FY2027 1Q: operating profit narrows despite revenue tracking plan

First-quarter revenue was ¥427 million, operating profit was ¥1 million, ordinary profit was ¥0 million and quarterly net income was ¥15 million. Revenue fell 12.9% year on year, operating profit declined 85.7% and ordinary profit declined 89.5%, while net income alone increased 101.2% year on year. Revenue of ¥427 million represents approximately 25.6% of the full-year forecast of ¥1,670 million, slightly above the simple 25% proportion of the fiscal year elapsed. Operating profit cannot be assessed in the same way because the full-year forecast is an operating loss of ¥11 million.

The quarterly net income of ¥15 million was significantly affected by the ¥15 million gain on the sale of investment securities recognized as an extraordinary gain, creating a notable gap from operating profit of ¥1 million. Accordingly, at the next earnings announcement, it will be necessary to separately review pretax income excluding extraordinary gains, operating profit and ordinary profit, rather than looking only at whether net income was positive. Since the gain on the sale of investment securities recognized in the first quarter is not a recurring source of earnings, the key to assessing improvement in first-half earnings will be how much profit was accumulated from operating activities.

The company explained that, although demand for system development and maintenance itself remained firm, the lower utilization rate and increase in unassigned personnel at the start of the fiscal year affected revenue and profitability. It is pursuing staff reallocations, improvements in contract rates, a review of the sales channel and stronger sales activities, but it has not disclosed the specific utilization rate, the number of unassigned personnel or the amount of improvement in contract rates. The focus next time will be whether the company moves beyond simply stating that measures were implemented and provides verifiable disclosure, such as how many people returned to active assignments and how much average contract rates improved.

The full-year forecasts are revenue of ¥1,670 million, an operating loss of ¥11 million, an ordinary loss of ¥13 million and net income of ¥1 million. Although standalone first-quarter operating profit was ¥1 million, the company forecasts a full-year operating loss, suggesting that additional costs or seasonal fluctuations in utilization may be incorporated into its forecasts for the coming quarters. The information provided does not disclose those assumptions, however. At the next earnings announcement, it will be necessary to check not only whether the full-year forecasts are maintained or revised, but also first-half cumulative revenue, operating profit, ordinary profit and extraordinary gains and losses, and to assess their consistency with the full-year forecasts.