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
World Trade Center Building Hamamatsucho 2-4-1, Minato-ku, Tokyo
Year-end
August
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥2,693 18,454,640 shares ¥49.698 billion 20.9% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥30.00 1.1% ¥138.95 19.4x ¥663.39 4.1x
* Share price as of close on April 17, 2015. Outstanding shares as of most recent quarter end, excluding treasury stock. ROE and BPS are based on previous full year's results.
 
Consolidated Earnings Trends
Fiscal Year Sales Operating
Profit
Ordinary Profit Net Profit EPS Dividend (¥)
August 2011(Act.) 29,093 3,356 3,336 2,877 119,896.45 10,000.00
August 2012(Act.) 33,746 4,077 4,096 2,279 238.60 35.00
August 2013(Act.) 34,515 4,151 4,237 3,072 162.09 50.00
August 2014(Act.) 37,720 4,276 4,370 2,423 127.87 55.00
August 2015(Est.) 43,685 4,946 5,066 2,668 138.95 30.00
* Estimates are those of the Company. A 400-for-1 stock split was conducted in September 2011, and a 2-for-1 stock split in September 2014. (EPS and dividends for fiscal year ended August 2013 and 2012 have been adjusted.)

This Bridge Report presents Koshidaka Holding's earnings results for the first half of fiscal year ending August 2015 and other details.
 
Key Points
 
 
 
Company Overview
 
Koshidaka HOLDINGS Co., Ltd. is a "comprehensive entertainment and leisure services provider," and 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." With the karaoke clubs, which boast of stable growth, and Curves Fitness Clubs, which boasts of high growth, as its two main cornerstones of business, Koshidaka has continued to grow both sales and profits ever since its listing and is cultivating new businesses such as its hot spring bathing facilities. Moreover, the Company will take on a new perspective to target new customers by creating new services and operational methods to establish unique business models as part of its strategy of creating "new businesses in existing industries" based upon the Company's expertise in these industries.
 
<Corporate Philosophy - Contribute to the Realization of Lifestyles Full of Leisure and to the Establishment of a Peaceful World Filled with Hope>
Koshidaka maintains a corporate philosophy "to contribute to the realization of lifestyles full of leisure and to the establishment of a peaceful world filled with hope by continuing to create, offer and provide the world with new and meaningful products and services." Based upon this corporate philosophy, Koshidaka also maintains the five visions of 1) To pursue the creation of new styles of business in the existing leisure activity market which are price, distance and time-friendly; 2) To develop an optimal framework and business models that meet the conditions of each country, region and industry; 3) To continue offering high-quality products and services that deliver an element of surprise and excitement based on the needs of our customers; 4) To nurture highly motivated staff who have a strong sense of entrepreneurship; and 5) To harness the maximum potential of the Koshidaka Group by striving for a strong synergy between our businesses.
 
<Corporate History>
Koshidaka HOLDINGS was founded in 1954 as a restaurant operating in Tokyo. Later, in 1964, it moved to Maebashi City, Gunma Prefecture, where the current Company headquarters is located. In 1967, the Company was officially registered as a corporate entity called "Shinseiken". The Company first took its current shape after current President Hiroshi Koshidaka assumed a management position. Under Hiroshi's leadership, the Company entered the karaoke box business during the 1990s. It successfully captured the shift in the karaoke industry from pubs and bars to specialized "karaoke box" type clubs (clubs with individual rooms for customers to sing with their friends) using laserdisc karaoke equipment and began its growth phase. 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 as a franchisee of Curves Japan Co., Ltd. In June 2007, Koshidaka listed on the JASDAQ stock exchange and took over Curves Japan Co., Ltd. as its subsidiary (stock ownership ratio of 90%). Currently, Koshidaka is responsible for the headquarter function, directly operated clubs and franchise operations of Curves fitness clubs.

Koshidaka adopted a pure holding company structure and its name was changed to Koshidaka HOLDINGS Co., Ltd in September 2010. In its overseas business deployment activities, the first "Karaoke Honpo Manekineko" facility was opened in Seoul, Korea in June 2011. KOSHIDAKA INTERNATIONAL Pte. Ltd. was established in November 2013 to serve as an intermediary holding company (Oversee operations of the karaoke business in Southeast Asia). KOSHIDAKA MANAGEMENT SINGAPORE PTE.LTD., which operates under this holding company to preside over Karaoke business in Singapore, acquired K BOX ENTERTAINMENT GROUP PTE.LTD., which operates 11 karaoke clubs in Singapore, turning it into a subsidiary in February 2014. In July 2014, the headquarters function was moved to Tokyo. And in April 2015, Moon Corporation, which operates 20 karaoke and internet café facilities in Kanagawa Prefecture, was acquired and converted into a subsidiary.
 
<Business Segments and Group Structure>
The Koshidaka HOLDINGS Group currently operates its business in four main segments. In the Karaoke business segment, the Company operates both the "Karaoke Honpo Manekineko" clubs and the "Hitori Karaoke One Kara" (karaoke clubs for single users). In the Curves Fitness Club business, fitness clubs providing specialized 30-minute workout programs specialized middle-aged to older female customers called "Curves" are operated. And as a new business segment, hot spring bathing facilities (expanding its business through taking over existing facilities of closed business) and real estate management services are undertaken. Sales of the karaoke club, Curves Fitness Club, hot spring bathing and real estate management business segments during fiscal year ended August 2014 accounted for 54.9%, 40.8%, 3.6%, and 0.7% of total sales, respectively. With regards to profits, the karaoke club, Curves Fitness Club, hot spring bathing and other business segments during fiscal year ended August 2014 accounted for 33.2%, 69.1%, -5.0%, and 2.7% of total profits, respectively.
 
 
<Growth Strategy - "Company That Provides Comprehensive Leisure Services" Promoting a Strategy of "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. Especially among the senior population, strong growth is forecast over the next 10 years or so till the baby boomers (those who were born between 1947 and 1949) approach the age of 75. Based upon the business concept of becoming a "company that provides comprehensive leisure services," targeting large senior population, Koshidaka seeks to cultivate synergies between the four realms of "amusement (karaoke)," "sports and fitness (Curves)," "tourism and travel (hot spring)," and "hobbies and cultural activities" to promote a strategy of "creating new businesses in existing industries." Koshidaka also maintains a medium to long term goal of achieving Group sales of ¥100.0 billion.

According to the "Karaoke White Paper 2014," the karaoke market within Japan in fiscal year 2013 (April 1, 2013 to March 31, 2014) grew to ¥395.7 billion from ¥391.2 billion in fiscal year 2012. Since 2009, the market has generally trended between ¥380.0 to ¥390.0 billion. According to newspaper reports, the fitness club market has continued to trend sideways over the past several years at around ¥410.0 billion.
 
Karaoke Club Business Strategy
While the karaoke club industry in Japan is being aggregated by the major chain operators, competition for customers is intensifying. In addition to fortification of its club network, Koshidaka is implementing efforts to leverage its characteristics of "comfortableness, safety, reasonableness, and friendliness" and provide customers with new ways to have fun, while at the same time developing new services as a means of differentiating its Karaoke clubs. Specifically in accordance with the Company's "Tokyo metropolitan region dominance" strategy, efforts are being made to open new clubs primarily in the Tokyo metropolitan region, and to introduce new ways to enjoy karaoke, including its own new karaoke system karaoke commander "SuKITo" (Smart Karaoke Internet Terminal) developed in-house as a means of establishing a solid customer base of "SuKITo members" and One Kara clubs' "Singer Club members". "SuKITo" provides the facility for all customers to enjoy karaoke by expanding ways customers can use karaoke clubs through collaboration with contents holders.

Karaoke club business is being expanded overseas in Korea and Singapore. With five clubs operated in Korea, Koshidaka has succeeded in establishing its business model (almost all profitable at club level) and seeks to achieve "100 clubs in operation within five years" in Korea. At the same time, K BOX ENTERTAINMENT GROUP PTE. LTD. (hereinafter K BOX), which oversees the karaoke business in Singapore, is currently being injected the knowhow developed through "Manekineko" format karaoke club operation in Japan and its club network being reviewed.
 
Curves Fitness Club Business Strategy
Amidst the rapid advance of the aging society, the Curves Fitness Club business concept supports and promotes the health of each individual user by providing healthy ways to exercise, and contributes to improvement in hidden health problems and extension of life expectancy of members, while at the same time growing its business. Under such concept, the headquarter and club franchisees in the Curves Fitness Club business are working together to create a club (franchisee club) network that is easy to access, and to build a community that allows members to enjoy participation in the activities at each club.

The milestones of 1,500 Curves Fitness Clubs and 650,000 members were reached in October 2014. Efforts will be promoted to increase the number of clubs operated by existing franchisees and the total number of clubs to 1,800, grow the number of members per club, reduce the withdrawal rates, increase new member introductions from existing members, and improve customer satisfaction. In addition, Koshidaka will continue to expand sales of protein and other items that have positive effects when used along with a training program and fortify product sales for club members, offering simple dietary diagnosis testing, and proposing programs to improve dietary balance of club customers.
 
Hot Spring Bathing Business Strategy
Five facilities, "Tokyo Kenko Land Manekino Yu" (Tokyo), "Koriyama Yudokoro Manekino Yu" (Fukushima Prefecture), "Misatomachi Onsen Manekino Yu" (Gunma Prefecture), "Oita Mori Onsen Manekino Yu" and "Oita Lamp No Yu Hanazonoten" (The last two are located in Oita Prefecture) are currently operated and Koshidaka seeks to move their business into black at an early stage. In addition to leveraging knowhow developed in the karaoke club business, such as fixed cost reduction through use of human resource development systems in employee training and facility management (hospitality), Koshidaka seeks to realize energy-saving operation and other goals to revitalize existing hot spring bathing facilities.

With regards to energy saving, gas powered cogeneration systems for both power generation and hot water heating have been introduced in conjunction with water saving showers at all facilities. Reserve tanks have been augmented to accommodate natural hot spring water, and energy efficient water recirculation systems have also been installed. Drilling for hot spring water at the main hot spring facility "Tokyo Kenko Land Maneki No Yu" has been completed, and operation of natural hot spring bathing facilities has started since November 2014 (contributing to reduction in water heating costs and attraction of a greater number of customers). Also, events with comedians giving live performances and healthy exercises coordinated with music are also conducted as a means of attracting a greater number of customers.
 
 
Koshidaka places a high priority upon ROA (Return on Asset) as a key management indicator. While clamping down on the invested capital as much as possible, management focuses on seeking to maximize the scale of sales and secure profit to realize quick return on investments. Based upon this policy, the Company has been able to achieve high levels of ROA as previously mentioned.

The high level of ROE achieved is a reflection that capital efficiency has been maintained. Looking at the past five years, Koshidaka's ROE has been on the decline after large upswing in fiscal year ended August 2011, but that was only due to net profit margin arising from the booking of extraordinary profit, anticipatory investments, and an improvement in its balance sheet at a rapid pace on the back of favorable business trends during that term.

While fluctuations in net profit margin have been large due to the booking of extraordinary profit, operating profit margin has remained relatively stable, ranging between 11% and 12%. The decline in asset turnover ratio is attributed to continued anticipatory investments arising from cultivating new business segments such as the bowling alley business (subsidiary operating bowling alleys was sold during FY8/13) and the hot spring bathing business, proactive club openings in Japan of the karaoke club business (increases in tangible fixed assets), development of new systems (Karaoke Commander) for karaoke clubs called "SuKITo" (increases in intangible fixed assets), and expansion into overseas markets, including mergers and acquisitions (increases in intangible fixed assets and investments and others).

At the same time, the decline in leverage - improvement in financial structure - is attributed to reductions in interest bearing liabilities, which had increased on the back of the acquisition of the Curves Fitness Club business, and enhanced shareholders' equity. Koshidaka has continued to raise its dividend payout ratio, and expects to raise its dividend payment in fiscal year ending August 2015 (¥2.5 increase after considering the stock split implemented) and improve its total return ratio (expected to be about 55.1% in FY8/15) through stock buyback (500,000 shares, ¥900.500 million). Therefore, improvements in ROE can be anticipated through an expansion in earnings and fortification of shareholder returns.
 
 
Koshidaka enjoys high levels of ROE and ROA compared with other listed companies that participate in the karaoke club business (Shidax Corporation and Daiichikosho Co., Ltd.) and the fitness club business (Renaissance Inc. and Central Sports Co., Ltd.).
 
 
 
Earnings Results for the First Half of Fiscal Year Ending August 2015
 
 
Sales, Operating Profit Rose 21.7%, 32.2%
Sales rose by 21.7% year-over-year to ¥21.333 billion. Sales of the karaoke club business rose by 23.2% on the back of the contribution from newly opened clubs, and the newly consolidated subsidiary K BOX ENTERTAINMENT GROUP PTE.LTD. At the same time, sales of the Curves Fitness Club business also rose by 22.7% owing to increases in income from royalty fees arising from new club openings and sales from merchandising (mainly protein sales to members). The closure of two weaker performing facilities and favorable trends in the remaining five facilities in operation contributed to a contraction in the margin of decline in the hot spring bathing business to 2.8%. K BOX operates 11 karaoke clubs in Singapore.

Operating profit rose by 34.2% year-over-year to ¥2.703 billion. Sales growth of the high profit margin Curves Fitness Clubs business combined with favorable trends in new karaoke clubs opened in the Tokyo metropolitan region and existing club operations in the karaoke club business allowed overall profitability to improve. Quarterly net profit rose by 8.9% year-on-year to ¥1.292 billion despite ¥256 million in extraordinary loss (¥98 million in fixed assets retirement loss, ¥75 million in impairment loss, ¥82 million in facilities closing loss) attributed to closure of facilities (Six clubs in the karaoke club business, two facilities in the hot spring bathing business) and renewal of clubs (18 clubs in the karaoke club business).
 
 
Sales and operating profit rose by 23.2% and 37.1% year-over-year to ¥11,712 million and ¥985 million, respectively. The strongest contributors to this strong earnings performance - an increase of ¥2,204 million - included sales from newly opened clubs of ¥1,127 million (Manekineko: ¥1,033 million, One Kara: ¥94 million), and the newly consolidated K BOX of ¥1,009 million. In addition, sales of existing clubs of ¥9 million (Manekineko: ¥16 million, One Kara: -¥7 million) and other sales of ¥60 million were also contributing factors.
With regards to profit, higher sales were able to offset a decline in gross margins of 0.4% points due to new club openings and contributed to the substantial increase in operating profit. The Singaporean subsidiary K BOX also contributed to the higher profits by achieving close to breakeven (¥100 million of goodwill amortization was realized on a consolidated basis). Koshidaka Korea secured profitability at the club level as its business model has been effectively put in place.

The number of clubs operated at the end of the first half rose by 26 to 375 from 349 at the end of the same period in the previous year within Japan (366 at the end of the previous fiscal year). A total of 15 new clubs were opened (13 during the same period in the previous year), while 6 clubs were closed (2 during the same period in the previous year). In addition, the number of clubs overseas rose by 1, opened in Korea, to 16 (11 clubs in Singapore and 5 in Korea).
Koshidaka's strategy is focused upon new club openings in the "Tokyo metropolitan region," "close to train stations," and "in busy districts" (promoting 12 refurbished, 3 newly built clubs). A new club specialized business-related demand was opened in the busy Akasaka district of Tokyo (able to respond to demand for conferences, meetings and created with a high end atmosphere) in November 2014, and Japan's first club that is Halal certified was opened in the Yotsuya district of Tokyo in December 2014. Furthermore, the Company is acting in response to the large increase in inbound visitors from China, Taiwan and Hong Kong. At the same time, Koshidaka have been able to offset a slight decline in customer numbers on an existing store basis with increases in pricing to achieve similar levels of sales during the same period in the previous year.
 
 
Sales and operating profit rose by 22.7% and 36.8% year-on-year to ¥8,696 and ¥2,051 million, respectively. The contributing factors to the ¥1,607 million increase in sales included ¥878 million in sales from merchandising and ¥581 million in ongoing royalties from clubs. In addition to these factors, one-time royalty income from new store openings and membership accession of ¥103 million and directly operated store sales of ¥46 million were also recorded. With regards to profits, a 0.6% point increase in cost of sales due to the increase in sales of merchandising was offset by successful efforts to restrain various costs and allowed the growth in sales, general and administrative expenses to be withheld to only a 1.4% increase year-on-year.

The number of Curves Fitness Clubs rose by 137 from 1,397 at the end of the same period in the previous year to 1,534 (1,475 at the end of the previous fiscal year) (among which 50 directly operated clubs within the Koshidaka Group), and the number of club members, compared to the same period in the previous year, rose by 61,000 to 650,000 (641,000 at end of previous term). The age distribution of the club members in their 30s, 40s, 50s, 60s and 70s stood at 5.4%, 11.1%, 26.0%, 37.2%, and 20.3% respectively, with members over the age of 40 accounting for 94.6% of all club members.
 
 
The number of members per club declined due primarily to seasonal factors. Curves Fitness Clubs see a seasonal decline in member use during the colder winter months, and efforts to fortify services were prioritized over efforts to cultivate new members during the period. At the same time, efforts have been made to strengthen the system for introduction of new members by existing members, which have a higher retention rate, along with the impending peak of introductions during the spring to summer months.
 
 
The closure of two facilities caused a decline in sales of 2.8% year-on-year to ¥766 million. However, in addition to impact of the closure of weak performing facilities (including decreases of ¥8 million in rent, ¥9 million in labor, and ¥14 million in equipment and consumables costs) lowered utilities cost arising from decline of ¥41 million in crude oil prices allowed the operating loss to contract from ¥110 million during the same period in the previous year to ¥63 million in the current period. The main "Tokyo Kenko Land Maneki No Yu" facility has completed drilling and began pumping natural hot spring water from November 2014 (expected to contribute to both reductions in utility bills and increases in customers). Also, Karaoke Honpo Manekineko clubs have been constructed adjacent to the facilities with the goal of pursuing synergies between segments.

In addition to the above, real estate management business recorded 13.7% and 9.0% year-on-year increases in sales and operating profit to ¥157 and ¥69 million.
 
 
Total assets rose by ¥1.110 billion from the end of the previous fiscal year to ¥27.036 billion at the end of the first half on the back of an expansion in Koshidaka's overall business. Increases in sales and the number of facilities contributed to growth in receivables and tangible noncurrent assets, and the consolidation of K BOX caused amortization of goodwill to rise from ¥21 million at the end of the previous term to ¥1,171 million (consequently the shares of affiliated companies declined from ¥1,720 million to ¥31 million). Payables and interest bearing liabilities grew by a small margin, and net assets rose on the back of an increase in foreign currency translation adjustment arising from the weakening of yen. Current ratio stood at 120.8% (117.1% at the end of previous FY), fixed ratio 129.9% (127.7% at the end of previous FY), and equity ratio at 48.1% (48.5% at the end of previous FY).
 
 
Operating cash flow improved by a large margin due to a rise in sales of highly profitable Curves Fitness Club business combined with improvements in profitability of the karaoke club business arising from the higher sales. At the same time, declines in capital investments and M&A related activities caused a contraction in the net outflow of investing cash flow. Consequent to these developments, free cash flow went from a net outflow of ¥3.549 billion during the same period in the previous year to a net inflow of ¥1.583 billion during the current first half. The net outflow of financing cash flow is attributed to restraint in the assumption of new debt, in addition to acquisition of treasury stock and dividend payments.

Moreover, Koshidaka implemented a buyback of 500,000 treasury shares (¥900.500 million) through ToSTNeT-3 Off-Hour Trading System in December 2014.
 
 
Earnings Estimates for the Fiscal Year Ending August 2015
 
 
Full Year Estimates Remain Unchanged, Call for Sales, Ordinary Profit to Rise 15.8%, 15.9%
Koshidaka maintains its outstanding earnings estimates for the full fiscal year. While strong performance of the Curves Fitness Club business (assumption for end FY8/15: 1,565 clubs and 684,000 members) could potentially swing upward above the estimate, weaker-than-expected performance of the hot spring bathing business sees a risk of shortfall. In addition, currently the karaoke club business is expected to land in the range of its estimate, but negative factors are seen such as deterioration in profitability due to the facilitation of the business structures for K BOX and Moon Corporation, and the anticipated 2% to 3% declines in existing store sales due to the passage of a year since the consumption tax hike. Dividend payment of ¥15 per share is expected to be paid at the end of the full year for a combined full year dividend payment of ¥30 per share (after considering the stock split implemented on September 1, 2014, this dividend payment forecast represents a ¥2.5 increase.).
 
 
(2) Strategies by Business Segment
Karaoke Business
Moon Corporation, which operates 19 karaoke clubs and one Internet café in Kanagawa Prefecture, was acquired and turned into a subsidiary as of April 1, 2015, through which the number of new club openings reached the full year target of 35 during the first half alone. With regards to marketing, Koshidaka promoted a contents strategy that includes collaboration with artists, creation of character goods, and the introduction of "SuKITo" (Smart Karaoke Internet Terminal). In May, the "Ponta" loyalty point service is expected to be introduced at all clubs, and measures to capture demand from the growing number of inbound tourists from Asia (primarily China, Taiwan and Hong Kong) are being fortified. Moreover, Moon Corporation boasted of sales of ¥1,534 million and net profit of ¥23 million, and net and total assets of ¥131 and ¥473 million, respectively, at the end of first half of the fiscal year ending August 2014.

In overseas, Koshidaka Korea is expected to expand the number of its clubs to 9 or 10 by the end of the current term. The Company has accumulated knowhow about club openings in both suburban area and busy districts and established a goal of "opening 100 clubs within 5 years". Consequently, it is seeking potential partners for its franchise store operations. At the same time, K BOX is reviewing its operations in Singapore and is expected to close one club there (11 clubs at the end of the first half). K BOX is aiming at sales of ¥2.0 billion in the current term, and to achieve break even before amortization of goodwill.

Also, younger staff will be hired (Koshidaka introduced an executive officer system that includes three executive officers who are in their 30s) along with the promotion of a system to allow employees to use their paid vacation and efforts to promote diversity as part of its human resources strategy.
 
Curves Fitness Club Business
Because Koshidaka has achieved its target of creating a network of 1,500 clubs by October 2014, it has raised its target to 1,800 on the back of strong demand of existing franchisees to open new clubs due to the favorable conditions at existing clubs with only 1 to 2 club closures per year. Despite limiting new club openings to existing franchisees, the Company expects to achieve this upwardly revised target by fiscal year ending August 2017 at the current pace of its new club openings. Koshidaka is paying close attention to the potential head-to-head situation between its own clubs, and has carefully considered its target for the maximum number of clubs. However, the efforts of existing franchisees to cultivate new club members and to ensure smooth club operations have exceeded Koshidaka's expectations. Consequently, Koshidaka now expects that the new club opening potential is higher than it had previously believed.

Therefore, the Company may raise its target a step further, and will implement measures to strengthen its club member cultivating capabilities, improve its coaching skills, and develop products and services that match the needs of club members to help raise club member satisfaction. As part of its measures to raise club member satisfaction, Koshidaka plans to introduce a "physical strength age assessment program (supervised by National Institute of Health and Nutrition) that includes three measuring methods of "sit-ups", "single legged squat", and "back extension" to assess the person's muscle strength, balance, and flexibility. Furthermore, the Company expects to strengthen its collaboration with regional governments based upon the themes of "improving hidden health problems" and "lengthening life spans," and has already signed a business promotion agreement with Oyama City in Tottori Prefecture and achieved results in the establishment of a health promotion facility certified by Kanagawa Prefecture.
 
Hot Spring Bathing Business
Koshidaka will promote measures to conserve energy and a marketing strategy to cultivate an even wider range of customers from young generation to seniors. As part of this strategy, the Company will fortify its contents and strengthen its marketing activities, including the new opening of a buffet dining at the Kohriyama Yudokoro Maneki No Yu, holding sauna events for female customers (Misato Hot Spring Maneki No Yu) and events for kids including "hero shows" (Kohriyama Yudokoro Maneki No Yu). Energy-saving efforts include the introduction of water saving shower and cogeneration systems that work on gas to generate both electric power and hot water. Furthermore, refurbishment of the natural hot spring facility "Tokyo Kenko Land Maneki No Yu" was also carried out.
 
 
Conclusions
 
The karaoke club business was not significantly influenced by the consumption tax hike last April, and Koshidaka has been able to see favorable existing store sales despite difficulties encountered by its competitors. During the past 2 to 3 years, sales during the latter half of the first and first half of the second quarters have declined, but during the current term this trend was not observed. Furthermore, the successful results of the strategy of focusing upon new club openings in the Tokyo metropolitan region have begun to appear. One of the clubs in this strategy, the Shinjuku Kabukicho club, suffered from weak performance during its first year of operation, but has recovered in the second and third years of its operation and continues to perform favorably since then. An acceptance of the key characteristics of Koshidaka's club operations of "comfortableness, safety, reasonableness, and friendliness" by customers reflects the bountiful knowhow that Koshidaka has accumulated in its operations in the Tokyo metropolitan region and has contributed to the favorable performance despite intense competition. Therefore, Koshidaka is even more confident in its strategy of focusing upon the Tokyo metropolitan region, as reflected in its comments at its earnings announcement meeting held on April 16. Also, this knowhow comes from the Company's corporate culture and cannot easily be duplicated by competitors.

The Curves Fitness Club business maintains a target of operating 1,800 clubs, and is now seeing a possibility of even raising this target a step further. Koshidaka is paying close attention to the potential head-to-head situation between its own clubs. On the back of strong demand to open new clubs by existing franchisees, the success of efforts to improve club operations and measures to grow member introductions from existing members and to restrain withdrawal of existing members are showing positive results. Therefore, Koshidaka now believes that the maximum number of clubs may be higher than previously expected.

At the same time, the hot spring bathing business continues to struggle. While energy-saving measures have been implemented successfully, efforts to raise top line growth have not been as successful. During the first half, lower crude oil prices contributed to cost reductions, but the positive influence of cost reductions are approaching their limits. Consequently, the Company needs to quickly establish a structure that can achieve a stable level of sales necessary to break even.

In the future, a close watch should be paid to Koshidaka's overseas deployment of its businesses. The karaoke club business has become firmly established in Korea and the deployment of this business will be accelerated with a concrete business plan for the next fiscal year onwards expected to be revealed shortly. Furthermore, the Curves Fitness Clubs business, which has been limited to only Japan thus far, may also be expanded to other parts of Asia as well.
 
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) 2015 Investment Bridge Co., Ltd. All Rights Reserved.
 
 
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