Japan System Techniques Co.,Ltd. Q3 FY2025 earnings call

• Company Overview

  • Founded in 1973, dual-headquartered in Osaka and Tokyo, listed on the Tokyo Stock Exchange Prime Market, with over 1,800 consolidated employees. Operates with 50+ years of理念-driven (philosophy-first) management centered on the belief that employees are JAST's only core capital, prioritizing employee character development.
  • JAST maintains a 5-7% annual employee turnover rate, far below the IT industry average, and has been recognized as a Certified Health Excellence Corporation for 4 consecutive years with 100% health checkup participation, actively promoting work-life balance policies including paternity leave.
  • Geographic footprint includes domestic offices in Tokyo/Osaka and international locations in Singapore, Thailand, Malaysia, India, China, and UAE, with new offices opened in Dubai and Abu Dhabi during the current fiscal year.

• Business Model Highlights

  • Maintains a balanced multi-segment, multi-industry portfolio to hedge against industry-specific downturns, in contrast to the common industry strategy of "selection and concentration" on a single vertical.
  • Domestic prime (direct client) transaction revenue share grew from 14.7% to 20.6%, driven by increased large direct projects and accumulated project management experience that eliminated unprofitable (red ink) projects in the current fiscal year, lifting overall profit margins.
  • All package products are JAST-owned intellectual property, giving JAST full pricing power, unlike DX&SI projects where clients hold pricing control.
  • GAKUEN operates as a recurring revenue stock business: annual maintenance fees fund regular version updates, enabled by JAST's no-core-engine customization strategy that allows seamless updates to comply with Japanese Ministry of Education regulatory changes.

• Capital Strategy and Shareholder Returns

  • JAST is debt-free and cash-rich, with PBR above 1.0 (currently ~3.5x) and ROE well above the 8% industry target, reaching ~18%.
  • Adopted a progressive dividend policy targeting 30% payout ratio and 4% DOE, launched a new shareholder gift program for investors holding 600+ shares this fiscal year to attract individual investors.
  • Allocates 7 billion yen to strategic investment, after maintaining minimum operating liquidity and securing shareholder return funds, will actively invest in M&A and talent development.

• Long-Term Growth Strategy

  • Aims to expand full-spectrum industry DX:文教 DX for GAKUEN, financial DX for BankNeo, medical DX for the medical big data segment, paired with internal DX to achieve full paperless and seal-less operations.
  • For DX&SI, will gradually shift the business mix toward higher value-added upstream consulting services, reducing the share of traditional custom system integration.
  • Will actively pursue M&A to supplement organic growth across all business segments.

For the 2025 March Fiscal Year 3rd Quarter:

1. DX&SI Business: The core legacy segment, posted solid growth that offset weakness in other segments. This business builds custom systems independent of hardware/technology vendors and also implements large-scale solutions like SAP and Salesforce.
2. Package Business: Also delivered strong performance, with stable growth across its two core product lines:
   • GAKUEN: University administrative core system package, 30% active market share (230 active universities out of ~800 total universities in Japan, 454 total installations to date)
   • BankNeo: Information integration package for salespeople at regional financial institutions, with 2 megabanks already adopted
3. Medical Big Data Business: Core inspection operations remained profitable, but the acquisition of Kessip Co. in January 2024 led to integration and support costs that resulted in a year-over-year profit decline. The business currently processes 8 million to 10 million medical receipts per month, with 360 out of 1,380 Japanese health insurance unions adopting its products.
4. Global Business: Malaysia's order intake environment has remained weaker than initially planned, leading to underperformance relative to target. The segment is the international extension of JAST's DX&SI business, delivering SAP/ERP solutions adapted to local business practices.

• For the full 2025 March Fiscal Year, management maintains its original target of 14 consecutive years of revenue growth and 10 consecutive years of profit growth, with results on track to hit the original plan as of the end of March.
• GAKUEN targets increasing active market share from ~30% to ~45% by 2030-2035, targeting expansion to large national and private universities that have not yet been captured, driven by positive demand from the successful trouble-free adoption at Tohoku University, and will expand into new lifelong learning services for working adults post-graduation.
• BankNeo will develop new products to expand beyond regional financial institutions to megabanks, targeting wider adoption across the Japanese banking sector.
• The medical big data business will continue launching new data utilization services leveraging the company's large accumulated medical receipt dataset for pharmaceutical companies, academic researchers, and local governments.
• The global business will continue expanding solutions to new markets across its new international hubs in UAE and India, adapting products to match local commercial practices.
• Management will continue the strategy of growing direct prime client transactions to lift overall profit margins, with the trend of increasing direct transaction share expected to continue.

• Over-reliance on a single industry is hedged via JAST's diversified portfolio across multiple verticals, but the global business faces ongoing weaker-than-expected order conditions in Malaysia that have driven underperformance year-to-date.
• The medical big data segment faced short-term profit headwinds from acquisition integration costs following the January 2024 acquisition of Kessip.
• The GAKUEN business faces long-term industry headwinds from declining youth populations in Japan, though management sees opportunities to offset this via expansion into lifelong learning and untapped market share among large universities and small-scale institutions.
• The traditional Japanese IT industry's multi-layered subcontracting structure creates margin pressure for non-prime contractors, which JAST is addressing via its strategy of growing direct prime transactions.

Q: Why did JAST enter the university administrative system business, and what is its competitive advantage? / A: JAST entered the market in 1994 after gaining custom system development experience with multiple universities, at the suggestion of university clients who wanted a standardized packaged solution to address inefficiency. JAST's key advantage is its policy of never modifying the package core engine, only adding peripheral custom features to meet client needs, which allows seamless annual version updates to match regulatory changes — a benefit that competing vendor packages from that era could not offer, as they customized core code which broke update functionality.

Q: Can GAKUEN still grow market share, and how will JAST activate inactive installations? / A: GAKUEN currently holds ~30% active market share, leaving significant white space among large imperial, national, and leading private universities that have not yet been captured. The successful trouble-free, zero-customization implementation at Tohoku University has generated strong inquiry from other leading institutions, and JAST targets 45% market share by 2030-2035. For small universities with low current market share, JAST will offer low-cost subscription versions to drive new adoption.

Q: Why has direct domestic prime transaction share grown so rapidly, and will this trend continue? / A: Growth has been driven by JAST's increased profile after listing on the Tokyo Stock Exchange main market, plus the completion of several large direct prime projects last fiscal year. The trend will continue: direct prime transactions have higher margins than subcontract work, and JAST has accumulated enough direct project management experience to eliminate nearly all unprofitable projects, with zero red ink projects so far this fiscal year, so growing direct share will continue to lift overall profitability.

Q: Why is JAST's employee turnover so low, and what unique quality assurance practices do you have? / A: JAST's consistently low turnover stems from its philosophy-first management, which embeds core corporate values into daily employee work and decision-making rather than treating them as empty slogans. Low turnover drives higher employee skill proficiency, higher service quality, and stronger long-term client relationships, which in turn supports stable business growth. This focus on people-driven quality is JAST's differentiating approach compared to peer firms.