MIROKU JYOHO SERVICE (9928) FY2027 Q1 Earnings Report

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Executive Summary

FY2027 Q1 saw increases in both revenue and earnings, with an improvement in gross margin driving a higher operating margin and boosting the earnings growth rate. Revenue was ¥125.1B (¥115.7B in the same period last year, YoY +8.2%), Operating Income was ¥15.6B (¥12.4B, YoY +25.2%), and Ordinary Income was ¥15.7B (¥12.8B, YoY +22.7%). Net Income attributable to owners of the parent was ¥10.2B (¥8.9B in the same period last year, YoY +13.8%). The slower growth in net income relative to Operating Income and Ordinary Income was primarily attributable to an increase in the effective tax rate (39.3%, compared with 34.2% in the same period last year). The operating margin improved to 12.4% from 10.8% in the same period last year, an improvement of +1.7pt, while the improvement in gross margin to 62.2% (59.0% in the same period last year) absorbed the increase in SG&A expenses (+11.6%).

Factors Affecting Financial Results

【Revenue】Revenue was ¥125.1B, representing YoY growth of +8.2%. As the Company operates in a single segment (Software-Related Business), a breakdown by business is not disclosed. However, because Cost of Sales remained nearly flat at ¥47.4B (¥47.5B in the same period last year), gross margin improved to 62.2% from 59.0%, an improvement of +3.2pt, suggesting a qualitative improvement in the revenue mix.

【Profit and Loss】Operating Income was ¥15.6B, representing YoY growth of +25.2%. SG&A expenses increased to ¥62.2B (¥55.8B in the same period last year, +11.6%), at a pace exceeding revenue growth. However, the improvement in gross margin absorbed this increase, and the operating margin rose to 12.4% (10.8% in the same period last year, +1.7pt). Ordinary Income was ¥15.7B (YoY +22.7%), with non-operating income and expenses remaining at a small net gain, including ¥0.2B in dividend income, and therefore remaining at approximately the same level as Operating Income. A gain on the sale of investment securities of ¥0.4B was recorded in Extraordinary Income as a temporary factor, while Extraordinary Losses were zero. Against Profit Before Income Taxes of ¥16.1B (YoY +26.4%), corporate income taxes and other taxes were ¥6.3B, resulting in an increase in the effective tax rate to 39.3% (34.2% in the same period last year). Net Income attributable to owners of the parent was ¥10.2B (YoY +13.8%), with growth moderating relative to the earnings growth rates at the Operating Income and Ordinary Income stages. In conclusion, the Company achieved increases in both revenue and earnings.

Key Financial Indicators

【Profitability】The operating margin improved to 12.4% from 10.8% in the same period last year, an improvement of +1.7pt. The net profit margin, based on Net Income attributable to owners of the parent, improved to 8.1% from 7.7%, an improvement of +0.4pt. Gross margin improved to 62.2% from 59.0%, an improvement of +3.2pt. Profitability improved in the same direction across multiple indicators. 【Cash Quality】Cash and deposits were ¥126.6B, while the Equity Ratio declined slightly to 67.7% (68.0% in the same period last year) but remained at a high level. 【Investment Efficiency】ROE was 3.0%. Against total assets of ¥481.4B, net assets were ¥326.0B, and BPS was ¥1,081.98 (¥1,106.61 in the same period last year). As the number of treasury shares was unchanged, the decline in retained earnings is considered the primary cause of the decrease in BPS. 【Financial Soundness】Total interest-bearing debt was ¥42.4B (short-term: ¥30.4B; long-term: ¥12.0B), while the Company held cash of ¥126.6B, indicating a virtually debt-free position. With interest expense of ¥0.16B against Operating Income of ¥15.57B, interest coverage was approximately 97x, representing substantial coverage.

Cash Flow Analysis

As detailed disclosures for the cash flow statement are not available, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥126.6B, a decrease of ¥16.8B (-11.7%) from ¥143.4B in the same period last year. Long-term borrowings were ¥12.0B, a reduction of 25.0% from ¥16.0B in the same period last year, indicating that scheduled repayments are progressing. The provision for bonuses was ¥7.4B, down 45.5% from ¥13.6B in the same period last year, while accrued corporate income taxes and other taxes were ¥7.4B, down 31.7% from ¥10.8B. Seasonal cash outflows related to bonus payments and tax payments are considered one factor behind the decline in cash. Meanwhile, accounts receivable were ¥57.1B, up only +2.2% from ¥55.9B in the same period last year, below the pace of revenue growth (+8.2%), suggesting that working capital efficiency is instead improving. Inventories were also ¥6.6B, down 7.0% from ¥7.1B in the same period last year, indicating that cash tied up in inventory is being controlled. Retained earnings were ¥286.9B, down from ¥294.7B in the same period last year, with dividend payments considered the primary factor.

Earnings Quality

Against Ordinary Income of ¥15.7B, Extraordinary Income consisted solely of a ¥0.4B gain on the sale of investment securities, while Extraordinary Losses were zero, indicating that the contribution of non-recurring gains and losses to earnings was limited. Non-operating income of ¥0.4B consisted primarily of ¥0.2B in dividend income and did not include items with low recurrence, indicating that a profit structure originating from core operations has been maintained. Corporate income taxes and other taxes were ¥6.3B against Profit Before Income Taxes of ¥16.1B, resulting in an increase in the effective tax rate to 39.3% (34.2% in the same period last year). This was the primary factor limiting the growth in Net Income attributable to owners of the parent (+13.8%) below the growth rates at the Operating Income and Ordinary Income stages (+25.2%/+22.7%). Comprehensive income was ¥10.2B, of which ¥10.6B was attributable to owners of the parent. The difference from Net Income of ¥10.2B was primarily attributable to foreign currency translation adjustments of +¥0.5B, and the divergence remained small. Overall, most earnings originated from recurring operating activities, and the small contribution from non-recurring items indicates that earnings quality can be assessed as favorable.

Earnings Forecasts and Guidance

Progress toward the full-year forecast was 23.3% for revenue (¥125.1B/¥538.0B), 21.5% for Operating Income (¥15.6B/¥72.3B), 21.3% for Ordinary Income (¥15.7B/¥73.8B), and 21.2% for Net Income attributable to owners of the parent (¥10.2B/¥48.1B). All remained slightly below the simple 25% benchmark. No revisions were made to the earnings or dividend forecasts during the quarter, suggesting consistency with a plan weighted toward the second half. Against the full-year forecast growth rates (Operating Income YoY +8.3%; Ordinary Income YoY +7.4%), the growth rates in Q1 (Operating Income +25.2%; Ordinary Income +22.7%) were substantially higher. If the earnings growth trend continues through the first half, this could support a higher probability of achieving the full-year plan.

Shareholder Returns

The Payout Ratio calculated from the full-year forecast DPS of ¥65 and forecast EPS of ¥160.63 is 40.5%. Dividend performance data for the same period last year is not provided, and there was no revision to the dividend forecast during the quarter. The number of treasury shares was unchanged from the same period last year at 2,362 thousand shares, and no share repurchases were confirmed during Q1. As the Company’s shareholder returns consist solely of dividends, it is appropriate to evaluate them based on the Payout Ratio rather than the Total Return Ratio.

Risk Factors

1. Risk of net income compression due to an increase in the effective tax rate: The effective tax rate rose to 39.3% from 34.2% in the same period last year, while YoY growth in Net Income attributable to owners of the parent was limited to +13.8% against YoY growth in Profit Before Income Taxes of +26.4%. If the tax burden remains elevated, it may constrain the effective pace of earnings growth.

2. Formal refinancing risk associated with the high proportion of short-term liabilities: Current liabilities of ¥141.7B are approximately 10 times non-current liabilities of ¥13.7B, indicating a significant concentration in current liabilities. However, cash and deposits of ¥126.6B are approximately 4.2 times short-term borrowings of ¥30.4B, and practical liquidity risk is considered limited.

3. Monitoring of the level of intangible assets and goodwill: Intangible assets were ¥161.7B, including goodwill of ¥27.0B, accounting for 33.6% of total assets. The ratio of investment-type assets, including software under development, is high. The impact of future monetization and impairment trends on financial indicators should be closely monitored.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin exceed the industry median, placing the Company’s profitability at a high level within the industry.

Growth and Capital Efficiency

The revenue growth rate was slightly below the industry median, placing the Company’s growth rate in the mid-range.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The operating margin improved to 12.4% (10.8% in the same period last year), and the improvement in gross margin (+3.2pt) exceeded the increase in SG&A expenses (+11.6%), driving the earnings growth rate (+25.2%). This indicates a qualitative change in the earnings structure.

2. The effective tax rate increased to 39.3% (34.2% in the same period last year), and net income growth (+13.8%) moderated relative to the growth in Profit Before Income Taxes (+26.4%). This is a point to consider when evaluating earnings quality.

3. Financial soundness remains at a high level, supported by the scheduled reduction in long-term borrowings (-25.0%), ample cash holdings of ¥126.6B, and an Equity Ratio of 67.7%.

Theoretical Stock Price (Reference Value)

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

Sensitivity: ¥1,234–¥1,306 at ±1% for the cost of equity, and ¥1,265–¥1,276 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).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee future stock 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. 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 with a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2027 Q1 was a solid start, with revenue growth translating into materially faster operating-profit growth. Revenue increased 8.2% YoY to ¥125.14bn. Operating income rose 25.2% to ¥15.57bn, outpacing sales by 17.0 percentage points. Ordinary income increased 22.7% to ¥15.69bn. Profit attributable to owners increased 13.9% to ¥10.19bn. Gross profit margin expanded to 62.2% from 58.9% in the prior-year quarter, a 320bp improvement. Operating margin increased to 12.4% from 10.8%, a 169bp expansion. The gross-margin gain was partly absorbed by a rise in the SG&A-to-sales ratio to 49.7% from 48.2%, or 151bp. Nevertheless, the company retained meaningful positive operating leverage because gross profit increased 14.0% while SG&A grew 11.6%. Net profit margin improved by 40bp to 8.1%, but lagged the operating-margin improvement because the effective tax rate rose to 39.3% from roughly 34.2% a year earlier. Pretax income also included a ¥0.41bn gain on sales of investment securities, equivalent to 2.5% of pretax profit. This item modestly lifted reported earnings but does not alter the underlying operating-profit improvement. The annualized DuPont ROE was 12.5%, placing profitability within the good 10-15% benchmark range. The balance sheet remains conservatively capitalized, with a 152.0% current ratio, 0.48x debt-to-equity, and cash deposits of ¥126.59bn exceeding interest-bearing debt of ¥42.36bn. However, 71.7% of interest-bearing debt is short term, making refinancing and liquidity management relevant even though immediate cash coverage is strong. Intangible assets represent 33.6% of total assets, led by software-related assets, increasing the importance of successful product development, implementation, and asset recoverability. Q1 revenue and profit progress against the full-year plan was slightly below a straight 25% run rate, while reported YoY growth is stronger than the full-year growth assumptions, leaving execution over subsequent quarters important.

Profitability Analysis

The annualized three-factor DuPont ROE of 12.5% comprises an 8.1% net profit margin, 1.040x asset turnover, and 1.48x financial leverage. The principal driver of the YoY earnings improvement was margin expansion rather than greater leverage: operating margin rose 169bp and gross margin increased 320bp. Revenue growth of 8.2% was accompanied by a 14.0% increase in gross profit, indicating improved revenue mix, pricing, and/or delivery economics. SG&A expenses grew 11.6%, faster than revenue, lifting the SG&A ratio by 151bp; this is the principal offset to the gross-margin improvement and should be monitored for persistence. Even with this cost increase, operating income grew 25.2%, demonstrating favorable operating leverage at the gross-profit level. The five-factor framework shows a 63.3% tax burden and a 103.4% interest burden, with the latter reflecting limited financing-cost pressure relative to EBIT. Interest coverage of 97.31x is exceptionally strong. The effective tax rate of 39.3% reduced conversion of pretax income into net income during the quarter. The ¥0.41bn securities-sale gain supported pretax and net profit but was small relative to ¥15.57bn operating income. JGAAP goodwill amortization can reduce reported operating profit relative to IFRS peers; the reported asset structure therefore warrants attention when comparing margins across accounting standards.

Growth Assessment

The Q1 sales increase of 8.2% and operating-income increase of 25.2% indicate that growth was profitable rather than purely volume-led. Gross profit grew faster than sales, providing the foundation for the 169bp operating-margin improvement. Management's full-year forecast assumes 10.0% revenue growth and 8.3% operating-income growth, implying a more moderate profit-growth profile after Q1. Q1 progress versus the full-year forecast was 23.3% for revenue, 21.5% for operating income, 21.3% for ordinary income, and 21.2% for profit attributable to owners. These are 1.7 to 3.8 percentage points below a mechanical 25% Q1 run rate and are not deviations exceeding the 10-percentage-point threshold. The forecast profile therefore appears to assume a greater contribution from later quarters. The company operates in a single software-related segment, so consolidated growth is concentrated in the core software business rather than diversified across separately reported operating segments. The high proportion of intangible assets reinforces the importance of converting software-development investment into recurring maintenance, cloud, support, and implementation-related earnings over time.

Financial Health

Liquidity is sound, with current assets of ¥215.31bn against current liabilities of ¥141.66bn, producing working capital of ¥73.65bn and a current ratio of 152.0%. The 147.3% quick ratio confirms that liquidity is not dependent on inventory realization. Cash and deposits of ¥126.59bn cover short-term debt by 4.17x and exceed total interest-bearing debt of ¥42.36bn by ¥84.23bn. Debt-to-equity of 0.48x and debt-to-capital of 11.5% indicate a conservative overall capital structure, while interest coverage of 97.31x demonstrates ample debt-service capacity. The principal refinancing consideration is the 71.7% short-term debt ratio: a significant portion of borrowings must be rolled over or repaid within the operating cycle. This maturity profile is manageable in the current liquidity position, but it raises sensitivity to changes in bank funding conditions and cash deployment. Long-term loans declined ¥4.00bn YoY to ¥12.00bn, a 25.0% reduction, lowering longer-dated funding and increasing the relative prominence of short-term financing. Total equity of ¥326.01bn provides a substantial loss-absorption buffer, while liabilities account for only 32.3% of total assets. Intangible assets amount to ¥161.65bn, or 33.6% of total assets, creating a material asset-recoverability consideration. Goodwill is more moderate at ¥27.01bn, or 8.3% of equity and 5.6% of assets, which is below the 30% goodwill-to-equity benchmark.

Notable B/S Changes

Long-term loans: -¥4.00bn (-25.0%) to ¥12.00bn - reduces longer-dated borrowing, but increases the relative importance of short-term funding within the debt structure. Software work in progress: +¥7.62bn (+7.1%) to ¥114.71bn - continued capitalization of development activity heightens the need to monitor project completion, commercialization, and impairment exposure. Provision for bonuses: -¥6.19bn (-45.5%) to ¥7.41bn - materially reduced current accrued compensation obligations, contributing to the composition of current liabilities.

Cash Flow Quality

Quarterly operating-cash-flow and investing-cash-flow figures are not incorporated into the reported financial results used here; consequently, cash conversion, OCF-to-net-income, free-cash-flow coverage, and capex funding cannot be quantified. Earnings quality is nevertheless supported at the operating level by the 25.2% increase in operating income and the 320bp gross-margin expansion. Reported profit attributable to owners includes a ¥0.41bn gain on sales of investment securities, representing 4.0% of profit attributable to owners, so a modest portion of quarterly earnings was non-recurring. The rise in accounts receivable to ¥57.10bn from ¥55.86bn was slower than the 8.2% sales increase, which does not indicate an adverse receivables build-up on the available balance-sheet comparison. Inventories declined to ¥6.60bn from ¥7.10bn despite higher revenue, limiting inventory-related working-capital pressure. However, software work in progress is substantial at ¥114.71bn, and the high-WIP alert indicates elevated dependence on timely project completion, capitalization discipline, and eventual monetization.

Dividend Sustainability

The full-year forecast calls for DPS of ¥65.00 and EPS of ¥160.63, implying a dividend-only payout ratio of approximately 40.5%. This is below the 60% sustainability benchmark and leaves earnings retention capacity for software investment, debt management, and shareholder equity support. The forecast dividend represents a cash commitment of roughly ¥1.94bn based on average shares of 29.94 million. The company has a net cash position of ¥84.23bn based on cash deposits less interest-bearing debt, providing a substantial balance-sheet buffer for the indicated dividend. Dividend sustainability will ultimately depend on the conversion of earnings into operating cash flow and the scale of software-development investment.

Risk Assessment

Business risks include Software-related revenue is concentrated in a single operating segment, increasing exposure to customer IT-budget cycles, implementation delays, and changes in demand for accounting and business-management systems., Intangible assets are 33.6% of total assets, above the 30% concentration warning threshold. This reflects an IP- and development-heavy business model, but it raises impairment and return-on-development-investment risk if expected sales, utilization, or product competitiveness fall short., The high work-in-progress alert signals heightened project-execution risk. Delayed completion, cost overruns, customer acceptance issues, or weaker-than-expected monetization could pressure future margins or require write-downs., Technology obsolescence, cybersecurity incidents, data-protection requirements, and the ability to recruit and retain skilled IT personnel remain sector-specific risks to product competitiveness and delivery capacity..

Financial risks include The 71.7% short-term debt ratio exceeds the 40% alert threshold. Although cash covers short-term debt by 4.17x, the maturity concentration requires continuing access to refinancing or a willingness to use cash for repayment., The effective tax rate rose to 39.3%, limiting net-income conversion despite strong operating-profit growth; sustained elevated tax expense would restrain EPS growth., A ¥0.41bn gain on sale of investment securities contributed to pretax earnings, introducing a limited non-recurring element to reported profit..

Key concerns include Whether the 320bp gross-margin expansion can be sustained while SG&A continues to grow faster than revenue., Whether Q1 progress of 21.5% for operating income and 21.2% for owner-attributable profit can accelerate sufficiently to achieve the full-year plan., Whether the large software and software-work-in-progress asset base generates returns without impairment or extended capitalization periods., Whether short-term borrowings remain appropriately matched with available cash and operating liquidity..

Investment Implications

Key takeaways include Revenue grew 8.2% YoY, while operating income grew 25.2%, supported by a 169bp operating-margin expansion to 12.4%., The annualized 12.5% ROE is supported primarily by an 8.1% net margin and 1.040x asset turnover rather than aggressive leverage., Liquidity and solvency are strong: current ratio is 152.0%, debt-to-equity is 0.48x, and cash exceeds interest-bearing debt by ¥84.23bn., The asset base is software-intensive, with intangible assets at 33.6% of assets and software work in progress at ¥114.71bn, making development productivity and impairment discipline central analytical variables., The FY2027 DPS forecast implies an approximately 40.5% dividend-only payout ratio, which is moderate relative to forecast earnings..

Metrics to watch include Gross margin and SG&A-to-sales ratio, particularly whether SG&A growth remains above revenue growth, Quarterly progress toward the ¥538.00bn revenue and ¥72.30bn operating-income full-year forecasts, Software work-in-progress balances, capitalization trends, and any impairment charges, Short-term debt ratio, cash-to-short-term-debt coverage, and refinancing terms, Effective tax rate and the contribution of investment-security gains to pretax profit.

Regarding relative positioning, Profitability is in the good benchmark range, with a 12.4% operating margin and annualized 12.5% ROE, while leverage is conservative and interest coverage is very strong. Relative to an asset-light software profile, however, the 33.6% intangible-asset ratio is elevated and makes the company more dependent on successful monetization of capitalized software assets.