AlphaPurchase Corporation Q4 FY2024 earnings call

• Leadership Transition and Organizational Update

  • Incumbent CEO Masayuki Tada will become Chairman of the Board, and current CTO Takao Tanabe will be appointed as the new CEO, subject to shareholder approval at the March 2025 general meeting. The transition is intended to inject new energy into the organization and bring strong technology insight to adapt to the AI era, while maintaining deep expertise in indirect purchasing for large enterprises.
  • The company is celebrating its 25th anniversary, with a new commemorative logo designed by an in-house team.
  • AP Renovations, a spin-off entity focused on large renovation projects, was established in June 2024 to better adapt to the volatile large renovation market.

• Overall 2024 Full Year Performance

  • The company achieved 10 consecutive years of profit growth on a consolidated basis. Total full year revenue was 55.9 billion yen, 2.0% below the initial guidance due to client-driven postponement of large FM projects, but up 7.7% year-over-year. Operating profit was 1.242 billion yen, up 4.6% year-over-year, and recurring profit was 1.227 billion yen, up 3.8% year-over-year. Operating profit beat guidance by 3.0% with a 103% achievement rate.
  • MRO's strong large enterprise growth absorbed the slowdown in FM and increased strategic spending on personnel and IT to deliver overall profit growth. In Q4 2024, operating profit was 399 million yen, up 3.9% year-over-year, after absorbing higher selling, general and administrative expenses from year-end performance bonus provisions.
  • A past error in segment revenue reporting for long-term large construction projects was corrected retroactively to improve transparency for investors, with further minor revisions planned in 2025.

• Strategic Business Initiatives

  • Launched the "Mugen Catalog" (Infinite Catalog) digital platform in September 2024, with additional features including price comparison and recommendation rolled out in January 2025. The platform has received strong positive feedback from clients and supports client cost reduction efforts.
  • The company maintains an asset-light business model, with almost no inventory for MRO (products delivered directly from suppliers to clients) and only limited required inventory for a subset of FM projects. It operates with almost no debt and maintains consistent ROE of over 15%, double the typical cost of equity.

1. MRO Business: 2024 full year revenue was 41.2 billion yen, up 11.0% year-over-year, accounting for 73.7% of total company revenue. Segment profit was 769 million yen, up 20.9% year-over-year, driven by strong performance from large enterprise clients and completed depreciation of IT assets. 83.4% of MRO revenue comes from large enterprise clients, and over 94% of large enterprise revenue comes from clients spending over 10 million yen per month on average. 2. FM Business: 2024 full year revenue was 14.6 billion yen, down 0.4% year-over-year, accounting for 26.3% of total company revenue. Segment profit was 389 million yen, down 19.0% year-over-year. The decline was caused by postponement of large hotel renovation projects and reduced small renovation business that worsened sales mix.

• For 2025 full year, the company expects total revenue of 61.9 billion yen, up 10.8% year-over-year; operating profit of 1.41 billion yen, up 13.5% year-over-year; and recurring profit of 1.4 billion yen, up 14.0% year-over-year. Profit growth is projected to outpace revenue growth even with continued strategic investment in IT and personnel.
  • Segment-level guidance: MRO revenue is projected to grow 9.0% year-over-year to 44.9 billion yen, driven by continued strong growth from large enterprise clients; FM revenue is projected to grow 15.8% year-over-year to 17.0 billion yen, as the business recovers from 2024's project postponements.
  • For 2025, the company plans a 5% base salary increase, continuing its policy of sustainable gradual wage growth rather than one-time large increases.
  • Dividend guidance: For the 2025 fiscal year (payable in 2026), a total dividend of 35 yen per share is planned, consisting of a 30 yen ordinary dividend based on 30% payout ratio and a 5 yen 25th anniversary commemorative dividend, for a total payout ratio of 35%. Management intends to make maximum effort to maintain the 35 yen dividend level going forward.
  • The company expects ROE to exceed 15.1% (the 2024 level) if the 2025 guidance is achieved, and maintains a commitment to continuing high ROE to grow shareholder value.
  • New large enterprise client addition target for MRO is 5 to 6 new corporate groups in 2025, double the 2024 level, with an additional 5+ large trillion-yen scale enterprise groups currently in negotiations that are counted separately due to longer lead times for ERP integration.

• FM business is heavily dependent on a small number of large clients, and profit is highly volatile depending on the timing and size of client renovation plans. Large project postponements in 2024 created significant revenue and profit headwinds for the segment.
  • MRO small/medium enterprise client revenue has seen two consecutive years of decline, though it now shows early signs of bottoming out, with no expectation of material growth in 2025.
  • Rising interest rates have no direct impact due to the company's almost zero debt position and asset-light model, but indirect risk exists: small/medium enterprise clients facing pressure from yen depreciation, inflation, wage increases and higher interest rates may reduce purchasing, which could indirectly hurt MRO resale through the Askul channel. However, this risk is expected to be fully absorbed by the large enterprise MRO business, which represents the vast majority of revenue.
  • Generative AI technology still has immature and uncertain components that require further development before it can be safely deployed for enterprise B2B transactions, which require strict accuracy and reliability.
  • AP Renovations, the newly spun-off large renovation business, has nearly fully allocated its 2025 capacity to completing postponed projects from 2024, leaving limited room to pursue new clients in 2025.

Q: How is the profit margin improvement trend progressing for MRO and FM businesses, and what is the outlook? / A: Management confirmed that MRO is still firmly in a profit margin improvement phase. Even with continued aggressive investment in IT (including Mugen Catalog upgrades) and talent, the company expects strong, steady margin improvement for MRO. For FM, the business sees a recovery trend in 2025, but due to high client concentration and revenue volatility tied to large project timelines, the same level of steady margin improvement as MRO is not baked into current guidance. Management expects the renovation market to grow long term as new construction declines in Japan, so it will continue implementing necessary growth initiatives.

Q: What has been the customer reaction to the newly launched Mugen Catalog, and how will it contribute to customer acquisition? / A: The platform, launched in stages starting September 2024 with new features added in January 2025, has been very well received by customers. It already helps customers reduce their own costs, which aligns with the company's core value proposition. Accelerating customer acquisition with Mugen Catalog is a top 2025 priority: the company will combine traditional outreach with new digital marketing efforts to promote the high-satisfaction platform and speed up new customer growth.

Q: What is the strategy for growth in the FM business? / A: FM differs from MRO because it requires unique capabilities that MRO does not have, including quality management, construction process management, and a national supplier network, all of which the company has now built after working with clients to refine its offering. To drive future growth, the company will add more industry and client-specific specialized expertise and partner with clients to digitize their indirect purchasing operations, which management believes is necessary and achievable for FM growth.

Q: What is the impact of rising interest rates on Alpha Purchase? / A: There is no direct impact because the company operates with almost no debt, follows an asset-light model with minimal inventory and no large fixed asset holdings, so higher rates do not increase borrowing costs. There is potential indirect impact: small business clients served through the Askul channel face combined pressure from inflation, wage hikes and higher rates that could lead to purchasing cutbacks. But since large enterprises make up the vast majority of the company's revenue, any indirect impact will be fully absorbed by the large enterprise MRO segment.