Daiwabo Holdings Co.,Ltd. Q4 FY2025 earnings call

• Overall Consolidated Performance

  • Full-year 2025 March fiscal year consolidated revenue hit 1.1368 trillion yen, up 17.5% year-over-year, an all-time company high. Operating profit reached 34.899 billion yen, up 12.7% year-over-year, the second-highest level in company history. EPS hit a record high, and ROE recovered strongly to 16.8%, both exceeding medium-term management plan targets.
  • Shareholder return: A 26 yen per share increase in dividends, plus approximately 10 billion yen in treasury share purchases, brought planned total payout ratio to 73.3%. For 2026 March fiscal year, a further 10 yen per share increase to 100 yen annual dividend is planned, with the total payout ratio target of 60%+ maintained.
  • Operating cash flow was 5.909 billion yen, reduced by increased working capital from strategic inventory build-up for Windows update and GIGA School demand.

• Strategic and Operational Initiatives

  • Capital allocation: Planned capital expenditure over the 2025-2027 March fiscal period was reduced by 4 billion yen from original plans via system cost optimization, while human capital investment is being increased significantly, including major base pay raises.
  • Long-term vision 2030 VISION: The company targets consolidated operating profit of 50 billion yen by 2030, aiming to become an irreplaceable All-in-One Solution Company centered on distribution, connecting the entire IT market, and pursuing growth via new business expansion and M&A.
  • The company has held 221 shareholder/investor meetings in the past year, with feedback regularly provided to the board of directors.

1. IT Infrastructure Distribution Business: Revenue reached 1.123922 trillion yen, marking the first time the segment exceeded 1 trillion yen in revenue, and this was an all-time high for both revenue and operating profit. It contributed approximately 98.8% of total consolidated revenue. Full-year PC shipments grew 26.4% year-over-year, overall domestic PC market share increased to 28.8%, and domestic corporate PC market share reached 36.5%. Transaction volume via the iKAZUCHI (Rai) subscription portal exceeded the full-year target of 4 billion yen, with contract end-users exceeding 100,000 companies, making it a growing stable recurring revenue base. 2. Industrial Machinery Business: The segment reported year-over-year revenue and profit decline, as the impact of a prior-year order decrease offset recovering demand for machine tools from the shipbuilding, energy, and aerospace industries. Performance was nearly in line with plan, hitting 104.4% of revenue target and 94.7% of operating profit target, and contributed the remaining ~1.2% of total consolidated revenue.

• The medium-term management plan forecast was upwardly revised after the first year (2025 March fiscal year) significantly outperformed original targets, driven by earlier-than-expected Windows update demand and higher product prices.
• For 2026 March fiscal year, Daiwabo HD guides double-digit year-over-year growth: consolidated revenue of 1.2658 trillion yen and operating profit of 38.5 billion yen, with operating profit margin expected to remain at 3.0%.
  • IT Infrastructure Distribution Business: Windows end-of-support update demand and full-scale GIGA School Phase 2 update demand are expected to drive 5.2 million PC shipments, up 33.5% year-over-year. iKAZUCHI transaction volume is targeted at 5.2 billion yen, 28% higher year-over-year. A 2.2 billion yen base pay increase and new Tokyo office opening for productivity improvement are factored into expense guidance.
  • Industrial Machinery Business: A moderate revenue and profit decline is guided, due to lingering operational impacts from the February 2025 ransomware attack; recovery is progressing and upside to the guidance is targeted.
• A revenue and profit decline is expected for 2027 March fiscal year, as a post-boom contraction from the 2026 Windows and GIGA School update demand, though the company projects operating profit of 36 billion yen, which is seen as a solid baseline supported by organic growth outside of cyclical special demand.
  • The company maintains ROE target of 14%+, and 2025 fiscal year ROIC hit 14.3%, also exceeding target.

• Ransomware attack: In February 2025, the Industrial Machinery segment suffered a ransomware cyberattack, which had minimal impact on the 2025 March fiscal year results but is expected to cause operational disruption and impact 2026 March fiscal year performance. Recovery is progressing as planned.
  • Tariff impact: Around 9% of Industrial Machinery segment revenue comes from US-bound exports, so it is exposed to potential impacts from US tariff policy; the IT segment has minimal direct exposure. While only indirect supply chain impacts are expected at this stage, they have not been reflected in guidance.
  • Exchange rate risk: Major yen depreciation could push up average PC unit prices; guidance is calculated based on an assumption of 1 USD = 145 JPY.
  • GIGA School tender risk: The shift to prefecture-level bulk tenders for GIGA School Phase 2 increases the impact of individual wins/losses on overall performance, with larger average tender sizes than the prior round of municipal-level tenders.
  • Profit margin pressure: Significant human capital investment (base pay raises) and low-margin GIGA School tender business are expected to keep operating profit margins flat at 3% in 2026, preventing near-term margin improvement.

Q: The 2026 fiscal year PC shipment forecast of 5.2 million units represents very large year-over-year growth. How does this differ from prior Windows/GIGA School demand cycles, and how are PC average selling prices (ASP) and market share factored into the plan?

A: Excluding GIGA School, normal corporate PC ASP is expected to stay around 110 thousand yen. Windows 10 update special demand is expected to contribute ~100 billion yen in 2026 revenue. For GIGA School Phase 2, the company forecasts 54% of the 10 million total national planned updates will occur in 2026 (the peak year), with GIGA School ASP expected to be far lower than normal corporate ASP, consistent with fixed public sector budget levels. The plan is built on currently available market information rather than adjustments to match prior cycle levels.

Q: GIGA School Phase 2 has changed to prefecture-level bulk tenders from the prior municipal-level structure. How will this change impact the company's market share?

A: The new structure means larger tender sizes, so individual wins or losses have a much larger impact on overall performance. The company is targeting a share close to its 40% corporate PC market share, and has adjusted company-wide sales and back-office support resources to compete effectively for these large contracts.

Q: Management guides 3.0% operating profit margin again for 2026. Is there any plan to improve profit margins going forward?

A: The current medium-term plan prioritizes heavy investment in human capital, including continued base pay raises, so selling, general and administrative expenses will increase year-over-year in 2026. Immediate near-term margin improvement is not expected, but this investment in workforce and operational capacity will strengthen sales and support capabilities to drive margin improvement over the long term.

Q: Would the company consider increasing shareholder returns or reducing equity to lift ROE further?

A: ROE is a core strategic target, with a medium-term goal of 14%+ which the company already exceeds. Current capital allocation strategy is not focused solely on raising ROE; management is also exploring growth opportunities including M&A. If attractive growth investment opportunities do not emerge, the company will return excess capital to shareholders via dividends and treasury share purchases as appropriate.