| Koshidaka HOLDINGS Co., Ltd. (2157) |
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Company |
Koshidaka HOLDINGS Co., Ltd. |
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Code No. |
2157 |
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Exchange |
JASDAQ |
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Industry |
Service |
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President |
Hiroshi Koshidaka |
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HQ Address |
World Trade Center Building 23F, 2-4-1, Hamamatsucho, Minato-ku, Tokyo, JAPAN |
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Year-end |
August |
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URL |
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* Stock price as of closing on 2014/4/16. Outstanding shares as of most recent quarter end, excluding treasury stock.
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* Estimates are those of the Company.
This Bridge Report presents Koshidaka Holding's earnings results for the first half of fiscal year August 2014 and other details. |
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| Key Points |
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| Company Overview |
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<Business Segments and Group Structure>
The Koshidaka Holdings Group currently divides its business into four main segments. In the karaoke business segment, the Company operates both the "Karaoke Honpo Manekineko" clubs (Suburban regions) and the "One Kara" individual use Karaoke clubs (Urban regions). In the Curves business, fitness clubs providing specialized 30 minute workout programs targeting middle to older aged female customers called "Curves" are operated. And as a new business segment, hot spring bathing facilities and other new businesses are undertaken. In the other business segment, real estate management services are provided. The sales breakdown between the karaoke club, Curves fitness club, hot spring bathing facilities, and other business segments during fiscal year August 2013 were 54%, 40%, 5%, and 1% respectively.
 <Growth Strategy - "Comprehensive Leisure Services Providing Company" Promoting a "New Businesses in Existing Industries" Strategy>
The possibilities within the Japanese leisure related market are considered to be unlimited given its massive size of about ¥65 trillion. Moreover, the number of baby boomers approaching the age of 75 (Peak number being born between 1947 to 1949) is expected to increase and contribute to growth in the market over the next ten years. Based upon the business concept of becoming a "comprehensive leisure services providing company," Koshidaka seeks to cultivate synergies between the four realms of "amusement (karaoke)," "sports and fitness (Curves)," "tourism and travel (hot springs)," and "hobbies and cultural activities" to promote a strategy of "creating new businesses in existing industries." Koshidaka also maintains a medium- to long-term goal of achieving Group sales of ¥100.0 billion.
Karaoke Club Business
In the aftermath of the Lehman Shock, the Japanese karaoke market contracted to ¥380.0 from ¥420.0 billion and has trended sideways thereafter. However, Koshidaka has been successful in increasing its sales through the expansion of its network of karaoke clubs by offering friendly hospitability and reasonably priced localized services. In the future, Koshidaka will cultivate the active senior segment of the market even further by leveraging the concept that "karaoke promotes health." Specifically, a service differentiation strategy that employs a new and unique system for karaoke boxes called "SKIT" (Smart Karaoke Internet Terminal) will be introduced, along with the "Be Ambitious" scheme that allows employees to become owners of their own karaoke facilities, and "One Kara" individual use Karaoke clubs in urban regions, for which a target of 500 clubs to be achieved at an early stage has been established (349 clubs at end of February 2014).In addition, efforts are being promoted to expand its business in overseas markets including the opening of multiple clubs in Korea and Southeast Asia. The goal of multiple club operations is already being achieved with four clubs already in operation in Korea, and a new company called KOSHIDAKA INTERNATIONAL Pte. Ltd. was established as an intermediary company in Singapore in November 2013 for the expansion of the karaoke club business in Southeast Asia. The Group company KOSHIDAKA MANAGEMENT SINGAPORE PTE., LTD., which serves as the management company for the karaoke business in Singapore, acquired K BOX ENTERTAINMENT GROUP PTE., LTD., which operates 11 karaoke clubs in Singapore, in February 2014 to become a subsidiary (Sales of ¥2.1 billion and store level profits of ¥195 million, and overall profitability at breakeven. K BOX is Singapore's largest operator of karaoke clubs in terms of both sales and the number of the facilities.). Original Karaoke Box System "SKIT" (Smart Karaoke Internet Terminal)
The new karaoke system "SKIT" has been developed as part of the Company's efforts to provide new contents services as a means of differentiating itself from competing karaoke club chain operators. "SKIT" is used in collaboration with the website "SKIT Net" in a new karaoke system (Karaoke Commander) that allows karaoke users to take a more proactive role while using karaoke, and helps to broaden the spectrum of how users can enjoy karaoke. For example, registered members can store up to 200 songs and use their own visual contents as backdrops for songs they choose to sing. In addition, users can get automatic point ratings on how accurately they can mimic the original singer of songs, create their own songs by using applications downloaded to their PCs, and also download designated remote controller application to their smartphones. Koshidaka is expected to continue to introduce new applications that allow users to take a more proactive role in karaoke activities as a means of cultivating an even wider range of customers ("Manekineko" was introduced at all of its facilities as of April 16, 2014).
Employee Franchisee System "Be Ambitious" Introduced
In the course of achieving the position of the operator of "the largest number of karaoke clubs in Japan," President Koshidaka states that the venture spirit that existed within the Company at the time of its founding has become diluted. Therefore, an employee franchise system called "Be Ambitious" was introduced in August 2011 to both motivate staff and promote club managers to become owners of their own clubs. And while the only difference with existing clubs and these "Be Ambitious" clubs is that managers are their owners, the first club of this "Be Ambitious" system "Kumagaya Bypass Club" has been able to see double digit growth in sales and its earnings are continuing to grow strongly thereafter (This is evidence of how the "Be Ambitious" system can raise the motivation of the operator and extract latent potential of the karaoke club business.). During the first half of fiscal year August 2014, two clubs became independently owned by employees and brought the total number of "Be Ambitious" employee owned and operated clubs to 10 as of March 1, 2014. Over the intermediate to long term, Koshidaka expects that up to two thirds of all of its domestic clubs could be independently owned by former employees under the "Be Ambitious" system.
 Curves Fitness Club Business
While the Japanese fitness club market has trended sideways at slightly under ¥300.0 billion in the wake of the Lehman Shock, the Curves Fitness Club chain has now grown to become the largest fitness clubs operator within Japan. A key to the success of Curves is its ability allowing female members to form their own communities.
 Curves Fitness Club Business Concept and Strategy
"Proactive steps to avoid diseases, reduce the risk of immobility and nursing care, and contribute to a society with as few uncertainties for senior citizens. And in order to realize this type of society, each individual must adopt a balanced lifestyle that includes regular exercise and proper diet." This is the concept that underlies the Curves Fitness Club business of Koshidaka Holdings. Koshidaka headquarters and franchisees endeavor to raise the level of its services and create a franchise chain network of Curves Fitness Clubs that is easy to access as a means of allowing all of its members to maintain an exercise routine to maintain their health.
 Quick Circuit Training Lead to improvements in Senior Citizen Cognitive Function
The subsidiary Curves Japan is conducting joint research with the Tohoku University Institute of Development, Aging and Cancer, which conducts research with the goal of finding treatments for dementia and other age induced brain diseases and cancer. The joint research has been able to validate that quick circuit training contributes to improvements in cognitive function of senior citizens. Because circuit training is easy for senior citizens to do, it is expected to have applications in helping to dementia in senior citizens and to act as rehabilitation in cognitive function.
 ※ Improvements in execution function, episode memory, processing speed and a wide range of cognitive functions noted in four week circuit training tests.
Hot Spring Bathing Business
Koshidaka will endeavor to increase the number of customers per facility and raise customer satisfaction based upon its strategy of developing special services targeting seniors and family segments of the market and leveraging of know-how developed in the karaoke club business. While initial cost management was difficult given the volatility in fuel costs, optimization of operations through improvements in labor efficiency, introduction of water saving shower facilities, cogeneration power facilities (Using gas to generate electricity and heated water at the same time) contributed to reductions in both water and energy. At the same time, the introduction of hot water tanks allowing the use of natural hot spring water and re-circulative water systems allowed Koshidaka to achieve profitability on a monthly basis at the end of the term.
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| First Half of Fiscal Year August 2014 Earnings Results |
 Profits Declined, but Basically In Line with Estimates
Sales rose by 7.1% year-over-year to ¥17.524 billion. New facility openings and acquisition of new members exceeded expectations in the Curves Fitness Club business and allowed its sales to rise by just under 18%. Sales of the karaoke club and hot springs bathing businesses also rose, but fell shy of targets by roughly ¥400 and ¥200 million respectively due to the occurrence of several severe snow storms.At the same time, operating profit declined by 8.1% year-over-year to ¥2.014 billion. This decline is attributed to the burden from new club openings within Japan and other anticipatory investments in the karaoke club business, but was in line with expectations. The severe snow storms contributed to a decline in sales and an ¥80 million decline in profits. However, favorable trends in the Curves Fitness Club business offset this weaker performance of the karaoke club business, and allowed profits to exceed expectations by a small margin. The large decline in net profit is attributed to the disappearance of ¥1.536 billion in extraordinary profit derived from the sales of fixed assets in the previous term.   Existing Facility Sales Recover to Previous Year's Levels in First Half, Investments in Japan, Overseas Continued
Sales rose by 2.4% year-over-year to ¥9.57 billion while operating profit fell by 42.8% year-over-year to ¥718 million. Compared with the end of the previous term, the number of karaoke clubs operated in Japan rose by 11 to 349. While Koshidaka opened 11 new "Karaoke Honpo Manekineko" clubs (4 of which were new store openings on an open lot) and two "One Kara Individual Use Karaoke" clubs, it scrapped two "Karaoke Honpo Manekineko" clubs. In addition, it also performed renovation on 20 clubs.During the first quarter (September to November), existing facility sales were negatively impacted by several severe snow storms and sales growth languished (Existing facility sales fell by ¥432 million). Furthermore, increases in new facility openings (6 in the previous term) and renovations compressed profits. However, costs were basically in line with expectations. Existing club customer numbers also bottomed and have begun to recover since November. While sales declined by 5.1% year-over-year during the first quarter, the margin of decline in sales in February and March contracted to 2.3% and 1.0% year-over-year respectively (The positive impact of price revisions in April have allowed sales to recover to flat to slightly positive growth as of April 16.). Two directly operated karaoke clubs were spun off under the "Be Ambitious" employee franchise ownership system, which is being implemented as a means of raising the motivation of its staff. Furthermore the implementation of the "SKIT" original karaoke box system is progressing smoothly (Implementation at "Karaoke Honpo Manekineko" clubs was completed on April 16). In overseas markets, the fourth club has been opened in Korea and KOSHIDAKA INTERNATIONAL Pte., Ltd. was established in Singapore in November 2013 to oversea the karaoke business in Southeast Asia. Furthermore, the local subsidiary KOSHIDAKA MANAGEMENT SINGAPORE PTE., LTD. acquired a local company called K BOX ENTERTAINMENT GROUP PTE., LTD., which boasts of the largest sales and number of karaoke clubs in Singapore, in February 2014 and turned it into a subsidiary.  New Club Openings Favorable on Back of Strong Demand from Existing Franchisees, Strong Membership Acquisition with Decline in Withdrawal Rates
Sales and operating profit rose by 17.9% and 27.5% year-over-year to ¥7.089 and ¥1.499 billion respectively. At the end of the first half, the number of Curves Fitness Clubs within Japan rose by 58 (Including 59 newly opened clubs and 1 closure) from the end of the previous term to 1,397 clubs (Including 49 clubs directly operated by the Group), and the number of members increased by 3,000 to 589,000. Consequently, the number of members per club rose from 415 at the end of the previous first half to 421 (The number of members per facility at the end of the previous fiscal year was 437, but due to seasonal factors the number of member withdrawals normally increases during the second quarter) at the end of the current first half. Base sales (Including royalties and other income, usually increases in the second half due to seasonal factors) rose by ¥292 million, and directly operated club sales rose by ¥76 million. Efforts to strengthen relationships with existing members contributed to a ¥668 million increase in sales of goods including subscription based purchases of protein products.  Customer Numbers Rise 20% Year-Over-Year, Loss Declines on Progress in Cost Reductions
Sales rose by 1.3% year-over-year to ¥788 million, and operating loss declined from ¥200 million in the previous first half to ¥110 million in the current first half. While cost reductions progressed in line with expectations, a ¥170 million shortfall in sales contributed to slightly lower than expected amount of reduction in operating loss (¥50 million). With regard to cost reductions, improvements in efficiency of operations contributed to a ¥28 million reduction in labor costs. At the same time, efforts to reduce water, electricity and other utility fees contributed to a ¥16 million reduction in utility costs. The lack of any new facility openings also contributed to a 7.1% year-over-year reduction in cost of sales to ¥887 million.
(3) Financial Conditions and Cash Flow
Financing to cover aggressive investments and including long term debt contributed to an increase in total assets of ¥2.340 billion from the end of the previous fiscal year to ¥22.988 billion. Some of the activities of the investment strategy included ¥1.4 billon for new facility openings and existing facility refurbishments, ¥1.5 billion for the establishment of a subsidiary in Singapore and other M&A activities, and ¥1.7 billion for purchase of real estate (Atsugi City, Kanagawa Prefecture). With regard to capital procurement, funds needed for future endeavors are expected to be sourced early given the current favorable conditions for various forms of financing including debt. Equity ratio as of the end of the previous fiscal year fell by 1.1% to 50.4%.With regard to cash flow, Koshidaka was able to absorb the increase in working capital arising from the increase in new store openings to realize ¥940 million in operating cash flow. However, aggressive investments and the disappearance of income from sales of tangible fixed assets during the previous fiscal year contributed to a deterioration in investing cash flow. Consequently, free cash flow turned to a net outflow of ¥3.549 billion.   |
| Fiscal Year August 2014 Earnings Estimates |
 Full Year Estimates Remain Unchanged, Sales and Ordinary Profit Expected to Rise 10.3% and 11.3% Year-Over-Year
While the burden from anticipatory investments arising from a near tripling of new facility openings throughout the entire year increased, a recovery in existing facility sales from the second quarter and contributions from new and refurbished facilities have begun to appear. At the same time, both facility and membership numbers at Curves Fitness Club continue to increase, and fortification of relationships with existing members has contributed to continuation of favorable goods sales. Furthermore, the hot spring bathing business has turned profitable on a monthly basis at the end of the term.
Consequently a ¥25 dividend is expected to be paid at the end of the term (¥50 full year).
(2) Strategies by Business Segment
Karaoke Club Business
Koshidaka Holdings will continue to focus its efforts upon the creation of a base for overseas operations, which remains to be a driver of growth, and the fortification of the domestic operations, which acts as a stable income generator. In its overseas operations, the Company has dispatched three staff from Japan to Singapore to deploy its high quality services and its know-how developed within Japan into the local market, in addition to extracting synergies from K BOX. K BOX serves primarily the local Singaporean, Chinese, and exchange student customers and operates 11 karaoke clubs for annual sales of ¥2.0 billion.Just as in Japan, family use karaoke clubs are widely diffused in Southeast Asia. Therefore, Koshidaka expects to jointly cultivate the market with K BOX using Singapore as a launching pad to expand into various markets within Southeast Asia. The fourth karaoke club opened in Gwacheon City, Korea is said to be a highly perfected model, but will be further refined as they deploy this format in the future. At the same time, the unique karaoke commander system "SKIT" was introduced at all clubs within Japan as of April 16. Koshidaka has plans to implement a campaign called "Local Idol SKI-dol", where local participants sing karaoke using the new system as a means of promoting the new system. In addition, the Company will also fortify its Internet responses and has opened up an official account on the social network service "LINE" at the end of March. In addition to these developments, Koshidaka is promoting a scrap and build strategy, and implementing other measures to fortify its club network. During the full year, the Company expects to open 45 new and close eight existing clubs. And of the 30 new club openings anticipated during the second half, 24 (18 "Karaoke Honpo Manekineko" and 6 "One Kara Individual Use Karaoke" clubs) have already been identified and preparations for their opening have already begun. Moreover, four new "One Kara" clubs are expected to be opened in May (Shin-Koiwa Station, Koenji, Ueno, and Kawasaki Station East Exit), and preparations for the introduction of the loyalty program (Membership point system) are being conducted. Curves Fitness Club Business
With the objective of establishing a network of fitness clubs that are easy to access by customers, Koshidaka is continuing to aggressively open new clubs (120 new club openings planned during the full year bringing the expected total number of clubs in operation at the end of the year to 1,459). The near-term goal of 1,500 clubs is expected to be achieved in the coming term, and favorable performance of existing clubs is contributing to strong demand from existing franchisees to open multiple clubs. Consequently, Koshidaka will implement measures to ensure that cannibalization does not occur while it continues to expand its club network. In addition, efforts will be made to further raise the satisfaction levels of its members. Specifically, various activities including the "Burn Off Fat" campaign will be implemented as part of a strategy of turning exercise at Curves Fitness Clubs into a regular routine. Furthermore, relationships with the existing member base are expected to be leveraged through catalog sales as a means of fortifying earnings.
Hot Spring Bathing Business
With the objective of making all facilities profitable, heated air and steam baths, buffet meals, health through singing classes, alarm studio, rental bathrobes, comedy events, and other activities will be aggressively promoted at each facility as a means of attracting a wider range of customers. Drilling to extract natural hot spring waters has begun at "Tokyo Health Land Maneki no Yu" with the goal of increasing the number of its customers and is expected to begin providing natural hot spring waters from as early as July. In addition, water saving shower and energy conserving cogeneration facilities have been introduced along with increases in water storage tanks and re-circulatory water systems so that natural hot spring water can be used. Consequent to these developments, the hot spring bathing business is expected to turn profitable on a monthly and segment wide basis in July or August.
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| Conclusions |
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Expansion in the Curves Fitness Club business, which contributed to 70% of the total first half operating income, is expected to continue. However, this business is gradually approaching maturity and new strategies to ensure growth over the medium to long term must be pursued. In line with this view, Koshidaka is implementing efforts to expand this business to become a comprehensive health supporting business (Including exercise, dietary, sleep activities). Consequently, the successful results of research showing that circuit training is effective in improving cognitive functions is expected to have positive effect upon the future of the Curves Fitness Club business. Disclaimer
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.Copyright(C) 2014 Investment Bridge Co., Ltd. All Rights Reserved. |
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