| Minori Solutions Co., Ltd. (3822) |
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Company |
Minori Solutions Co., Ltd. |
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Code No. |
3822 |
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Exchange |
TSE 1st Section |
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Industry |
Information and communications |
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President |
Tadahito Kitamura |
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Address |
Shinjuku NS Building, 2-4-1, Nishi-Shinjuku, Shinjuku-ku, Tokyo |
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Year-end |
March |
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URL |
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* The share price is the closing price on June 22. The number of issued shares is obtained by deducting the number of treasury stocks from the number of shares issued at the end of the latest quarter.
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* The forecast is from the company. *The company conducted 2-for-1 share split in August 2015.
This Bridge Report outlines Minori Solutions, its growth strategy, as well as the financial results for the term ended Mar. 2016. |
| Key Points |
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| Company Overview |
 Corporate ethos and rules of conduct Corporate ethos
Through the use of our information technology, we will contribute to the creation of an affluent and fruitful society by growing, taking on challenges and always having high ambitions.
Rules of conduct
1. Ensure trust: We will observe relevant laws and regulations, ensure fair transactions, protect the confidentiality of information on clients, follow the basic rules for the proper management of personal information, etc., and execute fair corporate activities.
2. Coexist with clients: We will make continuous efforts to maintain and improve reliable relationships with clients, and aim to create the prosperity of clients and the growth of our company.
3. Continuation of self-reform: We will always be ambitious, and try to reform ourselves by taking on challenges to grow.
 Business contentsIn the software development business, the company mostly offers resident services to financial institutions from the aspect of security, and fully undertakes the development of software in other business fields. In the system operation/management business, the staff of the company are stationed in the data center of each client to operate and manage the systems of end users. The staff also conduct the operation and management of systems inside the facilities of end users or via networks. As for the system-related device sale business, the case in which devices are delivered for system development is decreasing and the shift to cloud services is progressing. Thus, sales are declining, but because the sales of simple devices do not contribute to profit significantly, its effect on profit is minimal.  The sales in the manufacturing field include the sales of CAE (computer aided engineering) solution, which is a rare SIer. In the case of the development of new cars, CAE solution means the 3D reproduction of a new car (not only its outer appearance, but also its internal structure) based on the data of the new car under development (design and material data) and all kinds of simulation for the design of collision and aerodynamic tests, etc. The data of this simulation are analyzed by the engineers of the structure and fluid analysis of the company, and the reports on analysis results are submitted to automobile manufacturers. By using these reports, automobile manufacturers can reduce the number of times of demonstration experiments. Major clients are automobile manufacturers, but the users of such reports are increasing in the fields of aircraft, power generation equipment, artificial satellites, and smartphones.  *Return on Equity (ROE) is obtained by multiplying the following three elements: net income margin (net income÷sales), total asset turnover (sales÷total assets) and leverage (total assets÷capital; inverse of the capital-to-asset ratio).
ROE = net income margin x total asset turnover x leverage *The above has been calculated using data from the financial report and securities report, however when necessary the outstanding average (the mean of the outstanding balance last term and outstanding balance this term) of total assets and equity are used in the calculation (the equity ratio reported in the financial report and securities report is calculated using the outstanding balance, and thus, the inverse of the sum may not necessarily match the leverage recorded above.) |
| Fiscal Year March 2016 Earnings Results |
 Sales grew 6.1% year on year, while operating income dropped 0.8% year on year.
Sales were 14,768 million yen, up 6.1% year on year. As some projects were terminated (because end users changed data centers), the sales of the operation and management of systems dropped 6.6% year on year. While the sales of software development mainly in the fields of finance, manufacturing, and transportation, including the CAE solution for manufacturers, increased 12.4% year on year.On the other hand, operating income was 1,057 million yen, down 0.8% year on year. While gross profit margin declined 0.4 points due to the augmentation of outsourcing cost (up 16.1%) because of skyrocketing unit prices, etc., SG&A expenses rose 7.1% year on year caused by activities such as increases in the costs for personnel recruitment and development, stock market change, special benefits for shareholders, the enterprise tax through the amendment to taxation systems. This resulted in decreasing the profitability. The term-end dividend was 15 yen/share, including a commemorative dividend of 3 yen/share at the time of listing in the first section of TSE. As the dividend at the end of the first half was 14 yen/share, including a commemorative dividend of 3 yen/share at the time of listing in the second section of TSE, the total amount of dividends was 29 yen/share. (Since 2-for-1 share split was conducted in Aug. 2015, the total amount was virtually 58 yen/share. The dividend amount for the term ended Mar. 2015 was 38 yen/share.)  As for the system operation/management business, sales declined 6.6% year on year to 3,448 million yen and operating income dropped 16.2% year on year to 331 million yen (operating income margin: from 10.7% to 9.6%), as some projects were terminated because end users changed data centers. The decline in sales is partially due to the shift of manpower to software development whose operating income margin is high. 48 engineers who attended the lecture in JAVA programming, etc. were entrusted with software development by rotation. As for the sale of system-related devices, sales were 527 million yen, down 15.7% year on year, and operating income was 10 million yen, down 75.2% year on year. The company engages in a project for developing infrastructure for local banks, whose contract period is 7 years, and the sale of system-related devices for this project occupies a significant portion of sales. Recently, the case in which devices are delivered in association with system development has been decreasing, and the shift to cloud services has been progressing. In this situation, the sales of this segment have been declining. However, its effect on profit is minor, because the sale of such devices does not contribute to profit significantly.  In the field of manufacturing, Minori Solutions proceeded with the projects for boosting the competitiveness of each manufacturer, including CAE solution, the development of production management and mission critical systems. CAE solution thrived, as the measures for expanding the target areas of sales, including aircraft, power generation equipment, artificial satellites, and smartphones were successful along with automobile manufacturers, which are major clients. In the field of transportation, the projects for investing for adding value to services and updating business systems progressed healthily, mainly for large distribution companies, with which Minori Solutions has made business transactions for the development and operation of systems for 20 years. In the fields of public services and energy, the sales to electric power companies increased through the projects for developing charging systems and updating various business systems in response to the deregulation of electric utilities. On the other hand, the sales in the communications field, including the operation and management of systems, declined, and the sales in the fields of distribution and services dropped due to the recoil after the completion of large-scale projects in the previous term (despite stable demand for website system development). The sales in the communications field decreased, as the capital investment by leading carriers is now at the off-crop season.   |
| Fiscal Year March 2017 Earnings Estimates |
 Sales and profit are estimated to increase 2.9% and 8.7%, respectively, year on year.
Sales are projected to be 15.2 billion yen, up 2.9% year on year. The transportation segment will be favorable and the segments of public services, energy, etc. are forecasted to be healthy, but there are uncertainties about the performance in the field of finance. The capital investment is at the off-crop season and the negative interest may produce adverse effects. In the field of manufacturing, there are concerns over the economies of emerging countries. Thus, the numbers are forecasted cautiously considering such issues. Operating income is estimated to rise 8.7% year on year to 1,150 million yen. It is assumed that the unit price for outsourcing will remain high, but operating income margin is projected to improve, as the effects of the cost for stock market change and the hike of business tax will subside. As for dividends, the commemorative dividend of 6 yen/share will be discontinued, and the common dividend will be increased by 3 yen/share. Accordingly, the annual dividend will be 26 yen/share. (3 yen/share at the end of the first half, and 3 yen/share at the end of the term) (2) Outlook for each business field of end users
Finance
As for banks, short-term demand will be healthythrough integration projects, overseas projects, etc., but there is a risk that investment will be limited from the second half due to the decline in revenue caused by the negative interest. On the other hand, the integration and updating of systems through the merger among banks and consumer financing companies are delayed, and the company plans to concentrate on the projects of credit card companies, which are enhancing system investment for surviving fierce competitions with emerging credit card companies.
Manufacturing
The demand for the development of production management and mission critical systems is healthy, and the business of CAE solution for automobiles is expanding. However, there is a risk that each manufacturer's capital investment will slow down due to the economies of emerging countries, including China.
Transportation
There are little to no concerns, and the outlook is the brightest among other fields. The order receiving environment is estimated to remain favorable. The demand for the developing and updating of systems for the distribution in Asia and the reform of logistics is strong, and there will be emerging demand for system development for adopting smartphones as exclusive terminals and launching new services, etc.
Distribution
The volume of orders for ERP solution based on the collaboration with ERP vendors is increasing, but the investment tendencies of companies vary, and so the whole volume is estimated to be stagnant.
Public services/energy
As for electric power supply, the demand related to the deregulation of electric utilities has subsided, and companies are cautious about new investment because of the issue regarding resumption of the operation of nuclear power plants. The projects for coping with the separation of power generation and transmission in 2020 are forecasted to be launched one after another from the second half. On the other hand, the segment of public services is projected to be healthy because of the IT-based support and system infrastructure development projects.
Communications
The capital investment of leading carriers will remain at the off-crop season, and the outlook is the most severe.
Services
The demand for website system development for offering services through the Internet is strong, but the competition for receiving orders is fierce. In these circumstances, the company plans to refrain from making excessive efforts to receive orders, but plans to concentrate on system maintenance, updating, and support for existing clients.
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| Interview with President Kitamura |
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Strengths and characteristics The top 10 clients account for 50% of sales, and the top 30 occupy 75%. The degree of dependence on top clients is high, but the business fields of clients are diverse, and the company undertakes all processes from development to operation and management in many cases, and so the revenue base is stable. All of the clients are leading and top-class enterprises, and Minori Solutions has long-term relations with most of them. As a result, the company can boast its financial standing. For example, "current ratio" is 377%, and "fixed assets ratio" is 14.4%. When current ratio exceeds 100%, the company is considered to have the capacity of short-term payment. When fixed assets ratio is less than 100%, it is considered to be safe from a long-term viewpoint. ROE, which became a popular topic in the share market in the previous year, is 12.5%, and has been over 10% since the term ended Mar. 2014. Rate of return on invested capital, which indicates the efficiency of procured funds, exceeds 10%. The unique characteristics of Minori Solutions are the experience of CAE solution for the analysis of structures, fluid, etc. and its business footholds in Sendai, Matsumoto, Nagoya, and Fukuoka as well as the headquarters and Osaka Branch earning profit while contributing to local economies. In addition, although the business of production solutions such as ERP is conducted by other companies, it is growing as a new field.   CAE solution, business operation utilizing local business footholdsCAE solution
CAE is an engineering method for shortening the development period and reducing development cost by utilizing a computer for testing design, manufacturing, etc. in advance. Minori Solutions operates the CAE business as an outsourcer. In the case of structural analysis for new car development, the company receives the data of new cars under development and their materials from automobile manufacturers, reproduces the outer appearance and interior structure of each car in a three-dimensional fashion based on the data, and conduct simulation for collision and aerodynamic tests, etc. The data are analyzed by structural analysis engineers of Minori Solutions, and then analysis reports are submitted to automobile manufacturers. Automobile manufacturers can decrease demonstration experiments by utilizing these reports. Therefore, this leads to the shortening of the development period and the reduction in development cost.Since this business requires analysis engineers with expertise, there are no other system integrators who could engage in this business, and it is challenging for new comers. Minori Solutions makes business transactions about structural and fluid analyses with automobile manufacturers. In general, such analyses are carried out inside each automobile manufacturer, and the number of outsourcing cases is small. By interlinking CAE and "IoT (Internet of Things)," it is possible to manage the deterioration of engines and other parts and the information on replacement timing. The company also excels at establishing necessary infrastructure for developing "IoT" systems. Considering the future advance of information and communications technologies in the automobile field, it is meaningful that the company has fostered the relations with the development and design sections of automobile manufacturers through CAE solution. Minori Solutions will pursue the practical application of CAE by using material engineering approaches, including the grasping of distortion and parts deterioration. In order to expand its business, it is indispensable to increase the analysis engineers for CAE, and to disperse risk by making transactions in other fields than the automobile field, although this market is growing. During the economic recession, system engineers can be entrusted with the operation and management of systems, but CAE engineers cannot deal with other tasks other than their specialties. We cannot deny the possibility that an economic slump just like the one after the bankruptcy of Lehman Brothers will occur again. Therefore, the company is now expanding its sales targets with improving results, including aircraft (helicopters), power generation equipment, artificial satellites, and smartphones. Business operation based on local footholds
For business operation using local footholds, the company will strengthen product solutions related to energy, such as electric power, ERP, etc. at respective footholds in Sendai, Matsumoto, Nagoya, and Fukuoka. They will nurture and expand the near-shore business that was tentatively launched in Sendai. In local areas, the competition with large companies is less fierce, and the company has some advantage as a listed enterprise over local development companies. Hence, its revenue is stable. However, the company will not content itself with the current situation, and hopes to strengthen the business as a growth driver. The scale of the product solution of the company is now at the level of 1 billion yen, as it has accumulated experience through "Biz∫," an ERP package of NTT Data Bizintegral Corporation, "ProActiveE2," an ERP package of SCSK Corporation, "intra-mart," an integrated framework of NTT Data Intramart Corporation, etc. Minori Solutions will keep operating business based on the alliance with product vendors, but it plans to nurture its original brand in the long term. In the near-shore business, Minori Solutions marshals local software firms as a leader, and develops systems to meet the orders received at the headquarters in Tokyo, Osaka Branch, etc. This business is unique to the company with local footholds, which could lead to vitalization of local economies. Growth strategy - Mid-term managerial plan For expanding the business in the fields of electric power and public services, the company will strive to meet the demand for system development related to the separation of power generation and transmission scheduled to be conducted in 2020. It is expected that related transactions will emerge gradually from the second half of this term. In addition, Minori Solutions hopes to expand the solution business with products, such as ERP, CAE, big data, etc. The products, such as ERP, and CAE are as described above. As for big data, the company will focus on the development of systems for handling a large volume of data efficiently, rather than analyzing big data. Business expansion in new fields
Although some contents have been already described, Minori Solutions hopes to operate business in new fields, including "IoT," "energy," "data analysis," "regional revitalization" and "globalization." By interlinking "IoT" and CAE, the company will strengthen engineering services, to undertake design and development in the automobile field, etc. In the field of "energy," the company will respond to the liberalization of gas utilities by utilizing the know-how to cope with the deregulation of electric utilities. In the field of "data analysis," the company has started supporting the analysis of big data, and will offer solutions, etc. by utilizing high-speed tools of Nippon Computer Dynamics Co., Ltd., with which the company formed a tie-up in January of this year. The specialties of Nippon Computer Dynamics Co., Ltd. are different from those of Minori Solutions. Since there are only few shared clients, complementary effects can be expected in various fields. The field of "regional revitalization" is as described above. As for "globalization," it is necessary to develop personnel as the product development is being globalized. As for CAE solution, the company outsources some tasks of structural analysis to Indian enterprises. Message to investorsAs it has been 6 years since the merger, the company has developed its financial and business bases, and got listed in the first section of Tokyo Stock Exchange. From now on, the company hopes to boost its presence as an information service enterprise that has a unique business domain, by strengthening the profitability of the existing business and expanding its business in new fields. Your further support would be appreciated. |
| Conclusions |
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The projects for fully undertaking information system operation from small to medium-sized enterprises and supporting ventures in IT, which were set for "materialization of a highly profitable system," are interesting even though there are challenging obstacles. If the company increases direct transactions with the development and design sections of manufacturers through CAE solution, its potential will grow considerably. There are many competitors listed in the stock market, making it difficult to spotlight the company's features. However, if the company produces good results through business operation utilizing its unique strengths based on its stable business base, the company will be able to enhance its presence as an information service enterprise that has an original business domain. |
| Reference: Regarding corporate governance |
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◎ Organization type, and the composition of directors and auditors
 *After the approval at the 36th annual meeting of shareholders held on June 28, 2015, the company was transformed from a company that has the board of auditors into a company that has an audit committee, etc.
◎ Corporate Governance Report
Minori Solutions submitted a report on corporate governance from the application of the corporate governance code on Feb. 28, 2016.
  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 Investment Bridge Co., Ltd. All Rights Reserved. |
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