Japan tech company Medical Net (3645) update

Medical Net (3645) is a company I profiled in 2023 and bought. While the stock did nothing, the currency depreciated, causing a loss on the position of around 30%.

This is a Japanese holding company in the field of dentistry. It is a fast growing company in terms of revenue, but in terms of profits, the profits crashed down.

A company growing revenue is healthy. But a company growing revenues with profits decreasing is not healthy, unless the losses are temporary.

They have a very varied business model:

• Media business is operating web portals regrouping dentist practitioners for customers to find them easily.

(Browser translation to English)

• Medical institution Dental support business (marketing, SEO, website building, procurement and other physical support).

• Dental information site and network

• Cloud integration business in Thailand (NEW)

Coming back to profits and growth.

Revenue continued to grow fast, but profits decreased to almost zero for two reasons:

1-Heavy front end investment in launching new businesses and human resource heavy new business launches.

2-Disease Prevention business acquisition

In 2024-2025, they ran a disease prevention business but it was cut off after it was heavily loss making. The plan was for this business to make large profits and sales growth but it did not happen.

What comes out of Medical net is a management that is highly innovative and entrepreneurial, but this comes at a cost: not all the initiatives work.

Last results:

The last results published in January, saw sales continuing to grow and for the first time in several quarters, profit increase.

The company continued to increase in personal costs but reduced marketing, advertising and other expenses.

Concerns: The media platform business saw sales decrease by 11%, and profit decrease by 15%: this is the cash cow of the company with 67% of the profits and this is the key going forward.

Medical net is undergoing large investments to revamp the media business.

The company has old websites that have been pushed lower in the Google and Yahoo Japan rankings.

As I use modern technology in research, especially for languages I don’t understand, I asked gemini to explain what happened to this business and what is new versus old media, and to explain the struggles with search results.

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I also looked at all earnings releases and transcript but the information about a turnaround of the media business is absent.

A famous legacy website, TripAdvisor, is living similar decline:

The cloud business is doing fine, but the development of a software for the Thai dental industry has been paused due to lack of customer interest.

On the good side, the disease prevention business that was loss making was cut off.

Medical net also has an active M&A Strategy.

Risks:

this company operates websites: the risk is AI. Websites have always been an excellent business, but some now see traffic going down since AI steals the information from the websites to provide it to you, or search engines make AI overviews and hide results lower down the page.

Summary

Here we can see the sales and results per business for H1 (before corporate costs).

• The fast growing Institution support business is low profit margin due to front end investments and maybe also that it is a low margin business.

• The media platform, is very high margins but is challenged at the moment, and even in positive assumptions is not excepted to grow much.

• We trade at maybe 12 times expected earnings. Not expensive, but not very cheap.

• I will monitor the improvement in Media platform sales, potential good M&A, and margin in the Institution support business, and I placed the company on a watchlist.

• If the Institution support business can regain 10% margins, this would be incremental to the bottom line and the earnings would grow a lot.

Medical net is a low risk company with potential high reward and also potential to remain a value trap.

As for now, I exited the small position in Medical net. I focus now on owning much stronger companies with better competitive positions and shareholder returns. This is especially needed in technology where small isn’t better, and large technology companies increase their moats over time. I also focus on not investing in Japan, where local knowledge provides better returns.

But Medical net could be an excellent company going forward! let’s see. I just go for more clearer opportunities in this early 2026.

Therefore stay tuned for a portfolio update next week with a better focus on long term compounding, exceptional companies or exceptional prices, because I found more of these companies. I re-bought for example a great company that I had sold in 2019, and I bought one that I missed but I will now hold hopefully forever.

• Emerging market deep value

• Emerging market quality compounders

• Europe micro caps and serial acquirers

• And some Western quality stocks, everything is available in the premium version.

A complete map of EM opportunities, beyond the obvious popular stocks.