Performance trends of Paul To Win Holdings Co., Ltd. <3657>

1. Summary of consolidated performance for the second quarter of the fiscal year ending January 2025

The consolidated performance for the second quarter of the fiscal year ending January 2025 showed a 11.0% increase in revenue compared to the same period last year, reaching 24,288 million yen. Operating profit decreased by 36.2% to 359 million yen, ordinary profit decreased by 8.3% to 410 million yen, and the net loss attributable to shareholders of the parent company was 184 million yen (compared to a loss of 321 million yen in the same period last year). The revenue reached a record high for the first half of the year, and the operating profit, which was expected to be a loss at the beginning of the period, turned into a profit. In response to this, both the ordinary profit and the net loss attributable to shareholders of the parent company also saw a significant reduction in losses compared to projections (initial projections were a loss of 124 million yen and 860 million yen respectively). Factors contributing to the better-than-expected performance in the first half were mainly attributed to overseas solutions and domestic solutions. In the overseas solutions segment, orders exceeded expectations as the gaming market recovered, and the performance was further enhanced by the depreciation of the yen. Additionally, improvements in profitability due to business restructuring and the delayed allocation of some costs related to business restructuring to the third quarter contributed to profit growth. In the domestic solutions segment, cost containment through efficient hiring contributed to profit growth. As a result, the operating profit for the second quarter returned to profitability after three quarters and achieved over 400 million yen for the first time in six quarters. The progress in rebuilding the business foundation is leading to improved profitability.

On the other hand, despite an increase in revenue compared to the same period last year, operating profit and ordinary profit decreased. Regarding the fiscal year ending January 2025, it is positioned as a year focused on rebuilding the business foundation for accelerating growth from the fiscal year ending January 2026 onwards. In the first half of the year, actions such as streamlining operations and personnel adjustments were carried out. These temporary costs related to business restructuring impacted profits negatively. Additionally, unexpected provisions for bad debt occurred in the media and content division, contributing to profit decline.

The company changed its accounting policy from the fiscal year ending January 2025. Previously, the revenue and expenses of foreign subsidiaries were converted into yen based on the spot exchange rate on the closing date, but now they are converted into yen based on the average exchange rate during the period. Therefore, when comparing to the same period last year, the financial statements reflect this change in accounting policy and are based on restated figures.

The performance by business segment is as follows:

1) Domestic Solutions

The revenue of the domestic solutions segment increased by 8.5% compared to the same period last year, reaching 12,261 million yen, and the operating profit increased by 35.0% to 1,013 million yen. The company focused on expanding its performance in the Tech field due to increasing market demands and maximizing revenue opportunities through cross-selling. Verification by third parties in this field and orders for system development progressed well. The increase in sales was supported by strengthening the order system through increased sales staff and engineers amid strong demand. Additionally, positive sales were achieved in the gaming and e-commerce sectors. The company strategically focused on large-scale projects to expand the top line and reduce management costs. Large projects were secured in the Tech field for third-party verification and system development, boosting the top line. Profit-wise, the lack of temporary costs related to office consolidations in the previous year contributed to profit growth, as well as the containment of hiring costs due to increased hiring efficiency. In terms of recruitment efforts, the company efficiently hired employees through owned media and referral programs. As a result, the operating profit exceeded initial expectations.

2) Overseas Solutions

Revenue from overseas solutions increased by 23.1% year-on-year to 9029 million yen, with an operating loss of 51 million yen (compared to an operating loss of 111 million yen in the same period of the previous year). The external environment improved with the recovery in the gaming industry market conditions, leading to a favorable trend in orders. Particularly, orders such as voice recording and customer support exceeded expectations. Additionally, the depreciation of the yen contributed to the expansion of the top line. Despite incurring one-time expenses related to closing unprofitable locations and personnel restructuring, cost control due to business restructuring progress and delayed restructuring costs contributed to profit accumulation. As a result, the loss was significantly reduced from the initial estimate of 353 million yen. In terms of quarterly operating profit, although the first quarter recorded a loss of 243 million yen, the second quarter turned into a profit of 192 million yen, indicating progress in business foundation rebuilding and improved profitability.

3) Media Content

Revenue from media content decreased by 7.8% year-on-year to 2997 million yen, with an operating loss of 480 million yen (compared to an operating profit of 57 million yen in the same period of the previous year). While revenue increased for anime production due to improved production unit price, the reduction in MD due to the restructuring of unprofitable businesses affected the overall revenue. On the profit side, initiatives such as business selection and concentration, optimization of personnel, incurred additional costs for game co-development, and allowance for doubtful accounts had an impact. However, various measures for expanding performance are steadily progressing. Resource allocation has shifted towards growth areas through the restructuring of unprofitable businesses, and sales related to PR marketing have steadily increased. In terms of PR marketing, orders for advertising new games, creating websites, and videos seemed to be favorable. Orders were also received for creating booths for overseas companies exhibiting at the Tokyo Game Show. Quarterly operating profit improved from a loss of 330 million yen in the first quarter to a reduced loss of 150 million yen in the second quarter. Improved profitability due to progress in business restructuring is expected to lead to profitability from the third quarter onwards, with further profit accumulation expected towards the end of the fiscal year.

There are no issues with the company's short-term and long-term liquidity, and the financial situation remains sound.

2. Financial condition and performance indicators.

As of the end of the second quarter of the fiscal year ending January 2025, the total assets increased by 363 million yen compared to the previous period to 24,800 million yen. Among these, current assets increased by 459 million yen to 17,682 million yen. This was mainly due to a decrease in cash and deposits by 343 million yen, and other receivables (including unearned income) by 200 million yen, while promissory notes, accounts receivable, and contract assets increased by 354 million yen, and work in progress increased by 616 million yen. Fixed assets decreased by 95 million yen to 7,117 million yen. This was primarily due to a 265 million yen increase in software, while buildings and structures decreased by 139 million yen, goodwill by 112 million yen, and the provision for doubtful accounts increased by 50 million yen.

Total liabilities increased by 712 million yen to 11,708 million yen compared to the previous period. Of these, current liabilities increased by 915 million yen to 10,987 million yen. This increase was mainly driven by a reduction of 114 million yen in short-term borrowings repayable within one year, while trade payables increased by 513 million yen, corporate taxes payable and other payables increased by 113 million yen each. Fixed liabilities decreased by 202 million yen to 720 million yen. This was mainly due to a reduction in long-term borrowings by 140 million yen. Total net equity decreased by 349 million yen to 13,092 million yen. This was primarily due to a 371 million yen increase in currency translation adjustment, decrease in retained earnings by 750 million yen due to the recognition of intermediate net losses attributable to parent company shareholders, and payment of dividends.

The management indicators show that the current ratio decreased by 10.1 points to 160.9% compared to the end of the previous period, the fixed ratio increased by 0.8 points to 54.4%, and the equity ratio decreased by 2.2 points to 52.8%. Both the current ratio and fixed ratio are in a healthy state, indicating no liquidity issues in both short and long terms from our company's perspective. Regarding the equity ratio, although it slightly decreased compared to the end of the previous period, it can still be considered at a high level. The company's future capital policy demonstrates a strategy to maintain financial soundness while executing growth investments, and we anticipate that a healthy financial position will continue to be maintained.

(Written by FISCO Guest Analyst Yoichiro Shimizu)