BRIDGE REPORT
(2462)

東証1部

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
¥1,000 9,168,935 shares ¥9.169 billion 6.8% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥30.00 3.0% ¥49.24 20.3x ¥537.79 1.9x
* Stock price as of the close on July 17, 2015. 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 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 18,067 470 502 331 36.13 30.00
May 2016 Est. 29,500 700 910 450 49.24 30.00
* Estimates are those of the Company.

This Bridge Report presents details of the fiscal year May 2015 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 actively expanding the range of its services.
 
<J-COM Group and Its Business Segment: Providing Solutions to the Society in the Realm of Human Resources>
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 facility operations, and multimedia services business, which includes cellular telephone carrier shop operations, and the childcare related business, which includes public childcare facility operation and childcare consignment. Each of the first three divisions accounted for 69.4%, 25.1% and 5.5% of the fiscal year May 2015 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 workers for employment placement and job placement contracts. Each of these categories accounted for 78.5%, 19.5%, and 2.0% of segment sales, respectively during fiscal year May 2015. By industry, sales to the cellular telephone industry accounted for 74.3% of total segment sales, with sales to the apparel and child care industries accounting for 9.2% and 1.0%, respectively. By geographic region, eastern Japan, western Japan, and Tokai regions accounted for 46.8%, 42.9% and 10.3%, respectively.

The J-COM Group is comprised of the holding company J-COM Holdings, and six consolidated subsidiaries and two non-equity-method affiliates. The consolidated subsidiaries include J-COM, which provides worker dispatch and business process consignment services and operation of the cellular telephone shops within its comprehensive human resources services business, A-staff Inc., which provides worker dispatch and employment placement of mainly administrative staff services and business school operations, Sunrise Villa Co., Ltd., which provides nursing care facility operation services, ACA Healthcare Restructuring Number 1 Investment Partnership L.L.C., which conducts investments in nursing care related businesses, and Success Holdings Co., Ltd. and its subsidiary Success Academy Co., Ltd., which is a certified operator of nursery schools and both of which were taken over through a tender offer bid.
 
 
 
Fiscal Year May 2015 Earnings
 
 
Sales, Current Profits Rose 20.8%, 34.4% Year on Year
Sales rose by 20.8% year on year to ¥18.067 billion. Sales of the comprehensive human resources services business rose by 4.3% year on year to ¥12.540 billion, and that of the nursing care business rose by 100.8% to ¥4.541 billion (Large increase due in part to starting consolidation from the third quarter in FY5/14). At the same time, sales of the multimedia services rose by 47.9% year on year to ¥985 million on the back of sales of iPads in large projects to corporate clients. Against the backdrop of the continued shortages of labor being experienced in the cellular telephone, apparel, child care, and nursing care industries, efforts to improve the retention rates and service quality through follow-up training of dispatched workers currently placed and to achieve appropriate levels of profitability on orders are being strictly pursued. At the same time, fortification of the management structure of the consolidated subsidiary Sunrise Villa Co., Ltd., which provides nursing care facility operations, is contributing to better than expected improvements in occupancy rates in the nursing care business.

Operating profits rose by 54.8% year on year to ¥470 million. While the sales share of nursing care business, which has high costs, rose, improvements in pricing on orders allowed gross profit margin of the comprehensive human resources services business to improve by 1.2% points, which in turn contributed to the maintenance of the same level of gross margin on a consolidated basis as the previous term. The strong increase in sales allowed higher sales, general and administrative expenses arising from higher labor, hiring and other expenses from the consolidation (TOB) of Success Holdings to be absorbed.

Decline in equity in net income of affiliates and disappearance of refunds from insurance policies cancelation booked in the previous term contributed to a decline in non-operating profit. Gain on sales of subsidiaries and affiliates' shares amounting to ¥336 million were booked as extraordinary profit, but booking of losses from minority interests caused the margin of growth in net profit to fall below that of operating and current profits at 27.6% year on year.

A ¥15 per share dividend is expected to be paid at the end of the term, for a full year dividend of ¥30 including the ¥15 dividend paid at the end of the first half.
 
 
(2) Comprehensive Human Resources Services Trends
Sales of the comprehensive human resources services business rose by 4.3% year on year to ¥12.540 billion. By type of contract, a switch to dispatched worker contracts from some of the business process consignment contracts in the previous term due to low profitability contributed a 7.4% year-on-year decline in business process consignment sales, but dispatched worker contracts rose by 8.9%. By industry, the switch to direct hiring of staff and termination of business process consignment by some communications carriers contributed to a 3.0% year-on-year decline in sales to the cellular telephone sales industry. However, strong demand for human resources from the apparel and other industries contributed to a 33.3% year-on-year increase in sales to industries other than the cellular telephone sales industry. Sales to call center and distribution industry applications have also trended strongly and risen by 78.3% or ¥1.3 billion year on year. In addition, Sunrise Villa (Nursing care) recorded sales of ¥102 million, which have not been reflected in the above mentioned segment sales due to their being booked as internal sales within the Group.

By customer type, sales to communications carrier clients declined by 30.1% year on year due to some customers shifting to direct hiring and terminating business process consignment, and the influence of three-year maximum contract period has also contributed to a 3.6% year-on-year decline in sales to major cellular telephone sales companies. At the same time, sales to manufacturing and retailing agencies, and mass retailing stores rose by 25.2% and 17.4% year on year, respectively.

By geographic region, strengthening of sales structure contributed to increases of 4.8% and 7.3% year on year in sales in western Japan and the Tokai regions, respectively. While the shift to direct hiring and termination of business process consignment by some customers within the communications carrier industry negatively impacted sales within eastern Japan, the special sales force established for the cellular telephone industry was able to secure orders for large projects during the fourth quarter allowing sales to rise by 3.2% year on year.
 
 
 
Total consolidated assets rose by ¥720 million from the end of the previous term to ¥9,278 million at the end of the current term. Over the same period, goodwill amortization declined from ¥818 to ¥516 million on the back of transfer of some and all shares of consolidated subsidiaries. At the same time, the acquisition of additional shares of the equity-method affiliate Success Holdings contributed to an increase in affiliate-company shareholdings from ¥696 to ¥1,061 million. Loan repayments and transfer of shares contributed to a decline in interest-bearing liabilities, and net assets rose on the back of increases in profits and deposits received for occupants of nursing care facilities. Current ratio rose from 178.6% at the end of the previous term to 194.9% at the end of the current term, and equity ratio declined from 56.0% to 53.1% over the same period.
 
 
Increases in income before taxes and deposits from occupants of nursing care facilities contributed to a rise in the net inflow of operating cash from ¥143 million in the previous term to ¥963 million in the current term. Acquisition of affiliated company shares caused investing cash flow to turn to a net outflow, but a net inflow of free cash flow of ¥558 million was recorded. The margin of net outflow of financing cash flow increased due to repayment of short-term loans. Cash and equivalents rose by ¥258 million from the end of the previous term to ¥2,333 million at the end of the current term.
 
* 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.)
* Created by Investment Bride using the Company's earnings announcement.
 
Net income margin, asset turnover ratio, and leverage all exceeded the previous year's levels and allowed return on equity to improve to 6.81%. During fiscal year May 2016, the improvement in profitability of nursing care related services and the consolidated subsidiary Success Holdings, which boasts of high return on equity, are expected to increase ROE to somewhere between 7.5% and 8.0%. While ROE is expected to see a temporary decline in a near term due to anticipatory investments for both the nursing care and child care related service businesses, it should continue trending upward in a longer term.
 
 
New Business Segments, Midterm Business Plan (From FY5/15 to FY5/17)
 
<Business Segments from FY5/16 Onwards>
The tender offer bid conducted in June 2015 allowed J-COM to gain control over Success Holdings, which had been held as an equity-method affiliate, and its subsidiary Success Academy, which operates officially certified childcare facilities, and both of these companies have been included in the scope of consolidated accounts from July 2015 (They will begin contributing earnings to consolidated accounts from the second quarter of fiscal year May 2016). Therefore, the number of reported business segments will increase to four from fiscal year May 2016, including comprehensive human resources business (Personnel dispatch, business process consignment, employment and job placement, hiring and training support services), child care business (Child care and child care facility operation services), nursing care business (Nursing care facility operation services), and multimedia services business (Operations of cellular telephone retail sales shop of communications carriers).
 
 
 
Along with the consolidation of Success Holdings and Success Academy through the tender offer bid, J-COM has taken the decision to revise its plans for fiscal year May 2017 outlined within its midterm business plan. The Company will endeavor to create a structure that can improve the value of the entire Group at an early stage, and to maximize the speed of the decision making process and share knowhow in the comprehensive human resources, child care, and nursing care businesses.
 
(1) Main Strategies of the Midterm Business Plan
Comprehensive Human Resources Services Business
J-COM seeks to provide solutions to resolve the issues of "securing human resources" confronting various industries, including the cellular telephone, apparel, child care, and nursing care industries as well as at call centers and in logistics. Specifically, fortification of training and employment follow-up support are implemented to improve the quality of services, and through such support, it aims to raise both customer and worker satisfaction, and to maximize the number of job seeking workers, i.e. securing human resources.
 
Child Care Services Business
J-COM provides high-value-added services including English instruction and 24-hour child care services on a nationwide basis, for families, work environments and regions that require child care services. Thereby the Company seeks to become the company of choice by parents. In addition, collaboration with comprehensive human resources services is also being undertaken with the goal of resolving the shortage of childcare workers within the child care industry.
 
Nursing Care Services Business
24-hour nursing care and other differentiating high-value-added nursing care services are provided to users, and J-COM seeks to be the company of choice of nursing care users. Therefore, efforts are being promoted to enhance and strengthen an operating structure that can yield profits at an early stage. At the same time, J-COM is also promoting efforts to create stronger ties with its comprehensive human resources services business to resolve the problem of shortages of nursing care workers being faced by the industry.
 
Collaboration with Operating Companies
President Yasuhiko Okamoto has taken on the role of President at all of the J-COM Holdings Group companies concurrently with the aim of creating a greater sense of unity within the Group. In addition, exchange of personnel will be actively promoted to share knowledge and knowhow within the Group, and the sizeable hiring capabilities of J-COM in its comprehensive human resources services business will be leveraged to streamline the securing of workers in its subsidiaries Success Academy and Sunrise Villa.
 
(2) Business Environment and Business Strategies in FY5/16
Comprehensive Human Resources Services Business
The main market of the cellular telephone industry is seeing a high demand for sales staff who is highly competent in explaining and selling products because the industry has seen the launch of sales of set packages including fiber optic communications and cellular telephones in line with its start of fiber optic communications wholesale, as well as new players entering the industry with their low-priced smartphone sales. Therefore, J-COM is implementing measures to strengthen its training function to turn inexperienced staff into staff that can hit the ground running and begin working immediately after training as a means of expanding the number of functional staff.

Retention rates of sales staff in the apparel industry continue to trend at low levels, with shortages of staff in regions outside of the major metropolitan areas at outlet stores etc. being particularly severe. J-COM is leveraging its nationwide network and considerable tracking record of supplying sales staff to implement dispatching to diversified regions and to provide diversified hiring formats to provide employer-worker matching that increases the satisfaction of both parties. J-COM, Success Academy and Sunrise Villa are fortifying their collaboration and knowhow sharing to provide strengthened human resources matching capabilities in the child care and nursing care industries, where chronic shortages of staff are continuing.

Aside from these developments, J-COM is strengthening its response for areas of the human resources market where demand is particularly strong, including the logistics and call center realms where human resources shortages have been exacerbated by the recovery in the economy. Specifically, efforts to increase the capacity utilization rates of staff and the number of staff that are employed through diversified employment schemes that allow workers to work only three to four days a week will be made. In addition, the Company will collaborate with A-staff, which provides consigned training service to government bodies and Career Design Academy, which offers training services to corporate clients, to provide education and training for inexperienced workers and those workers who are keen to step up their skills.

Career Design Academy was established in April 2015 by J-COM and T-Gaia Corp. (First Section Market, Tokyo Stock Exchange, Stock Code: 3738), which is a major cellular telephone sales company, as a joint venture company to provide corporate clients with training services. J-COM and T-Gaia contributed 20% and 80%, respectively of the ¥80.00 million in capital for the new joint venture company. This joint venture company will provide training of human resources for various sales-related worker applications, including pre-placement detailed fundamental training and after-placement follow-up, with the intention of increasing the upward mobility of workers and thereby increasing their retention rates.
 
Influence of the Revised Dispatched Worker Act
The resolution to revise the Dispatched Worker Act, which was passed by the Japanese Diet in June, will be established in August (Passage of the Upper House of the Diet) and thereafter implemented in September. The main points of the revision include 1) designation of the upper limit of the dispatch period will be applied to "person" instead of "task", 2) dispatching companies will be obligated to retain dispatched workers indefinitely, 3) certification for dispatch and worker training will become mandatory for dispatching companies, and 4) division of work categories will be eliminated.

With regards to the influence of these revisions to J-COM's earnings, the indefinite retention of dispatched workers (Revision 2) is expected to increase the burden upon dispatching companies, but the designation of upper limits by person (Revision 1) and mandatory certification and training (Revision 3) are expected to act as tail winds. Consequently, the overall net effect of the Revised Dispatched Worker Act is expected to be positive for companies in the dispatched worker industry. The elimination of work categories divisions (Revision 4) is not expected to influence J-COM as it does not deal in most of the 26 specialized work categories.
 
①Shift in Upper Limit of Dispatched Period from "Task" to "Person"
This shift is expected to allow dispatched workers to work at the same specific job application for a maximum of three years. This will make use of dispatched workers easier for corporations and expected to increase the business opportunities for dispatching companies. In addition, this change will enable dispatched workers to establish a career path, which in turn can be expected to lead to increases in the number of registered staff.
 
② Indefinite Retention of Workers by Dispatching Companies
The revision requiring dispatching companies to retain dispatched workers indefinitely (regular employment) will also provide the ability to dispatch workers to corporations indefinitely (Fixed-term employment will only allow three-year placement as defined in revision 1). However, the indefinite retention of dispatch workers could cause an increase in burden for dispatching companies.
 
③Dispatching Company Certification and Training Requirements
In addition to the requirements of volume and quality levels (Certification standard: Net assets of over ¥20.00 million, cash and deposits of over ¥15.00 million), increased responsibility of education and training for dispatched staff will be newly necessitated, making many to anticipate the industry to be more selective, where over 50,000 companies are currently operating. This would create a favorable wind for J-COM that has a system to provide training, including on the job training, to students and part-time workers who have little work experience as a means of allowing them to advance their careers in accordance with the length of their services, and to have the workers find employments at jobs they pursued as full time employees.
 
Child Care Service Business: 102 Publicly Operated Facilities, 172 Consigned Facilities (As of April 1, 2015)
J-COM Holdings provides consigned operations for child care facilities owned by the Government, hospitals, corporations, schools and other entities through its consolidated subsidiaries Success Holdings, of which it owns 50.1% of voting rights, and its subsidiary Success Academy. While the number of consigned facilities is growing, an important issue in the path of accelerating growth in the number of consigned facilities is the ability to secure childcare workers. Therefore, personnel exchange with J-COM is being conducted to strengthen and optimize the hiring function of Success Holdings. Knowhow will be shared to improve matching capabilities and to secure a greater number of childcare workers. Furthermore, efforts to train and cultivate childcare workers with latent potential are also being implemented.
 
 
Nursing Care Services Business: 21 Facilities (Including 2 Day-Care Service Facilities), 1,123 Residential Rooms (As of May 2015)
Sunrise Villa is increasing its personnel exchanges with J-COM with the goals of strengthening its hiring function, improving its hiring efficiency, and fortifying its matching capabilities, which are part of the measures to tackle the problem of securing adequate numbers of nursing care workers in the nursing care business. Furthermore, preparations are being made to accept foreigners to become nursing care workers (details are discussed later). In addition, efforts are being made to raise occupancy rates at nursing care facilities to achieve profitability at an early stage. Subsequent to these efforts, occupancy rates have risen by 6.7% points from the end of 2014 to 83.9% at the end of May 2015 (When the new facilities Sunrise Villa Kasukabe and Sunrise Villa Kita Kasukabe opened in June and November 2014 are excluded, the occupancy rates as of end May 2015 are 86.9%).
 
 
 
Efforts to Secure Human Resources over the Midterm
The nursing care industry is encountering continued severe shortages of labor, and the shortfall in the number of nursing care workers is expected to reach 377,000 along at the peak of the aging population in Japan anticipated in 2025 (Ministry of Health, Labor and Welfare data). The J-COM Group will leverage its own unique knowhow and training to cultivate human resources with no work experience in its efforts to secure a greater number of human resources. As part of these efforts, foreigners and inexperienced staff will be hired and provided with education, training and support needed to acquire certification necessary to become a nursing care worker.
 
Leveraging Foreigners
The Ministry of Health, Labor and Welfare has announced a policy that "will expand training systems to include training for foreigners to acquire nursing care certification as a means of resolving the chronic shortages of nursing care workers." Based upon this policy, the first group of foreigners seeking to become nursing care workers is expected to arrive during fiscal year 2016. J-COM has been promoting efforts to create a structure for employment support and human resources securing even before the announcement of this policy.
 
Certification Acquisition Support and Education and Training
J-COM Group has established classroom and correspondence courses for people seeking to secure nursing care worker certification as part of its "J-Care School" certification acquisition school operations. Because its Group companies operate in the realm of nursing care, J-COM can provide people with opportunities of on the job training while they study to take the certification tests. Weaknesses arising from lack of skills and inexperience can be resolved through the courses and people hired with limited experiences can be quickly turned into productive nursing care workers.
 
 
Fiscal Year May 2016 Earnings Estimates
 
 
Sales, Current Profits to Rise 63.3%, 81.0% Year on Year
Sales are expected to rise by 63.3% year on year to ¥29.5 billion. Child care services sales of ¥8.8 billion were booked through the conversion of Success Holdings to a consolidated subsidiary, allowing consolidated sales to rise by a large margin. If the impact of this business is excluded, sales would still rise by 14.5% year on year to ¥20.7 billion. Eliminating the conclusion of consignment projects arising from a switch to direct hiring by some of the communication carriers and the influence of three-year maximum contract period of mass retailers would contribute to sales of the comprehensive human resources services business to rise by 19.6% year on year. At the same time, improvements in occupancy rates in the nursing care services business are expected to allow its sales to rise by 10.1% year on year.

Operating profit is expected to grow by 48.9% to ¥0.7 billion. In addition to the contribution from the consolidation of Success Holdings, management activities focused upon raising profitability are expected to allow profits of the comprehensive human resource services business to rise, and profitability of the nursing care services business to improve. The consolidation of the child care services business is expected to cause a decline in operating profit margin, but non-operating income is anticipated to improve in this business on the back of subsidies for facilities and current profit margin improvement. While proceeds from the sale of shares of affiliated companies booked as extraordinary income in the previous term are expected to disappear, higher current profit is expected to allow net profit to rise by 35.8% year on year to ¥450 million. A dividend payment of ¥15 per share is anticipated at the end of the first half. Combined with the term end dividend forecast of ¥15, a full year dividend of ¥30 is expected to be paid.
 
 
 
Conclusions
 
While worker dispatching services are said to be a symbol of the unequal society, President Yasuhiko Okamoto believes that they "are a legitimate and effective method of matching the diversifying needs of both employers and job seeking workers and they create employment opportunities amidst the trend of the aging and declining population and diversifying work environments." While the worker dispatching business and its customers were thrown into turmoil by the revisions implemented while the Democratic Party of Japan was in power, the revised Dispatched Worker Act to be implemented in September has taken the conditions and requirements of dispatched workers and employer companies into consideration. Consequently, this revised Act is expected to provide a tailwind for J-COM because of its fortified systems for education and training for dispatched workers. There are also expectations for increased opportunities for M&A. The child care services has been raised to a new stage through the consolidation of new Group companies.. On a single month basis, this business is expected to achieve profitability during the month of July. This business along with its nursing care services business that is anticipated to achieve profitability on a full year basis during its fiscal year October 2016 should be watched closely.
 
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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