BRIDGE REPORT
Hamee Corp. (3134)
President Atsushi Higuchi
President Atsushi Higuchi
Corporate Profile
Company
Hamee Corp.
Code No.
3134
Exchange
TSE 1st Section
Industry
Retail (commerce)
President
Atsushi Higuchi
Address
Odawara EPO, 2-9-39, Sakae-cho, Odawara-shi, Kanagawa prefecture
Business
Planning, EC, and wholesale of mobile device accessories (commerce business), and the development and provision of "Next Engine," a cloud-type business management platform for EC enterprises (platform business)
Year-end
April
URL
Stock Information
Share Price Number of shares issued
(excluding treasury shares)
Total market cap ROE (Actual) Trading Unit
¥1,603 15,837,314 shares ¥25,387 million 29.7% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Actual) PBR (Actual)
¥5.00 0.3% ¥47.44 33.8times ¥170.28 9.4times
*The share price is the closing price on July 7. The number of shares issued was obtained by subtracting the number of treasury shares from the number of outstanding shares as of the end of the latest quarter. ROE and BPS were the values for the previous term.
 
Earnings Trends
Fiscal Year Net Sales Operating
    Income
Ordinary
    Income
Net
  Income
EPS DPS
April 2014 (Actual) 4,681 226 222 121 9.86 -
April 2015 (Actual) 5,657 336 329 192 15.49 -
April 2016 (Actual) 6,501 450 427 257 16.58 3.00
April 2017 (Actual) 8,502 1,106 1,048 695 44.22 4.50
April 2018 (Forecast) 9,320 1,161 1,157 755 47.44 5.00
*The forecasted values were provided by the company. From FY4/16, net income is profit attributable to owners of the parent. Hereinafter the same apply.
*400-for-1 share split in Dec. 2014 and 4-for-1 share split in Mar. 2016, and 2-for-1 share split in Nov. 2016. EPSs were retroactively adjusted.
 
This report outlines Hamee's financial results for the term ending April 2017 and its earnings estimates for the term ending April 2018.
 
Key Points
 
 
Company Overview
 
Hamee Corp. defines its business domain as "happy mobile, easy e-commerce" (from which the name of the company is derived) and does the following 2 businesses: the business of planning, designing, and selling online, and wholesale of mobile phone accessories to achieve the vision of "happy mobile" (the commerce business) and the business of development and provision of "Next Engine," a cloud-type business management platform for e-commerce operators to realize the vision of "easy e-commerce" (the platform business). Hamee Corp. shows a top-class performance in the EC of mobile phone accessories, and also has the largest share in the platform market, having about 2,600 client enterprises. In addition to the company itself, the Hamee group is composed of three consolidated subsidiaries including Hamee Korea Co., Ltd. (Korea), Hamee US, Corp. (the United States), and Hamee Taiwan, Corp. (Taiwan) (Hamee Corp. wholly owns these 3 subsidiaries), equity-method affiliate: Shippinno Inc., and the non-consolidated subsidiaries: Hamee India Pvt. Ltd. (India) and Hamee Shanghai Trade Co., Ltd. (China).
 
 
Their business is divided into 2 segments: the commerce business and the platform business. For the platform business, the company continues upfront investment, including the increase of engineers and the development of various services.
 
Commerce Business: By utilizing its capability of planning products, the company covers the upstream to downstream sectors of the distribution field, and operates EC efficiently with Next Engine.
Hamee Corp. conducts product planning and production (as a fabless manufacturer), and purchase of general goods including mobile phone accessories, and sells such goods over the Internet to general consumers (retail) as well as through wholesale to major retail stores of general goods, electronics and home appliances, and the like. As for online sale, in addition to the domestic business, the company runs e-commerce websites for foreign general consumers and has opened their online shops in overseas e-commerce shopping malls, etc. through their overseas subsidiaries (cross-border e-commerce).
 
Domestic online sale (retail): To sell products to consumers via a website with its original domain and leading EC sites
The company runs multiple shops, including a website with its original domain, the same type of shops in EC sites, including Rakuten and Yahoo!, and stores with different concepts and targets in the same mall. For example, in "Rakuten Shop," which is recognized as a comprehensive shop and easy to understand for everyone, the company operates "Hamee TV" for men, "Ketchup!" for women, and "Kawaii Kan," which collects goods considered "Kawaii" by store staff. Its strength is the business operation conducted jointly by Product Development Dept. (product development), CR Management Dept. (attending to customers), and Web Marketing Dept. (store development).
 
Wholesale: Sale to retail stores and e-commerce operators
In addition to wholesale of mobile phone accessories chiefly to leading retail stores of general goods, and electronics and home appliances, they have developed a website for online wholesale to e-commerce operators. The headquarters of the company is located in Odawara (Kanagawa prefecture), and they have branch offices in Tokyo and Osaka and post personnel called rounder who provide support for creating sales floors in physical stores.
 
Sale to foreign customers: Online sale to general consumers by their subsidiaries in South Korea, the United States, Taiwan, and China
The company wholesales products to online shop operators and retailers via the 3 consolidated subsidiaries in South Korea, the U.S., and Taiwan, and the 2 non-consolidated subsidiaries in China and India. The subsidiary in South Korea also plans, designs, and selects products. The subsidiary in India also serves as a back office for the EC in the U.S. In China, the company opened 3 shops, including one shop in the website with its original domain, in the first half of the term ended April 2017.
 
 
Hamee has secured purchase networks with over 500 companies, which function also as networks of information on mobile phone accessories. Furthermore, a team that consists primarily of product designers and that is devoted to product planning and design has been formed in the company to work on production of highly-profitable self-planned products in cooperation with outside manufacturers including overseas ones. Besides, their products contain other goods such as toys and utility goods. They analyze sales trends including wholesale of more than 10,000 kinds of products, in order to know best-selling items in a timely manner and use the knowledge for product purchase and planning.
 
 
Platform Business: To improve the attractiveness as a platform by differentiating it, increasing its advantage, and enriching apps with the know-how to operate EC
The Company developed "Next Engine," a management platform that uniformly manages back-office operations necessary to run online shops (such as order receipt, order placement, procurement, inventory management, and analysis), and offer it to e-commerce operators who sell products over the Internet through their own websites, online shopping malls, and the like. "Next Engine" is a system for e-commerce back-office operations, which was developed by the Hamee group in the course of expanding their e-commerce business, as well as a backbone system which is still used in the commerce business segment of their corporate group.
 
Provision of "Next Engine," an operation management platform for operators who sell products via the Internet, with the cloud technology
""Next Engine" is a cloud system that automates the process of online store operations and assists e-commerce operators in enhancing their management efficiency, with various functions such as automatic e-mail response, comprehensive management of order slips, automated coordination of goods in stock, and comprehensive uploading of web-pages of products. Because this system enables uniform management of multiple online shops in several different online shopping malls and synchronization of the quantity of stock displayed on the website of various individual online shops, e-commerce operators who own a number of online stores can receive considerable benefits by using this system.
 
 
"Next Engine" is composed of the main functions (standard specifications) and applications (extended functionality; hereinafter referred to as the "apps"), allowing users to choose appropriate functions depending on their needs. Standard functions contributing to the convenience of e-commerce operators are installed on the main functionality in one package, while the apps are considered as options to satisfy unique needs that the standard functions cannot meet. "Next Engine" is provided also by OEMs; GMO solution partner, Inc. offers the system in the name of "Stock Manager" and GMO Commerce, Inc. provides it as "Sugoi! Net-Shop Kanri" (which literally means great management of online shops), respectively to their customers.
The basic rate for "Next Engine" is determined based on the pay-as-you-go system where fees are dependent on the number of orders each e-commerce operator gains (this is a rate structure that is in proportion to the business scale of each user). In addition, multitudinous services such as the special server plan and customization (custom-made Next Engine) are also available with fees charged separately to each customer. The fees of apps on Next Engine vary for each application (free of charge, based on the flat-rate or pay-as-you-go system).
 
 
Platform development
They published the API (*) of "Next Engine" in December 2013, achieving so-called platform development of "Next Engine" which makes it possible to offer on "Next Engine" myriads of applications developed by the company or other outside developers, etc. This allows establishment and operation of systems, according to the circumstances of each user company, by coordinating apps and "Next Engine."
 
 
Regarding the expansion to overseas markets, the company's basic strategy is "to develop and release the localized version (overseas version) of "Next Engine" after actually operating e-commerce at local corporations in foreign countries and cultivating know-how such as cooperation with e-commerce shopping malls in each country."
 
 
President Higuchi started a business while studying at Keio University. The business got into full swing as a manufacturer of cell-phone charms in May 1998 when he was in his 4th year of university, and therefore, he established Macrowill Co., Ltd. which is the predecessor of Hamee Corp. President Higuchi set up "mobile phone accessory market," an e-commerce website that offered accessories for cell phones, in August 1999 and began to sell products to physical stores. Afterwards, he shifted the target market from cell phones to smartphones to adapt to the changing demand. In June 2006, he began to provide mobile phone accessories at "Strapya Honten," an e-commerce website specialized in cell-phone charms.

In November 2007, the company released "Next Engine," a cloud back-end solution system for e-commerce operators. Then, in May 2008, services of "Next Engine" were made available to outside companies. In June 2011, they opened an e-commerce website, "StrapyaWorld," on "Amazon U.S." in the United States for international customers, launching cross-border e-commerce. In October of the same year, the South Korean subsidiary was set up. In May 2013, the company name was changed to Hamee Corp., and the American subsidiary was established. In December, they published API of "Next Engine" to develop a platform for it.

In April 2015, the company was listed on the Mothers (Market of the high-growth and emerging stocks) of Tokyo Stock Exchange. They established the local subsidiaries in Taiwan and China in July and in India in September 2015. In February 2016, they newly established "Next Engine AI Lab" (current "Inquiry Office") which conducts research on artificial intelligence and machine learning. The company was selected by the Ministry of Economy, Trade and Industry as well as Tokyo Stock Exchange as one of companies of the "Competitive IT Strategy Company 2016" in June, and changed their stock market listing from the Mothers to the 1st section of Tokyo Stock Exchange in July.
 
 
Fiscal Year April 2017 Earnings Results
 
 
Ordinary income grew 2.5 times, marking a record high.
Net Sales were 8,502 million yen, up 30.8% year on year. Out of them, the sales of the commerce business were 7,483 million yen, up 31.4% year on year. The sales of wholesale to leading mass retailers rose 50.5% year on year, and the sales of retail grew 10.7% year on year due to the favorable performance of its original site and Amazon. The sales of the platform business grew 26.2% year on year to 1,018 million yen in parallel with the growth of the number of companies that have subscribed to the main function and apps. As of the end of the term, the number of companies that have subscribed to the main function was 2,642 (up 18.6% from the end of the previous term), the number of companies that have subscribed to apps was 978 (up 69.8% from the end of the previous term), and the number of stores was 20,268 (up 20.7% year on year). Outside Japan, the South Korean subsidiary, which supplies "iFace Series" to Japan, contributed to sales growth.

As for profits, the profit rate of the platform business dropped due to the increase of engineers and support staff, and upfront investment in infrastructure, etc., but the profit of the commerce business expanded 3.4 times due to sales growth and the rise in the ratio of original products. Outside Japan, the South Korean subsidiary, which acquired the trademark of "iFace Series" in the term ended April 2016, contributed to profit significantly, while the U.S. and Taiwan subsidiaries moved into the black. A market change cost of 22 million yen and an exchange loss of 14 million yen (difference between the exchange rate on the accrual date and the rate on the account settlement date with respect to assets, such as receivables for subsidiaries) were included in non-operating expenses, but due to the tax effect accounting, net income grew 169.7% to 695 million yen.
 
 
(2) Financial condition and cash flow (CF)
Through business expansion, term-end total assets increased 1,223 million yen from the end of the previous term to 4,240 million yen. In the debit side, cash and deposits, trade receivables, and affiliates' shares (41 million yen → 183 million yen; investment in non-consolidated subsidiaries) increased. The quantity of purchase lots of original products is larger than that of procured products, but product management is carried out properly, and inventory turnover period increased only one and a half days from 27.1 days to 28.5 days. In the credit side, retained earnings increased considerably (from 1,020 million yen to 1,692 million yen), and other payables, which are composed of accrued commissions payable, corporate income tax, etc. augmented. Capital-to-asset ratio was 63.6% (66.1% at the end of the previous term), and rate of return on invested capital was 27.7% (11.8% at the end of the previous term).
 
 
 
 
 
 
Fiscal Year April 2018 Earnings Estimates
 
 
Sales and ordinary income are estimated to grow 9.6% and 10.4%, respectively.
Sales are forecasted to rise 9.6% year on year to 9,320 million yen. As the companies that have subscribed to the main function of Next Engine are increasing, the sales of the platform business are projected to grow 11.1% year on year, and the sales of the commerce business, mainly in the retail field, are estimated to increase 9.4% year on year.

Operating income is forecasted to rise 5.0% year on year to 1,161 million yen. The profit of the platform business declined slightly due to the increase of support staff and active investment in infrastructure, while in the commerce business, sales growth offset the augmentation in commissions paid, logistics cost, etc. due to the increase in retail. Since exchange loss is not expected, ordinary income is estimated to rise 10.4% year on year to 1,157 million yen. As the extraordinary loss due to the relocation of the headquarters will be offset, net income is projected to grow 8.5% year on year to 755 million yen.

As for dividends, the company plans to pay a term-end dividend of 5 yen/share, up 0.5 yen/share year on year. For the foreseeable future, the company plans to pay dividends with a payout ratio of 10%, but aims to achieve a payout ratio of 20% to 30% stably.
 
 
 
 
Commerce Business
The sales of retail are estimated to grow 13.5% year on year, considering the timing of the release of products for new models of iPhone, etc., the variation in the demand for original products, etc. The sales of wholesale are projected to rise 6.6% year on year, considering the information on inquiries from major clients, etc. The total sales of the commerce business are forecasted to increase 9.4% year on year to 8,188 million yen.
 
Platform Business
Sales are estimated to grow 11.1% year on year to 1,131 million yen. Considering the past results, etc., the number of new subscriptions to the main function of Next Engine and the number of cancellations were estimated every month, and sales were calculated by multiplying the number of subscriptions by the average customer spending. As the number of subscriptions increased 18.6% from the end of the previous term in the term ended April 2017, it is conservatively estimated to grow 16.0% in the term ending April 2018. The factors in increasing it, such as dedicated apps (for customization) were not taken into account. For profits, upfront investment, including the increase of support staff and investment in infrastructure, was considered.
 
(3) Future business development
Commerce business     Brand development based on products, strengthening IT and expanding with multiple stores
The commerce business is focusing on brand development for products. The competition in the smartphone accessary market is fierce. Shopping sites on the Internet are flooded with goods, without limiting to smartphone accessories, which actually makes it harder to find what the consumers are looking for. Therefore, creating good products are of course important, but brand development becomes very critical.

The company will continue focusing on expanding the commerce business and the original brand products, which is the driving force of profitability improvement. The original brand products already occupy about 80% (smartphone case, 60%; other accessories, 10%; charger/cable, etc., 10%) of the company's total sales. Considering the advantage of procurement including cost-added products and collection of information such as trend, it is not beneficial for the company to increase its original product rate. Therefore, while maintaining the composition rate of about 80% for the original products, the company will increase profitability by strengthening its brand power. As part of this effort, it concluded a brand ambassador contract with "Emma", a top model of a fashion magazine "ViVi" and a user of the "iFace series", for the "iFace series" and promoted their products at the "Sapporo Collection 2017", the largest Fashion Festival in Hokkaido region.

Furthermore, in parallel with brand development efforts, it will work on strengthening IT and establishing multiple stores. For strengthening IT, it will intensify automation and strengthen and continue system development to increase productivity. For establishing multiple stores, it will not only open a similar type of stores on multiple EC sites (e.g. Amazon, Rakuten, and Yahoo!) but also open stores with different concepts and targets within the same mall.
 
Platform business     System linkage, Cross-border EC
The company will promote system linkage with various companies through API and sell new systems that are created as a result of the linkage. For example, in September 2016, it concluded a capital and business collaboration agreement with Web No Takumi, Inc. (current Shippinno, Inc.) which offers an application for automation of shipping tasks called "Shippinno". By linking "Next Engine" with "Shippinno", it enabled the users to send all shipping orders on the EC sites that are operated by Next Engine to warehouses as soon as 10 minutes, 24 hours a day, 365 days a year. Furthermore, in February 2017, it began the provision of the application "Shippinno" which is automatically linked with a cloud-based warehouse management system called "Logizard Zero". With this, the users can give shipping instructions to their outsourcing warehouses without using manpower.
Furthermore, in December 2016, the company concluded a business collaboration agreement with Recruit Marketing Partners Co., Ltd., which operates one of the Japan's largest used car information site, "Car Sensor". Once a used car dealer registers a used car on the "Car Sensor" site, the car is automatically posted on online shopping sites such as "Yahoo Auction!" through "Next Engine".
Also, in January 2017, the "Storage API" service began, which is a data entry and output program for registration and acquisition of data. Through this program, users can exchange data with an external server using applications such as "Custom Data Development (data transfer option)" and "Data Octopus", which are provided separately. "Custom Data Development (data transfer option)" is an application to transfer data within "Next Engine" in an arbitrary file format to an external company's server. "Data Octopus" is an application to acquire data from an external company's server.

The company will also expand the businesses related to cross-border EC. In July 2016, it began collaboration with a multilingual "cross-border EC" automatic auction platform "LISUTO!" operated by eLady Co., Ltd. Furthermore, in November 2016, it collaborated with Inagora Inc. for a cross-border EC platform called "Wandou Platform", which is focusing on the sales of Japanese products. Through this, the sales for the customers in China became almost the same as the EC sales within Japan.

The number of orders that were processed through "Next Engine" in the term ended April 2017 was 5,368, and the processed amount in the monetary value was 376 billion yen. The number of contracting companies for the main functions as of the end of the term ended April 2017 was 2,642 (up 18.6% year on year). The company's immediate goal is to have 5,000 contracting companies for the main functions. In the medium term, it is planning to offer AI and big data solutions using a large amount of data that are collected through "Next Engine".
 
Global expansion    Localization of the commerce business ⇒
Development of local Next Engine ⇒ Global platform
The company has local subsidiaries in South Korea, China, Taiwan, the USA, and India. In South Korea, the local subsidiary acquired the iFace trademark and runs a steadily growing business as a manufacturer. In Taiwan, the local subsidiary sells products on the "Taiwan Yahoo!" site (it is operating "tw.mall.yahoo.com/store/hamee_taiwan"). In China, EC businesses began in October 2016 on a cross-border EC platform "TMALL GLOBAL" operated by "Ali Baba Group" and a cross-border EC platform "JD Worldwide" operated by the China's second largest EC company, "JingDong". In parallel with the cross-border EC businesses, it will develop a linking application that is operable on "TMALL GLOBAL" and "JD Worldwide" on the screen of "Next Engine". In the USA, the local subsidiary runs EC businesses on its original domain site "hamee.com", etc. The company has already developed an automatic linking application with the top 2 companies in the EC sector, Amazon and eBay, to support the cross-border EC business. The subsidiary in India also undertakes back-office tasks to support the EC business in the U.S.

After understanding the situation of EC in each country, the company will expand the commerce business, elevate it to a platform business, and link each country's platform through a network. This way, it will make "Next Engine" a global platform that is essential for EC.
 
(3) Growth image
The company will first steadily grow the commerce business by improving its brand power through stronger original products and improving productivity through intensified automation. And, based on this, it will operate the platform business as a growth engine. For the platform business, it will increase the varieties of applications, strengthen collaboration with external systems, obtain new customers, and, in the mid-term, develop solutions using AI and big data. Furthermore, it will expand the overseas commerce business, release Next Engine, and connect various countries' platforms via network. Through global expansion of the commerce and platform businesses, its growth will be accelerated.
 
 
Conclusions
 
There was concern about the recoil from the favorable performance of the commerce business in the term ended April 2017, but it seems to be healthy. As for the driving force "iFace Series," it is reported that some corporations that lease terminals purchase a large amount of them for protecting the terminals. If the results for the term ending April 2018 are as expected, we think it can be concluded that their brand development strategies are progressing steadily.
On the other hand, the profitability of the platform business, which is expected to serve as a growth engine, is declining, but this is caused by the positive reason that the company enhances upfront investment while the commerce business is thriving. In addition, their estimated sales and profit for the term ending April 2018 are both conservative, and so we can expect that actual results will exceed them. We would like to pay attention to their performance as well as the progress of the increase of users.
 
 
<Reference: Regarding corporate governance>
 
 
◎ Corporate Governance Report                  Updated on July 27, 2017
<Basic policy>
The Hamee group set the corporate philosophy: We Create the Best "e" for the Better "e" World, and recognizes that its primary missions are to strengthen its corporate governance systems and promote the corporate philosophy in order to achieve sustainable growth and improve shareholder value. The company also strives to boost the supervision function of the board of directors and secure the soundness and transparency of business administration by hiring two outsider directors and three external auditors. The directors and all employees of Hamee will observe laws, regulations, and the articles of incorporation, fulfill their duties under sound social norms, strive to enhance risk control and supervision functions, and improve the soundness and transparency of business administration.
 
<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>
Principle 5-2
In the EC market surrounding Hamee, technological innovations and industrial changes are frequent, and it is very difficult to predict future earnings. Accordingly, it is considered that medium to long-term quantitative earnings forecasts does not always contribute to the appropriate judgments of stakeholders, and so the company does not disclose the numerical goals in its medium-term managerial plan.
 
<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>
Principle 1-4
The basic policy of Hamee is not to have so-called strategically held shares (e.g. cross-held shares). As of now, the company does not have such shares.

Principle 1-7
Hamee basically does not make transactions with related parties, unless it is guaranteed that it is reasonable to make the transactions and the conditions for the transactions are appropriate and they would not reduce the profit of the Hamee's group. When starting any transactions with related parties, the company will carefully judge whether the above items are guaranteed, and wait for a resolution of the board of directors, etc. in accordance with the Companies Act, Hamee's rules for internal approval and regulations for authority of management. In addition, the company regularly confirms with executives whether they have any transactions with related parties, and discloses facts through securities reports.

Principle 5-1
Hamee puts importance on constructive dialogues with shareholders and others, in order to contribute to the sustainable growth of the company and the mid to long-term improvement of corporate value, and makes efforts to increase opportunities for the president, directors in charge of IR, and staff of the IR and communication section to communicate with shareholders and investors. The IR and communication section holds a weekly meeting with the accounting and general affairs departments, to keep organic cooperation. As of now, the company holds a session for briefing financial results that is attended by the president twice a year, meetings with domestic and overseas institutional investors when necessary, telephone interviews, a briefing session for individual investors several times a year, and so on. The results of these events are reported to the board of directors. At the time of dialogue with shareholders, the company takes rigorous measures for preventing the leak of insider information.
 
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) 2017, Investment Bridge Co., Ltd. All Rights Reserved.
 
 
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