Utilization and costs are running ahead of revenue growth, making margin recovery the key point to monitor

Revenue for the six months from January through June 2026 was ¥2,471.914 million, an increase of ¥58.123 million, or 2.4%, from ¥2,413.791 million in the first half of FY2025. However, operating profit declined by 207.? million from ¥214.395 million in the first half of FY2025 to ¥6.382 million, representing a 97.0% decline. Ordinary profit was also limited to ¥10.207 million, down 95.2% year on year, while interim net income attributable to owners of the parent swung from a profit of ¥138.412 million to a loss of ¥10.455 million.

Based on the reported figures, the operating margin was approximately 0.3% in the first half of FY2026, compared with approximately 8.9% in the same period of the prior year, a decline of approximately 8.6 percentage points. This is not simply a modest deterioration in profitability. Despite higher revenue, a decline in personnel available for project assignments and the burden of largely fixed personnel costs have nearly eliminated operating profit. In FY2026-Q3, it will be important to see how much cumulative operating profit builds from ¥6.382 million, as well as whether the company discloses standalone Q3 revenue, operating profit and operating margin.

The company says that, against the backdrop of rapid advances in AI in recent years, it temporarily restrained engineer hiring and subsequently raised its hiring requirements for both the use of AI technology and business understanding. As a result, the increase in the number of engineers slowed from the initially expected pace. In addition, shifting more personnel to the AI specialist division reduced the number of personnel assigned to projects, while the completion or downsizing of some major projects coincided with delays in launching replacement projects, lowering utilization. Salaries and allowances also increased from ¥351.597 million to ¥498.709 million. At the next earnings release, it will be necessary to determine whether improved utilization can absorb the increase in personnel costs.

The revised operating profit forecast for FY2026 is ¥200 million. After deducting first-half operating profit of ¥6.382 million, the company needs to generate ¥193.618 million in operating profit in the second half alone. Revenue was ¥2,471.914 million in the first half against a full-year forecast of ¥5,323 million, leaving ¥2,851.086 million to be generated. In Q3, we will assess whether delays in project launches have been resolved and how utilization, salaries and allowances, recruitment expenses, shareholder benefit expenses and other cost items have changed, together with the operating margin.