| WELLNET CORPORATION (2428) |
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Company |
WELLNET CORPORATION |
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Code No. |
2428 |
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Exchange |
TSE 1st |
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Industry |
Service |
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President |
Kazuhiro Miyazawa |
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HQ Address |
1-1-7 Uchisaiwaicho, Chiyodaku, Tokyo |
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Year-end |
June |
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URL |
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* Stock price as of the close on March 4, 2016. Number of shares outstanding at the end of the most recent quarter excludes treasury shares.
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* From fiscal year June 2012, a change in the accounting procedure to a method of displaying sales by subtracting a part of cost of sales of the online business was adopted and data prior to this period was adjusted to reflect this change.
* Estimates are those of the Company. A 100 for 1 stock split was implemented on July 1, 2012. EPS is calculated based on the post-stock split number of shares, assuming undertaken at the beginning of the fiscal year. |
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| Key Points |
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| Company Overview |
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With the key concepts of "real time" and "one stop," WELLNET offers a "convenient direct sales platform" to provide (1) its customers (i.e. the purchaser of service and goods) with the convenience of purchasing whatever they want at any time and from any place, and (2) its sales business operators (i.e. WELLNET's direct customers) with the their capability of "maximizing sales opportunities" in selling products and services over the Internet. The multiple payment service, which is WELLNET's core business, has been implemented by a wide range of clientele including major Japanese airlines and express bus companies, in addition to major mail-order businesses. Ever since its inception, WELLNET has endeavored to maintain the spirit of taking on new challenges which is engrained in its corporate DNA. <Corporate History>
WELLNET CORPORATION got its start as a subsidiary of a gas and fuel merchant called Ichitaka Takahashi Co., Ltd. in Hokkaido for the purpose of developing new businesses. At the time of its inception, utility bill payment services at convenience stores had already begun. However the Company began preparations for the expansion of payment settlement services to include mail order catalog sales. WELLNET developed an integrated seamless "convenience store consigned bill payment settlement service" that included the functions of printing and mailing of invoices, and bill payment information processing which could be used 24 hours a day, 365 days a year. This system quickly spread amongst product and service merchants because it was distributed free of charge and enabled them to dispense with making large outlays to develop their own payment settlement systems. Furthermore, WELLNET developed a system that allows customers to avoid having to print out paper copies of invoices and allows for customers to make real time connections for electronic invoices and payments, which is the system currently used widely. The system's ability to eliminate development costs and to allow customers make electronic payment settlement connections with convenience stores and other payment outlets without the need to sign agreements has contributed to its strong reception and numerous implementations by airlines and bus companies, in addition to boosting WELLNET's earnings. In 2004, the Company listed its shares on the JASDAQ market. Thereafter, WELLNET has expanded the provision of its "multiple payment service" to include large companies such as Amazon, Yahoo! Shopping, Rakuten Auction, and low cost carrier (LCC) airlines. In addition, the Company has also focused its attention upon developing applications for the rapidly growing electronic ticket service market including a cellphone ticketing service, which has many good track records.  <Market Conditions>
According to the Ministry of Economy, Trade and Industry's report entitled FY 2014 Research on Infrastructure Development in Japan's Information-based Economy Society (E-Commerce Market Survey) issued on May 29, 2015), the Japanese electronic commerce market (B to C) for consumers rose by 14.6% year-over-year to ¥12.8 trillion in 2014. Compound average growth rate (CAGR) from 2010 to 2014 is 13.2%.
  <Business Description>
With the key concepts of "real time" and "one stop," WELLNET offers a "convenient direct sales platform" to provide (1) its customers (i.e. the purchaser of service and goods) with the convenience of purchasing whatever they want at any time and from any place, and (2) its sales business operators (i.e. WELLNET's direct customers) with the their capability of "maximizing sales opportunities" in selling products and services over the Internet. WELLNET business is comprised of the three main segments of (1) multiple payment services, (2) online business, and (3) electronic authentication services. (1) Multiple Payment Services
"Accounted for 95% of total sales or ¥8,442 million (FY6/15)"
 The Company derives its commission income (sales volume) from initial setup fees, basic monthly fees, commissions per each transaction, etc. In addition, initial investments required by the merchants are kept low because fees are based on the dual system of fixed and variable rates. ① E-Billing (Electronic Payment) Service
Unlike conventional billing, e-billing can make settlements without creating and sending invoices. Customers can pay bills using cash at KIOSK terminals interconnected WELLNET server, POS registers and ATMs, in addition to online banking, credit cards, electronic money, etc.
<How to use each of the methods>
◎ KIOSK TerminalsConsumers input a bill payment code issued at the time of purchase of products or services over the Internet into a kiosk terminal. After making sure that everything of the purchase provided on the screen of the terminal is correct, the customer presses the "Confirm" button, and a bar code invoice is printed out at the terminal. The customer takes the invoice to the cash register and makes payment. ◎ POS Register and ATMs There is a function at POS registers that allows customers to use ten keys shown on the touch panel display to electronically input invoice numbers to pay bills using cash or bank account cards. After checking everything shown on the display is correct, the customer presses the "Confirm" button and makes payment. A similar process is available for payment in cash or by cash card using bank ATMs. <Advantages and Characteristics>
 The ability to create invoices and payment receipts, eliminating the mailing process and reducing costs, and the provision of one-stop bill payment services that allows real-time electronic invoice and bill payment functions by connecting to only a single company, i.e. WELLNET.Merchants have no need to develop various systems for each bill payment channel (Convenience stores, banks, post offices, etc.), and can easily provide various settlement methods to customers by entering into an agreement with WELLNET.WELLNET provides information processing module free of charge.WELLNET develops and implements the most up-to-date payment systems, eliminating the need for merchants to develop their own systems.WELLNET's systems account for various changes including late charges, additional purchases or other factors in "real time" to ensure that the most up-to-date payment can be made.This payment service was launched in May 2000, and has a good track record since, as it has been introduced by major domestic airlines, major express bus companies, electrical power companies, mail order companies, etc., as described below.② Billing (Payment/Invoices at Convenience Stores) Services
A: Convenience store bill payment serviceWELLNET's bar code payment invoice issuance system and accounts receivable recovery via convenience store consigned bill payment service. WELLNET's bar code payment invoice system available at convenience stores and post offices uses an internally developed payment receipt issuance and payment information processing software called "ConPay Kun" to allow merchants to easily print out invoices and receipts, easily process payment information and make ledger notes of payment receipt. Payment information is transmitted on the next business day after the payment is made (For payment at post offices, two business days), and automatically makes ledger notes of the payment. Currently, bills for mail order sales, fuel expenses, various membership fees, etc. can be paid in arrears using this system. <Advantages and Characteristics>
Payments can be made 24 hours a day, 365 days a year at nationwide convenience stores (Available at 16 different convenience store chains as of December 2014), relieving bill paying customers from the need to rush to post offices and banks during normal business hours.The packaged software "ConPay Kun" is provided free of charge, allowing merchants to begin operating the payment systems within short time after application.Merchants can print out their own bill payment receipts, and avoid leakage of customer information because the payment information is based on numeric bar code information only.WELLNET provides total comprehensive bill payment issuance and payment settlement support services including consigned bar code invoice payment printing and mailing functions, payment confirmation, and payment ledger note. In particular, its bill payment services are used commonly for payment of services that do not entail shipment of goods (gas bills, various membership fees). In addition, automatic payment and other information receipt services (Invoice issuance, payment service packaged software "Tokoro Kun") are also provided. ③ Cash transfer service to the bank account
This service allows merchants to use the Internet to efficiently make payments to customers for reasons such as refunds for cancellations. WELLNET operates a dedicated website that allows consumers to use an ID received from the merchant and to input their own bank account information for merchants to make payments to.
<Advantages and Characteristics>
 The ability of consumers to input their own bank account information and automatic processing of this information allows merchants to reduce their work load by eliminating the need to input account information.Increase customer satisfaction by allowing merchants to make payment of refunds within the same day.Eliminates the need for merchants to develop their own refund systems.Eliminates the need to retain bank account information of customers and reduces the risk of leakage of personal information.④ Cash receipt (Transfer) service at Convenience Stores
As with the Cash transfer service to the bank account, this service concerns refunds when consumers cancel an order from a merchant. Unlike the Cash transfer service to the bank account, this service requires no bank account.The consumer inputs a cash pickup number and ID (provided by the merchant) into a Lawson convenience store "Loppi" multimedia terminal, which issues a cash exchange ticket, and this cash exchange ticket can be exchanged for cash at the register. <Advantages and Characteristics>
Merchants can avoid risks related to possessing customer bank account dataCost reduction due to no handing charges of postal transfers or bank transfersSmooth refunds with no risk of errors in handling bank account information⑤ Other Services
Multiple payment services can be customized to match the needs of individual merchants and consigned operational support services can also be provided.
(2) Online Services Business
"Accounted for 4.7% of total sales or ¥400 million (FY6/15)"
① PIN Online Sales Service
An online service linking WELLNET servers to POS registers and KIOSK terminals at convenience stores for the sale of cellular telephone, international telephone, electronic money and other prepaid cards. The ability to buy prepaid cards online eliminates the need to go to stores in advance to make purchases.
② Prepaid Gift Card Sales Service
Gift cards are sold at the Gift Card Mall installed in convenience stores. By activating the PIN at the POS register, the gift card becomes usable for purchasing games or music.
<Advantages and Characteristics>
Online sales eliminate the need to physically stock cards in advance. Stocking of stock cards right at the time of sale contributes to greatly improved cash flow and preventing opportunity losses resulting from a shortage of inventory. The easier adjustment in the volume and lineup of cards is among many other advantages of online systems.③ Various Application Services
The KIOSK terminals located at convenience stores allow users to fill out various applications for Japanese character proficiency tests, English language proficiency tests, university entrance examinations, and other various application forms. The terminals provide one-stop comprehensive services by allowing for not only application but also payment of these various applications.
(3) Electronic Authentication Services
"Accounted for 0.5% of total sales or ¥45 million (FY6/15)"
① Electronic Ticket Service
A system that allows two dimensional codes displayed on smartphones and other cellular telephone displays to be used as tickets. When combined with the multiple payment service, the system allows customers to complete the entire process of application, purchase, and receipt of tickets electronically over their smartphone and other cellular telephones and personal computers. When consumers complete the multiple payment service over the Internet for tickets reservations, they will receive an email at their cellular telephone. By accessing the url listed in the email, they can acquire a two dimensional code which can be used in place of a ticket for entrance to the event. <Advantages and Characteristics>
Eliminates the need to issue and mail physical tickets, coupons, and membership cards.The ability to provide reservations and issue tickets online allows promoters of an event to sell tickets until the last minute before the event.The paperless solution is more environmentally friendly.Electronic records of event participants allows for easy use of entrance data for marketing purposes.② "SUPERSUB" Service
An online ticket solution that provides one-stop, comprehensive services ranging from ticket issuance, payment, and authentication functions.This system eliminates the need for merchants to develop individual systems that connect to servers, allowing for easy use by not only merchants but also individuals holding events. This system was launched in June 2012 aiming at increasing the number of customers, in addition to the existing large clients such as airlines and bus companies, based on its efficient and low-cost strategy. <Advantages and Characteristics>
Event organizers can create web pages for their events as to their ticket reservation, application and sales, simply by entering basic information relating to the events such as ticket pricing, location, date of the event, etc. into the registration page (Currently only available to PCs).Simply linking the above web pages to the organizer's event page will enable the launch of ticket sales.Customers seeking to participate in an event can purchase tickets via PCs, smartphones, and cellular telephones.Both e-tickets and paper tickets printed at convenience stores can be used. The tickets use QR codes and special applications will be used for authentication of these codes for entry to events. The system allows for smooth operations at events through accurate authentication. It is also possible to use just paper tickets, in which case the authentication application is unnecessary.Similar to multiple payment services, this service provides a multitude of various payment settlement methods. The system can be launched within three weeks from application for ticket through installment of the system to the sales of tickets.There are no initial costs or basic monthly fees. In exchange, a commission of 5% of ticket sales is collected to help keep operational costs extremely low. <Characteristics and Strengths>
①Strong Track Record of Implementations, Strong Customer Base
WELLNET's multiple payment service has developed a highly favorable reputation for its ability to eliminate development expenses at the time of their implementation and the need to form contracts with each payment institution. WELLNET's service has been introduced to the leading companies in each industry as described below.One of WELLNET's largest assets is the highly favorable reputation received from airlines and bus companies for their system's real time capabilities. It is this strong customer base that lies at the core of its highly favorable reputation, which is considered to be an important "invisible asset".  ②Corporate DNA: Always Taking on New Challenges
E-Billing Service, Billing Service, various money transfer services, cellular telephone ticket service and other services and systems developed by WELLNET, in almost all the cases, represent the first applications of their kind to be commercialized within Japan.Furthermore, the above implementation examples of systems are validation of their superiority. As WELLNET is not an affiliate or subsidiary of a large company, it started out without large amounts of business resources, including money, people and assets. Despite this fact, the spirit of "always taking on new challenges" engrained in the corporate DNA of WELLNET allowed it to become the "de facto standard setter" in electronic bill payments. President Miyazawa believes that the meaning and appeal of business is "to continue to believe in your own ability, to envision and take on the risk of developing mechanisms that would be convenient to have, and to provide them in tangible, readily available forms." Moreover, in our interview, Mr. Miyazawa also said that "the reason for our Company to exist is to come up with systems that only we can create." Since WELLNET is a small company with less than 80 employees, keeping up the spirit of taking on new challenges engrained in its corporate DNA and the ideal represented in its corporate principle of "WELLNET Alete" (which will be described below) seem to be vital to the company's existence. |
| 1H of Fiscal Year June 2016 Earnings Results |
 Increases in sales and profit, exceeding respective estimates
Sales were ¥5.0 billion, up 18.7% year on year. The business performance of the company was healthy and showed double-digit growth as the EC market expanded. The results in the bus and airplane fields were favorable driven by the inbound demand, etc., and its products are increasingly installed in the ferry companies. The favorable factors include the steady growth of the C-to-C market, including auctions, and the increase of online application to colleges. On the other hand, sales for PIN online sales service continue to decrease. Gross profit increased by double digits. Operating profit increased 20.7% year on year to ¥1.1 billion, as the cost for sales promotion and advertisement regarding PIN, etc. decreased, the expenses for listing in the first section of Tokyo Stock Exchange, which were shown in the previous year, dropped, and the directors' remuneration were reduced in order to maintain the robust business structure. Both sales and profit exceeded respective estimated values. The company has classified its services into "multi-payment," "online business," and "electronic authentication" for disclosing its sales, but as the company is pursuing "settlement services" as its core business and enriching peripheral services, it receives compensation as "commissions for settlement" in most cases. Accordingly, it is difficult to discriminate "settlement" from "peripheral" services, and there is a risk that the announcement of results for each service will mislead investors. Therefore, the company decided to categorize these services into "settlement and accompanying services" from this term.  As for liabilities, current liabilities augmented ¥600 million from the end of the previous term, due to the increase in trade accounts payable, and total liabilities, too, rose ¥600 million. Treasury stocks grew ¥300 million from the end of the previous term, and net assets dropped ¥300 million. As a result, equity ratio declined by 2.4% from 41.6% at the end of the previous term to 39.2%. (If the above mentioned deposits for payment are subtracted from assets and liabilities, equity ratio would be 74.8% at the end of the previous term and 72.7% at the end of the current term.)  Investing CF recovered, as expenditure decreased through the acquisition of securities and revenue grew due to the redemption of securities. Free CF dropped. Financial CF decreased further through the acquisition of treasury shares, etc. The cash position weakened. (4) Topics
On Nov. 2, 2015, the largest shareholder Development Bank of Japan (DBJ) sent a notification on the selling out of some shares. DBJ remains the largest shareholder. ◎ Changes of major shareholders There are no remarks about the future outlook.   The number of shares owned was taken from the list of shareholders as of June 30, 2015 before the trading, and from the notification by DBJ dated November 2, 2015 after the trading, not confirmed by Wellnet. The ranks of major shareholders before and after the trading were inferred by Wellnet based on the list of shareholders as of June 30, 2015.
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| Fiscal Year June 2016 Earnings Estimates |
 No changes to the earnings forecast. Increases in sales and profit estimated. Net profit of ¥1.2 billion to be returned to shareholders 100% this term, too.
The sales for this term, which is the last year of the 3-year mid-term managerial plan, are estimated to be ¥9.6 billion, up 8.0% year on year. The sales mainly toward major clients, such as airlines and bus companies, are expected to keep growing. Operating profit is estimated to increase 22.2% year on year to ¥2 billion. The investments in the first and second years will bear fruit. Assuming that payout ratio is 50%, dividend per share is estimated to increase by ¥16 year on year to ¥66. The remaining surplus will be allocated to the acquisition and retirement of treasury shares. In accordance with the policy for returning profits to shareholders in the 3-year mid-term managerial plan, the company plans to return all of its net profit amounting to ¥1,260 million to shareholders. The target ROE is 15%. |
| Issues to be solved and growth strategies |
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The development of apps for consumers was recognized as an essential business pillar for the company. R&D activities for this are currently underway and to be completed around this summer. As for non-face-to-face settlement, paperless invoices are estimated to be popularized and electronic payment systems are estimated to be spread. The company concentrates on solutions to appropriately respond to the expansion of such a paperless market. In the "Kaizen" project for enriching functions, stabilizing system operation, and improving cost performance, the company will systematize routine tasks thoroughly and achieve stable operation based on the monitoring system for predicting troubles, and is developing an automatic recovery system for minimizing system troubles, and also analyzing the cost composition for improving cost performance. |
| Conclusions |
 <Reference : 3-Year Medium-Term Business Plan>
◎ 3-Year Medium-Term Business Plan Growth Strategy
The two wheels supporting growth are: ① Establishing a business scheme to support the next generation, and ② Kaizen (expanding functions, improving system stability, increasing cost-effectiveness=building a strong corporation).
◎ Structure and Governance to Achieve Growth Scenario
In order to quickly and powerfully proceed with the two wheels of the growth strategy ("business development" and "kaizen"), related projects will be carried out under direct supervision of the CEO. In addition to active recruitment of young employees, necessary personnel who share ideals will be sought outside of the company as well in order to develop a structure to accomplish WELLNET's goals, with stock options and other policies effective to increase motivation for meeting goals. Renewed effort is also being put into employee education, with the WELLNET Alete, which defines the raison d'être of the company and action guidelines for employees, and which has been implementing effective governance. (Alete is a Greek term for "virtue," "superior being," or "predominant being.")  WELLNET Alete Contributing to the society by creating "mechanisms that are convenient to have"Proposing and spreading those "mechanisms" throughout the worldAllocating profit to employees, shareholders and investments in the future WELLNET Employee AleteTo avoid the pitfalls of stereotypes. I will think freely.Thinking for one's self, proposing the best solution.Promoting open discussions, while clearly defining the factors of "who" will do "what" by "when."Repeating the process of validation and improvement.Making honest, accurate and quick reports.Conducting business after documenting services to be provided and compensation to be received.Non-acceptance of entertainment and gifts.◎ Numerical Targets
Strategic investment will be carried out in the first and second years, with a goal of ¥2,000 million operating profit for fiscal year June 2016, the final year of the plan.The initial target for fiscal year June 2014 was ¥1,450 million, but the results surpassed the target and reached ¥1,470 million. This demonstrates how the entire company is working together to reach its targets.  ◎ Return to Shareholders
◯ Return 100% of Profits During Midterm Business Plan to Shareholders
Adequate amounts of cash on hand will be maintained as a source for maintaining the Company's credibility, fortifying core businesses, and developing new business. But with adequate financial soundness already achieved, WELLNET will return an even higher level, that is, 100% of profits to its shareholders during its midterm business plan period. Specifically, the following two measures will be implemented.
A) With the exception of special factors, WELLNET will endeavor to achieve a stable and high level of dividend payment with the target payout ratio established in the midterm business plan to be raised from 33.3% to 50%.
B) 100% of profits are expected to be returned to shareholders with after-tax profits left remaining after paying dividends expected to be used for the acquisition and retirement of treasury shares.
With the exception of treasury shares owned to be used as stock for sale and for "J-ESOP" (Japanese Employee Stock Ownership Plan), newly acquired treasury shares will either be retired or used as shares for stock options issued as performance-based compensation. ◯ Return On Equity Target: 15% (FY6/16)
WELLNET seeks to raise its return on equity (ROE) and earnings per share (EPS), in addition to steadfastly promoting a growth strategy, strengthening its earnings, increasing its dividends and acquiring and retiring treasury shares.
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) 2016, All Rights Reserved by Investment Bridge Co., Ltd. |
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