3656.T

Company Leadership and Historical Background

• Tetsuya Sanada, a serial entrepreneur with two prior listed companies, returned to the position of CEO in March 2025 after 6 years as chairman, 10 months prior to this IR seminar.
• KLab was founded in 2000, 7 years before the launch of the iPhone, based on Sanada's prediction that mobile would become the core of global computing, and grew into one of Japan's earliest focused mobile game companies.

Game Business Restructuring

• Adopted a focused strategy on S-grade Japanese IP, with no development of original games; new titles including My Hero Academia, Haikyuu!!, and JoJo's Bizarre Adventure have been secured, with My Hero Academia being particularly popular in the U.S.
• Adopted a lean, elite-focused operating model: implemented significant headcount reduction in 2025, with additional cost cutting planned for 2026; AI is leveraged to drastically cut development man-hours, resulting in major cost reductions.
• KLab has existing proven capabilities in IP acquisition and global game sales distribution, which are core competitive advantages for the restructured game business.

New Business Development Strategy

• Focuses new business investment exclusively on three overlapping fields: IP/entertainment, AI, and blockchain, with AI positioned as the core enabler for all new initiatives.
• Uses a high-volume, high-attrition test-and-learn strategy: hundreds of ideas are filtered, prototypes can be built in half a day via AI, and projects that fail to hit predefined KPIs are exited immediately; the goal is to launch 10 potential high-impact new businesses that can outgrow the game business.
• Launched/announced specific new initiatives:
  • Capital and business alliance with I'mbesideyou to access top AI engineering talent from the Indian Institute of Technology, addressing the critical AI talent shortage in Japan.
  • Launched AI VTuber production agency Yumekairo, using AI to compress development time from 6-12 months to 1 month to capture market share.
  • Established AI-focused music label KLab AI Entertainment, targeting the untapped Japanese AI music market, as AI-generated music already tops Billboard charts in the U.S. and South Korea.
  • Entered the enterprise AI creative production business: AI allows production of advertising creative in 1 week on a PC versus 1+ week of traditional on-location production that can cost hundreds of millions of yen; combines B2C AI entertainment brand building with B2B contracted production to capture market demand.
  • Developing an AI automatic trading system for financial products, starting with Bitcoin and expanding to FX, gold, and equities; backtesting is ongoing, with results to be published later.
  • GPU AI Cloud business has achieved immediate profitable growth.

Financial Strategy: Dual Gold Treasury Strategy

• Raised approximately 5.1 billion yen via new shares and share warrants in 2025, with 70% allocated to purchasing physical gold (real gold) and Bitcoin (digital gold).
• Uses a dollar-cost averaging approach based on the AI-weighted average consensus of global analysts, investment banks, and institutional reports, rather than personal prediction, and holds for the medium term; no large losses were incurred during recent Bitcoin volatility.
• Market consensus expects Bitcoin to rise in the second half of 2026, creating potential for significant unrealized gains by year-end.

IR Activity Expansion

• Expanded IR activities to the Middle East at the 2025 F1 Abu Dhabi GP, where KLab is the only Japanese company conducting on-the-ground IR, and has already secured new investment from Middle Eastern investors; is currently evaluating a New York Stock Exchange listing to accommodate foreign investor demand.

• The medium-term management plan targets 35 billion yen in total revenue and 5 billion yen in operating profit under the base (middle) case scenario. The target is based on bottom-up aggregated projections from individual game and new business projects, and is considered achievable with realistic planning, not an overly optimistic target. New businesses are expected to contribute a substantial portion of the 5 billion yen target operating profit.
  • 2026: Game business expects to return to profitability and achieve a V-shaped recovery with the launch of new planned titles; new businesses are expected to still face large net red ink from upfront investment, with overall net result expected to be roughly break-even to slightly profitable overall. The GPU AI Cloud business has already achieved first-month profitability, and AI creative contracted production is profitable from launch.
  • 2027: Full-year contributions from new game titles will drive large game business growth; several new businesses will have entered the profitable phase, so overall results will exceed 2026 levels.
  • 2028: Game business will face a lull between new title releases leading to sluggish sales growth, but the end of depreciation will keep profit levels from dropping significantly; most surviving new businesses will be profitable and contribute meaningfully to overall profit, with underperforming projects already exited.
  • All new non-profitable projects that fail to reach break-even by their second year will be exited; most ongoing new businesses are expected to either be profitable or exited by 2028.

1. Game Business: Historical peak operating profit of 4.995 billion yen in 2018; 2025 full-year result was a large deficit with no new game releases. Current overseas sales ratio exceeds 60%. 2. New AI-related Businesses: GPU AI Cloud business achieved successful vertical launch with immediate profitability from its first month; AI creative contracted production business has been profitable since its launch month. No other full-segment financial absolute figures or revenue contribution percentages are provided in the transcript.

• The global mobile game industry faces major structural headwinds: total user growth has plateaued, user time is shifting away from games to short-form video and streaming content, development costs have skyrocketed from 30 million yen to 3 billion yen with no corresponding increase in user or revenue growth, and large-budget global games from overseas are continuously entering the Japanese market, driving industry-wide downturn.
  • New businesses inherently have high failure rates: only roughly 1 out of 100 new ventures reaches profitability, even with accelerated development timelines from AI. The plan explicitly accounts for this by building in rapid exit of underperforming projects.
  • Bitcoin price is expected to remain weak in the first half of 2026, with potential for further declines from current levels, though KLab's dollar-cost averaging approach based on consensus projections limits downside risk.
  • Japan faces a critical domestic shortage of qualified AI engineers, requiring reliance on international talent sourcing to fill capability gaps.

Q: What is the secret to continuously acquiring high-quality IP?

A: It comes from long-relationship building. KLab has 25 years of history working with IP holders, and many initial IP contacts have grown into senior leadership roles at IP holders. It also relies on consistent, frequent direct outreach to IP holders, consistent incremental relationship building over time.

Q: What is your strategy for acquiring AI engineers and AI creators?

A: AI engineers are critically scarce in Japan, to the point that the country's education system needs systemic reform to address the shortage. For this reason, KLab focuses on sourcing AI engineering talent from international markets, enabled by its capital alliance with I'mbesideyou which has deep access to top graduates from the Indian Institute of Technology. For AI creators, most can work remotely via a single computer, often as side work, so KLab uses a network-based collaboration model rather than relying exclusively on full-time in-house hires.

Q: Who are the customers for the GPU AI Cloud business, and does it have seasonal sales variation?

A: There are two customer segments: 1) Customers that purchase and own the servers, who are primarily small business owners and high-net-worth individuals attracted by high investment returns and strong tax benefits; 2) Customers that rent GPU capacity from the hosted servers. Because of the tax benefit for purchasing owners, sales are highly concentrated right before fiscal year-end periods in December and March, creating clear seasonality.

Q: What makes KLab's AI business unique compared to other existing AI players in the Japanese market?

A: Most Japanese AI businesses are focused on B2B corporate DX and rationalization projects, and many are former SaaS companies that have rebranded as AI companies, creating an already saturated red market that only works domestically. KLab does not enter this space; instead, it focuses on globally scalable projects that create entirely new markets rather than incremental improvements to existing business processes. For example, AI automated trading is a globally borderless business, while its AI VTuber initiative targets the broader Asian market.

Q: What is the timeline for AI new business profitability, and when will these businesses contribute to earnings?

A: While traditional new businesses follow a J-curve trajectory that takes an average of 3 years to reach profitability (with many taking 5-10 years), AI drastically compresses development timelines: AI can auto-generate code, allowing a demo to be built the same day an idea is conceived and a full product launched within 1 month. While first-year profitability is still rare due to go-to-market and research costs, most AI projects can target profitability by their second year, much faster than traditional businesses. Specific cases: GPU Cloud was profitable in its first month, AI creative production is profitable from launch, marketing-focused new businesses generally follow the 2-year profitability target. Any project that fails to reach profitability by year 2 is exited per the company's high-speed PDCA framework. By 2028, almost all ongoing projects will either be profitable or exited, with meaningful contribution by 2027 and only modest overall contribution in 2026.

Q: What impact do you expect from being designated as a national priority investment target?

A: The national budget for these priorities goes into effect in April, and no concrete details have been released yet, so it is too early to give a specific assessment. Based on past experience, it is very likely to have a meaningful positive impact, as KLab's strategy of exporting Japanese IP content to global markets to earn foreign currency aligns perfectly with the current administration's policy priorities, and the company expects to be able to benefit from supporting government measures.

Q: What is the current status of the enterprise AI creative production business?

A: Currently, KLab is only accepting small projects under 10 million yen while testing different operating models, but it is in active discussions with major Japanese advertising agencies Dentsu and Hakuhodo for larger future orders. The company is developing standardized packaged solutions and licensing agreements to allow use of celebrities and popular IP characters in AI-generated creative, which will be announced publicly as they are completed. KLab is positioning itself for a different price and service segment than low-cost individual freelance AI creators, and is still building out the required infrastructure to support this positioning.