KeePer Technical Laboratory Co.,Ltd. Q2 FY2025 earnings call

• Overall Financial Performance

  • Q2 2025 total revenue: 12.098 billion yen, up 13.0% YoY; operating profit: 4.031 billion yen, up 21.4% YoY
  • Selling, general and administrative (SG&A) expenses increased only 2.8% YoY, after management adjusted the hiring threshold for technical staff: raised the monthly sales per technician from 1 million yen to 1.2 million yen, achieving optimized staffing levels and cost efficiency
  • The reported gross profit margin decrease is only an accounting classification change for SG&A; total revenue and operating profit are unchanged
  • H1 revenue was slightly below forecast, while operating profit came in slightly above forecast, driven by the personnel cost optimization

• New Car Market Strategy

  • Management confirms the new car market is the primary long-term growth driver for the company, as new car dealers increasingly shift focus to existing customer retained services, which aligns with KeePer's strengths in repeat coating and maintenance services
  • KeePer's owned LABO network creates a unique collaborative advantage with dealers, handling out-of-warranty re-coating, maintenance and problem correction, with some regions already achieving 10 million yen in monthly combined revenue from this partnership

• キーパーLABO Strategic Shift to Franchise (FC) Expansion

  • After years of direct-owned store expansion, growth hit natural limits from hiring constraints, even with 300 new hires joining in April 2025. Management shifted strategy ~6 months ago (following the partnership with Idemitsu Kosan) to begin recruiting franchise partners
  • The company will maintain direct-owned store openings at 10-20 stores per year, while accelerating FC expansion. Long-term target is 300 FC locations, with inquiries from the industry already very strong, and additional partnership discussions with ENEOS
  • Declining gasoline station numbers have increased conversion requests to turn closed gas station sites into キーパーLABO locations

• Non-Vehicle and New Business Development

  • スマホキーパー achieved full rollout to nearly all KDDI stores, with ongoing expansion to Toyota dealer in-store au shops and planned outreach to SoftBank and Rakuten; product reputation is strong
  • お風呂KeePer has growing B2B demand, especially for its non-slip property in the hotel industry, with active partnerships with Estée PRO and Cainz, though retail product sales have not yet met expectations and the company is still testing distribution models including e-commerce
  • Legacy sign coating business is being discontinued as the coating prevents new sign application, creating extra costs that offset any benefits

• Overseas Expansion

  • The first Singapore store has achieved solid early results, with management noting strong traction from customer word of mouth. 2025 will see increased investment in TikTok and Instagram SNS marketing to drive broader awareness, and multiple potential partner companies have expressed interest in supporting further expansion. Management sees strong long-term potential for global expansion over a 3-5 year horizon

1. Product Business Segment: Overall sales grew 13.3% YoY, with a 46% Q2 operating profit margin, which has increased year-over-year driven by demand for the flagship EXキーパー coating in the new car market. The segment is split into 4 sub-segments: (1) Aftermarket (gasoline station-focused): Grew only 1.8% YoY, with growth constrained by industry-wide labor shortages and reduced investment in new coating booths. (2) New car market (new car dealer-focused): Strong growth, particularly centered on Toyota and Subaru, with growing collaboration between キーパーLABO and new car dealers for repeat servicing and maintenance. (3) Overseas: First direct キーパーLABO opened in Singapore in August 2024, opening month revenue was 3.26 million yen, and January 2025 revenue was just under 4 million yen, still operating at a slight deficit but with strong 4.9/5 Google customer reviews. (4) Non-vehicle coating: Led by スマホキーパー (growing strongly via full rollout at KDDI and ongoing expansion to other carriers) and お風呂KeePer (growing B2B demand especially from hospitality and retail partners, though overall sales volumes are lower than projected). 2. キーパーLABO Business Segment: Total visitor volume grew 12.9% YoY, driven by new store openings and higher same-store visits from a minor reservation system update that increased available service capacity. Operating profit margin is recovering after a slight multi-year decline. All segments achieved both revenue and profit growth in the period.

• Management declined to commit to a formal full-year upward guidance revision, noting that while current H1 results point to upside potential if trends continue, the company will not make premature guidance changes
• Toyota revenue in the new car market is projected to continue doubling annually for the next 2-3 years, driven by ongoing growth in the number of participating dealers
• キーパーLABO long-term target is 1,000 total stores (a marked upward revision from the prior 400-500 store projection), combining a steady flow of direct-owned stores and accelerating franchise growth
• Capital cost and cost of capital focused disclosures, required by the Tokyo Stock Exchange, are planned for disclosure alongside the release of the new medium-term management plan after the full-year results in August 2025
• Personnel costs are expected to remain stable in the near term: existing supervisory staff have excess capacity to oversee new franchise locations, so no significant additional hiring for franchise supervision is needed, and fixed cost ratios will decline as the franchise network scales

• The aftermarket (gasoline station-focused) segment faces persistent headwinds from long-term declining fuel sales, industry labor shortages, and reduced capital investment for new coating booths, leading to unmet customer demand that the industry cannot accommodate
• High fuel price volatility can temporarily suppress discretionary consumer spending on additional coating services, though management expects this effect to moderate within 2 months and recover by spring 2025
• Competition in the new car coating market is intensifying, as KeePer is a late entrant to this market and faces competition from established incumbents
• Non-vehicle new business lines have mostly underperformed initial growth projections, with some lines (such as sign coating) being discontinued due to fundamental product conflicts
• Overseas expansion is still in an early trial phase, and the first Singapore location has not yet achieved profitability, with uncertainty over how fast the business can scale
• Sustained direct-owned store growth faces structural limits from hiring constraints, which requires the successful execution of the new franchise expansion strategy to maintain overall network growth

Q: Is Toyota's new car market growth driven by existing dealers increasing penetration or new dealers joining the network? Why has Honda's growth stalled after its early jump? / A: Honda had a large one-time bulk rollout that led to an initial sharp growth spike, and it has since settled into a steady running rate. Further Honda growth will require incremental dealer outreach, which is slow detailed work so large further gains are not expected. Toyota's growth is primarily driven by ongoing increases in the number of participating dealers, with more eligible dealer locations being converted every year, and Toyota revenue has doubled annually for the past 3 years and is expected to keep doubling for another 2-3 years, with still much room for further growth.

Q: How has management adjusted キーパーLABO's store expansion strategy with the shift to franchise, and what is the long-term store target? Does management plan to address cannibalization between new FC and existing stores? / A: The company will keep direct-owned store openings at ~20-25 per year, while adding 20-30 new FC stores annually. The long-term target is 1,000 total キーパーLABO stores, up from the prior 400-500 projection, as the market can support broader penetration. Management strictly enforces distance restrictions between new and existing stores to prevent cannibalization.

Q: What are KeePer's coating advantages over competitors, and what is the supply chain structure for coating materials? / A: 45% of coating materials are manufactured by Sonax in Germany, with the remainder supplied by well-known domestic Japanese manufacturers. KeePer's key advantage is its high repeat rate, which reaches 80% for キーパーLABO services, as the product delivers on its promised durability, with customers seeing the expected performance over multiple years of use, driving high repeat business.

Q: What is the outlook for personnel and advertising costs with the franchise shift, will fixed cost ratios decline? / A: Personnel costs will not increase meaningfully: existing supervisory staff currently only oversee 2-3 FC stores each, well below their 7-8 store capacity, so there is plenty of existing capacity to support new FC growth without additional hiring. Management confirms fixed cost ratios will decline as the franchise network scales, and advertising spending can remain stable at 3-4% of revenue.