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.
Land Computer <3924> is an independent middle-sized system integrator that celebrated its 50th anniversary in January 2021. In addition to stable business foundation of system integration services and infrastructure solutions, package-based SI services that are positioned as growth businesses are expanding rapidly through aggressive M&A. Changes are occurring in the revenue structure, such as moderating seasonality and successful growth strategies. In the first year of the three-year plan, current business performance is remarkable, exceeding the sales target operating profit margin aimed for in the final year, namely 4.01/12.88/0.06 billion yuan for 100-300 billion yuan products respectively.
1. Consolidated Business Performance Overview for the period ended March 2024.
For the fiscal year ending March 2024, the consolidated financial results achieved record highs with sales of JPY 13,732 million, up 18.6% YoY, operating profit of JPY 1,729 million, up 41.5% YoY, ordinary profit of JPY 1,743 million, up 40.8% YoY, and net income attributable to parent company shareholders of JPY 1,233 million, up 59.8% YoY. The sales and profits all increased from the previous year. Of these, system integration services and package-based SI services were around 20% in high growth rates, at 19.3% and 20.5% respectively. The gross profit margin was 22.2%, up 0.6 points YoY due to the promotion of high value-added businesses. The sales composition ratio for package-based SI services increased by 0.5 points to 34.0%. Even though selling, general and administrative expenses increased due to increased personnel expenses associated with a revised treatment and expenses associated with personnel development costs in new digital fields, the expense rate decreased by 1.5 points YoY to 9.6% due to the significant increase in revenue. As a result, various profits increased substantially, and the sales target operating profit margin increased significantly by 2.0 points YoY to 12.6%, contributing to improvement of revenue. With an operating profit margin of 12.6%, it can be evaluated that the final year of the mid-term management plan "VISION 2025" has already achieved the target of 12.0%, and the first year of the three-year plan achieved satisfactory results in the pace of expansion of sales and the growth rate of profitability.
We estimate the consolidated financial results for the fiscal year ending March 2025 to achieve JPY 14,420 million in sales, up 5.0% YoY, JPY 1,860 million in operating profit, up 7.5% YoY, JPY 1,900 million in ordinary profit, up 9.0% YoY, and JPY 1,267 million in net income attributable to parent company shareholders, up 2.8% YoY. We expect that all service lines will continue to grow steadily, but among them, package-based SI services are expected to expand significantly, mainly in SAP-related businesses. System integration services are expected to be almost flat at JPY 7,600 million, up 0.4% YoY, but the domestic IT services market is expected to continue to expand moderately, and we believe that there is significant room for upward revision in the company's initial plan. On the other hand, although we recorded an allowance for loss on order value of approximately JPY 66 million for certain unprofitable projects in the fourth quarter of the fiscal year ending March 2024, we cannot foresee the completion time of the project at the moment, so the risk of additional loss in fiscal year ending March 2025 remains. Although the quantitative performance target for fiscal year ending March 2026, the final year of the medium-term management plan, has not been changed, there is a high possibility that it will greatly exceed the target due to the rocket start in the first year.
For the fiscal year ending March 2025, we expect sales of JPY 14,420 million, up 5.0% YoY, operating profit of JPY 1,860 million, up 7.5% YoY, ordinary profit of JPY 1,900 million, up 9.0% YoY, and net income attributable to parent company shareholders of JPY 1,267 million, up 2.8% YoY. We expect all service lines to continue to perform well, but package-based SI services, mainly including SAP-related businesses, are expected to expand significantly. Although system integration services are expected to be almost flat at JPY 7,600 million, up 0.4% YoY, we suggest that there is a great room for upward revisions in their initial plan due to Japan's domestic IT services market still continuing to expand moderately. However, the risk factor of the current business performance is the potential loss of sustained the unprofitable items mentioned earlier, for which the project’s full completion date has not been confirmed and could lead to a loss in additional sales until the fiscal year ending March 2025.
For "VISION 2025," the benchmark for the dividend payout ratio is set at 50% or higher for three years, up from the previous 40% or higher. A stock split of two shares per share of common stock was carried out on November 1, 2023. The dividend for fiscal year ending March 2024 was an interim dividend of JPY 10.0 per share, a year-end dividend of JPY 25.0 per share, and an annual dividend of JPY 35.0 per share, an increase of JPY 17.5 from the previous year (with a dividend payout ratio of 50.9%). For fiscal year ending March 2025, we plan to pay a dividend of JPY 36.0 per share for five years due to further growth expectation. Although there is not much room to increase the dividend payout ratio any further for fiscal year ending March 2025, based on the company's strong financial structure and favorable business performance, we believe that there is sufficient room to further increase the dividend payout ratio from the current 50% or higher beyond fiscal year ending March 2026.
"VISION 2025" raised the dividend payout ratio standard for three years to 50% or higher compared to the previous 40% or higher. Share splitting of one share of common stock per share to two shares debuted on November 1, 2023. For the 2024 fiscal year, the interim dividend was JPY 10.0 per share, the year-end dividend was JPY 25.0 per share, and the annual dividend was JPY 35.0 per share, an increase of JPY 17.5 from the previous year (with a dividend payout ratio of 50.9%). For the fiscal year ending March 2025, we are planning a dividend of JPY 36.0 per share for five years, as further profit increases are expected. Although there is not much room for further increase in the dividend payout ratio for fiscal year ending March 2025, we believe that there is sufficient room beyond fiscal year ending March 2026 to raise the dividend payout ratio beyond the current 50% or higher, based on the company's strong financial position and favorable business performance.
■Key Points
In the March 2024 period, both revenue and operating profit significantly exceeded the initial plan. In particular, the operating profit margin recorded a significant improvement of 2.0 points compared to the previous year to 12.6%, achieving the profit margin target of the final year of the mid-term management plan in the first year.
The plan for the March 2025 period is to surpass the sales revenue and operating profit of the March 2024 period. We will steadily promote our efforts towards VISION 2025 and plan to further expand our business through active M&A and personnel development.
The dividend payout ratio target has been raised from over 40% to over 50%, and the annual dividend for the March 2024 period has been significantly increased to 35.0 yen. There is further room for increase after the March 2026 period, taking into account the soundness of the financial structure.
(Author: Hiroki Nagao, FISCO guest analyst)