JPMorgan updates earnings models for three Japanese IT services companies, maintaining Neutral on all

Overview

This is a JPMorgan earnings model update report on NS Solutions, TISI, and BIPROGY in Japan's IT services sector. Reflecting FY2025 results and current trends, the report shifts the target-price time frame for all three companies from end-2026 to end-2027; target prices for TISI and BIPROGY are raised due to higher earnings estimates, while NS Solutions' target price is unchanged. The overall conclusion is neutral: fundamentals are not poor, but valuation, limited public-market catalysts, AI concerns, and certain earnings execution risks constrain upside potential.

Core views

For NS Solutions, the report views FY2026 as the second year of the three-year mid-term plan, with the key market focus being whether FY2027 operating profit can reach the company's target. JPMorgan forecasts FY2027 operating profit of ¥53.8bn, slightly above the company's target excluding M&A impact and the Bloomberg consensus, and believes the company can sustain strong earnings and control SG&A. For TISI, the report expects FY2026 sales and operating profit to broadly achieve the mid-term plan targets. The next mid-term plan may center on a 5% operating-profit CAGR after FY2027 and high-single-digit EPS growth driven by ongoing buybacks, but stock-price catalysts are limited. For BIPROGY, the report acknowledges the low valuation but remains cautious on whether FY2026 operating profit can reach the relatively optimistic guidance and consensus expectations, particularly given insufficient explanation of Catalina Marketing Japan's profit contribution.

Analysis framework

The report primarily uses earnings estimate updates, the FY2026 earnings outlook, the probability of achieving mid-term plan targets, relative P/E valuation, and upside/downside scenario analysis. Valuation benchmarks are all shifted to FY2028 EPS, incorporating each company's historical P/E range since 2015, sector valuations, AI concerns regarding the IT services sector, and each company's own earnings growth potential to determine target prices.

Methodology notes

• Valuation methodsRelative P/E valuation

  Derive target prices using forward EPS and target P/E multiples

  NS Solutions' target price is based on FY2028 EPS and approximately 17x P/E; TISI's and BIPROGY's target prices are each based on FY2028 EPS and approximately 12x P/E, with reference to their respective historical valuation ranges since 2015.

• Earnings forecastsThree-year CAGR and FY2026 outlook

  Assess earnings quality through sales, operating profit, and EPS growth rates

  The report provides three-year CAGRs for sales, operating profit, and EPS for FY2026-28, and compares FY2026 forecasts with company guidance and Bloomberg consensus expectations.

• Risk scenariosUpside and downside factor analysis

  Identify the direction of rating and target-price changes using key operating variables

  Upside factors include margin improvement, M&A gains, better-than-expected shareholder returns, and expansion of service sales customers; downside factors include macroeconomic weakness, an increase in loss-making projects, higher-than-expected M&A valuations, impairment of overseas businesses, or slower-than-expected cost reductions.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• NS Solutions (2327.T)

  One of the core covered companies; Neutral maintained

  Strengths

  FY2027 operating profit forecast is above consensus; experience in steel automation systems can extend to manufacturing and finance; gross-margin improvement and M&A could support ROE expansion.

  Weaknesses

  Upfront Vision2030 investment increases expenses during FY2025-27; valuation is broadly fair relative to earnings forecasts.

  Comparison

  Target P/E of approximately 17x, higher than the approximately 12x used for TISI and BIPROGY, reflecting differences in earnings quality and historical valuation ranges.

  Risks

  Macroeconomic deterioration, an increase in loss-making projects, and higher-than-expected M&A valuations.

• TISI (3626.T)

  One of the core covered companies; Neutral maintained and target price raised

  Strengths

  FY2026 sales and operating profit are expected to reach the mid-term plan targets; strengths in credit cards and payments; buybacks are expected to drive high-single-digit EPS growth.

  Weaknesses

  P/E is low relative to the sector but clear stock-price catalysts are lacking; some mid-term plan KPIs may not be achieved.

  Comparison

  FY2027 EPS implies a P/E of approximately 12x, significantly below the approximately 20x for domestic IT services, with the discount explained by growth potential and AI concerns.

  Risks

  Macroeconomic weakness, an increase in loss-making projects, and impairment of overseas businesses.

• BIPROGY (8056.T)

  One of the core covered companies; Neutral maintained and target price raised

  Strengths

  Offers a broad range of products and services across finance, retail and apparel, automobiles, and transportation; the company plans to raise gross margins and reduce fixed costs through servitization.

  Weaknesses

  FY2025 operating margin was approximately 10%, below other companies in the coverage universe; FY2026 operating profit may fall below relatively optimistic guidance and consensus expectations; explanation of CMJ's profit contribution is insufficient.

  Comparison

  FY2027 EPS implies a P/E of approximately 12x, a low valuation, but second-tier systems integrators are under pressure from AI concerns.

  Risks

  A weaker-than-expected macro environment, a high number of loss-making projects, slower-than-expected cost reduction progress, and CMJ's earnings contribution falling short of market expectations.

Key data

• NS Solutions target price¥3,800Unchanged, with the time frame shifted to end-2027; current price is ¥3,671.
• NS Solutions FY2026 forecastSales ¥417.4bn, operating profit ¥49.0bnOperating profit forecast is above company guidance of ¥47.5bn and the Bloomberg consensus of ¥47.8bn.
• NS Solutions FY2026-28 three-year CAGRSales 7.3%, operating profit 9.5%, EPS 9.1%The report believes the company can sustain earnings and control SG&A.
• TISI target price¥3,600Raised from ¥3,300, with the time frame shifted to end-2027; current price is ¥3,364.
• TISI FY2026 forecastSales ¥619.9bn, operating profit ¥82.1bnBroadly corresponds to the company's FY2026 targets of ¥620bn in sales and ¥81bn in operating profit.
• TISI FY2026-28 three-year CAGRSales 3.8%, operating profit 5.9%, EPS 13.0%EPS growth is expected to be supported by steady buybacks.
• BIPROGY target price¥4,800Raised from ¥4,600, with the time frame shifted to end-2027; current price is ¥4,556.
• BIPROGY FY2026 forecastSales ¥471.5bn, operating profit ¥47.5bnOperating profit is below the Bloomberg consensus of ¥48.3bn and company guidance of ¥48.4bn.
• BIPROGY FY2026-28 three-year CAGRSales 5.7%, operating profit 9.1%, EPS 10.3%The low valuation is partly offset by uncertainty over CMJ's profit contribution and AI concerns.

Impact & implications

The implication for Japan's IT services sector is that low valuation alone is insufficient to trigger a positive rating. The market is more focused on execution of the FY2026-27 mid-term plans, margin improvement, shareholder returns, and the pressure from AI on systems integrator demand and valuations. All three companies have some fundamental support, but JPMorgan believes the current risk-reward balance is broadly even.

Risks

• A weaker-than-expected macro environment could suppress corporate IT spending and order conversion.
• An increase in the number of loss-making projects could erode profit margins.
• Higher-than-expected M&A transaction valuations could weaken NS Solutions' investment returns.
• TISI's overseas business could incur impairment losses.
• BIPROGY's cost reduction progress could be slower than expected, or CMJ's profit contribution could be below market expectations.
• AI-related concerns have pressured IT services sector valuations since early 2026, particularly affecting second-tier systems integrators.

What to watch

• Whether NS Solutions' FY2027 operating profit can reach the ¥53bn-¥60bn target range in the mid-term plan.
• Whether NS Solutions' upfront Vision2030 investment expenses and gross-margin improvement can provide a positive offset.
• Operating-profit CAGR and shareholder-return targets in TISI's next mid-term plan.
• Expansion of TISI's credit SaaS customer base and overseas business performance.
• Whether BIPROGY's FY2026 operating profit falls below company guidance and the Bloomberg consensus.
• Catalina Marketing Japan's actual profit contribution during the peak seasons in 1Q and 3Q.