Services and key customers: Kanamic mainly provides cloud services in the healthcare and long-term care domains. Subscription fees are its main source of revenue. In FY09/20, the company had revenue of JPY1.9bn (+11.6% YoY) and operating profit of JPY654mn (+20.2% YoY); operating profit margin was 34.8% (+2.5pp YoY). The company operates in a single reportable segment that comprises three businesses: Kanamic cloud services (87.3% of FY09/20 revenue), platform services (8.0%), and other services (4.7%). The mainstay Kanamic cloud services business offers an information-sharing platform (allows the sharing of patient information among municipalities, medical associations*, and other parties involved in long-term care) and a long-term care (LTC) management system (helps improve the work efficiency of care managers and LTC service providers). The company’s services stand out for their information-sharing feature, which facilitates the exchange of information among various parties involved in healthcare/long-term care, resulting in more efficient and effective patient care. The database structure, programming structure, and concept behind the company’s service platform is protected by a patent (No. 4658225) up to 2031, making it difficult for a competitor to replicate them in the short term.* Local suborganizations of the Japan Medical Association

Marketing strategy: Kanamic first pitches its information-sharing platform to municipalities and medical associations. The strategy is to have the platform installed across the entire community to initially expand the number of free users. The company then works to increase uptake of its LTC management system among these free users, converting them to paying users. User counts are a key performance indicator (KPI) for the company.

Earnings structure: The LTC management system uses a recurring-revenue model, charging a fixed monthly subscription fee per contract. Total revenue is the product of the number of paid contracts, monthly service charge (subscription fee) per contract, and number of months. Fixed costs such as personnel expenses make up the bulk of Kanamic’s costs, and marginal profitability is high. The company says cancellation rates (figures undisclosed) are low, because the information-sharing platform carries patient data. A single subscription to the system costs JPY20,000–30,000/month (list price basis; options extra). The number of paid contracts for the LTC management system is not disclosed.

Breakeven point: At end-September 2020, 29,000 facilities* used the company’s cloud services. In FY09/20, revenue per facility (average service charge based on revenue reflecting all discounts and options) was roughly JPY5,100 per month (JPY61,000/year). Assuming the average service charge was JPY61,000 per year, cost of revenue and SG&A expenses were all fixed costs, and all revenue came from the Kanamic cloud services, we estimate that the breakeven point for FY09/20 was revenue of roughly JPY1.2bn, or about 20,000 contracts.* Number of facilities includes those with only free users (facilities that only use the information-sharing platform).

Competition: Other software catering to the long-term care industry include Kaipoke (used by over 31,000 facilities) by SMS (TSE1: 2175); Honobono NEXT (47,000 facilities) and Paruna by ND Software (delisted after management buyout in 2019); and Wiseman (44,000 facilities) and MeLL+ (2,800 facilities) by WISEMAN (delisted after management buyout in 2014). Many of the competitors specialize in fee statements and insurance claims software. Meanwhile, Kanamic’s service platform offers functions spanning sales management, payroll, timesheet, accounts receivable, and business analysis, and has information-sharing features that enable more efficient and effective patient care. Service providers in the long-term care industry are looking to improve productivity in the face of margin pressure due to changes in the law. Software dedicated to fee statements and insurance claims cannot handle the demands of such businesses and often gets replaced as a result.

Market share: As of May 2021, Kanamic operated only in Japan. Japanese laws require fee statements and insurance claims to be handled electronically, so all domestic long-term care operators have systems for these functions, but computerization lags for other processes. According to the company, as of March 2021, 31,000 LTC facilities used Kanamic’s service platform, accounting for about 10% of all LTC facilities in Japan.

Trends and outlook

In full-year FY09/21, the company reported revenue of JPY2.1bn (+10.6% YoY), gross profit of JPY1.8bn (+10.8% YoY), operating profit of JPY842mn (+28.6% YoY), recurring profit of JPY830mn (+22.6% YoY), and net income attributable to owners of the parent of JPY580mn (+22.6% YoY). Versus the revised full-year FY09/21 forecast, revenue reached 99.1%, operating profit 105.2%, recurring profit 103.7%, and net income attributable to owners of the parent 105.4%. Revenue in the mainstay Kanamic cloud services grew 13.1% (+8.9% in FY09/20). Meanwhile, revenue from the platform services fell 4.3% YoY, hurt by intensified competition with other COVID-19 countermeasure products.

FY09/22 forecast (initial): For FY09/22, Kanamic forecasts revenue of JPY2.4bn (+12.9% YoY), operating profit of JPY930mn (+10.5% YoY), recurring profit of JPY930mn (+12.1% YoY), net income attributable to owners of the parent of JPY640mn (+10.4% YoY), and EPS of JPY13.50. The company plans to pay a year-end dividend per share of JPY3.0. It has received an order from a major long-term care provider for its cloud services (to be introduced in FY09/23), and expects to incur upfront expenditures in FY09/22 for the introduction of the services. In terms of KPIs, the company targets paying user (ID) count of 105,000 (+17.6% YoY), free user (ID) count of 70,000 (+11.3% YoY), member facility count of 36,000 (+11.2% YoY), and member community count of 1,350 (+8.8% YoY). For 1H FY09/22, the company projects revenue of JPY1.1bn (+1.6% YoY), operating profit of JPY400mn (-4.5% YoY), recurring profit of JPY400mn (-5.5% YoY), net income attributable to owners of the parent of JPY275mn (-6.8% YoY), and EPS of JPY5.80.

Medium-term management plan (released November 2, 2021): On November 2, 2021, Kanamic announced a medium-term management plan ending FY09/24. For FY09/24, taking into account contributions from possible M&A deals, the company targets revenue of JPY5.3bn (CAGR of 37% from FY09/21 results), operating profit of JPY1.7bn (26%), and EBITDA of JPY2.1bn (29%). In case there are no such M&A deals, the company targets revenue of JPY3.3bn (CAGR of 17% from FY09/21 results), operating profit of JPY1.5bn (21%), and EBITDA of JPY1.8bn (23%). Its KPI goals for FY09/24 are paying user (ID) count of 154,000 (CAGR of 20% from FY09/21 results), free user (ID) count of 84,000 (10%), member facility count of 50,000 (16%), and member community count of 1,550 (8%). Shared Research plans to add more details of the plan after post-FY09/21 earnings announcement interviews with the company.

Strengths and weaknesses

Strengths
・Patent protecting the information-sharing platform until 2031, which makes it difficult for a competitor to replicate the platform
・Sales strategy that monetizes the information-sharing platform by increasing the number of free users in urban areas
・High marginal profitability with OPM rising in line with revenue growth

Weaknesses
・Business growth constrained by the industry’s paper-centric culture
・Operations (as of August 2021) centered in Japan where certified care recipients are expected to peak out in 2040
・Information-sharing platform geared to urban areas is less effective in rural settings with low population density

Key financial data

Income statement		FY09/15	FY09/16	FY09/17	FY09/18	FY09/19	FY09/20	FY09/21	FY09/22
(JPYmn)		Parent	Parent	Parent	Parent	Parent	Cons.	Cons.	Cons. Est.
Revenue		1,042	1,129	1,292	1,504	1,686	1,881	2,081	2,350
	YoY	-	8.4%	14.4%	16.5%	12.1%	11.6%	10.6%	12.9%
Gross profit		914	1,009	1,166	1,294	1,478	1,614	1,788
	YoY	-	10.4%	15.6%	11.0%	14.2%	9.2%	10.8%
	Gross profit margin	87.7%	89.3%	90.3%	86.0%	87.6%	85.8%	85.9%
Operating profit		244	264	330	399	545	654	842	930
	YoY	-	8.2%	25.1%	20.8%	36.5%	20.2%	28.6%	10.5%
	Operating profit margin	23.4%	23.4%	25.6%	26.5%	32.3%	34.8%	40.5%	39.6%
Recurring profit		244	252	331	381	543	677	830	930
	YoY	-	3.3%	31.1%	15.2%	42.7%	24.6%	22.6%	12.1%
	Recurring profit margin	23.4%	22.3%	25.6%	25.3%	32.2%	36.0%	39.9%	39.6%
Net income		161	165	223	257	358	473	580	640
	YoY	-	2.3%	35.3%	15.0%	39.4%	32.1%	22.6%	10.4%
	Net margin	15.5%	14.6%	17.3%	17.1%	21.2%	25.1%	27.9%	27.2%
Per-share data (split-adjusted; JPY)
Shares issued (year-end; '000)		7	3,561	24,066	48,132	48,132	48,132	48,132
EPS (JPY)		4.1	4.2	4.7	5.3	7.4	9.8	12.1	13.5
EPS (fully diluted; JPY)		-	3.7	4.6	-	-	-	12.0
Dividend per share (JPY)		-	10.0	1.7	0.8	1.0	2.0	2.5	3.0
Book value per share (JPY)		8.6	17.4	19.9	24.4	31.0	39.6	41.2
Balance sheet (JPYmn)
	Cash and cash equivalents	315	619	788	890	1,220	1,707	3,711
Total current assets		382	703	928	1,017	1,358	1,851	3,859
	Tangible fixed assets	56	47	52	49	63	51	79
	Intangible assets	176	205	260	340	324	306	364
	Investments and other assets	57	59	58	82	98	94	93
Total fixed assets		289	310	371	448	485	452	536
Total assets		672	1,014	1,298	1,488	1,843	2,303	4,395
	Short-term debt	26	19	16	16	-	-	-
Total current liabilities		258	221	311	299	341	385	420
	Long-term debt	55	36	20	4	-	-	2,004
Total fixed liabilities		74	48	32	16	12	12	2,016
Total liabilities		332	269	342	315	352	397	2,436
	Shareholders' equity	340	745	956	1,173	1,490	1,906	1,955
Total net assets		340	745	956	1,173	1,490	1,906	1,959
Total interest-bearing debt		81	55	36	20	-	-	2,004
Cash flow statement (JPYmn)
Cash flows from operating activities		267	205	346	369	527	635	757
Cash flows from investing activities		-116	-105	-137	-194	-136	-104	-216
Cash flows from financing activities		-42	204	-40	-74	-60	-48	1,459
Financial indicators
ROA (RP-based)		41.1%	29.9%	28.6%	27.3%	32.6%	32.7%	24.8%
ROE		62.3%	30.4%	26.2%	24.1%	26.9%	27.8%	30.0%
	Financial leverage (equity multiplier)	2.3	1.6	1.4	1.3	1.3	1.2	1.7
	Total asset turnover	1.8	1.3	1.1	1.1	1.0	0.9	0.6
	Net margin	15.5%	14.6%	17.3%	17.1%	21.2%	25.1%	27.9%

Source: Shared Research based on company data.
Note: Per-share data is adjusted for stock splits. Transitioned to consolidated results in FY09/20.

Kanamic cloud services: KPI

		End Sep. 2015	End Sep. 2016	End Sep. 2017	End Sep. 2018	End Sep. 2019	End Sep. 2020	2021年9月末	End Mar. 2017	End Mar. 2018	End Mar. 2019	End Mar. 2020	End Mar. 2021
Kanamic Cloud Services	Annual revenue (JPYmn)	849	937	1,111	1,299	1,508	1,643	1,858	538	628	735	807	893
Kanamic Cloud Services	YoY growth rate		10.3%	18.5%	17.0%	16.1%	8.9%	13.1%		16.7%	17.0%	9.8%	10.6%
No. of communities using Kanamic	No. at period-end	202	370	616	761	817	1,159	1,241	477	701	807	854	1,191
	YoY change		168	246	145	56	342	82		224	106	47	337
	YoY growth rate		83.2%	66.5%	23.5%	7.4%	41.9%	7.1%		47.0%	15.1%	5.8%	39.5%
No. of facilities using Kanamic	No. at period-end			18,218	21,719	25,075	28,953	32,155	17,066	20,059	23,637	26,565	30,536
	YoY change				3,501	3,356	3,878	3,202		2,993	3,578	2,928	3,971
	YoY growth rate				19.2%	15.5%	15.5%	11.1%		17.5%	17.8%	12.4%	14.9%
No. of IDs for free users	No. at period-end	12,487	15,949	24,865	31,324	36,814	43,554	62,874	19,729	28,695	34,565	38,188	52,416
	YoY change	1,894	3,462	8,916	6,459	5,490	6,740	19,320		8,966	5,870	3,623	14,228
	YoY growth rate	17.9%	27.7%	55.9%	26.0%	17.5%	18.3%	44.4%		45.4%	20.5%	10.5%	37.3%
No. of IDs for paying users	No. at period-end	31,389	35,472	46,002	57,487	70,210	78,964	89,267	41,217	51,877	65,163	76,137	82,834
	YoY change	6,615	4,083	10,530	11,485	12,723	8,754	10,303		10,660	13,286	10,974	6,697
	YoY growth rate	26.7%	13.0%	29.7%	25.0%	22.1%	12.5%	13.0%		25.9%	25.6%	16.8%	8.8%

Avg. service price per community (JPY'000/year)			3,276	2,253	1,887	1,911	1,663	1,548	2,543	1,909	1,876	1,933	1,520
Avg. service price per facility (JPY'000/year)					65	64	61	61		66	65	63	60
Avg. service price per paying ID (JPY'000/year)		30	28	27	25	24	22	22	28	26	24	22	22
Ratio of paying users		71.5%	69.0%	64.9%	64.7%	65.6%	64.5%	58.7%	67.6%	64.4%	65.3%	66.6%	61.2%
No. of facilities per community using Kanamic				30	29	31	25	26	36	29	29	31	26
No. of user IDs per facility				3.9	4.1	4.3	4.2	4.7	3.6	4.0	4.2	4.3	4.4

Source: Shared Research based on company materials. “Number of facilities” includes facilities that only have free users (only use the information-sharing platform).

Average service prices in the table above are calculated using the average between the beginning and yearend for the number of areas, facilities, and paid IDs.

In FY09/16, ID counts of paying users grew only 13.0% YoY, falling behind usual year levels. The main cause of this drop was the acquisition of a major service user by another company and the subsequent cancellation of contract with Kanamic. FY09/16 revenue from the Kanamic cloud services business grew just 10.3% YoY as a result. The pace of the increase in paying user IDs in FY09/20 slowed from the 22.1% YoY growth shown in FY09/19.In April and May 2020, when the government’s state of emergency was in effect, potential customers were slow to make decisions (lengthening the sales cycle) and potential as well as existing customers put off location development efforts.

Growth in the number of communities using the services trended downward in FY09/18 and FY09/19. However, FY09/16 and FY09/17 were a growth phase when the service uptake expanded as a result of the 2015 revisions to the Long-Term Care Insurance Act. The release of the Tokyo multi-occupational collaboration portal site allowed the company to receive orders from throughout the greater Tokyo Metropolitan area, leading to the number of communities using the company’s services rising by 41.9% YoY in FY09/20.

In FY09/17, the ID counts of free users grew 55.9% YoY, exceeding usual year levels. In 2015, the Long-Term Care Insurance Act was overhauled to improve the coordination between home healthcare and long-term care. The sharp increase in free users in FY09/17 is attributable to the initiatives taken by municipalities to integrate community healthcare and long-term care by the target date of April 2018.

Average service price per paid ID continued to fall, reflecting an increase in service utilization (growth in ID counts of paying users per facility [per contract]). Higher utilization rates lead to declining contract cancellation rates and more ad revenue, testament to the fact that the company’s strategy is unfolding as expected.

Recent updates

Medium-term management plan ending FY09/24

2021-11-02

On November 2, 2021, Kanamic announced a medium-term management plan ending FY09/24. For FY09/24, taking into account contributions from possible M&A deals, the company targets revenue of JPY5.3bn (CAGR of 37% from FY09/21 results), operating profit of JPY1.7bn (26%), and EBITDA of JPY2.1bn (29%). If there are no such M&A deals, the company targets revenue of JPY3.3bn (CAGR of 17% from FY09/21 results), operating profit of JPY1.5bn (21%), and EBITDA of JPY1.8bn (23%). Its KPI targets for FY09/24 are paying user (ID) count of 154,000 (CAGR of 20% from FY09/21 results), free user (ID) count of 84,000 (10%), member facility count of 50,000 (16%), and member community count of 1,550 (8%). Shared Research plans to add more details of the plan after post-FY09/21 earnings announcement interviews with the company.

Trends and outlook

Quarterly trends and results

Cumulative		FY09/19				FY09/20				FY09/21				FY09/21
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Revenue		378	833	1,246	1,686	420	909	1,366	1,881	533	1,043	1,555	2,081	99.1%	2,100
	YoY	8.5%	9.2%	10.2%	12.1%	11.0%	9.2%	9.6%	11.6%	27.1%	14.8%	13.9%	10.6%		11.6%
Gross profit		338	724	1,090	1,478	372	792	1,194	1,614	436	876	1,326	1,788
	YoY	9.1%	12.9%	12.6%	14.2%	10.1%	9.3%	9.6%	9.2%	17.1%	10.7%	11.0%	10.8%
	Gross profit margin	89.4%	87.0%	87.5%	87.6%	88.7%	87.1%	87.5%	85.8%	81.7%	84.0%	85.3%	85.9%
SG&A expenses		245	459	687	933	272	494	729	960	232	457	688	946
	YoY	18.2%	10.8%	5.7%	4.2%	10.9%	7.6%	6.1%	2.8%	-14.8%	-7.5%	-5.5%	-1.4%
	SG&A ratio	64.9%	55.2%	55.1%	55.3%	64.8%	54.4%	53.4%	51.0%	43.4%	43.8%	44.3%	45.5%
Operating profit		93	265	403	545	100	297	466	654	204	419	638	842	105.2%	800
	YoY	-9.4%	16.8%	26.7%	36.5%	8.2%	12.2%	15.5%	20.2%	103.5%	40.8%	36.9%	28.6%		22.2%
	Operating profit margin	24.5%	31.8%	32.4%	32.3%	23.9%	32.7%	34.1%	34.8%	38.2%	40.1%	41.0%	40.5%		38.1%
Recurring profit		93	265	403	543	102	317	485	677	207	423	642	830	103.7%	800
	YoY	-9.4%	16.8%	28.3%	42.7%	9.7%	19.7%	20.4%	24.6%	103.7%	33.5%	32.3%	22.6%		18.2%
	Recurring profit margin	24.5%	31.8%	32.4%	32.2%	24.2%	34.9%	35.5%	36.0%	38.8%	40.6%	41.3%	39.9%		38.1%
Net income		62	173	264	358	69	213	325	473	144	295	446	580	105.4%	550
	YoY	-8.1%	17.8%	28.7%	39.4%	11.8%	23.1%	23.2%	32.1%	106.9%	38.6%	37.3%	22.6%		16.4%
	Net margin	16.4%	20.8%	21.2%	21.2%	16.5%	23.4%	23.8%	25.1%	26.9%	28.3%	28.7%	27.9%		26.2%
Quarterly		FY09/19				FY09/20				FY09/21
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue		378	455	413	440	420	489	457	516	533	510	512	525
	YoY	8.5%	9.7%	12.3%	17.7%	11.0%	7.6%	10.6%	17.1%	27.1%	4.2%	12.1%	1.9%
Gross profit		338	386	366	388	372	420	403	420	436	441	450	462
	YoY	9.1%	16.5%	12.0%	18.8%	10.1%	8.6%	10.1%	8.3%	17.1%	5.0%	11.8%	10.1%
	Gross profit margin	89.4%	85.0%	88.6%	88.0%	88.7%	85.8%	88.1%	81.4%	81.7%	86.4%	87.9%	87.9%
SG&A expenses		245	214	227	246	272	223	234	231	232	226	231	258
	YoY	18.2%	3.4%	-3.4%	0.3%	10.9%	3.9%	3.0%	-6.2%	-14.8%	1.4%	-1.3%	11.6%
	SG&A ratio	64.9%	47.1%	55.1%	56.0%	64.8%	45.5%	51.3%	44.8%	43.4%	44.3%	45.1%	49.1%
Operating profit		93	172	138	141	100	197	168	189	204	215	219	204
	YoY	-9.4%	38.2%	51.4%	74.9%	8.2%	14.4%	21.8%	33.5%	103.5%	9.0%	30.0%	8.2%
	Operating profit margin	24.5%	37.9%	33.5%	32.1%	23.9%	40.3%	36.9%	36.6%	38.2%	42.1%	42.8%	38.9%
Recurring profit		93	172	138	140	102	216	168	192	207	216	219	188
	YoY	-9.4%	38.3%	58.4%	110.1%	9.7%	25.1%	21.7%	36.9%	103.7%	0.4%	30.1%	-2.0%
	Recurring profit margin	24.5%	37.9%	33.5%	31.8%	24.2%	44.1%	36.8%	37.2%	38.8%	42.4%	42.8%	35.7%
Net income		62	111	91	94	69	144	112	148	144	152	151	134
	YoY	-8.1%	39.8%	56.7%	81.5%	11.8%	29.4%	23.4%	56.8%	106.9%	5.6%	34.8%	-9.6%
	Net margin	16.4%	24.4%	21.9%	21.4%	16.5%	29.3%	24.5%	28.7%	26.9%	29.7%	29.5%	25.4%

Source: Shared Research based on company data. Transitioned to consolidated results from FY09/20.
Note: Figures may differ from company materials due to differences in rounding methods.

Revenue by service category

Cumulative			FY09/19				FY09/20				FY09/21
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Revenue			378	833	1,246	1,686	420	909	1,366	1,881	533	1,043	1,555	2,081
	YoY		8.5%	9.2%	10.2%	12.1%	11.0%	9.2%	9.6%	11.6%	27.1%	14.8%	13.9%	10.6%
	Kanamic Cloud Services		353	735	1,119	1,508	396	807	1,227	1,643	435	893	1,367	1,858
		YoY	13.6%	17.0%	16.2%	16.1%	12.1%	9.8%	9.6%	8.9%	10.0%	10.6%	11.4%	13.1%
		% of total	93.4%	88.3%	89.9%	89.5%	94.4%	88.9%	89.9%	87.3%	81.6%	85.6%	87.9%	89.3%
	Platform Services		17	47	64	87	15	33	59	150	67	95	122	144
		YoY	12.3%	45.3%	30.0%	29.6%	-10.7%	-30.1%	-7.6%	72.8%	346.5%	191.4%	106.2%	-4.3%
		% of total	4.5%	5.6%	5.1%	5.2%	3.6%	3.6%	4.3%	8.0%	12.6%	9.1%	7.8%	6.9%
	Other		8	51	62	91	9	69	79	89	31	55	67	79
		YoY	-64.3%	-50.5%	-47.1%	-34.2%	7.1%	36.0%	27.2%	-2.6%	259.7%	-19.8%	-15.7%	-10.5%
		% of total	2.1%	6.1%	5.0%	5.4%	2.0%	7.6%	5.8%	4.7%	5.7%	5.3%	4.3%	3.8%
Quarterly			FY09/19				FY09/20				FY09/21
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue			378	455	413	440	420	489	457	516	533	510	512	525
	YoY		8.5%	9.7%	12.3%	17.7%	11.0%	7.6%	10.6%	17.1%	27.1%	4.2%	12.1%	1.9%
	Kanamic Cloud Services		353	382	384	389	396	411	420	416	435	458	474	491
		YoY	13.6%	20.4%	14.7%	15.8%	12.1%	7.7%	9.3%	6.9%	10.0%	11.2%	12.8%	18.2%
		% of total	93.4%	84.1%	92.9%	88.3%	94.4%	84.1%	91.9%	80.6%	81.6%	89.8%	92.5%	93.5%
	Platform Services		17	30	17	23	15	18	26	91	67	28	27	22
		YoY	12.3%	74.4%	1.2%	28.4%	-10.7%	-41.1%	53.1%	297.4%	346.5%	57.8%	1.0%	-76.0%
		% of total	4.5%	6.5%	4.2%	5.2%	3.6%	3.6%	5.8%	17.6%	12.6%	5.4%	5.2%	4.2%
	Other		8	43	12	29	9	60	11	9	31	24	12	12
		YoY	-64.3%	-46.6%	-25.5%	40.0%	7.1%	41.4%	-10.5%	-67.6%	259.7%	-59.3%	10.3%	34.5%
		% of total	2.1%	9.4%	2.9%	6.5%	2.0%	12.3%	2.3%	1.8%	5.7%	4.8%	2.3%	2.4%

Source: Shared Research based on company data. In FY09/20, Content Services was renamed Platform Services.

Progress versus initial company forecasts

Progress versus Init. Est.				FY09/19				FY09/20				FY09/21
				Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Total revenue				22.6%	49.9%	74.6%	101.0%	22.6%	48.9%	73.4%	101.2%	25.4%	49.7%	74.1%	99.1%

Source: Shared Research based on company data

Full-year FY09/21 results

Summary

In FY09/21, the company reported revenue of JPY2.1bn (+10.6% YoY), gross profit of JPY1.8bn (+10.8% YoY), operating profit of JPY842mn (+28.6% YoY), recurring profit of JPY830mn (+22.6% YoY), and net income attributable to owners of the parent of JPY580mn (+22.6% YoY).

Versus the revised full-year FY09/21 forecast, revenue reached 99.1%, operating profit 105.2%, recurring profit 103.7%, and net income attributable to owners of the parent 105.4%.

Revenue in the mainstay Kanamic cloud services business increased 13.1% YoY (+8.9% in FY09/20). Meanwhile, revenue from the platform services fell 4.3% YoY due to increased competition with other COVID-19 countermeasure products.

GPM was largely flat YoY. The SG&A expense ratio fell 5.5pp YoY to 45.5% due to two main factors. First, research and testing expenses declined as planned, since the joint research period with Asahikawa Medical University in Hokkaido reached its final fiscal year (in Q1 FY09/20, the company reported joint research expenses of about JPY30mn). Second, the company introduced teleworking, remote conferencing, and other means of streamlining operations that enabled it to curtail travel expenses and improve operational efficiency beyond its initial plan. As a result, OPM was up 5.7pp YoY to 40.5%.

For FY09/22, Kanamic forecasts revenue of JPY2.4bn (+12.9% YoY), operating profit of JPY930mn (+10.5% YoY), recurring profit of JPY930mn (+12.1% YoY), net income attributable to owners of the parent of JPY640mn(+10.4% YoY), and EPS of JPY13.50. The company plans to pay a year-end dividend per share of JPY3.0. The company says that it has confirmed an order for its cloud services (to be introduced in FY09/23) from a major long-term care provider and that it expects to incur upfront expenditures in FY09/22 for the introduction of the services. In terms of KPIs, the company targets paying user (ID) count of 105,000 (+17.6% YoY), free user (ID) count of 70,000 (+11.3% YoY), member facility count of 36,000 (+11.2% YoY), and member community count of 1,350 (+8.8% YoY). For 1H FY09/22, the company projects revenue of JPY1.1bn (+1.6% YoY), operating profit of JPY400mn (-4.5% YoY), recurring profit of JPY400mn (-5.5% YoY), net income attributable to owners of the parent of JPY275mn (-6.8% YoY), and EPS of JPY5.80.

On November 2, 2021, Kanamic announced a medium-term management plan ending FY09/24. For FY09/24, taking into account contributions from possible M&A deals, the company targets revenue of JPY5.3bn (CAGR of 37% from FY09/21 results), operating profit of JPY1.7bn (26%), and EBITDA of JPY2.1bn (29%). In case of no such M&A deals, the company targets revenue of JPY3.3bn (CAGR of 17% from FY09/21 results), operating profit of JPY1.5bn (21%), and EBITDA of JPY1.8bn (23%). Its KPI targets for FY09/24 are paying user (ID) count of 154,000 (CAGR of 20% from FY09/21 results), free user (ID) count of 84,000 (10%), member facility count of 50,000 (16%), and member community count of 1,550 (8%). Shared Research plans to add more details of the plan after post-FY09/21 earnings announcement interviews with the company.

Revenue by service category

Kanamic cloud services

In FY09/21, revenue amounted to JPY1.9bn (+13.1% YoY). In addition to its ongoing recurring revenue business with existing customers, the company continued to add new customers.

In terms of KPIs in FY09/21, paying user (ID) count came to 89,000 (+13.0% YoY), free user (ID) count 63,000 (+44.4% YoY), member facility count 32,000 (+11.1% YoY), and member community count 1,241 (+7.1% YoY).

While the spread of COVID-19 resulted in some long-term care providers, the company’s leading customers, limiting activity in their respective long-term care businesses (for example, cancellation of Kanamic cloud services), the company indicated at its full-year results announcement that this factor had only a marginal impact on earnings.

Platform services

In FY09/21, revenue was JPY144mn (-4.3% YoY).

The business has a stable revenue base of website development work outsourced from major long-term care (LTC) service providers and contract production, operation, and management of websites for LTC service providers introduced through the Care Work Foundation. In FY09/21, the company provided online advertising services related to long-term care, as well as various services including the sale of COVID-19-related products through information sharing platforms. However, intensifying competition with other providers of COVID-19-related products weighed on revenue.

Other services

In FY09/21, revenue was JPY79mn (-10.5% YoY). Revenue fell despite customized development for major customers, due to a decline in outsourced work from local governments amid the COVID-19 crisis.

Full-year company forecast for FY09/22

		FY09/20			FY09/21			FY09/22
(JPYmn)		1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	1H Est.	2H Est.	FY Est.
Revenue		909	973	1,881	1,043	1,038	2,081	1,060	1,290	2,350
	YoY	9.2%	14.0%	11.6%	14.8%	6.7%	10.6%	1.6%	24.3%	12.9%
Cost of revenue		117	150	267	167	126	293
Gross profit		792	822	1,614	876	912	1,788
	Gross profit margin	87.1%	84.5%	85.8%	84.0%	87.9%	85.9%
SG&A expenses		494	465	960	457	489	946
	SG&A ratio	54.4%	47.8%	51.0%	43.8%	47.1%	45.5%
Operating profit		297	357	654	419	423	842	400	530	930
	YoY	12.2%	27.7%	20.2%	40.8%	18.5%	28.6%	-4.5%	25.3%	10.5%
	Operating profit margin	32.7%	36.7%	34.8%	40.1%	40.8%	40.5%	37.7%	41.1%	39.6%
Recurring profit		317	360	677	423	407	830	400	530	930
	YoY	19.7%	29.3%	24.6%	33.5%	13.0%	22.6%	-5.5%	30.3%	12.1%
	Recurring profit margin	34.9%	37.0%	36.0%	40.6%	39.2%	39.9%	37.7%	41.1%	39.6%
Net income		213	260	473	295	284	580	275	365	640
	YoY	23.1%	40.5%	32.1%	38.6%	9.5%	22.6%	-6.8%	28.3%	10.4%
	Net margin	23.4%	26.7%	25.1%	28.3%	27.4%	27.9%	25.9%	28.3%	27.2%

Source: Shared Research based on company data

Initial full-year company forecast (November 2, 2021)

For full-year FY09/22, Kanamic forecasts revenue of JPY2.4bn (+12.9% YoY), operating profit of JPY930mn (+10.5%), recurring profit of JPY930mn (+12.1%), net income attributable to owners of the parent of JPY640mn (+10.4%), and EPS of JPY13.50. The company plans to pay a year-end dividend per share of JPY3.0.

The company says that it has confirmed an order for its cloud services (to be introduced in FY09/23) from a major long-term care provider and that it expects to incur upfront expenditures in FY09/22 for the introduction of the services.

In terms of KPIs, for FY09/22 the company targets paying user (ID) count of 105,000 (+17.6% YoY), free user (ID) count of 70,000 (+11.3% YoY), member facility count of 36,000 (+11.2% YoY), and member community count of 1,350 (+8.8% YoY).

For 1H YF09/22, Kanamic projects revenue of JPY1.1bn (+1.6% YoY), operating profit of JPY400mn (-4.5% YoY), recurring profit of JPY400mn (-5.5% YoY), net income attributable to owners of the parent of JPY275mn (-6.8% YoY), and EPS of JPY5.80.

Initial forecasts versus results

A comparison of historical initial forecasts and results shows that revenue forecasts are highly accurate. This is because the company mainly operates a recurring-revenue business. On the profit front, we can see from past results that forecasts were somewhat conservative.

Initial forecasts and results

Results vs. Initial Estimates			FY09/16	FY09/17	FY09/18	FY09/19	FY09/20	FY09/21
(JPYmn)			Parent	Parent	Parent	Parent	Cons.	Cons.
Revenue	Initial Est.		1,104	1,270	1,500	1,670	1,860	2,100
	Result		1,129	1,292	1,504	1,686	1,881	2,081
		Vs. Initial Est.	2.3%	1.7%	0.3%	1.0%	1.2%	-0.9%
Operating profit	Initial Est.		259	280	360	450	610	730
	Result		264	330	399	545	654	842
		Vs. Initial Est.	1.9%	17.9%	10.8%	21.0%	7.3%	15.3%
Recurring profit	Initial Est.		249	280	332	440	630	730
	Result		252	331	381	543	677	830
		Vs. Initial Est.	1.3%	18.0%	14.7%	23.5%	7.5%	13.7%
Net income	Initial Est.		162	170	230	290	410	510
	Result		165	223	257	358	473	580
		Vs. Initial Est.	1.9%	31.3%	11.6%	23.4%	15.3%	13.6%

Source: Shared Research based on company data

Medium-term management plan (released November 2, 2021)

Because it is difficult to predict the timing of earnings contributions from possible M&A deals, the company assumed that such contributions would be booked in FY09/24. The company noted, however, that it did not take into consideration goodwill amortization.

For FY09/23, Kanamic targets revenue of JPY2.8bn, operating profit of JPY1.2bn, and EBITDA of JPY1.4bn. In terms of KPIs for FY09/23, it aims to have paying user (ID) count of 138,000, free user (ID) count of 77,000, member facility count of 43,000, and member community count of 1,450. The company said that it confirmed an order for its cloud services (to be introduced in FY09/23) from a major long-term care provider, and that it expected to book upfront expenditures in FY09/22 for the introduction of the services.

M&A strategy (announced July 2021)

The company set out its M&A strategy along with its July 2021 announcement regarding the issuance of warrants and convertible bonds.

Basic approach

The company is looking into acquisitions to reinforce and expand three elements of its medium-term vision, namely, business contents, business reach, and business tools. Its aim is to find businesses that have synergies with its existing Kanamic cloud services business and for its existing business and target to each accelerate growth subsequently.

Business contents: Develop Personal Health Record (PHR) schemes to manage health from cradle to grave.

Business reach: Provide services for people the world over, not just those in Japan.

Business tools: Build healthcare platform to provide value to all individual and corporate users.

* Personal Health Record (PHR)
This refers to a scheme which collects health-related information that is scattered among medical institutions and pharmacies in one location for centralized management over the course of a lifetime. This may include basic data such as height, weight, blood type, allergies, history of side effects, as well as records of treatment from medical institutions, prescription records from pharmacies, results from sports gyms, and weight and blood pressure data measured at home.

Potential candidates for M&A (including alliances) in the business contents space

The company aims to build a Kanamic PHR platform at an early stage in collaboration with businesses that align with its vision and have synergies. It is also considering in-person facilities to acquire data. Specific areas of interest include: (1) companies with technology and expertise in development and application in data record tools used in personal health record (PHR) management in all stages of life, (2) companies providing in-person services in longevity healthcare, physician, nursing, and pharmacy services that will position the company to acquire a range of healthcare data and hasten the addition of new features to its platform for Kanamic cloud services to facilitate PHR management, and (3) companies with health-related technology and systems, including AI-based health check systems, electronic medical records systems, and systems related to nursing, pharmacy, and childcare. Candidates are classified according to the four quadrants shown following. The company intends to increase points of contact with potential targets with this calssification.

IT services with healthcare, nursing care, and childcare businesses

Systems for electronic health records, nursing care, pharmacy, and childcare. Would also include services for governments.

IT services with healthcare and wellness businesses

Healthcare technology, AI technology, health check systems, and custom development projects.

Brick and mortar facilities with healthcare, nursing care, and childcare businesses

Healthcare, nursing care, and pharmacy services.

Brick and mortar facilities with healthcare and wellness businesses

Services targeting healthy longevity (food, nutrition, exercise, and communities).

Anticipated size of M&A deals

Net proceeds from the issuance of convertible bonds and warrants announced in July 2021 amount to JPY4.9bn (JPY2.0bn has already been raised). The company plans to allocate the entire amount by May 2026 on acquisitions to grow its existing business, expand service areas with the aim of strengthening its platform capabilities, launch in-person services including healthcare, expand overseas, and strengthen its brand portfolio. If the entire amount has not been allocated to M&A by the end of May 2026, the company plans to use it for subsequent M&A activities.

The company may also raise debt to execute a future M&A deal, an acquisition could be bigger than the net proceeds outlined above. The company has not set minimum or maximum sizes for any potential deal, and said while a number of smaller deals might be possible, as would a large deal.

Business

Business model

Kanamic mainly provides cloud services in the healthcare and long-term care domains.

In FY09/20, the company had revenue of JPY1.9bn (+11.6% YoY) and operating profit of JPY654mn (+20.2% YoY); operating profit margin was 34.8% (+2.5pp YoY).

The company operates in a single reportable segment that comprises three businesses: Kanamic cloud services (87.3% of FY09/20 revenue), platform services (8.0%), and other services (4.7%).

In Kanamic cloud services, the company offers an information-sharing platform and a long-term care (LTC) management system. The information-sharing platform allows the exchange of patient information among municipalities, medical associations*, and other parties involved in community healthcare/long-term care, while the management system helps improve the work efficiency of care managers and LTC service providers. The Kanamic cloud services stand out for their information-sharing feature aimed at providing more efficient and effective care to patients. Kanamic has a patent (No. 4658225) that protects the database structure, programming structure, and concept behind its service platform up to 2031, so it would be difficult for another company to replicate them in the short term.

In platform services, the company handles healthcare- and long-term care-related ads that target Kanamic cloud services users.

Business structure