Revenue growth despite an operating loss; restoring profitability in the first half is the focus

FY2027-Q1 revenue was ¥4,153 million, up 19.3% from ¥3,480 million in the same period of the previous year. However, operating results deteriorated from an operating loss of ¥78 million in the previous year to an operating loss of ¥119 million, and the operating margin declined from approximately negative 2.2% to negative 2.9%. Ordinary loss was ¥117 million and net loss for the quarter was ¥121 million, indicating that higher revenue has not translated directly into profit.

The company attributed the revenue increase to network construction associated with government system upgrades and progress on construction projects ordered during the previous year. On the other hand, profit was weighed down by the reversal of high-margin Windows 11-related projects recorded in the previous year, higher subcontracting and procurement costs associated with construction projects, and increases in personnel expenses, selling, general and administrative expenses resulting from regular pay raises and base-pay increases. As of Q1, the company had not disclosed a breakdown of these factors by amount or the rate of increase in subcontracting and procurement unit prices.

The full-year forecasts remain unchanged at revenue of ¥21,558 million, operating profit of ¥1,031 million, ordinary profit of ¥1,030 million and net profit of ¥682 million. Simply deducting Q1 results leaves ¥17,405 million in revenue and ¥1,150 million in operating profit to be generated over the remainder of the period. Seasonality, with solution revenue concentrated in Q4, needs to be taken into account, but the operating profit plan requires the company to absorb the Q1 loss and build profit above the previous year.

In the next FY2027-H1, it will be necessary to check not only cumulative revenue but also whether operating results have returned to profitability, whether profitability in the Solutions business has recovered, and how long increases in subcontracting, procurement, personnel and SG&A expenses continue. In particular, if cumulative first-half operating profit remains below ¥0 million, reliance on the second half to maintain the full-year forecast of ¥1,031 million will increase further. Accordingly, whether the full-year forecast is revised and whether explanations are provided regarding project delivery schedules and margins will be important.