(7058) Kyoei Security Service - New Analyst Report 6/21

◆ Company Overview
・Kyoei Security Service (hereafter, the company) is a security company that specializes in human security requiring security guards for facility security, crowd/traffic guidance security, etc.

◆ Financial results for the fiscal year ending March 24
・The financial results for the 24/3 fiscal year were net sales of 9,354 million yen (up 16.7% from the previous fiscal year) and operating profit of 309 million yen (down 36.8% from the same period). Sales also surpassed the initial plan due to an increase in consolidated subsidiaries, but due to the occurrence of surcharges due to lack of personnel, a decline in gross profit margin due to wage increases, and an increase in recruitment costs and acquisition-related expenses, profit declined drastically in violation of the initial plan, which had been an increase in profit.

◆ Earnings forecast for the fiscal year ending 25/3
・Regarding financial results for the 25/3 fiscal year, the company plans sales of 10,000 million yen (up 6.9% from the previous fiscal year) and operating profit of 500 million yen (up 61.7% from the same period).
・The Securities Research Center (hereafter, the Center) predicted sales of 10,056 million yen (up 7.5% from the previous fiscal year) and operating profit of 515 million yen (up 66.6% from the same period) for the 25/3 fiscal year results, which slightly exceeded the company plan. An increase in sales was anticipated from the year-round contributions of consolidated subsidiaries acquired in the previous fiscal year and the accumulation of residency agreements. On the profit side, the gross profit margin was flat, but since SG&A expenses were predicted to decrease slightly without anticipating the occurrence of related costs on the assumption that there would be no implementation of new M&A, a significant increase in profit was assumed.

◆ Future highlights
・Our center predicted a 12.9% increase in sales compared to the previous fiscal year for the 26/3 fiscal year and a 4.0% increase in sales for the 27/3 fiscal year, and operating profit margins on sales of 6.5% for the 26/3 period and 6.2% for the 27/3 period. The reason we anticipated a high rate of increase in sales for the 26/3 period is because the Osaka Expo project was taken into account.
・In addition to autonomous growth, the company has clarified its policy to actively utilize M&A. Regarding the progress of autonomous growth, it is necessary to look at the pace of expansion in the number of security guards and resident contract amounts from the viewpoint of balancing security quality maintenance and scale expansion. As for future M&A, I would like to pay attention to the details and progress of each project.