NEC (6701.T): Large 1Q profit beat; domestic IT/defense/marine strong; still substantial upside scope versus revised guidance

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Equity Research

29 July 2026 | 8:33PM JST

NEC (6701.T): Large 1Q profit beat; domestic IT/defense/marine strong;

still substantial upside scope versus revised guidance

NEC released 1Q3/27 (April-June) earnings after the July 29 close. 1Q operating

profits of ¥58.8 bn (+66% yoy) were well above the Bloomberg consensus (¥36.7 bn)

and a positive surprise. We estimate that the profit beat was even larger on an

underlying basis, excluding one-time costs related to the CSG acquisition. The main

factors behind the beat were stronger-than-expected demand growth and improved

profitability in domestic IT, defense and marine (particularly domestic IT), all of

which we view as sustainable trends. Management raised its full-year non-GAAP

operating profit guidance to ¥430 bn from ¥420 bn, but this appears to only reflect a

portion of the 1Q guidance beat (c.¥25 bn). Considering the likely impact on 2Q

onward and the effect of the consolidation of US-based CSG, we think there is still

considerable upside potential versus guidance. While the situation does not warrant

optimism, the impact of higher memory prices has been minor. We maintain our

outlook for profit growth to continue to substantially outpace the sector average,

driven by modernization, defense systems, and submarine cables, and we maintain

our Buy rating.

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Chikai Tanaka, CFA

+81(3)4587-9840 |

Goldman Sachs Japan Co., Ltd.

Yuki Sato

Goldman Sachs Japan Co., Ltd.

1Q earnings: 1Q non-GAAP operating profits (OP + M&A-related costs +

one-time gains/losses) came to ¥74.7 bn (+87%/+¥34.7 bn yoy), beating the

internal target by ¥25 bn. The main drivers of the guidance beat were domestic

IT services at +¥10 bn, overseas IT services at +¥4 bn (mainly due to the CSG

consolidation), aerospace and defense at +¥4 bn, marine systems at +¥1 bn,

others at +¥3 bn, with adjustments at +¥3 bn. Of this total, one-time factors

(including IP revenues, and cost timing shifts) and the CSG impact together are

estimated to account for c.¥10 bn, suggesting a beat of around ¥15 bn on an

underlying basis. Domestic IT saw greater-than-expected profitability

improvement from price pass-through and product mix changes, aerospace and

…