HITO-Communications Holdings,Inc. Q2 FY2025 earnings call

• Overall Financial Performance
  • After 5 years of COVID-19 related work totaling 37.159 billion yen, the company has no planned COVID-related revenue for this full fiscal year, allowing management to refocus on core sales support growth. Core operating profit reached 1.278 billion yen, up 139.2% YoY ex-COVID, driven by a 0.6% improvement in SG&A expense ratio from post-COVID cost rationalization.
  • Growth was driven by strong performance in Wholesale and the newly integrated Airport ground handling business, with temporary weakness in legacy sales support fully factored into current results.
• Strategic Portfolio Positioning
  • The company has transformed from a 100% legacy sales support business at listing in 2011 to a diversified portfolio where new growth segments now outsize the legacy core. Over 14 years, the total compound annual growth rate (CAGR) is 9.6%, with non-legacy segments posting a 38.7% CAGR while the legacy core has had a -1.1% CAGR.
  • Management allocates concentrated resources to four priority growth segments: Airport, Wholesale, Digital Sales Support, and Inbound & Tourism. Growth-stage segments including Public, Works, and Sports & Entertainment will continue business model and market development. The legacy sales support business is a deepening segment focused on cost efficiency and margin improvement.
• Airport Ground Handling Business Expansion
  • The combined business of acquired FMG (strong in restricted-area passenger, ramp, and maintenance services) and Hito Communications (strong in non-restricted area lounge, retail, and F&B operations) allows end-to-end airport service delivery, a rare competitive advantage in the industry. The company recently entered a joint venture with Kansai Airports for Kobe Airport's new international ground handling operations, expanding its footprint in the Kansai region.
  • International flight volumes have recovered to exceed 2019 levels, with strong concentration in Haneda, Narita, and Kansai (74% market share), where the company already has a strong position in Narita. The ramp business internalization (including purchase of ground support equipment (GSE)) has improved gross margin from 4.1% in February 2024 to 18.4% in February 2025, with ongoing expansion to Naha and other major airports.
• Wholesale Business Strength
  • Group subsidiary Branch Out holds valuable IP licenses from major rightsholders, with strong capabilities in product planning, design, and a stable China-based supply chain. The business benefits from the growing 'oshi-katsu' (fan activity) boom, with strong ongoing demand. A stronger yen will reduce procurement costs and improve gross margins going forward.
• Osaka Expo Engagement
  • The company has already deployed 700 personnel for pavilion operations, with additional demand for more staff expected. Management expects strong visitor demand through the closing in October, especially during the summer peak, and is preparing to capture additional revenue.

Total company revenue for the 2025 August interim period is 30.927 billion yen, up 3.7% year-over-year even after the elimination of 2.224 billion yen in prior-year COVID-19 related revenue. Ex-COVID revenue grew 11.3% YoY to 30.927 billion yen. Segment performance:

1. Works (new logistics business): Revenue increased 97 million yen YoY to reach 133.2% of prior-year revenue, growing steadily.
2. Public: Revenue declined slightly due to reduced work related to My Number Card issuance, which is tied to public sector budget cycles.
3. Sports & Entertainment: Revenue grew to nearly 1.5 billion yen, up 30.9% YoY. Growth was driven by increasing demand for services related to the professionalization of domestic sports leagues, including professional team operations support.
4. Inbound & Tourism: Revenue saw a slight decline, due to temporary visitor diversion caused by China's visa-free policy for other Asian destinations. Management expects demand to recover over time.
5. Airport: Revenue exceeded 4.0 billion yen, approximately doubling YoY. It is positioned as a core growth segment, with progressing personnel training and equipment procurement.
6. Digital Sales Support: Revenue reached 97.9% of prior-year levels at 6.39 billion yen. The temporary decline stemmed from delayed response to rising labor-saving demand, but the expanded portfolio including TC and EC is viewed as positive for long-term growth.
7. Sales-based Sales Support (core legacy business): Revenue declined from 7.884 billion yen to 7.315 billion yen YoY. While mobile services have stabilized, the home electronics segment has not yet recovered, resulting in overall slow growth.
8. Wholesale: Revenue grew from 6.08 billion yen to nearly 8.0 billion yen, up 31.6% YoY. IP-licensed apparel, fan merchandise, and influencer collaborations sold through major mass retailers have performed exceptionally well.

• Full fiscal year guidance is revised upward: revenue is increased by 3.333 billion yen from the initial 59.0 billion yen to 62.333 billion yen, and operating profit is increased by 0.2 billion yen from 2.0 billion yen to 2.2 billion yen. The upward revision reflects strong first half performance from Airport and Wholesale, and continued strong demand from inbound growth in airport services.
• The guidance incorporates a conservative adjustment for delayed entry into new LCC services caused by ongoing labor shortages at major airports, and management will consider a further upward revision to Wholesale profits once recent yen appreciation trends confirm.

• Labor shortages at major airports are delaying new LCC route launches, creating uncertainty for near-term airport business growth.
• Rising personnel costs have created margin pressure across the business.
• Yen depreciation negatively impacted Wholesale gross margins in the first half, with exchange rate trends still uncertain before recent yen appreciation confirms.
• Legacy sales support business continues to experience slow growth, particularly in the underperforming home electronics segment, requiring strategic intervention.
• Excess cash on the balance sheet creates a challenge for efficient capital allocation.

The full Q&A section was not included in the provided transcript. Only the topics of the Q&A (full-year guidance revision, Airport profitability, Wholesale rapid growth, and large M&A potential) were listed, with no full exchanges available for summary.