NSW Inc. FY2027 Q1 Earnings Report

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Executive Summary

Despite higher revenue, operating income declined due to an increase in SG&A expenses and a deterioration in the segment mix, resulting in a higher-revenue, lower-profit quarter. Revenue increased to ¥119.5B (+4.4% YoY), while operating income was ¥8.5B (-1.6%), ordinary income was ¥8.7B (-3.1%), and net income attributable to owners of the parent was ¥5.8B (-4.6%), representing modest declines across all profit measures. The main factors were ServiceSolution’s shift to an operating loss and an increase in SG&A expenses, primarily advertising expenses (+6.8%). Cost growth exceeded the increase in gross profit (+3.3%), weighing on profitability.

Factors Affecting Results

【Revenue】Revenue was ¥119.5B, representing a 4.4% YoY increase. ServiceSolution (+16.4%) and EB (+8.4%) drove growth, while EPSolution turned to a decline of -10.8%, resulting in divergent performance across businesses.

【Profit and Loss】Gross profit increased only to ¥21.4B (+3.3%), and the gross profit margin declined by approximately 0.2pt YoY to 17.9%. SG&A expenses increased to ¥12.9B (+6.8%), outpacing gross profit growth. In particular, advertising expenses expanded substantially to ¥1.1B from ¥0.3B in the prior year. The deterioration of ServiceSolution to an operating loss of ¥0.8B (¥-0.2B in the prior year) was the primary factor pushing the company-wide operating margin down to 7.1% from 7.5%. As both non-operating and extraordinary income and expenses were immaterial, the decline in operating income flowed through directly to ordinary income and net income. The quarter posted higher revenue but lower profits, with declining profitability offsetting top-line growth.

Segment Analysis

EB was the core business, generating revenue of ¥27.4B (+8.4%) and operating income of ¥3.3B (+6.2%, operating margin of 12.0%). DVSolution also performed steadily, with revenue of ¥22.7B (+4.2%) and operating income of ¥2.7B (+13.8%, operating margin of 12.0%). EPSolution’s revenue declined to ¥29.6B (-10.8%), but operating income of ¥3.3B (-3.8%, operating margin of 11.0%) held up relatively well. Meanwhile, ServiceSolution increased revenue to ¥39.8B (+16.4%), but its operating loss widened to ¥-0.8B (¥-0.2B in the prior year), resulting in a -2.0% operating margin. As this segment accounts for more than 30% of company-wide revenue, its deterioration in profitability is having a structural impact as a factor compressing the overall operating margin.

Key Financial Indicators

【Profitability】The operating margin declined to 7.1% from 7.5% in the prior year, while the net profit margin narrowed to 4.8% from 5.3%. Although the gross profit margin of 17.9% represented only a modest decline from 18.1% in the prior year, the increase in the SG&A ratio to 10.8% from 10.6% contributed to lower profitability.【Cash Flow Quality】Operating cash flow was ¥23.5B, approximately 4.1 times net income of ¥5.8B, indicating strong cash-generating capacity supporting reported earnings.【Investment Efficiency】ROE was 1.6% on a quarterly actual-results basis, mainly reflecting the decline in the net profit margin. Total assets were ¥477.6B and net assets were ¥372.1B, both down from the prior year.【Financial Soundness】The equity ratio improved to 77.9% from 76.9% in the prior year, and the financial base remained conservative. Current assets of ¥325.5B versus current liabilities of ¥74.6B indicate substantial short-term payment capacity.

Cash Flow Analysis

Operating cash flow was ¥23.5B, a substantial increase from ¥9.9B in the prior year. The primary factor was progress in the collection of trade receivables (+¥33.9B contribution), partially offset by a decrease in the provision for bonuses (-¥6.1B). Investing cash flow was ¥-41.1B, mainly due to the ¥40.0B acquisition of investment securities. Capital expenditures were ¥0.6B, remaining at a restrained level below depreciation and amortization of ¥1.1B. Financing cash flow was ¥-11.3B, primarily reflecting dividend payments. Free cash flow, calculated as operating cash flow plus investing cash flow, was ¥-17.6B. However, this resulted from the acquisition of securities for surplus-fund management, and cash and deposits at period-end remained at a substantial ¥167.7B.

Earnings Quality

Current-period results included non-operating income of ¥0.3B and non-operating expenses of ¥0.1B, both immaterial, indicating that recurring operating business results accounted for most of performance. Extraordinary income and extraordinary losses were both ¥0.03B, resulting in a balanced impact, and temporary factors had a limited effect on results. Comprehensive income was ¥5.8B, broadly in line with net income of ¥5.8B, indicating that the impact of other comprehensive income items such as foreign currency translation adjustments and adjustments related to retirement benefits was small. The generation of operating cash flow at approximately 4.1 times net income indicates strong cash backing for earnings, and earnings quality can generally be assessed as favorable. However, the decline in the operating margin stems from structural factors—deterioration in the segment mix and higher SG&A expenses—making subsequent trends an important focus in evaluating profitability.

Earnings Forecast and Guidance

Progress against the full-year plan was 22.1% for revenue, 15.7% for operating income, 16.0% for ordinary income, and 15.4% for net income. Considering the seasonality weighted toward the second half, revenue was generally progressing at a reasonable level as of Q1. However, profit progress was substantially below the simple 25% benchmark, indicating somewhat sluggish progress. This was attributable to deteriorating profitability at ServiceSolution and higher SG&A expenses. Improving profitability from the second half onward will be a challenge in achieving the full-year plan of ¥54.0B in operating income and ¥54.5B in ordinary income. No revisions to the earnings forecast were made during the quarter.

Shareholder Returns

The annual dividend forecast is ¥125, representing an increase from the prior-year interim dividend of ¥40. Based on the company’s planned net income of ¥375M (¥37.5B), the estimated total dividend is approximately ¥18.6B, implying a payout ratio of approximately 49.7%. Operating cash flow for the period was ¥23.5B, exceeding dividend payments, including payments reflected in financing cash flow, indicating that sufficient cash-generating capacity supports the dividend. No disclosure regarding share repurchases was made, and shareholder returns remain centered on dividends.

Risk Factors

1. Risk of deterioration in the segment mix: ServiceSolution’s operating loss widened to ¥-0.8B (¥-0.2B in the prior year), and the deterioration in profitability of this high-revenue segment has pushed the company-wide operating margin down to 7.1%. If improvement in the segment’s profitability is delayed, full-year profit plan achievement could be affected.

2. Risk of cost pressure from higher SG&A expenses: SG&A expenses increased to ¥12.9B (+6.8%), outpacing revenue growth (+4.4%), with advertising expenses showing a particularly significant YoY increase. If this investment does not lead to improved profitability, the decline in profit margins may continue.

3. Risk of market fluctuations associated with increased investment securities: The balance of investment securities was ¥60.0B, a +200% increase from ¥20.0B in the prior year, indicating a greater weighting toward surplus-fund management. Changes in market prices may cause fluctuations in valuation, which warrants attention.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The company’s profitability is slightly below the industry median.

Growth and Capital Efficiency

Revenue growth is also below the industry median, placing the company in a relatively slower-growth position within the IT and communications industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. A modest deterioration in profitability was observed. Both the gross profit margin, at 17.9% (18.1% in the prior year), and the operating margin, at 7.1% (7.5% in the prior year), declined. The continued pattern of SG&A expense growth (+6.8%) exceeding revenue growth (+4.4%) will be a key point of focus in assessing future margin trends.

2. Profitability disparities among segments have widened. While EB and DVSolution maintained stable operating margins of 12.0%, ServiceSolution slipped into an operating loss. The timing of earnings improvement in this segment will be critical to company-wide profitability.

3. Cash-generating capacity remains strong. Operating cash flow reached ¥23.5B, approximately 4.1 times net income, and the company maintained period-end cash of ¥167.7B while increasing investment securities (+¥40B). Financial soundness also remained high, with an equity ratio of 77.9%.

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 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,494–¥2,636 at ±1% for the cost of equity, and ¥2,562–¥2,565 at ±0.1 for ω.

Notes:

• Depreciation of goodwill of ¥0.8 per share has been added back to earnings (due to its non-cash nature and for comparability with IFRS companies).
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value does not predict 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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