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.

Meiho Holdings <7369> aims to create a society where individuals can feel happiness by expanding the network to co-create revenue-generating companies, actively engaging in M&A with locally rooted companies, and aiming to form a corporate culture that shares the belief that actively and proactively living leads to individual happiness, based on the Group Philosophy (revised in June 2024).

1. A platformer supporting the management of small and medium-sized enterprises.

The company is constructing a nationwide network of growth-oriented small and medium-sized enterprises through M&A as a platformer supporting the management of small and medium-sized enterprises. The incorporated companies are supported through the corporate support platform for management efficiency, personnel support, business collaboration, and enhancing the earning power of group companies.

2. The fiscal year ending June 2024 resulted in decreased profit due to temporary expenses related to large-scale M&A.

The consolidated performance for the fiscal year ending June 2024 showed a 40.4% increase in revenue to ¥10,348 million compared to the previous period, a 68.3% decrease in operating profit to ¥147 million, an 82.1% decrease in ordinary profit to ¥89 million, and a net income attributable to parent company shareholders of a loss of ¥880 million (compared to a profit of ¥270 million in the previous period). It fell below the previous forecast, resulting in a significant decrease in profit and a final loss. While sales saw a substantial increase and reached a record high compared to the previous period due to new consolidations, factors affecting profit included delays in construction-related services, timing mismatches in construction contracts, multiple projects affected by the application of cost recovery criteria in construction work, as well as increased personnel expenses and operating costs due to new consolidations, increased amortization amounts, and increased temporary expenses related to large-scale M&A (advisory fees in sales and administration expenses, syndicated loan fees in non-operating expenses).

3. A significant increase in revenue and profit, expecting a record high for the fiscal year ending June 2025.

The consolidated performance for the fiscal year ending June 2025 is expected to achieve a substantial increase in revenue and profit, reaching a record high, with revenue increasing by 35.3% to ¥14,000 million compared to the previous period, operating profit increasing by 343.2% to ¥650 million, ordinary profit increasing by 577.3% to ¥600 million, and a net income attributable to parent company shareholders of ¥280 million (compared to a loss of ¥88 million in the previous period) (excluding new M&A). The positive overall performance of existing group companies, full-year consolidation of companies incorporated in the previous period, elimination of effects from delays and timing mismatches in the previous year, and equalization of temporary expenses from large-scale M&A in the previous year are expected to contribute. By segment, the planned figures include a 7.1% increase in revenue to ¥4,210 million for the construction-related services business, a 42.9% increase in operating profit to ¥650 million, a 54.3% increase in revenue to ¥3,760 million for the human resources services business, a 56.7% increase in operating profit to ¥195 million, a 58.9% increase in revenue to ¥5,070 million for the construction business, operating profit of ¥395 million (compared to a loss of ¥49 million in the previous year), and a 6.1% increase in revenue to ¥840 million for the care business with an operating profit decrease of 37.1% to ¥80 million.

On October 1, 2024, the internal organization of the group will be reorganized to strengthen the support system for group companies.

The company has not disclosed its medium-term management plan, but aims for growth through a "three-stage rocket propulsion method," which includes (1) growth of existing businesses, (2) growth through new M&A within existing segments, and (3) growth through M&A outside existing segments. President and CEO Hideitoshi Omatsu of the company expresses the future vision that with several group companies in each prefecture nationwide, achieving 100 companies, 100 billion yen in consolidated revenue, and 10,000 employees is possible. To strengthen the support system for group companies, the company has abolished the intermediate holding company, established new group company support divisions (affiliate support department, human resources development department, DX promotion department) within the holding company, and implemented a reorganization of the internal group structure on October 1, 2024. By centralizing management resources related to supporting group companies in the company, the strategy is to accelerate the realization of group vision through improving the quality of management support for individual companies, enhancing common group values, and supporting DX for productivity enhancement.

5. Focus on medium to long-term growth potential.

Although the performance for the fiscal year ending June 2024 experienced a significant decline in profits due to temporary factors, a significant increase in revenue and profit is expected for the fiscal year ending June 2025. The company is actively promoting M&A for growth, and at present, the revenue scale and foundation are not sufficient to absorb the temporary cost increase related to large-scale M&A activities. However, there is a potential for a significant increase in the overall group revenue in the medium to long term, and the company is paying attention to this medium to long-term growth potential. In addition to an aggressive M&A strategy, the company believes that interest in the company as an investment target will increase significantly if the enhancement of the earning power of the integrated companies through the company's business support platform, specifically the growth of existing business companies (part of the "three-stage rocket propulsion method"), can be confirmed.

■Key Points

- Platformer supporting the management of small and medium-sized enterprises.

- Mainly engaged in construction-related services for public works, human resources services, and construction services.

- For the fiscal year ending June 2024, a decrease in profit was achieved due to the temporary cost impact of large-scale M&A activities.

For the fiscal year ending June 2025, a significant increase in revenue and profit is expected, a complete reversal to reach a record high.

To strengthen the support system for group companies, an internal reorganization of the group will be implemented effective October 1, 2024.

Focus on the medium to long-term growth potential.

(Authored by FISCO guest analyst Masanobu Mizuta)