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Measures to achieve cost of capital and share price conscious management

Starting from the Fifth Medium-Term Management Plan, we will realize medium- to long-term enhancement of corporate value and sustainable growth by promoting fundamental initiatives such as active growth investment, review of the level of non-business assets, and expansion of shareholder returns, while giving adequate consideration to our cost of capital cost and capital returns.

Analysis and evaluation of the current situation

ROE exceeds cost of shareholders' equity (equity spread [ROE - cost of shareholders' equity] is positive)

ROE
  • The above cost of shareholders' equity is the cost of equity based on the CAPM 2 factor model (including liquidity risk premium).

P/B and P/E are below the average of the medical equipment sector

  • P/B
  • P/E
  • P/B and P/E in the above chart are calculated by dividing the closing share price at the end of the period by the net assets per share and the net income per share for each fiscal year.
  • As of October 1, 2024, the Company implemented a 2-for-1 stock split of common stock. To ensure consistency with FY3/25 results, year-end share prices for fiscal years prior to FY3/24 are presented on an adjusted basis reflecting the stock split.
  • Industry P/B and P/E ratios are based on our research using statistics from the Japan Stock Exchange as a reference.

Issues to be addressed and initiatives

Based on our analysis and evaluation of the current situation, we will proceed with the following initiatives.

1. Enhance capital returns

In FY3/28, which is the final year of the Fifth Medium-Term Management Plan, we are targeting ROE of 13.5% up from 10.3% in FY3/25, by promoting the significant issues in pursuit of the ¥50 billion Vision and mainly by improving the net income margin.

2. Improvement of liquidity in the stock market

We decided to conduct a 2-for-1 stock split with a record date of October 1, 2024 in order to improve the situation in which low trading volume and trading value add to our cost of capital as a liquidity risk premium.
In FY3/25, we ranked in the top 59% of companies listed on the Tokyo Prime Market in terms of daily trading value (¥243 million) and annual turnover (0.77x).

Implementation of stock split

Purpose

Reduction of minimum investment amount
Improvement of stock liquidity
Expansion of investor base

Method

2-for-1 split of shares of common stock (Record date September 30, 2024)

Number of shares to be increased by the stock split

Total number of issued shares before the split 17,894,089
Total number of issued shares after the split 35,788,178

Schedule

Public notice of record date: September 13, 2024
Record date: September 30, 2024
Effective date: October 1, 2024

3. Strengthen IR activities

In order to bridge the perception gap between our growth story and investors understanding of it, we will advance timely and accurate approaches to a wide range of investors.

Initiatives Undertaken to Enhance Dialogue with Investors
  • Financial results briefings for analysts and institutional investors (twice a year: full-year / second quarter)
  • One-on-one meetings conducted mainly by Officer in Charge of Corporate Planning (98 times in FY3/24, including 34 for foreign investors)

IR Policies during the Current Medium-Term Management Plan
  • Increase the frequency of participation by the Represeantive Director & President in one-on-one meetings
  • Considering Outside Director Participation in Investor Dialogue
  • Strength the functions of the department in charge of IR
  • Strengthen our approach to foreign investors by holding overseas road shows, etc.
  • Timely disclosure to foreign investors enhanced through simultaneous release of Japanese and English materials.

Initiatives During FY3/25
  • Europe, twice; total 8 days; 23 institutions Europe, twice; total 8 days; 23 institutions
  • Held technical briefings for institutional investors (small-group meetings)
  • President actively participated in 1-on-1 meetings
  • Disclosed supplementary presentation materials for 1Q and 3Q, for which no earnings briefings are held

Key Changes in FY3/25
  • Held 262 1-on-1 meetings (incl. 112 with foreign investors), approx. 3x vs the previous FY
  • Foreign ownership ratio increased to 13.4%(up 0.76 percentage points year on year)
  • Increased analyst coverage(With coverage started at two new firms: Mizuho Securities and Nomura Securities)

Initiative Plans Beyond FY3/26
  • Quarterly earnings briefings held for analysts and institutional investors
  • English disclosures of the Annual Securities Report and Corporate Governance Report
  • Mirror IR website in English
  • Regular overseas roadshows planned (including the US, Europe, and Asia)
  • Dialogue planned between investors and outside directors

4. Clarification of capital policy / Enhancement of shareholder returns

  • Record high growth investment, centered on production-related investment. Investments will be funded by operating cash flow generated during the medium-term management plan, the sale of strategic-shareholdings, and debt finance
  • Enhancement of shareholder returns

Active investment for growth

Sale of strategic-shareholdings

Enhancement of shareholder returns

Increase supply capacity

  • Kyoto head office plant (filling and restorative materials)
  • Two domestic manufacturing subsidiaries
    Expansion of production facilities, reorganization of production items and processes between head office and subsidiary plants
  • Establishment of second production base in China
  • Expansion of plant in Vietnam

Total of ¥9 billion over 4 years
(Excluding investment in logistics for overseas sales bases)

FY3/24-end ownership status

  • Market value: approx. ¥4.9 billion*
  • Market value: ¥8.9 billion*
  • Ratio to net assets: approx. 20%

Amount to be sold: ¥4 billion

Plan for FY3/28-end

  • Market value: approx. ¥4.9 billion*
  • Ratio to net assets: approx. 10%

Current numerical target

  • Consolidated payout ratio 30% or more
  • DOE (dividends on equity) 1.7% or more

Payout ratio

+10pt

DOE

+1.3pt

Revised numerical target after enhancement

  • Consolidated payout ratio 40% or more
  • DOE 3.0% or more

* Calculated at market price as of the end of FY3/24.

Capital allocation

Against cash flows from operating activities of ¥17.6 billion during the Fifth Medium-Term Management Plan (FY3/25-28), we plan to make capital investments and loans of ¥15.3 billion and return ¥7.4 billion to shareholders.
The excess of spending over cash flows from operating activities will be covered by the sale of strategic-shareholdings and interest-bearing debt. Net cash * is expected to decrease by ¥5.8 billion

  • Net cash = cash and deposits + investment securities - interest-bearing debt

Reference:

May 9, 2025

Measures to achieve cost of capital and share price conscious management (UPDATE)

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