HIMACS,Ltd. Q3 FY2025 earnings call

• Core Competitive Strengths • Himacs offers end-to-end services across the entire system lifecycle, from planning through development to long-term maintenance. Maintenance services enable accumulation of client business know-how, which improves competitive positioning for future system redevelopment projects and supports stable long-term revenue growth. • The firm holds deep industry expertise, particularly in financial services, with employees skilled in domain knowledge like financial calculation, compliance, and business process consulting that supports long-term client retention. Approximately 60% of revenue comes from clients with 30+ years of relationship, and 80% from clients with 20+ years of relationship. • Aggressive investment in human capital: New graduate hiring has increased from ~30 to ~80 hires annually to address industry-wide engineer shortages. The firm maintains structured 3-month onboarding, role-based training curricula, a clear skill/experience-based career path system, and incentives for technical certification acquisition. Priority is placed on training DX engineers and project leaders.

• Business Development & New Product Initiatives • The firm is expanding DX project business, targeting 25% of total revenue from DX projects, with most current DX work focused on information systems rather than large core system replacements (which are expected to come in future years). Non-financial clients are leading DX investment at present. • Two core generative AI initiatives: (1) Internal use of generative AI for automatic code generation, test automation, and design automation to reduce development time, cut costs, reduce human error, and improve quality; automatic code and test capabilities are already largely functional, while design capability is still in deep learning training. (2) Development of Jishanavi, a custom generative AI chatbot trained on client internal rules and manuals that answers internal system procedure questions to reduce inquiry workload for client IT departments.

• Sustainability Initiatives • The firm endorses TCFD recommendations, has set CO2 emission reduction targets, supports local environmental initiatives in its founding city of Yokohama, and has invested in Kanagawa Prefecture green bonds.

1. System Solution Service (SSS): This segment covers system planning, design, and development. It drove the 25% year-over-year increase in 3Q 2025 order backlog, as new project launches drove top-line growth. 2. System Maintenance Service (SMS): This segment covers post-launch system maintenance, and has grown in recent years as a stable recurring revenue stream. The firm targets an ideal 50/50 revenue split between SSS and SMS. By industry vertical, 70% of revenue comes from financial services clients (Himacs' core focus), and 30% comes from non-financial clients. By client type, 30% of revenue comes from direct end-user contracts (up from under 20% 9 years prior), and 70% comes from major system integrator partners.

• Full-year 2025 March fiscal year guidance expects 18.6 billion yen in revenue (7.2% year-over-year growth) and 1.78 billion yen in operating profit, returning to a growth trajectory after 2024's flat revenue and profit decline driven by forward investments.
  • Mid-term guidance targets crossing 20 billion yen in total revenue and maintaining a 10% operating profit margin. Revenue growth is prioritized over near-term margin expansion, as ongoing technology research and training costs require scale to absorb.
  • Dividend guidance calls for a full-year annual dividend of 44 yen per share, a 0.5 yen increase from the prior year, with a target payout ratio of 40% (planned payout ratio for 2025 is 41.8%).
  • The mid-term strategy maintains a 30% target ratio for non-financial and direct end-user revenue, and aims to grow DX projects to 25% of total revenue.

• Chronic industry-wide engineer shortages (the BOJ Tankan reports a -52 DI for employment, indicating widespread unmet demand for technical talent) create staffing constraints for growth.
  • Rising labor costs require ongoing price negotiations with clients; while clients have become more receptive to price adjustments amid broader inflation, future cost-price balance remains uncertain.
  • Potential indirect economic impact from U.S. market conditions could lead client companies to revise their system investment plans, even though Himacs has no direct exposure to U.S. markets.
  • Sustained profit margin improvement requires achieving sufficient scale to absorb ongoing technology research and development training costs.

Q: What type of M&A activity is Himacs considering to address potential staffing shortages and support growth? / A: Himacs has grown organically for 49 years, but now actively pursuing M&A and capital alliances to accelerate expansion. The firm targets companies in related business areas, particularly firms with strong non-financial expertise that complement Himacs' current strength in financial services, to expand market reach and add development capacity. / Q: What is the current level of inbound interest for the Jishanavi generative AI chatbot product? / A: Jishanavi is designed to answer client internal procedure and system questions to reduce IT department inquiry load. Currently, two clients have requested the product, and Himacs has delivered prototype versions that are now in use. Custom deep learning training on each client's unique internal data still requires significant time, and the firm is working to reduce this implementation timeline. / Q: How does Himacs win and retain repeat client contracts, given that clients regularly solicit competitive bids? / A: Repeat contracts are not automatic, as clients consistently seek competitive pricing and quality. Himacs leverages its ongoing maintenance service relationships to stay closely connected to client needs, builds trust by offering combined development and maintenance packages, and wins repeat business by demonstrating appropriate pricing and reliable high-quality service rooted in accumulated domain knowledge. / Q: What is Himacs' strategic focus: stability or growth? / A: Himacs is explicitly focused on growth. The information services industry is seeing rapidly growing new demand from DX and generative AI transformation, so the firm aims to capture these new growth opportunities rather than prioritizing stability, and will continue investing to capture long-term growth. / Q: What is Himacs' differentiation from competing system development firms? / A: Himacs focuses on developing core mission-critical systems that enable client business operations, rather than generic back-office systems. Deep domain knowledge accumulated through long-term maintenance relationships allows Himacs to provide better-aligned system proposals that support clients' business strategies, which builds long-term trust and retention.