9640.T

Corporate Value and Capital Strategy

• The company pursues management focused on cost of capital and capital return to deliver long-term corporate value growth. It estimates its cost of equity capital at approximately 3% based on CAPM, and targets a 20% medium-to-long term ROE, benchmarked against peer ROE levels.
• The company is currently in a business structure transformation period, and is investing heavily in product development, so ROE has not yet reached the 20% target. It uses a DOE-based dividend policy that is less sensitive to short-term profit fluctuations; as of the interim period, DOE hit 10.2% against the 10% target, and the equity ratio is 66.3%, which falls within the target range. The full year 2026 March fiscal year ROE is forecast at 11.2%.
• The company's total shareholder return (TSR) has lagged the GICS industry group average since the 2021 March fiscal year end baseline, which management attributes to low EPS from HULFT Square development investment weighing on share price and TSR. The company will continue to communicate to investors that current growth investment will drive future profit growth.

Business Transformation Strategy

• The company is executing four strategic shifts across business, technology, organization, and talent to transform its business model from contract-based system development to proprietary product and service delivery.
• Data integration business is the core focus of this transformation; its revenue share has grown from ~25% of total company revenue in the 2016 March fiscal year to 57.7% in the 2026 March fiscal year interim period, a 5.8 percentage point increase from the prior year end. Management will continue expanding this business.

Product Development and Market Expansion

• HULFT, the company's core mature product, received its first version update in 10 years last year (HULFT10), adding the HULFT10 API Gateway feature that enables unified integrated management of multiple HULFT instances via the internet and flexible orchestration of batch and on-demand transfer, to adapt to evolving market needs.
• HULFT Square adoption is growing rapidly, led by enterprise clients; recent notable clients include Seven Bank, which uses it as a data integration infrastructure for internal data collection and generative AI verification projects, and Saga Bank, which used it to build seamless data integration between core banking systems, internal systems and customer email systems.
• The company launched AI pre-processing template series for HULFT Square to enable AI readiness. These templates pre-process internal data for generative AI RAG workflows, streamlining data extraction, processing, embedding and vector database storage, and improve generative AI response accuracy by converting data to AI-readable formats.
• The company is partnering with a major domestic SaaS provider to promote ERP modernization for SAP users; as SAP ERP 6.0 standard support ends in 2027, the company leverages HULFT Square's data integration capabilities to loosely couple legacy ERP with third-party SaaS solutions to support business function migration, and will expand partnerships with additional SaaS and technology partners.

Technology and Talent Development

• The company views talent as the source of its technical strength; five of its engineers won awards in four categories of the AWS recognition program for AWS expertise and achievements, including two AWS Ambassadors (one returning, one newly selected, from only ~300 global Ambassadors).
• The company invested in DNX Ventures last year to source AI and SaaS technology from North America, incorporate it into its products, and drive open innovation, technical capability building and talent development through engagement with startups. Its US subsidiary has announced a partnership with Vectara, a leading agentic RAG platform provider, to build conversational AI solutions based on accurate real-time enterprise data, improve user experience and shorten time to AI value creation.

• Full year 2026 March fiscal year consolidated earnings guidance is maintained unchanged, despite interim profit coming in above forecast. Management notes that the outperformance stems from timing of revenue recognition in the system contracting business, which does not impact full year results.
• Full year dividend guidance is also maintained unchanged: an interim dividend of 45 yen per share and a year-end dividend of 45 yen per share, for a total annual dividend of 90 yen per share.

The company restructured its segments from 4 to 3 this reporting period, merging the former Distribution IT Services and Financial IT Services segments into the new System Contracting segment. 1. HULFT Business: Achieved revenue growth driven by steady renewal of support services, but posted operating profit decline due to increased selling, general and administrative expenses from shifting resources to the data integration business. The segment maintains a 67.1% stock (recurring) revenue ratio (support services) as of the interim period, which forms the company's stable earnings base. 2. Data Platform Business: Achieved revenue growth driven by expansion of HULFT Square, the company's core growth driver for the data integration business. Gross profit improved with higher revenue, but the segment recorded an operating loss of 1.48 billion yen, due to increased SG&A from resource reallocation to the data integration business. 3. System Contracting Business: Posted declining revenue due to a decrease in system development projects, but achieved operating profit growth driven by cost reductions from the resource shift to the data integration business and improved gross margin.

• The company's current heavy investment in HULFT Square and business transformation has depressed current ROE and EPS, which has pulled down the company's share price and TSR below industry average, creating short-term pressure on market performance.
• The business is in a multi-year transformation period, with profitability still below medium-term target levels, as investment spending weighs on current earnings.
• The upcoming end of standard support for SAP ERP 6.0 in 2027 creates near-term urgency for enterprise clients to complete migration, though it also creates market opportunity for the company's modernization solutions.

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