9889.T

• Business Transformation Progress

  • The firm is executing a multi-year shift from low-margin flow-based business to high-margin recurring stock-based business, focused on cloud and security. Current stock business ratio stands at 47%, on track to hit the 60% target by next fiscal year, with stronger-than-expected new order momentum putting the target within easy reach.
  • Cumulative 5 consecutive periods of record operating profit in the first half, with 4 consecutive years of revenue and profit growth expected for the full year, with a new full year record profit projected. Mid-to-high single-digit sales growth and double-digit operating profit growth are expected for the full year, as growth in high-margin stock businesses offsets declines in low-margin legacy businesses.
  • First half new monthly recurring orders hit a record high: cloud exceeded 0.2 billion yen in new monthly orders (annualized ~2+ billion yen), and security hit 0.12 billion yen in new monthly orders (annualized 1.4 billion yen), for a combined annualized run rate of ~3.8 billion yen in new recurring business. If this pace holds, full year new recurring business will reach nearly 8 billion yen, creating a substantial new growth engine for the firm which has current total annual sales of ~70 billion yen.

• Key Focus Area Performance

  • Cloud: Targets mid-sized enterprise clients (50 billion yen to 200 billion yen in annual revenue), addressing client pain points of IT staff shortage and difficulty adopting new technologies. JBCC provides vendor-agnostic, client-first multi-cloud migration and optimization services, which has driven stronger-than-target growth (43% CAGR vs. the original 36% target). Larger average deal sizes have also lifted productivity and margins.
  • Security: Leverages growing client demand driven by high-profile cyber attacks, offering third-party neutral security audits that identify gaps in existing security implementations and operations (the key vulnerability for most firms, even those that have already made substantial security investments). Business is growing at 5x the market rate, with strong first half new orders setting up further growth in late second half and next fiscal year.
  • Ultra-rapid Agile Development: JBCC holds a rare competitive position in large-scale core system agile development, a capability that is uniquely well-suited to leveraging generative AI for development productivity gains. The firm currently has 20 large agile projects in progress, prioritizing stable delivery and client satisfaction over hitting a fixed 75% adoption target, with strong pipeline demand for new projects once current capacity frees up.

• Generative AI Initiatives

  • Internal: Runs the J-AInnovation company-wide program that encourages spontaneous employee experimentation with AI to improve productivity, with a sharing and voting framework to diffuse successful use cases across the firm.
  • Client-facing: Exploring AI applications including efficiency gains in JB Agile testing, AI-assisted regeneration of missing/outdated system design documentation for legacy system modernization, and AI-driven development. Generative AI security governance (specifically preventing confidential data leakage and reducing hallucinations) is a key priority for practical client-facing deployment.

• Human Resources Strategy

  • 25 billion yen total investment planned over the 3-year mid-term plan, with strong progress to date. Hiring targets 50% female representation for new graduate and mid-career hires, with new graduate 2026 offers already exceeding 50% female, and mid-career hires up 50% YoY to 41 people in the first half. Referral hiring is a key priority, with referral bonuses matching agency fees up to 2.5 million yen per hire, creating a strong positive cycle.
  • Leadership development includes customized training based on 21 core leadership competencies, with 95.8% participant satisfaction, plus 1-on-1 coaching for all managers, focused on supporting differentiated growth for high-potential employees.
  • New employee benefits include the J-Care flexible group travel program, which has gotten strong positive feedback from employees, and disabled employment is on track to hit the 2.7% statutory target by February 2026.

• Financial Strategy and Capital Allocation

  • For the remaining 2 years of the mid-term plan, the firm expects ~12 billion yen in total operating cash flow. It will continue to reduce cross-holding shares, now down to the 8% range. Investment allocations include the 2.5 billion yen human resources investment, and a 2 billion yen inorganic investment M&A frame. Shareholder return commitments include a minimum 45% payout ratio, with a target of 50%+ payout going forward.

• Full year 2026 March term guidance is maintained, with first half progress hitting 52-54% of full year targets, which matches the firm's planned roughly half-year split. Management expects to hit 50% of the full year target in the second half, with early Q3 trading maintaining the first half positive momentum, and will update guidance promptly if any adjustments are needed.
• The mid-term CHALLENGE 2026 plan's operating profit margin target was previously raised to 11% from the original 10%, and progress is tracking ahead of plan, with the 60% stock business ratio target expected to be achieved next fiscal year.
• Cloud growth is tracking well ahead of the original 36% CAGR target, with current growth at 43% CAGR, and further upside is expected from the strong first half new order pipeline.

1. System Development (SI): Achieved significant year-over-year gross profit growth recovery, as large projects stabilized after elevated costs in the prior year half. The segment is expected to deliver gradual sales and margin growth, forming a stable core profit base for the firm. Key offerings include the proprietary JB Agile ultra-rapid development method, mainframe modernization services, and healthcare electronic medical record implementations. 2. Services: Led by high-growth cloud and security focus areas, with prior year new orders lifting current half sales growth. The segment is actively phasing out low-margin legacy businesses (e.g., manufacturer maintenance outsourcing, low-margin line resale) while scaling high-margin recurring stock businesses. Cloud sales grew ~40% YoY, far outpacing the 15% market average growth rate. Security sales grew 30% YoY, 5x the 6% overall market growth rate. 3. System: The flow-based server sales business is declining as planned, with the firm shifting focus to recurring cloud businesses in the Services segment. Full year annual sales guidance is ~10 billion yen, with a one-time 0.7 billion yen large server refresh order in Q2 pushing first half progress to ~50+% of the full year plan. Second half performance is expected to be in line with budget, with declines within planned ranges. 4. Product Development and Manufacturing: Absolute sales size is small, with limited contribution to group-wide results. Sales grew slightly, but segment profit declined due to the drag of low-margin printer business. Proprietary original software sales are growing, following a full shift to a subscription recurring business model, with increasing contribution expected over time.

No material operational failures or new major risks were explicitly discussed in the available transcript.

Q: The full year guidance was not updated, which makes the implied second half guidance look conservative relative to the strong first half performance. Can JBCC achieve first half-level performance in the second half? / A: Management spent extensive time discussing the second half forecast, and confirms it is confident of hitting at least 50% of the full year target in the second half. Early trading in Q3 has maintained the strong momentum from the first half, and management will announce a guidance update promptly if any changes become necessary.

Q: The indicated 2-year shareholder return plan totals ~8.5 billion yen, implying ~4.8 billion yen in returns next fiscal year, which would push total payout to ~80% of profit, with 50% payout for dividends and the rest for buybacks. Is this the planned balance going forward? / A: The 8.5 billion yen 2-year figure includes this period's increased dividend, the 3 billion yen current buyback, and a rough estimate of next period's dividends, and does not include any assumption for next period's buyback. The size of next period's buyback will be decided based on next year's performance. The firm confirms its commitment to a minimum 45% dividend payout ratio, with a target of moving to a 50%+ payout, based on the expected continued solid revenue and profit growth next year. This will support a sustainable, healthy shareholder return framework.