DAIKOKU DENKI CO.,LTD. Q4 FY2025 earnings call

2030 Vision and New Medium-Term Management Plan

• The company set the 2030 vision "Make CX Amazing〜Bring Unknown Customer Experiences to the World", centered on creating new customer experiences through digital transformation to open new markets.
• Two core strategic challenges:
  1. Create the future of amusement: Leverage digital technology and data to deliver innovative customer experiences, and build immersive personalized next-generation pachinko entertainment through cutting-edge technology integration.
  2. Expand into new industries: Enter new business areas with open innovation, and create new entertainment experiences such as food entertainment and tourism leveraging AI, VR, AR, interactive and audiovisual technologies.

Medium-Term Management Plan (Phase 1 2025-2027)

• Business goals: Become the DX leader for the pachinko hall industry through AI and big data to transform store operations; grow in-house pachislot machine brand awareness and market share in the Amusement segment; establish multiple new growth pillars through new business development.
• Management foundation strengthening: Cultivate and hire innovative talent capable of driving transformative change; advance sustainability initiatives including AI-powered problem gambling addiction response, aligned with stakeholder and social sustainability goals.

Financial and Capital Strategy

• Allocate free cash flow from existing businesses to M&A and new business development to expand the business base, while improving capital efficiency through shareholder returns.
• Target a 25% new business revenue share by 2030, through portfolio reallocation to growth markets and profitability improvement for existing businesses.
• Set a fixed annual minimum dividend of 80 yen per share for 2025-2027, maintain stable dividend policy based on overall business and profit conditions, and enhance IR activities to improve equity spread.

Product Launches and New Developments

• Released two new information system products: BiGMO XCEL, successor to the popular BiGMO PREMIUM with a 21.5-inch vertical display; and TJ-01, a compact integrated self-service checkout terminal with improved operability.
• Launched the AI-powered marketing support service Site Seven FAN+ to support pachinko hall customer acquisition.
• Planning a full release of the full version of Genki's Shutokou Battle in September 2025, and is developing a new smart pachislot model following the May 2025 release of DAXEL's Welcome to the Classroom of the Elite DE.

Overall 2025 March Fiscal Year Results

• Achieved 4 consecutive years of revenue growth, with total consolidated revenue of 57.415 billion yen (+6.6% YoY), operating profit of 12.212 billion yen (+1.8% YoY), net income attributable to parent shareholders of 7.727 billion yen (-8.7% YoY).
• Declared a full-year dividend of 120 yen per share (40 yen interim, 80 yen year-end), a new record high.

1. Information Systems Business: Revenue reached 52.126 billion yen, a 5.5% increase year-over-year, accounting for 90.8% of total consolidated revenue. Operating profit reached 14.406 billion yen, a 1.4% decrease year-over-year, driven by strong sales of VEGASIA card units, new banknote reprinting adaptation demand, and solid sales of new information terminal products REVOLA II and DUALINA, offset by increased selling, general and administrative expenses including personnel costs. 2. Amusement Business: Revenue reached 4.451 billion yen, a 1.1% decrease year-over-year, accounting for 7.8% of total consolidated revenue. Operating profit reached 0.356 billion yen, a 0.746 billion yen increase year-over-year. Reduced sales of display units for pachinko hardware business was offset by increased orders for pachinko content and software, and strong sales of the new Shutokou Battle title from subsidiary Genki Inc.

• Full year 2026 March fiscal year guidance: Total consolidated revenue of 44 billion yen (-23.4% YoY), operating profit of 5.3 billion yen (-56.6% YoY), ordinary profit of 5.3 billion yen (-56.7% YoY), net income of 3.5 billion yen (-54.7% YoY). This downward revision reflects the end of temporary special demand from new banknote adaptation and the initial wave of smart pachislot adoption, as earnings return to normal levels and the company enters a phase of proactive upfront investment for future growth. • Segment guidance: Information Systems Business is expected to return to normal earnings levels after the end of special demand; Amusement Business will see revenue growth from the launch of the company's first in-house smart pachislot, but will see a profit decline due to increased R&D spending for future models. • R&D spending, depreciation, and capital expenditure are planned to remain at high levels, to support the new medium-term plan. • Medium-term ROE targets: 1%+ ROE by FY2027, 10%+ ROE by FY2030, with the goal of sustained ROE improvement to drive PBR improvement.

• Industry consolidation trend: Pachinko hall counts continue to decline, with 6,706 total halls as of December 2024 (-5.3% YoY), though average hall size continues to grow. • Earnings volatility: Heavy exposure to cyclical special demand from smart amusement machine adoption and regulatory adaptation creates large year-over-year earnings fluctuation; the high 79.1% equity ratio leads to sharp ROE declines during profit downturns, which has kept PBR below 1.0x. • ROE is expected to decline temporarily in FY2026, and PBR below 1.0x is expected to persist in the near term, due to the unwinding of special demand and ramp-up of growth investment.

Q: How does management view the current PBR below 1x and ROE performance, and what is the improvement strategy? / A: Management recognizes ROE and PBR as critical performance indicators. In FY2025, ROE hit a high 18% driven by special demand, but it will decline temporarily in FY2026, and PBR below 1x is expected to continue as the company enters a strategic investment phase. Management frames this as a positive forward-looking phase to build long-term growth, and will pursue three core improvements: 1) Build stable sustained profit growth by expanding recurring product and service sales to reduce exposure to smart pachislot demand cycles, targeting 1%+ ROE by FY2027 and 10%+ by 2030; 2) Grow new businesses to 25% of revenue by 2030 through expansion into tourism, food entertainment, and other new sectors to diversify the revenue base; 3) Set an 80 yen annual minimum dividend to stabilize shareholder returns, and enhance IR and disclosure to improve market transparency and confidence.