Japan Experts, Extraordinary Performance, Astris Advisory Japan

Astris Advisory Japan

Japan Experts, Extraordinary Performance

Our Corporate Advisory service is designed to give clients access to a wider range of investors. These include Japan specialists as well as global investors. The goal is to help achieve a fair equity valuation.

Equity Bottom-Up

<ul><li>Insurance project cancellation already priced in–Q1-2FY3/25 results confirmed a ¥0.6bn sales write-off for the cancellation of the Insurance System Integration Project.</li><li>We believe positive factors such as continued strong demand for DX services, improving profitability at Operation Service, and high order visibility outweigh this temporary event.</li><li>However, we do seek clarity in terms of understanding the company’s strategic direction over its insurance solutions. </li></ul>

Insurance project cancellation already priced in–Q1-2FY3/25 results confirmed a ¥0.6bn sales write-off for the cancellation of the Insurance System Integration Project.We believe positive factors such as continued strong demand for DX services, improving profitability at Operation Service, and high order visibility outweigh this temporary event.However, we do seek clarity in terms of understanding the company’s strategic direction over its insurance solutions. 

Simplex Holdings (4373 JP) - Positive Underlying Growth Trend, Though Clarity Needed

<ul><li>Q1FY3/25 results indicated a slow start for earnings, despite a robust profile for sales growth at 16.5% YoY and both quarterly orders and backlog at record highs.</li><li>The key takeaways are: 1) although reported OP fell 4.8% YoY, underlying OP growth was 4.6% YoY when restating for one-time expenses for a new office, 2) quality of earnings remains sound despite cases of project cost overruns, and 3) the sustained strong outlook for orders provides high earnings visibility.</li><li>We believe that the direction of travel remains positive for earnings growth, given strong order visibility and as the company’s operations continue to scale.</li></ul>

Q1FY3/25 results indicated a slow start for earnings, despite a robust profile for sales growth at 16.5% YoY and both quarterly orders and backlog at record highs.The key takeaways are: 1) although reported OP fell 4.8% YoY, underlying OP growth was 4.6% YoY when restating for one-time expenses for a new office, 2) quality of earnings remains sound despite cases of project cost overruns, and 3) the sustained strong outlook for orders provides high earnings visibility.We believe that the direction of travel remains positive for earnings growth, given strong order visibility and as the company’s operations continue to scale.

Simplex Holdings (4373 JP) - Long Term Growth Scenario Remains Intact

<ul><li><strong>Positioned for sustained growth</strong> – Q1-4 FY3/24 results were in line with guidance, with the company generating consistent and sustainable double-digit growth for sales and earnings demonstrating the company’s characteristics as a compounding business.</li><li>We believe its brand, human capital, and technological innovation are competitive advantages that generate shareholder value, with free cash flow recovering YoY to ¥7.34bn from ¥3.26bn in FY3/23.</li><li>Future capital allocation points to business investment in staff and R&amp;D and scope for M&amp;A to support growth and improve shareholder returns. </li></ul>

Positioned for sustained growth – Q1-4 FY3/24 results were in line with guidance, with the company generating consistent and sustainable double-digit growth for sales and earnings demonstrating the company’s characteristics as a compounding business.We believe its brand, human capital, and technological innovation are competitive advantages that generate shareholder value, with free cash flow recovering YoY to ¥7.34bn from ¥3.26bn in FY3/23.Future capital allocation points to business investment in staff and R&amp;D and scope for M&amp;A to support growth and improve shareholder returns. 

Simplex Holdings (4373) - Compounding Business with a Consulting Growth Engine

<ul><li>Q1-3 FY3/2024 results were in line with unchanged FY company guidance, with the company displaying 1) sustained growth in Strategic/DX Consulting demand and System Integration, 2) ongoing successful business expansion into new market sectors, and 3) management achieving a delicate equilibrium between actively generating current growth and investing for the long-term success of the business.</li><li>Although DX will remain a structural tailwind for some time to come, the company’s growth potential will be underpinned by access to high-caliber hires at both graduate and mid-career levels.</li><li>We believe the announcement of a business and capital partnership with CIRCULATION (7379) points in the right direction in establishing a channel to a quality talent pool.</li></ul>

Q1-3 FY3/2024 results were in line with unchanged FY company guidance, with the company displaying 1) sustained growth in Strategic/DX Consulting demand and System Integration, 2) ongoing successful business expansion into new market sectors, and 3) management achieving a delicate equilibrium between actively generating current growth and investing for the long-term success of the business.Although DX will remain a structural tailwind for some time to come, the company’s growth potential will be underpinned by access to high-caliber hires at both graduate and mid-career levels.We believe the announcement of a business and capital partnership with CIRCULATION (7379) points in the right direction in establishing a channel to a quality talent pool.

Simplex Holdings (4373) - An Optimal Balance of Growth and Investment

<ul><li>Presenting a clear growth roadmap – following disclosure of the new medium-term business plan (‘MTBP2027’ covering FY3/2025 to FY3/2027) and long-term growth strategy (‘Vision1000’ depicting timing around 2030), we have revised our earnings estimates for FY3/2025 and FY3/2026.</li><li>These reflect 1) acquisitive growth impact towards FY3/2027 as capital is allocated to the fast-growing Strategy/DX Consulting business, and 2) stronger margin growth driven by productivity enhancements and improving sales mix.</li><li>We believe diversifying into new market sectors will open new growth opportunities and develop a more resilient business. </li></ul>

Presenting a clear growth roadmap – following disclosure of the new medium-term business plan (‘MTBP2027’ covering FY3/2025 to FY3/2027) and long-term growth strategy (‘Vision1000’ depicting timing around 2030), we have revised our earnings estimates for FY3/2025 and FY3/2026.These reflect 1) acquisitive growth impact towards FY3/2027 as capital is allocated to the fast-growing Strategy/DX Consulting business, and 2) stronger margin growth driven by productivity enhancements and improving sales mix.We believe diversifying into new market sectors will open new growth opportunities and develop a more resilient business. 

Deep-Dive Review - Simplex Holdings (4373 JP)

Japan

Simplex Holdings, Inc. provides system information technology solutions. The Company offers system consulting, system development, system operation and maintenance, and other services.  Simplex Holdings serves financial institutions across worldwide.

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Simplex Holdings (4373 JP)