Quick View
| Metric | This Period | YoY Period | YoY |
|---|---|---|---|
| Revenue | ¥101.3B | ¥97.1B | +4.3% |
| Operating Income | ¥11.3B | ¥11.3B | −0.4% |
| Ordinary Income | ¥11.4B | ¥11.4B | −0.2% |
| Net Income | ¥7.3B | ¥7.3B | −0.8% |
| ROE | 5.0% | 5.0% | - |
Executive Summary
FY2026 Q1 results: Revenue ¥101.3B (YoY +¥4.2B +4.3%), Operating Income ¥11.3B (YoY ±¥0.0B -0.4%), Ordinary Income ¥11.4B (YoY ±¥0.0B -0.2%), Net Income ¥7.3B (YoY -¥0.1B -0.8%). Two-digit growth in the SecuritySystem segment (+13.8%) drove revenue increase, but Operating Income was restrained by a decline in InformationService operating profit (-22.3%) and a drop in gross margin (26.5%, vs 27.3% prior year, approximately -0.8pt). Progress against the Full Year plan (Operating Income ¥30.0B) is 37.6%, well above the typical 25% pace, supported by continued high-margin projects in SecuritySystem.
Drivers of Performance
[Revenue] Revenue ¥101.3B (YoY +4.3%) was driven by SecuritySystem, which achieved double-digit growth at ¥22.0B (+13.8%) and accounted for 21.7% of revenue. InformationService recorded ¥79.7B (+1.9%), low growth while comprising 78.3% of revenue as the core business. After adjusting for inter-segment transactions, consolidated revenue increased. Gross profit was ¥26.8B with a gross margin of 26.5%, down from c.27.3% last year (~-0.8pt), as cost of sales rose (suggesting higher subcontracting and labor costs), pressuring profitability.
[Profitability] Operating Income was ¥11.3B (YoY -0.4%), essentially flat. Selling, General & Administrative expenses (SG&A) were ¥15.5B, an SG&A ratio of 15.3% (improved from c.15.6% prior year, ~-0.3pt), indicating effective cost control that was offset by the gross margin decline. By segment, SecuritySystem posted Operating Income ¥5.8B (+34.3%), margin 26.4%, representing 51.3% of consolidated operating profit. InformationService reported Operating Income ¥5.4B (-22.3%), margin down to 6.8%, a large decline despite revenue growth of +1.9%. Non-operating income/expense had minimal effect (non-operating income ¥0.1B, non-operating expense ¥0.0B). Ordinary Income was ¥11.4B (YoY -0.2%), Pretax Income ¥11.4B (YoY -0.2%), maintaining operating-level stability. Income taxes were ¥4.1B (effective tax rate 36.3%), slightly up from 35.9% prior year. Net Income ¥7.3B (YoY -0.8%), with gross margin decline and higher effective tax rate reducing net margin to 7.2% (from c.7.5%, ~-0.3pt). Conclusion: revenue up, slight profit decline.
Segment Analysis
InformationService: Revenue ¥79.7B (YoY +1.9%), Operating Income ¥5.4B (YoY -22.3%), margin 6.8% (down 2.1pt from 8.9% prior year). Low growth and margin deterioration occurred simultaneously, suggesting delayed pass-through of unit price increases or reduced utilization. SecuritySystem: Revenue ¥22.0B (YoY +13.8%), Operating Income ¥5.8B (YoY +34.3%), margin 26.4% (improved 4.0pt from 22.4% prior year). Continued high-margin projects and improved product mix contributed, with SecuritySystem accounting for the majority of consolidated operating profit. Margin gap between segments widened to c.19.6pt, positioning SecuritySystem as the driver of consolidated profitability.
Key Financial Metrics
[Profitability] Operating margin 11.1% (vs 11.7% prior year, -0.6pt), Net margin 7.2% (vs 7.5% prior year, -0.3pt). Gross margin 26.5% down ~-0.8pt from 27.3%, indicating realized cost pressures. SG&A ratio 15.3% improved ~-0.3pt from 15.6%, showing fixed-cost control. [Investment Efficiency] ROE 5.0% is based on equity ¥145.7B and Net Income ¥7.3B. EPS ¥63.41 (vs ¥64.08 prior year, -1.0%) reflects lower Net Income. [Financial Soundness] Equity Ratio 69.5% (vs 67.2% prior year, +2.3pt), with Total Assets ¥209.6B and Net Assets ¥145.7B. Current Ratio 300.6%, Quick Ratio 283.7%, indicating very strong liquidity, and Cash & Deposits ¥79.8B (38.1% of Total Assets) providing a substantial cushion. Interest-bearing debt is only short-term borrowings ¥1.2B, Debt/Equity 0.8%, effectively net cash. [Cash Quality] Accounts receivable ¥70.1B (vs ¥63.9B prior year, +9.7%) increased faster than revenue (+4.3%), worsening DSO to 253 days, suggesting possible collection delays. Accounts payable ¥17.5B (vs ¥23.7B prior year, -26.2%) fell sharply, implying shortened payment terms or timing changes, which pressures working capital. CCC 167 days worsened due to both collection delays and shortened payables, warranting attention to cash generation.
Cash Flow Analysis
Cash flow statement data was not disclosed, but balance sheet movements suggest funding trends. Cash & Deposits ¥79.8B decreased ¥11.0B from ¥90.8B prior year. Increases in Accounts Receivable (+¥6.2B) and decreases in Accounts Payable (-¥6.2B) together likely pressured working capital by about ¥12.4B, plausibly the main driver of cash decline. Inventories ¥9.2B fell ¥2.1B from ¥11.3B, improving inventory efficiency. Cash decline of -¥11.0B against Net Income ¥7.3B indicates delayed monetization of profits, with prolonged DSO (253 days) and shortened payables being the combined cause. Total Assets ¥209.6B decreased ¥6.5B from ¥216.1B, indicating asset shedding. Interest-bearing debt is minimal at ¥1.2B, so financing outflows via financing cash flow are limited.
Quality of Earnings
The difference between Operating Income ¥11.3B and Ordinary Income ¥11.4B is ¥0.1B, so non-operating impacts are negligible. Non-operating income ¥0.1B (interest income ¥0.0B, insurance income ¥0.1B, etc.), non-operating expense ¥0.0B (interest expense ¥0.0B) — both immaterial. Ordinary Income ¥11.4B equals Pretax Income ¥11.4B, with no extraordinary items. The gap between Net Income ¥7.3B and Comprehensive Income ¥6.8B (¥0.5B) is attributable to Other Comprehensive Income -¥0.5B (FX translation adjustment ¥0.1B, valuation difference on securities -¥0.6B), where securities valuation losses reduced comprehensive income. The drop in comprehensive income appears temporary and is limited in impact on earnings sustainability. On accruals, the increase in Accounts Receivable (+¥6.2B) constitutes a large portion of Net Income ¥7.3B, suggesting cash collection lag relative to profit recognition. The sharp decline in Accounts Payable (-¥6.2B) also strained working capital, so earnings quality is somewhat weakened on cash flow metrics.
Outlook & Guidance
Full Year plan: Revenue ¥385.0B (YoY +4.0%), Operating Income ¥30.0B (YoY +29.6%), Ordinary Income ¥30.5B (YoY +27.9%), EPS forecast ¥161.40. Q1 progress rates: Revenue 26.3% (slightly above standard 25%), Operating Income 37.6% (+12.6pt vs standard), Ordinary Income 37.4% (+12.4pt), indicating significant front-loading of profits. Continued high-margin SecuritySystem projects likely contributed, but if InformationService margin deterioration does not improve in H2, achieving Full Year targets will depend on sustained SecuritySystem growth. Q1 Operating Income ¥11.3B represents 37.6% of the Full Year ¥30.0B plan, suggesting either seasonality skewed toward Q1 or conservative guidance. No revision to guidance has been announced; plan remains unchanged at present.
Shareholder Returns
Dividend forecast this quarter is ¥0, Full Year dividend forecast also ¥0. Payout Ratio 0%; no shareholder returns are currently being made. Given Cash & Deposits ¥79.8B and interest-bearing debt ¥1.2B, the balance sheet could support dividends, but the company may prioritize internal reserves. No share buyback disclosure; Total Return Ratio 0%. While dividend sustainability cannot be affirmed now, normalization of accounts receivable collection and stabilization of Operating Cash Flow would increase scope for initiating dividends in the future.
Risk Factors
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InformationService margin deterioration: Revenue ¥79.7B (+1.9%) vs Operating Income ¥5.4B (-22.3%), margin down to 6.8% (from 8.9%, -2.1pt). Profit pressure in the core segment (78.3% of revenue) drags on consolidated profitability. Causes likely include delayed pass-through of price increases or lower utilization; if not remedied in H2, achieving Full Year targets will be difficult.
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Accounts receivable collection delays and worsening CCC: Accounts Receivable ¥70.1B (YoY +9.7%) with DSO 253 days has lengthened significantly, outpacing revenue growth (+4.3%). Accounts Payable ¥17.5B (YoY -26.2%) fell sharply, suggesting shortened payables and CCC 167 days, deteriorating working capital efficiency. Short-term cash generation is weakening; cash decreased -¥11.0B despite Net Income ¥7.3B, indicating delayed profit monetization.
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Downward trend in gross margin: Gross margin 26.5% (vs 27.3% prior year, ~-0.8pt) suggests rising costs (subcontracting and labor inflation). While SG&A ratio improved (-0.3pt) keeping Operating Margin at 11.1%, continued gross margin deterioration in H2 would risk lower Full Year operating margin. SecuritySystem (margin 26.4%) lifts the consolidated average, but without InformationService margin recovery, gross margin pressure may persist.
Industry Benchmark (Reference, Company Analysis)
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 11.1% | 6.2% (4.2%–17.2%) | +4.9pt |
| Net Margin | 7.2% | 2.8% (0.6%–11.9%) | +4.4pt |
Profitability substantially exceeds industry median, driven by high-margin SecuritySystem projects (margin 26.4%) boosting the consolidated average.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 4.3% | 20.9% (12.5%–25.8%) | −16.6pt |
Growth lags industry median significantly, with InformationService low growth (+1.9%) dragging down the aggregate.
※ Source: Company compilation
Key Points to Watch in Results
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Continued high-margin performance in SecuritySystem and front-loading of Full Year plan: Q1 Operating Income progress 37.6% (vs standard 25%, +12.6pt) was driven by SecuritySystem Operating Income ¥5.8B (+34.3%, margin 26.4%). The pace vs the Full Year ¥30.0B plan suggests either conservative guidance or Q1 seasonality. If SecuritySystem high-margin projects persist and InformationService margin recovers, upside to Full Year targets is possible.
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Worsening working capital efficiency and cash generation: Increases in Accounts Receivable (+¥6.2B) and decreases in Accounts Payable (-¥6.2B) together pressured working capital by ~¥12.4B, with cash down -¥11.0B against Net Income ¥7.3B. Prolonged DSO (253 days) and CCC (167 days) suggest collection delays; absent normalization in H2, Operating Cash Flow risk increases. That said, Cash ¥79.8B and interest-bearing debt ¥1.2B provide a strong financial buffer, limiting near-term liquidity risk.
This report is an automatically generated earnings analysis document created by an AI analyzing XBRL earnings note data. It does not constitute a recommendation to invest in specific securities. Industry benchmarks are reference information compiled by the Company based on public financial statements. Investment decisions are your responsibility; consult a professional advisor as needed before acting.
AI Financial Analysis
Executive Summary
FY2026 Q1 was a solid top-line quarter, but revenue growth did not translate into operating-profit growth because gross-margin pressure outweighed modest SG&A leverage. Revenue rose 4.3% YoY to ¥10.13bn. Operating income was effectively flat at ¥1.13bn, down 0.4% YoY. Ordinary income declined 0.2% YoY to ¥1.14bn. Net income attributable to owners fell 0.8% YoY to ¥726m. The operating margin compressed by approximately 50bp to 11.1% from 11.7% in the prior-year quarter. Gross margin declined by approximately 80bp to 26.5%, indicating that delivery costs, personnel costs, or project mix absorbed the benefit of sales growth. SG&A expenses increased 2.6% YoY to ¥1.55bn, below revenue growth, and the SG&A-to-sales ratio improved by approximately 30bp. Security Systems was the core business by segment-profit contribution, delivering ¥580m of segment profit, ahead of Information Services at ¥540m. Security Systems revenue increased 13.9% YoY and segment profit increased 34.3% YoY, demonstrating strong operating leverage. Conversely, Information Services revenue rose only 1.9% while segment profit declined 22.3% YoY, reducing its segment margin materially. The Q1 annualized ROE was 19.9%, supported by a 7.2% net margin, 1.933x annualized asset turnover, and 1.44x financial leverage. The balance sheet remains highly liquid, with ¥7.98bn of cash, a 300.6% current ratio, and only ¥120m of interest-bearing debt. Q1 performance is ahead of the full-year plan on revenue and earnings progress, although the full-year forecast embeds a substantial margin recovery in subsequent quarters. The principal operating issue is the divergence between strong Security Systems momentum and margin pressure in the larger Information Services revenue base. Near-term execution should therefore be assessed through project profitability, receivable collection, and the sustainability of Security Systems' high segment margin.
Profitability Analysis
The supplied annualized DuPont analysis produces ROE of 19.9%, comprising a 7.2% net profit margin, 1.933x annualized asset turnover, and 1.44x financial leverage. This is an excellent annualized ROE outcome relative to the 15% benchmark, with returns driven principally by healthy operating profitability and efficient asset use rather than aggressive balance-sheet leverage. The EBIT margin was 11.2%, placing the company within the good 8-15% profitability range. The tax burden was 0.636, reflecting an effective tax rate of 36.3%, while the 1.011x interest burden confirms that financing costs are immaterial to earnings. Revenue grew 4.3% YoY, but operating income declined 0.4% YoY; consequently, operating margin fell to 11.1% from 11.7%, a compression of roughly 50bp. The main moving part was gross margin, which contracted to 26.5% from approximately 27.3%, or about 80bp. SG&A grew 2.6%, slower than revenue, and therefore provided approximately 30bp of operating leverage, but this was insufficient to offset the gross-margin decline. Information Services generated ¥7.94bn of external revenue, up 1.9% YoY, and ¥540m of segment profit, down 22.3% YoY; its segment margin declined to 6.8% from 8.9%. Security Systems generated ¥2.19bn of external revenue, up 13.9% YoY, and ¥580m of segment profit, up 34.3% YoY; its segment margin expanded to 26.5% from 22.4%. Security Systems therefore became the largest profit contributor despite accounting for only 21.6% of consolidated external revenue. The segment mix is favorable for profitability if Security Systems growth persists, but the weaker Information Services margin must stabilize for the group to deliver the forecast operating-income expansion.
Growth Assessment
Consolidated Q1 revenue growth of 4.3% was broadly aligned with the full-year revenue-growth assumption of 4.0%. Q1 revenue reached 26.3% of the ¥38.50bn full-year forecast, modestly ahead of the standard 25% first-quarter progress rate. Q1 operating income represented 37.6% of the ¥3.00bn full-year forecast, 12.6 percentage points above the standard seasonal progress rate. Q1 ordinary income represented 37.4% of the ¥3.05bn full-year forecast, also 12.4 percentage points ahead of the standard pace. Q1 net income represented 39.2% of the ¥1.85bn full-year forecast, 14.2 percentage points ahead of the standard pace. These progress rates provide a cushion, although the full-year plan still assumes operating income growth of 29.6% YoY despite Q1 operating income being marginally lower YoY. Security Systems is the clearest growth engine, combining double-digit revenue growth with a 34.3% increase in segment profit. Information Services remains the larger sales platform but has lower current profitability and experienced a material segment-profit decline. The outlook therefore depends on sustaining Security Systems' momentum while restoring Information Services project margins and utilization. Net income declined less than operating income on a percentage basis only marginally, and ordinary income remained close to operating income, indicating that Q1 earnings were predominantly generated by the operating business.
Financial Health
Financial health is strong. Current assets of ¥16.33bn exceeded current liabilities of ¥5.43bn by ¥10.90bn, producing a 300.6% current ratio and a 283.7% quick ratio. Cash and deposits were ¥7.98bn, equal to 38.1% of total assets and 1.47x current liabilities. Interest-bearing debt was limited to ¥120m of short-term loans, equivalent to 0.8% of capital, while cash covered short-term debt by 66.48x. The reported debt-to-equity ratio was 0.44x, and the debt-capital ratio of 0.8% indicates a conservatively funded capital structure. All reported interest-bearing debt matures in the short term, which triggers the refinancing-risk alert; however, the amount is immaterial relative to cash and working capital, so maturity mismatch risk is low in economic terms. Trade payables declined 26.2% YoY to ¥1.75bn from ¥2.37bn. This reduction contributed to lower current liabilities and stronger reported liquidity, but it also reduces supplier-financing support and can increase working-capital funding needs if sustained. Accounts receivable increased 9.7% YoY to ¥7.01bn, faster than revenue growth, and should be monitored alongside the 63-day DSO alert. Asset retirement obligations were ¥447m, representing 7.0% of total liabilities and exceeding the 5% alert threshold; this is a meaningful long-dated obligation relative to liabilities, though modest relative to ¥14.57bn of equity. Goodwill was only ¥268m, or 1.8% of equity, and intangible assets represented 3.6% of total assets, leaving the balance sheet with limited acquisition-accounting concentration.
Notable B/S Changes
Accounts payable: -¥6.21bn (-26.2%) to ¥1.75bn - materially lower supplier liabilities strengthen headline liquidity but can increase working-capital cash requirements when combined with higher receivables. Accounts receivable: +¥6.23bn (+9.7%) to ¥7.01bn - growth exceeded the 4.3% increase in revenue and is consistent with the 63-day DSO alert; collection velocity is a key cash-conversion indicator. Provision for bonuses: +¥7.12bn to ¥7.46bn - a material accrual within current liabilities that should be viewed in the context of personnel-cost timing and cash settlement. Cash and deposits: -¥11.00bn (-12.1%) to ¥7.98bn - liquidity remains very strong, but the reduction coincides with a less favorable receivable/payable working-capital movement.
Cash Flow Quality
Working-capital indicators warrant attention. Accounts receivable of ¥7.01bn represented 33.5% of total assets and increased 9.7% YoY, while revenue increased 4.3% YoY. The high-receivable-days alert, based on DSO of 63 days versus the 60-day threshold, indicates that cash collection should be tracked carefully as sales grow. The decline in trade payables of ¥621m YoY, combined with the receivable increase, suggests a less favorable working-capital configuration than the prior-year quarter. This could constrain conversion of accounting earnings into cash if collection timing does not normalize. The high-WIP-ratio alert identifies work-in-process as a potential project-execution risk. For an IT-services group, elevated WIP can arise when project milestones, acceptance, or billing lag delivery activity; management should demonstrate timely conversion into receivables and cash rather than permitting project balances to age. Reported inventories were ¥919m, mainly merchandise, making inventory exposure limited relative to current assets. The company’s large cash balance and minimal debt provide substantial liquidity protection against ordinary working-capital volatility.
Dividend Sustainability
The full-year dividend forecast is ¥70 per share and the full-year EPS forecast is ¥161.40. This implies a forecast dividend payout ratio of approximately 43.4%, below the 60% sustainability benchmark. The projected dividend commitment is therefore covered by forecast earnings with room for retained investment and balance-sheet flexibility. Cash and deposits of ¥7.98bn further support financial capacity. The capital structure is lightly indebted, with only ¥120m of short-term interest-bearing debt. Dividend sustainability will nevertheless depend on preserving operating margins in Information Services and maintaining disciplined working-capital collection. No buyback information is incorporated, so the analysis refers only to the dividend payout ratio rather than a total return ratio.
Risk Assessment
Business risks include Information Services profitability risk: segment revenue grew 1.9% YoY but segment profit fell 22.3% YoY, reducing margin to 6.8% from 8.9%. This points to potential project mix, delivery-cost, utilization, or pricing pressure in the largest revenue segment., Project execution and work-in-process risk: the high-WIP-ratio alert indicates that project completion, customer acceptance, and billing discipline require monitoring. Delayed milestone conversion could pressure margins and cash collection., Customer collection risk: DSO of 63 days exceeds the 60-day alert threshold, while receivables grew faster than consolidated revenue. A prolonged increase could weaken cash conversion., IT-services industry risk: competition for skilled engineers and wage inflation can compress project margins, particularly in labor-intensive system-development and integration work., Security Systems concentration risk: Security Systems delivered 51.8% of total segment profit in Q1 despite contributing 21.6% of external revenue. Its high 26.5% segment margin is strategically valuable, but earnings become more sensitive to order timing and profitability in this business..
Financial risks include Refinancing-risk alert: 100% of reported interest-bearing debt is short-term. The practical impact is limited because debt is only ¥120m and cash covers it by 66.48x, but the maturity profile should remain controlled., Asset retirement obligation risk: AROs of ¥447m equal 7.0% of liabilities, above the 5% alert level. Changes in restoration-cost estimates, discount rates, or facility plans could affect provisions and future cash outflows., Working-capital funding risk: lower payables and higher receivables can increase cash requirements even while the company remains highly liquid..
Key concerns include Consolidated operating margin compressed by approximately 50bp despite revenue growth., The full-year operating-income forecast requires 29.6% YoY growth, making restoration of Information Services profitability important despite strong Q1 forecast progress., Receivable collection and project-billing discipline are the principal indicators of earnings conversion., The decline in accounts payable should be assessed for its persistence and relationship to supplier terms or delivery activity..
Investment Implications
Key takeaways include Q1 revenue rose 4.3% YoY to ¥10.13bn, while operating income was flat at ¥1.13bn because gross-margin contraction offset SG&A efficiency., Security Systems was the Q1 core business by segment-profit contribution, with ¥580m of profit and a 26.5% margin., Information Services remains the dominant revenue segment but saw profit decline 22.3% YoY and margin compress to 6.8%., The supplied annualized ROE of 19.9% is strong and is supported by profitability and asset turnover rather than material debt leverage., Liquidity is exceptionally strong, with a 300.6% current ratio, ¥7.98bn of cash, and only ¥120m of interest-bearing debt., Q1 progress against full-year forecasts is ahead of standard seasonality for revenue, operating income, ordinary income, and net income..
Metrics to watch include Information Services segment margin and segment-profit recovery, Security Systems revenue growth and ability to sustain its 26.5% segment margin, Consolidated gross margin relative to the Q1 26.5% level, DSO relative to the 63-day alert level and the growth rate of trade receivables, Work-in-process conversion into customer acceptance, invoicing, and collections, Accounts payable trend and resulting working-capital cash requirements, Progress toward the ¥3.00bn full-year operating-income forecast.
Regarding relative positioning, The company combines good IT-services-level operating profitability, an excellent supplied annualized ROE, and a notably conservative balance sheet. Relative earnings quality will be determined less by leverage or acquisition risk and more by execution in labor-intensive project delivery, receivable collection, and the balance between the lower-margin Information Services business and the rapidly expanding, higher-margin Security Systems business.