Daiwabo Holdings Co.,Ltd. Q2 FY2026 earnings call

• Overall Consolidated Performance • First half total consolidated sales hit 656.8 billion yen, a 27% increase year-over-year, marking an all-time high for the first half period. Operating profit reached 22.4 billion yen, a 65.9% increase year-over-year, also an all-time first half high and the first time first half operating profit exceeded 20 billion yen. Recurring profit was 22.6 billion yen (+63.4% YoY), net profit was 15.7 billion yen (+66.1% YoY), with 176 yen in interim net profit per share. • Total assets increased 14.5 billion yen YoY to 454.6 billion yen, driven by strategic inventory build-up for upcoming orders. Net assets increased 8.9 billion yen YoY to 161.2 billion yen, with an equity ratio of 35.5%.

• IT Infrastructure Distribution Operational Highlights • Leveraged its nationwide branch network to capture strong demand from mid/small enterprise PC replacements tied to Windows 10 end-of-support and full-scale rollout of the second phase of Japan's GIGA School program. Public sector demand from local governments also exceeded prior year levels. • Domestic PC shipments hit 3,112,000 units in the first half, pushing overall market share to 32.3% (the first time exceeding 30%) and 39.2% share for the corporate segment. By category, device sales (PCs, servers) grew 46.6% YoY, while software sales grew 23.1% YoY.

  • The iKAZUCHI (Rai) cloud management portal handled 26.1 billion yen in transaction value in the first half, up 37.2% YoY, with growing vendor and service counts; the full year target of 52 billion yen is on track to be exceeded.

• Industrial Machinery Operational Highlights • The machine tool segment grew revenue and profit on large machine shipments and growing maintenance/service demand, with recovering orders from the energy and aerospace sectors. The automatic machinery segment grew unit sales on strong labor-saving demand driven by industry-wide labor shortages. • An early-year system disruption tied to prior ransomware recovery limited first half orders, which fell 7.6% YoY, but operations have fully recovered and the sales team is now prioritizing new order acquisition.

• Long-Term Strategy • Daiwabo is targeting 50 billion yen in consolidated operating profit by 2030 under its 2030 VISION, keeping IT infrastructure distribution as its core business while exploring new business areas to optimize its portfolio. A corporate name change project is currently underway, with disclosure to come once a decision is finalized.

• Shareholder Returns • Full year dividend is planned at 100 yen per share (50 yen interim, 50 yen year-end). A share repurchase program with an 8 billion yen upper limit launched in July, and 7.87 million treasury shares will be retired on November 28. Expected full year payout ratio is 28.9%, with a total return ratio of 54.8%, and no changes to the existing return policy.

1. IT Infrastructure Distribution Business: First half sales reached 649.6 billion yen, a 27.1% increase year-over-year. Operating profit reached 21.8 billion yen, a 65.9% increase year-over-year. This segment accounted for 98.9% of total consolidated first half sales and 97.3% of total consolidated first half operating profit. 2. Industrial Machinery Business: First half sales reached 7.1 billion yen, a 12.8% increase year-over-year. Operating profit reached 0.5 billion yen, a 68.2% increase year-over-year. This segment accounted for 1.1% of total consolidated first half sales and 2.7% of total consolidated first half operating profit.

• Both second half (October 2025 – March 2026) and full year guidance have been upwardly revised based on the strong first half performance.
  • Second half consolidated sales are now projected at 680.1 billion yen, an increase of 40.1 billion yen from the prior forecast, with operating profit projected at 22.5 billion yen (3.3% operating margin).
  • Full year 2026 March fiscal year consolidated sales are now projected at 1,337 billion yen, with operating profit projected at 45 billion yen, net profit projected at 30.8 billion yen, and 346 yen in net profit per share.
  • For the IT Infrastructure Distribution segment, full year sales are revised up to 1,323.4 billion yen and operating profit to 44 billion yen. For the second half, Windows 10 end-of-support demand will remain strong in Q3 before returning to normal levels in Q4; GIGA School projected revenue was raised from 100 billion yen to 140 billion yen, with PC share of GIGA School devices rising from 60% to 70%, pushing full year PC shipment projections from 5.2 million units to 6.4 million units. Operating margin will see a slight decline due to the higher GIGA School mix, but the company is prioritizing profit retention efforts.
  • For the Industrial Machinery segment, full year sales are projected at 13.5 billion yen and operating profit at 0.9 billion yen, after raising the second half outlook following full recovery from prior ransomware and system disruption issues.
  • Full year ROE is projected at 19.4% and ROIC at 17.4%, both exceeding management's target levels.
  • For the next fiscal year, demand normalization after this year's event-driven special demand is already factored into the existing 36 billion yen operating profit outlook, with no changes to the forecast as of this call.

• Industrial Machinery segment: A system disruption early in the fiscal year, tied to recovery from prior ransomware attack damage, limited sales activities and pushed first half orders 7.6% lower year-over-year, though operations have now fully recovered.
  • IT Infrastructure Distribution segment: The growing share of low-margin GIGA School public bid projects is putting downward pressure on segment operating margin, though the company views this investment as important for future文教 market growth.
  • Next fiscal year: A post-special demand decline in PC shipments after the Windows 10 replacement and GIGA School rollout peaks is unavoidable, though this headwind is already incorporated into existing guidance.

Q: How does management evaluate the first half performance against expectations, and what surprised to the upside/downside? / A: Management views the first half as meaningfully better than expected. The main drivers were Windows 10 replacement demand and GIGA School phase 2 rollout, with GIGA School PC orders coming in well above initial forecasts. Management expects the second half to also remain strong. (152 characters)

Q: Is the year-over-year improvement in profit margin temporary, and what initiatives are in place to sustain higher margins long-term? / A: The first half operating margin hit 3.4%, up from 2.6% in the prior year first half, driven by higher mix of mid/small-sized projects (which carry more stable margins than large bid projects) and lower selling, general and administrative (SG&A) expenses. To sustain this improvement, management will continue focusing on growing mid/small project volumes, expanding iKAZUCHI cloud subscription business, and driving productivity gains from the upcoming new core system (launching January 2026) and distribution center efficiency improvements to keep reducing SG&A costs. (468 characters)

Q: What is driving the upward revision to full year guidance, split between corporate PC demand and GIGA School demand, and what is the outlook for data center-related products? / A: The entire upward revision to full year PC shipment guidance (from 5.2 million to 6.4 million units) comes from higher-than-expected GIGA School demand, while corporate Windows replacement demand was largely in line with original plans. Beyond PCs, cloud services tied to iKAZUCHI are also outperforming and contributing to the upward revision. For data center products, demand for GPU-enabled servers and network/security hardware is growing, and management is prioritizing capturing this demand going forward. (394 characters)

Q: What is the profit margin profile for the iKAZUCHI (雷) business? / A: The overall IT infrastructure distribution segment gross margin is around 7%. As a subscription-based service, iKAZUCHI carries a meaningfully higher gross margin than hardware sales, which contributes positively to overall segment margin improvement over time. (184 characters)

Q: Is there heightened risk of a larger-than-expected drop in next year's operating profit after this year's strong upward revision, and will the medium-term plan be updated? / A: A demand decline after this year's one-time special demand is unavoidable, but this expected decline is already fully incorporated into the existing 36 billion yen operating profit forecast for next year (the final year of the current medium-term plan), and there is no change to that forecast at this time. Management will continue focusing on capturing steady corporate IT investment and growing higher-margin cloud services to offset the demand normalization. (351 characters)