Meiho Holdings,Inc. Q2 FY2025 earnings call

Core Financial Results (First Half 2025 June Fiscal Year)

• Consolidated revenue: 6.208 billion yen, up 1.825 billion yen year-over-year
• Operating profit: 100 million yen, turning around from a 14 million yen operating loss in the prior year same period
• EBITDA: 372 million yen, up 221 million yen year-over-year
• 12-month trailing moving average revenue has grown consistently since 2022, while operating margin dipped after M&A transactions due to associated transaction and goodwill costs, and has started to recover recently. EBITDA has grown consistently over the same period.

Strategic & Operational Updates

• A 3-for-1 stock split will be implemented effective April 1, 2025, with the primary goal of improving stock liquidity and expanding the investor base.
• Total assets increased 487 million yen from the prior fiscal year end, with stable liability growth matching asset growth, reflecting steady M&A and capital investment activity. The largest recent capital investment outside of M&A is the new nursing home built by group company Alto, which is progressing faster than expected on occupancy.
• The company plans to publish its first public medium-term management plan by summer 2025, after previously holding internal plans only due to past underwriter guidance against disclosing uncertain forward-looking information.
• The company prioritizes growing organic growth of each acquired group company by aligning group company CEO mindsets with the group's core values, rather than solely pursuing near-term numerical targets. This aligns with the group's "flywheel" growth strategy, where organic growth of each company compounds to drive overall group expansion.
• The company maintains a commitment to transparent (glass-wall) management, with full financial disclosure internally (limited only by insider trading rules for public companies) and zero tolerance for improper business practices.

For the 2025 June fiscal year full year, segment performance guidance is as follows:

1. Construction Related Services Segment: projected revenue of 4.3 billion yen, projected operating profit of 665 million yen. As of December end, the segment already secured 85.8% of its full year projected revenue as order backlog.
2. Human Resources Related Services Segment: projected revenue of 3.6 billion yen, projected operating profit of 210 million yen. The segment is performing steadily.
3. Construction Segment: projected revenue of 4.92 billion yen, projected operating profit of 285 million yen. As of the half-year point, the segment already secured ~83% of its full year projected revenue as order backlog. Imada Construction, the group's largest recent M&A acquisition, reported first half revenue of 1.44 billion yen with an 8.3% operating profit margin, and held 1.4 billion yen in order backlog at half-year end.
4. Care Segment: projected revenue of 880 million yen, projected operating profit of 90 million yen. Day service operations are on track, and the newly built residential paid nursing home has reached 63.6% occupancy faster than planned, with expected narrowing of early-stage operating losses.

Order backlog growth across segments as of December 2024:

• Construction Segment order backlog: 2.364 billion yen (up from 1.92 billion yen in December 2023 and 640 million yen in December 2022)
• Construction Related Services Segment order backlog: 2.037 billion yen (up from 1.802 billion yen in December 2023 and 1.76 billion yen in December 2022)

• Full year 2025 June fiscal year guidance is maintained at 14.0 billion yen consolidated revenue and 650 million yen consolidated operating profit, with no change from the initial projection.
• The 900 million yen revenue shortfall against first half projections is entirely due to delayed revenue recognition from delayed project completion, with all delayed work added to order backlog for recognition in the second half, so management remains optimistic about meeting full year targets.
• The company targets reaching a 30 billion yen market capitalization to qualify for transfer to the Prime Market, and is working toward this goal as soon as possible.
• The 30 billion yen revenue target is expected to be achieved within a 3-year timeframe, with full details to be disclosed in the upcoming medium-term management plan.

• M&A transactions depend on counterparty willingness and terms, and the company has lost some potential deals to higher bids from other acquirers, leading to a slower than expected M&A deal closing rate recently even though the pipeline of potential targets remains unchanged.
• Project revenue recognition is dependent on client timelines, so delays in project completion can shift revenue between reporting periods, even though the total revenue and profit are not ultimately impacted.
• IFRS adoption to reduce goodwill amortization burden does not eliminate impairment risk, as goodwill must still be fully written down after two consecutive years of losses, and IFRS adoption increases implementation and compliance costs, so the company has not made a decision to adopt.
• Recruiting specialized talent in Gifu can be challenging, though the company mitigates this by sourcing talent from nearby Nagoya and using its existing Tokyo office for central market-facing functions.

Q: Why has M&A activity slowed since the Imada Construction acquisition, and what are the plans for M&A in 2025 and 2006? / A: Management says the pipeline of potential M&A targets remains unchanged in size and number, no change to the company's positive stance on M&A. Some deals fall through due to complex due diligence requirements for specialized construction firms, and others have been lost to competing bidders offering higher purchase prices. M&A requires mutual agreement with the counterparty, so the company will continue to pursue deals steadily as opportunities arise. While management is increasingly focused on capital efficiency like ROIC, this has not changed the company's M&A strategy.

Q: What specific initiatives are used to turn the company's growth flywheel, and are there numerical targets for its impact? / A: Management states there are no fixed numerical targets. The core of the flywheel strategy is aligning the mindset of each group company's leadership with the group's values of building sustainable, employee-focused local businesses, rather than chasing superficial near-term numerical targets. It typically takes around 3 years to align leadership mindsets after an acquisition, but once aligned, every company has consistently achieved organic growth. The company's long-term goal is to help each acquired group company thrive sustainably for 50 to 100 years as a core local business, rather than just growing short-term numbers.

Q: Does management have a plan to achieve a 4,000 yen share price, and what is the outlook for this recovery? / A: Management says the only sustainable path to higher share prices is growing the business sustainably and improving investor recognition of the company's strategy. The 3-for-1 stock split is the first step to improve liquidity, which will support broader investor participation. Management believes that if investors recognize the company as a small but serious growth-focused player driven by sustainable local business growth, the share price will rise naturally over time. Management does not control short-term share price movements, and focuses on growing the underlying business instead.

Q: When will the company publish the medium-term plan that lays out the timeline and process to reach 30 billion yen in revenue? / A: Management says the process to hit 30 billion yen in revenue follows the same flywheel strategy of organic growth for existing group companies plus strategic M&A. The medium-term plan will be structured around a 3-year timeline, and full details will be published in the public medium-term management plan by summer 2025. Management asks investors to wait for the official plan release for full specifics.