Summary: RIZAP Group<2928>The comprehensive enterprise, which is committed to proving that "people can change" as its unique management philosophy, develops a variety of businesses in the three areas of health creation, health care / beauty, lifestyle, and investment. Under the vision of "Global No.1 in the self-investment industry", it has achieved remarkable growth by actively utilizing M&A under the holding company structure and has grown to include 68 group companies, including 5 listed subsidiaries, and 4,606 consolidated employees. Listed on the Sapporo Stock Exchange's Ambitious Market in 2006, it formulated a medium-term management plan in September 2022, but revised it in February 2024 to achieve an operating profit of ¥400 million (fiscal year ending March 2027) by aggressively expanding the new business "chocoZAP". The fiscal 2024 performance was sales revenue of ¥16,629.8 million (+7.6% YoY), operating loss of ¥594 million (compared to a loss of ¥4948 million in the same period of the previous year), pre-tax loss of ¥4524 million (compared to a loss of ¥7,031 million in the same period of the previous year), and net loss attributable to the owners of the parent of ¥4,300 million (compared to a loss of ¥12,673 million in the same period of the previous year). Due to the black ink conversion of the chocoZAP business, it achieved a black ink of ¥417.5 million on an operating profit basis in the fourth quarter alone. As for sales revenue, the RIZAP-related business (including the chocoZAP business) significantly increased its revenue (+¥201 million) by focusing on expanding the convenience gym "chocoZAP". In existing businesses, there was an increase in revenue, including Antiroza Co., Ltd. (+¥419.8 million), while there was a decrease in revenue due to store structure reform in REXT Co., Ltd., etc. (-¥599.8 million) and the impact of selling the Sikata business under the subsidiary BRUNO<3140>at the end of the previous year (-¥511.1 million). As for operating loss, the group as a whole improved due to the transition of the chocoZAP business to the investment recovery period and the success of business portfolio reform such as REXT.

Fujishoji<6257>is a mid-sized manufacturer of pachinko and pachislot gaming machines, with a reputation for planning and developing innovative production. As a genre, it focuses on developing models that utilize IP such as "anime", "moe" for young people, and "historical plays" for seniors. Its financial health is solid, with zero debt and over 20 billion yen in cash on hand.

2024 FY Performance Overview Consolidated performance for FY3/2024 of G-7 Holdings <7508> was 192,992 million yen in increased operating income of 9.1% over the previous year, and increased ordinary income of 7.4% to 7,318 million yen, and attributed to the parent company's net income of 5,175 million yen, an increase of 35.3% over the previous year. Sales were driven by the Business Supermarket Business and the Meat Business, and continued to set a new record high, exceeding the company's plan by 4.3%. However, in terms of profits, the automobile-related business was affected by a decrease in profits due to poor sales of winter tires due to a warm winter, and could not reach the company's plan, it turned to a profit increase for the second time due to the growth of other businesses centered on the Business Supermarket business. The sales cost ratio has increased by 0.8 points over the previous year due to changes in the sales composition ratio; however, the selling, general and administrative expense ratio decreased by 0.7 points due to the effect of increased earnings, and the operating margin decreased by 0.1 points to 3.6%. The main reasons for the increase/decrease of selling, general and administrative expenses were a decrease of 600 million yen in energy costs due to subsidies from rising electricity prices, and an increase of 1 billion yen in labor costs due to improvements in employee treatment and increased education costs. In addition to this, depreciation expenses increased by nearly 600 million yen due to rising construction material costs and rising costs of opening stores etc. The EBITDA margin has increased by 0.1 points from the previous year. Also, the reason for the large increase in the net income of the parent company's shareholders attributable to the current period is due to the elimination of 500 million yen in retirement benefits paid to executives that were recorded as special losses in the previous year, a decrease of 455 million yen in impairment losses, and a gain of 127 million yen on the sale of investment securities in FY3/2024. Changes in the ratio of revenues - while the revenue composition ratio increased by 0.8 points from the previous year, the selling, general and administrative expense ratio decreased by 0.7 points due to the effect of increased earnings, and the operating margin decreased by 0.1 points to 3.6%. The main factors affecting selling, general and administrative expenses were a drop of 600 million yen in energy costs due to subsidies from rising electricity rates and an increase of 1 billion yen in labor costs due to increases in treatment and education expenses for employees. Depreciation expenses also rose by just under 600 million yen due to increased costs of construction materials and opening new stores. The EBITDA (earnings before interest, taxes, depreciation, and amortization) margin rose 0.1 points from the previous year. Lastly, the reason for the increase in the net income of the parent company's shareholders attributable to the current period was due to the elimination of the 500 million yen for executive retirement bonuses paid in the previous period, the reduction of impairment losses by 455 million yen, and the realization of gains on investment securities of 127 million yen in FY3/2024.

For the consolidated performance of the year ending March 2024, revenue was 36,983 million yen, up 6.1% from the previous year, and operating profit was 4,880 million yen, up 25.9% for the fourth consecutive year, and the second consecutive year of increased profits. Although the number of pachinko game machines sold decreased by 8.9% to 61 thousand units, the increase in the number of pachislot game machines sold by 28.1% to 29.2 thousand units was a factor in the increase in revenue. Both are presumed to have increased their market share slightly. Due to the rise in sales prices and the thorough management of costs, the operating profit margin increased from 11.1% in the previous year to 13.2%. In particular, "L Goblin Slayer" and "L A Certain Magical Index" of the smart pachislot have both had high operating rates and have been highly evaluated in the halls.

2. Financial forecast for the March 2025 period.

For the fiscal year ending March 2025, the revenue is expected to remain the same level as the previous period, at 37,000 million yen, and the operating profit is expected to increase by 2.4% to 5,000 million yen. The company plans to sell 72.0 thousand pachinko game machines, an increase of 18.0% from the previous year, and 18.0 thousand pachislot game machines, a decrease of 38.4% from the previous year, and assume sales prices at the same level as in the previous year. With the development of smart gaming machines and the strengthening of the development lines for pachislot game machines, research and development expenses are expected to increase by 1,127 million yen to 8,700 million yen compared to the previous year, but it will be absorbed by improving the cost rate through material cost reduction. Regarding pachinko game machines, the company plans to introduce around four main models, mainly the machine that is equipped with the new IP "Demon King Academy: History's Strongest Demon King Reincarnates and Goes to School with His Descendants" launched from June and its impact is expected to be significant. During the second quarter of the next fiscal year, it plans to introduce two pachislot game machines. In particular, for pachislot game machines, it intends to increase the pace of introducing new models to more than three titles per year from the fiscal year ending March 2026, and further revenue growth is expected.

"Lucky Trigger" is a feature that allows up to 9,600 total balls (excluding initial balls) to be used, up from the conventional internal regulation of 6,400 total balls (excluding initial balls), and was lifted in March 2024. In addition to easing ball restrictions, it widens the range of gameplay options and makes possible the development of a variety of machines.

3. Growth Strategy

The company has actively acquired the copyrights of popular contents for young generations, such as "A Certain Magical Index" and "A Certain Scientific Railgun", and developed popular gaming machines, which have led to steady business performance in the past 1-2 years. In the future, the company aims to expand market share by developing machines that will continue to be supported by customers. In pachinko game machines, the company aims to increase its current market share of around 7% to over 10%, while in pachislot game machines, it aims to raise its market share of less than 4% to over 5% as its immediate goal. In particular, for pachislot game machines, it intends to increase the pace of introducing new models to more than three titles per year from the fiscal year ending March 2026, and further revenue growth is expected.

4. Regarding shareholder return policy

As its dividend policy, the company specifies a lower limit of 50 yen per share, and aims to have a consolidated dividend payout ratio of 30% or more. Based on this, it plans to allocate a 55 yen per share dividend for the year ending March 2025, which is the same amount as the previous period. In March 2023, the company acquired and retired the first share subscription rights with a downward revision clause and 1.5 million shares of treasury stock were retired in May 2024.

■Key Points

-Achieved double-digit growth in operating income and recurring income for two consecutive years in the year ending March 2024, as a result of the growth of pachislot game machines and the effect of improving gross margin rates.

-There is a possibility that the demand for pachinko gaming machines will be revitalized by the introduction of machines equipped with Lucky Trigger and changes in internal regulations.

-For the year ending March 2025, we plan to boost revenue by expanding sales of pachinko gaming machines and absorb the increase in research and development expenses by improving cost rates through lowing material costs. We plan to sell 72,000 pachinko gaming machines, an 18% increase YoY, and 18,000 pachislot gaming machines, a 38.4% decrease on YoY basis. Sales prices are assuming the same level as the previous year.

-Its dividend policy sets a lower limit of 50 yen per share distributed and targets a consolidated payout ratio of more than 30% linked to its performance.

(Written by FISCO guest analyst, Jo Sato)