Quick View
| Metric | Current Period | Same Period Last Year | YoY |
|---|---|---|---|
| Revenue | ¥784.2B | ¥592.8B | +32.3% |
| Operating Income | ¥170.1B | ¥90.2B | +88.6% |
| Ordinary Income | ¥187.7B | ¥68.9B | +172.4% |
| Net Income | ¥132.5B | ¥48.1B | +175.5% |
| ROE | 3.7% | 1.4% | - |
Executive Summary
The most important point this quarter was that both revenue and earnings achieved triple-digit growth, driven by major titles, with the earnings growth rate substantially exceeding the revenue growth rate. Revenue was ¥784.2B (+32.3% YoY), Operating Income was ¥170.1B (+88.6%), Ordinary Income was ¥187.7B (+172.4%), and Net Income was ¥132.5B (+175.5%). The primary drivers of earnings growth exceeding revenue growth were operating leverage resulting from a portfolio shift toward highly profitable titles in the Digital Entertainment Business and restrained growth in SG&A expenses.
Factors Affecting Performance
【Revenue】Revenue was ¥784.2B, up +32.3% YoY. By segment, Digital Entertainment led company-wide growth with revenue of ¥499.6B (63.7% of total, +51.8% YoY), followed by Publishing at ¥72.6B (+11.0%), Merchandising at ¥46.1B (+22.3%), and Amusement at ¥170.9B (+3.8%). The expansion of Digital Entertainment’s revenue mix was the central factor behind the increase in revenue.
【Profit and Loss】Operating Income was ¥170.1B (+88.6%), and the Operating Income margin improved substantially to 21.7% from 15.2% in the prior year. The gross profit margin was broadly flat at 56.3%, indicating no major change in the cost structure. The primary factor behind the margin improvement was SG&A expense growth of +11.1%, which was substantially below revenue growth of +32.3%. Ordinary Income was ¥187.7B (+172.4%), boosted by a ¥7.7B foreign exchange gain and ¥7.1B interest income, increasing the amount added to Operating Income. Net Income was ¥132.5B (+175.5%) after recognition of ¥56.0B in income taxes and other taxes. The difference between Ordinary Income and Net Income (-29.4%) was attributable to the increased tax burden, while the impact of extraordinary items—¥1.0B in extraordinary income and ¥0.1B in extraordinary losses—was limited. Revenue and earnings increased.
Segment Analysis
Digital Entertainment led the company with revenue of ¥499.6B (+51.8%), Operating Income of ¥155.8B (+91.8%), and a profit margin of 31.2%, reaching 63.7% of total revenue. Publishing maintained the highest margin among the four segments at 34.6%, with revenue of ¥72.6B (+11.0%). Merchandising secured high profitability, with revenue of ¥46.1B (+22.3%) and a profit margin of 33.8%. Amusement remained at a lower level than the other segments, with revenue of ¥170.9B (+3.8%) and a profit margin of 11.2%, reflecting a relatively slower growth pace in terms of utilization rates and cost structure. The high concentration of profits in Digital Entertainment indicates that developments in the future title pipeline could have a significant impact on overall performance.
Key Financial Indicators
【Profitability】The Operating Income margin of 21.7% improved by +648bp from 15.2% in the prior year, while the Net Profit margin also rose by +880bp to 16.9% from 8.1%. The gross profit margin was broadly flat at 56.3% versus 56.4% in the prior year, and the improvement in profitability was primarily attributable to a decline in the SG&A expense ratio to 34.6% from 41.2%.【Cash Flow Quality】Cash and deposits remained substantial at ¥2,596.9B, while accounts receivable increased to ¥358.1B from ¥304.8B in the prior year, and inventories increased to ¥65.7B from ¥59.2B. The impact of working capital expansion on capital efficiency requires close monitoring.【Investment Efficiency】ROE of 3.7% was primarily attributable to the substantial improvement in the Net Profit margin. Total asset turnover remained low, reflecting a structure in which abundant cash holdings constrain asset efficiency.【Financial Soundness】The Equity Ratio was high at 82.3%, up from 79.6% in the prior year. Current assets of ¥3,633.3B substantially exceeded current liabilities of ¥615.4B, indicating a conservative and robust financial foundation.
Cash Flow Analysis
As the statement of cash flows has not been disclosed, cash trends are assessed based on changes in the balance sheet. Cash and deposits decreased to ¥2,596.9B from ¥2,760.5B in the prior year, but remained substantial, accounting for 60.3% of total assets. Accounts receivable increased to ¥358.1B from ¥304.8B, while inventories rose to ¥65.7B from ¥59.2B, respectively, indicating that the expansion of working capital associated with higher revenue is delaying cash conversion. Meanwhile, income taxes payable and other taxes payable declined substantially to ¥40.3B from ¥161.3B in the prior year, and the timing of income tax payments may have been a short-term source of cash outflow. Accounts payable increased to ¥192.9B from ¥171.9B, with the use of payment terms partially offsetting the impact on cash efficiency. Overall, the expansion of working capital accompanying higher revenue and the timing of tax payments are the key factors affecting cash trends, while the company retains ample cash and deposits to absorb these fluctuations.
Quality of Earnings
The core source of recurring earnings was Operating Income of ¥170.1B, while the impact of non-recurring items was minimal, with extraordinary income of ¥1.0B and extraordinary losses of ¥0.1B. The primary components of non-operating income of ¥17.8B, equivalent to 2.3% of revenue, were a ¥7.7B foreign exchange gain and ¥7.1B in interest income. The reversal from a ¥2.1B foreign exchange loss in the prior year contributed to the increase in Ordinary Income, although foreign exchange factors are highly volatile and include a transitory element. Net Income of ¥132.5B was approximately -29.4% below Ordinary Income of ¥187.7B, primarily due to the recognition of ¥56.0B in income taxes and other taxes. As an indicator of the profitability of the core business, it is appropriate to focus on the trend in the Operating Income margin, which is less affected by non-operating items. Its level of 21.7% itself reflects improved competitiveness in the core business.
Earnings Forecast and Guidance
Progress against the full-year plan was 26.3% for Revenue, 34.7% for Operating Income, 38.3% for Ordinary Income, and 42.7% for Net Income (Net Income progress is measured against the company’s plan of ¥310.0B), representing a pace above the simple progress rate of 25%. In particular, progress for Operating Income and Net Income substantially exceeded the plan, with contributions from highly profitable titles in Q1 and temporary foreign exchange and interest income creating a first-half-weighted structure. The company maintained its full-year plans of Revenue of ¥2,980B (+0.1% YoY), Operating Income of ¥490.0B (-10.5%), and Ordinary Income of ¥490.0B (-24.0%), representing a broadly flat to declining earnings outlook. Despite the high quarterly progress, neither the earnings forecast nor the dividend forecast has been revised. The performance of the new title lineup toward the second half and the normalization of the temporary tailwinds in the first half will be the key areas for monitoring future progress.
Shareholder Returns
The company’s full-year dividend plan is ¥43.00 per share, after taking the stock split into account, implying a Payout Ratio of approximately 50% against forecast EPS of ¥85.99. This reflects the October 2025 stock split, under which 1 share was split into 3 shares, and comprises a second-quarter-end dividend of ¥18.00 and a year-end dividend, totaling ¥43.00 annually. The dividend forecast has not been revised. Given the financial foundation of cash and deposits of ¥2,596.9B and an Equity Ratio of 82.3%, liquidity available to fund dividends is substantial, supporting the sustainability of the dividend policy. No data on share repurchases has been disclosed, so the evaluation is based only on the Payout Ratio rather than the Total Return Ratio.
Risk Factors
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Segment concentration risk: The Digital Entertainment Business accounts for 63.7% of the revenue mix and an even higher proportion of Operating Income, creating a high degree of dependence on the hit cycle of major titles. If growth in this business slows or title launches are delayed, the impact on company-wide performance would be relatively substantial.
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Working capital expansion: Accounts receivable increased to ¥358.1B from ¥304.8B in the prior year (+17.5%), while inventories increased to ¥65.7B from ¥59.2B (+10.9%). Although these increases were below the revenue growth rate of +32.3%, the management of collection periods and inventory accumulation will be key areas of focus going forward.
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Volatility in non-operating income and expenses: The ¥7.7B foreign exchange gain that boosted Ordinary Income represented a reversal from the ¥2.1B foreign exchange loss in the prior year. Depending on foreign exchange market trends, the positive effect could diminish or reverse from the second half onward.
Industry Benchmark (Reference; Compiled by the Company)
Industry Benchmark (it_telecom)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income Margin | 21.7% | 8.1% (2.3%–15.9%) | +13.6pt |
| Net Profit Margin | 16.9% | 5.9% (1.6%–10.7%) | +11.0pt |
Profitability substantially exceeded the industry median, with both the Operating Income margin and Net Profit margin ranking in the upper tier of the industry.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 32.3% | 9.3% (0.4%–16.9%) | +23.0pt |
The Revenue growth rate also exceeded the industry’s upper IQR of 16.9%, indicating a favorable position within the industry in terms of growth.
※Source: Compiled by the Company
Key Points from the Financial Results
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The expansion of the revenue mix of the highly profitable Digital Entertainment Business led the improvement in the Operating Income margin to 21.7% from 15.2% in the prior year. The fact that restrained SG&A expense growth (+11.1%) was below revenue growth (+32.3%), resulting in operating leverage, was a key highlight of the financial results.
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Full-year progress was well above the simple progress rate of 25%, at 34.7% for Operating Income and 42.7% for Net Income, confirming a first-half-weighted structure. The company has not revised its full-year plan of ¥490.0B in Operating Income (-10.5% YoY), and second-half results will provide a basis for assessing consistency with the strong progress in the first half.
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The increases in accounts receivable and inventories reflect working capital expansion accompanying higher revenue. The pace of cash conversion will be a key point in evaluating future cash efficiency.
Theoretical Share Price (Reference Value)
| Scenario | Theoretical Share Price |
|---|---|
| bear (bearish) | ¥969 |
| base (base case) | ¥1,005 |
| bull (bullish) | ¥1,017 |
| Calculation Assumption | Value |
|---|---|
| Book Value Per Share (BPS) | ¥983 |
| Adjusted Forecast EPS | ¥98.9 |
| Cost of Equity r | 9.27% (10-year Japanese Government Bond 2.77% + Equity Risk Premium 6.00% + Size Premium 0.50%) |
| Persistence Coefficient of Residual Income ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 50.0% |
| Forecast EPS Confidence Adjustment | ×1.150 (based on the Company’s historical track record of achieving its guidance) |
| Implied PBR / PER | 1.02x / 10.2x |
Sensitivity: ¥978–¥1,034 at Cost of Equity ±1%, and ¥1,005–¥1,006 at ω±0.1.
Notes:
- Net assets as of the quarter-end are used (there is a time lag relative to the full-year forecast).
- As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.
(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)
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 responsibility, after consulting with professionals as necessary.
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AI Financial Analysis
Executive Summary
FY2027 Q1 was a strong start, with revenue of ¥78.4bn rising 32.3% year on year and operating income of ¥17.0bn rising 88.6%. Operating leverage was pronounced, as operating-profit growth materially exceeded sales growth. Operating margin expanded to 21.7% from 15.2% in FY2026 Q1, an improvement of approximately 647bp. Gross margin was broadly stable at 56.3%, versus approximately 56.4% a year earlier, indicating that the profit improvement was driven principally below gross profit. SG&A expense increased 11.1% year on year to ¥27.1bn, substantially slower than revenue growth. Consequently, SG&A as a percentage of revenue fell to 34.6% from 41.2% in the prior-year quarter. Net income attributable to owners of the parent increased 175.7% to ¥13.2bn, lifting net margin to 16.9% from 8.1%. Ordinary income grew faster than operating income, increasing 172.4% to ¥18.8bn, supported by ¥1.8bn of non-operating income. Foreign-exchange gains of ¥0.8bn and interest income of ¥0.7bn contributed to non-operating income, while interest expense was immaterial at ¥0.05bn. The ordinary-income uplift therefore includes a meaningful, though not dominant, contribution from financial and foreign-exchange items. Extraordinary items were small overall, with extraordinary income of ¥0.1bn and a ¥0.01bn loss on disposal of fixed assets. The Digital Entertainment segment was the principal earnings engine, delivering 72% of aggregate segment profit before corporate-cost adjustments. Domestic revenue increased to ¥51.3bn and overseas revenue rose to ¥27.2bn, with overseas growth led by Digital Entertainment. The balance sheet remains exceptionally liquid, with cash and deposits of ¥259.7bn, equivalent to 60.3% of total assets. The current ratio of 590.4% and debt-to-equity ratio of 0.21x indicate substantial financial flexibility. Q1 operating-income progress reached 34.7% of the full-year forecast, above the standard 25% seasonal benchmark, while net-income progress was 42.7%. This elevated first-quarter progress supports the outlook but also raises the importance of sustaining Digital Entertainment releases, live-service monetization, and overseas sales through the remaining three quarters. The full-year forecast remains unchanged, implying management continues to allow for quarterly earnings variability typical of the game-development and release cycle.
Profitability Analysis
Annualized DuPont ROE was 14.9%, comprising a 16.9% net profit margin, 0.728x asset turnover, and 1.21x financial leverage. The largest positive driver of annualized ROE was profitability rather than leverage: financial leverage remains low and asset turnover is moderate because the company carries a very large cash balance. Net margin improved from approximately 8.1% in FY2026 Q1 to 16.9%, reflecting the sharp expansion in operating margin and a favorable swing in non-operating items. EBIT margin was 21.7%, which is above the 15% benchmark for excellent profitability. Gross margin was stable at 56.3%, demonstrating that the earnings improvement did not depend on an unusually large gross-margin expansion. Instead, operating leverage was the key factor: revenue increased 32.3% while SG&A increased only 11.1%. This reduced the SG&A-to-sales ratio by approximately 655bp year on year. Digital Entertainment was the core business by operating-income contribution, generating segment profit of ¥15.6bn, up 91.8%, on revenue of ¥50.0bn, up 51.8%; its segment margin expanded to 31.2% from 24.7%. Amusement generated revenue of ¥17.0bn, up 4.8%, and segment profit of ¥1.9bn, up 7.8%, with a margin of 11.2%. Publishing generated revenue of ¥7.2bn, up 10.2%, and segment profit of ¥2.5bn, up 17.7%, producing a 34.8% margin. Rights and Properties generated revenue of ¥4.2bn, up 18.6%, and segment profit of ¥1.6bn, up 28.7%, with the highest segment margin at 37.0%. Corporate and other unallocated costs increased to ¥4.6bn from ¥4.2bn, but their increase was modest relative to the expansion in segment profit. The 29.7% effective tax rate was normal, and the 0.702 tax burden in the five-factor DuPont analysis indicates taxation was not a material drag beyond ordinary levels. The 1.109 interest burden reflects net financial income and the company’s net-cash balance sheet. Sustainability of the Q1 margin level depends primarily on maintaining a favorable product and content mix in Digital Entertainment, as game releases and associated amortization can create substantial quarter-to-quarter variability.
Growth Assessment
Revenue growth of 32.3% was broad-based across all four reported segments, led by Digital Entertainment. Digital Entertainment added ¥17.0bn of revenue year on year and accounted for approximately 89% of consolidated revenue growth. Domestic revenue rose 22.9% to ¥51.3bn, while overseas revenue increased 54.6% to ¥27.2bn. Overseas sales therefore represented 34.7% of revenue, up from 29.6% a year earlier, improving the group’s international revenue mix. Digital Entertainment overseas revenue increased 65.4% to ¥23.5bn, substantially faster than domestic Digital Entertainment revenue growth of 41.4%. Amusement growth was modest, with overseas revenue declining 24.2% to ¥0.8bn despite domestic sales increasing 6.8% to ¥16.2bn. Publishing and Rights and Properties delivered double-digit sales and segment-profit growth, providing diversification beyond premium game releases. Full-year revenue guidance is ¥298.0bn, only 0.1% above the prior year, and Q1 revenue progress is 26.3%, close to the standard 25% first-quarter benchmark. Full-year operating-income guidance is ¥49.0bn, down 10.5% year on year; Q1 progress of 34.7% is 9.7 percentage points above the standard benchmark. Net-income progress is 42.7% against the ¥31.0bn full-year forecast, 17.7 percentage points above the standard benchmark. The profit-progress outperformance is consistent with a favorable Q1 release and sales mix, but unchanged guidance indicates that management has not extrapolated this quarterly run rate. Growth quality is strengthened by operating income growing faster than revenue and by broad segment-level profit growth. Financial income and foreign-exchange gains enhanced ordinary income, so operating income remains the more appropriate indicator of underlying trading performance.
Financial Health
Financial health is very strong. Current assets of ¥363.3bn covered current liabilities of ¥61.5bn by 5.9x, reflected in the 590.4% current ratio. The quick ratio was similarly high at 579.7%, showing that liquidity is overwhelmingly supported by cash and receivables rather than inventory. Cash and deposits were ¥259.7bn, or 4.2x current liabilities and 60.3% of total assets. Total liabilities were only ¥76.0bn, equal to 17.7% of total assets, while total equity was ¥354.7bn. Debt-to-equity was 0.21x, comfortably below the 1.0x conservative-capital-structure benchmark and far below the 2.0x risk threshold. Interest coverage was 3,401.6x because interest expense was negligible relative to operating income. There is no apparent short-term funding mismatch: current assets exceeded current liabilities by ¥301.8bn. Total liabilities declined 14.4% year on year, led by a reduction in current liabilities to ¥61.5bn from ¥74.7bn. Income taxes payable declined to ¥4.0bn from ¥16.1bn, contributing significantly to the lower liability base. Owners’ equity increased 1.6% year on year to ¥354.1bn, supported by retained earnings of ¥287.7bn. The equity ratio was 82.2%, confirming low financial risk and substantial capacity to absorb operating volatility.
Notable B/S Changes
Total liabilities: -¥12.8bn (-14.4%) year on year to ¥76.0bn, strengthening the already conservative balance sheet. Current liabilities: -¥13.2bn (-17.7%) year on year to ¥61.5bn, principally supported by lower income taxes payable and reinforcing the liquidity surplus. Income taxes payable: -¥12.1bn (-75.0%) year on year to ¥4.0bn, a major driver of the decline in current liabilities. Accounts receivable: +¥5.3bn (+17.5%) year on year to ¥35.8bn, requiring monitoring against revenue growth and cash collection. Asset retirement obligations: +¥0.1bn (+1.8%) year on year to ¥5.7bn; the absolute movement is limited, but the balance remains material at 8.2% of total liabilities. Foreign currency translation adjustment: improved by ¥1.3bn to -¥6.8bn, contributing to the increase in equity and reflecting currency translation movements.
Cash Flow Quality
Dividend Sustainability
The full-year dividend forecast is ¥43.00 per share. Based on forecast EPS of ¥85.99, the implied dividend payout ratio is approximately 50.0%. This is below the 60% sustainability benchmark and leaves approximately half of forecast earnings available for retained capital. Retained earnings totaled ¥287.7bn at the end of Q1, providing a substantial capital buffer. The net-cash-oriented balance sheet, including ¥259.7bn of cash and deposits, further supports dividend capacity. No dividend forecast revision has been announced. The unchanged dividend forecast alongside strong Q1 earnings progress suggests management is maintaining a measured distribution policy rather than mechanically passing through first-quarter earnings upside. The post-stock-split FY2026 annual dividend was ¥43.00 per share, so the FY2027 forecast indicates a maintained per-share dividend level. Dividend sustainability is therefore principally linked to management’s ability to achieve the ¥31.0bn full-year earnings forecast and preserve disciplined content-investment spending.
Risk Assessment
Business risks include Digital Entertainment concentration: the segment generated ¥15.6bn of ¥21.6bn aggregate segment profit before corporate-cost adjustments. Earnings are therefore highly sensitive to release timing, title quality, player engagement, downloadable-content sales, and live-service monetization., Game-content cyclicality: the Q1 operating margin of 21.7% and operating-income progress of 34.7% may not be sustained evenly through the year because development costs, launches, and catalog sales create uneven quarterly profitability., International exposure: overseas revenue grew 54.6% and represented 34.7% of sales. This expands addressable demand but increases exposure to regional consumer trends, platform policies, localization execution, and currency movements., Foreign-exchange sensitivity: FY2027 Q1 included ¥0.8bn of FX gains, whereas FY2026 Q1 included ¥2.1bn of FX losses. Such volatility can materially affect ordinary income independently of operating performance., Amusement-market risk: Amusement segment revenue grew only 4.8%, and overseas sales declined 24.2%, indicating a more limited growth contribution than the core digital business..
Financial risks include Asset retirement obligations were ¥5.7bn, representing the flagged 8.2% of total liabilities. This is a meaningful long-dated obligation relative to the otherwise small liability base and requires provisioning discipline for facility restoration and closure costs., Receivables increased 17.5% year on year to ¥35.8bn, faster than the increase in total assets. Collection performance and platform/retail-counterparty settlement patterns should be monitored as sales expand., Cash and deposits declined 5.9% year on year to ¥259.7bn. Liquidity remains exceptionally strong, but future deployment toward development, acquisitions, shareholder distributions, or strategic investments will affect capital-return capacity..
Key concerns include The high asset-retirement-obligation ratio is the identified quality alert. Its root cause is ¥5.7bn of obligations associated with restoring or decommissioning assets and facilities against a relatively low ¥76.0bn total-liability base. While the absolute amount is manageable given ¥259.7bn of cash and ¥354.7bn of equity, it increases the share of liabilities that is non-operating and long-dated; changes in estimated remediation costs could affect future earnings and cash deployment., Full-year operating-income guidance implies a substantial moderation from the Q1 run rate. The unchanged forecast should be assessed as management caution regarding product mix and the timing of costs and releases, rather than as confirmation that Q1 profitability is a recurring quarterly base., Non-operating income of ¥1.8bn equaled 10.5% of revenue at the operating-income level and included FX gains and interest income. These items improved ordinary income but are less recurring than operating earnings., The group’s low financial leverage supports resilience, but also means future annualized ROE improvement depends primarily on durable margins and improved use of its sizeable cash balance rather than balance-sheet leverage..
Investment Implications
Key takeaways include Q1 revenue was ¥78.4bn, up 32.3%, while operating income was ¥17.0bn, up 88.6%, demonstrating strong operating leverage., Operating margin expanded by approximately 647bp to 21.7%, supported by stable gross margin and SG&A growth materially below revenue growth., Digital Entertainment is the core business, contributing ¥15.6bn of segment profit and delivering a 31.2% segment margin., Annualized ROE was 14.9%, supported by a 16.9% net margin and low financial leverage of 1.21x., The financial position is highly conservative, with a 590.4% current ratio, 0.21x debt-to-equity, and ¥259.7bn of cash and deposits., Forecast dividend payout is approximately 50.0%, indicating earnings-based dividend coverage under the full-year plan..
Metrics to watch include Digital Entertainment revenue, segment margin, and overseas sales mix, Progress against full-year operating-income guidance of ¥49.0bn after Q1 progress of 34.7%, Sustainability of the 21.7% consolidated operating margin, Foreign-exchange gains or losses and net interest income within ordinary income, Accounts receivable growth and collection conversion, Asset retirement obligations relative to total liabilities and any revisions to restoration-cost estimates, Cash deployment, including content investment, acquisitions, dividends, and treasury-share activity.
Regarding relative positioning, The company combines profitability above the stated excellence benchmarks with a notably stronger liquidity and solvency profile than a leveraged content publisher or capital-intensive entertainment operator. Its main relative distinction is the combination of a high-margin Digital Entertainment franchise base, expanding overseas sales, and an exceptionally cash-rich balance sheet. The corresponding trade-off is that earnings remain more dependent on content-release execution and product mix than on a smooth, subscription-like recurring-revenue model.