High growth continues, but the decline in margins will be the key issue next time

Revenue in FY2027-H1 was ¥11,181.436 million, up 45.2% year on year, while operating profit was ¥1,639.518 million, up 16.5%. Operating profit growth slowed significantly relative to revenue growth, and the operating margin calculated from the disclosed figures was approximately 14.7%. In the year-earlier period, revenue was ¥7,698.792 million and operating profit was ¥1,406.949 million, for an operating margin of approximately 18.3%. As the operating margin itself is not disclosed on the cover of the earnings summary, an important issue next time will be how quantitatively the company explains the decline in margins.

Operating margins also declined in previous interim periods, from approximately 19.8% in FY2025-H1 to approximately 18.3% in FY2026-H1 and 14.7% in FY2027-H1. As revenue has expanded, the issue is less the presence of demand than how much of the additional revenue is being converted into profit. The lower margins of acquired companies relative to the existing business, together with costs incurred ahead of revenue for recruitment, training and the strengthening of internal systems, will be factors to monitor as potential drivers of the decline.

The full-year forecasts are revenue of ¥23,500 million and operating profit of ¥4,409 million. As of the end of the interim period, revenue progress was approximately 47.6% and operating profit progress was approximately 37.2%. On a simple calculation, the second half would need to generate revenue of ¥12,318.564 million and operating profit of ¥2,769.482 million, implying a second-half operating margin of approximately 22.5%. This is well above the first-half margin of 14.7%, so the second-half project mix, profitability improvements at subsidiaries and the seasonality of recruitment costs need to be examined in detail.

The company operates in a single IT infrastructure segment and does not disclose revenue or profit by segment. As a result, the earnings summary alone does not show whether the decline in consolidated margins came from the existing business, acquired subsidiaries, recruitment investment or project mix. At the next results announcement, a key point for verification will be whether the company discloses gross profit margin, recruitment-related costs, SG&A expenses, subsidiary-level revenue and profit, and the effects of improvement through PMI, at least on a year-on-year or monetary basis.