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I.K Co., Ltd. (2722)
Chairman & CEO<BR>Hiroshi Iida
Chairman & CEO
Hiroshi Iida
Corporate Profile
Company
I.K Co., Ltd. CO., LTD.
Code No.
2722
Exchange
TSE 2nd Section
Industry
Retail Business (Commerce)
Chairman & CEO
Hiroshi Iida
Address
KDX Nagoya Station Building, 3-26-8 Meieki, Nakamura-ku, Nagoya-shi
Year-end
End of May
URL
Stock Information
Share Price Number of shares issued Total market cap ROE (Actual) Trading Unit
¥2,132 7,808,000 shares ¥16,646 million 29.0% 100 shares
DPS (Est.) Dividend yield
(Est.)
EPS (Est.) PER (Est.) BPS (Actual) PBR (Actual)
¥12.00 0.6% ¥96.26 22.1 times ¥337.58 6.3 times
*The share price is the closing price on July 31. The number of shares issued is taken from the financial settlement report for FY5/2018.
ROE and BPS are based on actual results of the previous term.
 
Earnings Trends
Fiscal Year Net Sales Operating
Income
Ordinary
Income
Net
Income
EPS DPS
May 2014 (Actual) 11,960 105 142 -34 -4.87 4.50
May 2015 (Actual) 12,476 64 68 -49 -6.73 4.50
May 2016 (Actual) 13,908 205 182 73 9.85 5.00
May 2017 (Actual) 15,273 557 554 425 57.13 7.50
May 2018 (Actual) 18,337 898 899 641 86.07 10.00
May 2019 (Forecast) 20,427 1,053 1,067 719 96.26 12.00
*The forecasted values were provided by the company. Stock split in a ratio 1:2 was conducted on 1st December, 2017 and 1st April, 2018. EPS and DPS were retroactively adjusted.
 
The financial statement for the fiscal year ended May 2018 and many more about K.I Co., Ltd. will be described.
 
Key Points
 
 
 
Company Overview
I.K Co., Ltd. is a "marketing manufacturer," which conducts integrated business activities including product planning, manufacturing, selling and distribution through its original promotion strategy. It conducts 3 businesses: the manufacturer-vendor business, which sells products such as sundries, food product and cosmetics through diverse sales channels including co-op, mail-order firms, physical stores and television shopping, the SKINFOOD business, which sells cosmetics, and the IT Solutions business, which develops contact centers, etc. The company strives to establish a group management to make all stakeholders its fans by promoting "the increase of fans" as its corporate philosophy. 【1-1 Corporate history】 After spending his high school and college days in a "freewheeling" school environment, Mr. Hiroshi Iida (present chairman and CEO), who had a strong entrepreneurial spirit from the beginning, worked for a nonlife insurance company and went on to establish I.K Ltd. in May 1982. While working on the sales of various products, he opened an account of Aichi CO-OP Union in April 1983 on getting favors from people in charge of sales, and started trading with occupational co-ops. As the sales of flyers about a rechargeable cleaner, the first product, became a major hit, the horizontal expansion to other co-ops progressed, the number of items handled also increased and the business expanded rapidly. It got listed on the JASDAQ market in December 2001. Due to the increase in recognition and reliability after the listing, the company began supplying products to the mail-order systems of department stores and retailers in a full-fledged manner, steadily expanding sales outlets, and achieved sales increases for 25 consecutive terms until the fiscal year ended May 2007. However, as the Lehman's bankruptcy put the growth at halt, the company shifted to a "marketing manufacturer" that conducts integrated business activities including product planning, manufacturing, sales and distribution of products on its own using a unique promotion strategy and established "B to C channels" in addition to "B to B to C" to offer its products directly to customers, which allowed it to return to the growth track once again. The company is actively putting efforts in M&A such as making Prime Direct Inc., a major company for television shopping, into a wholly owned subsidiary in September 2014. 【1-2 Management philosophy】 【1-3 Business contents】 I.K Co., Ltd. has three business segments: the manufacturer-vendor business, which sells sundries, food, cosmetics products, etc., the SKINFOOD Business, which sells cosmetics products and the IT Solutions Business, which develops contact centers, etc. (1) Manufacturer-vendor Business The company has two business formats, i.e., the "manufacturer-vendor business format," which provides cosmetics, apparels, shoes/bags, beauty and health related products, etc., planned and developed by the company as a manufacturer to a variety of sales outlets such as co-ops, mail-order companies, and stores, and the "manufacturer retail business format," which provides products to consumers directly using the company's website or the slots of television shopping of its subsidiaries. The company also offers products in overseas variety stores, drug stores, TV shopping, and their website mainly in Asia. No.1 hit product in the term ended May 2018. It is an EMS product that causes a maximum of 4,200 vibrations in a minute. It is well received by users, because they can do suitable training by setting the intensity out of 10 levels and choosing one out of 6 programs while the device is lightweight and compact. Due to the hit of this Butterfly Abs, the company completed "multichannel retailing," a business model using its sales channels. It proposes items that maximize individuality, beauty and brightness by makeup based on the concept "MAKE UP YOUR STYLE." "LB" is an acronym for Lady Bird, and the name represents the brand's hope to let happiness reach all the women using LB's cosmetics products as there is a European saying that "if a lady bird rests on your body, it brings happiness." It is one of the few brands that are 100% made in Japan, and the company is expanding its sales domestically and also working toward its full-scale cultivation in the Chinese market. Low-calorie food series that realize tasty and fun dieting, such as "low-calorie noodles" and "low-calorie porridge." Gel series for the female genital zone that was born in Poland. 3 million bottles sold in a year in Europe. Fitness brand aimed at preventing "the locomotive syndrome" and extending healthy lifespan. Brand that is easy to use, delicious, and healthy, under the concept "I found what I wanted." (2) SKINFOOD Business The wholly owned consolidated subsidiary Food Cosme Co., Ltd. is opening stores of Korean cosmetics brand's food cosmetics "SKINFOOD" mainly in station buildings in major cities of Japan. The number of stores as of the end of May 2018 is 22, which includes 20 directly managed stores and 2 FC stores. (3) IT Solutions Business The wholly owned consolidated subsidiary Alfa Com Co., Ltd. sells systems related to the development of contact centers, such as the voice call recording system "Voistore," the business version of LINE called "LINE WORKS," the chat system "M-Talk," etc. 【1-4 Characteristics and strengths: Business model as a marketing manufacturer】 The primary point characterizing the company is a business model as a "marketing manufacturer" which conducts integrated business activities including planning, manufacturing, sales, and distribution of products on its own with a unique promotion strategy. The company's business model is composed of the following 3 functions. (1) Powerful product development, discovery, and procurement The company is developing, discovering and procuring attractive products by taking advantage of information gained from a wide range of sales channels and experiences cultivated over 30 years. The "Development Approval Conference" is held once a month, and three teams of cosmetics, sundries and food with 7 to 8 members in each team, propose new products to officers and people in charge of sales. In their company where challenges are valued, each team proposes an average of 10 or more items each month based on freewheeling ideas, but not everything is approved. The company has set "10 rules for development," which stipulates "emphasis on originality" and "thorough differentiation" regarding product development, and the proposed product is strictly criticized based on them, and homework is given out sometimes. However, these processes train the staff members in charge of development and are leading to further enhancement of product development capabilities. (2) High marketing ability "High marketing ability" is playing a major role in developing a hit product. Test marketing is conducted using various sales channels to check whether candidate products actually sell well. By making innovations in various aspects such as package, timing, target and price and conducting new promotions, the company has been creating many hit products. (3) Various sales channels Rather than just proposing products to the various sales outlets mentioned above, they propose the best ways of selling and showcasing in other sales channels together with successful stories of those channels. They blend ideas unique to I.K co., Ltd. with the needs and feedbacks of customers and brush them up daily. It is a major feature of the company that it provides all solutions, which fit the sales channels, to customers including product selection, catalog and medium creation, quality control, order reception, logistics and customer service. While many other companies in the same industry specialize in planning and marketing of products, have only stores as their sales channels, and outsource manufacturing and distribution work to other companies, the company can execute a unique promotion strategy that they cannot imitate as the company can respond flexibly with the system and know-how. 【1-5 ROE Analysis】 Although the leverage declined, net income margin improved significantly due to the substantial increase in profits in the fiscal year ended May 2018 and ROE also rose. The net income margin for the current term is expected to be 3.52%, which is at the same level as the previous term, and it is expected to continue to achieve a high level of ROE.
 
 
Fiscal Year May 2018 Earnings Results
Significant rise in sales and profit. Results greatly exceeded the initial forecast and marked a record high. Sales were 18,337 million yen, up 20.1% year on year. In the manufacturer-vendor business, sales showed substantial increase mainly for television shopping. Gross profit margin rose 2.6 points year on year as a result of increased sales in B to C business such as television shopping, and gross profit also grew 27.9% year on year. Operating income rose by 61.3% year on year to 898 million yen. Increase in broadcast slots for television shopping resulted in a rise in selling, general and administrative expenses, but they were absorbed by increased sales and gross profit. The company reported record high sales and profit for 4 and 3 consecutive terms, respectively. While results exceeded the initial forecast considerably, they did not reach the revised forecast. (Reasons for failing to reach the revised forecast for December 2017) Butterfly Abs, which was a major driving force of the results for the previous term, has seasonal characteristics that its sales efficiency rises from spring to fall but falls in winter, therefore, its sales efficiency dropped in the third quarter (December-February) by 20%. However, it began to rise in the fourth quarter (March-May). Also, as for apparel products, heavy clothes and boots were sold out in November as the winter was severe contrary to their expectation, and the company incurred loss on sale from December to January. ① Manufacturer-Vendor Business Sales and profits increased. While the co-op route remained flat, the rise in sales from mail-order and overseas routes in addition to the doubling of television/WEB route, which is being strengthened, contributed. In an effort to expand sales of the company's brand cosmetics "LB" and strengthen overseas sales including China, they established overseas subsidiaries and sub-subsidiaries and worked to create a system. Also, they focused not only on developing their own brand products but also developing sales methods. For instance, they started selling the products using multi sales channels with television shopping as the starting point. ② SKINFOOD Business Sales and profit increased. The company began selling new products such as "Black Sugar Perfect Mousse Foam" and "Coconut Sugar Mask Wash Off," and it also focused on the sales of products available only in Japan. Since they established one directly managed store and one franchise store, and closed down one franchise store, the number of stores at the end of May 2018 was 22 (21 in the same period of the previous year) including 20 directly managed stores (19 in the same period of the previous year) and 2 franchise stores (2 in the same period of the previous year). ③ IT Solutions Business Sales and profit declined Although the sales of the existing product (Voistore) were stable, sales of the chat system "M-Talk" and the business version of LINE "LINE WORK" were sluggish despite their efforts to find another source of revenue. Due to an increase in cash and deposits and trade receivables, current assets rose by 937 million yen from the end of the previous term. Noncurrent assets grew 143 million yen from the end of the previous term, and total assets rose 1,081 million yen to 6,288 million yen from the end of the previous term. Total liabilities were 3,764 million yen, up 455 million yen from the end of the previous term due to an increase in trade receivables. Net assets increased 625 million yen to 2,524 million yen from the end of the previous term as a result of increased retained earnings. Equity ratio rose 3.6% from the end of the previous term to 40.1%. The increase in inventory assets caused the surplus of operating CF to shrink. The deficit of investing CF expanded due to increase in purchase of property, plant and equipment and intangible assets, and the surplus of free CF shrank. The deficit of financing CF shrank as the short-term borrowings increased. Cash position improved.
 
 
Fiscal Year May 2019 Earnings Estimates
Expects a double-digit growth in sales and profit Sales are expected to be 20,427 million yen, up 11.4% year on year. Sales are projected to rise in all segments. Operating income is forecasted to grow 17.3% year on year to 1,053 million yen. It will absorb the selling, general and administrative expenses and improve operating income margin by 0.3 points. The company plans to pay dividends of 12.00 yen/share, up 2 yen/share year on year. The estimated payout ratio is 12.5%. ◎ Manufacturer-Vendor Business ① Focus on multichannel retailing with television shopping as the starting point With Butterfly Abs becoming a hit product, they have completed "multichannel retailing," which is a business model using the group's sales channel. The company acquired and made Prime Direct Inc., a major television shopping firm, into a wholly owned subsidiary in September 2014, but as the sales of other companies offering informercial television shopping greatly exceed the sales of Prime Direct Inc. with only 1 or 2 hit products, they have taken various measures considering that multichannel retailing with television as the starting point has great growth potential. Since a company can increase its sales if it releases a hit product and purchases the broadcast slots in television shopping, if exposure on TV increases, the company can use strengths not found in other companies with diverse sales channels, and easily lead to increased sales in paper media and stores. Moreover, since the company engages in direct dealing unlike other companies in the same industry using wholesalers, it is possible to make a sales floor on its own and as it has the know-how of "making page that sells well", it can finely deal with flyers and displays. Using strengths such as powerful product development, discovery and procurement capability, which are the sources of high profitability, the company succeeded in increasing the sales of "EMS (Electric Muscle Stimulation): Butterfly Abs" in the previous term, and established "multichannel retailing," a business model that adds new profits on to the existing stable profits. The company aims to brush this up further this term, carry out test marketing around 10 items on a continuous basis during the year in order to produce 1 or 2 hit products, and install AI (Artificial Intelligence) for selection process of broadcast slots in order to increase the responses of television shopping. It plans to start them on a full scale in October 2018. ② Sales expansion of cosmetics products of mainly LB (Domestic) As of the end of May 2018, the number of stores that installed full line type wall fixtures that can display all the products is 1,750, but it is estimated to expand to 2,500 by the end of May 2019. In addition, especially for single item hanging fixtures exhibiting selling items and focused products, they plan to install them in 10,000 domestic stores by the end of May 2019. (Overseas) In China, LB (Shanghai) Cosmetics Co., Ltd. (LB Shanghai) has started its operation on a full scale. The company plans to distribute them to 3,000 stores by December 2018, in an effort to acquire 2-3% (20-30 billion yen) share in the Chinese makeup cosmetics market, which is expected to reach 1 trillion yen in 5 years. The company started online shopping service in April 2018 preceding this. <Topics> ◎ Displaying at the world's greatest beauty exhibition "China Beauty Expo" LB Shanghai displayed its products at China Beauty Expo, which was held between 22nd May and 24th May, 2018, in Shanghai, for two consecutive years. In this year's exhibition, Japan was invited as the guest of honor for the first time, with 481,895 visitors coming from 80 different countries and regions, and the largest number of Japanese companies participated. I.K Co., Ltd. actively carried out promotional activities at the exhibition for sales expansion of LB. LB won the Leading Imported Brands Award LB won the Leading Imported Brands Award. This award is given to about 100 brands that have been chosen out of more than a hundred thousand brands based on examination standards of the organizer. After receiving the award, they were interviewed by the media, indicating expectations from China. In the interview, President Iida commented, "We feel extremely honored to receive this award. We want more people to know about LB and we wish to make all users happy." *Live broadcasting with MANAMI, a makeup artist, and influencers At the exhibition, like in the 2017, live broadcasting of 7 influencers introducing LB brand and Ms. MANAMI, a makeup artist who came from Japan with them, sharing techniques to do Japanese style makeup was shown through a live broadcasting app that celebrities and popular bloggers in China use. The number of viewers (number of PVs) exceeded 10 million, which led to increased recognition by people. Ms. MANAMI's comment "Women in China were interested only in skincare until 4 year ago, but people doing makeup are increasing year by year. People often think that Japanese-style makeup takes time and efforts including base makeup, but we could let them experience the joy of doing Japanese-style makeup easily using certain items. I feel that Japanese products and makeup will become China's trend and basic." *Negotiation with sales partners of each region and new clients of 1,600 companies. In order to deepen the understanding of LB and share the future brand management policies, they invited sales partners from various regions in China to the exhibition and had a meeting about the current sales situation. Also, they were able to have business negotiations and exchange business cards with new clients of about 1,600 companies. They hope to hold meetings with each company in future and plan to expand the sales channels and outlets to introduce the products in 80% of all provinces in China in the current term. In 10 countries of ASEAN, they will launch new skincare products and LB's products with I.K Trading Company Limited in Hong Kong as the sales base. In addition, they will strengthen the promotion using mainly SNS inside and outside the country. ◎ SKINFOOD Business ① "Fan making" strategy with "repeated visit" as the keyword By encouraging new visitors to the store to become "customers" or "clients," and sublimate them into "fans" which is their corporate philosophy. As concrete measures, the company is expanding the number of LINE members, which was approx. 160,000 at the end of May 2018, issuing sample coupons and Refer-a-Friend cards in order to reach a retention rate of 15% or above. ② Production of memorable stores In addition to performing the most important task of training shop managers thoroughly, the company will check the customer satisfaction rate through mystery shoppers every two months. ③ Expansion of sales share of products available only in Japan The company will raise the sales composition ratio of those products from 20% in the term ended May 2018 to 25% in the current term. ④ Sales expansion of EC The company will aim to fuse offline (real stores) and online stores to enhance customers' convenience. It increased the number of web members by approx. 18,000 by the end of May 2018. It strives to open more stores on major EC websites such as Amazon, ZOZOTOWN and ASKUL and expand the sales to 1.4 million yen in the current term from 1.04 million yen in the previous term. ◎ IT Solutions Business ① Aims to have NO.1 share among other chat systems in cooperation with LINE with the chat system "M-Talk" In addition to strengthening the cooperation with LINE Corporation, the company will aim to maintain a continuous utilization rate of 100%. Also, it will work toward efficient operation by promoting standardization of installation process and support services. ② Sales expansion of the call recording system "Voistore" and acquisition of a definite replacement for existing users The company started the sales of its new version "Voistore TOV." It will take the plan to cooperate with other companies having sales routes into consideration. It will make sure to renew the maintenance contracts through a careful follow-up.
 
 
Conclusions
Results greatly exceeded the initial forecasts for the term, but Chairman Iida considers the completion of a new business model "multichannel retailing with television shopping as the starting point" as the biggest topic of the previous term. Now that a new business model has been established, the company's ability to produce hit products in a stable manner holds the key to success. On the other hand, as the company is expected to get permission from the CFDA (China Food and Drug Administration) for the makeup cosmetics "LB" soon, we would like to pay attention to at what speed "LB" will exploit the Chinese makeup cosmetics market, which is growing at a rate of 15% per year and expected to reach 1 trillion yen in 5 years.
 
 
<Reference: Regarding corporate governance>
◎ Corporate Governance Report Last updated: February 15, 2018 <Basic Policy> While corporate governance is expected to function effectively, the company strives to become a reliable firm by improving its management foundation, maintaining high ethics and increasing the transparency of the management further in order to fulfil the social mission and responsibility as a listed company. Also, the company considers the establishment of a management structure that can respond to the changes in the business environment fast and accurately as one of the important business challenges, and it is making efforts in information sharing from many sides by holding a regular meeting of Board of Directors (once/month), an extraordinary meeting of Board of Directors (as per the need), an in-house officers meeting (once/week) with regular directors (including directors serving as audit and supervisory committee members) and executive officers, and a top meeting (once/week) composed of people from team mangers post or above. <Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)> <Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>
 
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This report is intended solely for information purposes, and is not intended as a solicitation for investment. The information and opinions contained within this report are made by our company based on data made publicly available, and the information within this report comes from sources that we judge to be reliable. However, we cannot wholly guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
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