5870.T

Company Overview and Core Strengths

• The company originated in auto leasing in 1978, and pivoted to become a maintenance management BPO provider for financial institution-affiliated auto leasing businesses, which remains its core foundation.
• It operates a stable stock-based business model, with a 13,528-location nationwide maintenance workshop network that provides long-term recurring revenue from contract renewals and vehicle replacements after initial lease terms end.
• The core business model collects monthly management fees for vehicle maintenance, with maintenance and consumable costs as cost of goods sold, and profit is the spread between these. The company has actively pursued price adjustments and internal efficiency improvements to offset inflation-driven cost increases.

Updated Corporate Vision

• The company updated its vision in 2025 to become a "Mobility Infrastructure Company that keeps mobility moving and creates peace of mind", expanding from serving leasing companies to solving industry-wide challenges across the broader mobility market.
• Operations are restructured into three segments: Vehicle Support, Mobility Platform, and Mobility Support, with six core growth strategies across the first two segments.

Key Strategic Progress

• Expansion to automaker-affiliated leasing companies: The target was 20% managed unit share, and the company has already achieved 40.9%. It has built a system that allows automakers to access maintenance data for their corporate fleet vehicles, and it leverages its nationwide workshop network to deliver services, with ongoing expansion planned.
• New vehicle inspection platform: Launched an innovative platform that provides fixed, upfront price estimates for vehicle inspections based on vehicle attributes, addressing common customer pain points of opaque pricing and burdensome procedures. The platform was launched with COOP Sapporo's "Todock Vehicle Inspection" service in September 2025, and has received strong inquiry volume, with plans to expand broadly to retail and distribution clients.
• Yellow Hat capital partnership: Auto parts retail giant Yellow Hat became a major shareholder in August 2025, building on prior existing business collaboration. The partnership is expected to deliver procurement cost efficiencies for maintenance parts (especially tires), expand workshop capacity for growing personal lease business, and create opportunities for new joint products and services.
• **Planned new growth initiatives: The company is also pursuing entry into the used vehicle market (with ongoing WECARS pre-delivery service) and EV solutions including pre-owned EV maintenance and remarking, plus strengthening partnerships with existing workshops via consulting and DX tools, and expanding automotive BPO services for new entrants to the mobility sector.

• Full-year revenue guidance: Revenue was revised downward from 10.41 billion yen to 9.762 billion yen (a 6.2% reduction from the prior forecast) primarily due to slower-than-expected order volumes for the WECARS pre-delivery inspection service in the BPO segment, with minor adjustments to the maintenance outsourcing and MLS segments based on first half progress. Year-to-date revenue progress at the second quarter is 47.4% of the revised full-year forecast, aligned with the planned 45/55 split between first and second half.
• Full-year profit guidance: All profit line items were revised upward: operating profit was raised 4.5%, ordinary profit raised 4.4%, and net income raised 4.9% from prior guidance. The upward revision reflects stronger-than-expected benefits from price optimization and cost control in the core maintenance outsourcing business, partially offsetting the BPO segment volume shortfall. Year-to-date operating profit progress at the second quarter is over 54% of the revised full-year forecast.
• Dividend guidance: The planned 24 yen per share dividend increase is maintained, consistent with the company's 30% target payout ratio policy.

1. Maintenance Outsourcing Business: Revenue was 3.752 billion yen, up 18.6% year-over-year, contributing over 80% of total company revenue and 60% of total gross profit. Gross profit was 860 million yen, up 42.7% year-over-year. Growth was driven by solid new orders from existing clients and increased contracted units from automaker-affiliated leasing companies, plus ongoing price optimization to offset inflation impacts. 2. MLS (Personal Micro Lease) Business: Revenue and gross profit both grew by double digits year-over-year, contributing over 16% of total gross profit. While the net unit growth rate is expected to slow as the first wave of 5-year initial contracts reaches renewal, management expects ongoing growth supported by overall market expansion and high entry barriers for new competitors. 3. BPO Business: Revenue grew 41.6% year-over-year, gross profit grew 14.1% year-over-year, contributing 18% of total gross profit. The growth was driven by the full-quarter contribution from newly launched pre-delivery inspection services for used vehicles for WECARS, though contracted volumes came in below initial plan. WECARS pre-delivery service volumes are not counted in core managed unit metrics.

• Inflation has pushed up maintenance costs, and price adjustments for existing contracts require waiting for lease term renewals, creating a lag in passing through costs to maintain margins.
• The BPO segment's new WECARS pre-delivery inspection service has experienced slower-than-planned order volumes, which driven the full-year revenue downward revision.
• The auto maintenance industry faces structural challenges including increasing required capital investment for new vehicle (EV, high-tech) maintenance, and widespread technician shortages across the industry.
• For the MLS segment, net managed unit growth is expected to slow as the first cohort of 5-year initial contracts reaches renewal phase.
• Core business growth has slowed moderately as the company prioritizes profitability over volume growth, including exiting unprofitable contracts, which has created downward adjustments to near-term managed volume forecasts.

Q: Is there still room for growth in collaboration with automaker-affiliated leasing companies, given industry challenges? / A: The maintenance industry faces two growing structural challenges: rising required capital investment for advanced vehicle technology, and widespread technician shortages. Automakers also lack access to consolidated maintenance data for their corporate fleet vehicles. Nalnet's network of over 13,000 workshops and data infrastructure positions it to solve these gaps, so management expects growth opportunities for this partnership to continue expanding long-term.

Q: Will Yellow Hat's capital participation lead to operational collaboration and profit contributions, or remain only a capital relationship? / A: Nalnet already worked with Yellow Hat on personal lease maintenance prior to the capital investment. Going forward, the partnership will first focus on stabilizing procurement costs (especially for tires) to offset rising maintenance expenses. It will also expand Yellow Hat's role as a service provider for growing personal lease vehicle inspection and maintenance. Longer term, the companies plan to explore new joint maintenance and automotive products leveraging both firms' strengths.

Q: Why did you revise sales/unit volumes lower but lift profit guidance? / A: Over the past year, the company has prioritized improving profitability amid inflation, via targeted price adjustments and pruning unprofitable contracts. Growth in contracted unit volume has slowed somewhat due to this focus, and new volumes from automaker leasing partnerships have also come in slower than initially planned. Most existing clients still see stable managed unit growth, and the profitability improvements have more than offset the near-term volume slowdown. Management notes stable, profitable growth is a core strength of its stock business model.

Q: Why is WECARS pre-delivery volume below plan, and is this delay temporary or structural? / A: The slowdown comes from uneven sales progress across WECARS' individual store locations, not structural issues with the partnership or market demand. Used vehicle sales typically see a seasonal uplift from year-end through March, so management expects a recovery in the second half. The company is working closely with WECARS to build a smoother working relationship, and views the delay as a temporary, not structural, issue.

Q: When will you release a medium-term management plan, and what are your long-term growth targets? / A: Nalnet is currently in a transition period, expanding from traditional BPO for leasing companies into broader mobility market solutions. Internal discussions are ongoing, but the company needs more time to align its strategy with industry changes (shifts in vehicle use, vehicle technology) and align with external stakeholders. The plan will be disclosed once the full strategy (including quantitative targets) is finalized.