KeePer Technical Laboratory Co.,Ltd. Q3 FY2025 earnings call

Overall Performance

• The third quarter (Jan-Mar) saw stronger-than-expected foot traffic following the December peak demand season, delivering record-high profit for the quarter on the back of double-digit revenue and profit growth.
• Key profit growth drivers include higher foot traffic at KeePer LABO and expansion of market share in the growing new car market for KeePer products.

KeePer LABO Store Expansion

• Initial full-year target was 30 new stores, but supply chain and scheduling delays have pushed current full-year expected openings to 17 direct-owned stores plus 8 franchise (FC) stores, totaling 25 openings. More openings are scheduled for July and August, with over 10 new stores already planned.
• To address labor shortages from strong demand growth, the company has expanded hiring to include part-time workers for less complex tasks like car washing (previously all direct store staff were full-time). It has already hired over 100 new staff after receiving 600 applications, and plans a base wage increase in July to support recruitment.
• Franchising for KeePer LABO was opened up in November 2024, resulting in 9 new FC applications in 2025 (up from 1 total between 2021-2024). There are currently 61 interested FC applicants (over 100 total inquiries), so the scheduled nationwide FC information caravan has been postponed to fall (or winter if needed) to process existing inquiries first. Idemitsu Kosan has announced a target of 150 FC stores by 2030. The company prioritizes quality control to maintain service standards while accelerating store growth, targeting an annual pace of 50-70 new stores long-term.

Strategic Investment

• The company acquired a 12.38% stake in Soft 99 in March 2025. The two companies have complementary business focuses (Soft 99 is B2C-focused, KeePer is B2B-focused), and will build a collaborative growth framework over time.

1. Overall company: Cumulative total revenue is 17.242 billion yen, up 14.1% year-over-year; cumulative operating profit is 5.37 billion yen, up 22.2% year-over-year. Third quarter standalone operating profit rose 24.8% year-over-year, hitting an all-time high for the quarter. 2. KeePer Products Related Business: Overall revenue up 14.3% year-over-year, with 40% Q3 standalone operating profit margin (rising annually driven by growth of high-value EX KeePer products). Sub-segment performance: - Aftermarket (gasoline station-led): Revenue up only 1.4% year-over-year, pressured by industry contraction, high gasoline prices accelerating customer pullback, and operational disruption from ENEOS' 839-store integration. - New car market: Cumulative Q3 revenue up 36.9% year-over-year, with growth primarily led by Toyota, the company's largest market priority. - Overseas business: Singapore's 1st direct KeePer LABO store saw temporary disruption in Feb-Mar after Spring Festival, but recovered by May; Taiwan KeePer PRO SHOP grew from 3 to 9 stores, with performance matching Japanese KeePer LABO, and the operating company listed on the Taiwan Stock Exchange recently. - Non-automotive services: Mobile Keeper for KDDI/au is ramping up, with future recurring revenue from re-application expected, and expansion to other carriers planned; small-area services for bathrooms, sinks, boats, bicycles will grow incrementally. 3. KeePer LABO: Q3 standalone operating profit margin of 13%, which is the target level amid active hiring for store expansion, with growth driven by higher foot traffic from both new and existing stores, boosted by higher vehicle soiling from PM2.5, yellow sand, and pollen in the quarter.

• For the next fiscal year, management targets 50 total new KeePer LABO store openings (including both direct and FC stores), with a realistic target of reaching 40 new openings after accounting for delays, and aims to build out the operational capacity to hit the 50-store target in coming periods.
• Management expects the aftermarket segment will not see double-digit growth, but will not experience a sharp decline either, projecting a gradual downward trend rather than a sudden contraction.
• Overseas expansion has been validated by early performance in Singapore and Taiwan, with long-term growth potential though it will take time to scale.

• The aftermarket (gasoline station-led) segment faces long-term pressure from gradual industry contraction, high gasoline prices accelerating customer discretionary spending pullback, and operational disruption from large-scale industry consolidation.
• KeePer LABO expansion faces constraints from labor shortages (especially for construction management roles) and rising construction material costs, which have delayed new store openings and pressured margins.
• Strong current demand has pushed labor productivity at some stores above 9,000 yen per person per period, leading to customer service denials that risk losing repeat customers if unaddressed. High summer working temperatures also create risk of elevated turnover if labor conditions are not properly managed.
• Unmet demand from constrained store capacity risks permanently shrinking the overall addressable market for KeePer LABO services.

Q: What is KeePer Giken's next medium-term store opening target, how will the brand positioning of LABO vs PRO SHOP stay distinct amid changing gas station store formats, and is the 50-store next year target excluding FC stores? / A: Management's target for next fiscal year is 50 total new LABO openings including FC stores, with a realistic near-term goal to reach 40 openings. PRO SHOP operates as a product-based retail model distinct from LABO's dedicated service model, and there are currently no mixed gas station-LABO stores, and management does not expect blurring of boundaries as it enforces clear separation of formats to maintain positioning. Direct stores are prioritized over FC stores given their higher per-store revenue, so the company will balance FC growth with direct store expansion targets.

Q: What are the main bottlenecks for LABO growth, especially regarding turnover risk from high productivity and construction delays from builder labor shortages and rising material costs? / A: Management notes that productivity above 8,000 yen per person leads to customer denials, so it prioritizes hiring ahead of sales growth to address this, and hiring is going better than expected with strong applicant volume. To reduce summer turnover, the company has provided all staff with cool work suits and implemented per-car washing incentives to create fairer workload distribution, and does not expect turnover to rise sharply. For construction cost increases and delays, management is actively developing lower-cost construction methods and working proactively with builders to avoid schedule delays.

Q: Why was operating profit progress ahead of plan even as revenue missed plan in Q3, and will this strong profit level persist next year? / A: Revenue was slightly below plan but gross profit met budget, which is the core metric for the company's planning, so overall performance was broadly in line with plan. Operating profit came in above budget because FC candidate trainees currently training at existing stores have their salaries covered by the FC side, so KeePer Giken does not incur these personnel costs this period. These personnel costs will increase in future periods as FC expansion scales, so the current above-plan profit level is not expected to persist.