| Koshidaka HOLDINGS Co., Ltd. (2157) |
 |
|
||||||||
|
 |
|
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 price as of closing on 2013/10/21. Outstanding shares as of most recent quarter end, excluding treasury stock. ROE and BPS are based on previous full year's results.
|
||||||||||||||||||||||||
|
 |
|
|
|
* Estimates are those of the Company. A 400 for 1 stock split was performed in September 2011.
This Bridge Report presents Koshidaka HOLDINGS' earnings results for the fiscal year August 2013 and other details. |
|
| Key Points |
 |
| Company Overview |
|
<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, the Company operates both the "Karaoke Honpo Manekineko" clubs (Suburban regions) and the "One Kara" individual use Karaoke clubs (Urban regions). In the Curves business, fitness clubs providing specialized 30 minute workout programs targeting middle to older aged female customers 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, and other business segments during fiscal year August 2013 were 54%, 40%, 5%, and 1% respectively.
(2) The Group
The Koshidaka HOLDINGS Group is comprised of the holding company Koshidaka HOLDINGS Co., Ltd., and eight consolidated subsidiaries that perform the karaoke club, Curves fitness club, hot springs bathing facilities, and real estate and intellectual property rights management businesses. Within the karaoke business, Koshidaka operates 338 clubs within Japan, and Koshidaka Korea Co., Ltd. operates three 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 business headquarter operations for Curves fitness clubs specialized female users. Also the consolidated subsidiaries Hokkaido Koshidaka Co., Ltd. and Shukran Co., Ltd. operate Curves fitness clubs on a franchise basis (The total number of directly operated and franchised clubs is 1,339). Koshidaka is currently cultivating a new business of hot springs bathing facilities, which was launched in November 2011 and currently operates seven facilities (As of end August 2013).
 |
| Growth Strategy |
|
(1) Business Environment: Main Participants in Japan's Leisure Market Expanding Range from Teens to Over 60s
According to the "Leisure White Paper 2013" (Japan Productivity Center), the Japanese leisure activities market basically trended sideways in 2012, declining by only 0.3% year-over-year to ¥64.7272 trillion. Against this backdrop, the amusement realm recorded a 0.7% year-over-year increase on the back of a recovery in karaoke, pachinko, and pachi-slot sales in the wake of the Great East Japan Earthquake and despite declines in television games, game software and game center sales. The market for karaoke services expanded from 2011 to 2012 due to the trend for(in/of) consumers to choose "cheap, close, and short-term" forms of entertainment in the wake of the earthquake disaster. However in the latter half of 2012, the trend favoring "cheap, close, and short-term" forms of entertainment gradually weakened as the memory of the earthquake disaster abated and this led to a slowing of growth in karaoke services.Furthermore, the "Leisure White Paper 2013" also cites that the breadth of the participants in leisure activities has expanded during the past 10 years to include older aged Japanese over 60 years old, changed main participants from teens to over 60s. Furthermore, reasons cited for the participation of elderly Japanese in leisure activities include the facts that "elderly are relatively healthy despite their age" and "elderly can afford to pay for these activities." (2) Growth Strategy: Call for "Comprehensive Leisure Services Providing Companies" to "Create New Businesses in Existing Industries"
The possibilities within the Japanese leisure related market are considered to be unlimited given its massive size of about ¥65 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 this market over the next ten years. Based on the business concept of becoming a "comprehensive leisure services providing company," Koshidaka seeks to cultivate synergies between the realms of "amusement (karaoke)," "sports and fitness (Curves)," "tourism and travel (hot springs)," and "hobbies and cultural activities" to promote a strategy of "creating new businesses in existing industries." Koshidaka has also established a medium to long term goal of achieving Group sales of ¥100.0 billion.
Karaoke Club Business
In the aftermath of the Lehman Shock, the Japanese karaoke market contracted to ¥380.0 from ¥420.0 billion and has trended sideways thereafter. However Koshidaka has been successful in increasing its sales through the expansion of its network of karaoke clubs by offering friendly hospitability and reasonably priced localized services. In the future, Koshidaka will cultivate the active senior segment of the market even further by leveraging the concept that "karaoke promotes health." Specifically, a service differentiation strategy that employs a new and unique system for karaoke system called "Sukitto" will be introduced, along with the "Be Ambitious" scheme that allows employees to become owners of their own facilities and "One Kara" individual use Karaoke clubs in urban regions, for which a target of 500 clubs to be achieved at an early stage has been established (338 clubs at end of FY8/13).In addition, efforts are being promoted to expand its business in overseas markets including the opening of multiple clubs in Korea and South East Asia. The goal of multiple club operations is already being achieved in Korea with the opening of its third club earlier this year, and a new company called KOSHIDAKA INTERNATIONAL Pte. Ltd. is expected to be opened in Singapore in November 2013 to conduct market research and begin preparations for the opening of clubs in the South East Asian region.  (Note) Original Karaoke System called "Sukitto" (Smart Karaoke Internet Terminal)
The oligopolistic nature of the karaoke box use system market controlled by two main companies makes differentiation between operators of karaoke clubs (Including karaoke box and room type operations) difficult. Therefore, Koshidaka has developed the new "Sukitto" karaoke system as a means of differentiating its contents and services from those of its competitors. "Sukitto" allows karaoke users to take a more proactive role by allowing them to use their own original contents over the web based "Sukitto" system. Specifically, the system allows customers to use their smartphones as remote controls to upload their own streaming video images to be used as background images and to register a maximum of 200 of their most favorite songs. In addition, the system also has a function that allows users to upload their own music and video contents to create their own unique karaoke experience. Other new applications of this system are expected to be released in the future to cultivate new customers. Trial of the "Sukitto" system at three clubs including "Karaoke Honpo Manekineko" and "One Kara Individual Use Karaoke" has achieved favorable results and the system is being launched from fiscal year August 2014 (The system has already be introduced at 20 clubs in Gunma from October 2013).
Curves Fitness Club Business
While the Japanese fitness club market has trended sideways in the wake of the Lehman Shock at slightly under ¥300.0 billion, the Curves fitness club chain has now grown to become the largest fitness clubs operator within Japan. A key to the success of Curves is its ability to allow female members to form their own communities, and subsequently women over 50 years of age account for 80.9% of total members.Koshidaka maintains the concept of "turning physical training into a habit like brushing teeth" to establish a culture where physical exercise is done on a regular and nationwide basis. This strategy has been successful in allowing Koshidaka to quickly approach its goal of achieving a network of 1,500 fitness clubs (1,339 clubs at end FY8/13) and 700,000 members (586,000 members at end FY8/13). The ability to open facilities in a versatile range of applications including buildings and shopping malls, and along roadsides should allow Koshidaka to satisfy strong demand from existing franchisees to open additional facilities (In recent years about 80% of newly opened clubs have been opened by existing franchisees). Also the ability of Koshidaka to grow its business to comprehensively support the healthy and prolonged life of its customers (Exercise, diet and sleep) over the medium to long term will be a key to its continued future growth.  Hot Spring Bathing Facility Business
Koshidaka seeks to increase the number of users of hot spring bathing facilities by increasing customer satisfaction and targeting senior citizens and families. While management of variable costs including fuel is difficult because of volatility in pricing, the introduction of energy conserving facilities, optimization of staffing, and other measures to improve overall operations are expected to allow this business to turn to profits during fiscal year August 2014. By firmly establishing profitability while accelerating growth in the number of facilities, Koshidaka is expected to establish this business as its third cornerstone of business in addition to its karaoke and fitness businesses.
 |
| Fiscal Year August 2013 Earnings Results |
 Curves Fitness Clubs Contributed to Record Sales, Profits
Despite a ¥3.0 billion loss of sales arising from the sale of the bowling alley business and only marginal growth in karaoke club sales due to weaker demand for "cheap, close, and short-term" forms of entertainment due to the abating of the affect of the earthquake disaster, total sales managed to rise by 2.3% year-over-year to ¥34.515 billion. This increase was due to a 22.4% year-over-year increase in Curves fitness club business sales arising from rises in members per club and the total number of club. In addition, the newly opened hot spring bathing facilities during the previous term contributed on a full year basis and the hot spring bathing business segment's sales rose to ¥1.539 billion from ¥695 million in the previous term (The increase in sales would have been 12.1% year-over-year if the bowling alley business was excluded the from the previous year's earnings). With regards to profits, increases in the number of new hot spring bathing facilities and karaoke clubs, refurbishments of existing clubs, development of"One Kara" individual use Karaoke clubs, and other factors contributed to increases in operating expenses. However higher sales offset a portion of these expenses and allowed operating profit to rise by 1.8% year-over-year to ¥4.151 billion. Weakening of the yen allowed foreign exchange translation income to improve from a loss of ¥11 million in the previous term to a profit of ¥25 million and contributed to a 3.4% year-over-year increase in ordinary profit to ¥4.237 billion. In addition, ¥1.535 billion in profit derived from the sale of a commercial facility (Toshima Ward, Tokyo) booked as extraordinary profit allowed net profit to rise by 34.8% year-over-year to ¥3.072 billion.   With regards to sales, a diversification of leisure activities arising from weaker demand for "cheap, close, and short-term" forms of entertainment as the impact of the earthquake disaster abated, intensifying competition and recovery in the economy have contributed to difficult conditions at existing karaoke clubs (A sales decline of ¥656 million). However the reaccelerated openings of new facilities during the second half of the fiscal year (A sales increase of ¥621 million) combined with increases in sales of the new"One Kara Individual Use Karaoke" clubs (A sales increase of ¥217 million) to allow sales to grow. With regards to profits, while increases in sales, general and administrative expenses were restrained, the difficulties encountered by existing clubs and increases in opening costs associated with new club openings (13 in FY8/12 to 15 in FY8/13) combined with higher refurbishment costs and development costs for"One Kara Individual Use Karaoke" clubs, causing cost of sales to rise by 4.8% year-over-year to ¥14.428 billion (Main increases noted in depreciation, utility expenses and new club opening costs). With regards to the new format "One Kara Individual Use Karaoke" clubs, rooms and interior facilities have been designed for better usability and comfort, and efforts to further improve the multiple store operations have been promoted. At the same time in overseas markets, sales at Koshidaka's third karaoke club opened in Inchon, Korea in April are ramping up smoothly and the foundations for its operations in the Korean market are being firmly established. In addition, the new "Sukitto" karaoke system, developed with the objective of increasing differentiation of Koshidaka karaoke clubs by providing customers with new incentives to visit their facilities, has begun to be introduced from the start of fiscal year August 2014.   (3) Financial Conditions and Cash Flow
Total assets at the end of the current term rose by ¥604 million from the end of the previous term to ¥20.648 billion. Cash from the sale of fixed assets was used to repay corporate bond allowing interest bearing liabilities to decline by ¥2.749 to ¥2.556 billion and to achieve zero net debt by allowing it to fall below cash and equivalents. Operating cash flow remained at a relatively high level of just below ¥4.3 billion, and equity ratio improved by 11.6% points to 51.5%.
  |
| Fiscal Year August 2014 Earnings Estimates |
 Sales, Ordinary Profit Expected to Rise by 10.3%, 11.3% in FY8/14
Koshidaka estimates for fiscal year August 2014 call for sales to rise by 10.3% year-over-year to ¥38.059 billion. Sales of the karaoke club business are expected to rise by 11.2% year-over-year on the back of nearly tripling of the number of new club openings compared with fiscal year August 2013. At the same time, sales of the Curves fitness club business are expected to rise by 8.6% due to new club openings by existing franchise club owners and increases in sales of products to members. The hot spring business sales are expected to rise by 23.1% year-over-year on the back of introduction of new contents and aggressive promotional events, despite the lack of new facility opening plans. Koshidaka estimates call for operating profit to rise by 11.9% year-over-year to ¥4.646 billion despite a 5.7% year-over-year anticipated decline in operating profit of the karaoke business arising from costs associated with aggressive opening of new facilities and refurbishment of existing clubs. At the same time, the Curves fitness club business segment is expected to see a 19.5% year-over-year increase in operating profit on the back of higher sales. Also, the hot springs bathing business segment is expected to see an improvement in profitability of ¥410 million, allowing it to achieve a profit. And while net profit is expected to decline due to the disappearance of extraordinary profits booked in fiscal year August 2013, sales, operating profit and ordinary profit are expected to reach new record highs. A dividend of ¥50 per share is expected to be paid (¥25 per share dividends paid at the end of the interim and full year periods). (2) Estimates by Business Segment
Karaoke Club Business
While sales are expected to rise by 11.2% year-over-year to ¥20.828 billion due to the opening of new clubs (Triple the number of clubs opened in FY8/13), operating profit is expected to decline by 5.7% year-over-year due to costs arising from newly opened clubs, refurbishment of existing clubs, and depreciation for development costs of the new karaoke system "Sukitto".A total of 65 new clubs including 45 "Karaoke Honpo Manekineko" and 20 "One Kara Individual Use Karaoke" clubs are expected to be opened in the coming year, roughly tripling the number of clubs opened in fiscal year August 2013 (22 new clubs in FY8/13). In addition, another 40 to 50 existing clubs are expected to have their interiors refurbished (30 existing clubs in FY8/13). The new "Sukitto" karaoke system that proposes new ways to enjoy karaoke is being introduced in fiscal year August 2014 as part of Koshidaka's efforts to differentiate its services from its competitors. Moreover, a scheme that allows employees to become owners of their own facilities called "Be Ambitious" is also being implemented. With regards to overseas business, the business foundations for karaoke club operations are being laid along with the establishment of the third karaoke club in Korea (Suburban model club) and an expansion strategy will be aggressively promoted. While the two urban type clubs, opened in the Gangnam and Jongno regions of Seoul, Korea, have experienced difficulty, the suburban type club opened in Inchon, Korea, has achieved profitability at an early stage. As the second major development in Koshidaka's overseas business expansion a new subsidiary will be established in Singapore in November. Curves Fitness Club Business
A total of 120 new clubs, including those opened by existing franchisee club owners, are expected to open (Number of new franchise club owners has been restrained), and bring the total number of clubs in operation at the end of the term to 1,459. In addition to new club openings, reforms of its marketing methods (Revisions of flyers, infomercials, and other traditional marketing methods) and new product development and introduction are expected to allow sales of products to rise by 8.6% year-over-year to ¥15.046 billion. Increase in marginal profitability is expected to allow operating profit to rise by 19.5% year-over-year to ¥3.055 billion. Furthermore, efforts will be made to scientifically validate the effectiveness (the prevention of metabolic syndrome, care prevention and improvement in cognition function) of the "Curves 30 Minute Exercise Program" to be used as evidence in marketing of services. Moreover, Curves is differentiated from competing fitness clubs through its ability to allow members to enjoy exercising by creating communities and therefore has no direct competitors. Furthermore, Curves clubs are able to achieve strong profitability because of their low breakeven point of between 350 to 352 members per club, allowing for stable clubs operations to be maintained. Efforts to obtain evidence validating the effectiveness of Curves Fitness Clubs exercise programs are being conducted at the club within Tohoku University. Hot Spring Bathing Facility Business
Sale are expected to rise by 23.1% year-over-year to ¥1.894 billion, and an operating profit of ¥94 is expected to be achieved (Operating loss of ¥317 million in FY8/13). While no new facilities are expected to be opened in the coming term, an aggressive event and services program including karaoke exercise classes, loyly (Finnish term for sauna), and other contents are expected to be developed and introduced as a means of capturing new and repeat customers and growing sales. Koshidaka expects to be able to achieve profitability through the introduction of energy saving facilities, optimized allocation of staff and improvements in overall operating efficiencies. Consequently, the company is expected to expand the number of facilities in fiscal year August 2015 after it firmly establishes profitability in fiscal year August 2014.
 |
| Conclusions |
|
In addition, the Curves fitness club business is able to capture strong demand from the new growth segment of the market of Japanese "elderly who are relatively healthy despite their age" and "who can afford to pay for various activities" as identified in the "Leisure White Paper 2013" with its reasonable prices and provision of "ability to form communities to maximize enjoyment of exercising." Currently Curves fitness clubs enjoys a condition where there is a lack of any significant competition and their business is expected to trend favorably over the near term. Also, the ability of Koshidaka to grow its business to comprehensively support the healthy and prolonged life of its customers (Exercise, diet and sleep) will be a key to its continued growth over the medium to long term. 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) 2013 Investment Bridge Co., Ltd. All Rights Reserved. |
 |
