ABIST Co.,Ltd. Q2 FY2025 earnings call

Industry Context

• Domestic prices and average worker wages continue rising, and アビスト implemented larger-than-usual wage increases this year, with this trend expected to continue.
• In the automotive industry, uncertainty has increased due to U.S. tariff policy on automobiles and automotive parts, but global decarbonization trends have kept R&D investment at high levels focused on new technology development.
• In the human resources industry, demand remains strong driven by labor shortages, especially in system software development where projects are growing. However, talent acquisition competition has intensified across all firms, raising hiring difficulty and pushing wages higher.

Key Strategic Priorities

• The company identifies two core strategic challenges: margin compression from wage increases, and talent acquisition to drive sales growth.
• Margin Improvement Initiatives: A cross-functional working group has been formed to pursue sustained unit price improvements, adjusting prices to reflect domestic wage and price inflation and matching technical skill levels to appropriate project pricing. The company will increase recruitment of high-difficulty projects and expand technical training to grow the share of technicians capable of working on high-unit-price projects. AR/AI and design solutions are being developed for external sale to boost revenue, and internal efficiency tools are being rolled out to reduce contract work costs. A cross-departmental R&D meeting now manages project selection and resource optimization to accelerate development speed. Per-person monthly sales have grown steadily since the mid-term plan launch, rising 40,000 yen year-over-year this quarter driven by unit price improvement efforts.
• Talent Acquisition Initiatives: The company has expanded its recruiter team and engaged external recruitment consultants. 2025 new graduate hiring hit its target, with headcount up 1.6x year-over-year, and new graduate hiring best practices are being applied to mid-career hiring. The Osaka branch was opened in March 2025 (relocated from the Kyoto office) as a new strategic sales and hiring hub for the Kansai region, joining Tokyo and Nagoya as a core strategic base, with improved office environment to boost productivity. The company implemented an average 5% wage increase aligned with domestic wage trends to improve talent retention and acquisition. Specialized technical training curriculums have already delivered results by enabling earlier deployment of new graduate technicians and improving utilization.

アビスト's core business is the design and development outsourcing segment, which is split into two sub-segments:

1. 派遣 (Dispatch): Revenue increased 1.5% year-over-year, with per-person monthly sales of 667,000 yen, an increase of 35,000 yen year-over-year. Growth was driven by strategic staff reallocation and unit price improvements amid sustained high customer production activity and expanding development investment.
2. 請負 (Contract): Revenue increased 11.1% year-over-year, with per-person monthly sales of 836,000 yen, an increase of 36,000 yen year-over-year. The contract segment maintains a high revenue contribution share of 58% of total company revenue. Growth was driven by progressing unit price negotiations and careful selection of high-unit-price projects, despite rising project difficulty and customer requirements.

Overall company total revenue for the 2025年9月期第2四半期 was 5.207 billion yen, up 6.3% year-over-year. Operating profit was 0.503 billion yen, down 2.2% year-over-year. Ordinary profit was 0.514 billion yen, down 0.2% year-over-year, and net income was 0.271 billion yen, down 10.2% year-over-year. Excluding new graduate and potential hires, technician utilization remains high at approximately 95%.

• There is no change to the 2024 December revised mid-term management plan, which retains its 2027年9月期 target of 12.5 billion yen in total revenue and 1.3 billion yen in ordinary profit.
• Management expects that through implementing the current set of margin and talent acquisition initiatives, the company will return to growth from the 2026年9月期 (21st fiscal period) onward after a period of flat profit since 2020.
• The newly established Vietnamese subsidiary will advance the company's mid-term strategic goal of global expansion including offshore development. It will take over specific contracted work from Japan for offshore development and pursue direct orders from local manufacturers in Vietnam, building on prior offshore development experience accumulated through a business partnership with Rikkeisoft starting in 2019.

• Rising domestic wages and prices have increased personnel costs (which make up the majority of cost of goods sold), leading to margin compression that has driven a year-over-year decline in operating and net profit this quarter. Continued wage growth pressure could compress margins further if unit price improvements do not keep pace.
• Intensified industry-wide talent acquisition competition increases hiring difficulty, and stagnant technician headcount growth could constrain top-line growth.
• Uncertainty has increased in the key automotive end market due to U.S. tariff policy on automobiles and automotive parts, which could create downstream demand volatility.

Q: What impact will U.S. tariff policy on automobiles and automotive parts have on アビスト's business? / A: Management notes that while the policy increases overall market uncertainty, most of アビスト's clients are Japanese domestic manufacturers serving regional and global markets. At present, there is no material immediate impact on order volume, but the company will continue monitoring policy developments and changes in client R&D spending closely.

Q: What is the medium- to long-term outlook for the new Vietnamese subsidiary? / A: The Vietnamese entity is a core step in the company's mid-term global expansion strategy. Initially, it will focus on offshore development of lower-complexity work from Japanese contracts to reduce domestic labor costs. Over the long term, the company aims to grow direct local orders from Vietnamese manufacturers and build a sustainable offshore development hub to support margin growth.

Q: What are アビスト's core strengths and weaknesses compared to competitors in the design development outsourcing industry? / A: アビスト's main strength is its long track record of working with leading Japanese manufacturing clients, with deep technical expertise in automotive and industrial design that allows it to take on high-complexity projects. Its primary weakness is its smaller scale compared to larger industry competitors, which can limit its ability to pursue very large multi-team projects, so the company focuses on differentiated high-value technical work to compete.

Q: What is アビスト's hiring strategy going forward? / A: The company will continue expanding recruitment resources, leverage the new Osaka branch to access talent in the Kansai region, and continue improving compensation to attract and retain technical staff. It will also continue optimizing training programs to speed up the deployment of new hires into active projects, improving utilization and growing overall operating headcount to drive sales growth.