Japan Process Development Co.,Ltd. Q2 FY2026 earnings call

Core Financial and Operational Highlights

• Both consolidated revenue and operating profit hit record highs for the interim period (the 5th consecutive year of record interim results), and the company achieved 7 consecutive years of annual dividend increases.
• In November 2025, the company was certified as a core partner of JR East Information Systems (JEIS).
• On September 30, 2025, the company entered into a capital and business alliance with SCSK Corporation; discussion of specific initiatives to maximize synergies across business areas is ongoing between operational teams.

Capital and Shareholder Return

• The company plans an interim dividend of 29 yen per share, a year-end dividend of 29 yen per share, and a special dividend of 8 yen per share linked to gains from the sale of investment securities, for a total annual dividend of 66 yen per share (a 4 yen year-over-year increase). This marks the 7th consecutive year of dividend increases.
• A cumulative dividend policy has been formally adopted, and the consolidated payout ratio has been raised to 66% starting from the 2025 May fiscal year. Special dividends of 8 yen per share from investment securities sale gains will be distributed annually from the 2025 May fiscal year through the 2029 May fiscal year.

Human Capital Investment

• The company implemented the 4th consecutive year of wage increases for all employees at the start of the period, and paid a performance-linked bonus that hit an 8th consecutive record high. Average annual salary for 2025 is projected to exceed 8.85 million yen.
• 2026 new graduate job offer acceptances exceeded plan, accounting for approximately 10% of total employees.

7th Mid-Term Management Plan (MMP) Progress

• The 7th MMP targets growth exceeding the prior mid-term plan by continuing to boost productivity via talent development, increasing orders for new design and large-scale projects, and setting operational efficiency targets. Core KPIs are: consolidated revenue of 12 billion yen or higher, consolidated operating profit of 1.2 billion yen or higher, and sustainable achievement of 8% ROE.
• The basic business policy is to improve the level of Total Software Engineering Service (T-SES) and expand focus areas. The company prioritizes digital transformation (DX) for social infrastructure, targeting scale expansion in AD/ADAS for automotive systems, cloud systems including government cloud, and aerospace/crisis management for specific information systems.
• Talent development progress: The company has started training advanced engineers capable of new design tailored to each business's characteristics, upgraded general next-generation technical capabilities, expanded management capability training to include young employees, and held multiple cross-company technical exchange meetings focused on generative AI to raise overall technical standards.
• Engineer recruitment progress: Strengthened collaboration with recruitment agents has delivered results; 2026 new graduate job offer acceptances again reached 10% of total employees, and total engineer acquisition (including partner engineers) is on track to exceed the start-of-period plan. The company will continue to strengthen recruitment to secure more engineers than this fiscal year starting next year.
• Focus area progress: The company prioritized orders for AI and IoT development for social infrastructure DX, expanded bulk multi-model orders via T-SES for AD/ADAS, prioritized orders for government and enterprise cloud development, and expanded scale via engineer recruitment for crisis management. The company projects that focus area revenue will increase approximately 30% over the two-year period from the 2024 May fiscal year to the 2026 May fiscal year.

ESG

• The company published its 2024 ESG Data Book on its corporate website.

All five product segments achieved both revenue and profit growth in the 2026 May Fiscal Year Second Quarter (interim period):

1. Control Systems: Electric power grid projects performed well with expanding development scale, and the large-scale ATOS JR East Tokyo area transportation management system development project initiated in the prior period delivered strong revenue and profit. However, conventional line and Shinkansen operation management systems experienced revenue and profit declines due to a gap between development projects, leading to a lower segment profit rate. No absolute or percentage contribution figures are provided for individual segments in the available transcript.
2. Automotive Systems: AD/ADAS projects performed well with the acquisition of new bulk orders across multiple vehicle models and expanded scope of responsibility. In-vehicle information related projects also performed strongly with new order wins. Electrification related projects experienced a decline in revenue due to reduced development scale. Profit rate for the segment improved as the company allocated more engineers to high-margin projects.
3. Specific Information Systems: Crisis management related business expanded its team via increased development spending; aerospace related business performed steadily with new order wins. Satellite image related business experienced declines in both revenue and profit following the completion of some development projects.
4. Embedded Systems: Storage device development expanded its team against the backdrop of a recovering semiconductor market and performed strongly. IoT construction machinery related business also performed well with new order wins and increased development volume on existing projects. The segment benefited from exiting low-margin projects and improving semiconductor market conditions, and recorded 57% year-over-year growth as of the second quarter.
5. Industrial & ICT Solutions: Cloud systems performed well with increased order volume for government-facing development; system construction performed strongly after expanding the team for projects initiated in the prior period. Station equipment development for social infrastructure also expanded its team and performed well driven by renewal order wins and thin client adaptation. IoT cloud experienced declines in both revenue and profit following the completion of some development projects. Development efficiency improved across the segment due to wider adoption of generative AI.

Consolidated results for the interim period: Total revenue was 5.835 billion yen, operating profit was 0.739 billion yen, with a year-over-year operating profit increase of 0.201 billion yen. Total assets stood at 13.6 billion yen, equity ratio was 83.3%, and ending cash and cash equivalents balance was 4.503 billion yen, down approximately 1.1 billion yen from the prior fiscal year end.

• Full-year 2026 May fiscal year consolidated guidance calls for revenue of 11.5 billion yen and operating profit of 1.26 billion yen. This means the company expects to hit the 7th MMP operating profit target one year ahead of schedule.
• Segment full-year outlook:
  • Control Systems: The company will expand the scope of large project orders for power grids, and will expand the team for ATOS beyond the initial plan. Conventional line renewal projects will gradually launch and exceed prior year volumes, while Shinkansen projects are projected to remain flat due to low work volume this fiscal year.
  • Automotive Systems: Securing work volume for AD/ADAS (BSW) in the second half is a key challenge. AD/ADAS (image sensor) will maintain current team size, with expansion planned for future fiscal years. In-vehicle information systems will reduce team size due to low second half work volume, while BMS development will maintain current team size.
  • Specific Information Systems: Aerospace and crisis management will maintain current team size, with expansion planned for future fiscal years. Image recognition/identification projects expect increased work volume in the second half.
  • Embedded Systems: The storage field will target continued team expansion in the second half, though engineer training remains a key challenge. IoT construction machinery will maintain current team size in the second half.
  • Industrial & ICT Solutions: Cloud system development and system construction will maintain current team size, while IoT cloud will target team expansion. Station equipment development for social infrastructure will expand the team for thin client adaptation, while road equipment related work is projected to remain flat this fiscal year due to low work volume.
• The company targets 10% or higher annual growth for all five segments over the medium term, with particularly strong growth projected for crisis management, aerospace, and AD/ADAS. Embedded systems have outperformed initial MMP targets due to faster-than-expected semiconductor market recovery, while all other segments remain broadly on track with original plans.

• Some automobile manufacturers are currently facing difficult market conditions, though Nihon Process's automotive business has not experienced material impact to date and continues to grow.
• Embedded systems targeting storage device expansion face the key challenge of insufficient speed of engineer training to support planned growth.
• Securing sufficient work volume for AD/ADAS (BSW) in the second half of the current fiscal year is an existing challenge.
• The synergies from the capital and business alliance with SCSK are still under evaluation, as specific collaboration plans are still being developed.

Q: From the segment profit data, the five segments appear well-balanced without excessive concentration. What is your current view on the medium-term outlook for each segment over the next 3 to 4 fiscal periods?

A: We are targeting growth for all segments. We have achieved 10% growth in recent periods, and we are targeting 10%+ growth for all segments in our current plan. We particularly prioritize DX for social infrastructure, autonomous driving, cloud, and crisis management. Last fiscal year, crisis management and aerospace segments within specific information systems already delivered strong growth, and we expect these areas to lead growth under the current MMP. We are also prioritizing autonomous driving, as many automakers are investing heavily in this space. While some automakers are facing difficult conditions as reported, our automotive business has not been materially impacted and continues to grow, so we expect strong expansion for automotive under the current MMP. The semiconductor market is the only area where conditions have changed significantly from when we released the MMP: when we created the MMP, the semiconductor market was weak and more than half of embedded systems revenue was semiconductor-related, so the segment faced headwinds. However, the semiconductor market has improved rapidly over the past 1.5 years, and embedded systems has grown approximately 57% as of the second quarter. While this growth is faster than originally planned, all other businesses are progressing broadly in line with the original plan.

Q: Looking at the current segment positioning, it appears that cloud systems and IoT will drive revenue and profit growth for industrial & ICT solutions over the next 3 to 5 years. What is your view on this outlook?

A: Our company is now in its 59th year of operation, and we have a long history of working in control and embedded fields. Industrial & ICT solutions is a relatively new initiative for us. We are a selective company that does not pursue all business opportunities; our strategy is to work with top industry clients to become the top IT player in niche, limited-competition fields such as power and railway control. The spread of cloud in recent years has created new opportunities for us to execute projects independently without needing to partner with existing hardware system clients, so we have been expanding industrial & ICT solutions for several years. There is significant potential for us to win direct contracts in this space, so we plan to continue growing this business. We have invested heavily in technical training in recent years, particularly for cloud and web-related technologies, and these investments have already delivered strong results. I expect we will be able to leverage these training results to achieve significant further growth in this segment going forward.

Q: You entered into the alliance with SCSK mid-way through the interim period. Is the impact of this alliance already included in the full-year 2026 May fiscal year earnings guidance?

A: As I mentioned earlier, we are still in the process of discussing how to generate synergies and plan collaboration for future fiscal years. Therefore, the alliance will have no impact on the current fiscal year's results.

Q: SCSK is now the largest shareholder with a 20.68% voting stake. Has there been any change to the corporate decision-making process to date?

A: There has been no change to the decision-making process at this time, and SCSK has not dispatched any directors to our company.

Q: After SCSK's share acquisition, it is expected that your automotive business will grow in scale. Should we expect that this growth could lead to a lower operating profit rate for the company?

A: SCSK prioritizes the automotive field, and one of the core goals of the alliance is collaboration in automotive. However, we do not expect this collaboration to reduce our profit rate. Currently, we work as a Tier 1 supplier with companies such as Denso, Astemo, and Aisin. We have no current plans to become a subcontractor to SCSK and reallocate engineers from our existing clients to SCSK projects. We will actively pursue collaboration that delivers stronger future growth and improves our technical capabilities and profit rate compared to our existing business. SCSK shares this approach and is committed to a win-win collaboration, and we have confirmed they do not plan to use our company in a way that would reduce our profit rate.

Q: What are the characteristics of Nihon Process's AI robotics business, how do you differentiate from competitors, and do you expect this to be a major growth area in 5 years?

A: We work on both AI and robotics separately within our industrial & ICT solutions segment, but we do not have a dedicated AI robotics business at this time. Additionally, robotics is still small in scale, and it is not included as a core priority expansion area within the current mid-term management plan.