DAIKO XTECH,LTD. Q4 FY2025 earnings call

• Corporate Update

  • As of April 1, 2025, former Daiko Denshi Tsushin changed its corporate name to DAIKO XTECH, retaining the original DAIKO brand identity while aiming to become a provider of new ideas and innovative solutions, with X representing unknown future potential and TECH representing technology.

• 2025 March Fiscal Year Core Financial Results

  • Despite the unwind of prior year's large PC project and invoice system special demand, the company beat all full-year targets for order intake, revenue and operating profit, driven by stock business growth and strong modernization project orders.
  • Total order intake: 42.291 billion yen; total revenue: 42.69 billion yen; operating profit: 2.41 billion yen (5.6% operating margin); gross profit: 10.556 billion yen (24.7% gross margin, down 0.9% year-over-year, which management identifies as a key remaining challenge); selling, general and administrative expenses: 8.145 billion yen; net income attributable to parent shareholders: 1.683 billion yen.
  • ROE remained at a high level of 13.8% (above the 7.3% cost of equity), and ROIC remained at 11.3% (above the 6.3% weighted average cost of capital).
  • The 0.398 billion yen decrease in order backlog stems from an accounting change for stock business revenue recognition and has no impact on current fiscal year revenue.
  • The equity ratio rose 5.2% as net assets increased amid a slight decrease in total assets.

• CANVAS ONE Previous Mid-Term Plan Review

  • All quantitative targets were achieved: revenue grew 20.4%, operating profit grew 54.5%, and operating margin increased 1.2 percentage points over the plan period.
  • 1. New Value Creation (Shin Business): The 0.5 billion yen revenue target was only partially achieved (rated △). Two new business projects were launched, and IoT consulting capabilities were strengthened via the acquisition of CAMI&Co. However, organization and process building to scale new businesses remains a key outstanding challenge.
  • 1. Core Business Growth Leveraging Strengths: The 5% operating margin target was exceeded, reaching 5.6% (rated ◯). Key solution order intake grew 3 billion yen to the 2025 target of 8.8 billion yen. The remaining challenge is to further strengthen planning and development capabilities to expand key solutions and increase customer value delivery opportunities.
  • 1. Foundation Building to Support Growth: The target of building a challenge-focused corporate culture was achieved (rated ◯). Key completed initiatives include establishing a supporting education and performance evaluation system, redefining group identity and philosophy, and completing the corporate name change. Outstanding challenges are implementing the new people systems to strengthen organizational capability and driving penetration of the new DAIKO XTECH brand.

• Sustainability and Human Capital Management

  • Management has defined tracked metrics for sustainability and human capital initiatives, conducts regular monitoring, and implements improvement plans, as these initiatives are expected to impact long-term performance.

1. Information and Communications Equipment: Both sales and gross profit decreased year-over-year, driven by the absence of the prior fiscal year's large-scale PC project. Order intake and order backlog also decreased for the same reason.
2. Solution Services: Sales and gross profit decreased year-over-year due to the unwind of the prior year's invoice system special demand and below-target profitability on some projects. However, order intake increased significantly driven by growth in the stock business and strong orders for modernization projects, and order backlog rose to 9.684 billion yen overall after strong order performance. By business type:

• Key Solutions: Order intake increased 0.77 billion yen year-over-year, driven by strong performance of rBOM and paperless solutions, reaching 8.8 billion yen in 2025 March fiscal year (up 3 billion yen from 5.8 billion yen in 2022 March fiscal year).
• Software Services: Order intake increased 0.73 billion yen year-over-year, supported by sustained strong demand for IT infrastructure renewal.
• Large Contracts: Order intake decreased 2.1 billion yen year-over-year due to the unwind of the prior large PC project and invoice special demand.
• Stock Business: Order intake increased 0.4 billion yen year-over-year, with the shift from flow to stock business progressing on schedule.

• Near-term 2026 March Fiscal Year Guidance: Target revenue of 43 billion yen, gross profit of 11.4 billion yen, operating profit of 2.45 billion yen (5.7% operating margin), net income of 1.65 billion yen (3.8% net margin), and ROE of 12.5%.
• 3-year CANVAS TWO Mid-Term Plan (2026 March - 2028 March): The core policy is "Deepening and Innovation", aiming to strengthen existing core strengths while driving customer-centric business transformation and new value creation. 2028 March target: revenue of 45 billion yen, operating margin of 6.7%, net income of 2.05 billion yen, and ROE of at least 13%.
  • Core business: Strengthen modernization, manufacturing/distribution, insurance/mutual aid, and after-sales support businesses. Aims to grow core business gross profit from 7.4 billion yen (2025) to 8 billion yen (2028) by focusing resources on software services to improve profitability.
  • Key solutions: Expand existing high-potential solutions (rBOM, paperless, security, accounting/HR) and grow new solutions (D-Ever flex ERP, i-CompassTB HR solution, plus new consulting and data utilization offerings). Aims to grow key solution gross profit from 3.1 billion yen (2025) to 4.5 billion yen (2028).
• Long-term CANVAS 2030 Vision: Target 2031 March fiscal year revenue of 50 billion yen, 8% operating margin, PBR of at least 1.5x, sustained ROE of 13%, and PER of at least 12x.
• Financial Strategy and Capital Allocation: Planned 9 billion yen total growth investment over 3 years, centered on M&A. Maintains a 50% target equity ratio and holds ~6 billion yen in cash reserves. Aims to continuously reduce cross-held policy shares based on annual economic reasonableness reviews.
• Shareholder Return: Increases 2025 full-year dividend from the originally planned 30 yen per share to 32 yen. Starting from CANVAS TWO, adopts a 3% DOE base policy, splits dividends into interim (18 yen) and year-end (18 yen) for a total annual 36 yen, plans proactive opportunistic share buybacks, and will introduce a new shareholder benefit program. Total planned cash outflows over 3 years: 1.5 billion yen for shareholder return, 1 billion yen for human capital investment, 1 billion yen for R&D, and 6 to 7 billion yen for M&A and other strategic investment.
• Human Capital and Organizational Strategy: Plans increased investment in education to drive employee engagement, productivity growth, and value added. Will optimize operational processes, implement centralized administrative processing for efficiency, introduce BI tools to enable data-driven management, and build regular monitoring and rolling update processes for the mid-term plan.

• Downside risk to domestic economic growth from changes in US tariff policy has become more visible, though IT investment demand is expected to remain stable overall.
• Gross margin declined 0.9 percentage points year-over-year, which management identifies as a material ongoing challenge to address.
• Growth of new Shin businesses is slower than planned, and insufficient organization and process building to scale these businesses remains an unaddressed gap.
• PBR has averaged 0.9x over the past 5 years and has not sustainably exceeded 1x, while PER is at a low level relative to peers, indicating unmet market growth expectations.
• Insufficient IR activity is recognized as a key gap that increases the company's cost of equity capital.
• Low level of past capital investment is recognized as a challenge to future growth.

No question and answer section was included in the provided transcript.