| 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 November 14. 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. ROE and BPS are the actual results in the previous year.
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* The forecast is from the company. *The company conducted 2-for-1 share split in August 2015.
This Bridge Report on Minori Solutions is reviewing the half of fiscal year March 2017 earnings results and fiscal year March 2017 earnings estimates. |
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| 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 contentsThe software development business is divided into two types: one is the business of partially developing systems while staying in client companies (dispatching about 100 workers for some clients), and the other is the business of undertaking the development of an entire system. For banks, workers are stationed there for ensuring security, and for other businesses, system development is fully entrusted in most cases. The business of stationing workers in client companies, which is recognized by the company as recurring revenue-type business, (although the performance of short-term projects fluctuates), is stable. In this business, the company receives fees for each month and each worker like worker dispatch business. On the other hand, the business of fully undertaking system development is highly profitable, but the number of orders fluctuates, causing development risk. In the system operation and management business, Minori Solutions operates and manages systems (by stationing workers at clients' data centers to operate and manage the systems of end users, stationing workers at the facilities of end users to operate and manage them, and conducting operation and management via networks), operates call centers (help desks), and so on. As for the business of selling system devices, the number of cases in which devices are delivered through development is decreasing, and enterprises are adopting cloud computing, and so sales are declining. However, the contribution of sale of devices has been insignificant from the beginning, and so its effect on profit is minor.  The sales of manufacturing include the sales of computer aided engineering (CAE) solutions, which are unique among system integrators (SIer). In the case of new car development, a CAE solution is to render a new car (not only its appearance, but also its internal structure) with a 3D system based on the data of the new car under development (including design and materials), and conduct all kinds of simulation for design, including collision and hydrodynamic (aerodynamic) tests. The simulation data are analyzed by the structural and hydrodynamic analysis engineers of the company, the analysis results are summarized in reports, and the reports are submitted to automobile manufacturers. By utilizing these reports, automobile manufacturers can reduce the number of times of a demonstration test. The main clients are domestic automobile manufacturers. In the domestic market, most products are produced in-house, and so competitors are few. Users are increasing in the fields of aircrafts, power generation equipment, artificial satellites, smartphones, etc.  Strengths and characteristics - stable revenue base, excellent financial standing, and achievements of unique CAE solutions |
| 1H of Fiscal Year March 2017 Earnings Results |
 Sales increased 9.1% year on year, and operating income grew 40.9% year on year
Sales were 7,640 million yen, up 9.1% year on year. While the sales to existing clients, including 3 megabanks, grew, the sales of software development increased 14.1% year on year mainly in the field of finance, where the new transactions with non-bank card companies contributed, and the field of manufacturing, where the large-scale projects for developing mission-critical systems for electricity and automobiles, and the sales of system operation and management rose 4.5% year on year due to the increase of transactions for maintaining the systems of existing clients.Operating income was 615 million yen, up 40.9% year on year. Although personnel cost (the number of full-time employees, including new graduates and mid-career workers, increased by 20) and outsourcing expenses (up 16% year on year) augmented, the profit rate of software development improved as value-added new transactions contributed and each development project progressed healthily without troubles, and the profit rate of system operation and management improved as productivity was boosted through personnel rotation. On the other hand, SG&A decreased 0.6% year on year, as there were no market change-related expenses and other reasons. As for the dividend per share at the end of the first half, the commemorative dividend of 3 yen/share for the listing in the second section of Tokyo Stock Exchange was discontinued, and common dividend was increased by 3 yen/share to 14 yen/share.   As for system operation and management, sales grew despite that some projects ended, because the projects for maintaining the systems of existing clients increased. Operating income margin rose from 8.6% to 8.9%, due to the improvement of profitability in less profitable projects through personnel rotation.  In the field of manufacturing, the development of the mission-critical systems of electronics and automobile manufacturers drove growth, and CAE projects progressed healthily, and sales increased 14.5% year on year to 1,484 million yen. In the information field, sales rose 11.5% year on year to 785 million yen, mainly due to the development of personnel-related packages, maintenance support, and database operation. In the field of transportation, sales grew 6.4% year on year to 650 million yen, due to the increase of new transactions for enhancing the competitiveness of existing clients and the projects for updating existing systems. In the field of public services and energy, sales increased 4.8% year on year to 484 million yen, due to the development related to the deregulation of electric power (although it is likely to peak out in the near future), the development of the base for public offices, etc. On the other hand, the sales in the field of communications dropped 13.4% year on year to 452 million yen, as the equipment investment of each carrier was sluggish, and the sales in the field of distribution, services, etc. decreased 1.5% year on year to 693 million yen, despite that the mission-critical systems for EC sites, the data analysis for specialized services, etc. contributed, because the ERP development project based on the cooperation with ERP vendors settled down.  |
| Fiscal Year March 2017 Earnings Estimates |
 Sales are estimated to grow 2.9% year on year, and operating income is projected to rise 8.7%.
The initial forecast has not been revised, because there is concern over the negative interest rate in the financial field, investment is curbed due to the economic slowdown in emerging countries in the manufacturing field, and the investment cycle of existing major clients in the field of electric power and communications is considered.As for sales, the performance of the segments of transportation, public services, energy is expected to be favorable, but there is uncertainty in the financial and manufacturing segments, which contributed to the results for the first half. As for profit, under the assumption that the unit price of outsourcing will remain high, the effect of market changing cost will weaken, while enterprise tax and R&D cost augmented. Term-end dividend is to be 14 yen/share, as it has been revised upwardly from the initial estimate: 13 yen. (Compared with the end of the previous term, the commemorative dividend of 3 yen/share for the market change to the first section of Tokyo Stock Exchange is discontinued, and ordinary dividend is increased 2 yen/share.) Annual dividend, including the dividend at the end of the first half, is to be 28 yen/share (discontinuing the commemorative dividend of 6 yen/share and increasing ordinary dividend by 5 yen), and payout ratio is estimated to be 30.9% (36.3% in the previous term, including the commemorative dividend). Minori Solutions plans to pay dividends with a payout ratio of 30%. (2) Outlook for each business field of end users
Finance
The three megabanks' results for the first half showed that their consolidated net income was ¥1.2079 trillion, down 12% from the previous year as a result of negative interest rates. The three megabanks' profits decreased concurrently for the first time since 2009. Newspapers have reported that one of the megabanks will again postpone system integration, and there is uncertainty concerning investment from the second half onwards. In fact, the postponement or downsizing of the project planned from October is expected.
Manufacturing
In addition to firm demand for manufacturing management system and core system development, demand for CAE solutions for automobiles is also increasing. However, depending on the drop in exports due to the appreciation of the yen and business conditions in emerging nations, including China, there are fears that the brakes will be pulled on capital investment by manufacturing companies. Manufacturing companies' decision making on investment is faster and more flexible than financial institutions'. There is a need to look to the next 2-3 years and make efforts to stimulate demand for systemization, with "IoT" as the keyword.
Transportation
There is no cause for concern, as this is the industry with the brightest outlook, and the favorable environment for orders is expected to continue. The demand for system development and renewal is lively as a result of online shopping companies' logistics reform and the development of logistics in Asia. Demand for system development aimed at the development of new services, such as the remodeling of dedicated information access devices to smartphones, is expected.
Communications
Despite the fact that there is some demand for infrastructure renewal, the drop-off period for capital investment in major carrier companies is expected to continue. This is the industry with the severest outlook.
Public services/energy
For electric power, the new rates system and sales system have come full circle, and maintenance projects will be the focus. However, it is expected that from the start of 2017, investment looking towards the 2019 separation of power production from distribution and transmission will gradually start. Using the know-how cultivated in the electricity liberalization project, the company will put effort into taking in demand related to gas liberalization. Meanwhile, in the public sector, the support of IT application and construction of system infrastructure is expected to remain strong.
Distribution
There is a lull in projects involving constructing ERP solutions through cooperation with ERP vendors, and maintenance projects are the focus. Despite the fact that there are new medium- to small-scale projects, demand for large-scale projects is low.
Services
Demand for web system development for the purpose of development of Internet services remains firm, but competition for orders is intensifying. Therefore, it is necessary to avoid unreasonable orders, and make efforts to maintain existing clients and provide them with renewed support.
(3) Efforts in each segment
Software development
The existing business is tackling the challenge of breaking away from a business model relying on manpower by advancing innovation, moving towards services with high added value (upstream process operations, integration services) and changing the business model (to services using the cloud). Furthermore, to enhance operational quality for higher profitability and improve productivity , the company will focus efforts on acquiring and training human resources as well as skill changes. Meanwhile, as for new business, there are emerging needs among companies that wish to utilize cloud computing, big data, IoT, AI, etc. in the business field. Minori Solutions is aiming to meet these needs through cooperation with companies with expertise in each field. In addition, regarding the issue of business with end users, because there are waves of investment with each company regardless of the industry type, the company will expand business while aiming at the stabilization of revenue through partnerships with major system integrators as the number of clients increases. System operation and management
In response to the need for reviews of operation and maintenance systems accompanying system renewal in user companies, the company will shift to operations with a higher added value, reinforce and promote proposals for comprehensive outsourcing, such as receiving orders for project maintenance and operation for previously developed projects.
System apparatus sales
While the company has been responding to the wishes of clients in carrying out sales of various kinds of apparatus attached to system development and infrastructure construction, a continued decline in demand is expected due to the spread of the use of platform as a service (PaaS), such as cloud and data centers.
(4) Business development in new fields
"Internet of Things (IoT)," "data analysis," "artificial intelligence (AI)," "FinTech," "regional revitalization," and "global support" are all fields in which IT is expected to be utilized in future, and they are also buzzwords in the IT industry. The company is dealing with advancing into these fields, and is beginning to work on specific projects.With "IoT," the company will extend the targets of CAE analysis to sensors and parts, and tackle automatic driving related needs in the automobile field. For "data analysis," as well as aiming to expand operations supporting big data analysis concerning the deterioration of agricultural and construction machinery parts, the company has also organized a force of around 60 experts, and is providing a service using high speed database tools to the client financial and trading companies. For "AI," the company is proceeding with negotiations for call center support operations. In the "regional revitalization" field, as well as making use of bases located in Sendai, Matsumoto, Nagoya and Fukuoka and reinforcing product solutions for energy related things such as electricity, and ERP, the company will go on to cultivate and expand nearshore operations that have begun provisionally in Sendai. In the field of "global support" the company will support the globalization of financial institutions' overseas development and manufacturers' product development. Furthermore, for CAE solutions, the company is already making use of Indian firms for some of its structural analysis projects. In addition, with "FinTech" the company will make use of current dealings with financial institutions and take in demand. Development of cloud services using location information (IoT)
The company, with one of its offices located in Matsumoto City, Nagano Prefecture, has been sponsoring the pro football club Matsumoto Yamaga F.C. since 2015, and is making efforts to contribute to the local community through supporting the club's administration. On August 19, 2016, the company signed a formal IT service partner contract with the club, and from October 8, 2016, the company opened to the public an experimental service providing information about the shuttle bus to the club's home stadium, "Alwin" (Matsumotodaira Football Stadium, address: Matsumotodaira Koiki Park, 5300 Kanbayashi, Matsumoto City, Nagano Prefecture).Matsumoto Yamaga F.C's average home attendance in 2015 was 16,823. When there is a match on a weekend the home stadium "Alwin" fills up with men and women supporters of all ages wearing the green uniforms. However, there is no parking capacity in the area, and while there are shuttle buses linking principle stations and parking lots to "Alwin," there was a lot of complaints among the supporters about long queues. The current shuttle bus information provision service, the trial run of which has been opened to the general public, is an attempt to respond to these complaints and allows the shuttle buses' operation status and passenger queue status to be checked by anyone, anywhere, using the cloud environment through the "SAP HANA® Cloud Platform" and mobile devices (using SORACOMAi's communication environment). Out of the entire project, which integrates cloud, location information (IoT), web apps and data analysis technology, the company takes charge of the overall planning, integration and introduction support. The "SAP HANA® CloudPlatform" is equipped with the in-memory SAP HANA database, which realizes high speed processing, and SAP Fiori®, which improves the user experience, and it has an abundance of features (tools), including the hybrid mobile app feature, the integration service feature, the IoT service feature and the analysis feature. It has also achieved actual results, having been introduced with the aim of data analysis for the FIFA World Cup German team's training and conditioning. On the basis of such good track records, the company concluded a sales partner contract with SAP Japan Co., Ltd. (Chiyoda-ku, Tokyo) and "SAP HANA® CloudPlatform" on October 28, 2016, and fully launched the sales of "SAP HANA® CloudPlatform" and related installation support services. |
| Conclusions |
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We would like to pay attention to whether Minori Solutions will increase its presence as an information service enterprise that possesses its original business domain, by boosting the profitability of its existing business and making inroads into new markets. |
| <Reference: Regarding corporate governance> |
 ◎ Corporate Governance Report (Updated on June 28, 2016)
The company considers that the basic policy for corporate governance is to secure the transparency, swiftness, and fairness of business administration and execution, clarify responsibilities, enlarge business scale, and comply with laws and regulations thoroughly, in order to improve and maximize its corporate value.
Basic Policy   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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