NSD (9759) FY2027 Q1 Earnings Report

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Executive Summary

The company achieved a 17.4% increase in operating income, exceeding the 9.6% revenue growth rate, resulting in a strong earnings performance with improved margins. Revenue was ¥299.3B (¥273.0B in the same period of the previous year, +9.6%), operating income was ¥41.8B (¥35.6B, +17.4%), ordinary income was ¥42.6B (¥36.4B, +17.3%), and net income was ¥25.1B (¥21.9B, +14.8%). An improvement in gross margin due to a lower cost ratio (24.1%, compared with 22.9% in the previous year) absorbed the 12.3% increase in SG&A expenses, resulting in profit growth outpacing revenue growth.

Factors Affecting Earnings

【Revenue】Revenue was ¥299.3B, up +9.6% year on year. All five segments posted revenue growth, with the Solutions Business increasing +18.9% and Financial IT increasing +14.7%, both showing strong growth. Financial IT was the largest segment, accounting for 32.0% of the revenue mix. Its ¥1.23B increase in revenue represented approximately 47% of the company-wide ¥2.63B increase and drove overall company growth. Industrial IT growth decelerated somewhat to +2.3%.

【Profit and Loss】Operating income was ¥41.8B, up +17.4% year on year, representing growth 7.8pt above the revenue growth rate. Gross margin improved from 22.9% in the previous year to 24.1%, mainly due to a lower cost ratio. Meanwhile, SG&A expenses, including salaries and allowances (+10.1%) and rent expenses (+15.2%), increased +12.3%, exceeding revenue growth. Continued improvement in gross margin will therefore be key to further margin expansion. Ordinary income was ¥42.6B (+17.3%), with only a small divergence from operating income, indicating that earnings were driven primarily by the core business. Net income was ¥25.1B (+14.8%), with the 41.0% effective tax rate limiting the conversion of profit before tax into net income. This was a quarter of both revenue and profit growth, in which operating leverage worked positively.

Segment Analysis

Financial IT was the largest source of earnings, with revenue of ¥9.59B (+14.7%), operating income of ¥1.80B (+13.2%), and an operating margin of 18.8%. Social Infrastructure IT recorded revenue of ¥6.15B (+7.5%), profit of ¥1.16B (+20.4%), and a profit margin of 18.9%, the highest profitability among the five businesses. Industrial IT posted revenue of ¥6.92B (+2.3%), profit of ¥0.95B (+6.1%), and a profit margin of 13.8%. IT Infrastructure Construction generated revenue of ¥3.42B (+7.7%), profit of ¥0.54B (+7.3%), and a profit margin of 15.9%. The Solutions Business achieved the highest revenue growth rate at +18.9%, with revenue of ¥4.07B, but recorded an operating loss of ¥0.07B. The loss narrowed from ¥0.22B in the same period of the previous year, indicating progress in profitability improvement accompanying revenue growth. However, the profitability gap with the four systems development businesses (profit margins of 13.8~18.9%) remains substantial.

Key Financial Indicators

【Profitability】The operating margin was 13.9%, improving from 13.0% in the previous year, while the net profit margin was 8.4%, up from 8.0%. Margins expanded as profit growth exceeded revenue growth.【Cash Flow Quality】Comprehensive income was ¥2.51B, almost equal to net income of ¥2.51B, as foreign currency translation adjustments of +¥0.03B and retirement benefit adjustments of △¥0.10B largely offset each other.【Investment Efficiency】Annualized ROE was 14.5%, supported by a balanced combination of net profit margin, total asset turnover, and financial leverage, indicating low reliance on leverage.【Financial Soundness】The equity ratio was extremely high at 77.1%. The company maintained substantial working capital, with current assets of ¥52.85B against current liabilities of ¥13.39B. The effective tax rate was 41.0%, acting as a factor that restrained the efficiency of converting profit before tax into net income.

Cash Flow Analysis

As this disclosure does not include figures from the cash flow statement, funding trends are assessed based on changes in the balance sheet. Cash and deposits were ¥29.48B, down from ¥30.91B in the same period of the previous year. However, highly liquid assets, including short-term investment securities of ¥3.00B, remained approximately 2.4 times current liabilities of ¥13.39B. Accounts receivable were ¥18.39B, down ¥5.16B from ¥23.56B in the same period of the previous year, potentially contributing positively to cash efficiency through progress in collections. Meanwhile, treasury stock increased to ¥15.89B, while net assets declined to ¥69.42B from ¥74.80B in the previous year. Capital allocation through shareholder returns and capital policies appears to have affected the contraction in assets and net assets.

Quality of Earnings

Profit growth in the current period was primarily attributable to improved earning power in the core business, with little impact from temporary extraordinary gains or losses. Extraordinary income was ¥0.00B, while non-operating income was also limited to ¥0.10B (0.3% of revenue), consisting of recurring items such as dividend income of ¥0.02B and interest income of ¥0.02B. The small gap between ordinary income of ¥4.26B and operating income of ¥4.18B indicates that earnings were concentrated in business activities, demonstrating high earnings quality. However, the effective tax rate of 41.0% exceeds the generally applicable statutory effective tax rate. The tax burden restrained the conversion into bottom-line earnings, as profit before tax increased 44.6% year on year while net income increased only 14.8%; this point warrants attention from an accrual perspective. Comprehensive income of ¥2.51B was almost equal to net income of ¥2.51B, indicating stable underlying earnings quality, including the valuation of other securities and goodwill.

Earnings Forecasts and Guidance

Q1 progress against the full-year plan was 23.8% for revenue (¥299.3B/¥1,260.0B), 21.4% for operating income (¥41.8B/¥195.0B), 21.6% for ordinary income (¥42.6B/¥197.0B), and 19.2% for net income (¥25.1B/¥131.0B). Although all were below the standard quarterly progress rate of 25%, the largest deviation was limited to 5.8pt for net income. The full-year plan assumes a conservative outlook, with revenue growth of +6.9% compared with operating income growth of +2.2%. The Q1 operating margin of 13.9% was below the 15.5% margin assumed in the full-year plan. No revisions were made to the earnings or dividend forecasts on this occasion.

Shareholder Returns

The full-year dividend forecast is ¥97.0 per share, with no revisions. Based on the average number of shares outstanding during the period of 75,808,250 shares, the forecast total dividend payment is approximately ¥7.35B, implying a forecast payout ratio of approximately 56.1% against forecast full-year net income of ¥13.10B. Based solely on dividends, this level appears to be within a sustainable range. Treasury stock was ¥15.89B, equivalent to 22.9% of net assets, and has a certain impact on the capital structure. However, as the actual amount of treasury stock acquisitions during the period is not included in the disclosed data, the total return ratio has not been calculated.

Risk Factors

1. Risk of margin reversal due to increased SG&A expenses: SG&A expenses increased +12.3% year on year, exceeding the revenue growth rate of 9.6%. If the increases in salaries and allowances (+10.1%) and rent expenses (+15.2%) continue, they may offset the positive impact of operating leverage from improved gross margins.

2. Dependence on the Financial IT segment: Financial IT is the largest source of earnings, with revenue of ¥9.59B and profit of ¥1.80B, accounting for approximately 47% of the company-wide increase in revenue. Trends in projects within this segment have a significant impact on overall company performance.

3. Profitability of the Solutions Business: This business posted strong revenue growth of +18.9%, with revenue of ¥4.07B, but recorded an operating loss of ¥0.07B. Although the loss narrowed from ¥0.22B in the previous year, the profitability gap with other businesses (profit margins of 13.8~18.9%) remains a factor weighing on the company-wide profit margin.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

The company substantially exceeds the industry median and ranks among the industry leaders in profitability.

Growth and Capital Efficiency

The growth rate is broadly in line with the industry median and is at an average level within the IQR.

※Source: Company analysis

Key Points from the Earnings Report

1. The company achieved operating income growth of 17.4%, exceeding revenue growth of 9.6%, with both gross margin and operating margin improving from the previous year. The key focus going forward is whether the trend of lower costs absorbing increased SG&A expenses will continue.

2. Q1 progress against the full-year plan was 23.8% for revenue, 21.4% for operating income, and 19.2% for net income, slightly below the standard 25%. The full-year plan may assume the accumulation of revenue and profit in the second half.

3. The Solutions Business achieved both revenue growth and a reduction in its loss. If the business becomes profitable, it could provide a further factor for improving the company-wide profit margin.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,169–¥1,236 at a ±1% change in the cost of equity, and ¥1,195–¥1,212 at a change of ±0.1 in ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• As 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; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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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 discretion and responsibility, after consulting professionals as necessary.

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