No change in investment thesis

As a corporate engagement consulting firm, LMI (MC Y60 bn, TSE P) is structurally positioned to grow regardless of which sectors outperform in Japan. The nationwide labor shortage touches every industry—including AI—ensuring that demand for LMI’s core value proposition (improving employee engagement, retention, and productivity) remains broad‑based. Once the “death of SaaS” overhang clears, and as the company demonstrates steady progress in its second business pillar (the Recruiting Support) and the 3rd (Management Training Support), LMI should be able to resume its multi‑stage growth trajectory.

Growth is further supported by the company’s ability to identify attractive M&A targets based on its experience with organizations where employee engagement is strongly correlated with business expansion (e.g., OpenWork, FCE). While LMI’s mid‑term plan may appear aggressive, a portion of that ambition is underpinned by M&A, making the targets more achievable than they initially seem.

* A full description of LMI’s business model is available to my clients.

In simplified form, the company’s growth pathway has been:

·      The company started as an Engagement Consulting firm →

·      Then, LMI offered Engagement Cloud for large enterprises (delivering the consulting framework via cloud to lower price points and delivery costs) →

·      Recently, the company has launched Engagement Cloud for SMEs

Starting in 2026, incremental growth can come from new business lines, which the company is already preparing to layer on top of the existing platform.

Valuation is reasonable at EV/EBITDA at 8.9x, PE 17.5x, PB 4.7x for ROE 25.5%

In early April, the stock rallied roughly 20% on the announcement of a ¥6 billion share buyback program (about half of which has already been executed). However, the shares have since retraced despite reporting 13.4% operating profit growth in Q1 FY12/26 and guiding to 50% operating profit growth for FY12/26. The strong full‑year guidance is partly driven by the absence of the large cram‑school business write‑down that depressed FY12/25 results, but the market has not rewarded this improvement.

The market’s hesitation is driven primarily by two factors:

1.     Uncertainty around how Generative AI will affect the Engagement Cloud business,

2.     Skepticism toward the company’s aggressive mid‑term plan through FY12/30

My discussion with management centered on these two issues, and the full note is available to my clients.

If you’d prefer to start by sampling my work, I’d be happy to send it straight to your inbox at no cost. I’m confident that once you experience the depth, clarity, and practical value of my research, you’ll see why even clients with established Japan research teams find my perspective uniquely useful.

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