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.

The main business of Hi-Heist<6433> is advanced component processing technology, which is divided into three areas: direct-drive devices, precision component processing, and unit products. The company has major clients such as THK<6481> and Honda<7267> research institutes, which supports the company's high technical capabilities. However, since most of the products are OEM supplies, research and development, or special components for race cars, the performance does not change significantly. In the future, the company aims to expand into new fields by utilizing their high component processing technology.

1. FY2024 (actual): the precision component processing and unit products have stunk and incurred operating losses.

For the FY2024 final results, sales revenue decreased by 4.3% to 2,310 million yen compared to the previous fiscal year, operating losses were 158 million yen compared to a loss of 5 million yen in the previous period, ordinary losses were 156 million yen compared to profits of 3 million yen the previous year, and the net loss attributable to the parent company shareholders was 221 million yen compared to a loss of 2 million yen in the previous fiscal year. The direct drive devices secured increased revenue mainly for THK; however, it was lower than initial expectations. Precision component processing decreased due to the slump in the F1 race market, which was expected. The unit product sales were lower due to the slump in China and the delay in equipment investments for electronic and LCD components. Since the overall revenue decreased, the operating rate decreased and the depreciation increased, which led to a significant decrease in the gross profit margin to 13.6% (compared to 19.8% in the previous year). Efforts to reduce expenses resulted in a 1.8% decrease in selling, general and administrative expenses compared to the previous year, but due to the significant decline in the gross profit margin, the operating losses expanded. Despite the deficit, an annual dividend of 1 yen was implemented.

2. FY2025 (forecast): Although recovery is expected, operating profit will be slightly small.

The business performance for FY2025 is expected to be sales revenue of 2,452 million yen (up 6.2% from the previous year), operating profit of 23 million yen (compared to operating losses of 158 million yen in the previous year), ordinary profit of 16 million yen (compared to ordinary losses of 156 million yen in the previous year), and net income of 12 million yen (compared to a net loss of 221 million yen in the previous fiscal year) attributable to the parent company shareholders. While direct-drive devices are expected to recover orders mainly from THK, full recovery is expected in the latter half of the year. For precision component processing, an increase in sales is expected for the full year as the development of racing components will start from the latter half. Unit products are also expected to recover from the previous year, since further decline is unlikely. However, since equipment investments have peaked out, depreciation is expected to decrease. Given these circumstances, though operating profit is expected to be small, we forecast a return to a small profit. The annual dividend is expected to remain at 1 yen, the same as the previous fiscal year.

3. Medium- to long-term outlook: promoting 3 key initiatives.

On June 27, 2023, the company announced its medium-term business plan and listed "Smart Production," "Strength of Direct Drive Devices," and "Equalization of Operating Rate (Avoiding Opportunity Loss)" as medium-term strategic initiatives. Regarding "Smart Production," a new factory building for increasing direct-drive device production capacity is currently under construction on the Saitama factory site and was completed in April 2023. This is expected to not only increase the production capacity of direct-drive devices but also further improve productivity. The company has also experienced opportunities loss in the past when demand from customers was high but production capacity (and inventories) was insufficient. In the future, they aim to utilize this experience to maintain a balanced operating rate (reducing cost per unit) even with some inventory burden. They also plan to negotiate with customers to withdraw from low-profit product lines and concentrate on high-profit product lines.

■Key Points

-Their main business is advanced component processing technology, and they have many sales from OEMs and specific customers.

- Although they incurred operating losses for FY2024, they expect a recovery for FY2025.

-Their medium- to long-term strategy is to promote three key initiatives, particularly focusing on "Smart Production" and "Equalization of Operating Rate (Avoiding Opportunity Loss)."

(Written by FISCO guest analyst Noboru Terashima)