HITO-Communications Holdings,Inc. Q2 FY2026 earnings call

• Overall 1H 2026 Financial Results

  • Total net sales: 31.102 billion yen, +0.6% YoY (+175 million yen YoY), +0.5% above initial plan (+158 million yen above plan).
  • Operating profit: 729 million yen, 57.1% of prior year profit (-548 million yen YoY), 81.1% of initial plan (-171 million yen below plan), primarily due to unplanned impacts from China route service reductions.

• Airport Business (FMG) Strategic Milestones

  • Entered the restricted airport area ground handling business via the 2023 acquisition of FMG. As of February 2026, FMG has grown from 600 staff / 30 client companies (only Narita airport, no owned GSE equipment) to ~1,000 staff / 110 client companies, with ~10 full GSE equipment sets deployed across nearly all major Japanese airports.
  • Secured the rare FAA145 aviation maintenance certification, held domestically by only JAL andANA prior to this. This certification allows the company to perform the critical 'release' inspection that is required for aircraft departure, enabling a full end-to-end three-service (passenger, ramp, maintenance) model that increases business value, opens opportunities for private jet and small client maintenance work, and simplifies vendor contracting for airlines. It also simplifies future regulatory approval for international expansion.
  • Won a large full-service contract for Cebu Pacific, covering all its Japanese airport locations, which started operations in April 2026. The contract is expected to contribute 1 billion yen to 1.3 billion yen in monthly revenue when fully operational, and 10 billion yen to 13 billion yen in annual operating profit starting next fiscal year.

• IP Business Core Strengths

  • Holds licenses for over 200 major IPs including Godzilla, Kamen Rider, and Tom and Jerry. Combines in-house design capabilities to create exclusive merchandise, leverages influencer marketing for promotion, and maintains a strong China-based supply chain.
  • Growing product breadth to cover multiple consumer goods categories (lunch boxes, bags, mugs, socks) and operates popular limited-time pop-up cafes for fan events, which are well received by retail partners.

• Dividend Update

  • Plans 15 consecutive years of dividend increases since IPO, with a full-year dividend of 37.5 yen per share, a 51.7% payout ratio. The company follows a progressive dividend policy with no planned dividend cuts.

1. Works (warehouse-focused business): Grew year-over-year, no absolute value provided.
2. Public (public bidding outsourcing business): Grew year-over-year, no absolute value provided.
3. Sports & Entertainment: 580 million yen increase YoY, 138.7% of prior year revenue, driven by Osaka-Kansai Expo participation and pro-sports event support growth. Accounts for ~18.6% of total reported 1H 2026 revenue (31.102 billion yen total).
4. Inbound & Tourism: 99.2% of prior year revenue, slight decline due to Southeast Asian inbound tourists diverting to China following China's visa-free policy, no absolute value provided.
5. Airport (Airport, led by FMG): 87 million yen decrease YoY, 97.8% of prior year revenue. After adjusting for FMG fiscal year change impact (411 million yen negative adjustment), it grew 9.0% YoY. Accounts for ~-0.28% of total 1H 2026 revenue change.
6. Digital (EC and IT-enabled business): 87.7% of prior year revenue, declined due to exit of a major sports client contract. No absolute value provided.
7. Sales & Sales Support (core legacy business): 235 million yen increase YoY, grew on higher demand from communication carriers and new contracts with foreign consumer electronics manufacturers. This was the first YoY increase in this segment in a long time. Accounts for ~13.4% of total 1H 2026 revenue.
8. Wholesale (IP-based business): Grew above prior year revenue YoY, driven by continued growth from the '推し活' (fan activity) trend, no absolute value provided.

• Full-year 2026 August fiscal year guidance is maintained unchanged, despite 1H operating profit coming in below plan. Management maintains the target of 28 billion yen full-year operating profit, with 46% of full-year sales target achieved in 1H, and 26.1% of full-year operating profit achieved.
• Lowered 1H operating profit performance is entirely driven by unplanned geopolitical impacts, with core non-exposed businesses growing as expected, so management retains the full-year target and will continue working to achieve it.
• 2H sales are planned at 35.178 billion yen, +2.509 billion yen YoY, and 2H operating profit is planned at 20.71 billion yen +854 million yen YoY, to hit the full-year target.

• Geopolitical risks: Sustained deterioration of Sino-Japanese relations has led to unplanned sharp reductions in China air routes, with 7 client companies pausing operations and lower utilization of prepared staff and equipment for the airport business, leading to lower labor efficiency, higher costs, and a 100 million yen unplanned negative operating profit impact in 1H. Tense Middle East geopolitical conditions also add additional uncertainty to international air travel demand.
• Industry risk: Historically the aviation sector faces negative shocks from external events every 2-3 years, with most shocks recovering within 2-3 months, but the COVID-19 pandemic was an extreme outlier that caused multi-year demand destruction.
• Operational risk: Ground handling requires 6 months of lead time for staff training, so costs are incurred upfront before new large contracts generate revenue. When demand shocks like route reductions occur, pre-trained staff sit idle, increasing cost pressure and reducing profitability.
• Cost pressure: General price increases have driven higher salary costs, and new business expansion has led to higher SG&A, including higher variable costs such as warehouse fees for the growing IP business, putting pressure on overall margins. The gross margin contracted 0.3 percentage points YoY in 1H.

Q: How do the current tense Middle East situation and ongoing China route cuts impact the company's airport business results and outlook? / A: The primary negative impact so far has come from unexpected sharp cuts to China routes, which lowered 1H operating profit by 1 billion yen beyond initial plans. While most geopolitical shocks to aviation recover within 2-3 months, the company cannot predict when Sino-Japanese tensions will ease. Management has already prepared all the required infrastructure and trained staff for planned growth, so performance will rebound sharply once geopolitical issues are resolved, and the company retains its full-year growth target. /

Q: What are the core competitive advantages of the company's IP business, and what is the long-term brand strategy for this segment? / A: The company's core advantages are its large portfolio of over 200 licensed popular IPs, in-house custom design capabilities to create exclusive fan-focused products, and an established marketing and supply chain infrastructure to quickly bring products to market. The strategy is to continue expanding product categories beyond existing offerings, grow the popular pop-up event format to leverage the ongoing '推し活' fan trend, and expand collaboration with retail partners to drive ongoing growth. /

Q: What is the company's plan for a third core business pillar to complement the existing sales support and airport/IP businesses? / A: The company is focused on scaling the current airport business to become the second solid core pillar first, with the FAA145 certification and large Cebu Pacific contract putting it on track to deliver significant operating profit starting next fiscal year. Management will continue expanding existing high-growth segments including IP business before actively pursuing a large third new core segment, with no specific timeline to announce for the development of the third pillar at this stage.