Summary: RIZAP Group<2928>The comprehensive enterprise, which is committed to proving that "people can change" as its unique management philosophy, develops a variety of businesses in the three areas of health creation, health care / beauty, lifestyle, and investment. Under the vision of "Global No.1 in the self-investment industry", it has achieved remarkable growth by actively utilizing M&A under the holding company structure and has grown to include 68 group companies, including 5 listed subsidiaries, and 4,606 consolidated employees. Listed on the Sapporo Stock Exchange's Ambitious Market in 2006, it formulated a medium-term management plan in September 2022, but revised it in February 2024 to achieve an operating profit of ¥400 million (fiscal year ending March 2027) by aggressively expanding the new business "chocoZAP". The fiscal 2024 performance was sales revenue of ¥16,629.8 million (+7.6% YoY), operating loss of ¥594 million (compared to a loss of ¥4948 million in the same period of the previous year), pre-tax loss of ¥4524 million (compared to a loss of ¥7,031 million in the same period of the previous year), and net loss attributable to the owners of the parent of ¥4,300 million (compared to a loss of ¥12,673 million in the same period of the previous year). Due to the black ink conversion of the chocoZAP business, it achieved a black ink of ¥417.5 million on an operating profit basis in the fourth quarter alone. As for sales revenue, the RIZAP-related business (including the chocoZAP business) significantly increased its revenue (+¥201 million) by focusing on expanding the convenience gym "chocoZAP". In existing businesses, there was an increase in revenue, including Antiroza Co., Ltd. (+¥419.8 million), while there was a decrease in revenue due to store structure reform in REXT Co., Ltd., etc. (-¥599.8 million) and the impact of selling the Sikata business under the subsidiary BRUNO<3140>at the end of the previous year (-¥511.1 million). As for operating loss, the group as a whole improved due to the transition of the chocoZAP business to the investment recovery period and the success of business portfolio reform such as REXT.

CyberTrust <4498> aims to achieve the purpose of "realizing a safe and secure digital society" and the mission of "building trust in all people, things, and events" by combining authentication/security and Linux/OSS technology, providing essential trust services in the era of DX (Digital transformation).

Deploy authentication/security services, Linux/OSS services, and IoT services.

Through a corporate merger in October 2017, it has developed its own IoT service that integrates technologies for authentication/security services (formerly CyberTrust) and Linux/OSS services (formerly Miracle Linux). It is a recurring business model with stable income such as electronic certificate issuance and product support, leveraging its technological strengths and high-quality services cultivated as "the longest operating record of domestic electronic certification authorities" and "the only Linux OS distributor in Japan."

Operation of electronic certification authorities such as issuance and revocation of electronic certificates, as well as providing iTrust services that ensure the reliability of electronic transactions.

An operating system (Linux) and open source software (OSS) in which the source code is provided free of charge and can be used, replicated, modified, and redistributed by anyone. A Linux distribution system integrates the Linux kernel (the program that serves as the core of the OS designed layer-by-layer) with other software, making it easy for users to install and use the system.

It provides a mechanism for safe and secure use of IoT equipment throughout the IoT equipment lifecycle, such as reducing security vulnerabilities in IoT equipment and measures against threats.

Ending the fiscal year March 2024 with an increase in operating and ordinary profit.

Consolidated financial results for the fiscal year ended March 2024 were sales of JPY 646.6 billion, an increase of 4.8% from the previous year, operating profit of JPY 1.112 billion, up 5.5% from the previous year, ordinary profit of JPY 1.121 billion, up 5.2% from the previous year, and net income attributable to parent company shareholders of JPY 518 billion, down 28.5% from the previous year. Although the initial plan was revised downward, the company achieved increased revenue, operating and ordinary profit levels that were generally consistent with the previous forecast (revised value dated January 30, 2024). It was the company's 9th consecutive year of increased revenue and operating profit. EBITDA was JPY 1.716 billion, an increase of 5.7%. As for net income attributable to parent company shareholders, it was significantly decreased due to special losses, including JPY 345 million in impairment losses for fixed assets related to IoT services. Although Linux/OSS services and IoT services temporarily affected the revenue, the recurring service revenue of iTrust focusing on its main authentication/security services expanded steadily. The company's recurring service revenue on an overall basis reached a record high of JPY 4.229 billion, up 5.6% from the previous year, with a recurring service revenue ratio of 65.4%, up 0.5 points from the previous year. As a result, the operating profit margin rose by 0.1 points to 17.2%.

The company predicts a significant increase in revenue and profit in the fiscal year ending March 2025, with further upward potential.

The consolidated performance forecast for the fiscal year ending in March 2025 predicts that revenue will increase by 11.3% compared to the previous year to 7.2 billion yen, operating profit will increase by 16.9% to 130 million yen, ordinary profit will increase by 15.9% to 130 million yen, and net income attributable to the parent company's shareholders will increase by 65.8% to 860 million yen. It is a significant forecast of increased revenue and profit. It is expected that high-revenue services, such as the authentication and security service iTrust, will continue to expand steadily, as well as CentOS7 extended support demand, which has lagged growth in the previous period, is expected to pick up. In addition, the net income attributable to the parent company's shareholders is expected to contribute to the loss of impairment loss recorded in the previous period. The company has not published its half-yearly forecast figures, but it expects that the operating profit for the whole year will be biased toward the second half of the year compared to previous years. This is due to the fact that the recurring service revenue of the authentication and security service, which is positioned as a high-growth leading service, is expected to pile up as usual for the second half of the year, as well as CentOS7 extended support demand is expected to pick up from the second quarter of this year. Furthermore, considering that the business environment surrounding the company is favorable, and that the expansion of high-revenue recurring services is the trend, and that the sluggish growth of Linux/OSS services in the previous period was a temporary factor, we at our company believe that there is room for positive business expansion that could exceed the company's expectations.

Promoting five key themes as a growth strategy

The company has set "BizX 20/40 (business transformation to twenty-forty)" as the slogan for its medium-term management plan and is working on five important themes: developing an organization and nurturing human resources that will grow, launching and focusing on new markets, conducting research and development for the future, global expansion, and securing system stability and operation quality. The company is expanding high-growth leading services, such as the authentication and security service iTrust, Linux/OSS service Linux support, and IoT service EMLinux, and promoting further revenue expansion of recurring services. The number of transactions (pay API usage) for the authentication and security service iTrust is expected to increase further, as the trend toward strict personal identification standards continues, even after the fiscal year ending in March 2025.

Focus on evaluating the high-revenue foundation and progress of growth strategy

The company has established a high-revenue foundation whereby stock-revenue-type recurring services account for more than half of its sales in both the authentication and security services and Linux/OSS services sectors, and we highly value this point. In addition, the company's unique IoT service, which is positioned as a growth area, is also expanding smoothly. From a business environmental perspective, it is expected that needs for stricter security measures in personal identification will increase further as the shift from paper-based processing to electronic processing progresses, such as the progress of DX and My Number Card utilization by companies and local governments. Considering this business environment, we at our company believe that the authentication and security service iTrust, Linux support, EMLinux, and other recurring services that are positioned as high-growth leading services will continue to expand steadily, and there is room for business expansion that could exceed the company's expectations. Although the company's performance forecast for the fiscal year ending in March 2024 fell below the initial target due to temporary factors, including impairment losses recorded in the previous period, and it is expected that the company's performance forecast for the fiscal year ending in March 2025 will also fall below the initial target, we still want to pay attention to the progress of the growth strategy.

■Key Points

- Provide trust services that are essential for the DX era

- Fiscal year ending in March 2024 was a landing with increased operating and ordinary profit.

- Significant increase in revenue and profit forecast for the fiscal year ending in March 2025, with even more room for upside

- Promote five key themes as a growth strategy

- Evaluate the high-revenue foundation and progress of growth strategy

(Authored by FISCO guest analyst Masanobu Mizuta)