Digital Arts

2326.TMEDIUM

Core · Weight: 18%· Data as of 2026-05-27

¥5,590-0.18%

6-month daily

Investment Thesis

FY2026 (ended March 2026): NI ¥3,439M (+7.9%), revenue ~¥10.8B (+8.2%). Dominant Japan web filtering: i-FILTER 53% education share, GIGA School Phase 2 confirmed. CONTRACT BOOKINGS SURGE: contract amount ¥16,598M (+57.2%), prepaid revenue ¥7,800M (+91.1%) — SaaS transition front-loads deferred revenue → strong future revenue pipeline. RISK: FY2027 medium-term targets REVISED DOWN (May 7 2026) — enterprise growth and cloud recognition lagged expectations; FY2027 repositioned as foundation-building year. UPCOMING CATALYST: Active Cyber Defense Law (Oct 1 2026) — mandates enterprise cybersecurity = filtering demand surge.

Risk

1) FY2027 targets revised DOWN: enterprise expansion slower than plan, cloud revenue recognition deferred. 2) Medium-term re-rating risk: lower targets = lower forward PE expansion until enterprise ramp proves. 3) Competition from bundled security (Microsoft Defender, Google Workspace) in enterprise. 4) GIGA School Phase 2 timing uncertainty if procurement cycles delayed further.

Monitoring Trigger

Watch for Active Cyber Defense Law (Oct 1 2026) enterprise contract announcements. If FY2027 H1 revenue growth <5%, EXIT (confirms enterprise ramp failed). If contract bookings Q1 FY2027 maintain >30% growth, HOLD conviction at MEDIUM. If Active Cyber Defense Law generates >¥1B incremental revenue in FY2027, UPGRADE back to HIGH.

Key Dates

2026-08earningsQ1 FY2027 results — first post-revision quarter, key enterprise progress check

2026-10-01catalystActive Cyber Defense Law effective — enterprise filtering compliance demand

2026-11monitoringPost-Active Cyber Defense Law contract win announcements expected

Update History

2026-04-15new_narrativeHOLD

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Initial DD — 42.7% OP margin, 53% edu filtering share, forward PE 15.5x

2026-05-27evolveDOWNGRADED

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DOWNGRADED HIGH→MEDIUM: FY2026 NI +7.9% but FY2027 medium-term targets revised DOWN (May 7 2026). Enterprise growth lagged. Contract bookings +57.2% and prepaid +91.1% show pipeline strength. Oct 2026 Active Cyber Defense Law catalyst upcoming. Weight 25%→18%.

conviction:HIGHMEDIUMpe:23.121.7weight:0.250.18thesis:initialFY2026 actuals + FY2027 downward revision + SaaS pipeline analysiskey_dates:May 2026 earningsOct 2026 law, Aug 2026 Q1 results, Nov 2026 contract monitoring

Key Metrics

21.7

Fwd PE

4.3

P/B

17.8%

ROE

42.7%

Op Margin

37%

D/E

1.7%

Div Yield

N/A

FCF

¥74.7B

Mkt Cap

Business Segments

Segment	Revenue	Share	Description
i-FILTER (Web Security)	¥6B	57%	Web filtering for education, government, enterprise — 53% edu market share
m-FILTER (Mail Security)	¥2.5B	24%	Email security, anti-spam, anti-phishing
FinalCode / Other	¥2B	19%	File encryption, tracking, DLP solutions

Supply Chain Evidence

Evidence	Customer	Product	Detail
confirmed	Japanese schools (GIGAスクール)	i-FILTER@Cloud	53% market share in education filtering, 37,000+ devices in Kashiwa City
confirmed	Japanese enterprises/government	i-FILTER, m-FILTER	Web and email security for government agencies and enterprises

Sources & References

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Peer Comparison

Company	PE	Fwd PE	ROE	Op Margin	FCF
Trend Micro	22.5	21.5	26.3%	21.1%	+¥42.7B
Digital Arts	21.7	21.7	17.8%	42.7%	N/A
HENNGE	22.9	19.5	46.0%	17.6%	N/A
Cyber Security Cloud	20.4	N/A	18.6%	21.7%	+¥578M
FFRI Security	38.7	67.1	28.4%	31.3%	N/A
Macnica Holdings	14.7	N/A	10.18%	~3.5% (overall distributor; cyber segment >9%)	N/A
Internet Initiative Japan (IIJ)	19.08	N/A	14.96%	10.7%	N/A
Soliton Systems	14.55	N/A	~20%	14.1%	N/A