INES Corporation FY2027 Q1 Earnings Report

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Executive Summary

The Company, which operates an information services business, experienced a quarter in which its operating loss, ordinary loss, and net loss all narrowed significantly due to revenue growth and an improvement in the cost ratio, making the trend toward earnings improvement clear. Revenue was ¥86.9B (¥77.1B in the previous year, YoY +12.7%), Operating Income was ¥-0.8B (¥-8.8B in the previous year, 91.1% reduction in the loss), Ordinary Income was ¥-0.6B (¥-8.6B in the previous year, 93.0% reduction), and Net Income was ¥-0.8B (¥-6.2B in the previous year, 87.1% reduction). The gross profit margin improved to 17.6% from 9.9% in the previous year, a 7.7pt improvement, with the effects of revenue growth and a decline in the cost ratio being the primary drivers of earnings improvement.

Factors Affecting Business Performance

【Revenue】Revenue was ¥86.9B, representing a year-on-year increase of +12.7%. The Company operates a single segment, the Information Services Business, and does not disclose a breakdown by segment. Advances received were ¥0.7B, up from ¥0.2B in the previous year, suggesting an accumulation of projects.

【Earnings】Gross profit was ¥15.3B, and the gross profit margin of 17.6% improved by +7.7pt from 9.9% in the previous year. Revenue growth (+12.7%) exceeded the increase in cost of sales (+3.1%), contributing to a lower cost ratio. SG&A expenses were ¥16.1B, nearly flat at -2.2% from ¥16.5B in the previous year, and the containment of fixed costs allowed the effects of revenue growth to directly improve earnings. As a result, the Operating Loss narrowed 91.1% to ¥0.8B from ¥8.8B in the previous year. Non-operating income and expenses resulted in a small profit, mainly due to dividends received of ¥0.2B and other items, while the Ordinary Loss was ¥0.6B, a 93.0% reduction. Although the Company recorded extraordinary income of ¥0.1B, the amount was immaterial and its impact as a temporary factor was limited. Against a loss before income taxes of ¥0.5B, income taxes and other taxes of ¥0.3B were recorded, resulting in Net Income of ¥-0.8B (¥-6.2B in the previous year, an 87.1% reduction). The overall structure was one of revenue growth and earnings improvement, with a significant narrowing of losses.

Key Financial Indicators

【Profitability】The Operating Income Margin was -0.9%, improving by +10.5pt from -11.4% in the previous year, while the Net Profit Margin also improved by +7.1pt to -0.9% from -8.0% in the previous year. Although the gross profit margin of 17.6% improved from 9.9% in the previous year, it remains insufficient to absorb SG&A expenses.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥76.9B, substantially exceeding Net Income (¥-0.8B), primarily due to the release of working capital, including a decrease in trade receivables (+¥82.2B).【Investment Efficiency】ROE was -0.2%, improving from -1.7% in the previous year but remaining negative. EBIT-based interest coverage was -5.2x (EBIT ¥-0.8B ÷ interest expense ¥0.15B), indicating that the ability of operating earnings to absorb interest expenses remains a challenge. Capital expenditures of ¥2.1B were only 0.29x depreciation and amortization of ¥7.2B, indicating a restrained level of investment.【Financial Soundness】The Equity Ratio was 75.0%, remaining nearly flat at a high level compared with 74.9% in the previous year. The Current Ratio was a robust 328.6% (current assets of ¥227.2B ÷ current liabilities of ¥69.1B), while cash and deposits of ¥161.4B substantially exceeded long-term borrowings of ¥27.1B.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥76.9B, down -18.7% from ¥94.6B in the previous year, but remained high in absolute terms. The primary factor was the conversion of trade receivables into cash following a decrease of +¥82.2B; a decrease in inventories (+¥2.8B) also contributed, while a decrease in accounts payable (-¥12.7B) was a downward factor. Investing Cash Flow was positive at ¥6.7B, as proceeds from the recovery of investment securities and other items exceeded outflows including capital expenditures of ¥2.1B. Financing Cash Flow was ¥-7.1B, with repayments of long-term borrowings (-¥2.1B) and dividend payments (-¥5.0B) being the main sources of outflows. Free Cash Flow was ample at ¥83.6B, supporting the financial foundation even while operating earnings remained in the red. However, this level depended on the temporary release of working capital through the collection of trade receivables, making verification of cash-generation capacity after normalization a key focus going forward.

Quality of Earnings

Current-period earnings were generated by information services revenue from the core business, while extraordinary income was immaterial at ¥0.1B, indicating a high degree of recurring quality. Non-operating income of ¥0.35B consisted primarily of dividends received of ¥0.2B and other items, and was low at 0.4% of revenue, with a limited impact on earnings. As income taxes and other taxes of ¥0.3B were recorded against a loss before income taxes of ¥0.5B, the effective tax rate was negative, meaning that the impact of tax effects reduced Net Income. From an accruals perspective, OCF of ¥76.9B substantially exceeded Net Income of ¥-0.8B, and the gap between the two was primarily attributable to the temporary release of working capital, including the decrease in trade receivables. In assessing sustainable earnings power, improvement on an operating earnings basis excluding this working capital effect—a 91.1% year-on-year reduction in the loss—is the more important indicator.

Earnings Forecast and Guidance

The Full-Year plan remains unchanged at Revenue of ¥400.0B (+9.2% year on year), Operating Income of ¥25.0B, Ordinary Income of ¥25.0B, Net Income of ¥17.0B, EPS of ¥81.64, and a dividend of ¥55, with no revisions to either the earnings forecast or dividend forecast. Q1 revenue progress was 21.7% (¥86.9B/¥400.0B), slightly below the 25% benchmark for evenly distributed quarterly progress. On the earnings front, the Company started the year with an Operating Loss of ¥0.8B, an Ordinary Loss of ¥0.6B, and a Net Loss of ¥0.8B, against the plan to achieve full-year profitability. The Company's Information Services Business tends to have project acceptance concentrated in the second half of the fiscal year, and achievement of the full-year plan depends on revenue accumulation and profitability improvement in the second half.

Shareholder Returns

The annual dividend forecast remains unchanged at ¥55, with no revision. Based on approximately 20.82 million issued shares (net of treasury shares), the annual total dividend is estimated at approximately ¥1.15B, resulting in a Payout Ratio of approximately 67.4% against the full-year Net Income plan of ¥17.0B. Q1 Free Cash Flow of ¥83.6B and cash and deposits of ¥161.4B were at levels well above the total dividend amount. However, current-period cash generation was significantly affected by the temporary collection of trade receivables, and confirmation of full-year operating profitability and normalization of cash flow will be key points in assessing dividend sustainability.

Risk Factors

1. Risk of persistently low profitability: Although the gross profit margin improved to 17.6%, the Operating Income Margin of -0.9% was -9.0pt below the industry median of 8.1%. If project profitability deteriorates or costs rise, there is a risk that the loss will widen again.

2. Risk of a reversal in working capital: Current-period OCF of ¥76.9B depended substantially on the decrease in trade receivables (+¥82.2B). If trade receivables accumulate again during a period of future revenue growth, OCF could decline significantly.

3. Risk relating to interest burden and core earnings power: EBIT-based interest coverage was -5.2x (EBIT ¥-0.8B ÷ interest expense ¥0.15B), and unless operating earnings turn profitable, the repayment capacity supported by core earnings against long-term borrowings of ¥27.1B will remain limited. However, the liquidity buffer provided by cash and deposits of ¥161.4B is substantial.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability indicators are substantially below the industry median and are positioned below the lower bound of the IQR.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median and is at a level positioned in the upper part of the IQR.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Revenue increased +12.7% year on year, showing a growth rate above the industry median of 9.3%. The 7.7pt improvement in the gross profit margin accompanying revenue growth, together with fixed-cost containment, resulted in Operating Loss and Net Loss narrowing by around 90%, suggesting a lower break-even point.

2. The gross profit margin of 17.6% and Operating Income Margin of -0.9% remain below the industry median of 8.1%, and the absolute level of profitability remains low within the industry. Further improvement in the gross profit margin in the second half is a prerequisite for achieving the full-year plan of Operating Income of ¥25B.

3. Financial soundness remains high, with an Equity Ratio of 75.0% and a Current Ratio of 328.6%. On the other hand, a significant portion of OCF depends on the temporary collection of trade receivables, making cash-generation capacity after normalization a key point for future monitoring.

Theoretical Stock Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market price or a recommendation of any specific investment action.

Sensitivity: ¥1,491–¥1,574 at a cost of equity of ±1%, and ¥1,524–¥1,536 at ω of ±0.1.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets at the end of the quarter are used (there is a timing gap with 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 stock 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. 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 professionals as necessary.

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