NSD CO.,LTD. FY2027 Q1 Earnings Report

Quick View

Executive Summary

This was a revenue and earnings growth quarter, with gross margin and operating margin improving on the expansion of high-margin segments. Revenue was ¥29.93B (+9.6% YoY), Operating Income was ¥4.18B (+17.4%), Ordinary Income was ¥4.26B (+17.3%), and Net Income (Net Income attributable to owners of the parent; hereinafter the same) was ¥2.51B (+15.2%). The primary drivers of revenue growth were the expansion of high-margin areas such as Financial IT and Social Infrastructure IT. Gross margin improved to 24.1% (+1.2pt from 22.9% in the previous year), while an increase in the SG&A ratio due to higher personnel expenses and a rise in the effective tax rate (41.1%, versus 39.9% in the previous year) somewhat restrained the growth rate of final earnings.

Factors Affecting Business Performance

【Revenue】All segments recorded revenue growth. Financial IT generated ¥9.59B (32.0% of total revenue, +14.7%), Industry IT ¥6.92B (23.1%, +2.3%), Social Infrastructure IT ¥6.15B (20.6%, +7.5%), Solution ¥4.07B (13.6%, +18.9%), and IT Infrastructure Construction ¥3.42B (11.4%, +7.7%). Double-digit growth in Financial IT and Solution drove overall growth.

【Profitability】Gross margin improved to 24.1% (22.9% in the previous year, +1.2pt), while operating margin improved to 13.9% (13.0% in the previous year, +0.9pt). Meanwhile, the SG&A ratio increased slightly to 10.1% (9.9% in the previous year, +0.2pt), as personnel expenses rose, with salaries and allowances increasing to ¥0.94B (¥0.85B in the previous year, +10.1%), offsetting part of the improvement in profitability. Ordinary Income increased broadly in line with Operating Income, while non-operating income and expenses (income of ¥0.098B and expenses of ¥0.01B) were small at approximately 0.3% of revenue, confirming that earnings growth was driven by the core business. Extraordinary income and expenses amounted to ¥3 million in the previous year but were zero in the current period, resulting in a limited substantive impact. Net Income increased by +15.2%, but the rise in the effective tax rate to 41.1% (39.9% in the previous year) restrained the growth rate relative to the increase in Ordinary Income (+17.3%). In conclusion, the Company recorded revenue and earnings growth.

Segment Analysis

Financial IT made the largest contribution to Operating Income, with revenue of ¥9.59B (+14.7%), Operating Income of ¥1.80B (+13.2%), and a margin of 18.8%, maintaining its position as the core business. Social Infrastructure IT generated revenue of ¥6.15B (+7.5%), Operating Income of ¥1.16B (+20.4%), and a margin of 18.9%, the highest profitability among all segments, as well as the highest earnings growth rate. Industry IT recorded limited growth in revenue at ¥6.92B (+2.3%), but secured Operating Income of ¥0.95B (+6.1%) and a margin of 13.8%. IT Infrastructure Construction remained stable, with revenue of ¥3.42B (+7.7%), Operating Income of ¥0.54B (+7.3%), and a margin of 15.9%. Solution posted the highest revenue growth rate at ¥4.07B (+18.9%), but continued to operate at a loss, recording an Operating Loss of ¥0.07B (the loss narrowed by 67.3% YoY) and a margin of ▲1.8%. A return to profitability in this segment could provide further upside to the Company-wide profit margin.

Key Financial Metrics

【Profitability】Operating margin improved to 13.9% (13.0% in the previous year, +0.9pt), gross margin to 24.1% (22.9%, +1.2pt), and net margin to 8.4% (8.0%, +0.4pt), reflecting the rising contribution of high-margin segments. 【Cash Flow Quality】Cash and deposits stood at ¥29.48B, while trade receivables (accounts receivable and notes receivable) were ¥18.39B, down ▲21.9% from ¥23.56B in the previous year, indicating progress in collections during a period of revenue growth. Based on quarterly revenue, the approximate days sales outstanding shortened to approximately 56 days (approximately 79 days in the previous year), indicating improving working-capital efficiency. 【Investment Efficiency】ROE was 3.6% (quarterly result), while total asset turnover was 0.33x (quarterly), indicating that asset efficiency was largely unchanged and that the improvement in profitability was the primary driver. 【Financial Soundness】The equity ratio was 77.1%. Interest-bearing debt was minimal relative to total assets of ¥90.02B, with interest expense of ¥0.002B and interest income of ¥0.019B. The interest burden was therefore effectively negligible, and the financial foundation remained highly sound.

Cash Flow Analysis

As cash flow statement data has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥29.48B, down ¥1.43B (▲4.6%) from ¥30.91B in the previous year. Trade receivables were ¥18.39B, down ¥5.16B (▲21.9%) from ¥23.56B in the previous year, suggesting progress in collections amid revenue growth. Meanwhile, inventories increased by ¥0.19B to ¥0.79B from ¥0.61B in the previous year, indicating an increase in work-in-progress inventories for projects. Accounts payable declined by ¥0.65B to ¥5.48B from ¥6.13B in the previous year. Net assets decreased by ¥5.37B to ¥69.42B from ¥74.80B in the previous year. Despite the recognition of Net Income of ¥2.51B, retained earnings declined by ¥4.77B to ¥64.24B from ¥69.01B in the previous year. Treasury shares increased in acquisition value to ▲¥15.89B from ▲¥15.33B in the previous year, suggesting that capital returns through share repurchases, in addition to dividend payments, were the primary drivers of the decline in net assets.

Quality of Earnings

Non-operating income was ¥0.098B, or approximately 0.3% of revenue, and extraordinary income and expenses were zero. Accordingly, the majority of current-period earnings arose from recurring core-business income. The ¥1.75B difference between Ordinary Income of ¥4.26B and Net Income of ¥2.51B was primarily attributable to income taxes of ¥1.75B. The effective tax rate rose slightly to 41.1% from 39.9% in the previous year, putting pressure on Net Income growth. Amortization of goodwill of ¥0.33B (quarterly) is a non-cash expense, suggesting that cash-based earnings power may be slightly higher than accounting Net Income. Comprehensive income was ¥2.51B, broadly in line with Net Income attributable to owners of the parent of ¥2.51B. The primary differences were other securities valuation difference of +¥0.06B, foreign currency translation adjustments of +¥0.03B, and adjustments related to retirement benefits of ▲¥0.10B; the divergence from Net Income was therefore small. In addition, trade receivables declined by ▲21.9% YoY during a period of revenue growth, supporting an assessment that earnings quality was sound from an accrual perspective.

Earnings Forecast and Guidance

The full-year forecast calls for Revenue of ¥126.00B (+6.9%), Operating Income of ¥19.50B (+2.2%), Ordinary Income of ¥19.70B (+1.9%), and forecast EPS of ¥173.67. Q1 progress rates were 23.8% for Revenue, 21.4% for Operating Income, and 21.6% for Ordinary Income, slightly below the standard progress rate of 25% by ▲1.2pt, ▲3.6pt, and ▲3.4pt, respectively. Progress toward forecast Net Income (forecast Net Income attributable to owners of the parent of ¥13.10B) was 19.2%, lower than that for Revenue and Ordinary Income. Given the seasonality weighted toward the second half, this does not represent a significant deviation, and neither the earnings forecast nor the dividend forecast had been revised as of the current quarter.

Risk Factors

1. High tax burden: The effective tax rate was 41.1% (income taxes of ¥1.75B / Profit Before Tax of ¥4.26B), up from 39.9% in the previous year. The structure is therefore restraining growth in final earnings, with Net Income growth limited to +15.2% versus Ordinary Income growth of +17.3%.

2. Continued losses in the Solution segment: Revenue grew strongly to ¥4.07B (+18.9%), but the segment recorded an Operating Loss of ¥0.07B. Although the loss narrowed by 67.3% YoY, the segment has not yet reached profitability. Delayed monetization of the segment could dilute the Company-wide operating margin.

3. Rising SG&A ratio due to higher personnel expenses: Salaries and allowances increased by +10.1% to ¥0.94B from ¥0.85B in the previous year, causing the SG&A ratio to rise to 10.1% (9.9% in the previous year, +0.2pt). If personnel expenses continue to increase faster than revenue growth (+9.6%), they could offset the operating leverage from the improvement in gross margin.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

Profitability is substantially above the median for the IT and telecommunications industry, placing the Company in the upper tier.

Growth and Capital Efficiency

Revenue growth is broadly in line with the industry median and does not represent an exceptionally strong growth phase.

Source: Compiled by the Company

Key Takeaways from the Results

1. The improvement of +1.2pt in gross margin and +0.9pt in operating margin resulted from growth in high-margin segments such as Financial IT and Social Infrastructure IT, which improved the segment mix and indicates a qualitative enhancement in the earnings structure.

2. The Solution segment continued to grow strongly, with revenue up +18.9%, but recorded an Operating Loss of ¥0.07B (the loss narrowed by 67.3% YoY). The extent of progress toward profitability will be an important indicator of the potential for further improvement in the Company-wide profit margin.

3. The effective tax rate rose to 41.1% from 39.9% in the previous year. The fact that Net Income growth (+15.2%) was lower than Ordinary Income growth (+17.3%) indicates that tax burden trends are a factor influencing the trajectory of final earnings.

Theoretical Share 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 share price or a recommendation of any specific investment action.

Sensitivity: ¥1,211–¥1,289 at ±1% for the cost of equity, and ¥1,240–¥1,264 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing mismatch with the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model used: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee the future share price)

---

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, after consulting with a professional as necessary.

---End of Report---