Revenue growth continues, but the hurdle to earnings recovery has risen sharply

FY2026-H1 revenue was ¥6,469.815 million, up ¥659.083 million, or 11.3%, from ¥5,810.732 million in the year-earlier period. However, operating profit fell ¥123.104 million, or 35.6%, from ¥346.103 million to ¥222.999 million, while ordinary profit declined 29.1% from ¥412.506 million to ¥292.421 million. Revenue growth did not translate directly into earnings growth, clearly resulting in higher revenue but lower profit.

Margins also deteriorated significantly. According to the earnings presentation, the gross margin fell 4.1 percentage points from 25.0% in the year-earlier period to 20.9%, while the operating margin fell 2.6 percentage points from 6.0% to 3.4%. SG&A expenses were ¥1,128 million, equivalent to 17.4% of revenue, indicating that the company has not kept pace with the absorption of costs as revenue has expanded. Operating profit in FY2026-Q1 was ¥244 million, up 10.4% year on year, so the ¥223 million recorded for the first half suggests that profitability deteriorated in the second quarter.

Progress against the full-year forecast was 49.2% for revenue and 42.4% for gross profit, compared with only 21.4% for operating profit, 26.1% for ordinary profit and 24.6% for net profit. Assuming the full-year operating profit forecast of ¥1,035 million, the company will need ¥812.001 million in operating profit after H1. Against the remaining revenue of ¥6,680.185 million, this implies a simple operating margin of 12.2%. Given the substantial improvement required from the H1 operating margin of 3.4%, the focus will be on whether additional labor hours, bench costs and M&A-related expenses are subsiding, rather than merely on adding revenue.

For FY2026-Q3, we want to confirm nine-month cumulative revenue, operating profit, ordinary profit and net profit, as well as progress against the full-year forecasts. The company has maintained its full-year forecasts but has not disclosed the numerical assumptions underlying them or the utilization, pricing and cost levels at which the required second-half profit will be achieved. In particular, the cumulative Q3 gross and operating margins will need to be examined to determine whether the margin decline that emerged in Q2 was temporary or reflects a structural burden associated with growth investment.