SHINKO Inc. Q4 FY2025 earnings call

Overall Financial Results

• Total fiscal 2025 (ending March 2025) net sales reached 16.94 billion yen, up 4.7% year-over-year; operating profit reached 0.687 billion yen, up 9.7% year-over-year.
• The company achieved a record-high net profit in the first year of its new mid-term management plan (FY2024-FY2026), though full-year revenue did not meet the original plan.
• Revenue is seasonally concentrated in the 4th quarter, consistent with historical trends.

Core Competitive Advantages & Synergy Strategy

• Leverages 3-segment cross-synergy, a stable customer base, a nationwide on-site service network, and over 700 in-house IT engineers to capture growing DX demand.
• A core example of synergy: Solutions-led installation of medical devices leads to follow-up maintenance service contracts, driving growth across both segments.

Operational Efficiency & Profit Improvement Initiatives

• Uses the in-house Technical Center and smart glass remote support to improve engineer efficiency, standardize work quality, and reduce on-site visit frequency.
• Progresses price pass-through negotiations for existing and new clients, with results starting to materialize; updates service price lists to ensure appropriate pricing for new projects.
• Addresses rising outsourcing costs from increased construction projects: plans to expand in-house capabilities through engineer skill development to improve in-house rates and reduce outsourcing expenses over time.

Hiring & Retention Performance

• Hired 77 new graduates in FY2025, and has successfully hired 70 new graduates for FY2026.
• Improved turnover rate by 2.6 percentage points to 5.9%, which is well below the IT industry average; improves compensation (base pay increases, bonus expansion) and employee satisfaction to retain talent.

Mid-Term Plan Progress

• Core mid-term theme is

1. Maintenance Service Business: Achieved stable growth across revenue, profit, and margin. It is the company's stable core business, with ~75% of revenue coming from annual contract-based stock business. Growth was driven by increased maintenance requests from new and existing clients, expanded regional coverage of airport system maintenance, and incremental maintenance contracts for online qualification check terminals deployed by the Solutions business. 75% of segment revenue is recurring stock revenue from annual contracts, contributing the largest share of overall stable profit.

2. Solutions Business: Reported strong revenue growth driven by increased DX-related projects. Key growth contributors included increased installation of online qualification confirmation devices for home-visit nursing stations, growing demand for monitoring system installation in welfare facilities, electronic medical record introduction and hospital network construction for medical DX, and increased orders for in-house security services (MSK@Cloud, MSK@Secure Backup) amid rising healthcare security awareness. This segment is the company's primary growth driver and leverages cross-segment synergy to expand future maintenance revenue.

3. Human Resource Services Business: Achieved year-over-year revenue growth driven by successful unit rate increase negotiations, with a slight year-over-year profit decline. Dispatch volume increased steadily from July 2024 after newly graduated trainees completed training and started assignments. High market demand for IT personnel supports ongoing growth plans for this segment.

• Raised the 3-year (FY2024-FY2026) target compound annual growth rate (CAGR) for sales from 5.6% to 6.6% to accelerate growth and hit the original 2026 end target, after FY2024 revenue came in below the initial plan.
• For FY2026 (ending March 2026), the company projects an 8% year-over-year increase in total sales and a 17% year-over-year increase in operating profit, with an expected operating profit margin of 5.2%.
• Management expects strong demand tailwinds from the end of Windows 10 support (driving PC/server replacement demand), the launch of NEXT GIGA (phase 2 of Japan's GIGA School Initiative), and a pipeline of large government tender projects for digital government transformation.
• Maintains the existing shareholder return policy: plans a 97 yen per share dividend for FY2025, and a 105 yen per share dividend for FY2026.
• Keeps the original full 3-year plan's 2026 end targets unchanged, and reaffirms commitment to achieving the full mid-term plan goals.

• Medical DX promotion led by the Japanese government is currently experiencing partial delays in implementation; management will continue to monitor progress and adjust business activities to adapt to changes in the rollout schedule.
• Rising outsourcing costs from increased large construction projects have pulled operating margin and value-added labor productivity below initial mid-term plan expectations.
• The broader IT industry faces persistent skilled labor shortages, which has driven more competitor exits from the maintenance service market but also creates hiring and capacity constraints for SHINKO's own growth plans.
• Past boom periods driven by one-time demand (e.g., 2019 Windows 10 migration, 2022 online qualification check terminal rollout) have seen demand drop off after the peak; management must build a sustainable project pipeline to avoid post-boom slowdowns after the 2025 Windows 10 migration window closes.

Q: What is SHINKO's current industry share for the Solutions business, especially amid growing medical DX demand? / A: Management does not have overall industry share figures on hand. The company holds a 25% share of clinical electronic medical record and receipt computer maintenance for Wemelex, which is the market leader holding over 40% share of the Japanese clinic/diagnostic center segment (the company's core medical focus). SHINKO focuses specifically on IT equipment for medical institutions, and primarily serves the clinic/diagnostic center segment; it has recently started expanding into mid-sized hospitals, but does not yet serve large teaching hospitals which are dominated by major players like NEC and Fujitsu. Going forward, SHINKO plans to expand medical DX business beyond its long-term partner Wemelex to capture additional growth. (786 characters)