Koshidaka HOLDINGS Co., Ltd. (2157)
President Hiroshi Koshidaka
Hiroshi Koshidaka
Corporate Profile
Koshidaka HOLDINGS Co., Ltd.
Code No.
Hiroshi Koshidaka
HQ Address
1-5-1, Odomo-Machi, Maebashi-Shi, Gunma, Japan
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥2,196 9,477,426 shares ¥20.812 billion 31.9% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥40.00 1.8% ¥274.58 8.0x ¥844.56 2.6x
* Stock price as of closing on 2012/10/18. 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 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 33,746 4,077 4,096 2,279 238.60 35.00
August 2013 Est. 35,954 4,950 4,985 2,623 274.58 40.00
* 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 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" in the four realms of "amusement," "sports and fitness," "tourism and travel," and "hobbies and cultural activities." The Koshidaka Group is comprised of seven consolidated and one non-consolidated subsidiaries. Currently the two main businesses include the operation of a nationwide chain of karaoke boxes or clubs, which are continuing to grow, and the newer businesses of fitness clubs called "Curves." In addition, Koshidaka has been able to continue to grow sales and profits since its listing, and is now cultivating new businesses including the hot spring bathing facility operations.
<Corporate History>
Koshidaka HOLDINGS Co., Ltd. was founded in 1954 as a restaurant operating in Tokyo. Later in 1964, the Company moved to its current headquarters location in 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, 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 bowling alley operations, was turned into a subsidiary. Due to difficulties in deriving synergies from this business over the medium to long term and the need to focus business resources in other areas, SPORT Co., Ltd. was sold in October 2012 after the outlook for a return to profitability of its business was achieved. Currently, Koshidaka is focusing its efforts upon cultivating hot spring bathing facilities, which are expected to yield synergies within the group, and facilitating its operating foundation so that it can effectively expand its businesses to overseas markets.
<Business Segments and Group Structure>
(1) Business Segments
The Koshidaka HOLDINGS Group currently divides its business into four main segments. In the karaoke business segment, both the "Karaoke Honpo Manekineko" clubs (Suburban regions) and the "One Kara" individual use Karaoke clubs (Urban regions) are operated. In the Curves business segment, fitness clubs providing specialized 30 minute workout programs targeting middle to older aged female users called "Curves" are operated. And as a new business segment, hot spring bathing facilities and other new businesses are undertaken. In the other business segment, real estate management services are provided. The sales breakdown between the karaoke club, Curves fitness club, hot spring bathing facilities, bowling alley, and other businesses segments during fiscal year August 2012 were 54.9%, 33.5%, 2.1%, 8.8% (This business was sold in October 2012) and 0.7% respectively.
(2) The Koshidaka HOLDINGS Group
The Koshidaka HOLDINGS Group is comprised of the holding company Koshidaka HOLDINGS Co., Ltd., and seven consolidated subsidiaries that perform the karaoke club, Curves fitness club, hot springs bathing facilities, and 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 323 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. Koshidaka Co., Ltd. is currently cultivating a new business of hot springs bathing facilities, which was launched in November 2011 and currently operates six facilities (Number of facilities as of end August 2012).
<Strengths of Koshidaka>
Koshidaka' s strengths include its ability to develop businesses that can grow in mature domestic markets, and its track record in services targeting active senior aged Japanese. In the realm of karaoke clubs, fitness clubs, and other already established businesses that are already widely recognized by the public, Koshidaka has been able to continue to grow both sales and profits ever since its listing in fiscal year August 2008 by targeting new customer segments and by changing the focus and efforts of these businesses (New services, new operational methods to establish unique business models). Furthermore, Koshidaka' s focus upon the local communities in its businesses has enabled it to develop not only the active senior aged Japanese but also the family segment of the market, and its knowhow in these areas is an invaluable asset.

In addition, Koshidaka is building up its experiences and knowhow in revitalizing facilities and corporations on the back of its track record of successfully "taking over existing facilities." At the same time the Company leverages its "revitalization" knowhow to develop customers in local communities and in the development of its hot spring bathing facilities. Furthermore the sale of the bowling alley business was made possible because of the outlook for its return to profitability in October 2012.

Consequently, Koshidaka' s earnings have traced a smooth upward trend, with sales rising from ¥2.037 billion during fiscal year August 2003 to ¥35.954 billion in the current term, and operating profit rising from ¥99 million to ¥4.985 billion over the same period (The only time that profits declined was in fiscal year August 2007).
2. Growth Strategy: Comprehensive Entertainment and Leisure Services Provider Targeting Sales of ¥100 Billion
Koshidaka is a "comprehensive entertainment and leisure services provider" that promotes businesses in the four key areas of "amusement," "sports and fitness," "tourism and travel (hot spring bathing facilities)," and "hobbies and cultural activities." For the foreseeable future, the Group maintains a "sales target of ¥100 billion" and will flexibly implement M&A and fortify its overseas business deployment capabilities primarily in East Asia to achieve this target.
(1) "Creating New Businesses in Existing Industries"
With regards to already established businesses that are widely recognized by the public, Koshidaka has been able to establish unique business models by creating new services and operational methods targeting new customer segments, and by changing the focus of their businesses.
"One Kara" Individual Use Karaoke Clubs
An example of their strategy of "creating new businesses in existing industries" are the "One Kara" individual use karaoke clubs operated 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 users who enjoy singing by themselves (These rooms are also commonly used by musicians to practice their various musical instruments).

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 has been successful in cultivating latent demand in the market as evidenced by high repeat rates of individuals using this club, and opened "One Kara Kanda Station Front Club" (Chiyoda Ward, Tokyo) in November 2011, and subsequently six more clubs were opened in central Tokyo and Sendai regions.

Koshidaka is able to leverage these "One Kara" individual use karaoke clubs to differentiate their operations from existing karaoke clubs and to expand their customer base by targeting different customer segments. The Company will continue to fine tune its karaoke club operations to improve its operating efficiency, restrain initial investments to quickly establish its brand, and deploy both directly operated and franchised club operations.
Curves Fitness Club Business: 30 Minute Health Promoting Exercise Class Specialized for Women
The Curves business, which "offers women a 30 minute health promoting exercise class" is steadily expanding and in keeping with Koshidaka' s strategy of "creating new businesses in existing industries." And while the fitness related business is no longer unique, the Company differentiates this business by targeting unique customer segments and creating unique facilities based on the themes of "active senior aged customers" and "community based." Consequently the Curves business has blossomed after its purchase by Koshidaka (Women over 50 years of age account for 76.7% of total membership).
(2) Numerical Targets
While the business environment for companies operating within the realm of domestic demand related industries is extremely difficult, the possibilities within the Japanese leisure related market may be considered to be unlimited given its massive size of ¥68 trillion. Moreover, the increase in baby boomers approaching the age of 75 (Peak number being born between 1947 to 1949) are expected to increase and contribute to growth in the market over the next ten years.

Koshidaka leverages its bountiful knowhow in the revitalization of facilities and companies targeting the "active senior aged Japanese" segment to extend its roots in the Japanese leisure market. The Company will extract synergies from within its group and develop "new businesses in existing industries" to achieve its Group sales target of ¥100 billion over the next three to five years.

By business segment, the karaoke club business avoided focusing upon only traditional customers and sales technique, considered the "active senior aged Japanese" segment of the market in its club development strategy. For the foreseeable future, Koshidaka endeavors to achieve a network 500 franchised clubs including the "One Kara" and sales of ¥30.0 billion. In the Curves fitness club business, they have adopted the slogan "turning physical training into a habit like brushing teeth" to diffuse a culture where physical exercise is done on a regular basis nationwide. The Company endeavors to achieve a nationwide network of 1,500 Curves fitness clubs and sales of ¥20.0 billion. At the same time, Koshidaka seeks to become the leading operator of hot springs bathing facilities, a business which was recently launched, by leveraging its ability to take over existing facilities and create a network of 50 facilities with sales of ¥15.0 billion.

In the other business segment, M&A related activities and overseas expansion of its businesses will be used to expand earnings. The knowhow and experiences cultivated in the operation of two karaoke clubs in Korea will be used to expand operations to other high economic growth regions of East Asia.
Fiscal Year August 2012 Earnings Results
Sales, Ordinary Profit Rise by 16.0%, 22.8% Year-Over-Year
Sales rose by 16.0% year-over-year to ¥33.746 billion during fiscal year August 2012. The number of clubs and memberships of Curves fitness clubs rose by large margins and contributed to strong sales growth of 34.3% in this business. In addition, the trend for(in/of) consumers to focus upon "cheaper, closer, and shorter term" entertainment activities in the aftermath of the Great East Japan Earthquake contributed to a firm 6.6% growth in sales of the karaoke club business.

With regards to profits, labor costs, new club opening expenses and anticipatory investments for expansion of Koshidaka' s businesses contributed to an increase in sales, general and administrative expenses. However higher sales from both the karaoke club and Curves fitness club businesses allowed these higher expenses to be absorbed and contributed to an improvement in profit margins. Large improvement in losses arising from the bowling alley business also allowed operating profit to rise by 20.6% year-over-year. Lower interest payments (Dropped from ¥49 to ¥35 million) and disappearance of bond issuance expenses (¥64 million) contributed to improvement in non-operating income. Reduced extraordinary income (¥1,193 million in extraordinary profit from goodwill during the previous term) and booking of doubtful account reserves (¥103 million) due to obligations extended to Koshidaka Korea Co., Ltd. led to a 20.8% year-over-year decline in net income.

A yearend dividend payment of ¥17.5 per share is anticipated, for a full year dividend payment of ¥35 per share. After the 400 for 1 share stock split conducted in September 2011 is considered, dividends actually rose by ¥10.
Karaoke Club Business
Sales and operating profit rose by 6.6% and 18.6% year-over-year to ¥18.543 and ¥2.692 billion respectively. 13 new clubs were opened (15 in the previous term), while 5 were closed (9 in the previous term) for a net increase of 8 clubs bringing the total number of clubs in operation to 323.

With the trend for(in/of) consumers to focus upon "cheaper, closer, and shorter term" entertainment activities acting as a tailwind, various sales campaigns (B-grade gourmet food fairs, strawberry fairs, noodle festivals, Okinawa fairs) have been successful in raising existing club sales by 3.0% or ¥698 million year-over-year. With regards to profits, strong existing club sales and declines in newly opened facilities contributed to a 5.0% points improvement in gross profit margins to 25.8%. The higher sales and improved profit margins allowed gross profits to rise by 32.4% year-over-year to ¥4.778 billion. This helped to absorb increases in personnel (Increase of ¥276 million) and other SG&A expenses (A 52.7% year-over-year increase to ¥2.086 billion).

Moreover, six of the newly opened facilities were "One Kara" individual use karaoke club format clubs, the first of their kind in Japan, with five being opened in Tokyo and one in Sendai. Furthermore, Koshidaka conducted large scale renovations of 41 clubs (39 in the previous term), along with the aggressive implementation of new equipment, introduction of non-smoking rooms, and other new endeavors. Also, a new human resources training program was implemented on a company wide basis from the fiscal year August 2011 to fortify the Company' s marketing function.
Curves Fitness Club Business
Sales and operating profit rose by 34.3% and 57.6% year-over-year to ¥11.320 and ¥1.906 billion respectively during the term under review. The number of clubs in operation at the end of the term rose by 159 or 15.3% from the end of the previous term to 1,197 (Including 42 directly operated clubs within the Koshidaka Group). The number of memberships also grew by 104,000 or 25.9% over the same term to 503,000. Only one club was closed during the term.

The ¥2.888 billion increase in sales from the previous term is attributed to a ¥1.150, ¥0.384, ¥1.348 and ¥0.068 billion increases from basic sales (Including royalties and other recurring income), directly operated clubs, mail order sales, and others respectively. At the same time, spot sales (Initial membership fees, new club opening fees, and other one-off fees) declined by ¥61 million. Sales of protein products on a regular subscription basis to members contributed to the increase in mail order sales of 76.3% year-over-year to ¥3.114 billion. While higher mail order sales contributed to a 3.2% point decline in gross profit margin to 37.5%, the 23.7% increase in gross profits to ¥4.249 billion offset the 5.3% year-over-year increase in sales, general and administrative expenses to ¥2.342 billion by a large margin.

An increase in the number of members per club contributed to an improvement in the earnings of franchisees and led to an increase in additional new club opening inquiries from existing franchisees. By club member age categories, 2.9%, 5.5%, 14.8%, 28.5%, 33.7% and 14.5% of all members belonged to the age brackets of below 20 years old, 20 to 29, 30 to 39, 40 to 49, 50 to 59, 60 to 69, and above 70 years respectively.
Hot Spring Bathing Business
While sales rose by 298.7% year-over-year to ¥695 million, operating losses grew from ¥36 million in the previous term to ¥354 million. This expansion in losses despite the higher sales is attributed to the multiple facility openings associated with the full scale launch of this business. Specifically, new facilities contributed ¥496 million in sales along with ¥839 million in higher operating costs. Amongst the major factors in the increased operating costs were public utility fees, rent, labor costs, and other facility opening related fees of ¥139, ¥131, ¥213, and ¥130 million respectively.
Three new facilities were opened in Oita Prefecture during November 2011, one in Edogawa Ward, Tokyo (Tokyo Kenko Land Maneki no Yu) and another in Koriyama City, Fukushima Prefecture (Koriyama Yudokoro Maneki no Yu) in June 2012, totaling 6 facilities. Various events were held at each of the respective facilities including different hot spring water each month and new services offered as a means of capturing customers.

Aside from the above mentioned businesses, sales of the bowling alley business grew by 2.2% year-over-year to ¥2.961 billion and operating losses contracted to ¥7 million from ¥163 million in the previous term. Real estate management business sales grew by 1.7% year-over-year to ¥589 million and operating profit declined by 4.0% year-over-year to ¥284 million.
At the end of the current fiscal year, total assets rose by ¥1.588 billion from the end of the previous term to ¥20.043 billion. Increases in investments in tangible fixed asset (Equipment and facilities) and investments and others (Deposits, and security deposits) arising from opening of new facilities and renewal of existing facilities, and the full scale launch of the hot spring bathing facility business, and higher receivables due to the expansion in mail order sales were key factors behind this increase in total assets. At the same time, payables and net assets also increased, while interest bearing liabilities declined. Net asset ratio improved by 5.7% points from the end of the previous term to 39.9% at the end of the current term.
A large increase in tax expense (From ¥1.478 to ¥2.136 billion) from the previous term contributed to a slight decline in the net cash inflow in operating activities to ¥4.241 billion. Despite new facility openings, renewal of existing facilities, and the full scale launch of the hot spring bathing facility business, free cash flow remained positive with a net inflow of ¥957 million. Repayment of debt and dividend payments remained within the bounds of free cash flow and allowed cash and equivalents to increase by ¥207 million from the end of the previous term to ¥4.308 billion.
Fiscal Year August 2013 Earnings Estimates
Sales, Ordinary Profit Expected to Rise by 6.5%, 21.7%
During the fiscal year August 2013, Koshidaka expects sales to rise by 6.5% year-over-year to ¥35.954 billion. The sale of the bowling alley business contributed to a loss of ¥2.961 billion in sales, but the improved brand recognition, and stronger knowhow in cultivating new members is expected to allow Curves fitness club business sales to rise by 15.8% year-over-year. At the same time, new club openings and refurbishment of existing clubs is expected to boost karaoke club business sales by 8.9% year-over-year. Sales of the hot spring bathing facility business is expected to rise by just under three times due to the opening of large facilities in Koriyama and Tokyo during the fourth quarter of the current term. With regards to profits, both the karaoke club and Curves fitness club businesses are expected to see improvements in profit margins resulting from increases in their sales. The burden of anticipatory investments in the hot spring bathing business are expected to be reduced as new large facilities come on line and their sales contribution helps to reduce operating losses of this segment. Consequently operating profit is expected to grow by 21.4% year-over-year to ¥4.950 billion. Dividend payment is expected to be increased by ¥10 to ¥40 per share (¥20 per share dividend payment at both the end of the first half and full year).
Karaoke Club Business
Sales and operating profit are expected to rise by 8.9% and 11.3% year-over-year to ¥20.197 and ¥2.996 billion respectively. Koshidaka expects to open a total of 12 new "Karaoke Honpo Manekineko" and "One Kara" clubs and renovate 45 existing facilities.

With regard to "Karaoke Honpo Manekineko" clubs, Koshidaka is strengthening its organizational staffing, making improvements to its facilities, implementing new marketing measures, and improving its management capabilities to strengthen the attractiveness of its existing facilities. Furthermore, the Company will respond flexibly in its new club opening strategy with the ability to choose construction of new facilities depending upon the region, in addition to taking over existing facilities of competitors. At the same time, franchise operations of the "One Kara" individual use karaoke clubs are also being considered and various studies are being conducted to develop facilities which can contribute to lower initial investments. Aside from these developments, Koshidaka is expected to focus upon improving operations at its two karaoke clubs opened in Korea as part of its strategy of expanding its karaoke business to other parts of East Asia.
Curves Fitness Club Business
Sales and operating profit are expected to grow by 15.8% and 19.8% year-over-year to ¥13.106 and ¥2.284 billion respectively. A total of 130 new directly operated and franchise clubs are planned to be opened during the coming year. In order to achieve their medium term target of 1,500 clubs, Koshidaka will implement a strategy of supporting the opening of additional clubs by existing franchisees as well as opening new directly operated clubs. Measures in the franchisee support strategy include new programs designed to help franchisees to increase the number of members at existing clubs to be implemented at all clubs, and development of new mail order products. Furthermore knowhow cultivated in its directly operated clubs will be provided as feedback to franchisees.
Hot Spring Bathing Facilities Business
Sales are expected to grow by 198.6% year-over-year to ¥2.075 billion, and operating losses to contract to ¥258 million from ¥354 million in the previous term. Koshidaka will promote the development of more efficient operations designed to strengthen the earnings generating capability of this business, and various energy conservation measures. As part of this strategy, a uniform operating manual will be created for use in facilities and human resources training programs will also be strictly implemented.
Despite the lack of improvements in employment and personal income conditions and subsequent highly defensive consumer spending trends, Koshidaka has been able to record large increases in both sales and profits during fiscal year August 2012. This strong business performance is attributed to the successful strategy of targeting the active senior aged consumers whose concern for maintenance of their health is increasing.

During fiscal year August 2013, Koshidaka expects to see another year of strong gains in both sales and profits despite its efforts to expand the hot spring bathing facilities business. The bowling alley business, with its heavy burdens of fixed costs due to the need to cultivate instructors and the long investment recovery time due to the low price per customer, has been sold so that the Company can focus business resources to expand the hot spring bathing business. And while fixed costs of the hot spring bathing business are also high, the higher pricing per customer than the bowling alley business is expected to lead to a shorter recovery period for investments. In addition, many of the traits of the services offered in the hot spring bathing business are similar to those of the karaoke club business, and therefore synergies between the human resources training programs can be derived. Because of the large water and other utility expenses of the hot spring bathing operations, potentially large reductions in costs may be derived from renovation of facilities.

A key point will be Koshidaka' s speed in growing its businesses over the medium term. Furthermore another positive point to bear in mind is the ability of management to quickly reach decisions and act as seen in the sale of its bowling alley business.
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.
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