| Kyoritsu Maintenance Co., Ltd. (9616) |
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Company |
Kyoritsu Maintenance Co., Ltd. |
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Code No. |
9616 |
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Exchange |
TSE 1st Section |
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Chairman |
Haruhisa Ishizuka |
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President |
Mitsutaka Sato |
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HQ Address |
2-18-8 Soto Kanda, Chiyoda-ku, Tokyo |
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Year-end |
March |
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URL |
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*Share price as of closing on December 17, 2015. Number of shares outstanding as of most recent quarter end excluding treasury shares.
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* Estimates are those of the Company.
This Bridge Report provides information about Kyoritsu Maintenance Co., Ltd. including a review of its first half of fiscal year March 2016 earnings.
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| Key Points |
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| Company Overview |
 <Corporate History>
Kyoritsu Maintenance was established in September 1979. The founder, Haruhisa Ishizuka, has long been associated with the food service industry and started the Company by taking on the operations of corporate cafeteria facilities on a consigned basis. In the following year of 1980 in Sakura City, Chiba Prefecture, the Company established a two story wooden structure with 28 small four Japanese straw mat rooms as its first dormitory facility. Based on the principle of providing "food" that "fosters the health and well being of students to put their parents' minds at ease," Kyoritsu was able to steadily expand its student dormitory business through partnerships with various schools. The Company steadily expanded its operating territory to cover the Tokyo, Kanagawa, Nagoya and Osaka regions. In April 1985, Kyoritsu began offering corporate dormitories to employees that offered highly unique features of "individual rooms with commissary functions providing breakfast and dinner," and "large bathing facilities" as comforting amenities for residents. In June 1993, the Company moved its headquarters to its current location and in July of the same year it entered the resort hotel business with the opening of a facility in Nagano Prefecture, followed by their entry to the business hotel realm in August with the opening of a facility in Saitama Prefecture. In September 1994, Kyoritsu listed its shares on the JASDAQ Market (At the time called the OTC Market), in March 1999 it moved its listing to the Second Section of the Tokyo Stock Exchange, and then to the First Section in September 2001.
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| New Medium Term Business Plan "Kyoritsu Full Accelerator Plan": 3 Years From Fiscal Year March 2016 to 2018 |
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Business Environment
 Unprecedented levels of easy monetary policy lead to low interest rates, weaker yenConstruction costs remain at high levels"Japan Revitalization Strategy" 2014 Revised
Leverage tourism assets, promote inbound visitorsUniversity reforms, globalizationGradual reductions in corporate taxEstablish corporate governance codeFuture Events
Consumption tax to be raised from 8% to 10% in April 2017Tokyo Olympics, Paralympics to be held in 2020 1. Concentrated and aggressive development investments will be made to satisfy customer needs
2. Strengthen profitability by achieving an appropriate balance between value and pricing
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| First Half of Fiscal Year March 2016 Earnings Results |
 Sales, Ordinary Income Rise 24.8%, 36.6% Year-On-Year
Sales rose by 24.8% year-on-year to ¥66.867 billion. Occupancy rates in the dormitory business at the beginning o the fiscal year got off to a good start by rising 0.1% points year-on-year to 97.3%. In the hotel business, Dormy Inn and resort hotels both saw strong demand from Japanese and overseas visitors, which boosted occupancy rates to high levels. In other businesses, strong demand for construction and PKP services contributed to strong increases in sales and allowed their respective segments to turn profitable. While gross margin declined by 0.6% points, sales, general and administrative expense margin declined by a larger margin of 1.3% points and allowed operating income margin to rise by 0.8% points. Consequently, operating, ordinary and net incomes rose by 36.1%, 36.6% and 39.4% year-on-year to ¥6.153, ¥5.764 and ¥3.8 billion respectively. These figures represent large increases over not only the previous year but also initial estimates.
 Dormitory Business
Sales and operating income rose by 4.2% and 10.4% year-on-year to ¥21.866 and ¥2.971 billion respectively. Occupancy rates rose by 0.1% point year-on-year to 97.3% at the start of the term. Contracted residents also rose by 1,580 year-on-year to 32,687 residents as of the end September. Sales of student dormitories remained firm on the back of strong demand from inbound students from overseas. Students from overseas accounted for 10.9% or 2,194 of the 20,153 contracted residents of student dormitories at the end of the first half. In addition, corporate dormitories benefitted from increased hiring by Japanese corporations and the reintroduction of dormitory services by a growing number of Japanese companies, which contributed to an increase in the number of contracted residents. Furthermore, Kyoritsu implemented strict cost controls on a dormitory by dormitory basis, which allowed profit margins to improve.
 Hotel Business
Sales and operating income rose by 12.0% and 29.0% year-on-year to ¥26.703 and ¥4.025 billion respectively. Occupancy rates in both the Dormy Inns and resort hotels trended at high levels, and the average price per room rose. In particular, the rise in profit of the Dormy Inn operations contributed strongly to overall profits of the hotel business.
Dormy Inn (Business Hotel) Business
During the first half, Kyoritsu opened two new facilities including the "Natural Hot Springs Kinko no Yu, Dormy Inn PREMIUM Nagoya Sakae" and "Kachi no Yu, Dormy Inn Ueno Okachimachi". "Tanuki no Yu Dormy Inn Sapporo Annex" was selected as the fifth highest ranking hotel in the Expedia's "2015 World's Best Hotels Ranking". Furthermore, Kyoritsu's focus upon satisfying the needs of both Japanese and the growing number of inbound guests from overseas is contributing to continued strong demand for its existing hotel facilities. This strong demand is reflected in the 0.4% point year-on-year rise in occupancy rates at existing facilities to 88.7%. In addition to facilities in major metropolitan areas including Shibuya, Asakusa, Akihabara, Shinsaibashi, Namba, and Kyoto, Kyoritsu operates numerous facilities in Sendai, Hakata and other regional cities. The ADR rose by ¥1,400 to ¥10,200. And while the Medium Term Business Plan calls for an average annual rise in room prices of 2.3%, the average price has risen by 15.9% during the current first half alone. This increase in room pricing is remarkable even despite the favorable occupancy rates noted during the first half.
  Resort Hotel Business
"Akangawa Hot Spring Kamui no Yu La Vista Akangawa" was opened in September 2015. The decline in occupancy rates of some existing facilities due to seismic activity warnings issued in the Hakone region has been covered by the strong occupancy rates at facilities in other regions. Consequently, the occupancy rate has risen by 0.4% points year-on-year to 83.7%. In addition, the flexible allocation of staff according to occupancy rates has allowed costs to be managed. The ADR rose by ¥600 year-on-year to ¥40,500.
 Other Businesses
Sales rose by 54.2% year-on-year to ¥22.732 billion, and operating income recovered to a profit of ¥336 million from a loss of ¥129 million during the previous first half. Sales and operating income of the contracted services business rose by 28.3% and 145.0% year-on-year to ¥7.055 billion and ¥187 million respectively. This strong earnings performance is attributed to the full contribution of rental properties acquired during the previous term and an increase in contracted service projects. Sales of the food services business rose by 2.8% year-on-year to ¥2.698 billion, and the operating loss expanded from less than ¥0 million in the previous term to ¥17 million in the current first half. This rise in sales is attributed to a recovery in personal consumption, and the expansion in losses is attributed to an increase in expenses associated with the opening of new facilities. Sales of the construction division rose by 226.2% year-on-year to ¥7.087 billion, and operating income of ¥188 million was recorded, compared with the loss of ¥7 million in the previous first half. And while development costs continue to trend at high levels, higher revenues from hotel development related orders allowed profits to be recorded. Sales of other business rose by 32.5% year-on-year to ¥5.890 billion, and the operating loss declined from ¥197 in the previous first half to ¥21 million in the current term. An expansion in the PKP services and improvements in operating efficiencies allowed sales to rise and the loss to contract.
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| Fiscal Year March 2016 Earnings Estimates |
 Sales, Ordinary Income Expected to Rise by 19.4%, 23.1% Year-On-Year
Kyoritsu Maintenance's full year earnings estimates call for sales and ordinary income to rise by 19.4% and 23.1% year-on-year to ¥131.6 and ¥9.430 billion respectively. These estimates reflect large upward revisions to sales and ordinary income of ¥9.9 and ¥1.580 billion respectively. Dividend payment of ¥50 per share (Including a ¥25 per share interim period dividend) is anticipated. Moreover, this dividend represents an increase of ¥10 per share or 20% after the 1.2 for 1 stock split conducted on March 31, 2015 is considered.
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| Conclusions |
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Both the dormitory and hotel businesses are trending favorably, but the hotel business in particular has recorded strong improvements in profitability due to successful efforts to absorb expenses from numerous new projects. Furthermore, Dormy Inn occupancy rates exceeded 90% during August and September, with some facilities recording occupancy rates of close to 100%. Also, strong increases in room pricing are also contributing to improvements in profitability. Moreover, the other business segment turned profitable and strict cost management strategies have been successful. In particular, the PKP service recorded a rapid improvement in profitability and the future of this service looks optimistic. Furthermore, Kyoritsu expects to be able to maintain high levels of growth barring any significant changes in the external environment. <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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