DAIWA COMPUTER CO.,LTD. Q2 FY2026 earnings call

Corporate Philosophy and Positioning

• The company's corporate philosophy is to pursue the creation of bonds of "peace of mind", "safety" and "trust", create an attractive company, and contribute to corporate development and society. The philosophy is rooted in "Wakon" (Japanese spirit), deriving from the company's name Daiwa (Yamato), emphasizing harmony, connection, and building a large interconnected business network.
• 2027 will mark the company's 50th founding anniversary, which is positioned as a new founding era rather than a midpoint, with a direction of accelerating co-creation with customers and partners to open up the next 50 years.

New Mid-Term Management Plan DCX 2030

• DCX 2030 (Daiwa Computer Transformation 2030) launched in the 2026 July fiscal year, targeting 4.5 billion yen in revenue and 700 million yen in operating profit for the 2030 July fiscal year. The plan prioritizes stable, steady growth over rapid unsustainable expansion, and aims to build a foundation for accelerated growth after 2030.
• There are three core priority businesses: cloud service promotion, smart agriculture initiatives, and AI penetration and expansion. All three pillars are supported by the company's core software development business.

Progress of DCX 2030 After First Half

• Cloud Service: The company operates SaaS-based recurring (stock) business, with nearly 50 years of software development experience and know-how, but still needs to strengthen marketing, customer awareness and inside sales. The company will advance infrastructure upgrading including security enhancement, and increase development headcount to accelerate business expansion.
• Smart Agriculture: The company started smart agriculture initiatives in 2008, when its engineers apprenticed with farmers to gain hands-on experience, and now operates facility horticulture on abandoned farmland with municipal government support. Current efforts include repairing aging facilities, actively investing in IoT to realize labor saving and remote cultivation. The company believes agriculture is a key sector for AI and DX adoption, and will explore how to introduce AI and make necessary investments to achieve profitable agriculture during the plan period.
  • New product update: The whitefly pest control device "Pika Toru" has received better than expected market response, attracting high demand from farmers affected by increased pest damage due to recent abnormal weather. It reduces pesticide spraying-related health risks and labor burden, bringing significant cost and labor benefits to farmers.
• AI Related Business: Not adopting AI in current operations is considered a major business risk. The company will leverage its accumulated software development experience and know-how to fully utilize generative AI, and aims to expand AI engineer headcount. The dedicated AI Strategy Promotion Office has been conducting research and verification for two years, and the company has granted the team more authority to drive effective AI investment and adoption. Currently, only 2% of total employees are pure AI engineers; the company aims to train over half of all employees to become AI engineers during the DCX 2030 period, with a target of 80% work hour reduction through full AI utilization.
  • Internal AI adoption: The company established an AI dedicated project team in 2024, completed internal AI utilization guideline development, required all employees to pass internal AI testing before internal deployment, and is now working to reduce administrative work time, improve productivity, add AI functions to existing services, provide added value to customers, and offer AI consulting services.

Human Resource Strategy (Core of DCX 2030)

• The company positions each employee as core "human capital" that supports corporate growth, and practices "diamond management", which compares each employee to a facet of a diamond, and will increase investment to polish and bring out each employee's unique strengths.
• The company will continue to focus on new graduate recruitment, and will also increase the hiring of mid-career professionals. It aims to recruit talent with global-standard skills and ambition, and promote motivated internal employees to management positions. The company also prioritizes improving the work environment to become an attractive workplace that employees want to work for.

New Product Launches

• Launched MieThor (Mietoru), a new cloud service that leverages automatic recognition and RFID technology to visualize inventory management and traceability. The service aims to solve on-site labor shortages and long working hours by realizing product visibility, supporting corporate DX. It has already received inquiries mainly from the logistics and manufacturing industries just after launch.

Cash Flow and Balance Sheet Status

• Operating cash flow was 145 million yen, driven by 90 million yen in pre-tax profit, 20 million yen in depreciation, and 52 million yen in increase in bonus provisions, partially offset by 88 million yen in corporate tax payments.
• Investment cash flow recorded a net outflow of 166 million yen, with 115 million yen in net outflow from investment securities transactions.
• Financing cash flow recorded a net outflow of 77 million yen, mainly from 73 million yen in dividend payments.
• Free cash flow recorded a net outflow of 21 million yen. Interest-bearing debt decreased to 41 million yen at the end of the second quarter, representing 0.65% of total capital, a very low leverage level after steady deleveraging following the 2011 Great East Japan Earthquake.

1. Software Development Related: This is the company's core business, accounting for over 76% of total revenue. Second quarter revenue was 1.188 billion yen, a 7 million yen decrease year-on-year. Operating profit was 87 million yen, a 161 million yen decrease year-on-year.
2. Service Integration Related: This segment accounts for approximately 18% of total revenue. Second quarter revenue was 278 million yen, an 8 million yen decrease year-on-year. Operating profit was 6 million yen, a 63 million yen decrease year-on-year.
3. Others: This segment includes system sales, smart agriculture and RFID business, accounting for 5.5% of total revenue. Second quarter revenue was 85 million yen, a 16 million yen decrease year-on-year. It recorded an operating loss of 27 million yen, representing a 18 million yen decrease in profit year-on-year.

Company-wide consolidated results: Total revenue was 1.551 billion yen, a 1.8% decrease year-on-year and a 2.6% increase over the initial plan. Operating profit was 66 million yen, ordinary profit was 90 million yen, and net profit attributable to the parent company was 56 million yen, all down approximately 70% year-on-year. Compared to the initial plan, operating profit increased 725%, ordinary profit increased 275%, and net profit attributable to the parent company increased 250%, significantly beating initial forecasts.

• Full-year 2026 July fiscal year sales guidance remains unchanged from the initial forecast. Profit guidance is not revised, but management notes that profit visibility remains low due to aggressive planned investment in priority growth areas, and achieving full-year targets requires executing planned investment as scheduled.
• During the DCX 2030 period, the company will shift away from its historical focus on profit margin, and is willing to accept a certain degree of near-term margin reduction to invest in future sustainable growth, as the first year of the plan.
• The company has not cut dividends since listing, and will time any dividend increases (including potential stock splits that have not been done in recent years) based on performance; if full-year results exceed plan, the company will increase shareholder returns. The company will balance internal reserves for investment and shareholder return when making dividend decisions.
• The long-term target under DCX 2030 remains 4.5 billion yen in revenue and 700 million yen in operating profit for the 2030 July fiscal year, with no change to the target. The plan focuses on the first three years of software and hardware investment to lay the foundation for long-term growth after 2030.
• The company remains open to M&A for business expansion if the opportunity arises, building on prior M&A experience with Fit Com (sales and maintenance for Platinum Fitness) and Asakoi Farm (large tomato farm in Shiga Prefecture).

• Recent price increases and labor shortages at client companies have led to delayed start and overall delays for some projects, creating near-term execution uncertainty.
• Frequent cyber threats such as ransomware are ongoing, requiring continuous investment in security enhancement for cloud infrastructure and internal systems.
• Near-term investment activities under DCX 2030 do not directly generate profit growth in the short term, leading to a significant year-on-year profit decline in the reporting period that may be misinterpreted by investors. Management emphasizes this investment is necessary for long-term sustainable growth.
• Uncertainty from external factors such as global commodity price inflation and geopolitical conflict is difficult to forecast, which may create unforeseen impacts on business execution and profitability.
• The agricultural sector still has a persistent digital divide that may slow the adoption of the company's smart agriculture solutions.

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