3D Investment Releases a Presentation Highlighting Management Issues at SQEX Holdings and Seeks Shareholder Views

TOKYO--(BUSINESS WIRE)--3D Investment Partners Pte. Ltd. (“3D” or the “Company”), an independent investment management firm providing discretionary investment services to a fund that is a major shareholder of SQUARE ENIX HOLDINGS CO., LTD. (“SQEX HD”) (9684.T), today released a presentation (the “Presentation”) that explains the management issues that SQEX HD has faced over many years. Taking into account the views of shareholders, we wish to engage in constructive dialogue with SQEX HD to enhance its corporate value. We therefore kindly ask all shareholders to read the Presentation and share with us your frank views regarding the management issues at SQEX HD.

Link:
https://www.3dipartners.com/wp-content/uploads/square-enix-presentation-material-en-202512.pdf

(The slides up to slide 93 of the Presentation are the same as the material stating management issues provided to SQEX HD titled “Management Issues of Your Company as Seen from Outside.” on 29 September 2025. The slides from slide 94 onward are partial extracts of the material stating how to enhance corporate value presented to SQEX HD titled “For Creation of Dramatic corporate value of Your Company” together with the former material on the same day.)

Management Issues of SQEX HD

SQEX HD owns some of the world’s most renowned game titles, including “FINAL FANTASY” and “DRAGON QUEST”. SQEX HD is a “national” company, which has a glorious history and outstanding intellectual properties, as a leading game developer in Japan.

However, despite its status as a “national” company, SQEX HD has, over the past three years when the former management structure headed by former President Matsuda transitioned to the new management structure headed by President Kiryu, been facing the following management issues: (i) a sluggish revenue growth rate and (ii) sluggish profit margins. (See the Presentation p.15.)

• (i) Sluggish Revenue Growth Rate: From FY2022/3 to FY2025/3, SQEX HD’s revenue growth rate was -4%, and SQEX HD is the only company in its industry to record negative growth.
• (ii) Sluggish Profit Margins: In FY2025/3, SQEX HD’s operating profit margin was around 13%, which is around half of the 28% average operating margin for six peer companies¹.

The causes of SQEX HD’s management issues—(i) a sluggish revenue growth rate and (ii) sluggish profit margins—lie in the underperformance of its HD (High-Definition) / SD (smart device, PC browser, etc.) games businesses. (See the Presentation pp.16–17, 74, and 88.)

• In the HD games business, which accounts for 23% of SQEX HD’s total revenue, the compound annual revenue growth rate from FY2022/3 to FY2025/3 was sluggish, -5%. In FY2024/3, while peers² achieved an average adjusted operating margin³ of 50%, SQEX HD’s adjusted operating margin was only 10%.
• In the SD games business, which accounts for 23% of SQEX HD’s total revenue, the compound annual revenue growth rate from FY2022/3 to FY2025/3 was sluggish, -17%. In FY2024/3, while peers⁴ achieved an average adjusted operating margin of 37%, SQEX HD’s adjusted operating margin was only 14%.

Due to the management issues of (i) a sluggish revenue growth rate and (ii) sluggish profit margins, SQEX HD has suffered a marked deterioration in its earning power such as operating income and ROE. More recently, SQEX HD recorded massive impairment losses on game development assets, which lack earning power, so SQEX HD is in a very serious situation. (See the Presentation pp.12–13.)

• Most recent operating income was ¥40,580 million, a 32% decrease from ¥59,261 million in FY2021/3.
• Most recent ROE was 7%, a 12-percentage-point decrease from 19% in FY2021/3.
• Over the past 10 years, SQEX HD has recorded extraordinarily high impairment losses, compared to its peers, totaling ¥32,028 million. In particular, in FY2024/3, immediately after the launch of the new management structure, SQEX HD recorded a massive impairment loss of ¥22,087 million.

In addition to its business performance, SQEX HD also faces issues in terms of market valuation because SQEX HD owns non-game businesses that have little synergy with its game business, which causes a severe conglomerate discount. (See the Presentation pp.99–109.)

• Based on our objective analysis, there is insufficient synergy between SQEX HD’s gaming business and its non-game businesses to justify holding both businesses.
  • Amusement Business
    • In SQEX HD, this business’s revenue hardly grows and it has significantly underperformed in revenue growth rate compared to competitors whose core business is game arcades.⁵
    • Its operating margin is also lower than that of competitors whose main business is game arcades.⁶
    • The role it once played as a testing ground for technology development for the game business has been lost due to the performance advances of home gaming consoles.
  • Publishing Business
    • Since the COVID-19 crisis, the revenue growth rate of the Publishing Business is below that of the overall market.⁷
    • While overseas expansion is a key driver of growth, the ratio of overseas revenue is lower⁸ than that of competitors, and the business lacks the capabilities required for future global expansion.⁹
    • Synergy—cross-utilization of IP assets between businesses—is also unlikely to occur due to constraints on IP usage and other factors.]

• In fact, while the ratio obtained by dividing the enterprise value of the game business¹⁰ by its revenue for five peer companies ranges from 4x to 11x (an average of 7x), SQEX HD’s ratio is only 1.2x to 2.3x. This indicates that SQEX HD is being valued significantly lower by the market due to its holding non-game businesses, which generate little synergy.

On May 13, 2024, SQEX HD announced its medium-term business plan for FY2025/3 to FY2027/3 (the “Current Medium-Term Business Plan”). However, from the perspective outlined below, we cannot help but doubt whether the Current Medium-Term Business Plan will be able to resolve SQEX HD’s management issues and achieve the maximization of its corporate value. (See the Presentation pp.20–48.)

• The plan does not present a concrete future vision, and under the slogan “Reboots,” it appears to be effectively leaving unaddressed the management issues of (i) a sluggish revenue growth rate and (ii) sluggish profit margins.
  • SQEX HD has defined the three years from FY2025/3 to FY2027/3 as a “Reboots = SAIKIDOU” period and announced plans for lower revenue during this period, along with profit margin improvement targets that significantly lag behind peers (operating margin targets of 14.6% for FY2026/3 and 15.0% for FY2027/3 vs. peers' average of around 28%).
  • However, SQEX HD has not disclosed any long-term financial targets for FY2028/3 and beyond, nor has it presented to shareholders any roadmap showing how it intends to recover after the “Reboots”.
• With respect to resolving SQEX HD’s management issues, the Current Medium-Term Business Plan presents only extremely vague policies for resolving each problem (e.g., a dispersed development portfolio, poor platform selection, and deficiencies in product design), and contains no description of specific KPIs, quantitative targets, or execution plans. As a result, they are inadequate as concrete solutions to each of these problems.
• Furthermore, the Current Medium-Term Business Plan lacks any concrete review of the previous medium-term business plan, which was not achieved. Accordingly, it lacks confidence in not only validity but also feasibility.
• In addition, there is no mention of a business portfolio strategy and management strategy for the non-game businesses, or capital allocation policy based on ROIC. Therefore, it is difficult to expect that SQEX HD’s severe conglomerate discount will be resolved.

Dialogue Between 3D and SQEX HD

Since July 2024, we have been engaged in ongoing dialogue with SQEX HD. In October 2025, we explained to President Kiryu and Outside Director Abdullah the management issues of SQEX HD as seen from the market. We also presented to President Kiryu our proposals to enhance its corporate value aimed at resolving the aforementioned management issues, and requested that he establish a framework and present a concrete process to fundamentally re-examine management plans with a view to maximizing corporate value. However, in response to this request, President Kiryu replied only with a brief email stating, without addressing any of the specific management issues or solutions we had raised, and without providing any concrete explanation of his reasoning, that the Current Medium-Term Business Plan was sufficient and a new review framework was not necessary.

Given that President Kiryu did not respond adequately to the management issues of SQEX HD, in November 2025, we requested an opportunity to explain our analysis and the role we hoped the outside directors—who are expected to serve as representatives and advocates for shareholders― and to share information regarding the number of past individual meetings, etc., held between the outside directors and shareholders to the outside directors in the hope that the outside directors would become a driving force in moving the process of enhancing its corporate value forward. Through these efforts, etc., we are currently encouraging the outside directors to act more fully as representatives and advocates for the general shareholders.

Request to Shareholders

We have decided to share with all shareholders our views on the management issues of SQEX HD through the Presentation, collect your frank views, and, based on the views we receive, engage in constructive dialogue with SQEX HD to enhance its corporate value again. In particular, we believe it is extremely important for the outside directors, in serving as representatives and advocates for shareholders, to understand the views of shareholders.

Accordingly, we kindly ask all shareholders of SQEX HD to read the Presentation and share with us your frank views on SQEX HD’s strategy, capital allocation, business portfolio, governance, growth opportunities, and other related matters. We would be grateful to receive views from as many shareholders as possible to convey your views to the Board of Directors of SQEX HD to help resolve its management issues.

We would greatly appreciate it if you could contact us by email at [e-mail] to kindly share your views.
We sincerely appreciate the cooperation of all shareholders.

End

¹ The six peer companies are Electronic Arts Inc., Bandai Namco Holdings Inc., KONAMI GROUP CORPORATION, Nexon Co., Ltd., CAPCOM CO., LTD., and KOEI TECMO HOLDINGS CO., LTD.

² The simple average of the three companies Nintendo Co., Ltd, CAPCOM CO., LTD., and KONAMI GROUP CORPORATION.

³ Adjusted operating margin ratio is calculated as operating income divided by adjusted total revenue. Adjusted total revenue is defined as total revenue minus platform fees. SQEX HD’s operating income of ¥8.6 billion is derived by adding an estimated ¥16.7 billion in valuation losses on content production assets recorded in cost of revenue (as estimated by an independent research firm) to the Company’s disclosed figure of －¥8.1 billion. SQEX HD’s adjusted total revenue is estimated at ¥88.7 billion, calculated by deducting platform fees of ¥10.5 billion (as estimated by an independent research firm) from the Company’s disclosed total value of ¥99.2 billion.

⁴ The simple average of the two companies Nintendo Co., Ltd and KONAMI GROUP CORPORATION.

⁵ After SQEX HD’s acquisition of TAITO CORPORATION, TAITO’s revenue decreased by approximately 26% between FY2005/3 and FY2024/3. From 2022 to 2024 in the post-COVID-19 crisis period, TAITO’s revenue growth rate of +31% also lagged behind competitors GENDA GiGO Entertainment Inc. (+79%) and WIDE LEISURE Inc.(+67%).

⁶ TAITO’s average operating margin ratio over the most recent three-year period (3.9%) has lagged behind those of its competitors GENDA (12.4%) and WIDE LEISURE (13.1%). The most recent fiscal periods for each company are FY2024/3 for TAITO and WIDE LEISURE, and FY2025/1 for GENDA.

⁷ From FY2020/3 to FY2023/3 in the post-COVID-19 crisis period, the compound annual growth rate of revenue in SQEX HD’s Publishing Business was +2.7%, which is below the +4.2% compound annual growth rate of the domestic manga market.

⁸ In 2023, the overseas revenue ratio of SQEX HD’s Publishing Business was 7%, lagging behind competitors SHUEISHA INC. (24%) and KADOKAWA CORPORATION (14%).

⁹ See the Presentation pp.107 and 108.

¹⁰ The enterprise value of the game business is calculated as “consolidated enterprise value minus non-operating assets minus the total enterprise value of non-game businesses.” The enterprise value/EBITDA multiples are estimated, as follows: 30.0x for the Publishing Business, 12.0x for the Amusement Business, 6.0x for the Pachinko Business, 7.5x for the Toys Business, 8.5x for the Fitness Business, and 5.0x for Other Businesses.