BRIDGE REPORT
(2157)

東証1部

Koshidaka HOLDINGS Co., Ltd. (2157)
President Hiroshi Koshidaka
President
Hiroshi Koshidaka
Corporate Profile
Company
Koshidaka HOLDINGS Co., Ltd.
Code No.
2157
Exchange
JASDAQ
Industry
Service
President
Hiroshi Koshidaka
HQ Address
1-5-1, Odomo-Machi, Maebashi-Shi, Gunma, Japan
Year-end
August
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥2,446 9,599,926 shares ¥23.481 billion 57.6% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥35.00 1.4% ¥210.42 11.6x ¥770.89 3.2x
* Stock price as of closing on 2012/4/19. Outstanding shares as of most recent quarter end, shares issued excluding treasury stock.
 
Consolidated Earnings Trends
Fiscal Year Sales Operating Profit Ordinary Profit Net Profit EPS (¥) Dividend (¥)
August 2008 13,649 691 731 421 17,578.01 3,600.00
August 2009 18,955 1,496 1,427 549 22,909.84 3,800.00
August 2010 21,932 2,503 2,579 1,125 46,887.82 8,700.00
August 2011 29,093 3,356 3,336 2,877 119,896.45 10,000.00
August 2012 Est. 31,714 3,919 3,996 2,020 210.42 35.00
* Estimates are those of the Company. A 400 for one stock split was performed in September 2011.

This Bridge Report presents Koshidaka HOLDINGS' earnings results for the first half of fiscal year August 2012.
 
Key Points
 
 
 
Company Overview
 
Koshidaka HOLDINGS Co., Ltd. is a comprehensive entertainment and leisure services provider and it promotes a strategy of "creating new businesses in existing industries." The Koshidaka Group is comprised of the eight consolidated and one non-consolidated subsidiaries. Currently the main businesses are the operation of a nationwide chain of karaoke box or clubs under the brand of "Karaoke Honpo Manekineko," and the newer businesses of fitness clubs called "Curves," bowling alley, and hot spring facility operations.
 
<Corporate History>
Koshidaka HOLDINGS was founded in 1954 as a restaurant operating in Tokyo in 1954. Later in 1964 the Company moved to its current headquarter location of Maebashi City, Gunma Prefecture. In 1967 the Company was officially registered as a corporate entity called "Shinseiken" . The Company first took its current shape after President Hiroshi Koshidaka assumed his position as President. Under Hiroshi' s leadership, Koshidaka HOLDINGS successfully captured the shift in the karaoke industry from pubs and bars with laserdisc karaoke equipments to specialized "karaoke box" type clubs (clubs with individual rooms for customers to sing with their friends) using telecommunication system and began its growth phase by entering the karaoke box business during the 1990s. Hiroshi Koshidaka was able to take advantage of the consolidation within the karaoke industry by taking over bankrupt karaoke clubs after becoming President in August 1995. In March 2000, the company was reorganized and its name was changed to Koshidaka Co., Ltd.

In March 2006 Koshidaka opened its first Curves fitness club franchise. In June 2007, Koshidaka listed on the JASDAQ stock exchange and took over Curves Japan Co., Ltd. as a 90% owned subsidiary in October 2008. Currently Koshidaka is responsible for the headquarter function, and directly operated clubs and franchise operations for Curves fitness clubs.

Koshidaka adopted a pure holding company structure and its name was changed to Koshidaka HOLDINGS Co., Ltd. in September 2010. At the same time SPORT Co., Ltd., which is responsible for the third pillar of business of bowling alley operations, was turned into a subsidiary. Currently efforts to fortify operations for the bowling alley business and cultivation of the new hot springs bathing facilities business are being conducted. These efforts entail the opening of three hot springs bathing facilities in Oita Prefecture in November 2011. Therefore Koshidaka HOLDINGS is now considered to be a "comprehensive entertainment and leisure services provider" that is creating new businesses in existing industries, and endeavoring to increase its corporate value through the promotion of operations in the key areas of "amusement," "sports and fitness," "tourism and travel," and "hobbies and cultural activities."
 
 
<Business Segments and Group Structure>
(1) Business Segments
The Koshidaka HOLDINGS Group currently divides its business into five main segments. In the karaoke business segment, "Karaoke Honpo Manekineko" clubs and "One Kara" individual use Karaoke clubs are operated. In the Curves business segment fitness clubs providing specialized 30 minute workout program targeting middle to older aged female users called "Curves" are operated nationwide. In the bowling alley business, "health promoting bowling classes" targeting middle to older aged customers are provided as part of their unique services. Real estate management services are conducted in its real estate management segment. And in the other business segment, hot spring bathing facilities and other new businesses are undertaken. The sales breakdown between the karaoke club, Curves fitness club, bowling alley, real estate management, and other businesses segments during the first half fiscal year August 2012 are 58.3%, 30.3%, 9.3%, 0.7% and 1.4% respectively.
 
(2) The Koshidaka HOLDINGS Group
The Koshidaka HOLDINGS Group is comprised of the holding company Koshidaka HOLDINGS Co., Ltd., and eight consolidated subsidiaries which perform the karaoke club, Curves fitness club, bowling alley, hot springs bathing facilities, real estate and intellectual property rights management businesses. In addition, one non-consolidated subsidiary which conducts karaoke club business in Korea is also a Group member. Within the karaoke business, Koshidaka operates 317 clubs within Japan, and Koshidaka Korea Co., Ltd. operates two clubs in Seoul, Korea. In the Curves fitness club business the intermediary holding company Curves HOLDINGS Co., Ltd. and Curves Japan Co., Ltd. provide both directly operated and franchise headquarter operations for Curves fitness clubs specialized for female users. Also the consolidated subsidiaries Hokkaido Koshidaka Co., Ltd. and Shukran Co., Ltd. operate Curves fitness clubs on a franchise basis. The third earnings driver is the bowling alley business, in which SPORT Co., Ltd.' s knowhow is leveraged to restructure retired bowling alley facilities into productive assets. Koshidaka Co., Ltd. is currently cultivating a new business of hot springs bathing facilities which was launched in October 2010 at Gunma Prefecture and added three facilities in Oita Prefecture in November 2011.
 
 
<Strengths of Koshidaka' s Growth Strategy>
(1) Growth Strategy
Koshidaka is a "comprehensive entertainment and leisure services provider" that creates new businesses in existing industries, and promotes businesses in the key areas of "amusement," "sports and fitness," "tourism and travel (hot spring bathing facilities)," and "hobbies and cultural activities."
 
(Source: Koshidaka HOLDINGS)
 
An example of the strategy of "creating new businesses in existing industries" entails the "One Kara" individual use karaoke clubs operating within the karaoke club business. Traditional karaoke clubs offer rooms that are designed for use by multiple customers, but the "One Kara" individual use karaoke clubs provide rooms for individual use. By offering this new and unique format of karaoke clubs, Koshidaka is endeavoring to capture new business from the previously untapped market segment of individual customers that enjoy singing by themselves. In September 2006 (Honjo City, Saitama Prefecture) two rooms were opened, and in February 2008 seven rooms were opened in its "Asakusa Manekineko" (Taito Ward, Tokyo) facility. Based on the positive results at these facilities Koshidaka opened "One Kara Kanda Station Front Club" (Chiyoda Ward, Tokyo) in November 2011. And while there is still room for improvement in the operations of this new format, Koshidaka has been successful in cultivating latent demand in the market as evidenced by high repeat rates of individuals using this club. While the monthly sales generated by One Kara Kanda Station Front Club are about ¥6 million yen, initial investments and running costs make this level of sales attractive in terms of profitability.
 
 
The "30 minute fitness program for women" offered by the Curves business segment may also be considered as another example of Koshidaka' s strategy of "creating new businesses in existing industries." While the Curves business was not developed in-house, it maintains totally unique target audience and facilities compared with traditional fitness businesses and it continues to grow after the acquisition of Curves' Japanese business operations. 75.1% of Curves customers are women over the age of 50.
 
 
(2) Strengths
The strength of the Koshidaka Group lies in its targeting of "active senior aged Japanese," a segment of the market that is expected to grow along with the low birth rates and aging of the population. Furthermore the Company boasts of bountiful knowhow and expertise in this segment of the market. Evidence of the success of Koshidaka' s knowhow and experience in targeting the "active senior aged Japanese" can be found in the growth of the karaoke club and Curves fitness club businesses. Another strength of Koshidaka is its unique ability to flexibly adapt its businesses to meet demands of local customers. Furthermore the takeover and restructuring of retiring karaoke club facilities and companies is another important skill which has been acquired as a natural process through the promotion of its business. This takeover and restructuring knowhow is also being applied to fine tune the bowling alley and hot spring bathing facilities businesses as well.

While the business environment for domestic demand related business is very difficult, the market for domestic entertainment and leisure is large at ¥68 trillion. Based on the Company' s expertise and knowhow in targeting the "active senior aged Japanese" segment, which is expected to grow, business opportunities are expected to grow for Koshidaka. In addition to improving its ability to analyze and create solutions to meet the needs of the market, Koshidaka should also be able to expand its business opportunities by focusing upon new business development.
 
 
First Half Fiscal Year August 2012 Earnings Results
 
 
Sales and Ordinary Profit Grow by 14.1% and 41.5% Year-Over-Year
During the first half of fiscal year August 2012, sales rose by 14.1% year-over-year to ¥15.850 billion. Sales of the Curves fitness club business segment grew by 33.2% year-over-year on the back of the fast paced opening of new fitness clubs and favorable mail order sales of products to club members. At the same time sales of the karaoke club business segment increased by 6.8% year-over-year due to the strong demand from the trend for(in/of) consumers to stay closer to home and focus upon "cheaper, closer, and shorter term" entertainment activities in the aftermath of the Great East Japan Earthquake. The launch of multiple facility openings in hot springs bathing facility business also contributed to earnings.

With regards to profits, gross profit margin rose by 1.7% points to 29.3% due to increases in royalties from the Curves fitness club operations and improvements in operating efficiencies in the karaoke club business. At the same time, operating profit rose by 35.1% year-over-year to ¥2.227 billion despite increases in selling, general and administrative expenses arising from higher IT related expenses and personnel costs. The improvement in non-operating income is attributed to the disappearance of corporate bond issuance expense (¥64 million). However the disappearance of an extraordinary profit recorded during the previous term caused net profit to decline on a year-over-year basis.
 
 
The increase in IT related expenses is attributed to the introduction of a human resources and attendance management system as part of Koshidaka' s efforts to fortify its overall Group management structure.
 
 
¥1.193 billion in negative goodwill was recorded as extraordinary profit during the previous first half from the inclusion of SPORT Co., Ltd. as a consolidated subsidiary.
 
 
Karaoke Club Business
The karaoke club business segment sales and operating profit rose by 6.8% and 32.5% year-over-year to ¥9.233 and ¥1.510 billion respectively. Newly opened and existing clubs contributed ¥426 and ¥164 million respectively to this segment' s sales growth. The increase in existing club sales is attributed to renovations of facilities and improvements in service levels, in addition to the trend for(in/of) consumers to stay closer to home and focus upon "cheaper, closer, and shorter term" entertainment activities in the aftermath of the Great East Japan Earthquake (Spend per customer trended sideways at ¥1,200 but the number of customers increased.). At the same time gross profit margin rose by 2.2% points to 25.4% due to a low number of new club openings, improvements in operating efficiency of clubs, and the higher level of sales. The optimization of cost allocation also contributed to the large increase in profits of this segment.

At the end of the first half, the total number of clubs in operation rose by two from the end of the previous fiscal year to 317 (Also a two store increase from the end of the previous first half.). During the first half, seven new clubs were opened (Compared with eight during the previous first half), 20 existing clubs were renovated, and five clubs were closed (Two clubs closed in the previous first half). In addition to renovations, the menus at some of Koshidaka' s clubs (Dinos Sapporo Teine Club, Sapporo City, Hokkaido) have also been revised by fortifying the dessert offerings. In addition, the first specialized single customer use Karaoke club called "One Kara" was opened in November 2011 in front of Kanda Station (Chiyoda Ward, Tokyo). And while there is still room for improvement in the operations of this new format, Koshidaka has been successful in cultivating latent demand in the market as evidenced by high repeat rates of individuals using this club. Koshidaka will continue to fine tune "One Kara" karaoke club operations, create schemes for the sale of business formats (Business opening support package), and obtain various patents.
 
 
Curves Fitness Club Business
Sales and operating profit rose by 33.2% and 43.3% year-over-year to ¥4,809 and ¥812 million respectively. Sales of protein to be consumed after training programs and other products (Sold to customers on a regular basis through mail order) rose by ¥609 million from ¥690 million in the previous first half to ¥1,299 million during the current first half. In addition, royalty income and other reoccurring income grew by ¥256 million. Sales from directly operated clubs rose by ¥245 million. The total number of clubs at the end of the first half increased by 72 or 5.9% year-over-year from 938 at the end of the previous first half to 1,100 (Directly operated clubs accounted for 39 of the total), and the number of club members rose by 25,000 or 6.2% year-over-year to 424,000 from 350,000 at the end of the previous first half.
 
Bowling Alley Business
Sales rose by 0.7% year-over-year to ¥1.474 billion while an operating loss of ¥22 million was recorded (Compared with an operating loss of ¥77 million in the previous first half). Currently Koshidaka is strengthening its management and sales structure as part of its efforts to fortify this business in preparation of an expansion in the number of facilities. At the same time, the Company is strengthening and optimizing the marketing function at each of its facilities (Introduction of POS systems), and promoting various activities including health promoting bowling classes (LTB: Learn To Bowl) on an ongoing basis as a means of securing repeat customers. At the end of the first half, the number of facilities stood at 16, compared with 14 at the end of the previous first half. In September 2011 Koshidaka took over an existing facility to be opened as SPORT Tomakomai (Tomakomai City, Hokkaido).

"Learn To Bowl" or LTB refers to bowling classes arranged through collaboration with local Athletic Associations and regional governments. LTB classes are attended primarily by active senior aged Japanese and entail a six week long curriculum that is taught by SPORT Co., Ltd. employees, over half of whom are professional bowlers or have acquired bowling teaching qualification. The purpose of the course is not only to improve the bowling skills of the participants, but also to contribute to the health of participants by allowing them to get some exercise through bowling activities once a week. Attendants who have successfully completed the LTB class are invited to participate in league activities. These programs have helped to increase the number of games played by repeat customers from 33.0% during the previous term to 35.8% during the current first half, and the share of sales from 29.1% of the total to 32.3% over the same period.
 
Real Estate Management and Other Businesses
Real estate management business sales and operating profit rose by 9.1% and 4.6% year-over-year to ¥104 and ¥148 million respectively. At the same time other business sales rose by 193.9% year-over-year to ¥227 million while an operating loss of ¥42 million was incurred (Compared with a ¥22 million loss in the previous term). In the other business segment, three hot spring bathing facilities were taken over and reopened, including the "Oitamori Hot Springs Maneki No Yu," marking the full scale start of the hot spring bathing facility business (At the end of the first half a total of four hot spring bathing facilities were in operation, including the "Gunma Misato Hot Springs Maneki No Yu" ). A benefit of this business is the ability of Koshidaka to leverage its expertise and knowhow in the areas of karaoke club and food services operations. In addition, Koshidaka was appointed as the consigned operator for Tokyo Kenko Land, while taking over and reopening a large facility in Koriyama City. Koshidaka will also fortify its organization in order to maintain the momentum in the growth of its facilities under management.
 
 
At the end of the first half, total assets rose by ¥13 million from the end of the previous fiscal year to ¥18.468 billion. Both receivables and inventories grew on the back of higher sales and club numbers, while fixed assets increased on the back of new club openings and renovations. At the same time cash and equivalents and interest bearing liabilities declined. Net asset ratio improved by 5.9% points from the end of the previous fiscal year to 40.1%.
 
 
Because of the decline in capital investments resulting from a reduction in the number of new club openings and optimized utilization of capital, free cash flow turned from a slightly negative figure in the previous first half to a positive ¥495 million in the current first half. Dividend payments and the repayment of long term debt as scheduled contributed to a net outflow in financing cash flow. Cash and equivalents also fell by ¥140 million from the end of the previous term to ¥3.959 billion at the end of the current first half.
 
 
Fiscal Year August 2012 Earnings Estimates
 
 
Outstanding Earnings Estimates Maintained, Sales and Ordinary Profit to Grow by 9.0% and 19.8%
Despite the stronger than expected first half earnings performance, Koshidaka HOLDINGS has adopted a conservative stance and maintains its outstanding earnings estimates. The first half operating and ordinary profit results reflect relatively high 56.8% and 56.5% attainment rates of the full year estimates (Sales represent 50.0% of the full year estimate). However the Company explains that the opening of large hot spring facilities during the second half is expected to boost anticipatory investments and is a reason for the conservative stance towards its estimates. A dividend of ¥17.5 per share is expected to be paid at the end of the fiscal year, bringing the full year dividend to ¥35 per share. After consideration of the 400 for one stock split performed in September 2011, this dividend reflects a ¥10 per share increase in dividend.
 
 
 
Karaoke Club Business
During the second half of the fiscal year, 21 Karaoke Honpo Manekineko clubs are expected undergo large scale renovations. The renovations include conversion of common spaces to become smoke free (Including the construction of separate smoking sections) to improve the comfort of the facilities for non-smokers, and a switch to LED lighting to help conserve energy. In addition, Koshidaka is developing a singing program designed to contribute to the health of "active senior aged Japanese." At the same time, 10 new karaoke clubs, including the "One Kara" clubs targeting individual karaoke users, are expected to be opened around central Tokyo (Five locations have already been determined). Another goal during the second half is to establish strong brand recognition of "One Kara" format of karaoke clubs and the development of a club opening package for selling this format at an early stage. Furthermore the second store was opened in Seoul, Korea on April 14, where this business model has been developing.
 
Curves Fitness Club Business
In addition to implementing efficient sales promotion activities including fortified infomercials, Koshidaka has supported the expansion of its club numbers and strengthened their earnings through the introduction of a campaign to increase membership numbers at existing clubs. Furthermore the Company is developing new products and promoting a sales support campaign following on the heels of the success of their "protein" products. Moreover evidence of the anti-aging effects of the Curves fitness program are being accumulated as a means of increasing member awareness of the benefits of regular participation in Curves fitness activities.
 
Bowling Alley Business
In order to attain a target of 45 bowling alley facilities at an early stage, Koshidaka is implementing measures to raise productivity by improving operational flow and to fortify profitability by reducing costs. The LTB health promoting bowling classes will be continued as a means of expanding its active senior aged Japanese customer base, and to deepen the expertise and knowhow of SPORT Co., Ltd. (LTB entails monthly bowling league competitions designed to raise the repeat usage of facilities).
 
Hot Spring Bathing Facilities Business
Koshidaka expects to take over and renovate two large hot spring bathing facilities to be reopened under their own "Maneki No Yu" brand, the first reopening on June 2 to be called Tokyo Kenko Land "Manekino Yu" (Edogawa Ward, Tokyo) and the second on June 26 to be called Koriyama Yudokoro "Manekino Yu" (Koriyama City, Fukushima Prefecture). In addition, a number of other facilities have been presented to Koshidaka as potential takeover candidates and they are currently considering the feasibility of renovating these facilities to be reopened as "Manekino Yu" facilities. Along with the study of these potential facilities as part of their ongoing strategy of promoting a multiple facility operations, they are currently revising their grand menu of foods served at their already operating facilities.
 
 
Conclusions
 
The future of the economy is uncertain, but consumer mentality continues to improve in the wake of the Great East Japan Earthquake disaster and low-cost leisure and entertainment related spending is increasing. In such a market condition karaoke club business has been able to capture latent demand by capitalizing on the trend for consumers to stay closer to home and focus upon "cheaper, closer, and shorter term" entertainment activities during the first half of fiscal year August 2012. Furthermore the Curves fitness club business has garnered increased attention from media and mass communications for their unique business model "providing women with a 30 minute fitness program." This in turn has heightened the brand recognition of "Curves" and contributed to the success of the mail order product sales to members.

The growth in sales and profits may not only be attributed to the strength of its karaoke club, fitness club, and other new businesses, but may be considered as quite an accomplishment given the fact that Koshidaka is a late comer to the market. The leisure and entertainment market peaked at ¥90.9 trillion in 1996 and has trended downwards since then to ¥68.0 trillion in 2010. And while renewed growth in the market is difficult to envision, Koshidaka' s sales estimates of ¥32.0 billion may be readily achieved given that it represents only a fraction of the overall market. Given the Company' s strategy of targeting the active senior aged Japanese and ability to respond flexibly to the needs of local communities served, it may be safe to say that Koshidaka' s will be able to continue to expand its share of the market despite adverse conditions.
 
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) 2012, All Rights Reserved by Investment Bridge Co., Ltd.
 
 
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