Sharp Q4 recovery from a 3Q operating loss is the inflection point for achieving the FY2026 forecast

For the nine months ended May 2026, consolidated revenue was ¥4,822 million, down 0.8% year on year, while operating profit was ¥280 million, down 44.8%. The operating margin was approximately 5.8%, down 4.6 percentage points from approximately 10.4% in the same period of the previous year. While revenue was largely flat, idle capacity caused by the temporary suspension of a large development project for an overseas client and a decline in revenue sharing in the game business significantly weighed on profit.

The full-year forecast remains unchanged at revenue of ¥6,510 million and operating profit of ¥405 million. A simple calculation based on the nine-month results indicates that 4Q needs to generate revenue of ¥1,688 million and operating profit of ¥125 million. Since revenue in 3Q alone was ¥1,363 million, 4Q revenue must exceed this by ¥325 million, or approximately 23.8%. Operating profit must improve by ¥176 million, from an operating loss of ¥51 million in 3Q alone to operating profit of ¥125 million. Based on 4Q revenue of ¥1,688 million, the required operating margin is approximately 7.4%.

The 3Q breakdown was revenue of ¥1,266 million and an operating loss of ¥61 million for the game business, and revenue of ¥97 million and operating profit of ¥9 million for the Other business. Accordingly, achieving the full-year forecast will require not only higher group-wide revenue, but also simultaneous recovery in capacity utilization and project profitability in the game business, which accounts for most of revenue. In particular, even if additional orders are secured and new projects are launched in the game business, a rise in subcontracting costs and fixed costs ahead of revenue could prevent revenue recovery from translating into operating profit.

The company assessed progress for the nine months as broadly within its expectations and left its full-year earnings forecast unchanged. However, in the question-and-answer session accompanying the results, it described the 4Q revenue level as "still uncertain" and said it had not yet fully offset lost revenue. Accordingly, at the next results announcement, it will be necessary to determine not only whether the full-year targets were met, but also whether 4Q revenue of ¥1,688 million and operating profit of ¥125 million resulted from projects being brought forward or other temporary factors, or from a sustained recovery in capacity utilization.

The disclosures to monitor are consolidated and segment-level revenue and operating profit for 4Q alone, the start dates of major projects, progress in eliminating idle capacity, and whether the company absorbed the increase in fixed costs. Since the company has not disclosed the impact by factor or capacity-utilization figures, achieving operating profit of ¥125 million alone will make it difficult to assess the sustainability of the profit recovery.