■Future outlook

1. Earnings forecast for the fiscal year ending March 31, 2025

Consolidated financial results for the fiscal year ending 2025/3 are planned to increase 5.4% from the previous fiscal year in terms of sales, 16,000 million yen, up 3.2% from the same period in operating income, 16,000 million yen, an increase of 3.0%, and 9,000 million yen in net income attributable to parent company shareholders. Sales are expected to increase for 8 consecutive terms, and it is expected that each profit stage will hit record highs for the first time in 3 periods. In addition to the accumulation of continuous transaction customers, strong performance in the corporate information and communication business continues, and the construction equipment real estate business, which was sluggish in the previous fiscal year, is also expected to turn into an increase in sales and profit due to the creation of group synergy. We aim to increase the number of continuing transaction customers at the end of the fiscal year to 3,452,000, an increase of 94 thousand compared to the end of the previous fiscal year.

(1) Energy business

The energy business is expected to maintain a steady trend, with sales increasing by about 2% compared to the previous fiscal year and operating profit increasing by about 1%. The city gas business is expected to be at the same level as the previous fiscal year, and it is planned to expand in the LP gas business. The number of customers in the LP gas business is planned to be 828,000, an increase of 50,000 compared to the end of the previous fiscal year. Of the increase, approximately 20,000 cases were due to Fujipro Co., Ltd., which became a subsidiary in 2024/4, and the remainder will increase through new acquisitions and M&A, but since the pace of net increase is around 30,000 cases per year for the past 2 to 3 years, it can be seen as an attainable level. Also, sales volume of household gas is expected to increase by 3 to 4% from the same period. A 6% increase was factored in as positive factors due to an increase in the number of customers and an increase in average temperature (assuming a 0.3 to 0.4 ℃ increase), and a 2% decrease in consumption per customer due to heightened customer savings intentions as negative factors. Unit sales prices and purchase margins are assumed to be at the same level as the previous fiscal year. An increase in labor costs due to wage revisions is also anticipated for the fiscal year ending 2025/3, but it is planned to maintain an increase in profit due to the effects of acquiring the number of customers.

However, with regard to the LP gas business, there is a possibility that the environment will change due to the enforcement of revised ministerial ordinances aimed at correcting LP gas business practices promulgated in 2024/4. In the revised ministerial ordinance, restrictions on excessive business acts such as exchanging goods and money that were conventionally carried out when acquiring customers for rental apartment complexes, etc. are included (enforced in 2024/7) and thorough implementation of the three-part fee system (enforced in 2025/4), etc., and penalties will be applied to businesses that violate them. Thus, it becomes difficult to switch contracts from other operators in rental apartment complexes, and newly built rental apartment complexes or detached houses become the main target for acquiring new customers, and there is a possibility that competition for customer acquisition will intensify.

TOKAI Holdings ＜3167＞ is affected by the acquisition of new rental apartment complexes, but on the other hand, the risk of cancellation due to switching to another company is also thought to decrease, and it is expected that there will be almost no impact on the number of customers. However, in the medium to long term, as competition to acquire new customers intensifies, there is a possibility that the selection of small to medium businesses will accelerate further, and it is expected that it will be an opportunity for major businesses such as the company to expand their market share through M&A. Domestic demand for LP gas for home business has continued to decline at an annual rate of 2% since fiscal 2010 against the backdrop of a decrease in the number of contracts, increased efficiency of gas equipment, and an increase in all-electric housing, etc., and the number of sales businesses also declined at a pace of 2.7% per annum from 22,442 businesses in fiscal 2010 to 15,791 businesses in 2023. According to the “2024-2028 Petroleum Product Demand Forecast” announced by the Ministry of Economy, Trade and Industry on 2024/4/26, LP gas for household business use from 2023 to 2028 is expected to decrease at an annual rate of 1.6%, and considering that the aging of small to medium business owners is progressing, we believe there is a good possibility that M&A by major companies will accelerate in the future.

(2) Information and communication business

In the information and communications business, sales are expected to increase by about 7% compared to the previous fiscal year, and operating profit is expected to increase by about 5%. Of these, sales for the consumer business are expected to decline in sales, and a slight increase in operating profit. The number of broadband customers is expected to increase 15,000 compared to the end of the previous fiscal year, and “LIBMO” is expected to increase 16,000. Sales of “LIBMO” will increase due to an increase in the number of customers, but broadband sales are expected to decline due to a decline in ARPU for Hikari Collaboration Services. As for operating income, broadband remained flat compared to the previous fiscal year, and profit is expected to increase due to the effects of the increase in sales of “LIBMO.”

Meanwhile, in the corporate business, sales are expected to increase by about 12% compared to the previous fiscal year, and an increase in sales and profit of about 5% in operating income. Sales are driven by stock revenue from communication line services, cloud services, etc. due in part to increased capacity of data centers and communication infrastructure. As for operating income, the increase in electricity charges is passed on to the price, but anticipating an increase in labor costs similar to the previous fiscal year is a factor in the decline in profit margins.

(3) CATV business

The CATV business is expected to increase by about 3% in terms of sales compared to the previous fiscal year, and to remain at the same level in terms of operating profit. The number of customers is expected to increase by 19,000 compared to the end of the previous fiscal year, mainly for communication services. In the previous fiscal year, 5,000 communication services were added every quarter, and expansion is expected at a similar pace. Operating profit remained flat compared to the previous fiscal year, taking into account increases in labor costs and increases in customer acquisition costs.

(4) Construction equipment real estate business

The construction equipment real estate business is expected to turn into an increase in sales of about 20% compared to the previous fiscal year, and an increase of sales and profit with an increase of about 10% in operating income. Although labor costs will increase, civil engineering work, large-scale equipment construction, and construction real estate sales will improve, and sales and profit are expected to increase. It is expected that synergy between subsidiaries that have been M&A in the Tokai area will become apparent in terms of performance from the fiscal year ending 2025/3. By utilizing the resources of each group company, it seems that the scale of orders is becoming larger than before, and further growth is expected due to market share expansion in the Tokai area in the future.

(5) Aqua business

In the Aqua business, sales are expected to increase by about 5% from the previous fiscal year, and operating profit is expected to remain at a flat level because an increase in labor costs is expected. The number of customers is aiming for an increase of 6,000 compared to the end of the previous fiscal year. Although the market environment is severe, with the domestic water delivery market turning to decline in 2023 due to a round of nesting demand, we will proceed with customer acquisition centered on the water supply-type water purification server “Shizukuria.” In particular, in the western Japan area, customer acquisition of “Shizukuria” through CATV business subsidiaries etc. is also increasing, and it is a policy to increase the number of customers while making use of the group's network.

(Author: FISCO Visiting Analyst Joe Sato)