Q1 profit increased, but progress against the full-year earnings plan and earnings quality remain concerns

Consolidated revenue for Q1 of the fiscal year ending February 2027 was ¥1,245 million, up 8.1% year on year, while operating profit was ¥93 million, up 195.5%. Revenue and operating profit in the same period of the previous year were ¥1,152 million and ¥31.6 million, respectively, meaning that profit recovered more rapidly than revenue. However, because operating profit was at a low level in the same period of the previous year, caution is needed before concluding that the core business’s earnings power has improved significantly based solely on the rate of profit growth.

The full-year forecast remains unchanged at revenue of ¥6,211 million and operating profit of ¥624 million. Q1 progress was 20.0% for revenue and 14.9% for operating profit, approximately 5 percentage points below the 25% quarterly benchmark for revenue and approximately 10 points below it for operating profit. The earnings presentation stated that revenue was broadly in line with plan, while additional measures would be needed for operating profit to reach the full-year target. In FY2027-H1, whether revenue reaches approximately ¥3,106 million and operating profit approximately ¥312 million will provide one benchmark for assessing the feasibility of the full-year plan.

The significant improvement in profit included a ¥75.8 million reversal of the allowance for doubtful accounts following the collection of certain receivables. This amount represented approximately 81% of Q1 operating profit of ¥93.5 million, leaving operating profit excluding the reversal at only approximately ¥17.7 million. Compared with operating profit of ¥31.6 million in the same period of the previous year, underlying operating profit excluding the reversal was therefore lower. Core-business factors, including higher trust fees and increased use of systems for financial institutions, also contributed, but their financial impact has not been disclosed.

At the next earnings announcement, the standalone Q2 operating profit and the reversal effect from the allowance for doubtful accounts recognized in Q1 should be assessed separately. Whether additional allowances are recorded or reversed, the extent to which expense reductions continue, and how much the increase in use of financial solutions services contributed to operating profit will be important in evaluating the likelihood of achieving the full-year forecast of ¥624 million.