■Nex Group's Outlook

In the future, we will continue to pursue the acquisition of edge device certification for AI platform services that utilize AI software groups for different use cases, including Konica Minolta's "FORXAI", and verification of AI software installation with AI development vendors. We will also proceed with the confirmation of operation-tested terminals by various communication carriers, support smooth introduction and utilization for customers with challenges to be solved by AI, and create business opportunities in various industries and business formats. Real-time image recognition technology is expected to contribute to future revenue expansion as it can be applied to various fields such as security in facial recognition systems and video analysis of surveillance cameras, defect detection in factory lines, monitoring in the caregiving field, disaster prevention such as river water level monitoring, and autonomous driving and driving assistance in automobiles.

We are selling the 5G data terminal "UNX-05G". Although the infrastructure deployment by carriers for the November 2023 period has been slower than expected, plans are underway to deploy base stations to 98% of Japan nationwide. In addition, efforts are accelerating to enable spot construction in specific areas such as corporate and municipal premises using local 5G, which can be flexibly constructed on a limited scale, and to conduct demonstrations in various fields and industries including small and medium-sized enterprises and small-scale projects, taking into account factors such as cost and usability.

We are expecting a switch from LTE products to 5G products by continuing to sell existing LTE products and launching new 5G products to capture the demand for switching. As for NTT DoCoMo's 3G service "FOMA", it has been decided to end and stop service on March 31, 2026. As many devices controlled by communication lines continue to use 3G lines, various companies in the M2M industry are now at a stage where equipment replacement, called migration, is necessary. We believe that the transition demand to 4G and 5G networks will be a tailwind for our business. The development of 5G infrastructure is prioritized for smartphones, and products for IoT have not yet been fully available. With a limited number of similar terminals, we have a certain competitive advantage and believe that it will contribute significantly to the future increase in sales of this business.

(3) Cryptocurrency and Blockchain business

We will continue to work on the formation and value enhancement of the token economy using NCXC. As part of our efforts to enhance value, we are promoting the utilization of GameFi. Regarding the release of the "NCXC GameFi Platform", we are carefully monitoring the movements of various companies that provide content, including Tokyo Communication Group <7359>, our alliance partner, and timing the release accordingly. While GameFi is a rapidly growing market, there are several challenges. In existing GameFi, it is common for one token to be issued per game. Therefore, if the boom is temporary, there is a risk that the market for tokens itself will collapse due to user attrition. In addition, users often need to purchase expensive NFTs to get started, and game companies need to develop blockchain technology in addition to regular game development and list their own tokens on cryptocurrency exchanges. In the GameFi platform developed by our company, we aim to solve these problems and provide a sustainable service for both users and game companies. In the future, we will also focus on expanding alliances with companies that provide game titles on the platform. In negotiations for alliances, there are many opinions that "we would like to consider after actually seeing the platform," so we expect the pace of expansion to accelerate after the platform is released. We believe that these efforts contribute to the expansion of usage opportunities as they increase the value of cryptocurrencies.

3. Our Perspective

In the November 2024 period, KSP and SCEB have joined through M&A.

Koss Corp has over 30 years of experience as a general trading company and already has a certain level of revenue and operating profit. The goodwill generated from the acquisition is minimal, and the revenue and operating profit directly contribute. In addition, with the subsidiary's establishment, Kazuo Komada, the representative director of Koss Corp, has assumed the position of director of the company. With over 30 years of experience in corporate management, Mr. Komada has the necessary expertise and business connections. Not only does he have connections with listed companies, but he also has a wide network with unlisted companies and can obtain valuable information on M&A and business partnerships. Furthermore, he has strong connections with companies providing food and beverage services, which is expected to strengthen the sales of agricultural products in Koss Corp's agricultural ICT business.

Skeb, operated by Skeb, is a service that is rapidly growing and expanding in scale year by year. It has maintained its growth momentum and the Skebcoin, a cryptocurrency issued in September 2022, was listed on Zaif in May 2024. Approximately 25-30% of the users are from overseas, including a large number of Chinese users, which is expected to further increase with the introduction of cryptocurrency payments. Skeb was acquired through a stock exchange, and the estimated amount of goodwill is about 150 million yen. Assuming a depreciation period of 10 years for the goodwill, the impact on profit and loss due to annual depreciation of approximately 15 million yen is expected, but the contribution to operating cash flow through the business is expected to be substantial. Furthermore, the implementation of trading functions between Nexcoin and Skebcoin, issued by the company, is also considered a possibility, and we see potential synergy in improving the use cases of cryptocurrencies.

The standalone performance of Koss Corp for the fiscal year ending in May 2023 was sales of 1,483 million yen (a 10.3% increase compared to the previous year) and operating profit of 72 million yen (a 14.3% decrease). The standalone performance of Skeb for the fiscal year ending in January 2023 was sales of 222 million yen (a 54.2% increase compared to the previous year) and operating profit of 43 million yen (a 330% increase). Therefore, we see the potential for upward revisions in the company's full-year financial results.

(Author: FISCO Guest Analyst Ryoji Mogi)