Overview of the Future of Dream Arts <4811>

● Financial Outlook for the fiscal year ending December 2024

For the fiscal year ending December 2024, the consolidated performance is expected to achieve an increase in revenue to 5,050 million yen (+13.7% compared to the previous year), operating profit to 762 million yen (+32.1% on the same basis), ordinary profit to 758 million yen (+34.6% on the same basis), and net income attributable to the parent company's shareholders to 527 million yen (+24.4% on the same basis). Horizontal SaaS is performing well, and maintenance contract cancellations for on-premises businesses have not exceeded the expected level at the beginning of the period, leading to an upward revision of the full-year performance forecast in August 2024. Compared to the initial forecast, revenue is expected to increase by 5.2%, operating profit by 31.5%, ordinary profit by 31.0%, and net income attributable to the parent company's shareholders by 31.8%. Within the revenue, cloud business has been revised upward by 5.3% and on-premises business by 13.2%. As a result, the cloud business is expected to increase by 24.8% compared to the previous year, while the on-premises business is expected to decrease by 6.5% on the same basis. The professional services business is progressing with a pruning strategy, proposing the migration to the latest platforms such as cloud to some customers. As a result, in the second quarter of the fiscal year ending December 2024, the number of free operation for proposals and consultations has increased. Therefore, while the revenue forecast was downwardly revised by 2.0% from the initial forecast, the second half of the year is progressing with many SaaS implementations and cloud migration support projects by the company. However, due to the impact of large contracts in the previous year, a decrease of 17.9% is expected compared to the previous year.

Furthermore, the circle of strategic partners such as consulting companies and system integrators utilizing 'SmartDB' has expanded. The number of certified specialists in 'SmartDB Certified Specialist (SCS)' has exceeded 1,300. In July 2024, a contract was signed with Computer Management, which provides system development and implementation support services related to DX. Although Computer Management had been using 'SmartDB' conventionally, they have now released a customer-escort-type implementation support service exclusively for 'SmartDB.' In September of the same year, Fuji Soft, a major independent system integrator, became an official partner of the company. Fuji Soft has been supporting the introduction of 'SmartDB' to many companies, and has produced 29 SCS certified individuals as of September 2024. By participating in the 'Dream Arts Partner Program (DAP),' they will jointly promote the introduction of 'SmartDB' as partners with specialized knowledge to support large enterprises. The wave of 'digital democratization' by 'SmartDB' is beginning to spread widely.

In terms of profit and loss, with the growth of the cloud business, infrastructure costs for cloud services are increasing. However, due to the optimization of operational environment, the cost ratio has been reduced. As a result, the gross profit margin is expected to exceed the previous year by 3.1 points, reaching 56.4%, with a gross profit of 2,849 million yen, a 20.4% increase from the previous year. Additionally, selling and administrative expenses are projected to increase by 16.5% due to higher personnel expenses and advertising costs, but the expense ratio will be kept at a level 1.0 points above the previous year. Consequently, the operating profit margin is expected to exceed the previous year by 2.1 points, reaching 15.1%, with an operating profit of 762 million yen, a 32.1% increase from the previous year.

(Author: FISCO Guest Analyst Shuji Matsumoto)