BRIDGE REPORT
(3822)

東証1部

Minori Solutions Co., Ltd. (3822)
President Yuji Morishita
President
Yuji Morishita
Corporate Profile
Company
Minori Solutions Co., Ltd.
Code No.
3822
Exchange
TSE 1st Section
Industry
Information and communications
President
Yuji Morishita
Address
Shinjuku NS Building, 2-4-1, Nishi-Shinjuku, Shinjuku-ku, Tokyo
Year-end
March
URL
Stock Information
Share Price Number of shares issued
(excluding treasury shares)
Total market cap ROE (Actual) Trading Unit
¥1,504 8,789,208 shares ¥13,219 million 15.0% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Actual) PBR (Actual)
¥36.00 2.4% ¥119.46 12.6x ¥839.05 1.8x
*The share price is the closing price on November 9. The number of issued shares is obtained by deducting the number of treasury stocks from the number of shares issued at the end of the latest quarter. ROE, BPS are actual results at the end of the previous term.
 
Non-Consolidated Earnings Trends
Fiscal Year Net Sales Operating
Income
Ordinary
Income
Net
Income
EPS DPS
March 2015 (Actual) 13,922 1,065 1,089 692 78.80 38.00
March 2016 (Actual) 14,768 1,057 1,078 702 79.93 29.00
March 2017 (Actual) 15,541 1,338 1,356 963 109.67 33.00
March 2018 (Actual) 16,428 1,515 1,526 1,044 118.81 36.00
March 2019 (Forecast) 16,800 1,545 1,555 1,050 119,46 36.00
*The forecast is from the company.

This Bridge Report presents Minori Solutions's fiscal year March 2018 earnings results and fiscal year March 2019 earnings estimates.
 
Key Points
 
 
 
Company Overview
Minori Solutions business is supported by two pillars: development of software and operation/management of systems. Minori Solutions sells hardware, general-purpose packaged software, etc. for developing software. JSC Co., Ltd., which specialized in the development and operation of resident systems mainly for financial institutions, such as banks and credit-card companies, and E-Wave Co., Ltd. fully undertook the development of systems in a broad range of fields, including manufacturing, transportation, and distribution, merged into Minori Solutions Co., Ltd. in Apr. 2010 for a new beginning. The "Minori" in the corporate name represents an ear of grains, means "bearing fruit," and was infused with the hope that all employees will join hands to improve its corporate value further and produce good results as the "Minori" for clients, stakeholders, and employees, under the new organization after the merger. 【Corporate ethos and rules of conduct】 Corporate ethos Through the use of our information technology, we will contribute to the creation of an affluent and fruitful society by growing, taking on challenges and always having high ambitions. Rules of conduct 1. Ensure trust: We will observe relevant laws and regulations, ensure fair transactions, protect the confidentiality of information on clients, follow the basic rules for the proper management of personal information, etc., and execute fair corporate activities. 2. Coexist with clients: We will make continuous efforts to maintain and improve reliable relationships with clients, and aim to create the prosperity of clients and the growth of our company. 3. Continuation of self-reform: We will always be ambitious, and try to reform ourselves by taking on challenges to grow. 【Business contents】 The business of Minori Solutions is classified into the following three segments: software development business, system operation/management business, and system-related device sale business. Software development business includes the developing and updating of systems and software as well as IT consultancy. The system operation/management business consists of operation, maintenance, and management of developed systems, and help desk work. The system-related device sale business handles the sale of devices related to system development. The ratios of their sales are 76.2%, 21.5%, and 2.3%, respectively (FY 3/18). The software development business is divided into two types: one is the business of undertaking the development of an entire system and the other is the business of partially developing systems while staying in client companies (dispatching about 100 workers for some clients). For banks, workers are stationed there for ensuring security, and for other businesses, system development is fully entrusted in most cases. The business of stationing workers in client companies, which is recognized by the company as recurring revenue-type business, (although the performance of short-term projects fluctuates), is stable. In this business, the company receives fees for each month and each worker like worker dispatch business. On the other hand, the business of fully undertaking system development is highly profitable, but the number of orders fluctuates, causing development risk. In the system operation and management business, Minori Solutions operates and manages systems (by stationing workers at clients' data centers to operate and manage the systems of end users, stationing workers at the facilities of end users to operate and manage them, and conducting operation and management via networks), operates call centers (help desks), and more. As for the business of selling system devices, the number of cases in which devices are delivered through development is decreasing, and enterprises are adopting cloud computing, which leads to decline in sales. However, the contribution of sale of devices has been insignificant from the beginning, so its effect on profit is minor. Sales for each business field of end users As for the sales for each field of end users, finance, in which resident services are dominant, accounts for 35.3%, and manufacturing with transactions with wide categories of companies makes up 19.4%. Public services/energy field is 10.0%. The sales in other fields, including information, transportation, communications, and distribution/service, account for 7 to 10%, respectively. Although finance has a high ratio, the business fields of end users excluding it are equally diverse. End users are excellent enterprises and with their performance, they are expected to maintain a certain level of investment, despite some fluctuation. Their business fields are also diverse. Therefore, the amounts of orders and sales are stable. The sales of manufacturing include the sales of computer aided engineering (CAE) solutions, which are unique among system integrators (SI). In the case of new car development, for example, a CAE solution is to render a new car (not only its appearance, but also its internal structure) with a 3D system on PC based on the data of the new car under development (including design and materials), and conduct all kinds of simulation necessary for development, including strength, endurance, vibration, collision, and hydrodynamic and aerodynamic tests. The simulation data are analyzed to determine if the new car fulfills the design requirements, and the analysis results are summarized in reports including countermeasures, as needed, and the reports are submitted to automobile manufacturers. By utilizing these reports, the automobile manufacturers can reduce the number of prototype cars and demonstration tests, resulting in shortened development period and lower development costs. The main clients are domestic automobile manufacturers. In the domestic market, most products are produced in-house, and so competitors are few. Users are increasing in the fields of aircrafts, power generation equipment, artificial satellites, smartphones, etc. 【Strengths and characteristics - stable revenue base, excellent financial standing, and achievements of unique CAE solutions】 End users are distributed in a good balance among the fields of manufacturing, information, distribution, services, transportation, public services, energy, communications, and especially finance, and Minori Solutions offers comprehensive services, including development, operation, and management, in most cases. Accordingly, its revenue base is stable. All of the end users are leading or top-class companies in each field, and most of them have been using the service of Minori Solutions for many years. Therefore, its financial standing is so excellent that equity ratio is 67.4% (results for the term ended Mar. 2018. Same below), current ratio is 338.5%, and rate of return on invested capital is 14.2%. In addition, the company possesses unique characteristics, including the experience of CAE solutions for structural and hydrodynamic analyses, and the business footholds in Sendai, Matsumoto, Nagoya, and Fukuoka, as well as the headquarters in Tokyo and Osaka Branch earning profits while contributing to local economies.
 
 
Fiscal Year March 2018 Earnings Results
Sales and operating income grew 5.7% and 13.2%, respectively, year on year. Sales rose 5.7% year on year to 16,428 million yen. The sales of the business of system operation and management, for which the company accepted orders selectively while putting importance on profit, were 3,533 million yen, nearly equal to those for the previous term. The sales of software development increased 6.4% year on year, as the domain of public services and energy for power companies and the communications domain, which saw the increase of development projects for leading carriers, contributed. The sales of system devices increased due to the replacement of servers in the fields of financial services and information. The company started supporting the installation of cloud applications and released RPA (Robotic Process Automation) "MinoRobo," an original product. As for profit, gross profit rate increased 0.5 points to 16.4%, as the projects for software development progressed smoothly after the enhancement of project management and the profitability of system operation and management improved (profit rate: 9.7% → 10.9%) thanks to the shift to more profitable transactions (from SI (system integrator) ones to end user ones). On the other hand, the augmentation of SGA, mainly personnel cost, was insignificant, and so operating income increased 13.2% to 1,515 million yen, marking a record high for the 2nd consecutive term. The growth rate of net income was as low as 8.3%, because extraordinary income was not posted (gain on sale of investment securities amounting to 52 million yen was posted in the previous term). On Apr. 17, the earnings forecast was revised upwardly, and the results were in line with the revised estimates as a whole. The reason for the upward revision to estimated sales were the growth of the domains of public services, energy, and communications due to the favorable number of orders received, and the reasons for the upward revision to estimated profits were the increase in productivity through project management and the shift to more profitable transactions. The term-end dividend is 20 yen/share, up 1 yen/share (the annual dividend, including the interim one, is 36 yen/share, up 3 yen/share; payout ratio: 30.3%). The company's policies for return of profit are to pay dividends stably and sustainably and secure a payout ratio of 30% or higher. To do so, the company pays dividends twice a year, that is, at the end of the first half of each term and at the end of each term. Sales dropped in the fields of finance and information, but sales grew in all the other fields-for example, the sales in the field of public services and energy increased 59.0% year on year. The domain of finance saw a 2.4% decrease in sales, as globalization projects, etc. increased, but could not cover the effects of the termination of large-scale projects of megabanks. In the information field, sales declined 0.9% year on year, as the tasks for supporting the maintenance of systems related to personnel affairs decreased as part of selective receipt of orders. On the other hand, in the field of public services and energy, sales rose 59.0% year on year, as the sales to power companies grew considerably due to the separation of power generation and distribution systems (in accordance with law) while the industry itself was healthy. In the field of communications, sales rose 12.4% year on year, thanks to the development of in-company systems for companies that use information and communications services and the development of infrastructure for leading carriers. In the fields of distribution, services, etc., sales increased 10.3% year on year, mainly thanks to the development of mission-critical systems for EC-related enterprises. In addition, sales rose 4.0% year on year in the manufacturing field, where the clients in the Kansai region increased orders for software development and system operation. The sales in the transportation field grew 1.6% year on year, as the transactions for renewing mission-critical systems for distribution and railways increased. Term-end total assets increased 1,625 million yen from the end of the previous term to 10,944 million yen. While cash & deposits and net assets increased, accounts receivable and accounts payable augmented, because its business was diversified and the end of the term fell on a holiday of financial institutions. Capital-to-asset ratio was 67.4% (70.5% at the end of the previous term), current ratio was 338.5% (393.7% at the end of the previous term), and rate of return on invested capital was 14.2% (14.2% at the end of the previous term).
 
 
Progress of Mid-Term Management Plan (Term Ending March 2018 ? Term Ending March 2021)
With its management goal of thoroughly pursuing the "Minori (harvest)" of three stakeholders, including the clients, shareholders, and employees, the company has drawn up the following four basic strategies for attaining the management goal: "business administration with added value," "improvement of the Minori brand," "Attractive company with a comfortable working environment (healthy management and work-style reform)," and "simple & speedy (management with swift decision-making)." Management goals ・ A company that contributes to growth of clients ・ A company that satisfies the expectations from shareholders through sustainable growth ・ A company that takes pride in itself and creates its own future Basic strategies ・ Business administration with high added value ・ Improvement of the Minori brand ・ Attractive company with a comfortable working environment (healthy management and work-style reform) ・ Simple & speedy (management with swift decision making) Priority policies Regarding the strategy of business administration with added value, the company will break new ground and boost the market value of its existing businesses using its strengths, with the aim of making a shift from the labor-intensive management to the high value-added one. It strives to achieve sales of 20 billion yen and an operating income of 2 billion yen as a goal for the term ending March 2021 and raise operating income ratio, which is currently around 8%, to 10%. The following four items have been adopted as priority policies: creation of high value-added businesses using new technology, such as "cloud computing," "IoT," "big data analysis," "AI," and "Fin Tech," provision of a comprehensive solution service through Business Process Outsourcing (BPO) and Application Management Outsourcing (AMO), expansion of the amount of transactions with end users in both the existing businesses and new ones, and commercialization of new businesses by promoting intra-venture businesses. In order to improve the Minori brand, the company will work on expanding its presence in the industry and enhancing its corporate brand, as an Information and Communication Technology (ICT) partner which contributes to growth of customers' businesses and development of the society. To be known for "Minori, stepping together with clients," the following three items have been adopted as priority policies: enhancement of technological capabilities, quality, organizational power, and thorough risk management (as a company which is well aware of the importance of compliance), promotion of businesses in highly-public fields or ones that lead to contributions to local community as Minori in the society (as a company which displays a positive attitude toward welfare business), and promotion of commercialization of services, tools, and packages developed originally by Minori Solutions (in order to promote the corporate image of "+ONE"). Aiming to become an attractive company with a comfortable working environment (healthy management and work-style reform), the company will endeavor to make an enterprise in which each employee can have a picture of their futures and work healthily with a sense of security, and to develop an organization, in which growth of each employee results in growth of the company, through diversification of human resources and work styles. The following three items have been adopted as priority policies: healthy management, diversity management (by augmenting the number of women in administrative posts and promoting globalization), and a company where employees thrive through diverse work styles (work-style reform). With regard to the strategy of simple & speedy (management with swift decision-making), the company will connect the employees and the manager together more closely so that behavior of each employee contributes to development of the company, because it believes that simplification of every business and task will result in time-saving. The following three items have been adopted as priority policies: swift (speedy) decision-making (a self-reliant and strengthened organization), self-reliant behavior by each employee (establishment of working groups), and a simple relationship between the employees and the manager (promotion of the "award system"). Progress For actualizing business administration with high added value, the company formed an R&D team for the purpose of researching next-generation business, and strived to strengthen the engineering domain (offering CAE solutions in new ways). The development projects utilizing the cloud services of SAP: "SAP&reg: Cloud Platform" and "SAP&reg: Business ByDesign" progressed healthily, and the company released its original products, including RPA "MinoRobo" and AI help desk support services. The company's efforts to "develop a comfortable working environment" were highly evaluated, and received three stars in the survey on "Smart Work Management" by Nihon Keizai Shimbun Inc. The themes of the newly established R&D team are "an interface utilizing smart devices" and "content matching through the extraction of characteristic words and machine learning." Based on this outcome, the company will contribute to local communities with social business (related to disaster information) and offer business streamlining solutions. For offering CAE solutions in new ways, the company will offer consulting services in cooperation with CAE software vendors, utilizing the strengths of the two companies in the fields of manufacturing and engineering CAE, next-generation optimization, electromagnetic field analysis, etc. in addition to structural analysis and fluid analysis, which have been major services of the company since before. As for cloud services, the company delivered "SAP&reg: Business ByDesign" to Toei Kogyo. Then, Toei Kogyo became able to visualize management information based on the cloud, and outsource the operation of mission-critical systems rather than having such systems by itself. The company was able to meet their request for early installation. RPA "MinoRobo" is mounted with a user-friendly UI as a solution under the concept of "RPA" for everyday use, so that even a layperson can produce a scenario easily. Just by setting a worker's PC operation as a "scenario," it is possible to automatically process a great deal of routine work in a short period of time. This will save manpower by automating a lot of manual tasks, which costed considerable time, and so it will improve work efficiency significantly. A scenario can be produced without the knowledge of programming, and so workers in charge can configure settings freely according to their tasks. Topics from the second half of the term ended Mar. 2018
Oct. 2017 Announced a new service utilizing AI and RPA.
Nov. Showcased products at "AI/business automation exhibition" hosted by JapanITWeek at Makuhari Messe in the autumn of 2017.
Dec. Received three stars: ★★★ in Nikkei's survey "Smart Work Management" in 2017.
Jan. 2018 Installed a system utilizing the cloud (SAP Business ByDesign) in Toei Kogyo. Started the hands-on seminar for RPA "MinoRobo" in Tokyo and Osaka.
Feb. Showcased products at "AI/business automation exhibition" hosted by JapanITWeek in the Kansai region in 2018.
Mar. Received SAP AWARD OF EXCELLENCE 2018 for the second consecutive year. Recognized as a "silver healthy excellent enterprise" by Health Section of Health Insurance Society.
Apr. Released a new version of RPA "MinoRobo" (compatible with Google Chrome control).
May Showcased products at "AI/business automation exhibition" hosted by JapanITWeek at Tokyo Big Sight in the spring of 2018.
 
 
Fiscal Year March 2019 Earnings Estimates
Sales and operating income are estimated to grow 2.3% and 2.0%, respectively, year on year. Sales are projected to increase 2.3% year on year to 16.8 billion yen. Sales are expected to grow mainly in the field of public services and energy, where sales of products for power companies will rise thanks to the projects for separating power generation and distribution sections, the field of transportation, where the renewal of mission-critical systems for major users will contribute, and the field of distribution and services, where the redevelopment of mission-critical systems for users will progress. Operating income is forecasted to be 1,545 million yen, up 2.0% year on year, while taking into account the augmentation of SGA due to the increase of employees, mainly new graduates (56 graduates will join the company in April), in addition to the increase in marketing cost for supporting the installation of cloud applications and the expansion of sale of the original product RPA "MinoRobo." As for dividends, it is estimated that the interim, term-end, and annual dividends will be 18 yen/share, 18 yen/share, and 36 yen/share, respectively (estimated payout ratio: 30.1%). (2) Efforts in each segment Software development The company will "strengthen the capability of receiving orders," "improve quality," and "enhance profitability by increasing all-in contracts." For "strengthening the capability of receiving orders," the company separated marketing activities, which had been conducted by individual business divisions, from the business divisions and then integrate them in the newly established marketing department. The company will enhance the abilities to give proposals and deal with transactions by unifying marketing information and pursuing the synergy among business divisions. In addition, it will strive to increase a broad range of customers, by utilizing its brand products related to AI and RPA. For "improving quality," the company aims to develop a timelier checking system and realize quality management, by fortifying the project management office (PMO) system. For "enhancing profitability by increasing all-in contracts," the company will raise the ratio of all-in contracts and improve profitability by enhancing project management. Operation and management of systems The company will propose comprehensive outsourcing, for receiving orders for maintenance and operation tasks for developed systems, and so on. It will also enhance proposal-based sales activities to support business operation utilizing AI with its help desk, etc. Sale of system devices The company is promoting its original product RPA "MinoRobo." It will keep selling devices for system development and infrastructure construction, according to the requests from clients.
 
 
Interview with President Morishita
We visited their headquarters in Shinjuku, Tokyo, and interviewed President Morishita about the summary of the results for the term ended Mar. 2018 and the outlook for the term ending Mar. 2019. 【Summary of the results for the term ended Mar. 2018】 For the term ended Mar. 2018, both sales and profit exceeded the respective initial estimates, marking a record high. President Morishita: The start was not good, and some projects were in the red in the first half, but from the second half, we received the favorable amount of orders from mainly electric power-related companies in local areas, such as Fukuoka and Sendai. In Fukuoka, we plan to enlarge our office. In Sendai, the projects for maintaining systems of carriers contributed. The performance of local transactions is difficult to predict because of cut-off error, budget spending earlier than planned, etc., but the transactions in the electric power field last long, and so we can expect good results from the term ending Mar. 2019. Our business in the Kansai region, too, was healthy. Our company has strengths in the manufacturing field, attracting leading and local manufacturers, etc., and there are no significant concerns over the term ending Mar. 2019. In Nagoya, our business scale is small, but profit rate is improving. We are struggling in the Tokyo metropolitan area. Is your performance in the Tokyo metropolitan area affected by megabanks, etc.? President Morishita: Our company was founded through the merger between JSC Co., Ltd., which exceled at developing and operating systems with stationing workers in client companies for financial institutions, such as banks and credit card companies, and E-wave Co., Ltd., which engaged in system development based on all-in contracts in a broad range of fields, including manufacturing, transportation, and distribution, in April 2010. In the Kansai region, we had clients in various fields evenly, and so we were able to realize the mutual complement between clients and resources after the merger. In the Tokyo metropolitan area, it took time to fuse the financial domain, which was overwhelming in the volume of transactions, and other businesses, and it was difficult to bring out synergy. Is that the reason why you reformed your organization in April 2018? President Morishita: We positioned the solution sections, which had managed business divisions, under Eastern Japan Business Group and Western Japan Business Group. Under Eastern Japan Business Group, we established the solution 1 section, which manages the financial innovation division, the business solutions division, the web solutions division, the Sendai development division, and the Matsumoto development division, the solution 2 section, which manages the IT service division, the core solutions division, the financial solution 1 division, and the financial solution 2 division, and the sales & marketing section, which carries out cross-sectoral sales activities, along with the above mentioned divisions. Previously, individual divisions submitted proposals, but they were incorporated into the marketing section. From now on, we hope to increase orders by taking full advantage of managerial resources of the two groups and 9 business divisions and producing synergetic effects. The fusion of organizations has been discussed since before, but this is challenging, because two companies, which have different ways of thinking and specialties, merged. We also recruited new personnel through this restructuring. We hope to increase the number of orders and sales. 【Outlook for the term ending Mar. 2019】 It seems that your earnings forecast for the term ending Mar. 2019 is conservative. Do you have some concerns? President Morishita: The backlog of orders at the beginning of the term was larger than that in the term ended Mar. 2018, but the largest problem is the shortage of personnel, including partners. In the term ending Mar. 2019, we strive to secure personnel, create services, and break out of labor-based business. The transactions for "SAP&reg: ByDesign," which begins to show good results, are estimated to increase in the fields of distribution, etc. and RPA is expected to perform well in reeling in clients. On the other hand, the performance of banks is projected to remain sluggish. We plan to cover it by enhancing marketing targeted at life insurance and non-life insurance companies, but finance is a risk factor in the term ending Mar. 2019. Not only the backlog of orders, but also the number of inquiries are larger than those in the previous term, because of RPA, etc., but our resources are insufficient. Accordingly, we will conduct upfront investment and procurement for developing services, rather than posting the improvement of business performance. It is important to see how much we will be able to attract and increase end users. It seems that RPA "MinoRobo" is highly evaluated. President Morishita: The other day, a private news TV program focused on work-style reform featured MinoRobo. Under the concept: "RPA for everyday use," we installed a user-friendly UI and made it possible for laypeople to produce a scenario easily, and these features are highly evaluated. As another characteristic, it is easy to install, and it is highly evaluated. We do not charge installation fees or the like, but charge only a license fee, including maintenance charges. This is "desk-top type," that is, you can install it easily with a single PC. Since this product is easy to recommend, not a few companies in the same industry show an interest in this product. We heard that "SAP&reg: ByDesign," too, is bearing fruit. President Morishita: "SAP&reg: ByDesign" is an SaaS-type cloud service offered via the HANA cloud platform of SAP SE to small and medium-sized enterprises, and our company is a business partner of SAP Japan Co., Ltd. SAP Japan receives a lot of inquiries about the installation of cloud services. Introduced by SAP Japan, our company and other business partners offer consulting services and develop systems for cloud services. The number of such business partners is 5, including us. After the installation of "SAP&reg: ByDesign," we plan to meet the demand for new systems.
 
 
Conclusions
The earnings forecast for the term ending Mar. 2019 is conservative, but there are many favorable factors, including the CAE solution based on the collaboration with SCSK, RPA "MinoRobo," which is highly evaluated because it is easy to install and use, and the support for the installation of "SAP&reg: ByDesign," which is conducted by only four companies in addition to Minori Solutions. All of them will increase its client assets, and form the foundation for medium/long-term growth, although their contribution to short-term earnings is not significant. In addition, it seems that its business in the Tokyo metropolitan area, where the effects of the merger are still to be exerted, has significant growth potential. We should not demand immediate results, but we would like to expect the outcomes of their efforts to reform their organization and solve problems. We would like to pay attention to the above three businesses and how they will explain the progress of their business at the session for briefing results for the first half in November.
 
 
<Reference: Regarding corporate governance>
◎ Corporate Governance Report (Updated on June 26, 2018) Basic Policy The company considers that the basic policy for corporate governance is to secure the transparency, swiftness, and fairness of business administration and execution, clarify responsibilities, enlarge business scale, and comply with laws and regulations thoroughly, in order to improve and maximize its corporate value.
 
Disclaimer
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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