDA was ¥260.1B (Operating Income ¥235.1B + Depreciation ¥24.6B + Goodwill Amortization ¥0.4B), with an EBITDA margin of 7.5%, showing a slight year-on-year improvement. [Cash Quality] Operating Cash Flow was ¥298.2B, 1.8x Net Income, with OCF/EBITDA at 1.15x and an accrual ratio of -1.8%, indicating strong cash conversion. However, while accounts payable increase of ¥328.9B and inventory decrease of ¥141.8B contributed positively, accounts receivable increased by ¥259.1B, making working capital sensitive to timing. [Investment Efficiency] Asset turnover was 0.46x (annualized 1.84x), showing standard asset efficiency, and inventory turnover was high at annualized 34.6x (inventory days 10.5). Receivables turnover was annualized 5.6x (collection days 65), confirming an extended collection cycle due to AR increase. Capital expenditures were ¥3.9B, well below depreciation of ¥24.6B, with Capex/Depreciation at 0.16x, reflecting an asset-light model. [Financial Soundness] Equity Ratio was 53.1% (down 1.7pt from 54.8%), remaining high. Interest-bearing debt was ¥60B (short-term borrowings ¥43B + long-term borrowings ¥17B), minimal, with Debt/EBITDA at 0.17x. Net cash was ¥2,540.7B (cash and deposits ¥2,600.7B - interest-bearing debt ¥60B), effectively debt-free. Current ratio was 181.4% and quick ratio 169.9%, indicating strong short-term liquidity. Interest coverage was 1,175x (EBIT ¥235.1B / interest expenses ¥0.2B), showing very high ability to cover interest.
Operating Cash Flow was ¥298.2B (prior year ¥65.6B, +354.5%), reaching 1.8x Net Income ¥169.4B. Operating cash subtotal, adding back depreciation ¥24.6B to Profit before tax ¥242.2B, amounted to ¥453.1B. Working capital changes contributed positively via inventory decrease ¥141.8B and accounts payable increase ¥328.9B, while accounts receivable increase of -¥259.1B was a headwind. After corporate tax payments of ¥157.1B, OCF settled at ¥298.2B. Investing Cash Flow was -¥47.5B (prior -¥46.1B), with main outlays of capital expenditure ¥3.9B and acquisition of investment securities ¥0.05B, reflecting a restrained investment stance well below depreciation. Free Cash Flow was ¥250.7B (OCF ¥298.2B + Investing CF -¥47.5B), ample and sufficient to cover Financing Cash Flow of -¥173.3B, which included dividend payments of ¥170.7B. Financing CF also included other financing activities -¥2.7B. Cash and cash equivalents increased ¥77.9B from opening ¥253.6B to closing ¥261.4B, including foreign exchange effects of ¥0.5B, strengthening the cash position. OCF/EBITDA was 1.15x and accrual ratio -1.8%, indicating high cash quality, but the contribution from working capital movements (AP increase, inventory decrease) warrants caution; a reversal could slow OCF.
Non-operating income was ¥13.1B, representing 0.4% of Revenue, mainly comprising interest income ¥2.2B, foreign exchange gains ¥4.2B, and equity-method investment income ¥4.8B. The difference between Ordinary Income ¥243.1B and Operating Income ¥235.1B was ¥8.0B (+3.4% of Operating Income), limited in size, suggesting most profit growth was generated from operating activities. Extraordinary items were limited to extraordinary losses of ¥0.9B, indicating minimal impact from one-off asset disposals. From Profit before tax ¥242.2B, after deducting corporate taxes ¥72.8B (effective tax rate 30.1%) and non-controlling interests ¥2.5B, Net Income attributable to owners of the parent was ¥166.9B; the divergence from Ordinary Income is explainable by tax burden and non-controlling interests. Comprehensive income was ¥153.6B (¥150.8B attributable to owners of the parent); the ¥-13.3B difference versus Net Income ¥166.9B was mainly due to other securities valuation losses of -¥16.6B, showing temporary mark-to-market pressure on held securities that did not affect P&L. From an accrual-quality perspective, OCF was 1.8x Net Income and accrual ratio -1.8%, confirming solid cash backing of profits, though contributions from AP increases and inventory decreases suggest temporary timing effects. Overall, earnings were primarily generated by recurring operations with low reliance on one-offs or non-operating items; the quality of earnings is judged healthy.
The full-year forecast remains unchanged: Revenue ¥1,311.0B (YoY -0.9%), Operating Income ¥90.0B (YoY +0.1%), Ordinary Income ¥90.1B (YoY -1.6%), and Net Income attributable to owners of the parent ¥611.3B. Q1 progress rates are Revenue 26.3% (¥3,447.5B ÷ ¥13,110B), Operating Income 26.1% (¥235.1B ÷ ¥90.0B), Ordinary Income 27.0% (¥243.1B ÷ ¥90.1B), and Net Income 27.7% (¥166.9B ÷ ¥611.3B), slightly above the seasonal benchmark of 25%. Q1 posted a solid Revenue increase of +9.3% YoY, supported by strength in the System Integration Business. Operating Income also rose +11.0% YoY in Q1, suggesting upside risk to the full-year forecast which is roughly flat; however, performance from Q2 onward will depend on project timelines and expense recognition timing. Ordinary Income and Net Income progress rates (27.0% and 27.7%) exceed operating-level progress due to contributions from non-operating income and tax distribution. The company has not revised its forecast, and achievement probability versus full-year plan is standard, but key issues include whether Q1 momentum is sustainable, potential reversal of working capital benefits, and how the inter-segment profitability gap evolves.
The company’s annual dividend forecast is ¥50 per share. Based on the average number of shares during the period of 379.2M shares, the annual dividend payout amounts to approximately ¥18.95B. The payout ratio against the full-year Net Income forecast of ¥611.3B is about 31.0%, a conservative level. Q1 Free Cash Flow was ¥250.7B, covering dividend payments of ¥170.7B (¥45 per share base for the period) and capital expenditure ¥3.9B (combined ¥174.6B), indicating strong cash coverage for dividends. No disclosure of share buybacks was confirmed; dividend payments remain the primary shareholder return. With net cash ¥2,540.7B and Debt/EBITDA 0.17x, the financial position is very strong and a payout ratio of 31% is sustainable relative to annualized OCF generation (¥1,193B). Potential return enhancements such as dividend increases or buybacks are possible given low leverage and abundant cash, but current capital allocation policy remains conservative.
Working capital reversal risk: Q1 OCF of ¥298.2B was substantially supported by accounts payable increase of ¥328.9B and inventory decrease of ¥141.8B, which include timing factors related to procurement terms and inventory management. If accounts payable reverse or inventory needs to be restocked, OCF could decline materially. Accounts receivable increased by ¥259.1B; if extended collection terms persist, cash-generation capability may be structurally impaired.
Widening inter-segment profitability gap: While the System Integration Business margin improved to 8.5% (from 8.0%), the Service & Support Business margin fell to 6.5% (from 7.1%), creating a roughly 2.0pt gap. As the Service & Support Business accounts for 32% of revenue, continued margin deterioration could cap consolidated margin upside. If cost structure improvements or price pass-through do not progress, profit growth may become concentrated in the System Integration Business, reducing portfolio stability.
Downside risk from full-year forecast vs Q1 results: Q1 delivered +9.3% revenue growth and +11.0% operating profit growth YoY, but the full-year forecast assumes Revenue -0.9% and Operating Income +0.1%, implying significant slowdown in H2. Risks include timing of project acceptance, delays in large projects, and competitive pressure on pricing. If Q1 strength reflects one-off project timing or front-loaded receipts, the risk of missing full-year targets increases.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 6.8% | 6.2% (4.2%–17.2%) | +0.6pt |
| Net Margin | 4.9% | 2.8% (0.6%–11.9%) | +2.1pt |
Both operating and net margins exceed industry medians, placing the company relatively high in profitability within the sector.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 9.3% | 20.9% (12.5%–25.8%) | -11.6pt |
Revenue growth lags the industry median substantially, indicating relatively lower growth momentum. The company appears to prioritize profitability, which may trade off against top-line expansion versus peers.
※ Source: Company compilation
High-margin trend and operating leverage in the System Integration Business: Segment margin improved to 8.5% (from 8.0%), with Operating Income up 16.0% versus Revenue up 9.9%, evidencing operating leverage. Acquisition of high-margin projects and improved project mix likely contributed; monitoring whether project-level profitability and segment share sustain this trend is critical. Conversely, the Service & Support Business margin decline (6.5% from 7.1%) is constraining consolidated margin upside, and measures to restore its profitability are essential for sustained consolidated growth.
Improved working capital efficiency and abundant cash generation: Q1 Free Cash Flow ¥250.7B exceeds dividends and capex, with net cash ¥2,540.7B maintaining a strong balance sheet. Inventory compression (YoY -25.8%) and accounts payable increase (+20.9%) contributed, but these include timing effects and may reverse, posing a risk of OCF deceleration. Accounts receivable increases (+¥259.1B) suggest lengthening collection terms, making working capital management sustainability a key focus. With a payout ratio of 31% and Debt/EBITDA 0.17x, there is capacity for higher returns, yet no concrete signals of return expansion are present.
Monitoring divergence between full-year forecast and Q1 results and downside risk in H2: Q1 delivered +9.3% revenue growth and +11.0% operating profit growth, while the full-year forecast assumes Revenue -0.9% and Operating Income +0.1%, anticipating significant slowdown. If Q1 strength was driven by project timing or concentrated project recognition, the risk of underperformance in H2 increases. Tracking segment-level progress, project pipeline, and backlog trends is necessary to assess full-year achievement probability.
This report was auto-generated by AI analyzing XBRL financial statement data and is intended as an analytical summary, not as a recommendation to invest in any particular security. Industry benchmarks are compiled by the company based on disclosed financial statements and provided for reference. Investment decisions are your own responsibility; consult a professional advisor as needed.