Quick View
| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥438.2B | ¥402.4B | +8.9% |
| Operating Income | ¥65.9B | ¥57.8B | +14.0% |
| Ordinary Income | ¥67.2B | ¥60.0B | +12.2% |
| Net Income | ¥46.5B | ¥41.1B | +13.1% |
| ROE | 4.6% | 4.1% | - |
Executive Summary
The results for 2026 FY Q1 show revenue of ¥438.2B (YoY +¥35.8B, +8.9%), operating income of ¥65.9B (YoY +¥8.1B, +14.0%), ordinary income of ¥67.2B (YoY +¥7.3B, +12.2%), and net income of ¥46.5B (YoY +¥5.4B, +13.1%), reflecting revenue and profit growth. The operating margin improved 0.6pt to 15.0% from 14.4% a year earlier, and the net margin widened 0.4pt to 10.6% (prior year 10.2%). Business Solutions drove profitability improvement as a high-margin segment, with revenue +35.4% and operating income +108.1%, while Manufacturing Solutions recorded revenue -3.5% and operating income -30.3%, creating a divergence between segments. Progress against the full year plan (Revenue ¥1,820B, Operating Income ¥255B) is broadly on track, with 24.1% of revenue and 25.8% of operating income achieved.
Drivers of Performance
[Revenue] Revenue of ¥438.2B represents an increase of +8.9% YoY. By segment, Business Solutions showed the largest growth at ¥77.3B (share 17.6%, YoY +35.4%), Communications IT was ¥113.9B (share 26.0%, +13.1%), and Financial Solutions was ¥91.0B (share 20.8%, +9.6%), maintaining double-digit growth. Manufacturing Solutions declined to ¥156.0B (share 35.6%, -3.5%). Cost of sales was ¥279.2B (63.7% of revenue), yielding gross profit of ¥158.9B and a gross margin of 36.3%, up 0.5pt from 35.8% a year earlier. The higher share of the high-margin Business Solutions contributed to both top-line growth and margin expansion.
[Profit & Loss] SG&A was ¥93.1B (21.2% of revenue), up +7.9% YoY, below revenue growth (+8.9%), producing operating leverage. Operating income was ¥65.9B (+14.0%), and operating margin expanded 0.6pt to 15.0% (prior year 14.4%). Non-operating income totaled ¥2.6B (interest and dividend income ¥1.7B, investment partnership gains ¥0.3B, foreign exchange gains ¥0.2B, etc.) and non-operating expenses totaled ¥1.3B (foreign exchange losses ¥0.8B, interest expense ¥0.1B, etc.), resulting in ordinary income of ¥67.2B (+12.2%). Equity-method investment income contributed a limited ¥0.7B. After deducting corporate taxes and other items of ¥20.8B (30.9% of pre-tax income), net income was ¥46.5B (+13.1%). There were no extraordinary gains or losses; recurring operations drove profit growth.
Segment Analysis
Business Solutions emerged as the largest contributor with operating income of ¥20.6B (margin 26.7%), up +108.1% YoY. Financial Solutions posted operating income of ¥14.1B (margin 15.5%), +27.4% YoY, and Communications IT delivered operating income of ¥13.3B (margin 11.6%), +19.2% YoY, showing stable growth. Manufacturing Solutions recorded operating income of ¥17.9B (margin 11.5%), down -30.3%, indicating significant profit decline potentially due to worse project mix or front-loaded cost recognition. The gap in segment margins reached up to 15.2pt (Business Solutions 26.7% vs Manufacturing Solutions 11.5%), and the shift toward higher-margin areas lifted overall company profitability.
Key Financial Metrics
[Profitability] Operating margin of 15.0% improved 0.6pt from 14.4% a year ago; net margin of 10.6% widened 0.4pt from 10.2%. ROE of 4.6% is composed of net margin 10.6% × total asset turnover 0.259 × financial leverage 1.67, with improvement driven by net margin while total asset turnover remained low and flat. Gross margin improved to 36.3% (prior 35.8%) and SG&A ratio declined to 21.2% (prior 21.4%), revealing operating leverage. [Cash Quality] Non-operating income ¥2.6B (0.6% of revenue) and non-operating expenses ¥1.3B (0.3%) indicate limited impact from non-operating items; profits are driven by core operations. Contract liabilities of ¥190.2B reflect a business model based on advance receipts, securing stable upfront cash inflows. [Investment Efficiency] Total asset turnover is 0.259x (annualized 1.04x), indicating a capital-intensive structure. Estimated ROIC (approximate) is Operating Income ¥65.9B ÷ Invested Capital (Net Assets ¥1,009.5B + estimated interest-bearing debt) at roughly 4.8%, implying significant room to improve capital efficiency. [Financial Soundness] Equity ratio remains high at 59.8% (prior 60.7%). Current ratio is 218.3% (current assets ¥1,399.5B ÷ current liabilities ¥641.0B), and quick ratio is 218.2%, indicating very ample liquidity. Interest coverage is 549x (Operating Income ¥65.9B ÷ interest expense ¥0.12B), showing minimal interest burden. Cash and deposits of ¥60.9B decreased substantially from ¥83.6B a year earlier (-27.2%), temporarily reducing on-hand liquidity due to working capital fluctuations.
Cash Flow Analysis
Analysis of the balance sheet movement shows cash and deposits decreased by ¥22.8B to ¥60.9B (prior year ¥83.6B, -27.2%), while accounts payable increased ¥54.1B to ¥253.3B (prior year ¥199.2B, +27.1%), and advance payments (Advance Payments Trade) increased ¥56.7B to ¥321.8B (prior year ¥265.1B, +21.5%). Accounts receivable rose to ¥405.1B (prior year ¥377.9B, +7.2%), consistent with revenue growth. On the working capital side, upfront payments for project progress and the recording of payables proceeded simultaneously, and cash outflows led to a decline in on-hand cash. Contract liabilities of ¥190.2B (prior year ¥199.4B) remain high, maintaining an advance-payment buffer. While quarter-to-quarter cash flow can be volatile due to project acceptance timing and payment terms, the strong current ratio of 218% limits material impact on financial safety.
Quality of Earnings
Non-operating income of ¥2.6B (0.6% of revenue) comprises interest and dividend income ¥1.7B, investment partnership gains ¥0.3B, foreign exchange gains ¥0.2B, etc., while non-operating expenses of ¥1.3B (0.3%) are mainly foreign exchange losses ¥0.8B and interest expense ¥0.1B. Non-operating items are less than 1% of revenue, so earnings are primarily from recurring operations. There were no extraordinary items, so earnings are not driven by one-offs. The difference between ordinary income ¥67.2B and net income ¥46.5B is explained by corporate taxes and similar expenses of ¥20.8B (effective tax rate 30.9%), which is within normal range. Equity-method investment income ¥0.7B is small. Comprehensive income of ¥47.8B equals net income ¥46.5B plus foreign currency translation adjustments ¥1.1B and net unrealized gains on securities ¥0.2B, a 2.8% divergence from net income. On accruals, accounts receivable, accounts payable, and advance payments all increased, so cash generation by quarter is sensitive to project acceptance and recognition timing. Overall, earnings quality is driven by recurring operations and appears sustainable, though effective working capital management is important.
Outlook & Guidance
The full year plan calls for revenue ¥1,820B (YoY +10.4%), operating income ¥255B (YoY +11.4%), and ordinary income ¥261B (YoY +10.5%). Q1 progress rates against the full year plan are revenue 24.1% (standard pace 25%: -0.9pt), operating income 25.8% (+0.8pt), and ordinary income 25.8% (+0.8pt), indicating results are broadly on track to slightly ahead. If the high-margin Business Solutions projects continue and segment mix improvement persists into the second half, stable operating margin trends make achieving the full year targets highly likely. Conversely, prolonged weakness in Manufacturing Solutions could exert downward pressure on consolidated margins. No forecast revision has been made; at present, risks to achieving the plan are limited.
Shareholder Returns
Full year dividend forecast is ¥22.5 per share (post-stock-split basis; 1-for-3 split effective January 1, 2026). With forecast EPS of ¥92.22, the payout ratio is approximately 24.4%, a conservative level. This represents an effective increase from prior year dividend of ¥58 per share (pre-split; equivalent to ¥19.3 per share post-split). No share buyback has been disclosed; the total return ratio is at the same level as the payout ratio. Given low leverage (equity ratio 59.8%), strong liquidity (current ratio 218%), and minimal interest burden (interest coverage 549x), dividend sustainability is high. Contract liabilities of ¥190.2B also support funding stability. Future dividend increases would be contingent on improvements in capital efficiency (estimated ROIC 4.8%) and stabilization of operating cash flow.
Risk Factors
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Segment profitability volatility: Manufacturing Solutions recorded revenue -3.5% and operating income -30.3%, with margin declining to 11.5% from 15.9% a year earlier (down 4.4pt). As a core segment accounting for 35.6% of revenue, prolonged deterioration in project mix or cost controls could depress consolidated margins. Dependence on the high-margin Business Solutions (margin 26.7%) aids profitability but introduces concentration risk.
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Working capital management and liquidity risk: Large working capital items—accounts receivable ¥405.1B, advance payments ¥321.8B, and contract liabilities ¥190.2B—mean quarterly liquidity can fluctuate with project acceptance and payment timing. Cash and deposits fell substantially YoY (-27.2%), while accounts payable and advance payments increased. Although the current ratio of 218% provides a buffer, concentration of large project settlements or changes in payment terms could cause temporary funding pressure.
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Delay in improving capital efficiency: With ROE 4.6% and estimated ROIC around 4.8%, capital efficiency is low. Total asset turnover of 0.259x reflects a capital-intensive structure, limiting profit generation relative to invested capital. If accounts receivable collection lengthens (worrisome level equivalent to ~337 days of receivables) or if efficient utilization of intangible assets ¥134.3B (7.9% of total assets) does not progress, shareholder value enhancement may stagnate.
Industry Benchmark (Reference — Company Estimates)
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 15.0% | 6.2% (4.2%–17.2%) | +8.8pt |
| Net Margin | 10.6% | 2.8% (0.6%–11.9%) | +7.8pt |
Profitability significantly exceeds the industry median, positioning the company at a high level within the IT & telecommunications sector.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 8.9% | 20.9% (12.5%–25.8%) | −12.0pt |
Revenue growth lags the industry median, indicating a slower growth pace versus peers.
※ Source: Company aggregation
Key Points from the Results
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Rapid growth in Business Solutions (revenue +35.4%, operating income +108.1%, margin 26.7%) has driven segment mix improvement and contributed to the expansion of consolidated operating margin to 15.0% (prior 14.4%). Continued increase in this segment’s share could support a structural improvement in profitability. Conversely, the slowdown in Manufacturing Solutions (revenue -3.5%, operating income -30.3%) may indicate structural issues and warrants attention to project portfolio restructuring.
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Q1 progress against the full year plan shows operating income at 25.8%, roughly on track to slightly ahead. With continued high-margin projects and maintained cost discipline, the company is well positioned to achieve the full year target (Operating Income ¥255B, operating margin 14.0%). Order trends in the second half and the recovery pace of Manufacturing Solutions are key upside factors.
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ROE 4.6% and estimated ROIC ~4.8% point to low capital efficiency; improving total asset turnover from 0.259x is a core challenge. Risks include extended receivables collection, efficient utilization of intangible assets ¥134.3B, and the need for advanced working capital management to enhance shareholder value. Payout ratio of 24.4% is conservative and there is scope for higher dividends, conditional on improved capital efficiency and stable FCF generation.
This report is an earnings analysis document automatically generated by AI analyzing XBRL earnings release data. It is not a recommendation to invest in any specific security. Industry benchmarks are reference information aggregated by the Company from public financial disclosures. Investment decisions should be made at your own responsibility, and consult a professional advisor as necessary.
AI Financial Analysis
Executive Summary
FY2026 Q1 was a strong start, with profit growth outpacing revenue growth and operating-margin expansion to the excellent threshold. Revenue rose 8.9% YoY to ¥43.82bn. Operating income increased 14.0% to ¥6.59bn. Ordinary income grew 12.2% to ¥6.73bn. Net income attributable to owners rose 13.1% to ¥4.65bn. Gross profit increased 10.4% to ¥15.89bn, faster than revenue growth. The gross margin improved by 50bp YoY to 36.3%. SG&A expenses grew 8.0% YoY to ¥9.31bn, modestly below the 8.9% revenue increase. This produced positive operating leverage and lifted the operating margin by 68bp YoY to 15.0%. Net margin improved by 40bp YoY to 10.6%, maintaining an excellent profitability profile. Business Solution was the principal profit-growth engine, with segment profit more than doubling. Financial Solution and Communication IT also produced both revenue and profit growth. Manufacturing Solution was the notable offset, as both sales and segment profit declined and its margin compressed materially. The annualized ROE was 18.4%, supported by a 10.6% net margin, 1.038x annualized asset turnover, and 1.67x financial leverage. Liquidity remained robust, with a 218.3% current ratio and ¥75.84bn of working capital. Receivable collection remains the principal balance-sheet quality issue, as DSO stands at 84 days and materially exceeds the 60-day alert level. Q1 progress against full-year guidance is broadly on track, although the full-year sales plan implies a modest acceleration in growth after the first quarter. The full-year dividend forecast of ¥45 per share indicates a forecast dividend payout ratio of 48.8%, which is consistent with retained-earnings capacity and current profitability.
Profitability Analysis
Annualized DuPont ROE was 18.4%, decomposed into a 10.6% net profit margin, 1.038x annualized asset turnover, and 1.67x financial leverage. The net margin is the strongest contributor to the return profile and exceeds the 10% excellent benchmark. Operating margin rose to 15.0% from 14.4% in the prior-year quarter, a 68bp expansion, while gross margin improved to 36.3% from 35.8%, a 50bp gain. The remaining improvement reflects controlled overhead, as SG&A rose 8.0%, below the 8.9% revenue growth rate. Financial leverage is moderate rather than aggressive, with liabilities/equity of 0.67x and equity funding 59.8% of assets. The five-factor analysis shows a 69.1% tax burden and a 102.1% interest burden; the latter reflects non-operating income exceeding interest expense rather than material financing strain. Interest coverage was exceptionally high at 549.0x, consistent with interest expense of only ¥0.12bn. Segment profitability was led by Business Solution, the core business by operating-income contribution: revenue increased 35.4% YoY to ¥7.73bn and segment profit increased 108.1% to ¥2.06bn, raising margin by 931bp to 26.7%. Financial Solution revenue increased 9.6% to ¥9.10bn and segment profit increased 27.4% to ¥1.41bn, with margin up 77bp to 15.5%. Communication IT revenue increased 13.1% to ¥11.39bn and segment profit increased 19.2% to ¥1.33bn, with margin up 60bp to 11.6%. Manufacturing Solution revenue declined 3.5% to ¥15.60bn and segment profit fell 30.3% to ¥1.79bn, compressing margin by 442bp to 11.5%. The sustainability of consolidated margin expansion therefore depends on maintaining the Business Solution mix and restoring Manufacturing Solution profitability.
Growth Assessment
Revenue growth of 8.9% was broad-based across Business Solution, Communication IT, and Financial Solution, but was below the 10.4% full-year revenue-growth assumption. Business Solution's 35.4% revenue growth and 108.1% profit growth indicate a substantial favorable mix contribution in Q1. Communication IT also delivered balanced growth, with sales up 13.1% and profit up 19.2%. Financial Solution showed healthy expansion, with sales up 9.6% and profit up 27.4%. Manufacturing Solution remains the main drag, with a 3.5% sales decline and 30.3% segment-profit decline. Consolidated Q1 revenue represents 24.1% of the ¥182.0bn full-year sales forecast, 0.9 percentage points below the standard 25% quarterly progress rate. Operating income represents 25.8% of the ¥25.5bn full-year forecast, 0.8 percentage points above the standard rate. Net income represents 25.8% of the ¥18.0bn full-year forecast, also modestly ahead of the standard rate. Accordingly, the full-year profit plan is supported by the Q1 run-rate, while the revenue plan requires some growth acceleration over the remainder of the year. Guidance has not been revised.
Financial Health
Liquidity is strong, with current assets of ¥139.95bn against current liabilities of ¥64.10bn, producing a 218.3% current ratio. The quick ratio is similarly high at 218.2%, indicating that liquidity does not rely on inventory monetization. Working capital is ¥75.84bn. Equity totals ¥100.95bn, equivalent to 59.8% of total assets, supporting a solid capitalization profile. Liabilities/equity are 0.67x, well below the 2.0x aggressive-financing warning threshold. Noncurrent liabilities are only ¥3.85bn, limiting long-dated balance-sheet obligations. The maturity profile is favorable: current assets exceed current liabilities by ¥75.84bn. Cash and deposits fell ¥2.28bn YoY, or 27.2%, to ¥6.09bn. Accounts payable increased ¥5.41bn, or 27.1%, to ¥25.33bn, while advance payments rose ¥5.67bn, or 21.4%, to ¥32.18bn. These movements are consistent with a larger operating working-capital base and increase the importance of receivable collection discipline. Contract liabilities declined 4.6% YoY to ¥19.02bn. Goodwill was ¥4.75bn, equal to only 4.7% of equity and 2.8% of assets, while total intangible assets were 7.9% of assets; neither represents a material balance-sheet concentration or elevated acquisition-value retention risk.
Notable B/S Changes
Cash and deposits: -¥2.28bn (-27.2% YoY) to ¥6.09bn - liquidity ratios remain strong, but lower cash increases the importance of working-capital discipline. Accounts payable: +¥5.41bn (+27.1% YoY) to ¥25.33bn - supplier financing increased alongside the operating working-capital base. Advance payments: +¥5.67bn (+21.4% YoY) to ¥32.18bn - reflects a larger project-related working-capital commitment. Inventories: +¥0.21bn (+42.0% YoY) to ¥0.71bn - percentage growth is high from a small base, but inventory remains immaterial to total assets. Accounts receivable: +¥2.72bn (+7.2% YoY) to ¥40.51bn - the absolute receivables balance remains significant and corresponds to an elevated 84-day DSO.
Cash Flow Quality
Working-capital quality requires attention because accounts receivable were ¥40.51bn and the reported DSO was 84 days, above the 60-day quality-alert threshold. The root cause is a relatively large receivables balance relative to the annualized sales run-rate. For an IT-services company with project-based delivery and enterprise customers, longer collection cycles can occur, but 84 days remains above the stated benchmark and increases exposure to timing-related cash conversion volatility. The balance worsened in absolute terms, with receivables increasing ¥2.72bn YoY, although the 7.2% receivables increase was slightly below the 8.9% sales growth rate. The impact on the investment thesis is a need to verify that earnings conversion keeps pace with accounting profit as the company grows. Inventory is immaterial at ¥0.71bn, so inventory carrying risk is not a meaningful driver of working-capital quality. The increase in accounts payable to ¥25.33bn and advance payments to ¥32.18bn provides partial operating funding, but should not substitute for timely customer collection. Contract liabilities of ¥19.02bn provide some customer-funded working-capital support.
Dividend Sustainability
The FY2026 forecast dividend is ¥45 per share and forecast EPS is ¥92.22, implying a dividend payout ratio of 48.8%. This is below the 60% sustainability benchmark. Q1 EPS was ¥23.82, representing 25.8% of the full-year EPS forecast and broadly consistent with the full-year dividend framework. Retained earnings were ¥76.53bn, providing a substantial internal capital buffer relative to forecast net income of ¥18.0bn. The capital structure is conservative, with liabilities/equity of 0.67x and a 218.3% current ratio. No dividend revision has been announced. The company executed a three-for-one stock split effective January 1, 2026; the stated FY2026 forecast DPS and EPS provide the appropriate same-basis payout calculation.
Risk Assessment
Business risks include Manufacturing Solution: revenue declined 3.5% YoY and segment profit fell 30.3%, with segment margin compressing 442bp to 11.5%. A prolonged slowdown in manufacturing-sector IT demand, project delays, or lower project profitability would constrain consolidated margin expansion., Business-mix dependence: Business Solution generated ¥2.06bn of segment profit, 31.3% of consolidated operating income, after a 108.1% profit increase. Normalization of this unusually strong margin performance would reduce consolidated earnings momentum., IT-services execution and talent risk: project delivery, skilled-engineer availability, wage inflation, and the ability to price higher-value digital solutions can affect margins, particularly in the Manufacturing Solution recovery..
Financial risks include Receivables collection: DSO of 84 days is above the 60-day alert level. This raises the risk that profit growth does not translate proportionately into cash generation and increases exposure to customer-payment timing., Working-capital funding: cash and deposits declined 27.2% YoY to ¥6.09bn while accounts payable increased 27.1% to ¥25.33bn. Liquidity remains strong, but the direction of these movements warrants monitoring., Foreign-exchange exposure: FX losses were ¥0.81bn in Q1, contributing to non-operating expenses of ¥1.27bn and moderating ordinary-income growth relative to operating-income growth..
Key concerns include High priority: maintain or improve the 84-day DSO through disciplined billing and collection, given its direct importance for earnings conversion., High priority: determine whether the Manufacturing Solution margin contraction is temporary project timing or reflects a more persistent pricing, utilization, or cost issue., Medium priority: assess whether Business Solution's 26.7% segment margin can be sustained after the Q1 mix benefit., Medium priority: full-year sales guidance requires growth to accelerate modestly from the 8.9% Q1 rate to achieve the 10.4% full-year growth target..
Investment Implications
Key takeaways include Q1 operating income growth of 14.0% exceeded revenue growth of 8.9%, demonstrating positive operating leverage., The operating margin reached 15.0%, up 68bp YoY, while annualized ROE was 18.4%., Business Solution was the largest operating-profit contributor and the major source of Q1 upside, while Manufacturing Solution detracted from growth., Balance-sheet liquidity and capitalization are strong, but the 84-day DSO is the principal financial-quality metric to monitor., Q1 profit progress is slightly ahead of the standard quarterly pace relative to full-year guidance, whereas revenue progress is slightly below it..
Metrics to watch include Accounts receivable and DSO, particularly progress from the 84-day level, Manufacturing Solution revenue growth, segment margin, and project profitability, Business Solution segment margin following its Q1 increase to 26.7%, Consolidated operating-margin retention above 15.0%, Progress versus the ¥182.0bn sales and ¥25.5bn operating-income full-year forecasts, Cash and deposits relative to accounts payable and advance-payment movements.
Regarding relative positioning, The company presents an above-benchmark profitability profile for an IT-services provider, combining a 15.0% operating margin, 10.6% net margin, 18.4% annualized ROE, and strong current liquidity. Its relative differentiation in Q1 came from exceptionally strong Business Solution profitability; the counterweight is the sharp Manufacturing Solution margin decline and elevated receivable days.