3962.T

Furusato Nozei Regulatory Change Response

• The October 2025 point system ban created a temporary negative impact from competitor point-based customer acquisition before the ban, but post-October progress exceeded budget, and Q3 cumulative revenue and operating profit both met targets. The ban acts as a long-term tailwind for Change, which has always operated in line with the policy's original intent.
• Upcoming high-income donor cap (effective 2027, 2026 is a preparation period): Caps annual donations for individuals earning over 100 million yen to 4.38 million yen. The negative impact is expected to be limited and within forecasts, as there are very few such donors in Japan, and the positive impact of overall wage growth expanding total donation capacity will outweigh the negative effect.
• Upcoming expense cap (phased in over 4 years): Requires total recruitment expenses (return gifts, logistics, portal fees) to drop from 50% to 40% of total donation value. Change will align with the policy goal of increasing net funds for municipalities by: (1) expanding Government Crowdfunding (GCF), which already delivers higher net funds to municipalities; (2) lowering fees to 3% for donations acquired via independent municipal marketing, supporting municipal efforts to cut overall expenses; (3) expanding corporate version furusato nozei, which has high growth potential amid strong corporate earnings.
• Accelerating policy-driven furusato nozei: Combines individual furusato nozei, GCF, and corporate furusato nozei to help municipalities solve regional issues and achieve policy goals. Two active examples are: (1) Akita Prefecture collaboration for health/medical regional development, and (2) 5-municipality collaboration in Iburi/Hidaka region of Hokkaido to address declining horse industry workforce and create retirement horse programs via "Horse Town Development". Change will expand this model nationwide.

Private DX & M&A Intermediary Updates

• Shifted M&A intermediary strategy from quantity of sell-side advisory contracts to quality, now focusing on MOU (memorandum of understanding) as the core KPI, prioritizing increasing the number of parties with confirmed M&A intent over raw contract volume.
• Launched KEPL, the industry-first AI matching system for M&A: KEPL analyzes not just financial/business data, but also corporate culture and executive values (using public corporate messaging, advisor-collected interview data) via a narrative insight AI framework, to screen 100,000+ firms nationwide. It solves core M&A industry issues: overconcentration of deals in specific industries/regions (70% of sellers cannot find matching partners currently), low deal closing rates from over-reliance on advisor experience (industry average 20% closing rate), and low post-close success rates (50%+ of firms struggle with cultural integration). KEPL aims to expand fair M&A access to under-served regional and niche industry firms.

Cybersecurity Updates

• SMBC Cyberfront incident response service launched in August continues to gain new contracts steadily. Service scope expanded in December to include incident response drills and manual creation support for SMBC Cyberfront clients.
• Started a new partnership with Quest in January to enhance cyber resilience for manufacturing and semiconductor supply chains. Partnerships are being used to expand sales channels and service offerings to accelerate growth.

Public DX Updates

• Launched new municipal information system department support service to address widespread pain points: severe personnel shortages in small municipalities, the "lone IT person" problem, and rising workload from digitalization of resident services. The service provides workflow visualization, ICT governance framework design, management tooling, and full BPO for non-core IT work. The first engagement in Hida City focuses on helpdesk BPO, uses LoGo Series tools to build knowledge management and reduce individual dependency, and plans to implement shared BPO to aggregate work across multiple small municipalities and minimize costs.

• Management maintains the original full-year fiscal 2026 opening guidance, despite Q3 cumulative operating profit coming in just over 1 billion yen below the initial plan, due to the ongoing recovery of the furusato nozei business post-point ban.
• fundbook will begin disclosing M&A intermediary KPI data from next fiscal year onward, now that core KPI infrastructure is established.
• The company will accelerate growth initiatives for next fiscal year and beyond, while addressing current underperformance at e-Guardian and fundbook. Positive trends including growing fundbook introduction volumes and the post-point ban shift in the furusato nozei market are expected to drive growth going forward.
• KEPL is expected to drive differentiation for fundbook's M&A business, improve matching quality and closing rates, and support long-term revenue growth.

1. NEW-IT Transformation Business (overall year-on-year revenue +31.2%):
   • Private DX & M&A Intermediary:
     • fundbook: +4.3 billion yen in revenue, +1.09 billion yen in operating profit; 210 million yen negative impact from PPA; front sales headcount maintained at ~140; 158 increasing prospective client introductions from major financial alliance partnerships, with an upward sales trend from FY2025 to FY2026. Revenue overall for private DX & M&A intermediary increased by 4 billion yen year-on-year, a 35.2% overall increase.
     • e-Guaridian (BPO): -500 million yen in revenue, -540 million yen in operating profit; 3 consecutive quarters of declining revenue in IT enterprise social support from large client revenue decreases, but recovery is expected starting April.
     • Training/consulting/DX tools: DFA Robotics +22% YoY revenue from large cleaning robot orders; Beecap +29% Q3 revenue from new office client acquisition and expanded existing client contracts.
   • Cybersecurity: +220 million yen in incremental revenue; slight underperformance against plan, but partnerships are accelerating new deal acquisition.
   • Overall NEW-IT Transformation operating profit is 21 million yen lower than the prior year's adjusted baseline.
2. Publictech Business (overall year-on-year revenue +10.9%):
   • Regional Revitalization:
     • Furusato Nozei: Cumulative Q3 GMV and revenue recovered to prior year levels after the October 2025 point ban; Q3 revenue missed initial plan but met internal targets, and market share grew against competitors. Regional revitalization operating profit is 550 million yen lower YoY.
     • Logistics: +28% YoY Q3 revenue; system development for local produce school lunch program is complete, and area expansion preparation is ongoing. 200,000 tons of carbon credits acquired in 5 Tohoku prefectures, creating 2 billion yen in equivalent value.
     • Onwords (inbound tourism): Minimal impact from reduced Chinese visitor numbers due to focus on Taiwan and Hong Kong marketing, +260 million yen YoY revenue.
     • chiica (regional currency platform): +290 million yen YoY revenue.
   • Public DX:
     • Toko Computer Service (TCS): +1.46 billion yen YoY revenue, +300 million yen YoY operating profit.
     • Central government consulting (primarily Ministry of Defense): +500 million yen YoY revenue; 350 million yen Q3 revenue recognized, 600 million yen in backlog.
     • LoGo Series: Over 1,550 municipalities using LoGo Chat, over 869 municipalities using LoGo Form, with steady adoption growth.
     • New municipal information system department support service: Launched first engagement in Hida City starting January, addressing small municipal IT personnel shortages.

Overall consolidated results: Total sales revenue 41.527 billion yen +18.9% YoY; EBITDA 12.612 billion yen; operating profit 10.586 billion yen -18.8% YoY (the prior year included a 1.569 billion yen equity method revaluation gain, so adjusted operating profit decreased 7.8% against the prior year adjusted baseline); EPS 98.92 yen -15.4% YoY.

• Underperformance of e-Guardian's BPO business: The business has faced strong headwinds from AI adoption, as many of its clients are IT firms that already use AI to replace human labor, leading to three consecutive quarters of revenue decline in the social support segment.
• Expected upcoming regulatory changes to furusato nozei: The 2027 high-income donor cap and phased expense cap will create moderate headwinds, though management expects the impact to be offset by adaptive strategies and broader market growth.
• Competitor post-point ban workarounds: Competitors continue to use promotions and payment features to deliver effective indirect point-equivalent rewards, creating ongoing competitive pressure that could limit user reversion to Change's Furusato Choice platform.

Q: Shareholder benefits are intended to encourage long-term holding, but without holding period requirements, it leads to temporary holders and increased company costs. Shouldn't you add holding period requirements?

A: As you note, the shareholder benefit system was created to encourage long-term holding of our stock. We agree that it is important for the system to function properly to incentivize long holding. We are currently reviewing improvements to the entire system, including adding holding period requirements.

Q: Post-M&A growth has slowed, synergies have not materialized, and you are currently reforming subsidiaries. Isn't the core issue insufficient capability among the management team? The stock price has fallen significantly. Instead of forcing shareholders to bear all the risk, shouldn't you impose appropriate disciplinary action on the management team?

A: We strongly recognize that the management team must improve and grow. We are currently implementing various reforms to drive renewed growth at subsidiaries and address underperforming businesses. We expect these initiatives to be reflected in financial results starting from next fiscal year. We already conduct performance-based evaluations and adjustments for group management, and are implementing management refresh including personnel changes as appropriate based on performance.

Q: You released the Hida City outsourcing engagement, and Sakura Internet released a similar announcement. Are you collaborating with them, or are you competitors?

A: We do not have any collaboration with Sakura Internet on the Hida City engagement. We have had various discussions with the company in the past, and we intend to work with them as partners in reducing domestic digital deficits going forward.

Q: I use the LoGo Series for work, and I think it is priced too low. Won't you raise prices? Prices are rising across all sectors for municipal contracts, and with the high penetration you have, you could raise prices without significant customer churn. Shouldn't you consider price increases?

A: We have priced LoGo Series low to speed up adoption as much as possible. We will consider optimal pricing that is acceptable to customers, taking into account the current inflationary environment.

Q: You previously stated that the point ban would be a tailwind for Furusato Choice. Since the October 2025 ban, competitors still offer high indirect returns via promotions and payment features. Isn't it unlikely that users will shift back to Furusato Choice, which does not offer points? I also don't see much difference in return product selection between major portals, so it's unclear if return selection alone drives new user registration. Can you re-explain why the point ban is a tailwind, and your user acquisition strategy going forward?

A: After the October 2025 ban, point-based acquisition is no longer allowed, so competition has shifted from points to the inherent attractiveness of the portal, including service quality and return product selection. We have never offered points, and have spent years strengthening our return product selection, logistics service quality, and other core portal strengths. Now that competitive conditions are aligned, we have a clear advantage. We recognize that competitors are using indirect return workarounds, but we expect these practices will be regulated in the future. Furusato Choice's core strength is product selection: we have over 10,000 exclusive "Choice Only" products that drive our competitiveness. We also have successful initiatives including experience-focused returns for hobby/entertainment communities and OEM partnerships to acquire new donors, which are already delivering results.

Q: How is Change Holdings preparing for the impact of AI adoption on the DX market?

A: In the IT industry, simple tasks are already being replaced by AI, and many DX firms with large engineer headcounts remain stuck in person-hour based pricing models. We see significant business opportunity in providing AI and robot-based services to solve the growing labor shortage across industries. We will develop and launch AI-driven products at low cost to the market, using AI to strengthen our overall competitiveness.

Q: The concept of KEPL is very strong, how will it drive profit for Change, and what has the market reaction been since launch?

A: Improving intermediary quality is a core industry challenge in M&A. Improving matching accuracy raises overall industry M&A quality and supports appropriate fee levels. KEPL expands options for sellers by surfacing new buyer candidates from industries and regions sellers would not have considered previously, expanding matching opportunities. It also provides supporting evidence and background for difficult management decisions, improving overall deal quality. These improvements will create clear differentiation versus competitors, which will drive revenue and profit growth.

Q: You have dispatched a director to e-Guardian. What is your assessment of governance and challenges to hitting the mid-term plan at e-Guardian, as the parent company?

A: External changes led by AI are already impacting e-Guardian's business, and we are supporting the team to turn this change into an opportunity. Our senior executive Noda, who is also Representative Director of Change, has joined the e-Guardian board. Noda is focused on expanding AI-powered automated services, and we recognize that reducing the negative impact of AI on the BPO market is the top priority for e-Guardian right now.

Q: What is your impression of Prime Minister Takagi, and can you share any thoughts from when she was Minister of Internal Affairs and Communications?

A: When Takagi was Minister of Internal Affairs and Communications, she led furusato nozei reform that tightened the rule requiring return gifts to be local products. This was an important step to advance the original policy goal of supporting regional economic independence. Today, amid rising international tension and growing economic security risks, security-related regulations are being strengthened. Under Prime Minister Takagi's leadership, the concept of regional revitalization is shifting from pure economic policy to supporting national security, and we believe it is necessary to accelerate regional revitalization focused on maintaining national territory and ensuring Japanese security. Aligned with this framework, our group will advance initiatives supporting the Ministry of Defense and the Ministry of Agriculture, Forestry and Fisheries.