CREATE MEDIC CO.,LTD. Q2 FY2025 earnings call

Long-Term 10-Year Vision and Phased Strategy

• The company’s 10-year vision (to 2034) is built on three pillars: become a socially contributive healthcare enterprise, build strong brand recognition, and become an engaging workplace for employees. The 10-year period is split into three phases:
  • Phase 1 (through 2027, Mid-Term Management Plan 2027): Focus on foundation building and investment in growth areas, improving existing business margins while exploring new markets and new businesses.
  • Phase 2 (through 2030): Pursue and deepen new business lines, with India and Southeast Asia targeted to become major overseas revenue pillars.
  • Phase 3 (through 2034): Strengthen new business profitability and restructure existing businesses to achieve the 10-year vision.
• Mid-term (2027) targets: 1.3 billion yen operating profit, 8% operating margin. 10-year (2034) targets: 3 billion yen operating profit, 15% operating margin, 50% overseas revenue share equal to 10 billion yen in overseas sales.

Core Competitive Advantages of Core Business

• Core advantages in silicone catheters: broad product lineup matching diverse patient needs, strict global quality control (all four manufacturing facilities hold ISO13485 certification with full-process quality testing), and agile product development aligned with clinical and patient needs.
• The company plans to expand its well-recognized domestic CLINY brand globally to become the go-to brand for Japanese-made silicone catheters.

Growth Initiatives

• Overseas expansion strategy: Prioritize expansion in the already entered Chinese market first, expanding from major city large hospitals to mid-sized hospitals and peri-urban regional areas, and expanding the number of products stocked per hospital. Prepare for market entry in India and Southeast Asia, which are high-growth emerging markets with growing demand for minimally invasive treatment. The company is currently completing regulatory preparations and obtaining local licenses in advance, leveraging Yokohama Capital’s expertise and network to speed up expansion.
• Fundraising and partnership: Completed a 1.49 billion yen total fundraising via third-party allotment of share warrants and warrant-linked bonds with Yokohama Capital to fund overseas expansion and M&A/alliances. 740 million yen has already been raised, with the remaining 750 million yen to be drawn via staggered warrant exercise over 3-5 years to minimize share dilution impact. Entered into a business partnership with Yokohama Capital for accompanying operational support for growth initiatives.
• Operational improvements: Successfully improved gross margin to 46.3% (two consecutive quarters of improvement) via price adjustments and shifting some domestic production to lower-cost overseas facilities. Selling, general and administrative expenses decreased 1.3% year-over-year as one-time prior period costs did not recur, even as pre-growth investment (R&D, sales promotion) increased. Invested 187 million yen in capital expenditure and 420 million yen in R&D (6.4% of revenue) in the first half.

Shareholder Return

• Maintains planned annual dividend of 37 yen per share (17 yen interim, 20 yen year-end), commits to stable continuous dividends and flexible share buybacks, and targets improved ROE going forward.

The company divides its total second quarter cumulative revenue of 6.564 billion yen into three sales segments: 1) In-house sales: 7% year-over-year growth, driven by successful April 2025 price adjustments and strong sales of new products including antimicrobial Foley catheters (urology) and endoscopic guidewires (gastroenterology); this segment was the largest contributor to overall revenue growth. 2) Overseas sales: Overall flat year-over-year. Chinese sales saw strong growth for ileus treatment gastroenterology products but slow growth for urology products and intensifying competition for biopsy needles, while European-focused exports (especially urology products to Germany) grew strongly offsetting the slight decline in China. Overseas revenue currently accounts for 35% of total consolidated revenue. 3) OEM sales: 4.2% year-over-year growth, as new gastroenterology products offset the impact of discontinued vascular product lines. By product category, core silicone catheter products (focused on urology and gastroenterology) account for the vast majority of total revenue, with new product lines driving incremental growth.

• Management maintained the original full-year 2025 December fiscal year earnings guidance, despite first half results exceeding the original plan: revenue reached 6.564 billion yen against a planned 6.397 billion yen, operating profit reached 548 million yen against a planned 309 million yen, and operating profit progress exceeded 50% of the full-year target.
• The decision to maintain guidance stems from remaining uncertainty: potential foreign exchange impact from overseas operations, and planned pre-growth investments for overseas strategy that are expected to be realized in the second half. The original guidance had already assumed that profits would be concentrated in the second half.

• Domestic market risk: Japanese government healthcare cost containment policies create ongoing downward pressure on selling prices for medical materials, and future healthcare insurance reform could have a material negative impact on domestic performance.
• Overseas market risk: China has seen intensifying local competition for biopsy needles, and growth in urology product sales in China has stalled. The Indian market is currently dominated by low-cost products, and the company’s high-quality premium products are not yet well penetrated, with near-term profit generation unlikely. European expansion requires compliance with strict MDR regulatory requirements that increase compliance costs and operational complexity.
• Macro risk: Raw material price volatility and foreign exchange rate fluctuations (including yen depreciation) create uncertainty for cost and profit performance. Near-term growth investments in new markets will increase upfront costs before revenue generation.

Q: Why did the company keep full-year guidance unchanged despite first half results significantly beating the original plan?

A: The original guidance was built on the assumption that most full-year profits would be realized in the second half. The company has exposure to foreign exchange volatility from its overseas operations, and it plans to carry out additional pre-growth investments for its overseas expansion strategy in the second half. Given these remaining uncertainties, management chose to maintain the original full-year guidance rather than revise it upward at this stage.

Q: What is the company’s long-term strategy for overseas expansion and what are the key priorities?

A: The company targets reaching 50% overseas revenue share by 2034, with priority first on expanding the already established Chinese market by expanding geographically and increasing the product range per hospital. For India and Southeast Asia, the company is making early regulatory and preparations now to be ready when market demand for higher quality products grows, leveraging Yokohama Capital’s resources to speed up entry. Near-term profits are not expected from these new markets, but they are critical long-term growth drivers as domestic demand is stagnant.

Q: How is the company addressing European regulatory requirements like MDR for its expansion into the region?

A: Europe is a high potential market, but MDR requires strict clinical evaluation and post-market surveillance for each product. The company is handling compliance on a product-by-product basis: it selects which products to pursue MDR certification for, and contracts the license holder role to OEM sales partners for higher-risk products that meet stricter requirements. It will continue to balance regulatory compliance and quality improvement to drive European expansion.

Q: How does government healthcare cost cutting policy impact the company’s domestic business?

A: Government medical fee and price cuts will likely increase downward pressure on the company’s domestic selling prices. While official prices for medical materials are currently stabilizing, future healthcare insurance reform could create negative impacts. The company plans to mitigate this by continuing to develop high-value-added products and strengthen product lines targeted at home healthcare to offset pressure on margins.