7037.T

• Company Purpose and Core Identity

  • The company's purpose is to "Create a secure society with the warmth of the palm of the hand", with a management philosophy of supporting women through all life stages. The long-term vision teno VISION 2030 aims to become a comprehensive family service group that enables self-actualization for workers, moving beyond the boundaries of a nursery operator.
  • The company is organized into 10 group companies across its three core segments, has 3,400 total employees, and has achieved 25 consecutive fiscal years of revenue growth since founding.
  • A key competitive advantage is a strong female-led management and workforce, with service differentiation built on a female perspective that addresses the needs of both children and parent users.

• Core Competitive Strengths

  • Offers value-added programming including English education, dance, and food education, plus parent-focused convenience initiatives (such as free onigiri for children at pick-up time to reduce parental meal preparation stress) to deliver 24-hour integrated childcare support.
  • Established the Team Engagement Center (TEC) and Compass Nursery Future Research Institute in 2022 to improve nursery quality, focusing on both worker satisfaction and user demand.
  • Provides flexible working arrangements for employees aligned with changing life stages, including a broad hiring pool and rehire systems for former employees to address the industry-wide labor shortage.
  • Operates tenoSCHOOL, an in-house training program for nursery workers and nannies that has expanded to provide lecturer dispatch to local governments and supports internal talent development.

• Strategic Priorities and Mid-term Plans

  • Aligns with national policy shifts from quantitative expansion of nursery capacity to quality improvement. The company is focusing on boosting per-facility profitability through expanded education offerings, parent support services, and subscription-based add-on services.
  • Prioritizes expansion in high-demand niches: after-school childcare (which still has significant unmet demand especially in the Kanto region), disability children's welfare (growing user demand, enabled by cross-segment synergy with the company's existing nursing care operations), and bilingual preschools.
  • For nursing care, the company is focusing on efficient expansion centered on the Kansai region (its existing base), with gradual expansion into the Tokyo area, targeting operational efficiency improvements to push profitability above 3%.
  • Targets 30 billion yen in total revenue by 2030, with 5 billion yen of growth coming from M&A.

• Capital and Shareholder Return

  • Management recognizes that ROE has fallen below the 7-8% cost of equity target since 2022, with PBR trading around 1x. The company is focusing on improving free cash flow, optimizing capital structure, and expanding IR activities to improve market valuation.
  • Has upwardly revised the full-year dividend to 10 yen per share, a 1 yen increase, and will introduce a shareholder benefit program starting from the June 2026 record date: 15 thousand yen in digital gift for shareholders holding 600+ shares held for 6 months.

• The company upwardly revised its full-year 2025 fiscal year (ending December 2025) guidance on November 13, 2025, driven by stronger than expected performance in the nursery business and contributions from newly opened facilities.
• The revised full-year guidance calls for:
  • Total revenue of 18.15 billion yen, 2% year-over-year growth
  • Operating profit of 575 million yen, 30.7% year-over-year growth
  • Ordinary profit of 545 million yen, 36.3% year-over-year growth
  • Net profit attributable to parent shareholders of 265 million yen, 76.7% year-over-year growth
• The long-term guidance targets 30 billion yen in total revenue by 2030, with 5 billion yen of total growth from M&A activity.
• Management expects continued public price and subsidy increases for nursery and care services, as the Japanese government prioritizes wage improvements for social welfare workers, which acts as a sustained tailwind for the business.

For the 2025 12-month period third quarter, total company sales reached 13.569 billion yen, with 14.4% year-over-year growth.

1. 保育事業 (Nursery Business): This is the company's core segment, accounting for approximately 75% of total third quarter revenue (down from 95% in 2020 as the company diversifies). Revenue grew driven by public price revisions for authorized nurseries, increased local government subsidies, and sales contributions from new facilities opened in the prior and current fiscal periods. The segment includes public authorized nurseries, contracted on-site/company/hospital and after-school childcare, and the large-scale bilingual KDI Fukuoka Island City preschool. As of June 2025, the company operates 397 total facilities across all segments.
2. 介護事業 (Nursing Care Business): The company's second core strategic pillar, accounting for a portion of the remaining 25% of total revenue. It operates 3 day-care facilities, 12 residential care facilities, 12 directly operated and 45 franchised disability welfare day service facilities. Revenue grew from contributions from newly opened and acquired facilities, though current profitability remains low due to ongoing expansion investment.
3. 生活関連支援事業 (Lifestyle-related Support Business): The remaining portion of the 25% non-nursery revenue, including cooking school operations (Homemade Cooking) and small-sum short-term insurance. A impairment charge was recorded for Homemade Cooking in the prior year, which reduced depreciation expenses in the current quarter, supporting overall profit growth. The segment has not yet contributed positively to group profit.

• The nursery business faces industry-level headwinds from declining birth rates (2024 births hit a record low of 680,000), though this is partially offset by rising female labor force participation and increasing facility utilization rates.
• Contracted nursery facilities have seen recent margin pressure from rising labor costs; long-standing contracts have difficulty raising prices, though management is actively negotiating price increases with clients.
• The nursing care business currently has low profitability due to ongoing M&A, new facility opening investment, and slower than expected profitability growth for new sites.
• The cooking school business (Homemade Cooking) recorded an impairment charge in the prior year, has not yet contributed positively to group profit, and is still in a trial and error phase to find a viable profitable model.
• The industry faces persistent structural labor shortages, which creates operational and cost pressure.
• ROE has been below the company's 7-8% cost of equity target since 2022, with PBR trading around 1x, creating pressure to improve capital efficiency and market valuation.

Q: With further price inflation coming, can we expect continued increases in public nursery prices and government subsidies to support profitability? / A: Management confirms public nursery prices and caregiver wage improvements have risen every year, with particularly large gains over the past two years that already account for price inflation in operating costs. The Japanese government continues to prioritize investment in social welfare and wages for nursery and care workers, and even with recent gains, wages are still not excessively high, so continued upward growth is expected, which will be a major tailwind for the company.

Q: Contracted nursery has seen margin pressure from rising labor costs — is improvement expected going forward? / A: There is a profitability gap between older long-term contracts (which cannot easily raise prices) and newly acquired contracts (which already have stable margins). The broader trend of rising wages is understood by clients, so price increase negotiations are progressing steadily. The company has also added new paid subscription add-on services such as diaper/apron subscriptions and daily English practice programs to add new revenue from parents alongside client price increases, to improve overall segment profitability.

Q: What is the profitability outlook for the nursing care business? / A: Nursing care is the company's second core strategic pillar. Current low profitability is the intentional result of ongoing expansion through M&A and new openings, which create near-term investment costs. The business model targets profitability starting in the second year after opening, but profitability growth has been slower than planned, and current investment is weighing on results. Management is focused on improving efficiency at existing facilities to push segment profitability above 3% over time.

Q: What is the company's approach to M&A, and what have been the benefits of past deals? / A: The company targets 5 billion yen in total M&A through 2030, with a focus on nursing care facility acquisitions. As a labor-intensive business, M&A brings experienced employees with existing expertise that enables faster expansion and builds new internal know-how. The company prioritizes cultural alignment and shared purpose in deals, and most acquired employees stay with the business post-acquisition, which has worked well particularly for nursing care targets.

Q: What is the strategic rationale for continuing the cooking school business, and what is its competitive edge? / A: The company is repositioning the business beyond its traditional female-focused customer base, targeting new segments including corporate welfare programs, skill building for men on parental leave, and cooking classes for pre-retirement seniors. This expansion aligns with the company's purpose of supporting people across all life stages. The business is still in trial and error after last year's impairment, but management sees it as a learning experience to inform future new business development.