■ Growth strategy 1. Business environment Considering the business environment surrounding the "AIAI Three Education Zones" developed by the AIAI group <6557>, AIAI NURSERY in the field of licensed nursery schools is expected to experience a large shift in nursery policies from 2024, as the organization responsible for child and family services was established in April 2023 with the aim of improving the quality of early childhood education and care, and as a response to the "unprecedented decline in the number of children" in Japan. However, despite the encouragement from the government, the saturated market feeling cannot be ignored due to the declining birth rate and the significant reduction in the number of newly opened nursery schools, taking into account factors such as the resolution of the waiting list problem in the industry. We also believe that the elimination of small-scale operating companies, considering the shortage of childcare workers, is a possibility to consider. On the other hand, the number of children with developmental disabilities is increasing even in the declining birth rate, and the demand for facilities for disabled children (child development support, medical child development support, after-school day services, visit support for nursery facilities, etc.) is rapidly increasing. Considering this situation, we believe that, not only is the business environment for AIAI PLUS and AIAI VISIT positive, the business environment for the "AIAI Three Education Zones", which provides integrated child care, therapeutic care, and education, is also favorable. 2. AIAI Group Mid-term Management Plan 2023-2025 The company formulated the AIAI Group Mid-term Management Plan 2023-2025 in May 2023, which incorporated a reconsideration of the position of the tech field, the construction of new business models such as nursery school visit support (AIAI VISIT) and early childhood education programs. The target figures are listed as sales of 12-13 billion yen and operating profit of 300-500 million yen in the final fiscal year ending March 2026, and cumulative investment of 680 million yen over three years. In the first term of the plan, ending in March 2024, sales and operating profit exceeded the final year target value, and the total number of children, the total number of visits to nursery facilities, and the total number of internal license holders all exceeded the plan. The growth strategy is progressing smoothly, and there is no major change in the basic strategy of maximizing group synergy through the "AIAI Three Education Zones". Regarding AIAI NURSERY, considering the situation in which the speed of opening licensed nursery schools is slowing down throughout the industry due to the resolution of the waiting list problem, the company will slow down the speed of opening new facilities with the maturity of the market in mind. However, in addition to continuing to expand into regions with high needs and high investment efficiency, the company will promote efforts to reorganize the industry. On the other hand, due to the growing demand for facilities for disabled children, AIAI PLUS will be developed as a pillar of growth after AIAI NURSERY, and the expansion of AIAI VISIT will be fully implemented in the Tokyo metropolitan area as a new business model. Regarding the expansion of AIAI VISIT, securing specialized visiting support personnel is an important point, so we will strengthen our approach from a variety of channels and promote the excavation of potential qualified persons. 7. Corporate-related initiatives In terms of financial and capital aspects, the company will continue to improve its self-capital and aim to support the stable growth of its business from a financial perspective. In terms of human capital, we will promote the creation of a work environment in which all employees at the facilities and offices can work comfortably and foster human resources. In AIAI NURSERY and AIAI PLUS, we will increase the options for work styles based on the preferences and stages of life of the employees working in the facilities, and establish a workplace environment where work and family can be balanced.

2. Medium-and long-term growth targets.

Japan Animal Referral Medical Center <6039> aims to support the health of pets as family members and contribute to the healthy lives of owners and pets in its mid-to-long-term growth vision. Its mid-to-long-term growth target for the fiscal year ending March 2027 is a revenue of JPY 5,707 million (compared to JPY 4,270 million from the fiscal year ending March 2024), with secondary medical care accounting for JPY 4,151 million (+49.57% YoY) and other services accounting for JPY 1,556 million (+14.92% YoY). The foundation for growth is based on a target of 120 veterinarians (compared to 82 in the fiscal year ending March 2024) and 11,604 initial consultations (compared to 8,265 in the fiscal year ending March 2024). The target secondary care facility revenue for each hospital is Kawasaki at JPY 1,786 million, Tokyo at JPY 900 million, Nagoya at JPY 687 million, Osaka at JPY 725 million, and a new base at JPY 53 million (compared to Kawasaki at JPY 1,453 million, Tokyo at JPY 651 million, Nagoya at JPY 601 million, and Osaka at JPY 211 million). Additionally, it aims to achieve an ROE of 12% or higher (with a target of 13.8% for the fiscal year ending March 2027) by managing resources aware of capital costs and revisiting resource allocation.

As a basic strategy for growth, it aims to become a comprehensive animal medical company by steadily growing the secondary medical care services (including Camik, a subsidiary of the same company) and expanding new services (including not only services targeting diseases but also new services that maintain health (preventively)).

3. Shareholder returns.

As one of the important management issues, the company values the return of profits to shareholders and considers the distribution of profits to shareholders while taking into account the management performance and financial situation. With the completion of large-scale investment from the opening of the Osaka hospital, it conducted its first year-end dividend (JPY 20.00 per share), with a dividend payout ratio of 16.0% for the fiscal year ending March 2024. The expected dividend for the fiscal year ending March 2025 is JPY 25.00 per share (+JPY 5.00 compared to the fiscal year ending March 2024). The expected dividend payout ratio is 15.3%.

4. Our Perspective.

The market environment for the pet market and advanced animal medical care industry is favorable, and there is a large potential for market expansion. In addition to the strength of being a comprehensive animal hospital that can provide advanced medical services, we also highly evaluate the fact that the company conducted its first year-end dividend in the fiscal year ending March 2024. Furthermore, as it has established a strong network of cooperative hospitals in the Tokyo, Nagoya, and Osaka areas, it is expected that the existing hospitals will see a trend of revenue expansion not only at the time of opening new hospitals, but also by raising awareness. Therefore, in addition to the plan to open new hospitals for a new stage of growth, we also want to focus on the progress of the group synergy through services that support primary care facilities from various angles.

(Authored by FISCO guest analyst Masanobu Mizuta)