Overview of Japan Living Guarantee <7320>

1. Business Overview. P-B Systems <4447> is an independent SIer based in Fukuoka, with expertise in system virtualization technology and strong cloud-based infrastructure building capabilities that builds various information systems for mid-sized enterprises, SaaS providers, and public agencies. The secure cloud system business is the core of the business, supporting total security, resilience building related to cybersecurity, and the realization of DX with cloud technology, ranging from digital work promotion to experience-sharing VR theaters with MetaWalkers, a series of emotional system businesses. The company is also fostering metaverse businesses. The company has claimed to have been a "small group of professionals in system virtualization" to date. However, steering toward further growth in the future, the company plans to expand its scale from the FY2024, aiming to transform itself into a "professional group of hybrid clouds."

(1) Business model and characteristics/strengths

The company provides financial and operational combined asset value maximization solutions. Such as the provision of facility extended warranty services, inspection/repair work contracts, and SaaS products that support business efficiency for customer companies, including residential buildings such as detached houses and condominiums, residential equipment such as water facilities, photovoltaic and storage equipment, educational PCs and tablet devices, electric vehicles (EVs), and home appliances, etc.

Usually, the warranty period for equipment and machinery is set at about 1-2 years. However, there is a strong demand from end users (such as homeowners) for longer warranties because troubles such as malfunctions or damages often occur after the general manufacturer's warranty period. Their facility extended warranty service meets these needs. Regarding the facility extended warranty service, there are two main types: cases where the operator bears the warranty cost to extend the initial standard warranty period and cases where consumers bear the warranty cost and have optional enrollment. In the case of the company, they enter into equipment warranty contracts with construction companies and residential sales companies, and often sell them as "residences with equipment warranty" with extended warranty services from the time of purchase. During the warranty period, when a specified defect occurs, they can receive free repair/replacement services.

The reporting segment division comprises the HomeworthTech business, which targets the residential area, and the ExtendTech business, which utilizes the knowledge and know-how of the HomeworthTech business to expand into the non-residential area. The business models (service delivery mechanisms) are basically the same for both businesses. They provide after-sales service solutions centered around warranty services and SaaS products to customer companies that manufacture and sell various products and services. Customer companies enter into sales contracts with end users and receive payment. These sales contracts include cases where the warranty fee is included in the product price and cases where the warranty is attached as an option. When troubles such as failures or damages occur in the equipment and machinery covered by the warranty service, the company arranges and dispatches repair contractors (cooperating subcontractors, etc.) on behalf of customer companies based on requests from end users or customer companies, and performs inspections, repairs, replacements, etc. The company's revenue includes warranty fees based on contracts and usage fees related to after-sales services.

For end users, there are benefits of peace of mind through extended warranty periods, and for customer companies, there are benefits such as being able to promote sales by extending the contact period with end users without burdening the operating costs related to extended warranties. By providing warranty services and SaaS products that support business efficiency, they have a business model as a "supporting role" that supports customer companies' after-sales services in a BtoBtoC manner.

Operating warranty systems require a high level of expertise due to the peculiarities of insurance conclusion and operation, etc. However, the company has the strength to meet this. They have experienced personnel in the insurance, operation, and finance fields within the company, and have the expertise to design and build appropriate warranty systems tailored to customer companies' needs in collaboration with major casualty insurance companies. They can provide total solutions, including business operation outsourcing and support. Since establishment, they have provided a wide range of solutions to more than 4,000 customer companies in their core market, the residential sector, such as major house manufacturers, condominium developers, and local construction companies.

(2) Major Services & Products

HomeworthTech business provides various after-service solutions focusing on warranty services and SaaS products to major house manufacturers, condominium developers, local construction companies in the housing sector. The main services and products include facility warranty services for new homes such as "Residential Security Support," "Residential Safety Support Premium," "20-year Building Warranty Backup Service," "Asset Value Guarantee Program," "Earthquake Safety Support," etc. Additionally, there are facility warranty services for used homes such as "Residential Safety Support 5," "Building Safety Support," "Sales Security Support," "Existing Facility Support," and outsourced after-service business services like "Long-term Maintenance System," "Maintenance Support Desk," a housing providers' exclusive point accumulation and payment system called "Home Points System," an app called "Home Manager" to encourage its use, end-user services such as "Home Keeping" and "Home Wallet," a housing inspection and repair history management app "Home Album," real-time remote support app "Home Live Assist," a seamless warranty operations DX app called "My Warranty," and an inquiry automatic response app to support housing providers' customer service tasks called "Home Bot."

HomeworthTech business is driving strategies to expand service variations aimed at increasing warranty service contract balances and expanding sales areas. In terms of expanding service variations, most recently in October 2023, they started providing the industry's first residential maintenance service "sumamori" for members of "Mitsui's Residence LOOP" operated by Mitsui Real Estate Residential Co., Ltd. Additionally, in April 2024, they began offering long-term warranty services for non-residential wooden construction, and in May of the same year, decided on a joint development of digital marketing services for housing providers with ADDIX Inc. In July of the same year, they started providing new plans for "Ground Compensation" and an automatic response app "Home Bot" in collaboration with Ground Net Co., Ltd., a subsidiary of Ground Net Holdings <6072>. In August of the same year, they started offering a new service called "KROX" that implements DX and finance in the remodeling business.

ExtendTech business provides various after-service solutions focusing on warranty services and SaaS products in non-residential areas. The main services and products include warranty services for photovoltaic and storage system equipment, warranty services for wind power facilities, warranty services for Education ICT equipment (PCs, tablets, etc.), warranty services for the appliance sector, warranty services for the music sector, a digital platform for warehouse management for businesses called "Warranty Logistics Technology," and the DX app "My Warranty" for warranty operations.

ExtendTech business focuses on business area expansion strategies and service variation expansion strategies. Most recently, in September 2023, they started offering the warranty service "ESS Warranty System" for industrial-scale storage batteries for systems, warranty services for the sale of maintenance equipment for used vehicles operated by Toyota Motors <7203>, and in December of the same year, they started providing a 10-year warranty service, the first in Japan, for industrial photovoltaic self-consumption storage battery systems utilizing EV reused batteries. In April 2024, they partnered with International Kaiyo and started offering the first in Japan "Economic Effect Simulation Guarantee" in the "Energael" series, a solar power and storage system service for renewable energy providers by International Kaiyo. In June 2024, the unused balance was 2,362 million yen. Its subsidiary Living Finance engages in factoring and escrow businesses.

Living Point, a subsidiary, issues "Home Points" as a prepaid payment means issuer under the Fund Settlement Act. This can handle small-sum settlements like ordinary electronic money and can also be used for future large-scale repair cost savings with a validity period set to 15 years. Living Point deposits the equivalent of 100% of the unused balance as a deposit guarantee and had an unused balance of 2,362 million yen as of the end of June 2024. Living Finance, a subsidiary, is engaged in factoring and escrow businesses.

(Authored by FISCO guest analyst Masanobu Mizuta)