COMPANY RESEARCH AND ANALYSIS REPORT

Medical System Network Co., Ltd.
4350
Tokyo Stock Exchange First Section

30-Jun.-2017
FISCO Ltd. Analyst

Yuzuru SatoFISCO Ltd.
http://www.fisco.co.jp

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Double-digit profit decline in FY3/17 mainly due to the impact of revisions to dispensing feesand drug prices...........................................................................................................................................

01

2. Aims to rebound to double-digit earnings growth in FY3/18 with the dispensing pharmacy
business as a driver.....................................................................................................................................

01

3. Focus on group reorganization and initiatives in home medical services. ....................................................

02■Business overview---------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. Pharmaceutical network business.. ..............................................................................................................

04

2. Dispensing pharmacy business............. ......................................................................................................

06

3. Rental & medical facilities-related business. ................................................................................................

06

4. Catering business........................................................................................................................................

07

5. Other businesses................................... ......................................................................................................

07■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 08
1. Summary of the FY3/17 results....................................................................................................................

08

2. Earnings by business segment.............. ......................................................................................................

09

3. Financial position and management indicators. ...........................................................................................

13■Business outlook-------------------------------------------------------------------------------------------------------------------------------------------------------- 14
1. Forecast for FY3/18.....................................................................................................................................

14

2. Outlook by segment. . ...................................................................................................................................

15■Group reorganization and home medical service initiatives-------------------------------------------- 18
1. Group reorganization............................. ......................................................................................................

18

2. Initiatives in the home medical service... ......................................................................................................

20■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 21

We encourage readers to review our complete legal statement on “Disclaimer” page.

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/██SummaryHopes to realize double-digit earnings growth in FY3/18 on recovery
in the dispensing pharmacy business
Medical System Network Co., Ltd. <4350> (hereafter, also “the Company”) operates two main businesses: a pharmaceutical network business that caters to small and mid-sized pharmacies and a dispensing pharmacy business.
The increase pace in network members has started accelerating with a tailwind from changes in the environment
facing dispensing pharmacy and brings within sight the Company’s goal of 5,000 members, which amounts to amarket share of about 10%. In dispensing pharmacy business, the Company aims to reach ¥300bn in consolidated
sales in 10 years from now through a strategy of expanding the number of stores utilizing M&A.
1. Double-digit profit decline in FY3/17 mainly due to the impact of revisions to dispensing fees and drug
pricesIn FY3/17 consolidated results announced on May 9, the Company sustained sales growth with a 1.3% YoY rise in
net sales to ¥88,865mn, but operating profit dropped sharply by 44.1% to ¥2,113mn. While the main setback wasa hefty decline in profits from the dispensing pharmacy business because of impacts from dispensing fee revisions
and drug price reductions, earnings were also lower in all other segments, including rental & medical facilities-related
business and catering business. Pharmaceuticals network business, meanwhile, expanded at a faster pace thanplanned with an increase of 370 members to 1,770 members at the end of March. Interest in the Company’s network
service, which gives a boost to management efficiency, is rising amid an increasingly difficult business environment
in the dispensing pharmacy industry, particularly with the growth in membership of larger dispensing pharmacies
running 10-20 stores.
2. Aims to rebound to double-digit earnings growth in FY3/18 with the dispensing pharmacy business as adriver
The Company guides for FY3/18 consolidated results with ¥95,000mn in net sales (+6.9% YoY) and ¥3,100mn inoperating profit (+46.7%), rebounding to a double-digit increase. The plan expects about 60% of the profit increase
from the dispensing pharmacy business on likely manifestation of benefits from responses to dispensing fee revisions.
It also factors in a contribution to higher earnings from the pharmaceutical network business with an addition of 430
members YoY to 2,200 members. While it projects continuation of losses in other businesses, the Company hopes
to contract losses by implementing various measures. The targets are lower than the business goals of ¥105,000mn
in net sales and ¥4,000mn in operating profit in FY3/18, the final year of the 4th Medium-term Management Plan.
However, the shortfall primarily reflects lower number of stores in the dispensing pharmacy business than envisioned
in the plan (407 stores expected in FY3/18 guidance vs. 500 stores in the medium-term plan) due to not having
enough M&A opportunities that meet the Company’s desired terms. Downward revision of FY3/17 forecasts appears
to have influenced the conservative plan for FY3/18.

We encourage readers to review our complete legal statement on “Disclaimer” page.

01 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Summary

3. Focus on group reorganization and initiatives in home medical services
The Company intends to merge three Hokkaido companies in the dispensing pharmacy business in July 2017 andabsorb three consolidated subsidiaries itself in October 2017 with the aim of building an optimized group organizationthat targets growth. Primary reorganization goals are cost savings from elimination of overlapping functions amongorganizations, enhanced group governance and faster decision-making, and concentration of business resourcesin pharmaceutical network and dispensing pharmacy businesses. We think this reorganization should strengthen
profitability and boost growth potential. Additionally, the Company will begin steady rollout nationwide in FY3/18
of prescription drugs delivery service and shopping-support service, which it started as test offerings throughcollaboration with JAPAN POST Co., Ltd. in FY3/17, as home medical services. These services should be closely
watched as initiatives likely to raise profitability in the dispensing pharmacy business because they lighten work loadon pharmacists and diversify income sources for dispensing pharmacies.
Key Points
Guides for a rebound to double-digit earnings growth in FY3/18 led by the two main businesses
Increase pace in member stores for the pharmaceutical network business is picking up• Expecting boosts to profitability and growth potential from reorganization; also headed toward nationwide
rollout of home medical services••㻯㼛㼚㼟㼛㼘㼕㼐㼍㼠㼑㼐㻌㼞㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕㻔¥㼙㼚㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕

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Source: Prepared by FISCO from the Company's financial results

We encourage readers to review our complete legal statement on “Disclaimer” page.

02 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/██Business overview
The pharmaceutical network business and the dispensing pharmacy
business are the two main businesses
The Company has two main businesses: the pharmaceutical network business and the dispensing pharmacy
business. It is also undertaking peripheral businesses through its respective subsidiaries, including a rental &medical facilities-related business, catering business, a clinical trial facilities support business, and a home visit
nursing business. The pharmaceutical network business is conducted by the Company and its subsidiaries, System
Four and H&M Corp, while the dispensing pharmacy business is conducted by PHARMAHOLDINGS Co., LTD., its
subsidiaries and the Hokkaido Institute for Pharmacy Benefit Co., Ltd.
*	The Company concluded a basic agreement with EP-SOGO Co., Ltd. regarding the transfer of SMO-MDS Co., Ltd. shareson May 19, 2017.

The Group (as of May 1, 2017)
100 ％

100 ％

49.0 ％
2.0 ％System Four

100 ％Pharmaceutical network business

100 ％

100 ％

100 ％

Compha100 ％【In southern Hokkaido】

100 ％【In northern and eastern Hokkaido】

100 ％【In Kanto and Koshinetsu, Tohoku, and Tokai areas】

100 ％【In Tokai and Hokuriku】

100 ％【In Tokai】

100 ％【In Kinki, Chugoku and Shikoku】

100 ％【In Kinki】

100 ％【In Kinki】

100 ％【In Kyushu and Chugoku】

Apos

Development & sales of dispensing systems

H&M Corp
Enhance pharmaceutical distribution efficiency【Joint venture with Hanshin Dispensing Holdings】

PHARMAHOLDINGS CO., LTD.
Medical System Network Co., Ltd.

【In central Hokkaido】

A holding company operatingin the dispensing pharmacy businessHokkaido Institute for Pharmacy Benefit Co., Ltd.
Data analysis on pharmaceutical productsBook publishing business

SKI Pharmacy
Sun Medic

CR Medical
Taiyo

Kyoei Pharmacy

Ikaruga Pharmacy
Healthy Trust

Nihon Leben
Rental & medical facilities-related businessSupport services for clinical trials facilities

100 ％(including one healthcare center, eight drug pharmacies, and one home visit nursing station)*Agrimas Corp. is a non-consolidated subsidiary.

【Catering】

Kyushu Iryo Shoku Co., Ltd.
Sakura Foods Co., Ltd.
※

77.7 ％

Number of Group’s pharmacies: 393 pharmacies

Total Medical Service

100 ％SMO Medicis Co., Ltd.

【Care prevention day service and care prevention program distribution 】

Agrimas Corp.*【Home visit nursing business】

Home-Visit Nursing Care Station Himawari Co., Ltd.

Source: Prepared by FISCO from the Company's results briefing materials

Looking at the breakdown by business segment, we see that in FY3/17, the dispensing pharmacy business provided 89% of total net sales, while for operating profit, the dispensing pharmacy business provided 64.4%, andpharmaceutical network business 47.8%, making them the Company’s two main businesses. An overview of eachsegment is as described below.

We encourage readers to review our complete legal statement on “Disclaimer” page.

03 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Business overview

㻯㼛㼚㼠㼞㼕㼎㼡㼠㼕㼛㼚㻌㼎㼥㻌㼎㼡㼟㼕㼚㼑㼟㼟㻌㼟㼑㼓㼙㼑㼚㼠㻌㻔㻲㼅㻟㻛㻝㻣㻕㻼㼔㼍㼞㼙㼍㼏㼑㼡㼠㼕㼏㼍㼘㻌㼚㼑㼠㼣㼛㼞㼗㻌㼎㼡㼟㼕㼚㼑㼟㼟㻻㼠㼔㼑㼞㻌㼒㼛㼡㼞㻌㼎㼡㼟㼕㼚㼑㼟㼟㼑㼟

（㻑）

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business, the catering business, the clinical trial facilities support business and the home visit nursing business.
Source: Prepared by FISCO from the Company's results briefing materials



1. Pharmaceutical network business
The business model for the pharmaceutical network business is that it supports the improvement of pharmaceutical distribution efficiency by acting as an intermediary in pharmaceutical sales between dispensing pharmacies,
medical facilities and pharmaceutical wholesalers. Customers are mainly small, medium-sized or self-run dispensing
pharmacies.
The services the Company provides in the pharmaceutical network business are a supply chain management service,in which it negotiates prices with wholesalers as an agent, orders as an agent, and acts as an agent for accountfunctions, and furthermore it provides a dead stock exchange service (immobile stock liquidation), which allows
member pharmacies to exchange dead stock at each of their pharmacies. The Company also provides support forpharmacist training and for fund raising.

We encourage readers to review our complete legal statement on “Disclaimer” page.

04 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Business overview

Outline of pharmaceutical supply (network) business

Source: Company materials

By becoming a member of the network, dispensing pharmacies are able to conduct price negotiations with pharmaceutical wholesalers on more favorable terms than if they did so alone. In addition, they can enjoy a number of otheroperational benefits, such as reducing pharmaceutical disposal losses and simplifying ordering-related work. The
benefits of becoming a network member are particularly large for small- to medium-sized dispensing pharmacies.
Also, in its other businesses, the Company conducts development, sales and maintenance operations for thereceipt computer systems, O/E systems (pharmaceutical ordering system) and peripheral equipment that it installs
in dispensing pharmacies, as well as sales of prescription dispensing equipment, fixtures and fittings.
As of the end of March 2017, the total number of member pharmacies in the network, including those in the Groupand external members, was 1,770 (including 34 hospitals and clinics) and the number is continuing to increase.
The only three prefectures in which the Company does not have a presence are Tottori, Tokushima, and Kochi, and
it is aiming to have a presence in them as soon as possible. Ordering fees, which arise corresponding to the ordervolumes, and system sales represent the majority of the sales of this segment, and revenue from ordering fees has
become a major source of earnings. Therefore, it can be described as a stock business model in which sales risestably in line with the increase in the number of member pharmacies.

We encourage readers to review our complete legal statement on “Disclaimer” page.

05 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Business overview

Breakdown of member stores in the pharmaceutical network business(pharmacies)
By member type

FY3/13

FY3/14

FY3/15

FY3/16

FY3/17

General member

764

842

855

1,047

1,393

MSN Group

269

321

345

353

377

1,033

1,163

1,200

1,400

1,770

Total

FY3/13

FY3/14

FY3/15

FY3/16

FY3/17

Hokkaido

By area

212

216

207

221

228

Tohoku

80

91

93

99

112

Kanto/Koshinetsu

270

298

362

425

535

Tokai/Hokuriku

138

160

182

227

348

Kinki

178

187

131

147

201

Chugoku/Shikoku

77

87

84

86

75

Kyushu/Okinawa

78

124

141

195

271

1,033

1,163

1,200

1,400

1,770

Total

Source: Prepared by FISCO from the Company's results briefing materials

2. Dispensing pharmacy businessThis business develops dispensing pharmacies in each area mainly under the Nanohana Pharmacy brand, and it isexpanding its number of pharmacies while actively utilizing M&As. As of the end of March 2017, the Company had
377 dispensing pharmacies, making it one of the market leaders. By area, it has the most pharmacies in Hokkaido
at 118, making it the industry leader for the most pharmacies in the area, followed by Kanto/Koshinetsu at 85, andthen Kinki and Tokai/Hokuriku each at 54. In addition to pharmacies, the Company operates eight drugstores andone healthcare center.
Further, its subsidiary, Hokkaido Institute for Pharmacy Benefit Co., Ltd., provides training services to pharmacists
and operational staff at both Group and non-Group dispensing pharmacies.
3. Rental & medical facilities-related businessNihon Leben, which was made into a subsidiary in 2002, mainly develops sites for building pharmacies, as well as
renting buildings and providing other leasing and insurance services. Further, at the same time as offering consulting
services for medical practices, it also provides consulting for medical malls that gather multiple medical disciplines
on the same floor, and for medical buildings that gather various medical clinics in the same building, and also
management of housing for the elderly with support services.
As serviced senior living facilities, the Company operates Wisteria Kiyota and Wisteria N17 in Sapporo (Hokkaido),
Wisteria Otaru Inaho in Otaru (Hokkaido), and Wisteria Senri Chuo in Toyonaka (Osaka). It also plans to open
Wisteria Minami Ichijo (provisional name) in Sapporo in November 2018. These facilities are generally profitable at
an occupancy rate of 90% or more and reach 90% in about three years.

We encourage readers to review our complete legal statement on “Disclaimer” page.

06 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Business overview

Rental & medical facilities-related business– Building areas with integrated medical and care services■ Development style combining serviced senior living facilities with dispensing pharmacies, hospitals, care business, and day-care sites
Slated to open in November 2018

Opened in May 2016

Wisteria Minami Ichijo (provisional name)

Wisteria Senri Chuo

Building “comprehensive support capabilities” for local residents from all
generations, including medical entities and day-care sites, in areas central
to Hokkaido’s medical coverage with excellent transportation access

Emergency hospital and integrated facilities that creates a multi-functional safety
net in areas with urban convenience and a living environment with lush nature[Address] 14-291-81, others, Minami Ichijo Nishi, Chuo-ku, Sapporo, Hokkaido[Land area] About 3,100㎡
Serviced senior[Property outline] 106 units
housing
In a building with 12 above-ground floors
Day-careand one basement floor, serviced seniorcenterhousing on floors 5-11
Dispensing
Single-room to 2LDK units thatpharmacy
range from 21.24 to 60.39㎡[Rent]
Undecided[Address] 1-1-7-3 Shin-Senri Nishimachi, Toyonaka, Osaka Prefecture[Land area] About 5,950㎡
Serviced senior[Property outline] 82 units
housing
14 floors above ground and one floor
Care center, etc.
underground, serviced senior residenceson floors 10-14
Single-room to 1LDK (19.02-51.17㎡)
Dispensing pharmacy[Rent]Starting at ¥137,000(management, living services and foodEmergency hospitalfees not included)

20 units occupied as of March 31, 2017

Medical entity

Wisteria Otaru Inaho[Address] 1-4-2 Inaho, Otaru, Hokkaido[Land area] About 1,870㎡[Property outline] 81 units, 10 floors
above ground

99% occupancy rate
as of March 31, 2017

Wisteria Kiyota[Address] 1-1-15 Shinei Ichijo, Kiyota-ku, Sapporo, Hokkaido[Land area] About 3,000㎡[Property outline] 75 units, 7 floors above ground, one floor
underground

95% occupancy rate
as of March 31, 2017

Wisteria N17[Address] 3-2-1 Kita 17-jo Nishi, Kita-ku, Sapporo, Hokkaido[Land area] About 1,750㎡[Property outline] 64 units, 10 floors above ground, one floor
underground

94% occupancy rate
as of March 31, 2017

Source: Prepared by FISCO from the Company's results briefing materials

4. Catering businessTotal Medical Service, which was made into a subsidiary in November 2013, its subsidiary Sakura Foods, andKyushu Iryo Shoku, which was made into a subsidiary in October 2015, carry out catering outsourcing operations
within hospitals and welfare facilities.
5. Other businesses
Other businesses include clinical test assistance services in Hokkaido run by SMO-MDS*, which was made into a
subsidiary in 2007, and home visit nursing business operated by Home-Visit Nursing Care Station Himawari Co., Ltd.,
which was made into a subsidiary in May 2016. Home-visit nursing is a service in which home-visit nursing stations
dispatch nurses and other staff to the living environments of recuperating patients for provision of nursing care,assistance in achieving independence, and support in recuperative living. For the local comprehensive care system
advocated by the national government, nursing stations occupy a central role in provision of high-quality medical
and care services by collaborating with pharmacists, nutritionists, doctors, care managers, and other professions.
The Company added home visit nursing business to its group as a way of bolstering home medical services in thedispensing pharmacy business. It aims to expand this business nationwide by working with group pharmacies. The
service is currently available in parts of Tokyo and Saitama (Nerima Ward, Nishi-Tokyo, Wako, and Niiza cities) withsales at tens of million yen.
*	The Company concluded a basic agreement with EP-SOGO Co., Ltd. regarding the transfer of SMO-MDS Co., Ltd. shareson May 19, 2017.

We encourage readers to review our complete legal statement on “Disclaimer” page.

07 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.

30-Jun.-2017

4350 Tokyo Stock Exchange First Section

http://www.msnw.co.jp/ir/██Results trends
Double-digit profit decline in FY3/17 mainly due to the impact ofrevisions to dispensing fees and drug prices
1. Summary of the FY3/17 results
In FY3/17 consolidated results, the Company reported weaker earnings on increased sales with ¥88,865mn in net
sales (+1.3%), ¥2,113mn in operating profit (-44.1%), ¥2,109mn in recurring profit (-45.4%), and ¥571mn in net
profit attributable to owners of parent (-66.8%). Sales and earnings slightly missed revised forecasts announced in
November 2016.
While net sales continued to post an all-time high thanks to healthy growth in the pharmaceutical network businessand M&A benefits in dispensing pharmacy and catering businesses, earnings fell sharply because of the decline
in dispensing pharmacy profit in the wake of revisions to dispensing fees and drug prices. Dispensing pharmacy
business accounted for 66% of the overall setback in FY3/17 operating profit, but earnings were also lower in allother segments. However, operating profit has been rising with each quarter owing to progress in responses todispensing fee revisions, and the rate of decline (YoY) is narrowing.
FY3/17 consolidated results(¥mn)
FY3/16
Results

FY3/17% of net
sales

Company
forecast

Results% of net
sales

YoY

Vs.
forecast

Net sales

87,715-90,00088,865

-

1.3%

-1.3%

Cost of sales

54,91362.6%-

54,700

61.6%

-0.4%

-

SG&A expenses

29,01833.1%-

32,050

36.1%

10.4%

-

Operating profit

3,783

4.3%

2,300

2,113

2.4%

-44.1%-8.1%

Recurring profit

3,860

4.4%

2,300

2,109

2.4%

-45.4%-8.3%

Net profit attributable to owners of parent

1,720

2.0%

650

571

0.6%

-66.8%-12.0%

Note: Company plan uses figures from the revised forecast announced in November 2016.
Source: Prepared by FISCO from the Company's results briefing materials

Factors behind the changes to operating profit (FY3/17, YoY)(¥mn)
Category
Dispensing pharmacy businessChange- 1,098(Breakdown of change in operating profit)

Category

ChangePharmaceutical network business- 57

Rental & medical facilities-related business

- 273
- 40

Existing pharmacies- 818

Catering businessPharmacies opened FY3/16-17- 70

Other businesses- 53

M&A FY3/16-17

197

Group expenses (adjustments)- 147

Pharmacies closed, etc.

- 35

Headquarters’ expenses

- 370

Total

Source: Prepared by FISCO from the Company's results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

08 21- 1,669

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Results trends㻽㼡㼍㼞㼠㼑㼞㼘㼥㻌㼛㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㼠㼞㼑㼚㼐㻌㻔¥㼙㼚㻕㻲㼅㻟㻛㻝㻢

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Source: Prepared by FISCO from the Company's financial results

Healthy increase in member stores for the pharmaceutical network
2. Earnings by business segment(1) Pharmaceutical network businessPharmaceutical network business recorded ¥3,237mn in net sales (flat YoY) and ¥1,718mn in operating profit(-3.3%) in FY3/17. The number of network members was up by healthy 370 YoY at end-FY3/17 to 1,770, andpharmaceutical order placement value climbed 11.1% YoY to ¥137,428mn, the third straight year of double-digit
gains. Order handling fees, however, only rose 3.7% due to a 0.11pp decline in the average fee rate (order
handling fees ÷ pharmaceutical order placement value) to 1.44% linked to change in customer mix. Fee rates varyby customer size. Self-run pharmacies and operators with 4-5 pharmacies were primary members in the past,and recent increase in larger customers running 10-20 pharmacies appears to be having an impact. Additionally,system sales and other sales modestly declined YoY.
In earnings, main setbacks were higher personnel expenses associated with reinforcement of sales operations
and increase in depreciation costs following an upgrade of the core system (+¥37mn). The system investment
significantly improved processing capacity.

We encourage readers to review our complete legal statement on “Disclaimer” page.

09 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.

30-Jun.-2017

4350 Tokyo Stock Exchange First Section

http://www.msnw.co.jp/ir/

Results trends㻼㼔㼍㼞㼙㼍㼏㼑㼡㼠㼕㼏㼍㼘㻌㼚㼑㼠㼣㼛㼞㼗㻌㼎㼡㼟㼕㼚㼑㼟㼟㻻㼞㼐㼑㼞㼕㼚㼓㻌㼒㼑㼑㻌㼕㼚㼏㼛㼙㼑㻌㻔㼘㼑㼒㼠㻕㻻㼠㼔㼑㼞㻌㻔㼘㼑㼒㼠㻕

㻔¥㼙㼚㻕
㻠㻘㻜㻜㻜

㻿㼥㼟㼠㼑㼙㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕

㻞㻘㻜㻜㻜

㻝㻘㻣㻣㻢
㻝㻘㻣㻝㻤

㻝㻘㻡㻠㻥
㻟㻘㻜㻜㻜

㻞㻝㻞

㻞㻜㻡

㻝㻘㻝㻜㻥

㻝㻘㻜㻠㻢

㻝㻤㻟

㻝㻘㻜㻞㻥

㻞㻘㻜㻜㻜

㻝㻘㻜㻜㻜

㻔¥㼙㼚㻕

㻝㻘㻡㻜㻜

㻝㻘㻜㻜㻜

㻝㻘㻢㻜㻝

㻝㻘㻥㻝㻟

㻝㻘㻥㻤㻠

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣㻜㻡㻜㻜㻜㻲㼅㻟㻛㻝㻡

Source: Prepared by FISCO from the Company's results briefing materials㻹㼑㼙㼎㼑㼞㻌㼜㼔㼍㼞㼙㼍㼏㼥㻌㼚㼡㼙㼎㼑㼞㼟㻌㻒㻌㼜㼔㼍㼞㼙㼍㼏㼑㼡㼠㼕㼏㼍㼘㻌㼛㼞㼐㼑㼞㻌㼜㼘㼍㼏㼑㼙㼑㼚㼠㻌㼢㼍㼘㼡㼑㻺㼛㻚㻌㼛㼒㻌㼙㼑㼙㼎㼑㼞㻌㼜㼔㼍㼞㼙㼍㼏㼕㼑㼟㻌㻔㻹㻿㻺㻕㻌㻔㼘㼑㼒㼠㻕㻺㼛㻚㻌㼛㼒㻌㼙㼑㼙㼎㼑㼞㻌㼜㼔㼍㼞㼙㼍㼏㼕㼑㼟㻌㻔㼓㼑㼚㼑㼞㼍㼘㻕㻌㻔㼘㼑㼒㼠㻕㼀㼔㼑㻌㼜㼔㼍㼞㼙㼍㼏㼑㼡㼠㼕㼏㼍㼘㻌㼛㼞㼐㼑㼞㻌㼜㼘㼍㼏㼑㼙㼑㼚㼠㻌㼢㼍㼘㼡㼑㻌㻔㼞㼕㼓㼔㼠㻕㻝㻟㻣㻘㻠㻞㻤

㻔㼜㼔㼍㼞㼙㼍㼏㼕㼑㼟㻕
㻞㻘㻡㻜㻜

㻔¥㼙㼚㻕
㻝㻡㻜㻘㻜㻜㻜

㻝㻞㻟㻘㻣㻟㻢
㻞㻘㻜㻜㻜㻝㻞㻜㻘㻜㻜㻜
㻥㻣㻘㻣㻝㻥
㻟㻣㻣㻝㻘㻡㻜㻜㻥㻜㻘㻜㻜㻜

㻟㻡㻟
㻝㻘㻜㻜㻜

㻟㻠㻡

㻢㻜㻘㻜㻜㻜
㻝㻘㻟㻥㻟

㻡㻜㻜

㻝㻘㻜㻠㻣

㻤㻡㻡

㻟㻜㻘㻜㻜㻜

㻜㻜㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

Source: Prepared by FISCO from the Company's results briefing materials(2) Dispensing pharmacy business
Dispensing pharmacy business posted ¥81,650mn in net sales (-0.4%) and ¥2,314mn in operating profit (-32.2%).
The number of pharmacies increased by 24 YoY to 377 at period-end with eight new pharmacies opening,acquiring 20 through business transfers and M&As, and elimination of four through closures and transfers. The
Company targeted opening 10 new pharmacies and obtaining 30 through M&A in the period-start plan. However, it
switched to a policy of limiting acquisitions to deals with attractive terms due to the continued high price of M&As.

We encourage readers to review our complete legal statement on “Disclaimer” page.

10 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Results trends

Sales weakened on a decline in the average prescription price following the dispensing fee and drug price revisions
implemented in April 2016. The average prescription price at existing stores fell 6.0% YoY (including drug costs
by 7.3% and technical fees by 1.5%). Decline in drug costs stands out. In particular, the hepatitis C drug releasedin fall 2015 had a steep 32% decline because it was originally priced high, and this drug alone contributed about¥900mn of the YoY drop in sales. Also, the number of prescriptions was sluggish with an increase of 0.1% YoY
on a same-store basis, missing the +1.0% target from guidance.
In earnings, lower same-store sales because of the decline in the average prescription price and higher pharmacist
personnel costs delivered setbacks. The Company has been adding pharmacists as part of bolstering the role ofstores as “family pharmacies,” lifting pharmacist headcount by 9.8% to 1,276 pharmacists at the end of March2017 (including temporary pharmacists). The number of pharmacists per store has been trending upward too.
Home visits are required as a “family pharmacy” function in order to receive the basic dispensing fee incentives.
The Company’s promotion of home visit activities (which increases personnel) is a factor raising the number ofpharmacists per store. The percentage of Company pharmacies providing home visits rose to just over 80% ofgroup stores at the end of March 2017 at 308 stores (289 counted stores).

㻰㼕㼟㼜㼑㼚㼟㼕㼚㼓㻌㼜㼔㼍㼞㼙㼍㼏㼥㻌㼎㼡㼟㼕㼚㼑㼟㼟㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕㻔¥㼙㼚㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕

㻔¥㼙㼚㻕

㻟㻘㻠㻝㻞
㻝㻜㻜㻘㻜㻜㻜
㻤㻜㻘㻜㻜㻜

㻟㻘㻡㻜㻜

㻞㻘㻟㻣㻣

㻞㻘㻟㻝㻠

㻢㻜㻘㻜㻜㻜
㻠㻜㻘㻜㻜㻜

㻞㻘㻤㻜㻜
㻞㻘㻝㻜㻜

㻤㻞㻘㻜㻜㻞

㻣㻝㻘㻣㻠㻟

㻤㻝㻘㻢㻡㻜

㻞㻜㻘㻜㻜㻜

㻝㻘㻠㻜㻜
㻣㻜㻜

㻜

㻜

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

Source: Prepared by FISCO from the Company's results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

11 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.

30-Jun.-2017

4350 Tokyo Stock Exchange First Section

http://www.msnw.co.jp/ir/

Results trends㻾㼍㼠㼑㻌㼛㼒㻌㼏㼔㼍㼚㼓㼑㻌㼛㼒㻌㼜㼞㼑㼟㼏㼞㼕㼜㼠㼕㼛㼚㻌㼚㼡㼙㼎㼑㼞㼟㻌㼍㼚㼐㻌㼡㼚㼕㼠㻌㼜㼞㼕㼏㼑㼟㻔㼟㼍㼙㼑㻙㼟㼠㼛㼞㼑㻌㼎㼍㼟㼕㼟㻕㻺㼡㼙㼎㼑㼞㻌㼛㼒㻌㼜㼞㼑㼟㼏㼞㼕㼜㼠㼕㼛㼚㼟㻼㼞㼑㼟㼏㼞㼕㼜㼠㼕㼛㼚㻌㼡㼚㼕㼠㻌㼜㼞㼕㼏㼑㼟
㻢㻚㻤㻑

㻤㻚㻜㻑
㻢㻚㻜㻑
㻠㻚㻜㻑

㻝㻚㻢㻑

㻝㻚㻜㻑

㻞㻚㻜㻑

㻜㻚㻝㻑

㻜㻚㻜㻑
㻜㻚㻣㻑

㻙㻞㻚㻜㻑
㻙㻠㻚㻜㻑

㻙㻢㻚㻜㻑

㻙㻢㻚㻜㻑
㻙㻤㻚㻜㻑
㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

Source: Prepared by FISCO from the Company's results briefing materials㼀㼞㼑㼚㼐㻌㼕㼚㻌㼠㼔㼑㻌㼚㼡㼙㼎㼑㼞㻌㼛㼒㻌㼜㼔㼍㼞㼙㼍㼏㼕㼟㼠㼟㻺㼡㼙㼎㼑㼞㻌㼛㼒㻌㼜㼔㼍㼞㼙㼍㼏㼕㼟㼠㼟㻌㻔㼘㼑㼒㼠㻕㻺㼡㼙㼎㼑㼞㻌㼛㼒㻌㼜㼔㼍㼞㼙㼍㼏㼕㼟㼠㼟㻌㼜㼑㼞㻌㼟㼠㼛㼞㼑㻌㻔㼞㼕㼓㼔㼠㻕㻔㼜㼑㼛㼜㼘㼑㻛㼟㼠㼛㼞㼑㻕㻔㼜㼑㼛㼜㼘㼑㻕
㻝㻘㻠㻜㻜

㻟㻚㻜㻝

㻟㻚㻝㻥

㻟㻚㻝㻠

㻟㻚㻞㻥

㻟㻚㻟㻤

㻟㻚㻡㻜

㻝㻘㻞㻜㻜

㻟㻚㻜㻜

㻝㻘㻜㻜㻜

㻞㻚㻡㻜

㻤㻜㻜

㻞㻚㻜㻜

㻢㻜㻜

㻝㻘㻝㻜㻞

㻝㻘㻜㻜㻥
㻠㻜㻜

㻝㻘㻝㻢㻞

㻝㻘㻞㻣㻢

㻤㻜㻥

㻝㻚㻡㻜
㻝㻚㻜㻜

㻞㻜㻜

㻜㻚㻡㻜

㻜

㻜㻚㻜㻜
㻲㼅㻟㻛㻝㻟

㻲㼅㻟㻛㻝㻠

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

Note: Pharmacists includes temporary pharmacists.
Source: Company materials(3) Rental & medical facilities-related businessIn this business, net sales decreased 15.8% YoY to ¥2,046mn, and the operating loss was ¥143mn (compared
to an operating profit of ¥129mn in the previous fiscal year). This was mainly as a reaction to the recording ofa temporary item in the same period in the previous fiscal year, of a gain on sale of real estate of ¥242mn. But
even when excluding this factor, profits still deteriorated slightly, mainly due to increases in depreciation costs of¥183mn from the launches of Wisteria Otaru Inaho in December 2015 and Wisteria Senri Chuo in May 2016 inhousing for the elderly with support services.

We encourage readers to review our complete legal statement on “Disclaimer” page.

12 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Results trends

Occupancy rates at end-March 2017 were Wisteria Otaru Inaho at 99% and Wisteria Senri Chuo at 24%. Thesefacilities typically become profitable in about three years after beginning operations when the occupancy rate
moves above 90%. Wisteria Otaru Inaho surpassed 90% occupancy quickly because of its low rent in the rangeof ¥50,000 per month. However, the Company expects an operating profit from FY3/19 because of the heavy
depreciation cost burden. Wisteria Senri Chuo, meanwhile, is slightly lagging the plan, but is currently finalizing
contracts at a pace of two units per months and is likely to achieve profitability in FY3/20.
(4) Catering businessIn this business, net sales increased 64.9% YoY to ¥4,667mn thanks to the effect of acquiring a Kyushu Iryo
Shoku Co., Ltd. as a subsidiary in October 2015. But the operating loss widened to ¥129mn (from ¥89mn ayear earlier) due to higher labor costs from using personnel dispatch services to cover manpower shortages
and increase in food material costs. Nevertheless, profitability has been improving on revisions to money-losing
deals, contract price hikes, and adjustment of food material costs, and the business reached a ¥10mn profit in
4Q (January-March 2017).
(5) Other businesses
Other business (clinical testing assistance service and home visit nursing) reported ¥163mn in net sales (+14.5%
YoY) and a ¥163mn operating loss (vs. a ¥109mn loss a year earlier). Sales increased on the acquisition ofHome-Visit Nursing Care Station Himawari as a subsidiary, but both businesses had losses.

Financial standing remains healthy even with higher interest-bearingdebt
3. Financial position and management indicators
Next, we review financial standing at the end of FY3/17. Total assets were up ¥1,890mn YoY to ¥50,737mn. In
current assets, while accounts receivable fell by ¥391mn, cash and deposits were up by ¥171mn and inventory
assets increased by ¥622mn. In fixed assets, tangible fixed assets grew by ¥993mn, mainly from land, and goodwill
expanded by ¥268mn.
Total liabilities were up ¥1,511mn to ¥40,092mn, as the increase in interest-bearing debt of ¥2,163mn exceeded
the decreases in accounts payable and accrued income taxes of ¥381mn and ¥652mn respectively. Net assets
were up ¥379mn to ¥10,644mn, as net profit attributable to owners of parent was recorded and retained earnings
increased ¥268mn.
For management indicators, the equity ratio slipped from 20.3% a year earlier to 20.1% and the interest-bearing
debt ratio increased from 197.3% to 212.5% due to higher interest-bearing debt. The Company might see amodest rise in interest-bearing debt again in FY3/18 because of construction costs for the Wisteria Minami Ichijobuilding and M&A outlays in the dispensing pharmacy business. However, the Company is not concerned about
this level in light of the outlook for continuation of ultralow interest rates and the operating cash flow situation. We
expect a switch to profit expansion and moderate-paced improvements in financial standing over the medium term.
Profitability declined substantially in FY3/17 with the operating profit margin down from 4.3% in the previous year
to 2.4% and ROE weakening from 21.9% to 5.7%. However, ROE should return to about 10% given likely recovery
in profitability from FY3/18.

We encourage readers to review our complete legal statement on “Disclaimer” page.

13 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.

30-Jun.-2017

4350 Tokyo Stock Exchange First Section

http://www.msnw.co.jp/ir/

Results trends

Consolidated balance sheet(¥mn)
FY3/14

FY3/15

FY3/16

FY3/17

ChangeCurrent assets

10,941

11,023

10,783

11,098315(Cash & deposits)

3,106

2,499

2,081

2,252

171

Fixed assets

32,172

34,56438,06339,6391,576(Goodwill)

12,253

13,214

12,916

13,184268

Investments, etc.

3,797

3,759

4,329

4,559

230

Total assets

43,11445,587

48,84750,737

1,890

Current liabilities

24,87921,62521,061

16,920-4,141

Fixed liabilities

12,881

17,826

17,52023,172

5,652(Interest-bearing debt)

22,011

22,743

19,562

21,725

2,163

Total liabilities

37,76139,451

38,58140,092

1,511

Net assets

5,352

6,135

10,265

10,644379

Key management indicators(Stability)
Equity ratio

11.9%

12.7%

20.3%

20.1%

Interest-bearing debt ratio

429.3%

391.3%

197.3%

212.5%(Profitability)
ROA (return on assets)

5.5%

5.7%

8.2%

4.2%

ROE (return on equity)

12.2%

16.2%

21.9%

5.7%

Operating profit margin

3.2%

3.5%

4.3%

2.4%

Source: Prepared by FISCO from the Company's financial results██Business outlook
Expects a rebound to double-digit profit growth in FY3/18 led by thetwo main businesses
1. Forecast for FY3/18
The Company guides for higher consolidated sales and profits for the first time in two years in FY3/18 at ¥95,000mn
in net sales (+6.9% YoY), ¥3,100mn in operating profit (+46.7%), ¥3,000mn in recurring profit (+42.2%), and¥1,000mn in net profit attributable to owners of parent (+74.9%). It factors in profit gains in all segments in FY3/18
with dispensing pharmacy business as the main driver.
Nevertheless, this guidance constitutes a downward revision from goals of ¥105,000mn in net sales and ¥4,000mn inoperating profit for the final fiscal year of the Medium-term Management Plan. The Company was unable to expand
the number of pharmacies as much as initially in dispensing pharmacy business because M&A prices remained
expensive. It had set a goal of 500 stores for FY3/18 in the Medium-term Management Plan, but the latest FY3/18
guidance assumes 407 stores. Growth in pharmaceutical network member stores, meanwhile, is acceleratingon tailwind from market environment changes. The network might surpass the 2,200 stores assumed in FY3/18
guidance. We think the FY3/18 outlook is conservative after having to lower targets in FY3/17 and see room for
upside depending on trends in the pharmaceutical network business. The Company factors in rapid recovery in 1H
results, in part because of the low earnings level from the previous year, with increases of 4.8% in net sales and100.3% in operating profit. It refrained from disclosing forecast of net profit attributable to owners of parent owing
to many uncertainties, such as costs related to group reorganization that is under review.

We encourage readers to review our complete legal statement on “Disclaimer” page.

14 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Business outlook

FY3/18 consolidated earnings forecast(¥mn)
FY3/17

FY3/18Full-year
results

1H guidance

Full-year
guidance

Net sales

88,86545,5004.8%

95,000

6.9%

Operating profit

2,113

1,100

100.3%

3,100

46.7%

YoY

YoY

(Operating profit margin)

2.4%

2.4%

-

3.3%

Recurring profit

2,109

1,050

93.5%

3,000

42.2%

571

-

-

1,000

74.9%

19.31

-

-

33.77

Net profit attributable to owners of parent
Net income per share (¥)

Note: Refrained from disclosing forecast of quarterly net profit attributable to owners of parent in 1H FY3/18 owing to many uncertainties, suchas costs related to group reorganization that is under review.
Source: Prepared by FISCO from the Company's financial results

Factors behind the changes to operating profit (FY3/18 forecast, YoY)(¥mn)
Category
Dispensing pharmacy businessChange629(Breakdown of change in operating profit)

Category

ChangePharmaceutical network business

120

Rental & medical facilities-related business

69

Existing pharmacies

493

Catering business83

Pharmacies opened FY3/17-18, M&A

80

Other businesses

30

Other

56

Group expenses (adjustments)

55

Total

986

Source: Prepared by FISCO from the Company's results briefing materials

Accelerating increase pace in member stores for the pharmaceutical
network business2. Outlook by segment
Outlook by segment(¥mn)
FY3/18
FY3/17 results

Company
forecasts% change

FY3/18 target under
the Medium-termManagement Plan

Net sales
Pharmaceutical network business

3,237

3,397

5.0%

3,600

Dispensing pharmacy business

81,65087,5397.2%

99,500-

Other four businesses

6,878

6,923

0.7%

Adjustments-2,900-2,860

-

-

Total

88,86595,000

6.9%

105,000

Pharmaceutical network business

1,718

1,839

7.0%

2,200

Dispensing pharmacy business

2,314

2,943

27.2%

3,000

Other four businesses

-436

-254

-

-

Adjustments-1,482-1,428

-

-

Total

2,113

3,100

46.7%

4,000

The number of member pharmacies in
the pharmaceutical network business

1,770

2,200

24.3%

2,200

377

407

8.0%

500

Operating profit

Areas, the number of pharmacies

Note: The other four businesses are the rental & medical facilities-related business, the catering business, the clinical trial facilities
support business and the home visit nursing business.
Source: Prepared by FISCO from the Company's results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

15 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Business outlook(1) Pharmaceutical network businessFor pharmaceutical network business, the FY3/18 plan projects ¥3,397mn in net sales (+5.0% YoY) and ¥1,839mn
in operating profit (+7.0%). It assumes an all-time high YoY increase in network members of 430 to 2,200.
Business conditions are getting tougher for smaller and very small dispensing pharmacies mainly due to theimpact of dispensing fee revisions. This environment enhances the benefits of joining the Company’s service thatlower procurement costs and raises inventory efficiency. The number of mid-sized pharmacy operators running
10-20 stores has been rising recently. The Company intends to further expand members with support from thesefavorable conditions and aims to reach 5,000 stores, a roughly 10% industry share, in five years.
Key initiatives in FY3/18 are reinforcing sales capabilities and deepening the area-based strategy. For sales capabilities, the Company plans to improve collaboration with external partner companies, hold seminars for dispensing
pharmacies, and develop new services. For the area-based strategy, the Company intends to collaborate withdrug wholesale firms and pharmacist associations in respective areas.
The prospect of just a 5.0% increase in pharmaceutical network sales, despite a 24.3% targeted rise in member
stores to 2,200 stores, factors in the likely continuation of a downward trend in the average fee rate because of
the growing number of new mid-sized pharmacy operators with a lower rate. The Company also reduced goals
in the Medium-term Management Plan for the same reason. However, recent demand remains vibrant and theCompany added about 80 stores in April. We expect member stores to exceed the plan level.

㻔㼜㼔㼍㼞㼙㼍㼏㼕㼑㼟㻕㻺㼑㼠㻌㼕㼚㼏㼞㼑㼍㼟㼑㻌㼕㼚㻌㼠㼔㼑㻌㼚㼡㼙㼎㼑㼞㻌㼛㼒㻌㼙㼑㼙㼎㼑㼞㻌㼜㼔㼍㼞㼙㼍㼏㼕㼑㼟㼕㼚㻌㼠㼔㼑㻌㼜㼔㼍㼞㼙㼍㼏㼑㼡㼠㼕㼏㼍㼘㻌㼚㼑㼠㼣㼛㼞㼗㻌㼎㼡㼟㼕㼚㼑㼟㼟㻌

㻡㻜㻜

㻠㻟㻜
㻟㻣㻜

㻠㻜㻜

㻟㻜㻜

㻞㻜㻜

㻞㻜㻜

㻝㻣㻥
㻝㻟㻜

㻝㻜㻜
㻟㻣
㻜
㻲㼅㻟㻛㻝㻟

㻲㼅㻟㻛㻝㻠

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤㻌㻱

Note: Net increase is small in FY3/15 because of the exit of a large customer with 230 pharmacies.
Source: Prepared by FISCO from the Company's results briefing materials(2) Dispensing pharmacy businessFor dispensing pharmacy business, the plan targets ¥87,539mn in sales (+7.2% YoY) and ¥2,943mn in operating
profit (+27.2%). It assumes an addition of 30 stores (10 stores from new openings and 20 stores through M&A)
from the end of the previous year to 407 stores. This business had 383 stores as of May 1.

We encourage readers to review our complete legal statement on “Disclaimer” page.

16 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Business outlook

Priority measures for FY3/18 are to increase the number of prescriptions by enhancing family pharmacy capabilities and to shift from switching to generic drugs to narrowing. The Company aims to increase the number ofprescriptions by serving in the role of a family pharmacy for the local area. Specific initiatives include assigning
one nutritionist per block to offer nutrition consulting (hypertension, diabetes, etc.), expanding the line-up of OTC
drugs, health foods, and other products, holding regular yoga and other exercise programs, and expanding home
services through collaboration with JAPAN POST. Efforts in this strategy seek to increase the number of customers
and boost the number of prescriptions per customer.
The Company expects a 1.5% YoY rise in the number of prescriptions at existing stores in FY3/18 and a ¥51 gainin the average technical service fee on progress in responding to dispensing fee revisions. The breakdown ofanticipated changes in operating profit consists of +¥415mn from increased number of prescriptions at existing
stores, +¥36mn from a rise in the average drug price cost, +¥413mn from upturn in the average technical service
fee, +¥80mn from new store openings and M&A additions in FY3/17-18, and +¥56mn from other items on thepositive side and -¥371mn from higher labor costs for pharmacists and other staff and larger spending at existing
stores.

㻾㼍㼠㼑㻌㼛㼒㻌㼏㼔㼍㼚㼓㼑㻌㼕㼚㻌㼠㼔㼑㻌㼚㼡㼙㼎㼑㼞㻌㼛㼒㻌㼜㼞㼑㼟㼏㼞㼕㼜㼠㼕㼛㼚㼟㻌㼍㼠㻌㼑㼤㼕㼟㼠㼕㼚㼓㻌㼜㼔㼍㼞㼙㼍㼏㼕㼑㼟
㻝㻞㻚㻜㻑
㻝㻜㻚㻜㻑
㻤㻚㻜㻑
㻢㻚㻜㻑
㻠㻚㻜㻑

㻞㻚㻜㻑
㻜㻚㻜㻑
㻙㻞㻚㻡㻑

㻙㻞㻚㻜㻑
㻙㻠㻚㻜㻑
㻙㻢㻚㻜㻑
㻙㻤㻚㻜㻑
㻭㼜㼞㻚

㻶㼡㼚㼑

㻭㼡㼓㻚

㻻㼏㼠㻚

㻰㼑㼏㻚

㻲㼑㼎㻚

㻭㼜㼞㻚

㻲㼅㻟㻛㻝㻢

㻶㼡㼚㼑

㻭㼡㼓㻚

㻻㼏㼠㻚

㻰㼑㼏㻚

㻲㼑㼎㻚

㻲㼅㻟㻛㻝㻣

Source: Prepared by FISCO from Company materials(3) Other four businesses
For the other four businesses (rental & medical facilities-related, catering, clinical trial facilities support*, and home
visit nursing), the FY3/18 plan targets ¥6,923mn in net sales (+0.7% YoY) and a narrower ¥254mn operating loss
(vs. a ¥436mn loss in FY3/17).

We encourage readers to review our complete legal statement on “Disclaimer” page.

17 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Business outlook

The Company expects ¥2,191mn in net sales (+7.1% YoY) and a ¥74mn operating loss (vs. a ¥143mn loss) in
the rental & medical facilities-related business. It has a goal of having occupants for 50 units (out of a total of
82 units) at Wisteria Senri Chuo by the end of FY3/18, thereby reducing the loss (as a result of the increase inoccupants). Additionally, the Company is slated to open Wisteria Minami Ichijo (provisional name) with 106 units,
its third serviced senior living facility in Sapporo, as a new project in November 2018. This site is well placed near
Sapporo Medical University and with robust transportation access and adopts comprehensive support for local
residents from all generations by including clinics with 6-7 departments, a dispensing pharmacy, and a day-care
center. It might become a model site for the local comprehensive care system. The Company is already receiving
numerous inquiries about this facility. Occupant entry is likely to progress smoothly after the facility opens.
For catering busniess, the Company projects ¥4,479mn in net sales (-4.0% YoY) and a ¥46mn operating loss (vs.
a ¥129mn loss in FY3/17). While sales are likely to be lower due to exiting money-losing deals, steady revisions topersonnel operations should improve earnings. This business already posted a profit in 4Q FY3/17 and might becapable of attaining a full-year profit if it is not affected by setbacks, such as a large upswing in food material costs.
For clinical trial facilities support* and home visit nursing businesses, the Company forecasts ¥252mn in net sales(+53.9% YoY) and a ¥133mn operating loss (vs. a ¥163mn loss). While the home visit nursing business is likely
to book a profit for existing outlets, it plans to open a new outlet (with three people) around summer 2017 andexpand the service area to Setagaya Ward. The guidance factors in a slight loss because of ramp-up costs. The
Company intends to broaden service area coverage within Tokyo.
*	The Company concluded a basic agreement with EP-SOGO Co., Ltd. regarding the transfer of SMO-MDS Co., Ltd. shareson May 19, 2017.

██Group reorganization and home medical

service initiatives

Reorganization likely to raise profitability and growth potential,planning nationwide rollout of home medical service
1. Group reorganization
On May 19, 2017, the Company announced the absorption of three consolidated subsidiaries and a merger of three
Hokkaido companies in the dispensing pharmacy business with the aim of building an optimized group organizationthat targets growth. Primary goals are cost savings from elimination of overlapping functions among organizations,enhanced group governance and faster decision-making, and concentration of business resources in pharmaceutical
network and dispensing pharmacy segments.
The merger of Hokkaido subsidiaries is slated to occur in July 2017, with the new entity as Nanohana Hokkaido
Co., Ltd. Following the merger, the dispensing pharmacy business will have a subsidiary operating in each of five
regional blocks. Absorption of the three consolidated subsidiaries, meanwhile, is scheduled in October. We expect
the reorganization to not only boost the Company’s profitability, but also strengthen growth potential by raisingconcentration and selectivity of business resources and speeding up decisions.

We encourage readers to review our complete legal statement on “Disclaimer” page.

18 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Group reorganization and home medical service initiatives

Group reorganization

Source: Company materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

19 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.
4350 Tokyo Stock Exchange First Section

30-Jun.-2017
http://www.msnw.co.jp/ir/

Group reorganization and home medical service initiatives

2. Initiatives in the home medical service
The prescription drugs delivery service and shopping-support service offered through collaboration with JAPANPOST announced in May 2016 deserve attention as home medical services.
Five Nanohana Pharmacy stores in Sapporo and Nagoya have been testing home delivery of transfusion packs andnutrients for home patients who received usage guidance in the prescription drugs delivery service. These activities
confirmed safeness in temperature control and other aspects during transport. The Company hence plans to begin
nationwide rollout in FY3/18. It also intends to consider prescription drugs after introducing the service nationally. It
might be possible for pharmacists to provide remote guidance on drug usage if the government approves remote
medical services as part of deregulation measures from 2018. The ability to provide remote guidance might drive
expansion of home delivery service for prescription drugs. We will be monitoring these developments. Dispensing
pharmacies could reduce work load on pharmacists and increase the number of customers from early-mover
benefits.
The shopping-support service, meanwhile, has been taking place on a test basis mainly for care facilities withthe product limited to adult diapers in Otaru and Nagoya since October 2016 (this is product jointly developedwith JAPAN POST and manufacturing consigned to Nippon Paper Crecia Co., Ltd.). This service has proceededsmoothly as well so the Company plans to begin steady sales rollout to care facilities nationwide during FY3/18.
The Company intends to restrict service to just one product for the time being and promptly reach ¥1bn in annual
sales. While it hopes to broaden scope to daily goods, health foods, and other products, this depends on the
stance of partner JAPAN POST. Expansion of product scope has the potential to increase income opportunities at
dispensing pharmacies.
Demand for home delivery service is likely to grow amid increases in patients living at home and people requiring
care with the arrival of an ultra-aged society. We expect this role to become increasingly important in regional areas
with few pharmacies. The Company is a leader in the industry with these initiatives in home delivery service. The
initiatives also offer ways of improving competitiveness and profitability in the dispensing pharmacy business.

We encourage readers to review our complete legal statement on “Disclaimer” page.

20 21

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Medical System Network Co., Ltd.

30-Jun.-2017

4350 Tokyo Stock Exchange First Section

http://www.msnw.co.jp/ir/██Shareholder return policy
Pays dividends with a dividend payout ratio goal of at least 20%
The Company’s policy is to return profits to shareholders by way of dividends. Its basic policy is to pay stabledividends that reflect results after securing sufficient internal reserves to strengthen its financial position and to
expand operations, with the standard considered to be maintaining a dividend payout ratio of 20% or above. For
FY3/18, the Company plans to leave the dividend unchanged at ¥10.00 (for a dividend payout ratio of 29.6%).
Dividend growth can be expected in the future if profits increase and as a result, the dividend payout ratio falls
below this 20% level.

㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㼍㼚㼐㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻔¥㻕㻰㼕㼢㼕㼐㼑㼚㼐㻌㻔㼘㼑㼒㼠㻕（㻑）㻼㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻌㻔㼞㼕㼓㼔㼠㻕

㻝㻠㻚㻜

㻢㻜㻚㻜
㻡㻝㻚㻤

㻝㻞㻚㻜

㻡㻜㻚㻜

㻝㻜㻚㻜
㻤㻚㻜

㻠㻜㻚㻜
㻞㻥㻚㻢

㻞㻤㻚㻤

㻟㻜㻚㻜
㻞㻝㻚㻢

㻢㻚㻜

㻝㻡㻚㻤

㻠㻚㻜

㻤㻚㻜

㻝㻜㻚㻜

㻝㻜㻚㻜

㻤㻚㻜

㻥㻚㻡

㻞㻚㻜

㻞㻜㻚㻜
㻝㻜㻚㻜

㻜㻚㻜

㻜㻚㻜
㻲㼅㻟㻛㻝㻠

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤㻌㻱

Source: Prepared by FISCO from the Company's financial results

We encourage readers to review our complete legal statement on “Disclaimer” page.

21 21

Disclaimer
FISCO Ltd. (the terms “FISCO”, “we”, mean FISCO Ltd.) has legal agreements with theTokyo Stock Exchange, the Osaka Exchange,and Nikkei Inc. as to the usage of stock priceand index information. The trademark and value of the “JASDAQ INDEX” are the intellectual
properties of the Tokyo Stock Exchange, and therefore all rights to them belong to the Tokyo
Stock Exchange.
This report is based on information that we believe to be reliable, but we do not confirm or
guarantee its accuracy, timeliness,or completeness, or the value of the securities issued bycompanies cited in this report. Regardless of purpose,investors should decide how to use
this report and take full responsibility for such use. We shall not be liable for any result of its
use. We provide this report solely for the purpose of information, not to induce investment or
any other action.
This report was prepared at the request of its subject company using information provided
by the company in interviews, but the entire content of the report, including suppositions andconclusions, is the result of our analysis. The content of this report is based on informationthat was current at the time the report was produced, but this information and the content of
this report are subject to change without prior notice.
All intellectual property rights to this report, including copyrights to its text and data, areheld exclusively by FISCO. Any alteration or processing of the report or duplications of thereport, without the express written consent of FISCO, is strictly prohibited. Any transmission,
reproduction, distribution or transfer of the report or its duplications is also strictly prohibited.
The final selection of investments and determination of appropriate prices for investment
transactions are decisions for the recipients of this report.
FISCO Ltd.