Prestige International Inc. (4290) Earnings Call Transcript & Summary

To begin, Mr. Nishida, Managing Executive Officer and Group CFO, will provide the presentation.

Thank you very much for taking the time out of your busy schedules to attend Prestige International's briefing on financial results for the 6 months ending March 31, 2026. Today, I will present an overview of our consolidated performance for the first half, followed by details by business segment. First, let me begin with a summary of our consolidated results for the period. Net sales increased 11.8% year-on-year to JPY 34.4 billion, driven by the global business as well as the property and financial guarantee businesses. Operating profit rose 14.1% year-on-year or by JPY 526 million to JPY 4.25 billion. This increase was achieved despite higher costs associated with on-site service operations in the automotive and property businesses as well as increases in personnel expenses due to business expansion and rising wages. These cost increases were offset by sales growth in the relatively high-margin global and financial guarantee businesses. Ordinary profit grew 18.2% year-on-year to JPY 4.68 billion, reflecting the increase in operating profit and foreign exchange gains despite a decline in equity method investment income. As a result, profit attributable to owners of parent reached JPY 2.66 billion, up 19.3% year-on-year, marking a record high for an interim period. Currently, inflationary pressures remain high, and our group is also affected by higher personnel costs, particularly rising tariff to partner companies in the automotive business. Nevertheless, these cost increases were fully absorbed by revenue growth in our core businesses, resulting in a 14.1% increase in operating profit. Progress toward our full year forecast stands at around 50% for each profit level, indicating steady in-line performance. For a BPO service provider like ours, where people are our primary asset, rising labor costs present a significant management challenge. In addition, in the automotive business, tariff to tow truck partner companies supporting field operations have been rising, contributing to overall cost increases. Despite this environment, we absorbed inflation-driven cost pressures and still improved overall profitability. This demonstrates that our business portfolio possesses both resilience and growth capability even amid adverse external conditions. Next, I'd like to explain the balance sheet. Current assets increased by JPY 3.198 billion to JPY 45.42 billion, primarily due to higher cash balances from increased net income. Although advances for overseas medical expenses declined, total advances rose by JPY 425 million due to higher advances for rent guarantees. Noncurrent assets increased by JPY 3.106 billion to JPY 32.47 billion, mainly due to construction costs for the new BPO center being built in Katagami City, Akita Prefecture. Total liabilities increased by JPY 5.205 billion to JPY 27.15 billion, reflecting a JPY 3.937 billion increase in borrowings, a JPY 436 million increase in bonus provisions and a JPY 389 million rise in contract liabilities. Noncurrent liabilities decreased slightly, mainly due to a JPY 140 million decline in deferred tax liabilities. Net assets showed only a slight increase overall. Although retained earnings grew due to higher net income, this was offset by dividend payments and the retirement of treasury stock in the previous fiscal year. This slide illustrates quarterly trends in net sales from past periods through the current interim period. As you can see, our group has maintained consistent growth. And in recent years, quarterly net sales have steadily accumulated. Looking specifically at this interim period, Q1 net sales were JPY 16.7 billion, and Q2 reached JPY 17.6 billion, representing strong growth compared with JPY 15.7 billion in the same quarter of the previous year. Next, please see the trend in quarterly operating profit. Operating profit for Q2 stood at JPY 2.321 billion compared with JPY 2 billion in the same period of the previous year. Despite cost pressures, we achieved solid profit growth through cost control efforts and higher revenues. Moving on to performance by segment. Overall, we believe our focus on both growth and efficiency worked effectively and in tandem during this period. Growth was primarily driven by the financial guarantee business and the Property business, while the results of selective optimization contributed to greater efficiency in the customer business. Next, let me explain the performance of each business segment. First, the Automotive business. Net sales increased 8.6% year-on-year to JPY 14.46 billion, while operating profit decreased 9.7% year-on-year to JPY 1.486 billion. Although sales rose due to successful price negotiations, as mentioned earlier, costs increased because we raised tariff for partner companies providing roadside services starting in July. In addition, heavy rain disasters, longer towing distances and extremely hot weather drove up on-site service costs, resulting in lower profits. On the other hand, in some client cases, the outcome of price negotiations was deferred to the second half of this fiscal year. There were also upfront costs related to new projects for connected cars of domestic automakers, which contributed to the year-on-year decrease in operating profit. These issues are expected to be resolved in the second half of this fiscal year, and we will launch new direct channel insurance, roadside assistance services and integrated contact centers for overseas automakers, reflecting continued strong demand that we plan to capture going forward. In recent years, particularly in the Tokyo Metropolitan area, partner companies providing roadside services have faced challenges due to labor shortages and business succession issues, leading to fewer available dispatch partners. To address this, our group has established service centers across Japan, including the Tokyo area, and we will continue to invest proactively to maintain and expand our service network. Next, the Property business. Net sales increased 20.5% year-on-year to JPY 4.833 billion, and operating profit rose 40% year-on-year to JPY 356 million. In the Park Assist business, profitability declined as we allocated additional personnel to address quality deterioration. Price negotiations did not progress, resulting in lower profit for parking-related projects. On the other hand, in the Home Assist business, the rental housing emergency dispatch services, which fully scaled up last fiscal year, gained traction. Additionally, profitability improved as we reviewed and revised contracts in multiple projects, driving overall growth in the property business. From the second half of this fiscal year through the next fiscal year, we are receiving multiple inquiries from housing lease and energy-related companies. For existing clients, we are also making proposals for integrated contact centers that cover both dispatch and customer service functions, and we will continue to pursue further growth. Next, the Global Business. Net sales increased 18.9% year-on-year, and operating profit grew 29.1% to JPY 712 million. The Healthcare Program for expatriates gained new clients and benefited from revised commission structures, contributing to higher earnings. Additionally, the number of overseas travel insurance claims handled continued to rise due to increased inflows from major non-life insurers, supported by the weaker yen, resulting in both revenue and profit growth. Looking ahead to the second half of this fiscal year and beyond, we expect continued strong demand, including the launch of healthcare programs for new clients and confirmed outsourcing contracts from a major general trading company. We will continue our efforts to ensure we capture all available opportunities. Next, I will discuss the customer business. Net sales were JPY 3.3 billion, showing a slight decline year-on-year. This was due to the withdrawal from several unprofitable projects in the previous fiscal year. However, operating profit increased 58.3% year-on-year to JPY 469 million, thanks to improved profitability. In this segment, our policy is not to pursue sales expansion indiscriminately, but to focus our resources on clearly profitable operations. We believe this strategic approach has supported overall company profitability. Next, the Financial Guarantee business. Net sales increased 15.8% year-on-year to JPY 5.86 billion. Property rent guarantee business performed strongly, driven by steady growth in high unit price products. Medical Care expense guarantee business and elder care expense guarantee business also posted robust growth of 41.6% and 55.4%, respectively, contributing to total revenue. Operating profit rose 22% year-on-year to JPY 1.388 billion, supported by higher revenue from the guarantee business. While commissions paid to property management companies and fees related to rent settlements increased, the allowance for doubtful accounts declined year-on-year and other costs were well controlled, resulting in improved profit margins. For the IT business and Social business, please refer to the presentation materials. As for our full year outlook, demand remains strong, and we continue to receive numerous new inquiries. However, in recent years, while many clients have accepted price revisions, some have started showing resistance as such negotiations have become routine, leading to prolonged discussions. Despite our ongoing efforts in recruitment, hiring has not kept pace with client demand, resulting in longer lead times from preparation to the start of operations. Additionally, unplanned wage increases driven by the rising minimum wage have added to cost pressures. Although business performance has been solid thus far, given these uncertainties, we have decided to maintain our current full year forecast at this stage. Next, let me move to shareholder returns. In accordance with our medium-term business plan, we plan to pay an interim dividend of JPY 13 per share and the same JPY 13 per share at year-end for an annual total of JPY 26. This represents a full year dividend payout ratio of 61.9%, achieving our shareholder returns policy of the medium-term business plan target of 60% or higher. In addition to dividends, we are also actively implementing share buybacks. During the first half of this fiscal year, we completed the share repurchase by August 14, acquiring 750,000 shares at a total cost of JPY 470 million. For the second half of this fiscal year, considering the record high profit achieved in this interim period as well as our current financial position and market conditions, we plan to repurchase approximately 1.45 million shares equivalent to about JPY 1.0 billion. As mentioned earlier, despite solid demand, we have been unable to secure the originally planned number of personnel and wage increases have exceeded forecast. The convention that labor costs should be absorbed through internal efficiency efforts has led to competitive pricing pressures in some cases. To overcome these challenges and build a growth model less dependent on workforce size, we believe DX digital transformation to automate and streamline routine operations is essential. To address structural dilemmas between maintaining operational stability and implementing transformational DX initiatives, we established the DX promotion headquarters on October 1, 2025. Led directly by the CEO, this new organization functions as both a centralized engine to drive company-wide strategy and a decentralized sensor to capture on the floor needs. By combining top-down leadership with bottom-up operational improvement, it serves as the core of management for driving both defensive and offensive transformation. Defensive DX focuses on strengthening the foundation. We will integrate fragmented data across group companies to build a unified corporate platform, thereby achieving company-wide operational efficiency and cost optimization. Offensive DX leverages our vast database of millions of real customer data sets accumulated annually, an area of our core strength. By analyzing this data using AI, we aim to deliver proactive services and create new digital businesses. This is our envisioned engine for value creation and growth. In the short-term, we will promote operational efficiency using general purpose AI. In the medium to long-term, we plan to develop proprietary AI models standardize and renew our operational system infrastructure and provide reskilling programs to help all employees acquire new digital skills. Lastly, as we have enhanced our earning power through this interim performance, we believe that now is the right timing to make strategic investments for the future to ensure sustainable corporate value growth. The establishment of the DX promotion headquarters, as introduced in the previous slide, lies at the heart of this vision. Through these future investments, we aim not only to achieve greater efficiency, but also to utilize our data to create new value, laying the foundation for our next mid- to long-term growth drivers. We will continue to pursue new revenue sources and innovation opportunities, including digital investments to drive sustainable growth. That concludes my presentation. Next, we will have a presentation from Mr. Nakamura, Head of Investor Relations, PR and IR division.

Thank you for the introduction. My name is Nakamura. I would like to add further detail to 3 points that Mr. Nishida mentioned earlier. Let me start with recruitment progress. I will explain using the bottom left chart. On the left-hand side of the slide, you can see a map of Japan with the locations of our BPO centers. To the right of each location, you will see colors in gray, light green, light blue or red. These indicate the operational rates at each site. Each BPO center has a different appropriate utilization target rate depending on when it was established, and the colors show the current progress toward those target levels. For example, the Iwate BPO Fortress established in June 2024 had an operation rate of approximately 30% as of the end of March 2025, according to our previous report. As of the end of September, it rose to 46%. Next, Akita BPO Daisen Branch established in April 2024 had an operation rate of 46% at the end of March 2025, which increased to 63% at the end of September 2025. At the top of the slide, the Aomori BPO Misawa Branch, which opened in April 2025, naturally had 0% utilization as of March 2025 prior to opening, but has since reached 56% as of the end of September 2025. Overall, our total utilization rate improved from 70.6% at the end of March to 73% at the end of September. While recruitment conditions remain tight, progress continues at each site and are steadily moving forward. Next, let me explain the progress of our DX initiatives. As mentioned earlier by Mr. Nishida, the DX promotion headquarters was established on October 1, 2025. Back in May 2025, during our full year financial results briefing, I discussed our DX activities utilizing generative AI. These include voice detect systems for automatic text summarization and voicebot/chatbot applications leveraging our knowledge base. We continue to expand the scope of these initiatives. The diagram shown here represents our vision for CX customer experience, which is expected to evolve further in sophistication going forward. On the left-hand side, you can see various communication tools through which customers contact us based on their individual preferences. For Prestige International Group, our core operations, such as assistance services and emergency services will continue to be handled by human operators who provide genuine hospitality. This is represented by the operator figure in the lower center of the diagram. At the same time, for services, mainly within the customer business where efficiency and speed are highly valued, we plan to leverage AI operators and bots. Through these diverse contact tools, we will appropriately route customer requests and provide services using the most suitable AI engines. In this way, we aim to build next-generation contact center solutions that seamlessly integrate human and AI support. Lastly, as mentioned earlier, in May 2024, we announced our eighth medium-term business plan, which includes new initiatives related to CASE and MaaS within our core automotive business. Today, I would like to introduce our first concrete step in realizing those initiatives. As announced on our website on October 3, 2025, Prestige International, together with Nissan and 2 other partner companies has begun a demonstration experiment of autonomous mobility services in the Minato Mirai and Kannai areas of Kanagawa Prefecture at the end of this month. Our group company, Premier Aid will play a key role by providing the following 3 services: one, real-time remote monitoring of autonomous vehicles. For example, if a vehicle stops unexpectedly during the test, we will detect it remotely and arrange for a tow truck if necessary. Two, passenger support services. During the demonstration, applicants from public volunteers will be invited to participate as passengers. If, for example, a passenger is not wearing a seat belt, our staff will remotely advise them to fasten it and confirm safety compliance. Three, emergency response services. This is one of Premier Aid's core strengths. In the unlikely event of a collision or injury, Premier Aid will place emergency calls such as contacting an ambulance or fire department. Through these initiatives, the PI Group will continue to take on new challenges that create added value. We remain committed to building safe and secure autonomous driving services and developing the mobility services of the future. That concludes my presentation.

Thank you very much for taking the time out of your busy schedules to attend our interim financial results briefing today. As Mr. Nishida and Mr. Nakamura have just explained the financial results and related details, I would like to offer a summary and share our overall direction as we reach the halfway point, 1.5 years of our current medium-term business plan. Since the onset of the COVID-19 pandemic, the market environment surrounding our business has changed significantly. In response to the post-pandemic environment, we have spent the past 2 years implementing numerous improvements and reforms. As Mr. Nishida mentioned earlier, demand remains very strong. However, in the past 2 years, we were in a phase of trying to capture as much demand as possible. To be candid, that approach is no longer sustainable. Across Japan, the labor shortage has become a critical issue, and we too face challenges in securing enough highly skilled personnel to meet all demand. Given these conditions, our group will be more selective in the businesses we pursue going forward. We will carefully choose which businesses to engage in and which partners to collaborate with, providing high value-added services together. I am confident that such a disciplined and deliberate approach will be key to driving the group's growth. Fortunately, in our closely related industries such as non-life insurance, automobile manufacturing and real estate, the Prestige International name has become well recognized as a trusted outsourcer and BPO provider. We intend to fully leverage this strong reputation. Until now, we have mainly developed and expanded our services in-house. Going forward, we plan to work more closely with various industry partners, forming alliances or even establishing joint ventures and subsidiaries to further expand our business. A major change in our approach concerns our BPO center expansion strategy. In recent years, we have been opening new centers across the Tohoku region at a pace of 1 every 2 to 3 years, including upfront investments. As explained earlier, there is still unused capacity in these centers. Our priority for the remainder of this medium-term business plan will be to fully utilize the capacity of these existing sites, developing more flexible and efficient recruitment strategies and building operational know-how to ensure we make the most of these prior investments. At the same time, within our existing operations, we see particularly strong demand and competitive advantage in our on-site service organization, such as roadside assistance and home assistance services for residential properties. These are areas with high demand and few competitors offering services with the same level of added value that our group company provides. For these businesses, we plan to continue making forward-looking investments to expand our service network under the current medium-term business plan. At present, we have approximately 800 on-site field personnel. And over the next 1.5 years, we aim to expand this to over 1,000 staff members. By doing so, we plan to enhance our customer service capabilities and broaden our regional coverage. In summary, during the remaining 1.5 years of our medium-term business plan, we will focus on selectively pursuing the right initiatives and executing them steadily. Beyond this period, we aim to partner with various companies to create new business value through collaboration and innovation. That concludes my remarks. Thank you very much for your kind attention. We will now move on to the Q&A session.

We will first take questions from the floor. Please note that due to time constraints, we may not be able to address all questions. Thank you for your understanding. Question regarding the establishment of the DX promotion headquarters on Page 24 of the materials, among your 7 business segments, in which areas do you expect to see the most significant transformation over the next 2 to 3 years? Could you share your current outlook or image? As the person responsible for the DX promotion headquarters, I would say that our main focus and where we expect to see the most improvement in both efficiency and specialization is in insurance-related operations, particularly in claims assessment. We are already implementing AI OCR technology, which automatically converts image data such as medical treatment invoices received from overseas hospitals into digital data. Until now, each employee manually reviewed and inputed these invoices, but with AI OCR, this entire process is handled by the system. Of course, final verification will still be performed by human staff, but this initiative will dramatically enhance operational efficiency. In addition, we are also promoting AI-based claims assessment. By training AI with accumulated assessment data, the system will be able to conduct automatic evaluations. As the accuracy of both AI OCR and AI assessment improves, it will lead to greater efficiency, faster processing and reduced personnel costs. We are currently advancing this initiative with full commitment. Question maybe a bit difficult to ask, but could you share your honest thoughts on your current stock valuation? Your business performance has been strong. And as a company that embodies a win-win-win philosophy, you've made significant contributions to regional revitalization, maintained high levels of hospitality for your workforce and introduced major shareholder return policies about 1.5 years ago, along with an ambitious medium-term business plan. However, over this period, the market seems not to have fully recognized your value. I'd appreciate your candid view on this point. Speaking as the group's representative, my honest view is that our current stock price does not yet fully reflect the true value of our group. This may partly be due to our limited communication efforts and insufficient information sharing with investors and individual shareholders. We intend to address this more proactively going forward. Although we are a BPO company, we are often compared with call center companies. Call center companies, by nature, rely heavily on human resources. And as such, investors tend to view them as being at risk of displacement by AI. We have felt this perception through our IR activities, especially among institutional investors. However, what we offer as Prestige International goes far beyond simple call handling. We streamline entire processes for clients and deliver service experiences that move and impress customers through our on-site field operations. We recognize the need to communicate this unique value proposition more clearly. As for shareholder returns, we have been implementing share buybacks and dividend distributions. But rather than focusing solely on these measures as stock price drivers, we believe it's important to reassess various aspects of our business strategy starting this fiscal year and into the next to ensure sustainable value creation. Based on your previous explanations, Prestige International has strong brand recognition across multiple sectors such as customer, real estate, automotive and insurance. Given your current positioning, I imagine you're in a situation where you can withdraw from low-margin clients if necessary. Over the next 1.5 years and beyond, we have high expectations for structural reforms and significant profitability improvements. We look forward to seeing further updates on these initiatives. Understood. Thank you very much. This concludes Prestige International's financial results briefing for the 6 months ending March 31, 2026. Thank you very much for your participation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]