Harksley ＜7561＞ is an enterprise that grows by implementing diversified M&A in the “food” business area based on the three pillars of “lunch,” “store assets & solutions,” and “logistics/food processing.”

●Financial summary for the 2nd quarter of the fiscal year ending March 31, 2025

In the second quarter of the fiscal year ending 2025/3, sales achieved a significant increase in operating profit and maintained strong sales, with sales down 0.8% from the same period last year to 21108 million yen, operating income up 15.3% to 1028 million yen, ordinary profit up 1.0% to 1072 million yen, and intermediate net income attributable to parent company shareholders falling 26.5% to 617 million yen.

Although sales apparently declined, the reason for this was a strong 1.7% increase compared to the same period last year when excluding the impact (528 million yen) of sales fees due to changes in sales processing methods in the logistics and food processing business. In the Chinese restaurant business, sales increased 0.8% from the same period to 8344 million yen due to Hokka Hokka-tei's existing store sales moving positively compared to the same period last year. Although there were no real estate sales in the store asset & solution business, stock earnings grew steadily due to the generation of tenant replacement income and the expansion of the number of store leases and real estate management tenants, increasing 0.3% from the same period to 6092 million yen. As for the logistics/food processing business, the massage business, which continues to operate at a high rate, and the confectionery manufacturing and sales business, where brands such as Crazy Soft Nuts are doing well, remain steady. Sales in the same segment decreased by 3.3% to 7848 million yen due to the impact of accounting standards (sales fee processing) related to profit recognition, but excluding the effects of the same accounting processing, it remained on an upward trend with a 3.4% increase compared to the same period last year.

Operating profit was 1028 million yen, up 15.3% from the same period last year. It was an upward trend with a 46.9% increase in profit and an increase of 328 million yen compared to the earnings forecast of 700 million yen announced on 2024/5/15. In terms of segment profits, the store asset & solution business (68.9% increase compared to the same period last year), where tenant replacement was active, and the logistics/food processing business (76.0% increase), which succeeded in improving operating rates and reducing raw material procurement costs, etc. of the laundry business were significant. The Chinese food business lost 103 million yen due to profit pressure due to rising costs centered on rice prices. Note that the decline in interim net profit is transient due to an increase in tax burdens.

In the second quarter of the fiscal year ending 2025/3, the profitability of the store asset & solution business and the logistics/food processing business increased, and the improvement in “earning power” of the entire business portfolio became remarkable.

●Earnings forecast for the fiscal year ending 2025/3

For the fiscal year ending 2025/3, sales are planned to increase for the fourth consecutive term, with sales rising 4.8% from the previous fiscal year to 49,000 million yen, operating income up 0.6% to 2450 million yen, ordinary profit up 10.1% to 2850 million yen, and net income attributable to parent company shareholders increasing 12.4% to 1800 million yen, and there is no change from the initial forecast. The logistics and food processing business continues to perform well, and is expected to be the largest in sales. Operating profit is forecast to be on par with the fiscal year ending 2024/3. Although temporary special demand for large-scale real estate sales in the previous fiscal year has declined, profit expansion is expected as the shift to a relatively profitable business progresses due to business structural reforms that have been promoted in the wake of the spread of the novel coronavirus infection. The second-quarter progress rate of operating profit was 42.0% (36.6% for the previous fiscal year), which is progressing smoothly against the full-year target. Note that performance contributions from M&A (described later) during the fiscal year ending 2025/3 are not reflected in current forecasts.

● Growth strategy: Acquisition of shares of Hosoya Corporation Co., Ltd., which has the largest share in the domestic chilled shumai market (making it a subsidiary)

At the board meeting held on 2024/11/13, the company acquired 100% of the shares of Hosoya Corporation Co., Ltd. (headquarters: Sakura-shi, Chiba, hereinafter “Hosoya Corporation”), resolved to make it a subsidiary, and concluded a share transfer agreement. Hosoya Corporation is a long-established food manufacturer founded in 1907, and develops and manufactures “safe, healthy, delicious, and fun)” foods with a focus on luxury dumplings, luxury gyoza, and luxury spring rolls, and sells them under its own brands and private brands, mainly at food supermarkets nationwide. Above all, “luxury shumai” has the highest domestic chilled shumai market share, and “luxury gyoza” boasts the number one chilled gyoza market share in the Tokyo metropolitan area and the Kanto region, so it is supported by a wide range of generations due to its high repeat rate against the backdrop of product power. Hosoya Corporation's most recent performance is 7337 million yen in sales and 463 million yen in operating income, and business performance has been growing steadily in recent years.

The company announced a medium-term management plan advocating a “food integration enterprise” in 2024/6, and profit expansion through “strengthening the management base through growth investment (solidification of foodwork)” has been set as a growth strategy. Specifically, it is planned to make growth investments of 17.8 billion yen (of which M&A 12 billion yen) will be carried out in business areas such as food manufacturing and frozen food manufacturing, mainly in the logistics/processed food business. The delicatessen market has expanded in recent years against the backdrop of lifestyle changes such as a declining birthrate and aging population, women's social advancement and co-working, and an increase in single-person households, etc., and stable growth is expected. With the current subsidiary, we aim to create synergy (mutual use of manufacturing bases and sales channels, etc.) between Hosoya Corporation and the company while establishing a firm position in the delicatessen market where stable growth is expected.

● Shareholder return policy: “Increase dividends not lower than the previous year” is the basic policy. Forecast of a 2 yen increase of 26.0 yen for the fiscal year ending 2025/3

The company's basic policy is to continue stable dividends, allocates profits to growth investments for the future, and “aims to increase dividends that do not fall below the previous year” in line with the growth in net income per share in order to make the attitude that emphasizes return of profits to shareholders more clear. In the medium-term management target, we have set a target of an annual dividend of 35.0 yen for the final fiscal year ending 2028/3, and we can expect a pace of increase in dividends of around 2.0 yen to 3.0 yen every year. Regarding the acquisition of treasury stock, in addition to capital levels and the stock market environment, it is said that the effects of increasing ROE and net income per share will be comprehensively taken into account and implemented in a flexible manner. For the fiscal year ending 2025/3, we anticipate an annual dividend of 26.0 yen (same increase of 2.0 yen) and a dividend payout ratio of 26.7%.

(Written by FISCO Visiting Analyst Hideo Kakuta)