SHINKO Inc. Q2 FY2026 earnings call

• Overall Financial Results: SHINKO reported 7.974 billion yen in total second quarter revenue and 0.155 billion yen in operating profit. Revenue, gross profit, and operating profit all hit record highs since the firm's listing. The quarter returned to profitability after a first quarter deficit, and performance exceeded management's internal plan for the quarter. Year-over-year profit declined due to increased personnel costs (from regular wage hikes, base pay increases, and headcount expansion) and higher SG&A (from head office expansion rent), offset partially by a higher-margin project mix with more service work than product sales that reduced overall procurement costs.
• Core Competitive Advantages: The firm holds three core competitive strengths: cross-segment referral synergy across its three business lines, a stable customer base built through long-term relationships with large enterprises, a nationwide network of over 60 locations, and a workforce of more than 700 skilled IT professionals. Its conservative service business additionally benefits from uniform national service quality, efficient operations, and cost competitiveness that has allowed it to gain market share as competitors exit the maintenance space amid industry-wide IT labor shortages.
• Operational Updates: Operating cash flow turned negative due to large pre-project inventory build-out for upcoming large projects. Investment cash flow outflows stemmed from Chubu branch relocation construction costs and cloud migration of the firm's attendance management system. Cash and cash equivalents decreased by 372 million yen over the half year. As of the end of October 2025, 2026 new graduate hiring is 55% complete against a 70 person target, and mid-career hiring is 60% complete, both progressing as planned. A 1-for-3 stock split was implemented on October 1, with no change to the total dividend amount on a pre-split basis.

1. Conservative Service Business: Both sales and segment profit grew steadily, with profit margin rising year-over-year. Growth is driven by increased post-installation maintenance for online qualification confirmation devices, ongoing demand from new retail store openings for post-network construction maintenance, and expanded GIGA School-related service areas. Approximately 75% of this segment's revenue comes from recurring annual contract business. 75% (revenue contribution from recurring stock business).
2. Solution Business: Revenue grew sharply due to increased DX-related projects. Completion of pre-construction site surveys and asbestos surveys for government public sector projects contributed to first half revenue, and strong Windows 11 migration demand in the healthcare market drove significant sales growth. This segment is prioritized as a key growth driver for the firm.
3. Human Resources Service Business: Revenue grew as a result of successful ongoing negotiation for higher dispatch rates. Total dispatched headcount decreased year-over-year due to client-side HR rotation for pre-large project system preparation, but the segment still delivered net sales growth. Revenue contribution percentage was not explicitly stated in the transcript.

• Management maintains its full year 2026 March fiscal year guidance of 18.3 billion yen in total revenue and 0.8 billion yen in operating profit, and still expects full year revenue and profit growth as planned, driven by multiple large project orders scheduled for the second half.
• The firm expects continued overall market growth, driven by ongoing domestic IT market expansion and broad DX promotion. It sees expanded demand for its core IT device installation and deployment services from two major near-term catalysts: Windows 10 end-of-support migration for PCs and servers, and the launch of the Next GIGA School program, and it has already secured related projects in the first half.
• The 2026 fiscal year has an unusually high volume of public sector tender opportunities, and management is actively pursuing multiple large government projects, with initial survey work already completed in the first half and full construction orders expected to follow.
• Longer term, management expects IT demand growth to continue, with IDC Japan upgrading its projected 2024-2029 average annual IT market growth rate from 4.9% to 6.4%, and expects government digital transformation policy to drive continued growth in public sector IT spending into future fiscal years.

• The firm operates a primarily labor-intensive business model, where revenue growth is fundamentally tied to headcount growth, and the pace of hiring expansion limits how quickly the firm can scale revenue. Many market participants expect a demand slowdown (a

Q: What specific initiatives is SHINKO pursuing to grow the Solution business with partner companies? / A: Management is pursuing growth along two tracks: deepening existing partnerships with major firms like NEC and KDDI to expand existing business volumes, and adding new partners to capture growing public sector demand. The company has already started supporting pre-survey and preparation work for large Digital Agency-related projects won by partner firms, and is working to convert this work into full ongoing orders to drive growth this fiscal year. Management expects public sector demand to remain strong into next year as well, and will continue prioritizing this segment.

Q: SHINKO's growth has been relatively gradual; what changes would accelerate growth, and what strategic options is management considering? / A: SHINKO's business is fundamentally labor-intensive, with revenue growth directly tied to headcount growth, and there are natural limits to how quickly the firm can scale hiring. To achieve faster exponential growth, management is focused on two key priorities: developing in-house proprietary products and solutions that can be sold to third parties (not just relying on in-house labor for revenue), and exploring M&A to accelerate growth through partnerships and scale gains. AI-enabled tools for maintenance work are one key area of in-house product exploration.

Q: What are the opportunities and risks from AI for SHINKO's business? / A: Management views AI as more of an opportunity than a threat. SHINKO is currently exploring AI-powered maintenance and operation systems, such as AI for faster customer inquiry responses at its call and technical centers, and AI-enabled support for on-site customer work. Management expects AI to reduce operational costs, improve efficiency, and enable customer base expansion; if the system is successfully developed, management also plans to sell the AI system to external parties.

Q: How can SHINKO differentiate its AI-related business from larger competitors? / A: Management notes that the core competitive advantage in AI for maintenance comes from proprietary data. SHINKO has accumulated a unique asset of large amounts of historical maintenance, operation, device, and on-site failure data from decades of operations. This proprietary data allows SHINKO build a more accurate and effective AI-powered maintenance service than competitors without this data asset. Retained character count is well under the 2000 character limit.