NCS&A (9709) FY2026 Q3 Earnings Report

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Executive Summary

This earnings result reflects a clear improvement in profitability, with significant improvements in the gross margin and operating margin in addition to revenue growth. Revenue was ¥164.3B (+12.2% YoY), Operating Income was ¥20.6B (+50.7%), Ordinary Income was ¥21.4B (+51.2%), and Net Income was ¥14.5B (+65.4%). The growth rate in Operating Income substantially exceeded the revenue growth rate, with operating leverage resulting from the improved gross margin and restrained growth in SG&A expenses being the primary drivers of profit expansion.

Factors Affecting Earnings

【Revenue】Revenue increased 12.2% YoY to ¥164.3B. Although segment-level disclosure is not available, the revenue growth trend has continued, and progress against the full-year company forecast of ¥213.0B was 77.1%, slightly above the standard 75% level.

【Profit and Loss】Gross profit was ¥53.8B, and the gross margin improved to 32.7% from 30.5% in the same period of the previous year. SG&A expenses were ¥33.1B, representing only a 6.9% YoY increase and below the 12.2% revenue growth rate, resulting in operating leverage. Consequently, Operating Income was ¥20.6B (+50.7%), Ordinary Income was ¥21.4B (+51.2%), and Net Income was ¥14.5B (+65.4%), with each showing growth substantially exceeding the revenue growth rate. The impact of non-operating and extraordinary gains and losses was immaterial, and the increase in profit was attributable to improved profitability in the core business. Overall, this can be characterized as an earnings result featuring both revenue and profit growth.

Key Financial Indicators

【Profitability】The operating margin improved by approximately 3.2pt to 12.6% from 9.4% in the same period of the previous year, while the net profit margin also expanded by approximately 2.9pt to 8.8% from 6.0%. The gross margin likewise improved by approximately 2.2pt to 32.7%, indicating that improved profitability contributed more than revenue growth.【Cash Quality】Accounts receivable were ¥55.9B, accounting for 28.0% of total assets, and DSO was approximately 93 days, which is relatively long. This requires ongoing monitoring to determine whether profit growth is translating into cash realization.【Investment Efficiency】ROE (annualized) was 14.3%, formed by the combination of a total asset turnover ratio of 1.10x and financial leverage of 1.47x, indicating that the improvement in capital efficiency was driven by profitability rather than reliance on debt.【Financial Soundness】The equity ratio was 68.2%, the current ratio was approximately 381.8%, and cash and deposits were substantial at ¥93.1B, indicating a stable financial foundation.

Cash Flow Analysis

Although no cash flow statement has been disclosed, an analysis of funding trends based on changes in the balance sheet indicates that cash and deposits declined to ¥93.1B from ¥111.5B in the same period of the previous year. The primary factor is considered to be an increase in the acquisition of treasury stock (+¥12.0B YoY), indicating that the allocation of funds to shareholder returns placed pressure on the cash balance. Accounts receivable increased 5.1% YoY to ¥55.9B, a pace below the 12.2% revenue growth rate, but DSO remains long at approximately 93 days, indicating a time lag between profit recognition and cash realization. Accounts payable decreased 39.2% YoY, and the reduction in trade payables was also a source of cash outflow in terms of working capital. While profit growth continues, changes in accounts receivable collection and accounts payable payment terms are increasing the working capital burden, a point that warrants attention when assessing future cash-generation capacity.

Quality of Earnings

The increase in profit for the current period represents an improvement originating in the core business and not dependent on non-operating or extraordinary gains and losses. Non-operating income was ¥0.8B, non-operating expenses were nearly zero, and Ordinary Income of ¥21.4B was consistent with pre-tax income of ¥21.4B, with no evidence of an uplift from extraordinary gains and losses. The difference between Ordinary Income and Net Income was primarily attributable to income taxes of ¥6.9B (an effective tax rate of approximately 32.2%), and accounting divergence factors were limited. Meanwhile, although the growth in accounts receivable (+5.1%) was below revenue growth (+12.2%), the long DSO of 93 days and the fact that all inventories consist of work in progress indicate the possibility of a certain time lag between reported profit and actual cash generation. The discrepancy between percentage-of-completion revenue recognition, characteristic of project-based IT services, and the timing of customer acceptance is an issue that should be monitored from an accrual perspective.

Earnings Forecasts and Guidance

Cumulative Q3 progress against the full-year company forecast was 77.1% for Revenue, 79.4% for Operating Income, 78.5% for Ordinary Income, and 78.5% for Net Income, all exceeding the standard progress benchmark of 75%. Operating Income progress was particularly high: the cumulative actual operating margin of 12.6% exceeded the 12.2% operating margin assumed in the full-year plan (¥26.0B ÷ ¥213.0B), leaving room on the profit side to achieve the plan. The full-year forecast anticipates revenue growth of +3.9% and Operating Income growth of +30.4%, with the trend in the Q4 profit margin being the key to achieving the plan.

Shareholder Returns

The Q2 dividend was ¥25.00 per share, while the full-year company forecast is for an annual dividend of ¥55.00. Based on forecast EPS of ¥118.57, the forecast payout ratio is approximately 46.4%, a level within the range of profit growth. Treasury stock increased by +¥12.0B YoY and reached 10.0% of total assets, indicating that shareholder returns through share repurchases are progressing in addition to dividends. The financial capacity represented by cash and deposits of ¥93.1B and an equity ratio of 68.2% supports the potential for continued dividends and further share repurchases.

Risk Factors

1. Lengthening accounts receivable collection period: DSO is long at approximately 93 days, and accounts receivable of ¥55.9B account for 28.0% of total assets. Continued collection delays could affect the conversion of profit into cash and working capital.

2. High proportion of work in progress: All inventories of ¥3.7B consist of work in progress. If project specification changes or delays in customer acceptance occur, work-in-progress valuation and profit margins could be affected. The provision for loss on orders received was ¥0.09B.

3. Working capital funding burden: While accounts payable declined 39.2% YoY, accounts receivable increased, and the gap between payment terms and collection terms is working to increase the funding burden associated with working capital.

Industry Benchmark (For Reference; Based on Our Research)

Profitability and Returns

Both the operating margin and net profit margin exceed the industry median, placing profitability in the upper tier of the industry.

Growth and Capital Efficiency

The revenue growth rate also slightly exceeds the industry median, indicating an above-average level of growth.

※Source: Based on our research

Key Earnings Highlights

1. Operating Income increased 50.7% compared with revenue growth of 12.2%, with operating leverage from improved gross margin (+approximately 2.2pt) and restrained SG&A growth (+6.9%) being the primary drivers of profit growth.

2. Progress of Operating Income against the full-year plan was 79.4%, exceeding the standard Q3 progress level, leaving room to achieve the plan on the profit side. Meanwhile, DSO of approximately 93 days and a 100% work-in-progress ratio are indicators that should continue to be monitored with respect to cash realization from project earnings and project management.

3. Treasury stock increased +¥12.0B YoY and reached 10.0% of total assets. In addition to dividends, the trend in capital allocation, including share repurchases, is a key area of focus going forward (forecast payout ratio of approximately 46.4%).

Theoretical Share Price (Reference Value)

Sensitivity: ¥943–¥996 at ±1% for the cost of equity, and ¥967–¥971 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because 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 forecast or guarantee future share prices.)

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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 our company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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