3696.T

• Strategic Focus: Selective Concentration & Vertical Integration

  • The company sold its entire stake in SIer Yumemi after years of no operational synergy, with proceeds allocated to M&A for mobile service vertical integration and additional shareholder returns.
  • The core strategic goal is to build a high-margin vertically integrated model spanning advertisers, in-house advertising agency (AD.TRACK), and owned media (points sites) to eliminate third-party agency margin leakage and keep all profits in-house.
  • Roll-up M&A is prioritized to consolidate the fragmented points site industry and expand scale.

• Moppy Core Operational Highlights

  • Moppy leads the Japanese points site industry as the top player by size, with low customer acquisition cost: ~50% of new users are organic search inflow, 25% from in-platform friend referrals, and only 25% from paid advertising.
  • User growth has been boosted by rising cost of living: higher household cost-cutting sentiment increases points site usage activity, giving the service strong resilience to negative economic conditions.
  • The in-house advertising platform AD.TRACK improves overall segment margins by capturing agency margins that would otherwise go to external third parties.

• Recent M&A: Acquisition of Point Income

  • The company acquired 3rd-ranked points site Point Income, primarily to capture economies of scale: larger combined market share improves negotiating power for higher affiliate commission rates, and routing Point Income's ad inventory through AD.TRACK will improve its profit margin. Shared operational resources will also cut combined overhead costs.
  • Point Income will remain operated as an independent brand for the foreseeable future, with no immediate plans for merger with Moppy to avoid user disruption.

• D2C Business Update

  • Pitsole faced temporary headwinds in Q1 2025 from reselling and counterfeit products, but returned to recovery in Q2 after countermeasures. The company aims to position it as a long-life staple product.
  • Two new women's cosmetic brands have been added to the D2C portfolio via group acquisition: the companies own high-quality products but lacked marketing capacity, and Ceres will leverage its customer base and marketing expertise to grow these brands.

• TikTok Shop Expansion

  • Ceres subsidiary studio15, acquired in 2021, is a TikTok MCN that holds 3 official TikTok Shop licenses, enabling end-to-end support from creator management to sales promotion for D2C brands. The company expects large growth opportunities from TikTok Shop's Japan launch.

• Management expects significant remaining growth headroom for the points site industry: comparable physical point card programs reach 10-20 million members, far above Moppy's current 6 million active users, so the company targets continued member growth.
• The company will prioritize roll-up M&A of small to mid-sized assets in the points site and D2C spaces, focusing on undervalued businesses with growth obstacles that Ceres can resolve (such as poor marketing for high-quality D2C products) to unlock value, with deal size limited to match the company's current balance sheet capacity.
• The company aims to shrink the loss margin of the crypto asset business over time to improve overall earnings stability, with full profitability as a medium-term target.
• Management is evaluating additional shareholder return measures (beyond base dividends) using proceeds from the Yumemi sale, with no fixed payout ratio target and a focus on flexible, sustainable returns.
• The current balance between cash holdings (~11 billion yen as of H1 2025) and borrowings (~7.5 billion yen) is considered appropriate, with cash managed flexibly based on monthly operating needs supported by pre-arranged bank commitment lines.

The company operates two core segments: 1) Mobile Service Business: This is the company's cash cow, generating the majority of firm profits. Its flagship product is the points site "Moppy", which currently has over 6 million active users, with active member growth of 11.2% year-over-year. 50% of Moppy's revenue comes from financial advertisers, with 4,000-5,000 active advertising campaigns hosted on the platform. The segment also includes a high-margin D2C business, led by the functional insole product "Pitsole". 2) Financial Service Business: This is the company's medium-to-long term growth segment, operating a crypto asset exchange and online factoring services. It currently operates at a net loss, with its performance highly sensitive to crypto market price volatility. The sale of non-core subsidiary Yumemi generated 3.7 billion yen in net cash proceeds for the company.

• Stricter regulation of crypto asset services is a material risk: while Japanese crypto regulation is currently stabilizing after a period of tightening, new negative events (such as large crypto exchange hacks or outflows) could trigger sudden regulatory tightening that increases operational compliance costs and restricts business activity.
• Earnings volatility: overall profitability is heavily concentrated in the mobile service segment, and the crypto business currently adds additional volatility from crypto price swings, creating pressure for more stable earnings growth.
• Counterfeit and reseller activity can create temporary headwinds for core D2C products, impacting short-term revenue and margins.

Q: How does Ceres view the regulatory risk of its crypto asset business, and how does it differentiate from competitors? / A: Management notes that Japanese crypto regulation is currently stricter than in most other developed markets, and the overall trend is gradual easing. However, negative industry events such as asset outflow incidents can lead to sudden regulatory tightening, which remains a material operational risk for the business. /

Q: What is the company's strategy to stabilize overall earnings, given the concentration of profit in Moppy and ongoing losses in crypto? / A: Management confirms that the core strategy for earnings stability is continued steady growth of the mobile service business, including both the points site and D2C divisions. The company prioritizes reducing the size of the crypto business's deficit, and has identified this as a key priority to address investor concerns. /

Q: What criteria does Ceres use for M&A targets, and what types of assets will it target going forward? / A: Management prioritizes roll-up M&A to consolidate its core operating segments, preferring businesses that have clear growth obstacles (such as poor marketing or underutilized scale) that Ceres can resolve to unlock value, rather than chasing overpriced top-tier assets. Ceres will focus on targets that fit its vertical integration and D2C strategy: particularly high-quality D2C brands with strong products but insufficient marketing capacity, where Ceres' existing user and marketing infrastructure can drive growth. Deal size will remain constrained by the company's current balance sheet capacity. /

Q: Why did Ceres acquire Point Income, and will it merge the service into Moppy? / A: The acquisition is primarily to capture economies of scale from larger market share, which improves commission negotiation power with advertisers, and allows Point Income to use Ceres' in-house ad platform AD.TRACK to boost margins. Shared operations will also cut overhead. Management has no immediate plans to merge Point Income into Moppy, to avoid user confusion and disruption, and has not made a decision on long-term integration.