■ The future outlook for Stem Inc <9795>

(2) High School Division

In the high school division, the policy is to increase schools while maintaining the quality of classes, so new openings will occur only after securing teaching resources. As a result of continuing these efforts, the results for university admissions have seen a dramatic increase in recent years, achieving a level of brand power that ranks among the top in the region as a learning school for public high school students in Kanagawa Prefecture. In December 2024, the Yokohama school underwent an expansion, but there are plans to consider relocating or expanding schools with high occupancy rates going forward. Furthermore, as mentioned earlier, due to the easier environment for finding real estate properties than before, there is a possibility of opening new schools after 2025. Particularly, the Kawasaki area is a strong candidate since there are currently no schools there.

However, the top priority is to resolve the full occupancy situation at the Yokohama school and others in the near term. The Yokohama school is in the commuting area of students from Yokohama Suiran High School, and if the school can secure these students, it is easy to imagine a significant increase in the number of students admitted to difficult universities. Currently, there is ongoing full occupancy, which potentially leads to students who would ordinarily attend the Yokohama school flowing to competing schools, resulting in opportunity losses. In fact, at Shonan High School, which is positioned as the next difficult school after Yokohama Suiran, nearly 45% of the third-year students are STEP students, while at Yokohama Suiran High School, this percentage is only 13.4%, indicating the current situation.

(3) After-school Care Division

"STEP Kids" is seen by the company as having sufficient potential to develop the market with a rich program (15 types) as a differentiation strategy that cultivates intellectual curiosity. The key will be the development of personnel and the establishment of an organizational structure that supports this. The personnel needed for after-school care differs in many ways from those of learning school teachers, requiring the ability to effectively draw out children's potential and latent abilities. The company plans to create a training curriculum to cultivate personnel suited to the after-school care division, such as female instructors from "STEP" who return from maternity leave after marriage, thus expanding these resources.

Regarding classroom development, the strategy is to open schools in areas where there are neighboring schools for elementary and junior high school students. This enables efficient operations, such as having STEP school teachers or experienced teachers provide support according to the learning program. Furthermore, in marketing aspects, opening in regions where the STEP brand is already established is more efficient due to lower advertising costs. The revenue per student is approximately 0.5 million yen, and the target capacity per classroom is about 120, aiming for profitability within three years based on this business model. With the full-scale addition of the after-school care division, the target grades will expand from grades 1 to 12, increasing the number of grades by 1.5 times compared to before, which not only enhances revenue growth potential but also tends to improve profitability. If the student population increases at a pace of 70 students annually, the annual revenue would increase by 35 million yen, and if the profit margin is 20%, the operating profit would grow by 7 million yen annually. Of course, if a well-structured operational system can provide high-quality services, it is quite possible to expand several classrooms and accelerate growth. The government is also expected to enhance childcare support measures, which is anticipated to support the growth of the after-school care division.

(4) Operation policy, student recruitment activities, and pricing policy

The company will not expand the number of campuses at an excessive pace in the future and is committed to the basic policy of "valuing the quality of lessons above all else," aiming for steady growth. Additionally, the service will continue to be provided mainly through face-to-face group live lessons, with online lessons being used as necessary. It is considered difficult to achieve the transition from "understanding" to "being able to" in online lessons, so the company will continue to develop its strengths in face-to-face live lessons.

Regarding student recruitment activities, traditionally, word-of-mouth from students and parents has been used along with newspaper flyers. However, due to a significant decline in newspaper subscription rates among target households recently, the company is in the process of transitioning from flyer advertisements to internet-based recruitment activities. Each classroom's website will be enhanced to accommodate web inquiries and seminar recruitment. The company will continue to build a system for student recruitment and campus operation with a long-term stance while actively utilizing ICT.

Regarding tuition fees, the policy remains to provide "high-quality lessons and systems" without "undercutting," but it is also necessary to respond to changes in the market environment, and the company plans to review this from various angles in the future.

(Written by FISCO guest analyst, Jo Sato)