■Performance Trends

Since its establishment in 1986/2, Nomura System Corporation ＜3940＞ has developed corporate openness consulting services and related solution provision services, etc., and has developed. In line with the trend of the era where IT evolves rapidly, management resources are shifting from a business structure centered on software design and production contracts to consulting work for introducing ERP (Enterprise Resource Planning: core system integrated system) packages. The Next Generation Strategy Division, which the company is focusing on, is accumulating license sales, and we aim to stock businesses that stably raise profits due to system update demand, etc. based on this. This is because if the stock business increases, it is possible to draw a scenario where business performance will steadily improve. The company sees a steady trend in the domestic ERP market with an average annual growth rate of 8%, and it also anticipates expansion in the cloud market and big data market. We believe that there is plenty of room for growth for the company as a consulting company.

The company is developing SAP implementation consulting, SAP maintenance support center operation, web system development consulting, information site consulting, etc. The signing of a service partner agreement with the German software development company SAP in 2001 was an opportunity for the company to make a leap forward. In 2009, it became an SAP channel partner and increased profits as an SAP ERP specialist group. It was listed on the Tokyo Stock Exchange (hereafter, Tokyo Stock Exchange) JASDAQ market in 2016/9, and was listed on the same 2nd section market in 2018/3. It was designated to the 1st section market in June of the same year, and was listed on the prime market, which is the highest in the Tokyo Stock Exchange market restructuring in 2022/4. After that, in order to conduct business close to domestic users, it transitioned to the standard market on 2023/10/20. As a result of increasing corporate presence, the level of reliability has increased and orders have expanded.

As for the third quarter of the fiscal year ending 2024/12, sales were 2434 million yen (up 13.4% from the same period last year), operating income was 398 million yen (up 26.2% from the same period), ordinary profit was 398 million yen (up 25.8% from the same period), and quarterly net profit was 273 million yen (up 15.9% from the same period). The main reason for this is that there were additional orders from existing business partners in Prime*, which is the main contract project, and the prime ratio of the total has improved. The same ratio improved to about 50% in the third quarter. Since Prime projects have high profit margins, it is thought that increased order acceptance contributed to improving profit margins.

※ This is a project where orders are received directly from clients, and the company's consultants are in charge of the entire process.

In individual projects, the SAP S/4HANA implementation project, which was ordered from a major TV station group, continued to contribute to strong performance. The project, which began in November 2020, was completed by the delivery deadline. Projects are rarely completed on time in the industry, and delays of 1 to 2 years usually occur. Under such circumstances, the 100% project success rate, which is the company's strength, has been realized, and additional orders have been received from group companies.

Recently, while the company is shifting to prime projects, the trend of declining existing FIS (Function Servicing Service) continues. Although overall sales growth has slowed due to the cost of outsourcing FIS projects, profit margins have been improving in recent years. As mentioned above, the prime ratio to overall sales was conventionally around 35%, but recently it has risen to around 50%. As such a direct increase in orders received became apparent, profit margins rose, and it became a major factor that surged from expected figures.

Meanwhile, we are also focusing on advance investment in the DX business of the Next Generation Strategy Division, and although cost increases due to investment in the DX business are a cause of concern, it is not a source of anxiety because it will lead to future growth. Above all, developing and securing human resources is an important issue in this industry, and although active investment in human resources to expand business is a factor that puts pressure on immediate profits, it is thought that this will have a medium-term growth effect.

The policy is to further increase the proportion of prime and quasi-prime projects in order to continue improving profit margins in the future. Since there is a difference of about 10 points in gross profit margin compared to partial responses where requests are received from Prime vendors and supported, like conventional FIS projects, securing orders for Prime projects holds the key to improving performance for the time being.

The earnings forecast for the fiscal year ending 2024/12 is expected to continue to increase with sales of 3203 million yen (up 8.7% from the previous fiscal year), but operating income is 324 million yen (down 30.4% from the same period), ordinary profit is 324 million yen (down 30.4% from the same period), and net income is 221 million yen (down 38.5% from the same period), leaving the forecast announced at the beginning of the fiscal year unchanged.

In terms of profit, emphasis is placed on human resource development and securing, and the impact of salary increases as human capital investment is expected to be 375 million yen, but due to strong order acceptance, it is inevitable that full-year forecasts will rise. As for the third quarter progress rate against the full-year forecast, sales were 76.0%, but operating profit was 122.8% and ordinary profit was 122.9%, which already exceeded the full-year forecast. Note, I would like to add that the company tends to conservatively disclose earnings forecasts.

Prime projects, which are the key to improving profits, seem to be steadily piling up for the time being. Aiming to “provide high value-added solutions,” we will focus on 2 points: 1) promoting acquisition of SAP certified consultant qualifications and strengthening technical capabilities in order to capture replacement demand for “SAP S/4HANA,” and 2) strengthening cloud solutions to expand sales of “SAP SuccessFactors.” Furthermore, since there are many companies that have not introduced the cloud for existing systems, it seems that business opportunities such as proceeding with cloud replacement will expand.

(Written by FISCO Visiting Analyst Fumiya Mizuno)