Future outlook for Tekumatrix <3762>

Regarding the acquisition of Firmus

The company has established the initiative of "diverse alliances and M&A" as one of its medium-term management plan approaches and acquired Firmus, the largest dedicated cybersecurity operator in Malaysia, as a subsidiary in November 2024. The firm provides its own developed Security services, including penetration testing (unauthorized intrusion investigation services), as well as selling advanced security measures products and managed services, particularly excelling in security services. With over 200 clients, primarily including major financial institutions and Japanese companies, its performance is steadily expanding as a Growth Tech. With a subsidiary in Singapore, it is also expanding its business area to surrounding countries outside Malaysia. For the fiscal year ending March 2024, its revenue is estimated at 2.2 billion yen, and operating profit is 0.48 billion yen, positioning it as a high-profit-growth company with an operating margin of 21.9%.

In this acquisition, considering Firmus’s current profitability and future growth potential, all shares of Firmus were acquired for approximately 5.1 billion yen. Firmus itself was considering IPOs, but amidst several M&A inquiries from domestic and overseas companies, it decided to join this group because there was a sense of security in the company's long-term management perspective, expected business synergies, and the good relationship established between the management.

The consolidated results for the fiscal year ending March 2025 are expected to incorporate the performance from November 2024. The company sees Firmus's medium-term sales growth rate at around 15-19%, and by the fiscal year ending December 2028, it aims to achieve a revenue level approximately double that of the fiscal year ending December 2023, and contributions to consolidated results are anticipated from the fiscal year ending March 2026 onwards. Furthermore, both companies are considering promoting cross-selling of their respective services. Although the timing is undecided, it is assumed that the company's operational and monitoring service "TPS" will be sold in Southeast Asian markets like Malaysia, while Firmus's penetration testing services will be offered to domestic companies.

The first year of the medium-term management plan has a smooth launch. Performance targets from the fiscal year ending March 2026 onwards will be announced for revision in May 2025.

3. Medium-term management plan "Creating Customer Value in the New Era"

(1) Basic policies and Global Strategy

The company announced a new mid-term management plan, "Creating Customer Value in the New Era" (from the fiscal year ending March 2025 to the fiscal year ending March 2027), in May 2024. Even as a new era arrives, the company group aims to solve social issues with solutions packed with "discerning power" and "business know-how," remaining a company that creates a better future and provides more customer value as its basic policy. "Discerning power" refers to the ability to discover social issues that need to be resolved and to identify cutting-edge technology, while "business know-how" means having deeper business insights than customers for specific industries or tasks that require expertise. In particular, domestically, there is a chronic shortage of digital personnel on the customer side, making the value of providing "business know-how" significant. By promoting these initiatives, the goal is to enhance customer convenience, improve business efficiency, and realize a society where people can live in safety and peace.

As goals of the new mid-term management plan, three themes are presented: "expansion of business areas," "expansion of business in overseas markets," and "creation of businesses utilizing data." To achieve these, the policy includes various alliances and M&A, expanding handled products, starting new services, utilizing AI, creating synergies through strengthening group collaboration, and focusing on human resource development and retention.

a) Information Infrastructure Business

In the information infrastructure business, products and services will be expanded through "discerning power," as well as deepening transactions with strategic accounts through collaboration with agents (partners). Furthermore, sales will be expanded by promoting the security operation and monitoring service "TPS," providing a one-stop threat information analysis service, and strengthening sales in the Chubu and Kyushu regions. Plans are also in place to expand business development in the Asia Region through the subsidiary acquisition of Firmus. In terms of profit, as the operation and monitoring services expand, there will be a need to strengthen customer support systems, but it is considered that efficiency will be advanced by utilizing generative AI in the business.

b) Application and Service Business

In the education sector, in addition to private advanced schools, a full-scale expansion into public schools (local governments) will be promoted. Since it will take the form of a subscription model, contributions based on profit are expected to be deferred until after the fiscal year ending March 2028; however, there is significant potential demand for DX in the education field, and efforts will be made to build a certain foundation for monetization over the next three years.

In the CRM field, by enhancing services' added value through the expansion of generative AI functions in collaboration with Mobils, support will be provided to improve operational efficiency for contact centers that are customers, aiming for sales expansion. Furthermore, in the ASEAN Region, the goal is to continue expanding business through collaboration with local companies.

In the SE field, in addition to building development infrastructure and providing implementation support services (automation and efficiency), plans are in place to enter the development data analysis business through self-developed products. In the business solutions field, focus will be placed on developing and providing DX and CX enhancement solutions for public business, as well as nurturing risk management services for electrical utilities trading through Alexia Fintech.

c) Medical System Business

In the Medical System Business, there are plans to integrate the on-premise products of the former PSP and the cloud-based PACS "NOBORI" by April 2026, furthering the buildup of subscription billing through cloud shift, as well as working on building a BtoC business model through personal medical information services known as PHR. The PHR will gradually expand its features (such as enhancing its connectivity with the My Number portal), and the number of users has increased to about 0.29 million. Future efforts will focus on strengthening the sales framework to increase the number of medical institutions that can utilize the service.

Additionally, there will be efforts to commercialize self-developed AI and to foster AI image diagnostic support services, while also considering expanding the PHR service to select countries in the Asia market. The company intends to collaborate with influential local medical-related groups that show interest in their PHR service to develop the business.

(2) Management Numerical Targets

The numerical targets for management in the fiscal year ending March 2027, which is the final year of the medium-term management plan, set sales revenue at 75,000 million yen and operating profit at 8,200 million yen. However, considering the upward revision of performance for the fiscal year ending March 2025 and the impact of the consolidation of Firmus's subsidiary, the performance numerical targets are being reviewed again. A new performance target will be announced alongside the final earnings report in May 2025.

Shareholder return strategy: No. 1<3562> changed its shareholder return policy along with the publication of the new mid-term management plan "Evolution 2027" and showed the direction of significantly strengthening shareholder return. So far, we have aimed for stable dividends (30% dividend payout ratio as a guide), but in the future, we plan to implement stable and continuous shareholder dividends based on a policy of aiming for a 30% dividend payout ratio, regardless of changes in annual performance. A notable feature is that we have set a minimum dividend of the previous year's annual dividend per share and will continue to increase dividends, which is a significant enhancement of shareholder return and can also be evaluated as a expression of confidence in profit growth. Moreover, we have a policy of "flexibly implementing under financial discipline" for acquiring our own shares, showing a more proactive stance.* *Considering the gap between our own perception of the stock price and the market evaluation, ROE, capital efficiency, and CF level, we have a policy of implementing it flexibly. Dividends for the fiscal year ending February 2024 will increase by 1 yen from the previous year, as expected at the beginning of the period, to 33 yen per share (mid-term dividend of 16.5 yen and year-end dividend of 16.5 yen). We also acquired 340,000 shares of our own stock (with a purchase price of 397 million yen). Despite the anticipated decline in profits for the fiscal year ending February 2025, we are expected to follow the policy of increasing dividends every period and issue a dividend of 1 yen per share (a commemorative dividend for the 35th anniversary of our founding), with an expected increase of 2 yen from the previous year to 35 yen per share (mid-term dividend of 17.5 yen and year-end dividend of 17.5 yen).

The dividend per share for the fiscal year ending March 2025 is planned to be 32.0 yen, marking 10 consecutive periods of increased dividends.

The company has implemented dividend distribution and shareholder benefit schemes as part of its shareholder return strategy. The basic policy for dividends is set at a payout ratio of over 30%, with decisions made while considering a balance with retained earnings. Based on this policy, the initial plan for the dividend per share in the fiscal year ending March 2025 was an increase of 2.0 yen compared to the previous period, bringing it to 30.0 yen. However, in response to the upward revision of performance, the dividend was increased by another 2.0 yen, raising it to 32.0 yen (with a payout ratio of 31.3%). If performance exceeds plans and the payout ratio falls below 30%, there could be a possibility of further increasing the dividend.

Regarding shareholder benefits, it is implemented for shareholders holding more than 500 shares as of September 30 each year. For those holding between 500 and 1,000 shares, items or donations equivalent to 1,500 yen can be selected, and for those holding over 1,000 shares, items or donations equivalent to 4,000 yen can be chosen.

(Written by FISCO guest analyst, Jo Sato)