Miahelsa Holdings Corporation Q4 FY2025 earnings call

Corporate Purpose and Strategy

• The company's purpose is to contribute to building connected, mutually supportive communities for all generations from children to the elderly, with a core focus on addressing Japan's aging population and low birth rate challenges through regional-focused development.
• Core growth strategy is dominant regional clustering (dominant placement): concentrating multiple business types (pharmacy, childcare, nursing care) in the same regional area to achieve cost synergies, efficient staffing, and cross-business collaboration. The company currently operates 194 locations, concentrated in 1 prefecture and 3 prefectures of the Tokyo metropolitan area: 137 in Tokyo, 17 in Kanagawa, 23 in Saitama, and 17 in Chiba.

Business Transformation History

• Started as a school lunch ingredient supply business, expanded to dispensing pharmacies in the 1980s-1990s in response to national medical separation policy, entered nursing care in 2000 ahead of the national long-term care insurance system launch, entered childcare in the 2010s following policy changes allowing corporate operation of certified nurseries, and expanded to after-school programs and broader childcare support via 2021 M&A.

Operational Milestones and Partnerships

• Completed dually listing on the Nagoya Stock Exchange Main Market in 2024, alongside the existing listing on the Tokyo Stock Exchange Standard Market, to increase brand recognition in the Chukyo area and grow individual shareholder base.
• Meets all Tokyo Stock Exchange Standard Market listing maintenance requirements as of end of March 2025.
• Obtained the second-level "Eruboshi" certification for women's workplace advancement, alongside the existing "Kurumin" certification for family-friendly work policies.
• Has developed multiple successful regional comprehensive care collaborative models in partnership with public entities and large private developers, including public-private partnership, public housing redevelopment, JR East joint urban redevelopment, and concentrated regional development models, leveraging the company's all-in-one capability to deliver all required medical and welfare services for urban redevelopment projects.

Restructuring and Profitability Improvements

• Completed major restructuring of unprofitable locations in childcare and nursing care: closed an unprofitable certified nursery and closed/sold off unprofitable nursing care locations, including an over-competed standalone day service center and a non-cluster location outside of dominant regional areas. This restructuring turned the nursing care segment from deficit to net profit, and the company considers this round of restructuring complete for the current stage, while maintaining an ongoing "scrap and build" strategy to close unprofitable sites and open new profitable ones.

For the 2025 March full year period:

• Pharmaceutical Business: Achieved revenue growth but profit decline, impacted by annual drug price revisions. It contributes ~40% of total consolidated revenue, reaching just under 10 billion yen in sales. This segment is the original core business of the company.
• Childcare Support Business: Achieved both revenue and profit growth. It contributes ~40% of total consolidated revenue, reaching just under 10 billion yen in sales, after strong expansion following the 2021 M&A of Life Support Co., Ltd.
• Nursing Care Business: Achieved both revenue and profit growth, turning from a large deficit to net profit after restructuring. It contributes ~15% of total consolidated revenue.
• Other (Food Business): The original founding business of school lunch ingredient supply, contributing ~5% of total consolidated revenue, with expanded operations to supply ingredients to the company's own childcare and nursing care facilities.

• The 2026 March full year consolidated forecast expects revenue growth but profit decline: overall revenue will grow, but profit will decline primarily due to increased personnel costs in the childcare segment from wage increases to implement the national government's revised official price framework for childcare services.
• The 2026 March forecast is revised downward from the original mid-term plan: revenue is projected to meet the original plan, but operating profit, ordinary profit, and net income are expected to come in below the original plan. The downward revision is driven by higher drug procurement costs in the pharmaceutical segment (due to yen depreciation, API supply shortages, and rising logistics costs compressing drug price margins) and lower-than-planned occupancy at a newly opened hospice-enabled senior housing facility in the nursing care segment.
• The company will not revise the 2027 March mid-term target for 3.5% operating profit margin at this stage, and will focus on closing the 2026 March performance gap before any potential mid-term plan revision.
• Prioritizes stable dividend payouts to shareholders, expanded the shareholder benefit program to provide QUO cards to shareholders of record at both September and March end, with a total combined yield of up to 4.92% for 300-share holdings.
• Future investment priority is child care support: the segment's revenue share has grown steadily and is expected to continue stable growth, so it is positioned as the key expansion area going forward.
• Pharmaceutical business investment will focus on opening a few new locations per year in regional medical malls to capture demand from the national policy of reverse referrals from large hospitals to regional medical institutions.
• Nursing care business has no new facility openings planned at this stage, and will focus on improving profitability at existing facilities.

• The company's core businesses (childcare, nursing care, pharmaceutical) are heavily regulated by government policy, and periodic regulatory revisions can change the competitive environment and profitability of existing operations.
• The pharmaceutical segment faces margin pressure from ongoing annual drug price revisions, yen depreciation, API supply shortages, and rising logistics and procurement costs.
• The childcare and nursing care segments face rising personnel costs, which are partially offset by government subsidies but still pressure overall profit margins.
• There is ongoing structural industry labor shortage in the childcare and nursing care sectors, which creates operational and staffing challenges.
• New large nursing care facilities can face slower-than-expected occupancy ramp-up, which impacts near-term profitability.
• Low national birth rates create long-term headwinds for the childcare sector in most regions, though the company focuses on high-in-migration Tokyo metropolitan area submarkets where demand remains strong.

Q: Why did Miahersa complete a dual listing on the Nagoya Stock Exchange, and what benefits does it expect?

A: The company was already listed on the Tokyo Stock Exchange Standard Market, with its shareholder base heavily concentrated in the Tokyo metropolitan area. It targeted the Nagoya Stock Exchange because that market has a large base of individual investors, which aligns with the company's goal of growing its individual shareholder base and increasing brand recognition in the Chukyo region. Nagoya Exchange's focus on hosting individual investor-focused seminars directly is a unique benefit not found on other exchanges, and the company has already entered the 2025 Meisho IR Expo.

Q: Will more unprofitable location closures be needed after the recent round of restructuring?

A: The recent round of major unprofitable location closures in childcare and nursing care is now complete at this current stage. The company will maintain its ongoing core policy of scrap and build, closing any sites that become unprofitable due to changing market and regulatory conditions while opening new profitable locations to balance growth and profitability. The most common driver of unprofitability is government regulatory revisions that change the competitive landscape, which the company monitors continuously.

Q: How does the company see long-term growth prospects amid Japan's low birth rate, and what is its strategy for regional comprehensive care?

A: While national birth rates are declining, the Tokyo metropolitan area continues to see strong population growth from migration of workers and students from regional areas, creating sustained demand for childcare services in redeveloping submarkets like Kawasaki and Yokohama in Kanagawa Prefecture. Targeted dominant cluster development in high-demand areas leaves plenty of room for continued growth. For regional comprehensive care, the company's unique all-in-one capability to deliver all required medical and welfare services (childcare, nursing care, pharmacy) makes it a strong partner for large-scale urban redevelopment projects with UR, JR East, and private developers, and there remains significant untapped collaboration opportunity in the Tokyo metropolitan area.

Q: What is the company's portfolio strategy for its four business segments, given their differing profit margins?

A: Pharmaceutical and childcare are now both ~10 billion yen in sales, forming two equal core pillars of the business. Pharmaceutical will focus on maintaining its current profitability, childcare has now finished heavy investment and M&A and is entering the profit harvesting phase. Nursing care recently achieved break-even after restructuring, and will focus on solidifying its profitability to reach the point where it can support self-funded expansion. The overall goal is for each segment to generate enough profit to fund its own expansion.