Japan System Techniques Co.,Ltd. Q2 FY2026 earnings call

• Overall Financial Performance

  • Consolidated revenue for the first half reached 14.9 billion yen, up 12.6% year-over-year; operating profit reached 1.7 billion yen, with all profit metrics up 60-65% year-over-year, achieving both revenue and profit growth.
  • The company maintains a debt-free, very solid financial position; share price hit an all-time high at the end of September, with market capitalization exceeding 6 billion yen.
  • Operating cash flow reached 2.8 billion yen for the first half, a high level driven by collection of receivables from growing large long-term prime contracts; this reflects a sustained structural trend rather than a one-time factor.
  • R&D expenditure increased nearly 30% year-over-year to 177 million yen for the first half, and operating margin remained at 11.3%, maintaining double-digit profitability.

• Product and Business Development

  • DX&SI Business: The company maintains its strategy to gradually shrink traditional system integration and shift to high-value-added, high-margin services including data utilization, analytics, large-scale solutions, and consulting. Traditional SI will continue to be maintained as the source of knowledge for developing new in-house products.
  • GAKUEN (Package Business): Cumulative installations reached ~480 universities, with 30% active share, ranking first in the Japanese university package market. The successful zero-customization subscription implementation at Tohoku University created a new "Fit to Standard" reference case that has generated growing inquiries from large national and private universities. The ALUPA alumni service launched in August 2024 is undergoing functional expansion with initial inquiries from 10 universities, focused on supporting recurrent education and alumni engagement. New alliances including with Sumitomo Mitsui Card have been established for campus cashless payment solutions.
  • BankNeo (Package Business): New products including front-end compliance, insurance business support, and inheritance support have been well received. The popular deposit management product has been adopted by a major megabank, and the company is preparing for its next version. The company is expanding targeting from regional cooperative financial institutions to larger regional banks and megabanks, leveraging the growing shift from on-premise to cloud on the Salesforce platform.
  • Medical Big Data Business: Processes ~10 million receipt checks monthly, with accumulated big data driving development of new high-value services. Synergies are being realized by rolling out the iBss health insurance DX portal system to K-Ship's 170 health insurance union clients, expanding from eligibility checks to include DX and BPO services for health promotion and medical cost reduction. Data health initiatives are expected to drive significant revenue growth from next fiscal year.

• Corporate Strategy and Governance

  • Long-term vision JAST VISION 2035 targets 100 billion yen in consolidated group revenue by 2035, with a 3-year medium-term plan currently under development, to launch in fiscal 2026.
  • The Tokyo headquarters will relocate and expand to THE LINKPILLAR 2 in Takanawa Gateway City in July 2026, operating two Tokyo bases after relocation.
  • The company maintains 5-year consecutive recognition as a Health & Productivity Management Outstanding Organization, with 100% participation in health checkups, growing investment in DX talent development, and promotion of long-term parental leave for male employees.
  • A first-time interim dividend of 11 yen per share is implemented this fiscal year, with a planned year-end dividend of 24 yen per share, aligning with targets of 30% payout ratio and 4% DOE.

1. DX&SI Business: Achieved double-digit year-over-year revenue and profit growth. Growth was driven by strong performance of new large prime contracts and long-term prime contracts, along with an increase in high-unit-price projects and no loss-making projects, resulting in high profitability. 2. Package Business: Achieved double-digit year-over-year revenue and profit growth with very high profit margins. The university-focused GAKUEN series saw strong growth in high-margin EUC and implementation support services. The banking-focused information integration package BankNeo also achieved year-over-year revenue and profit growth driven by solid performance of its program products. 3. Medical Big Data Business: Achieved double-digit year-over-year revenue and profit growth. High-margin services including base receipt checking business, data utilization platform REZULT, and livelihood protection receipt management service RezeptPlus all performed solidly. The recently acquired K-Ship Co., Ltd. saw significant profitability improvement this fiscal year after a weak performance last year during restructuring. 4. Global Business: SAP project orders at Malaysia-based Virtual Calibre have continued a declining trend, leading to an operating loss. This decline was driven by reduced IT investment and lower unit prices from a key energy client, changes to tender rules, and accumulated costs from office relocation and sales capacity building.

• The full-year 2026 March fiscal year earnings guidance initially released on May 14 remains unchanged, maintaining the original plan for revenue and profit growth, with a full-year operating profit target of 3.59 billion yen.
  • While first-half performance was very strong, the company notes that some projects originally planned for second-half acceptance last fiscal year were shifted to the first half, so full-year performance will not simply be a continuation of first-half momentum. Management will continue to monitor progress and targets the original full-year guidance.
  • Management assesses that the full-year operating profit target is achievable: order backlog is ample with high average unit prices, no loss-making projects, and expected revenue and profit growth in the second half compared to last year.
  • Expected additional full-year costs include 105 million yen for office relocation, increased R&D expenditure, and 578 million yen in incremental costs for wage hikes, sales promotion, travel, advertising, and internal system depreciation, all of which are already incorporated into the current guidance.

• Global Business: The continuing decline in orders at Malaysian subsidiary Virtual Calibre has led to an operating loss, and the turnaround of the global business remains a key high-priority risk for the company.
  • The growth rate of profit has recently moderated compared to the pace of expansion of invested capital, so management will continue to monitor capital utilization and shareholder returns and address this in the medium-term plan.
  • While the company sees strong first-half performance, there is still uncertainty around the timing of project acceptance for the remaining second half of the fiscal year, which could impact full-year results against the current guidance.

Q: Domestic business is very strong, but the performance of the global business is a concern. What is the outlook for a recovery in coming quarters and what turnaround measures are you implementing? / A: The poor performance of the global business is almost entirely driven by results at Malaysian subsidiary Virtual Calibre. Previously, the company allowed overseas subsidiaries to operate autonomously with limited headquarter support, leaving local operations to manage costs and structure based on local business practices. Management has now decided to intervene more actively: it will support the subsidiary's turnaround not just on financials, but also by rolling out Japanese System Techniques' project management and operational approaches starting in fiscal 2026. The company will assign key headquarter personnel to support the turnaround and targets a return to profitability in fiscal 2027.

Q: How is the spread of generative AI expected to impact your business long-term? Will it displace lower-level work, and is it a net positive or negative for your business, and what countermeasures are you taking? / A: Management believes generative AI can be used to improve efficiency in lower-level downstream processes such as basic programming, and all business units are already conducting experimental trials and R&D on adoption. However, extensive training and refinement are still required, and engineers still need to conduct final checks on all AI-generated output, so full automation will take time. The company is following the industry-wide approach of using AI for efficiency while keeping human oversight for final quality, and will continue progressing adoption along this path.

Q: Can you confirm that your M&A strategy will focus primarily on the domestic market, with turnaround of the global business as the current priority? / A: Historically, the company's M&A activity has been passive, progressing only when opportunities were introduced by agents and aligned with the company's culture, without proactive targeted searches based on strategic synergies. Going forward, to achieve the 2035 vision, the company will shift to a proactive approach, identifying specific capability gaps that need to be filled via M&A to create synergies, since organic growth is too slow to hit long-term targets. While the immediate priority is global business turnaround, which means M&A activity will likely focus on domestic targets in the near term, the company is not limiting M&A exclusively to domestic opportunities, and will target any acquisition that fits its strategic needs.