■Summary

Premium Water Holdings ＜2588＞ is a major enterprise in the water delivery industry that delivers mineral water manufactured in-house to homes and business sites equipped with water dispensers. In 2016, Water Direct Co., Ltd., which has strengths in natural water production, and FLC Co., Ltd., which has strong sales capabilities, merged to form a business integration. After unifying the brand into “premium water” and getting off to a fresh start, it grew rapidly using a strong sales organization and sales know-how as weapons. The number of customers owned is 1.62 million (as of the end of 2024/3), which is the top in the home delivery water industry. The president and representative director is Kanemoto Akihiko (Kanemoto Akihiko) (inaugurated 2024/6/19). With the inauguration of Mr. Kanemoto as president and representative director, President and CEO Hagio Yohei (Hagio Yohei), who has a track record of starting FLC and raising it to the top class in Japan with promotional sales power, took office as Chairman of the Board and made a fresh start.

1. Performance trends

Full-year sales revenue for the fiscal year ending 2024/3 was 80,578 million yen (up 5.4% from the previous fiscal year), operating income of 9,436 million yen (up 28.4% from the same period), net income before income taxes of 8,028 million yen (up 25.1% from the same period), and net income attributable to owners of the parent company was 5,777 million yen (down 4.6% from the same period), and both sales revenue and operating profit grew steadily.

As for sales revenue, sales declined by approximately 4.3 billion yen due to the sale of consolidated subsidiaries that operate mobile businesses during the period, but the main water business grew and company-wide sales increased by about 4.1 billion yen. Gross profit increased 3.4% from the previous fiscal year due to efforts to reduce costs by improving factory operating rates, although there was pressure from rising prices of raw materials and resources in terms of cost of sales. Sales and administration costs (including other costs and profits) were reduced by various costs due to the construction of an in-house logistics network* leading to stabilization of logistics costs, etc., and the increase was relatively suppressed with a 0.2% increase from the same period. As a result, operating profit hit a record high since the 2016/7 corporate merger. The operating margin was 11.7%, reaching the 10% mark for the first time.

※Delivery partners participating in our delivery management system

2. Earnings Forecasts

The consolidated earnings forecast for the full fiscal year ending 2025/3 predicts a decrease in sales revenue of 77,000 million yen, a 4.4% decrease from the previous fiscal year, operating income of 9,700 million yen, an increase of 2.8%, and net income attributable to owners of the parent company of 4,700 million yen, a decrease of 18.7%. Sales revenue is expected to decrease 4.4% from the same period, but this is because the impact of the mobile business (sales scale 4.3 billion yen) sold in the previous fiscal year remains, and the main water business itself plans to grow steadily. While continuing to acquire new customers even during the progress period, we will maintain the satisfaction of existing customers and strengthen improvement measures. Also, it can be expected that the results of strengthening the proxy sales system through M&A/capital and business alliances (INEST ＜7111＞, capital participation in the Last Mile ＜9252＞) that were worked on up to the previous fiscal year will become apparent during the progress period. In terms of profit, the operating margin on sales will rise further to 12.6% (previous fiscal year results were 11.7%). Regarding the rise in raw material costs and logistics costs, etc., which is a common cause of concern, it is rather an advantage because we have invested in our own factories, manufactured in-house containers, and built our own logistics network ahead of time. We have reached a stage where it is possible to harvest the results of upfront investment on the sales side (strengthening cooperation with agents, etc.), manufacturing side (Gifu Kitagata Plant), and logistics side (in-house logistics), and we believe that forecasting sales and profit expansion is highly appropriate.

3. Growth strategies and topics

Since the past, the company has acquired customers by carrying out demonstration sales and telemarketing at booths centered on its own sales personnel. Since then, in telemarketing, there is a history of increasing the number of new customers by utilizing agents and agents. Partners that sell various products and services such as electricity/gas, telecommunications, home appliances, furniture, and moving have unique customers, so it is easy to acquire customers for home delivery water. In the new strategic policy announced for the fiscal year ending 2024/3, it was declared that “investments aimed at strengthening sales power” will be made more aggressive. Specific measures include “alliances/investments with other companies” and “introduction of new water dispensers.” As before, booth sales and telemarketing with in-house personnel will be steadily enhanced, and it will grow dramatically with a new customer acquisition model utilizing the outside. In the background, it is conceivable that the financial base has been strengthened due to past profit accumulation, that the external utilization model has an advantage in acquisition costs per customer, and that an efficient new acquisition method is required in order to continue net increase (number of new customers - number of cancellations) as the number of owned customers increases. Various patterns such as business alliances and investment/acquisitions are assumed as methods of cooperation with other companies. Three alliance investments were carried out in the 2023/3 fiscal year and 2024/3 fiscal year, and 2 of them (last mile, INEST) can be expected to strengthen new customer development.

4. Shareholder return policy

The company recognizes that return of profits to shareholders is an important management issue. Since 5 years have passed smoothly since business integration in 2016, the company began dividends at the end of the 2022/3 fiscal year. The company's basic policy is to continue stable dividend increases while considering the balance between internal reserves and investment in capital investment, etc. The dividend per share for the fiscal year ending 2024/3 was 80.0 yen (35.0 yen in the middle, 45.0 yen at the end of the fiscal year), and the dividend payout ratio was 41.0%. Dividends were increased by 20.0 yen per year from the previous fiscal year results, and an upward revision of 10.0 yen per year from the plan at the beginning of the fiscal year. Dividends for the fiscal year ending 2025/3 are expected to increase to 90.0 yen (45.0 yen in the middle, 45.0 yen forecast at the end of the fiscal year), and dividend payout ratio of 57.0%. Along with profit growth, a high dividend payout ratio is attractive.

■Key Points

・Record high sales and operating profit were achieved for the full fiscal year ending 2024/3. Building our own logistics network, improving factory utilization, and utilizing agents succeeded, and our operating profit margin exceeded 10% for the first time

・Profitability is improving and the financial base is being strengthened. The equity ratio attributable to parent company owners is aimed at 30% in the medium term

・Sales revenue is expected to be 77,000 million yen and operating profit of 9,700 million yen for the full fiscal year ending March 31, 2025. Upfront investment in sales, manufacturing, and logistics comes to fruition, and the plan is to reach 12.7% operating margin

・ We are promoting a strategy to shift the focus from the “in-house sales model” to the “group/external sales utilization model”

・The fiscal year ending 2025/3 is expected to be 90.0 yen (10.0 yen dividend increase) per year, with a dividend payout ratio of 57.0%. Along with profit growth, high dividend payout ratio is attractive

(Written by FISCO Visiting Analyst Hideo Kakuta)