MEIHO ENTERPRISE CO.,LTD. Q4 FY2025 earnings call

• Core Business Overview

  • Meihou Enterprise is a comprehensive real estate developer focused on development and sales of investment rental real estate, centered on high-demand Jonan and Seinan areas within Tokyo's 23 wards, with over 200 single-unit investment rental properties delivered to date.
  • Core product lines are the EL FARO and MIJAS branded single-unit investment rental properties, which maintain a 97% average occupancy rate as of July 2025, and are popular with investors for asset protection and inheritance tax planning, with high repeat purchase rates.
  • The group maintains a vertically integrated business model covering land acquisition, planning/design, construction, sales, management, and repairs, which captures internal profits, reduces brokerage costs via direct sales, generates stable recurring revenue from long-term management contracts, and delivers high profit margins.
  • Key competitive strengths include focus on prime Tokyo locations, 5% average yields (slightly higher than peers), expected capital gains on resale, fast 18-19 month investment payback periods, and avoidance of long-payback large-scale projects that carry higher risk.

• Strategic Updates

  • The company has shifted from a pure vertical integration strategy to a combined vertical integration and horizontal expansion strategy, expanding the proven business model to new regions and customer segments to increase growth opportunities and stabilize earnings.
  • A new product brand LOS ARCOS has been launched to target ultra-high-net-worth individuals and institutional investors, with properties that are 4+ story RC structures in prime Tokyo locations, priced 1 billion yen to 1.5 billion yen, and equipped with elevators to meet the requirements of larger investors.
  • Global sales expansion is underway: a local subsidiary was established in Taiwan as a regional hub, with multi-lingual staff covering sales activities across Asia including Hong Kong, Shanghai, Shenzhen, Singapore, and Bangkok, targeting wealthy individual and institutional investors across the region to capture yen-weakness benefits.
  • Fee-based business has been introduced, generating service revenue from project management and sales support without using proprietary capital, to support stable long-term growth.

• Shareholder Return Policy

  • The company formally introduced a clear progressive dividend policy in August 2025, committing to maintain or increase dividends annually with no planned dividend cuts.
  • A new shareholder benefit program was added for individual investors: shareholders holding 1,000 shares or more receive 8,000 yen in digital gift cards twice per year (every April and October) to improve brand recognition among individual investors.

1. Real Estate Development Business: This is the company's core business, accounting for 81.8% of total group revenue for the 2025 July fiscal year. Total group revenue for the period was 29.796 billion yen, so this segment generated approximately 24.37 billion yen in revenue. The business involves land acquisition, construction, and sale of single-unit investment rental properties.
2. Construction Business: This segment handles construction work for the company's self-developed land, as well as accepts external construction projects to maintain competitiveness. It generates its own revenue from construction contracts, though specific absolute figures were not provided.
3. Rental Business: This segment includes revenue from sublease and rental management services. While the absolute amount of revenue is not insignificant, it accounts for a low percentage of total group revenue due to the large total revenue base of approximately 30 billion yen.

• Fiscal 2026 (ending July 2026) full-year guidance:

  • Revenue is targeted at 37.6 billion yen, representing 26.2% year-over-year growth from the 2025 July fiscal year actual revenue of 29.796 billion yen.
  • Operating profit is targeted at 3.8 billion yen, 12.6% year-over-year growth from 2025's actual 3.373 billion yen.
  • Ordinary profit is targeted at 3.0 billion yen, 11.8% year-over-year growth from 2025's actual 2.683 billion yen.
  • Net income attributable to parent shareholders is targeted at 2.0 billion yen, 5.6% year-over-year growth from 2025's actual 1.893 billion yen.
  • The 2026 guidance is based on delivering approximately 37 EL FARO and MIJAS properties, with 22 properties already contracted as of the end of August, and management aims to exceed the plan by adding more contracts through the year.

• 3-year medium-term management plan (starting fiscal 2026):

  • The plan targets 45 billion yen in total revenue and 5.2 billion yen in operating profit by fiscal 2028 (the company's 60th anniversary), representing a 10x increase in operating profit from the 500 million yen actual operating profit achieved in 2020 after structural reform.

• External environment risk: As a developer of high-value real estate, profitability can be impacted by changes in economic conditions, interest rates, land prices, and construction costs. Mitigation: The company's fast-cycling business model with short payback periods enables flexible adaptation to environmental changes.
• Land acquisition progress risk: Increased competition and personnel constraints may delay planned land acquisition, impacting growth targets. Mitigation: The company is strengthening information gathering in its focus areas and improving internal operational efficiency to maintain acquisition speed.
• Inter-year earnings volatility risk: Changes in property delivery timing can lead to revenue recognition crossing fiscal years, causing temporary earnings fluctuations. Mitigation: While single-year volatility can occur, delayed properties are recognized in subsequent periods, so there is no material impact on medium-term growth.

Q: Why did profits outperform the initial full-year forecast by such a large margin even though revenue was roughly in line with expectations? / A: Management attributes the better-than-forecast profit performance to improved operational productivity that has created a leaner, more efficient operating structure. This lean business model allowed operating profit and ordinary profit to grow far faster than revenue in the period, leading to the over-performance relative to the initial plan.

Q: Is the Taiwanese local subsidiary established to sell Japanese properties to Taiwan-based investors, rather than to sell overseas properties back to Japan? Is the company also looking at other Asian markets like Hong Kong and Singapore with large real estate investor pools? / A: The Taiwan subsidiary is correctly understood as a hub to sell the company's Tokyo properties to Asian investors, not to develop overseas property. Sales operations already extend beyond Taiwan to Hong Kong, Shanghai, Shenzhen, Singapore, and Bangkok, with multi-lingual staff able to serve the entire Asian region from the Taiwan hub.

Q: What is the key difference between the new LOS ARCOS brand and the existing core EL FARO brand? / A: EL FARO properties are typically up to 4 stories tall with no elevator, which allows more floor space for residential units and eliminates ongoing elevator maintenance costs, improving net yields for investors. LOS ARCOS is for 4+ story buildings, so it includes elevators to make upper floors accessible to residents, matching the larger 1+ billion yen price point that international institutional investors require.