5869.T

• Company Overview
  • Founded in 1987, listed on the Tokyo Stock Exchange Standard market in December 2023, operates the "W Waseda Seminar" cram school brand focused on the North Kanto region of Japan, with a total current student enrollment exceeding 20,000.
  • Core mission is "Contribute to society through instruction that improves student grades", operating under the slogan of "Student First" focused on improving grades and getting students admitted to their target schools.
• Core Business Strengths
  • Super-large campus format: Some campuses have over 1,000 students, average student count per campus is nearly 5x the industry average. Campuses are sited based on student residential patterns rather than requiring prime train station front locations. Large scale enables ability-based class grouping that delivers individualized, detailed instruction similar to one-on-one tutoring, all within a group format. Fixed cost structure means revenue beyond the 260-student break-even point falls almost directly to profit, supporting high margin performance. All campuses have operated profitably to date with zero closures.
  • 100% full-time teacher staff: All instructors are full-time employees, recruited nationwide with high compensation (minimum monthly salary of 400 thousand yen, minimum annual salary of 5.4 million yen) to attract top candidates, followed by rigorous in-house training. Full-time teachers enable consistent quality, strong student engagement, and proactive student greeting/guidance that aligns with the student-first mission. 100% full-time staffing also eliminates the requirement for train-front locations (most teachers commute by private car), reducing real estate and opening costs. In-house development of region and level-specific customized textbooks cuts costs to only printing expenses, further boosting margins.
• Financial Strengths
  • Consistent stable growth regardless of the declining birth rate trend, driven by positive word of mouth around strong academic outcomes and student care. Changes to Japanese high school entrance exams that emphasize internal grades starting from 1st year of middle school have created a balanced student demographic across all grade levels, preventing student enrollment decline.
  • Top-tier industry profit margin of 20%, which management intends to maintain as the business expands.
  • Stable dividend track record: Payout ratio has been set to 50%+ since listing, with a planned full-year dividend of 55 yen per share for FY2025, for a dividend yield of over 5%.

• Full-year FY2025 (ending March 2025) guidance is maintained unchanged from the initial forecast: revenue of 6.928 billion yen, operating profit of 1.336 billion yen. Excluding the prior year special factor, the full year is expected to deliver over 0.1 billion yen of profit growth.
• Planned dividend: 20 yen interim dividend (already completed), 35 yen year-end dividend, for a total 55 yen annual dividend, maintaining a 50%+ payout ratio.
• Growth target: 7% to 8% annual revenue growth, targeting 10 billion yen in total revenue 6 years from now.
• New store opening plan: Two new Zemi campuses will open in May 2025 (Kuki in Saitama, Kanuma in Tochigi), followed by a steady pace of 2 to 3 new openings per year going forward. The company is prioritizing expansion into Saitama prefecture, which has a 67 billion yen market size; capturing just a 10% share would double the company's current revenue, and there remains substantial room for new openings in the region. Long-term, the business model is replicable across the broader Kanto region and beyond.
• Shareholder return policy: The company is committed to continuous stable dividends, with ongoing increases as profit per share grows, maintaining a 50%+ payout ratio. The company is actively planning and preparing to implement share buybacks opportunistically going forward.

For the third quarter of the 2025 March fiscal year, the company operates three core segments:

1. Zemi Segment: The company's primary segment, catering to elementary and middle school students through group-format tutoring. It contributes 75% of total company revenue, and accounts for over 80% of total student enrollment. The segment grew revenue by approximately 10% year-over-year driven by new store openings.
2. High Segment: Group-format tutoring for high school students, co-located at existing Zemi campus locations to capture existing students transitioning to high school, enabling low-cost efficient customer acquisition with minimal advertising spend.
3. First Individual Segment: Individualized tutoring centered in the Tokyo area, featuring instruction from current University of Tokyo students. It contributes to overall company branding to drive enrollment for the Zemi and High segments, and grew revenue by approximately 10% year-over-year driven by new store openings.

Total consolidated revenue for the quarter was 5.12 billion yen, 108.7% of the prior year period, an increase of approximately 0.4 billion yen. Operating profit was 1.07 billion yen, 98.1% of the prior year period; excluding a one-off 0.23 billion yen reversal of director retirement benefits in the prior year, the quarter achieved over 0.1 billion yen in profit growth year-over-year.

• The company's growth rate is constrained by human resource capacity: recruiting and training enough qualified full-time teachers is the primary bottleneck to faster new store expansion. Training a qualified new teacher takes a minimum of 2 months and up to 1 year. One large new campus requires a total of 6 new full-time staff (5 teachers, 1 administrative staff), so doubling the current 2-3 campus per year opening pace requires doubling the annual teacher output, which the company is not currently able to do without compromising quality standards.
• High enrollment 3rd year middle school classes can hit capacity constraints at some popular campuses, though management notes this is not a widespread systemic issue at present.
• The company's weak recent stock price performance has been partially driven by its moderate growth rate and the current year's reported profit decline from the prior year's one-off special factor.

Q: The company's stock price has been sluggish since listing, and the 7-8% annual growth target is seen as underwhelming by the market. Why can't you increase the pace of new store openings, and what is the main bottleneck to faster growth? Is it teacher training capacity? / A: Management confirms that slow growth and the current year's reported profit decline from the prior year's one-off factor have contributed to weak stock performance. The primary bottleneck to faster growth is recruiting and training enough high-quality full-time teachers that fit the company's model. The company has ramped up new graduate hiring: 9 hires two years ago, 19 last year, 20+ this year, and targets 30+ next year to address this constraint. A new large campus requires 6 trained full-time staff, and management refuses to compromise on training quality to guarantee new campus success, so the current opening pace is set to maintain quality. The company has strengthened its internal hiring and training departments to accelerate output over time. /

Q: Is the company's 50%+ dividend payout ratio sustainable given the large capital requirements for planned new store expansion in Saitama? / A: At the current planned pace of 2 to 3 new Zemi campuses per year, the company confirms that the 50% payout ratio is fully sustainable, even after accounting for all new opening investment and costs. /

Q: What is the approximate upfront capital cost to open a new Zemi campus? / A: For a standard leased location, capitalized expenditures are approximately 50 million yen, while for a purchased property capital costs run from 100 million to 200 million yen. Initial expensed opening costs are approximately 20 million to 25 million yen, varying based on campus size and property conditions. /

Q: What causes differences in profitability across campuses, and can popular campuses hit maximum capacity? / A: All campuses are profitable, but more profitable campuses are led by strong principals and teachers that drive positive word of mouth and higher enrollment. Capacity constraints occasionally occur only for 3rd year middle school classes, but most campuses balance class sizes and add teachers as enrollment grows, so there is no systemic capacity issue at present.