XNET Corporation

Business Details

XNET Corporation operates the "XNET Service," an asset management solution targeting institutional investors, insurance companies, regional financial institutions, and other key customers, as its sole business. Centered on a securities management system, the company provides services in three forms: Application Service (monthly usage fee), AMO Service (system implementation and maintenance outsourcing), and SO Service (business process outsourcing). Subscription-type core revenue accounts for 87.2% of total sales, forming a stable revenue base.

Recent Overview

FY2026 (ending March 2026) saw increased sales and operating profit, but net income declined due to a special loss related to stock-based compensation

For FY2026 (ending March 2026, full year), the company achieved net sales of ¥5,658 million (up 6.7% year on year) and operating profit of ¥1,021 million (up 18.7% year on year), marking increases in both sales and operating profit. With one-time costs associated with the departure from the NTT DATA Group having concluded in the prior fiscal year, combined with the revenue growth effect, the operating margin reached 18.0%, substantially exceeding the medium-term management plan target of 15.0%. On the other hand, net income was limited to ¥542 million (down 6.6% year on year) due to the recording of a special loss of ¥136 million (provision for stock benefit trust of ¥123 million and special bonuses etc. of ¥14 million) associated with the introduction of a stock-based compensation system. As the final year of the previous medium-term management plan (FY2022-FY2025), core sales were ¥4,936 million (achievement rate of 98.7%), slightly falling short of the ¥5.0 billion target, though ROE of 17.6% and operating margin of 18.0% substantially exceeded their targets. On April 30, 2026, the company announced the outline of its new medium-term management plan, "Next STEP 2029" (FY2026-FY2029), setting new targets of core sales of ¥5.6 billion, adjusted operating profit of ¥3.8 billion, and ROE of 15% or higher. The dividend policy was also revised, splitting dividends into a base dividend and an extra dividend, with an annual dividend of ¥70 (payout ratio of 65.0%) planned for FY2027 (ending March 2027). The previous policy of being a "company that does not cut dividends" was withdrawn.

Key Products

Growth Drivers

• Continued acquisition of new customers for the SO Service targeting the life/non-life insurance industry (implementation preparations currently underway at several companies)
• Expanded deployment of the loan management system to life/non-life insurers and regional banks (a tailwind from changes in the interest rate environment increasing institutional investors' loan demand)
• Higher unit prices through expanded optional services (such as trust management with restricted cancellation) for existing customers of the individual trust management system
• Higher unit prices through fee revisions in response to rising procurement costs for market data and other items
• Expansion of the monthly AMO Service (ongoing maintenance) driven by IT personnel shortages at institutional investors
• Expanded demand for the SO Service due to relaxed entry requirements for the investment management business under the government's "Asset Management Nation" policy
• Strengthened medium- to long-term service competitiveness through active human capital and system investment under the new medium-term management plan "Next STEP 2029"
• Building a foundation for sustained growth toward the long-term vision "Core 100" (core sales of ¥10.0 billion, ROE of 20%)

Risks

• For FY2027 (ending March 2027), the company plans aggressive additional investment including human capital investment, and expects a significant decline in profit, with operating profit of ¥700 million (down 31.5% year on year) and net income of ¥450 million (down 17.1% year on year)
• Continued upward pressure on SG&A expenses due to human capital investment (increased recruitment costs, wage revisions, and stock-based compensation costs)
• Risk of declining profit margins during the active investment phase of the new medium-term management plan period (a shift from the previous operating margin target to a newly adopted adjusted operating profit indicator)
• Risk of slowing growth pace, as seen in the result of the core sales target of ¥5.0 billion falling slightly short in the final year of the previous medium-term management plan (achievement rate of 98.7%)
• Somewhat slowing pace of new customer acquisition for the individual trust management system
• Increased uncertainty regarding shareholder returns due to the shift in dividend policy (withdrawal of the "company that does not cut dividends" policy and introduction of a variable extra dividend each period)
• Refinancing risk related to the short-term borrowings balance of ¥1,200 million (reduced from ¥2,500 million at the end of the prior fiscal year)
• Insufficient diversification of business risk due to concentration in the single XNET Service Business segment