■Future prospects for eGuarantee ＜8771＞

1. Earnings forecast for the fiscal year ending March 31, 2025

Consolidated financial results for the fiscal year ending 2025/3 are expected to increase sales and profit for 23 consecutive terms: 10,100 million yen, up 10.2% from the previous fiscal year in terms of sales, 5,100 million yen, up 5.2% in operating income, 5,200 million yen, up 6.1% from the same period, and 3,450 million yen in net income attributable to parent company shareholders. The rate of increase in profit slows to the 1-digit range, and this is mainly due to the fact that labor costs are expected to increase by about 0.3 billion yen due to aggressive human resource investment. In addition to hiring 47 new graduates in 2024/4, which is a record high, wage increases etc. for existing employees will be implemented. The cost of sales ratio is assumed to be at the same level.

The financial results for the first quarter announced in 2024/8 secured an increase in sales of 2,406 million yen, up 7.4% from the same period last year, and an increase of 1.5% in operating income of 1,168 million yen, and progress was as planned. Due to depreciation of yen, price increases, labor shortages, and deterioration in cash flow associated with the start of zero-zero loan repayment, etc., the number of bankruptcies continued to increase 23.8% to 2,583 cases, mainly for small and medium-sized enterprises in the service industry, retail business, construction industry, etc., and as the need to preserve sales receivables increased, guarantee debt at the end of the first quarter continued to grow by 2 digits to 7,802 million yen, an increase of 11.6%. Meanwhile, since the average guarantee rate was about 1.3%, which was slightly lower than the level of the same period last year, the increase in sales remained in the 1-digit range. The guarantee rate for new contracts is higher than the same period last year, but since projects contracted before the previous fiscal year still account for the majority of sales, it was a low level when viewed on average. However, the recent average guarantee rate has remained flat, and after the second half, when the composition ratio for new contracts rises, it will exceed the level of the same period last year, and further accumulation of guarantee debts is also expected, so the rate of increase in sales is expected to return to a 2-digit increase pace.

The operating profit margin was 48.5%, down 2.9 points from the same period last year. This is because the cost of sales ratio increased by 6.0 points due to an increase in the number of guarantee fulfillment cases* due to the bankruptcy of the company covered by the guarantee, etc., and an increase in payment guarantee rates, etc. However, the number of guarantee fulfillment cases is expected to peak in the first quarter and decline from the second quarter onwards due to the effects of portfolio replacements carried out in the previous fiscal year. Meanwhile, the SG&A fee ratio declined by 3.2 points, and it also decreased by 23 million yen on a monetary basis. This is because the bonus payment period is now in the 2nd quarter (the previous fiscal year was recorded in the 1st quarter), and the impact amount is approximately 70 million yen. It is an improvement of 0.3 points even on a basis excluding the same impact, and it is thought that the effects of improving work efficiency through DX promotion are continuing.

* Earnings of equity method related companies that are risk transfer destinations also deteriorated due to an increase in guarantee fulfillment, and investment profit and loss due to the equity method recorded outside of business also deteriorated by 2 million yen compared to the same period last year.

As for the market environment from the second quarter onwards, interest rates are expected to rise due to the Bank of Japan's monetary policy change, and it is thought that buyer companies will take action to request deferred payments from seller companies or conduct extended negotiations on payment sites rather than making loans for cash flow. As a result, sales receivables preservation needs will increase, and it is expected that inquiries for the company's services will further increase. There is also an estimate that 3.8% of new companies will fall into the red just because interest rates on loans rise by 0.5%, and in particular, it is expected that the number of bankruptcies of small and medium-sized enterprises with weak management strength will continue to increase in the future.

Also, against the backdrop of labor shortages, outsourcing needs for credit management operations in enterprises are also expanding, and such needs will be incorporated by providing the company's comprehensive guarantee service. Inquiries for comprehensive guarantee services that summarize multiple warranty targets are strong, and the overall guarantee balance including these continued to grow at a high rate of 1 trillion512 billion yen at the end of the first quarter, up 30.3% from the same period last year.

The company recognizes that there is a shortage of sales resources sufficient to respond to such demand, and it is a policy to increase sales efficiency by actively hiring human resources, shortening the period until strength development through IT utilization, improving closing rates, etc., and to accumulate guarantee debts. Furthermore, as of 2024/4, 47 new graduate employees (31 the previous year) have joined the company, of which 40 (26) have been assigned to the sales department. About 50 new graduates are scheduled to be hired in 2025, and it seems that the number of job offers has reached almost the same level.

Until a few years ago, it took 3 to 4 years for young employees to become effective, but recently it has been shortened to about 1.5 to 2 years by systematizing patterned sales methods and sales activities using IT. Regarding education and training, a department with a role such as an intermediate organization between sales and management departments has been newly established, and in addition to support for inexperienced employees, training related to product knowledge, and role-playing guidance, tests to measure proficiency, etc. are carried out to work on early strength development.

We are also working on deepening and expanding customer acquisition channels. The number of partner financial institutions remained at a rate of 5.8% from 87 companies in 2021 to 92 companies in 2024, but the number of sales personnel increased by 65% during this time, so the number of customer leads also increased by about 1.6 times. The company believes that a sufficient approach to customers of partner financial institutions has not been established due to a shortage of sales personnel, and by expanding sales resources in the future, it will strengthen cooperation with existing partners, increase the number of customer acquisitions, develop new partners, and aim for further growth. Currently, there are about half of the partners that have been partnered with financial institutions that are slow to move, but lack of sales resources is seen as one cause, and revitalization is aimed at resolving such issues. Regional banks, credit banks, etc. are also working to expand new revenue sources while the business environment is severe, and the merit of introducing the company's services to client companies is significant.

(Author: FISCO Visiting Analyst Joe Sato)