Computer Institute of Japan, Ltd. FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended June 2026, the Company delivered a strong set of results, with higher revenue and profit, an increase in the operating margin, and qualitative improvement in profitability. Revenue was ¥294.2B (+9.4% YoY), Operating Income was ¥26.2B (+20.7%), Ordinary Income was ¥26.6B (+20.8%), and Net Income was ¥18.0B (+20.7%); in each case, the profit growth rate exceeded the revenue growth rate. The improvement in gross margin (21.7%, +0.8pt YoY) was the primary factor, while the SG&A ratio remained virtually unchanged at 12.8%, resulting in the effect of operating leverage.

Factors Driving Performance Changes

【Revenue】Revenue of ¥294.2B represented a 9.4% increase YoY. The Company operates a single segment (system development and related businesses), and has disclosed that more than 90% of sales to external customers are domestic. The resilience of domestic IT demand supported growth. In the previous fiscal year, revenue from major customer SCSK was disclosed; in the current fiscal year, dependence on any specific customer declined to less than 10% of revenue, potentially indicating further diversification of the customer base.

【Profit and Loss】The gross margin improved to 21.7%, up +0.8pt from 20.9% in the previous year, while the SG&A ratio remained virtually unchanged at 12.8% (12.8% in the previous year). As a result, the operating margin rose to 8.9%, up +0.8pt from 8.1% in the previous year, and Operating Income increased to ¥26.2B (+20.7%). Ordinary Income was ¥26.6B (+20.8%), showing growth broadly in line with Operating Income, and the impact of non-operating income and expenses was limited. An extraordinary loss of ¥0.5B (including losses on disposal of fixed assets) was a temporary factor that compressed profit before tax; however, applying an effective tax rate of 30.9% to profit before tax of ¥26.1B resulted in Net Income of ¥18.0B (+20.7%). The Company achieved both revenue and profit growth, and the profit growth rate exceeding the revenue growth rate supports the view that profitability improved.

Key Financial Indicators

【Profitability】The operating margin was 8.9% (+0.8pt from 8.1% in the previous year), while the net profit margin was 6.1% (improving from 5.6% in the previous year), indicating margin expansion driven by the improvement in gross margin and the maintenance of the SG&A ratio. 【Cash Flow Quality】Operating Cash Flow (OCF) was 1.14x Net Income (¥20.5B/¥18.0B), providing quantitative support; however, the OCF/EBITDA ratio remained at approximately 73.6%, and the increase in accounts receivable and contract assets at period-end (a combined ¥2.5B tied up in funds) slightly delayed cash conversion. 【Investment Efficiency】ROE was 12.0%, a level achieved with a substantial equity structure reflected in an Equity Ratio of 77.3%. Capital expenditures of ¥0.9B represented only 56% of depreciation and amortization of ¥1.6B, confirming a growth model centered on human capital rather than large-scale capital investment. 【Financial Soundness】The Equity Ratio was 77.3%, while interest-bearing debt was limited to ¥4.7B in short-term borrowings and ¥0.1B in long-term borrowings. Cash and deposits of ¥88.2B substantially exceeded interest-bearing debt, resulting in a net cash position.

Cash Flow Analysis

Operating Cash Flow was ¥20.5B, an increase of +14.9% YoY, and remained above Net Income of ¥18.0B. Operating Cash Flow before changes in working capital totaled ¥28.1B. While the increase in accounts receivable and contract assets (-¥2.5B) and payment of corporate taxes and other taxes (-¥8.1B) exerted downward pressure on OCF, the increase in accounts payable (+¥0.6B) provided support. Investing Cash Flow was -¥2.1B, with capital expenditures of ¥0.9B representing the primary outflow. Financing Cash Flow was -¥17.0B, mainly due to dividend payments (approximately ¥10.2B) and the acquisition of treasury shares of ¥5.0B. Free Cash Flow was ¥18.4B, exceeding shareholder returns (approximately ¥15.2B in total dividends and treasury share acquisitions), indicating no issue with the Company’s cash generation capacity as a source of shareholder returns.

Quality of Earnings

Ordinary Income of ¥26.6B grew at a rate broadly in line with Operating Income of ¥26.2B (+20.8% vs. +20.7%), indicating that the impact of non-operating income and expenses, primarily dividend income of ¥0.2B, was limited and that core earnings are centered on Operating Income from the main business. The extraordinary loss of ¥0.5B (including losses on disposal of fixed assets) was a temporary factor, and the divergence from Ordinary Income, which represents recurring earning power, remained limited. Comprehensive Income was ¥18.3B, broadly in line with Net Income of ¥18.0B, indicating that the impact of other comprehensive income items such as valuation differences on securities and foreign currency translation adjustments was limited. The fact that OCF of ¥20.5B exceeded Net Income of ¥18.0B suggests good earnings quality from an accruals perspective. However, the increase in accounts receivable and contract assets placed pressure on working capital, and the pace of cash conversion will depend on future collection trends, which warrants attention.

Earnings Forecasts and Guidance

For the next fiscal year (fiscal year ending June 2027), the Company forecasts Revenue of ¥310.0B (+5.4%), Operating Income of ¥27.5B (+5.0%), and Ordinary Income of ¥27.8B (+4.4%). Compared with revenue growth of +9.4% and Operating Income growth of +20.7% in the current fiscal year, the growth rates in the plan for the next fiscal year are slowing, and the plan can be characterized as conservative. The planned operating margin is approximately 8.9%, calculated as 27.5/310.0, and is expected to remain broadly unchanged from the current fiscal year’s actual result of 8.9%. Forecast EPS is ¥33.32, representing an expected increase of +4.3% from actual EPS of ¥31.96 in the current fiscal year.

Shareholder Returns

The annual dividend for the current fiscal year was ¥20 (ordinary dividend of ¥18 and commemorative dividend of ¥2), resulting in a Payout Ratio of 62.6%. The Company conducted a ¥5.0B acquisition of treasury shares. Combined dividends (approximately ¥11.3B) and treasury share acquisitions represent a Total Return Ratio of approximately 90% of Net Income. Coverage of total returns (approximately ¥16.3B) by Free Cash Flow of ¥18.4B was 1.13x, indicating that returns were made within the range of cash generation during the current fiscal year. The dividend forecast for the next fiscal year is ¥21, representing a planned ¥1 increase from the current fiscal year’s actual dividend.

Risk Factors

1. Utilization and unit price dependency risk: Profitability in the project-based system development business is directly affected by fluctuations in utilization rates and project unit prices. The gross margin improved to 21.7% in the current fiscal year (+0.8pt YoY), but remains a factor that may fluctuate depending on changes in the demand environment.

2. Risk of rising personnel expenses: Salaries and allowances increased to ¥1.14B from ¥1.06B in the previous year. If the costs of recruiting and retaining personnel continue to rise, this could affect the sustainability of the improvement in gross margin.

3. Variability in investment restraint and cash conversion: Capital expenditures remained at 56% of depreciation and amortization (¥0.9B/¥1.6B), while the OCF/EBITDA ratio was approximately 73.6%, below the benchmark level. The expansion of working capital resulting from increases in accounts receivable and contract assets is temporarily delaying cash conversion.

Industry Benchmarks (For Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin exceed the industry median, indicating that profitability is relatively strong within the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median but remains within the IQR range and does not represent a significant underperformance.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Profit growth of +20.7%, exceeding revenue growth of +9.4%, demonstrates the effect of operating leverage arising from the improvement in gross margin and the maintenance of the SG&A ratio, indicating an improvement in the earnings structure rather than mere expansion in scale.

2. The coexistence of strong financial soundness, reflected in an Equity Ratio of 77.3% and minimal interest-bearing debt, and high shareholder returns, reflected in a Payout Ratio of 62.6% and a Total Return Ratio of approximately 90%, is notable. Free Cash Flow of ¥18.4B covering the source of returns provides one benchmark for assessing the sustainability of shareholder returns.

3. The OCF/EBITDA ratio remained at approximately 73.6%, while increases in accounts receivable and contract assets placed pressure on working capital. This indicates a gap between profit growth and the timing of cash conversion, making future collection trends a key area for monitoring.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥292–¥308 at a ±1% change in the cost of equity, and ¥299–¥301 at a change of ±0.1 in ω.

Note:

• Amortization of goodwill of ¥2.6/share has been added back to earnings (to account for a non-cash expense and comparability with IFRS companies).

(Calculation model: Residual Income Model / Interest rate reference month: 2026-07 / This value does not forecast or guarantee the future share price)

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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 and, where necessary, after consulting with a professional advisor.

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