ktk INC. Q4 FY2025 earnings call

Overall Financial Performance

• For the 2025 August term, all financial metrics met the previously announced budget. Revenue reached 18.92 billion yen (104.5% of the previous year), operating profit was 111.3% of the previous year, recurring profit hit a new all-time high at 105.4% of the previous year, and EBITDA was 107.6% of the previous year.
• Net income attributable to parent company shareholders declined slightly due to increased corporate tax from higher taxable income and a rising effective tax rate. Full-year dividend came in at 17 yen per share (8.5 yen for both interim and final), with a dividend payout ratio of 27.9%.
• Gross profit margin increased steadily to 23.5% in 2025 August term, up from the 21% range in prior periods.

Supply Business (Core Cash Cow Segment) Operational Highlights

• Launched the Sustainable Partner Program, a unique circular reuse model for toner cartridges, which is the only product in Japan with QR codes on every toner unit/box. The QR code enables full traceability from production to use and recycling, and the business model is patent-pending.
• The program delivers three customer benefits: 1) Points for scanning QR codes on the YORIDORI website, redeemable for gifts; 2) Automatic ordering and inventory management that eliminates ordering errors; 3) Visible CO2 emission reductions, with custom semi-annual/annual environmental contribution reports provided to management.
• Each reused toner reduces 0.4kg of waste plastic and 0.8kg of CO2 per unit, and costs 60% less than genuine toner. The company holds zero-emission certification for its production facility, and recent cost-reduction trends among manufacturers have increased inbound inquiries for the product.

IT Solutions Business (Growth Segment) Operational Highlights

• Positions multifunction printers as a gateway connecting analog and digital services for SMEs, offering one-stop IT solutions including PC sales, network/security services, data migration, scanning services, and workplace renovation.
• Added new offerings to meet growing market demand: workplace renovation services for SMEs looking to improve office attractiveness for talent recruitment, and document scanning services acquired via the addition of Tokai Sakurai to the group for BCP and office space repurposing needs.
• Established a digital marketing department to expand online business, complementing the company's existing strength of in-person sales across 22 nationwide locations.

M&A and Group Strategy

• Added Jibun Space to the group in July 2025, an A-type continuous employment support business for disabled people that specializes in IT-related work including website production, video shooting, and database organization. This acquisition strategically expands the group's IT service capacity rather than being purely a social responsibility initiative.
• The Growth Plan 2027 mid-term strategy targets improved group synergy across existing acquired companies, leveraging the supply business's 15,000-company customer base to cross-sell IT solutions to understaffed SMEs (particularly "one-person IT" firms that lack in-house IT expertise) under the corporate tagline Change the office mirai.

Capital Strategy and Shareholder Return

• Recognizes the current PBR of 0.78x and 7.4% ROE as below the 7-8% cost of capital, and prioritizes allocating capital to growth investments rather than aggressive share buybacks. The core focus is increasing profit by expanding high-margin products: in-house manufactured reusable toner for the supply business, and high-value solution services (rather than low-margin PC box sales) for IT solutions.
• Maintains a target consolidated dividend payout ratio of 30%, and has increased dividends by 1 yen per year annually since 2021. Improving share liquidity is also identified as a key priority.

1. Supply Business: 2025 August term revenue reached 14.5 billion yen, showing a slight year-over-year increase. It achieved a slight increase in segment profit, and contributed 77% of total company revenue as of 2025 August term, with a projected 76% contribution for 2026 August term. 2. IT Solutions Business: 2025 August term revenue reached 4.3 billion yen, showing steady sequential growth driven by PC demand and related derivative services. Segment profit grew steadily year-over-year, and contributed 23% of total company revenue as of 2025 August term.

• 2026 August Term (Fiscal 2026) Guidance: Management projects total revenue of 19.3 billion yen (slight year-over-year increase), operating profit of 470 million yen, and recurring profit of 550 million yen. For segments, the supply business is projected to hit 14.7 billion yen in revenue (slight year-over-year growth), and the IT solutions business is projected at 4.6 billion yen (a conservative forecast accounting for 2025's special Windows 11 transition demand). Full-year dividend is forecast at 18 yen per share, up 1 yen year-over-year, with a projected payout ratio of 28.1%.
• Growth Plan 2027 (2027 August Term) Mid-Term Guidance: The mid-term target of 200.0 billion yen in total revenue, 6.0 billion yen in operating profit, and 7.0 billion yen in recurring profit is maintained. The supply business already hit its 2027 14.5 billion yen revenue target in 2025, so management expects further upside from 2026 to 2027. The IT solutions business targets 55.0 billion yen in revenue by 2027 (1.5x 2024 levels), and is currently on track with 4.3 billion yen achieved in 2025 and 4.6 billion yen projected for 2026. Management explicitly keeps M&A on the table for IT solutions to accelerate non-linear growth and hit profit targets.

• The supply business faces structural headwinds from accelerating paperless adoption post-COVID-19, with industry-wide toner shipment volumes declining approximately 5% annually. Despite the company's outperformance relative to the market, this long-term structural trend remains a core risk.
• Current ROE of 7.4% is below the company's estimated 7-8% cost of capital, and PBR remains below 1x, creating pressure to improve capital efficiency and market valuation.
• Profit growth for IT solutions relies on shifting the product mix away from low-margin PC box sales to higher-margin solution services; failure to execute this mix shift could prevent the company from hitting mid-term profit targets.

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