Q1: Revenue rose, but profit fell by about 35%. Can the investment burden be absorbed?

In the first quarter of the fiscal year ending March 2027, revenue rose 12.4% year on year to ¥568 million, while operating profit fell 35.2% to ¥15 million, ordinary profit fell 34.8% to ¥16 million, and net profit fell 35.0% to ¥10 million. Although revenue expanded, the decline in profit was substantial, indicating that changes in the revenue mix and cost burden, rather than a simple recovery in demand, are determining profitability.

In the operating profit bridge in the earnings supplemental materials, gross profit increased by ¥13 million from operating profit of ¥24 million in the same quarter last year, but growth investment increased by ¥22 million, leaving operating profit for the quarter at ¥15 million. The gross margin also fell 1.6 percentage points, from 36.6% in the same quarter last year to 35.0%. The company attributes this mainly to a change in the revenue mix as use increased of relatively low-margin services, including component procurement, and to reinvestment in systems, service functions and specialist personnel.

The gap versus the full-year plan is also important. FY2026 actual revenue was ¥2,311 million and operating profit was ¥190 million, while the FY2027 plan calls for revenue of ¥2,410 million, operating profit of ¥191 million and net profit of ¥128 million, leaving operating profit growth at just 0.4%. Q1 revenue progress was 23.6%, close to the simple quarterly benchmark of 25%, but operating profit progress was 7.9%, implying that a substantial amount of profit must be built up in the second half.

At the next earnings release, we will seek to distinguish whether Q1 operating profit of ¥15 million reflects a temporary investment burden or a structural problem caused by a continuing shift toward low-margin services. As the company has a single segment, it does not disclose segment revenue or profit, and it has not provided sufficient detail on service-level revenue and gross margins for component procurement, assembly, design and GUGEN Hub, or on the ¥22 million growth investment by personnel costs, systems costs and depreciation. In Q2, whether the gross margin recovers from 35.0% and whether the operating margin returns to the level of the same quarter last year will be direct indicators of the achievability of the full-year operating profit forecast of ¥191 million.