BRIDGE REPORT
(2462)

東証1部

投資家向けIRセミナープレミアムブリッジサロン開催!
J-COM Holdings Co., Ltd. (2462)
Yasuhiko Okamoto President
Yasuhiko Okamoto
President
Corporate Profile
Company
J-COM Holdings Co., Ltd.
Code No.
2462
Exchange
Tokyo Stock Exchange, First Section
Industry
Service
President
Yasuhiko Okamoto
HQ Address
Umeda Hankyu Building Office Tower 19F, Kakutacho 8-1, Kita-ku, Osaka-shi
Year-end
May
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥759 9,168,935 shares ¥6.959 billion 5.3% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥30.00 4.0% ¥28.36 26.8x ¥522.56 1.5x
* Stock price as of the close on July 28, 2014. Number of shares at the end of the most recent term excluding treasury shares.
 
Consolidated Earnings Trends
Fiscal Year Sales Operating Profit Current Profit Net Profit EPS Dividend(¥)
May 2011 15,905 901 955 489 10,701.97 5,000.00
May 2012 17,518 914 1,044 603 65.88 25.00
May 2013 15,196 798 906 599 65.34 30.00
May 2014 14,951 303 374 259 28.29 30.00
May 2015 Est. 18,500 340 400 260 28.36 30.00
* Estimates are those of the Company. A 200 for 1 stock split was performed in June 2011.

This Bridge Report presents details of the fiscal year May 2014 earnings results for J-COM Holdings Co., Ltd.
 
Key Points
 
 
 
Company Overview
 
J-COM provides sales staff dispatch to the cellular telephone and apparel industries, and dispatch of nursery school teachers and nursing caregivers within its comprehensive human resources services business, and nursing care facility operations in its nursing care services business. Based upon its corporate motto of "Planning the Future - Leveraging Human Resources to Create the Future", J-COM seeks to increase employment opportunities for those seeking work by conducting M&A, promoting business collaborations, and aggressively expanding the range of its services.

The J-COM Group is comprised of the holding company J-COM Holdings, and five consolidated subsidiaries including J-COM, which provides worker dispatch and business process consignment services to the cellular telephone and apparel industries within its comprehensive human resources services business, Astaff Inc., which provides worker dispatch of administrative staff and headhunting services, Sunrise Villa Co., Ltd., which provides nursing care facility operation services, and two other companies. The Group also maintains a minority stake in SUCCESS Holdings Co., Ltd., which is accounted for under the equity accounting method and is a Tokyo Stock Exchange First Section listed company, and its group company SUCCESS Academy Co., Ltd., which is a certified operator of nursery schools.

The consolidated subsidiary Sunrise Villa Co., Ltd. operates 21 nursing home facilities in Tokyo, Kanagawa, and Saitama Prefectures (Including Sunrise Villa Kasukabe opened in June 2014). Most of these facilities have staff working 24 hours a day. In October 2013, an investment company was turned into a subsidiary. As of end December 2013, SUCCESS Academy operated 234 facilities on both a direct and consigned basis.
 
<Business Segments>
J-COM's business segments can be divided between the comprehensive human resources services business, which includes human resources dispatch, business process consignment, dispatched worker for employment and job placement, the nursing care business, which includes nursing related services, and multimedia services business, which includes cellular telephone carrier shop operations. Each of these divisions accounted for 80.4%, 15.1% and 4.5% of fiscal year May 2014 sales respectively. In addition, the comprehensive human resources services business can be divided by various contract categories including dispatched worker contracts, business process consignment (Processes outsourced to J-COM), and dispatched worker for employment placement and job placement contracts. Each of these categories accounted for 75.2%, 21.9%, and 2.9% of segment sales respectively during fiscal year May 2014. By industry, sales to the cellular telephone industry accounted for 79.9% of total segment sales, with sales to the apparel industry accounting for 9.1% and telecommunication industry at 2.7%. By geographic region, eastern Japan, western Japan, and Tokai regions accounted for 47.4%, 42.6% and 10.0% respectively.
 
<Strengths and Growth Strategy>
With regards to the provision of human resources services to the cellular telephone industry, J-COM boasts of advantages in its service capabilities including bountiful knowhow in services provided to the cellular telephone industry across a broad range of business processes, a track record of sales commitment achievement rates for cellular telephones, the ability to interface with customers, and effective inventory control and personnel deployment capabilities. In addition, J-COM also benefits from its strong financial standing, strict compliance standards implemented as a publicly traded company listed on the First Section of the Tokyo Stock Exchange, and strong brand recognition. Based on the strong foundations of its core business, J-COM is currently growing its second pillar of business, services provided to the apparel industry. Furthermore, successful results of its efforts in the realms of childcare and nursing care service industries through its Group companies SUCCESS Holdings and Sunrise Villa are beginning to appear.
 
<Contributing to Skill Improvements of Young Adults>
In the comprehensive human resources services business, J-COM not only seeks to contribute to companies hiring dispatched workers and part time workers, but also to the employment potential of the dispatched workers themselves by implementing measures to improve their skills. Specifically, efforts are implemented to increase the skill levels of students and other young adults working as dispatched and part time workers including on the job training (OJT) and other training programs. These measures are part of a system in place at J-COM designed to help young adults find full time work as permanent employees at companies they seek to work at.
 
 
Midterm Business Plan (FY5/15-FY5/17)
 
(1) Quantitative Targets and 4 Key Policies
Since J-COM implemented a holding company structure in December 2009, J-COM has endeavored to provide a wide range of services based upon its corporate motto of "Planning the Future - Leveraging Human Resources to Create the Future" to realize good work life balance. The Company has also conducted M&A and formed business alliances to strengthen the skills of its workers that have applications in a wide range of various industries, businesses and jobs.

As part of this strategy, a stake in SUCCESS Academy (Currently called SUCCESS Holdings), which provides nursery school operation services, was acquired to become an equity accounting method held affiliate in December 2009 and marked the full scale start of childcare services. In addition, J-COM also entered the nursing care facilities operations business along with the acquisition of Sunrise Villa to become a consolidated subsidiary in October 2013. Furthermore, during the past four and a half years the Company has created the conditions necessary to begin its next growth phase along with the move of SUCCESS Holdings to the Tokyo Stock Exchange First Section in April 2014.

In light of the securing of conditions necessary to begin the next phase of growth, J-COM has created its midterm business plan covering the three years to fiscal year May 2017 and including quantitative targets and various key policies.
 
4 Key Policies
・ Improve service quality
・ Expand services provided to child care, nursing industries
・ Fortify supervisory function for Group companies
・ Maintain a compliance function that can quickly respond to the business environment
 
(2) Endeavors by Industry
Services Provided to Cellular Telephone Companies
Increases in wages offered to workers by other industries have contributed to a decline in the number of workers seeking employment in the cellular telephone industry. Therefore, J-COM is implementing efforts to raise worker retention rates by fortifying capabilities at the workplace, creating an environment that makes work easier for its staff, and strengthening communication, in addition to leveraging new channels for worker hiring including introductions from existing workers in addition to its traditional channels. Furthermore, J-COM boasts of the ability to leverage its knowhow to cultivate staff without experience into staff that can satisfy the needs of corporate clients.

While sales to the cellular telephone industry declined by just under 24% year-over-year in fiscal year May 2014, positive results of efforts to normalize pricing on orders began to surface at the end of the term. Based upon expectations for human resources demand from the cellular telephone industry to remain strong and revisions in the worker dispatch laws expected to act as a tail wind, the Company expects a recovery to begin and a new phase of growth to start from fiscal year May 2015 onwards.
 
 
Services Provided to the Apparel Industry
Effective as of September 1, 2013, the apparel industry human resources services provider IFC Co., Ltd. was absorbed into J-COM. IFC was a 100% owned subsidiary of Nippon Steel & Sumikin Bussan Corporation (NSSB) that targets the apparel industry through the placement of patterners and designers. J-COM will endeavor to optimize its Group management and strengthen its competitive standing by leveraging its superior sales capability and nationwide sales network for services provided to the apparel industry. The ability to leverage its strengths in regions where there are few human resources services companies providing services to the apparel industry and in regions where demand for human resources in regional commercial facilities is strong are strengths of J-COM.

While cancellation of use of dispatched workers by some large customers contributed to a 9.8% year-over-year decline in sales in fiscal year May 2014, sales were still able to exceed ¥1.0 billion. Along with J-COM's increased name recognition within the industry, increases in the number of clients and transaction value with large clients have been realized, and a structure that can ensure higher levels of sales has been facilitated. Orders for comprehensive solutions for sales tasks at stores of large customers, diversification of business transactions, and strong demand from high end brand fashion shops and cosmetic stores have been realized recently. Increases in demand from high end brand fashion stores and cosmetic stores are contributing positively and largely to cultivation of new projects and hiring of staff.
 
Services Provided to the Childcare Industry
This business is being cultivated to become the third cornerstone of J-COM's business following on the heels of services provided to the mobile communications and apparel industries. The consolidated subsidiary J-COM provides human resources services including nursery school teacher introduction and dispatch services through SUCCESS Academy Co., Ltd., the J-COM Group company and subsidiary of SUCCESS Holdings that conducts consigned nursery school and public nursery school operations.

While the childcare industry is benefitting from Government policies to eliminate children waiting to enter nursery schools by reducing the shortage of nursery schools, a bottleneck is being caused by a deficiency in the number of nursery school teachers. Therefore, SUCCESS Holdings is strengthening its collaboration with J-COM to secure nursery school teachers, who are a key to its growth. J-COM is levering SUCCESS Holdings knowhow in staff hiring activities to improve the matching of personnel with projects, and to expand the human resources services including introduction and dispatch of nursery school teachers provided to companies operating nursery schools outside of the J-COM Group. Currently, J-COM has taken on staff from SUCCESS Holdings to conduct hiring activities on behalf of SUCCESS Holdings.
 
Services Provided to the Nursing Care Industry
Sunrise Villa Co., Ltd. and another company were acquired (87% of total shares issued were purchased of both companies, and they are considered to be sub-subsidiaries) as consolidated subsidiaries through the consolidated subsidiary ACA Healthcare Restructuring Number 1 Investment Partnership L.L.C. on October 4, 2013.

With the goal of cultivating this business to become a profit center, synergies with J-COM's human resources services provided to the nursing care industry including the acquisition of human resources hiring and training knowhow, increase in name recognition within the nursing care industry and nursing care home operations are expected to be derived from this business. At the same time, J-COM will also pursue a strategy that entails securing human resources, improvement of services provided to nursing care home residents, and expansion of other related services. And in order to promote speed in the deployment of this business, workers will be seconded from J-COM's hiring division, and fortification of both the marketing and administrative functions will be implemented to realize profitability at an early stage.
 
Efforts to Overcome Shortage of Nursing Care, Childcare Personnel: Leveraging J-COM's Knowhow to Cultivate Personnel
Shortage of personnel is acting as bottlenecks within the nursing care and childcare industries, and has become a hotly debated public issue. J-COM will leverage its experience in "turning inexperienced workers into useful workers" to cultivate human resources for the nursing care and childcare industries, and to increase synergies between the introduction and dispatch of human resources.

In general, it is difficult to turn the bulk of inexperienced and non-certified workers into staff that can be used in the nursing care and childcare industries. Therefore, J-COM expects to provide support to workers seeking to receive nursing care training and acquire certification through training programs provided by schools operated by J-COM. In addition, the Company provides discounts and cash rebates on the school and training fees to reduce the burden upon the applying workers. After obtaining certification, inexperienced workers are then matched with companies, thereby providing support to resolve the issues of supplementing their skill base and lack of experience. Furthermore, J-COM will secure highly skilled staff with strong potential through its nationwide network by pursuing synergies from its track record in the comprehensive human resources services and in cultivating skilled staff, and its credibility as a Tokyo Stock Exchange First Section listed company.

In addition, Japan is considering expanding the variety of job categories in its foreign worker training programs including acceptance of foreign workers as nursing care worker candidates and to help them receive preparatory training to acquire nursing care worker certification. A decision upon these measures is expected to be made by the end of this year ( The revised "Japan Revitalization Strategy - Strategy for 2014 Onwards" announced on June 24, 2014). J-COM is preparing employment support programs designed to secure and support foreign workers with a view to leveraging this new Government strategy. The Company plans to use Sunrise Villa facilities in its training of foreign workers to quickly turn them into useful and productive workers after they arrive in Japan.
 
 
Fiscal Year May 2014 Earnings Results
 
 
Sales, Current Profit Decline 1.6%, 58.7% Year-Over-Year
Sales declined by 1.6% year-over-year to ¥14.951 billion. Sales of the comprehensive human resources services business declined by 17.5% year-over-year to ¥12.023 billion, but the addition of nursing care related services companies as consolidated subsidiaries during the term (Sales of ¥2.261 billion) allowed the margin of decline in sales to be reduced. In addition, sales of the multimedia business including operation of cellular telephone shops rose by 6.5% year-over-year to ¥666 million.

In the comprehensive human resources business, demand for personnel in the cellular telephone sales industry remains strong. However, the Company encountered difficulty in securing personnel with experience and knowhow in dealing with increasingly complex digital terminals and service menus. In addition, persistence in maintaining appropriate pricing on orders was another reason for the decline in sales.

With regards to profits, weak sales of the comprehensive human resources services business and anticipatory investments to facilitate the nursing care business contributed to the 62.0% year-over-year decline in operating profit to ¥303 million. Declines in profits from minority interests (From ¥61 to ¥27 million) and increases in interest expenses (From ¥0 to ¥17 million) also contributed to deterioration in non-operating income.

Moreover, the consolidated subsidiary ACA Healthcare Restructuring Number 1 Investment Partnership L.L.C. acquired Sunrise Villa and another company to become subsidiaries (87% of total shares issued acquired) on October 4, 2013. The acquisition of these two companies was undertaken with the goal of not only gaining knowhow in the nursing care facility operations, but also to expand the range of related services including the ability to secure human resources over the intermediate term and to fortify services provided to residents.
 
 
The pursuit of appropriate pricing on orders contributed to a 1.5% point improvement in costs of sales margin of the comprehensive human resources services business. However, the addition of two companies as consolidated subsidiaries in the nursing care business during the third quarter contributed to a rise in cost of sales margin of 1% point to 84.0%. With regards to sales, general and administrative (SG&A) expenses, the addition of the two nursing care companies as consolidated subsidiaries and anticipatory investments to fortify the J-COM Group contributed to a 16.8% year-over-year increase in SG&A expenses, and a rise in SG&A margin of 2.2% points.
 
Divergence from Estimates
The weaker than expected sales of the comprehensive human resources services business and negative influence of M&A activities caused sales and profits to fall below initial estimates (Sales, and operating, current and net profits estimates of ¥15.0, ¥0.8, ¥0.902, and ¥0.6 billion). However, a strategy pursuing appropriate pricing towards the end of the term were successful (Increased matching of workers and companies) and the actual earnings results exceeded the downward revised earnings estimates announced in April.
 
(2) Comprehensive Human Resources Services Business Trends
With regards to contract categories, business process consignment sales fell by 47.5% due to difficulties in securing adequate personnel and to the pursuit of appropriate pricing. Dispatched worker contract sales declined by 2.8% year-over-year due to the negative influence of direct employment of staff by some communications carriers and from limitations on the term of employment of dispatched staff. At the same time, dispatched worker for employment placement and job placement contracts sales rose by 46.3% year-over-year due to strong demand from clients in the childcare and nursing care industries as they encountered difficulties in employing permanent employees.

By industry, increases in human resources demand were seen in the finance, childcare, and nursing care industries, and from call centers for various industries. At the same time, declines in business process consignment work were left uncovered by weakness in dispatched worker contracts to the cellular telephone industry and caused sales to decline by 23.6% year-over-year. Sales to the apparel industry fell by 9.8% year-over-year due to the halt of usage by some larger customers.

By customer, cellular telephone related sales fell by 23.6% year-over-year. Within this, completion of some consigned projects and direct employment by some carriers in the previous term contributed to a 22.9% decline in mobile carrier related sales. Sales to sales agents also declined due to changes in contract formats resulting from pursuit of appropriate pricing.

By geographic region, declines in the supply of workers and termination of consigned projects resulting from direct employment contributed to lower sales to the cellular telephone industry, which in turn led to declines in sales throughout the country.
 
 
 
 
 
 
 
The conversion of Sunrise Villa and another company into subsidiaries contributed to a ¥2.332 billion increase in total assets at the term end to ¥8.558 billion. And while the J-COM Group was previously debt free, the appearance of interest bearing liabilities is attributed to the inclusion of these two companies as consolidated subsidiaries. Consequently, equity ratio declined from 80.5% at the previous term end to 56.0% at the current term end.
 
 
The lower profits contributed to a decline in the net cash inflow from operating activities. The net inflow of investing cash flow rose by a slight margin due to the sales of marketable and investment securities and redemption of time deposits, which offset outflow of cash for M&A. A net inflow of free cash flow of ¥408 million was recorded.
 
 
* ROE is an indicator reflective of the three indicators of net income margin (Net income / Sales), asset turnover ratio (Sales/Total assets), and leverage (Total assets/Equity, or the invers of equity ratio). ROE: Net income margin X Asset turnover ratio X Leverage
* Data in the above table are derived from the earnings announcement statement and financial filing reports, and ROE, asset turnover ratio and leverage are calculated using the average of total assets and equity during the term (Adding the values at the end of the previous and current terms and dividing by two. The value for leveage may not necessary be a direct calculation as the inverse of the equity ratio as the equity ratio shown in both the earnings announcement and financial filing reports are calculated using the current term end value.)
 
According to a report issued by the Tokyo Stock Exchange entitled "Earnings Announcement Aggregation," ROE of companies listed on the First Section, Second Section and Mothers Market of the Tokyo Stock Exchange ending their fiscal year in March 2014 for all industries excluding the financials stood at 8.65% (Compared with 4.99% in the previous term), 8.55% for manufacturing (Compared with 4.53% in the previous term), and 8.79% for non-manufacturing companies (Compared with 5.67% in the previous term). While J-COM's ROE trend of between 12% to 14% in the past several years was relatively high, the acquisition of nursing care service companies and weakness in the comprehensive human resources services business and subsequent lower profit margins caused ROE to decline to 5.3%.
 
 
Fiscal Year May 2015 Earnings Estimates
 
 
Sales, Current Profit Expected to Rise 23.7%, 6.9% Year-Over-Year
J-COM's estimates call for sales to rise by 23.7% year-over-year to ¥18.5 billion. The full year contribution from the nursing care business started during fiscal year May 2014 is expected to allow sales to rise by 107.8% year-over-year. Furthermore, comprehensive human resources services business sales are expected to rise by 9.8% year-over-year due to strong demand from the cellular telephone and apparel industries. Operating profit is expected to rise by 11.9% year-over-year to ¥340 million, due in part to the higher income of the comprehensive human resources services business and the turn to profits of existing facilities and subsequent improvements in profitability of the nursing care business.
 
 
(2) ¥15 Interim, Full Year End Dividend Expected for ¥30 Full Year Dividend
J-COM will endeavor to fortify its financial standing and reinvest in its various businesses to improve corporate value, while at the same time promoting aggressive and timely returns of profits to shareholders. Based upon this strategy, the Company maintains a consolidated dividend payout ratio of over 35%, and endeavors to pay dividends twice a year at the interim term and full year end.

Fiscal year May 2014 earnings estimates were revised down and net profit declined by 56.7% year-over-year. However, evidence of a recovery in the comprehensive human resources service business and a turn to profits of the nursing care services business is expected to allow J-COM to pay the same ¥30 dividend (Including a ¥15 interim term end dividend) in fiscal year May 2015 as it did in the fiscal year May 2014 (A dividend payout ratio of 106.0%). During fiscal year May 2015, ¥15 per share dividends are expected to be paid at the end of both the interim and full year periods for a full year dividend of ¥30. The dividend payout ratio will be 105.8% based upon the Company's net profit estimates, but positive influence of order activity that pursues appropriate pricing is expected to allow earnings to recover and to allow the same level of dividend payment as in the current term.
 
 
Conclusions
 
The gradual recognition of merits of accurate matching of companies with workers based upon appropriate pricing is contributing to a recovery in comprehensive human resources services to the main cellular telephone industry. In addition, fortification of the administrative and marketing functions has allowed occupancy rates at nursing care facilities operated by Sunrise Villa to improve from 68% fall 2013 to 72% in June 2014. As described previously, Sunrise Villa is expected to turn to profits during the coming term, and positive factors supporting the comprehensive human resources services and nursing care services businesses are expected to increase.

The targets for current profit in fiscal year May 2016 called for in the midterm business plan is high at ¥900 million. However, the restructuring of J-COM's foundations for growth and the subsequent recovery in earnings expected during fiscal year May 2015 may contribute to an increase in earnings momentum in the following terms.

Moreover, the fact J-COM Holdings President Yasuhiko Okamoto has taken on the role of President at the core company of the Group J-COM as of June 1, 2014 is expected to contribute to the installation of a firm foundation for future growth through restructuring efforts under the new Okamoto's leadership.
 
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) 2014 Investment Bridge Co., Ltd. All Rights Reserved.
 
 
PAGE TOP