Overview of Meihoh Holdings <7369>

3. Trend by Segment

The main situation of segment-by-segment revenue, operating profit, and operating profit margin for the past four periods (from June 2021 to June 2024) is as follows. The construction-related service business and construction business, which handle public works, have seasonal characteristics where revenue is biased towards the end of the fiscal year in the third quarter, and the construction business may have revenue volatility due to completion of large-scale projects.

Revenue for each segment is on an increasing trend, with contributions from newly consolidated companies. In the June 2022 period, North Giken Co., Ltd. was consolidated in the construction-related service business, Yasaka Construction Co., Ltd. in the construction business, and Alto Corp. acquired the day service care business from Sunrise Corp. in the care business. In the June 2023 period, Aki Kensetsu Consultant Co., Ltd. was consolidated in the construction-related service business, Sankawa Doboku Co., Ltd. in the construction business, and Staff Advance Co., Ltd. acquired the staffing service business from M&M Co., Ltd. in the human resources services business. In the June 2024 period, Fuji Doboku Sekkei was consolidated in the construction-related service business, Imada Construction and Hermit in the construction business, and Resonategate in the human resources services business.

Until the June 2023 period, operating profit was on an increasing trend, absorbing the effects of increased personnel expenses, operating expenses, and increased goodwill amortization expenses due to new consolidations with revenue growth. However, in the June 2024 period, there was a decrease in profit due to increased costs related to a large M&A, as well as one-off factors such as project delays in the construction-related service business and order timing misalignment at Imada Construction in the construction business.

There may be variability in composition due to new M&As. In the June 2024 period, the sales composition ratio was 23.5% for human resources services business, up 5.6 points from the previous year due to the new consolidation of Resonategate, 30.8% for the construction business, up 9.2 points due to the new consolidation of Imada Construction, 38.0% for the construction-related service business, down 12.9 points due to project delays, and 7.7% for the care business, down 1.9 points.

Operating profit margins may vary due to profitability of individual projects and the impact of new consolidations. In the June 2024 period, the operating margin was 11.6% for the construction-related service business, down 4.0 points due to project delays, 5.1% for the human resources services business, down 2.6 points, losses were recorded for the construction business due to delayed order timing, and 16.1% for the care business, up 1.5 points. Excluding temporary factors, the construction-related service business and construction business are generally stable in revenue as they focus on public works, while the care business relies on the long-term care insurance system, and the human resources services business continues to secure orders for construction engineers from major general contractors, serving as a stable source of revenue.

Rapid response to changes in the business environment

4. Risk Factors, Profit Characteristics, Challenges, and Countermeasures

As for the risk factors in the company's business development, they include the impact of economic fluctuations on group company performance, the influence of the M&A market, the effect of interest rate fluctuations on fundraising, and the impact of regulatory changes in the human resources services and nursing care businesses.

Regarding the impact of economic fluctuations on the performance of group companies, it is expected that the main construction-related services and construction businesses, which are mainly focused on public projects, will remain stable. Therefore, it is considered that the overall impact of economic fluctuations is relatively small. As for the impact of interest rate fluctuations on fundraising, the company is currently raising M&A funds through bank borrowings based on floating interest rates. However, in anticipation of increased burdens due to rising interest rates in the future, measures will be taken such as switching to fixed interest rates to promptly adapt to changes in the business environment and considering diversification of fundraising. It is noteworthy that in November 2023, when acquiring shares of Imada Construction Holdings, the company borrowed 2.7 billion yen through a syndicated loan arranged by Mizuho Bank. This was the company's first borrowing from a major bank and serves as an example of the advancement of diversifying fundraising sources.

(Authored by FISCO guest analyst Masanobu Mizuta)