ARGO GRAPHICS Inc. FY2027 Q1 Earnings Report

Quick View

Executive Summary

The first quarter of the fiscal year ending March 2027 resulted in higher revenue but lower earnings, as the high growth of the EDA Business was insufficient to offset the decline in the PLM Business’s margins. Revenue increased slightly to ¥16.94B (¥16.76B in the same period of the previous year, YoY+1.1%), while Operating Income declined to ¥2.29B (¥2.44B, YoY-6.0%) and Ordinary Income declined to ¥2.41B (¥2.58B, YoY-6.7%). Net Income attributable to owners of the parent was ¥1.43B (¥1.655B in the previous year, YoY-13.6%), representing a larger decline than consolidated Net Income of ¥1.55B, including the portion attributable to non-controlling interests (¥1.72B, YoY-10.3%). The primary causes of the earnings decline were deteriorating profitability in the core PLM Business and an increase in selling, general and administrative expenses at a pace exceeding revenue growth.

Factors Affecting Performance

【Revenue】Revenue was ¥16.94B (YoY+1.1%). By segment, the PLM Business was nearly flat at ¥16.24B (95.9% of total revenue, YoY+0.4%), while the EDA Business maintained high growth at ¥0.70B (4.1% of total revenue, YoY+19.4%) and, despite its small scale, drove the increase in company-wide revenue.

【Profit and Loss】The gross margin was 25.5%, down 0.6pt from 26.1% in the previous year, and gross profit decreased slightly to ¥4.32B (¥4.37B in the previous year, -1.1%). Selling, general and administrative expenses increased 5.1% YoY to ¥2.02B, exceeding the revenue growth rate (+1.1%), and pushed down the Operating Income margin from 14.6% to 13.5%, a decline of 1.1pt. Operating Income was ¥2.29B (-6.0%), while Ordinary Income was ¥2.41B (-6.7%; Ordinary Income margin 14.2%, down 1.2pt year on year). There were essentially no extraordinary gains or losses (a loss on valuation of investment securities of ¥0.015B was recorded in the previous year). The reduction from Ordinary Income was primarily attributable to income taxes of ¥0.86B (effective tax rate 35.8%) and Net Income attributable to non-controlling interests of ¥0.11B, resulting in Net Income attributable to owners of the parent of ¥1.43B (Net Income margin 8.4%, down 1.4pt year on year). In conclusion, revenue increased while earnings declined.

Segment Analysis

The PLM Business generated revenue of ¥16.24B (YoY+0.4%) and Operating Income of ¥2.04B (YoY-12.6%), with profitability declining to 12.5%, making it the primary cause of the company-wide earnings decline. The EDA Business generated revenue of ¥0.70B (YoY+19.4%) and Operating Income of ¥0.26B (YoY+130.8%), maintaining high profitability at 36.7%. The profitability gap versus the PLM Business reached 24.2pt. Although the PLM Business continues to account for a substantial portion of company-wide Operating Income, profit growth in the EDA Business is accelerating, and the impact of changes in the segment mix on company-wide margins may expand going forward.

Key Financial Indicators

【Profitability】The Operating Income margin was 13.5%, down 1.1pt from 14.6% in the previous year, while the Net Income margin (based on Net Income attributable to owners of the parent) was 8.4%, down 1.4pt from 9.9% in the previous year. The primary factors were the contraction in the gross margin (25.5%, versus 26.1% in the previous year) and the increase in selling, general and administrative expenses (YoY+5.1%). 【Cash Quality】Cash and deposits were ample at ¥28.44B; however, while accounts receivable declined to ¥15.20B (-27.3% from the previous fiscal year), inventories increased sharply to ¥3.82B (+67.2%), indicating that although collections are progressing, the accumulation of inventory and work in process is delaying cash conversion. 【Investment Efficiency】ROE was 3.1%, reflecting the profit level on a quarterly basis, with the decline in the Net Income margin acting as a downward factor. 【Financial Soundness】The Equity Ratio remained high at 68.0%, and current assets of ¥51.35B provided substantial coverage against current liabilities of ¥18.68B, indicating that the financial foundation is generally solid.

Cash Flow Analysis

As cash flow statement data has not been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥28.44B, a decrease of ¥4.11B (-12.6%) from the end of the previous fiscal year. In terms of working capital, accounts receivable declined to ¥15.20B, a decrease of ¥5.70B (-27.3%) from the previous fiscal year, indicating progress in collections. Meanwhile, inventories increased to ¥3.82B, an increase of ¥1.53B (+67.2%), suggesting accumulation primarily of work in process. Accounts payable were ¥12.27B, while total current liabilities also contracted to ¥18.68B (-27.4% from the previous fiscal year), indicating progress in reducing liabilities. Although both assets and liabilities contracted, cash remained at a high level, ensuring financial safety. However, the increase in inventory and work in process warrants attention regarding the timing of future cash generation.

Quality of Earnings

Non-operating income was ¥0.11B (0.7% of revenue), primarily consisting of dividend income of ¥0.07B, indicating low dependence on temporary factors. There were essentially no extraordinary gains or losses (a loss on valuation of investment securities of ¥0.015B was recorded in the previous year). The reduction from Ordinary Income of ¥2.41B to Net Income attributable to owners of the parent of ¥1.43B was primarily explained by income taxes of ¥0.86B (effective tax rate 35.8%) and Net Income attributable to non-controlling interests of ¥0.11B. Comprehensive income was ¥2.84B, exceeding consolidated Net Income of ¥1.55B, mainly due to the recognition of unrealized gains of ¥1.32B in the valuation difference on securities. This differs in nature from earnings-generating capacity derived from the business and therefore warrants attention. From a working capital perspective, inventories increased sharply (+67.2%), making accrual trends another area requiring close monitoring when assessing earnings quality.

Earnings Forecast and Guidance

Progress in Q1 against the Full-Year plan was 23.3% for revenue (¥72.60B plan, YoY+1.5%), 22.3% for Operating Income (¥10.30B plan, YoY-4.1%), 22.7% for Ordinary Income (¥10.60B plan, YoY-7.2%), and 19.9% for Net Income attributable to owners of the parent (¥7.20B plan). All were below the standard quarterly progress rate of 25%. Progress in Net Income was particularly low relative to the other measures, reflecting the high tax burden and the decline in PLM Business margins. As of the current quarter, there have been no revisions to the earnings forecast or dividend forecast, and the company’s plans remain unchanged.

Shareholder Returns

The company conducted a 4-for-1 stock split of its common shares, effective October 1, 2025. The annual dividend forecast for the fiscal year ending March 2027 is ¥65 (including a special dividend of ¥20; ¥10 interim and ¥10 year-end), resulting in a Payout Ratio of approximately 62.1% against forecast EPS of ¥104.76. For the previous fiscal year ending March 2026, only the year-end dividend amount was stated, taking the stock split into account, and the total annual dividend was shown as “-”; therefore, a simple comparison with the previous year’s actual dividend of ¥80 before the split is not possible. The financial foundation, including cash and deposits of ¥28.44B and an Equity Ratio of 68.0%, supports the payment of dividends.

Risk Factors

1. Working capital accumulation: Inventories increased to ¥3.82B, up +67.2% from the previous fiscal year, while accounts receivable declined to ¥15.20B, down -27.3%. This indicates a delay in cash conversion timing due to the accumulation of inventory and work in process.

2. Concentration of earnings in the PLM Business: Operating Income from the PLM Business, which accounts for 95.9% of the revenue mix, declined YoY-12.6%, with its margin falling to 12.5%. Profitability trends in this business therefore have a significant impact on company-wide performance.

3. Market price fluctuations in investment securities: Investment securities totaled ¥14.09B, accounting for 19.2% of total assets. During the current period, valuation differences of +¥1.32B contributed to increases in comprehensive income and net assets; however, the structure exposes net assets to market price fluctuation risk.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Profitability metrics exceed the industry median and are relatively high among companies in the IT and communications sectors.

Growth and Capital Efficiency

The revenue growth rate is substantially below the industry median, placing the company at a relative disadvantage in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Higher revenue but lower earnings: The high growth and profitability of the EDA Business (revenue YoY+19.4%, Operating Income YoY+130.8%) partially offset the earnings decline in the PLM Business. The impact of changes in the segment mix on future company-wide margins is a key point of focus.

2. Delayed Full-Year progress: The Full-Year progress rate for Net Income attributable to owners of the parent was 19.9%, below the quarterly standard of 25%. Accelerating the pace of progress toward the second half of the fiscal year is a prerequisite for achieving the plan.

3. Contrast between financial soundness and working capital: While the company has a strong financial foundation, with an Equity Ratio of 68.0% and cash and deposits of ¥28.44B, the accumulation of working capital, as indicated by the sharp increase in inventories (+67.2%), is a key point to monitor when assessing earnings quality and cash-generating capacity.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥789–¥833 at ±1% for the cost of equity, and ¥807–¥814 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing discrepancy versus the Full-Year forecast).

(Calculation model: Residual Income Model / Interest rate reference month: 2026-06 / This figure does not predict or guarantee the future share price)

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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 discretion and responsibility, after consulting a professional as necessary.

---End of Report---