BRIDGE REPORT
(6191)

東証1部

Evolable Asia Corp. (6191)
President Hideki Yoshimura
President
Hideki Yoshimura
Corporate Profile
Company
Evolable Asia Corp.
Code No.
6191
Exchange
TSE 1st Section
Industry
Service industry
President
Hideki Yoshimura
Address
Atago Green Hills Mori Tower, 2-5-1 Atago, Minato-ku, Tokyo
Year-end
End of September
URL
Stock Information
Share Price Number of shares issued Total market cap ROE (Actual) Trading Unit
¥2,479 17,341,800 shares ¥42,990 million 11.3% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Actual) PBR (Actual)
10.00 0.4% ¥52.09 47.6 times ¥246.72 10.0 times
*The share price is the closing price on June 14. The number of shares issued, ROE and BPS were taken from the latest brief financial report.
 
Earnings Trends
Fiscal Year Net Sales Operating
Income
Ordinary
Income
Net
Income
EPS DPS
Sep. 2014 (Actual) 1,451 99 93 44 3.28 0.00
Sep. 2015 (Actual) 2,754 312 305 172 12.56 0.00
Sep. 2016 (Actual) 4,000 618 571 340 22.17 0.00
Sep. 2017 (Actual) 5,534 730 695 420 25.06 7.00
Sep. 2018 (Forecast) 7,050 1,500 - 881 52.09 10.00
*Forecast is based on the Company's estimate. The Company implemented a stock split at 1:300 in December 2015 and 1:3 in August 2016. EPS is calculated assuming that the share split was implemented at the beginning of the Fiscal Year ended September 2014. The Japanese accounting standards were used for FY 9/17. IFRS will be discretionally applied from this term. Net income is profit attributable to owners of parent. Hereinafter the same applies.

This report outlines Fiscal Year September 2017 earnings results and other information about Evolable Asia Corporation.
 
Key Points
 
 
 
Company Overview
Evolable Asia Corp. is Japan's largest Online Travel Agent (OTA*) in terms of its number of domestic airline tickets handled. It is the only OTA that has signed agreements with all of the domestic airline groups. The Company has four business segments. The online travel agency business segment provides online travel agency services, the largest part of which is online sales of domestic airline tickets. The inbound travel business segment responds to the rapidly increasing inbound tourist demand. The IT offshore development business segment conducts operations that are the largest among those operated by Japanese companies in Southeast Asia. The last one is the investment business. The Company aims at “achieving the trading volume of 100 billion yen and becoming the top in each business segment by 2019", using its unique strengths and characteristics. *OTA(Online Travel Agent):Travel agents that are specialized in providing travel commodities on the Internet. 【Corporate history】 In May 2007, CEO Yoshimura established Tabi Capital Co., Ltd. together with Chairman Oishi to provide online travel agency services. Since then, the Company has been expanding its product line-up through M&A and business transfers. In March 2012, the Company began IT offshore development business in Vietnam. Taking this opportunity, in order to clearly show the Company's direction towards the integrated IT business, it changed its name to the current name in October 2013. In March 2016, it was listed on the Mothers Section of the Tokyo Stock Exchange. One year later, in March 2017, it moved to the First Section of the Tokyo Stock Exchange. 【Corporate philosophy, etc.】 The Company's name "Evolable Asia" is derived from "Evolve", "Able" and "Asia". It means an ever evolving Asia. 【Market environment】 ◎Online travel commodities sales continue to grow. The number of airline companies providing domestic flights has increased due to the rapid growth of low-cost carriers (LCCs). This has resulted in an increase in OTA users due to growing demand for comparison searches. The trading volume of travel commodities by OTA in the Fiscal Year 2015 was 2.5 trillion yen with an annual growth rate of 26% since 2011. It is a rapidly growing industry. This rapid growth is mainly due to the domestic accommodation market. The trading volume of airline tickets is 230 billion yen, an annual double-digit growth rate of 14%. Following the domestic accommodation industry, the domestic flight ticket market is expected to grow significantly. ◎Rapid growth of foreign travelers visiting Japan The number of tourists visiting Japan in 2016 was 24.04 million, up 20% YoY. The government announced that the target of the number of inbound foreign visitors would be 40 million in 2020. ◎IT offshore development that has a large potential for growth The outsourcing software development market in Japan is about 10 trillion yen, and the annual growth rate is about 3%. Among them, the offshore development is only about 1% (about 100 billion yen). In the US, the rate is over 10%, indicating that the Japanese market can grow to the scale of 1 trillion yen (increase from current 1% to 10%). Actually, the order amount from Japan to Vietnam is increasing at an annual rate of 17.8%. 【Business contents】 The Company's main businesses are online travel agency business, inbound travel business, IT offshore development business, and investment business. (The reporting business segments are divided into online travel agency business segment, IT offshore development business segment, and investment business segment. The inbound travel business is included in the online travel agency business segment.) Each business segment is growing based on its unique strengths and characteristics. ◎Online Travel Agency Business The company sells travel commodities such as domestic airline tickets, domestic accommodations, overseas airline tickets, and overseas accommodations online. *IATA (International Air Transport Association): The IATA is a trade association of the world's airlines. The Company has various sales channels as follows: (Direct sales sites) (Strengths of business) The Company has the largest trading volume of domestic airline tickets in the Japanese OTA industry. The agreements with all domestic airline groups, a unique business condition enjoyed only by the Company, enable the Company to issue flight tickets. Advantageous procurement prices combined with self-issuing of tickets (no need to outsource) make its cost competitiveness overwhelmingly strong. In addition, the Company has "competitive supply routes" based on strong relationships of trust with each airline company resulting from long-term business relationships, "diverse sales routes", and "low-cost system development using its own offshore IT development capacity". Because of these factors, the Company has created high barriers to entry. ◎Inbound Travel Business The demand from the inbound foreign travelers is expected to grow. In order to respond to this demand, the Company offers multilingual websites (currently 7 languages) to sell travel commodities directly to inbound travelers online and provide search/reservation engine of domestic travel content (mainly domestic flight tickets) on an OEM basis to the local travel agencies and media operators primarily in the Asian region. In addition to starting Japanese first system collaboration in the domestic airline ticket field with Ctrip.com (the largest travel company in China), the company is promoting partnerships with other Chinese travel agencies. (Strengths of business) The Company's expertise in OEM provision and its proprietary offshore development allow them to meet customers' needs with inexpensive and speedy development. ◎IT offshore development business The Company hires about 600 skilled engineers in 3 locations (Ho Chi Minh, Hanoi, and Da Nang) in Vietnam as of March 2017. It offers system development of web services, applications, etc. and business process outsourcing (BPO). The customers are mostly web service providers such as DeNA Travel Co,. Ltd. and GREE, Inc. (Strengths of business) The Company has recruiting capabilities in Vietnam and expertise in starting development teams. Against the backdrop of a shortage of IT engineers and rising wages for engineers in Japan, since its establishment in 2012, the Company has grown to have the largest number of employees among the Japanese offshore development companies in Southeast Asia. The company does not offer entrusted development but is specialized in lab-style development services. The operation rate is almost 100% because the Company forms a team with dedicated staff members for each customer to reflect the customer's needs on a long-term (in principle, over a year) contract basis and the team operates under respective customer. In addition, customers are billed engineers' cost from the time of employment. Therefore, there is no risk for the Company in terms of delayed delivery or idle employees. Because of its stock business model, scale expansion and significant increase in earnings can be expected. ◎Investment business The investment business was established in FY 9/17 as a reporting segment. It is positioned as the fourth business having characteristics of CVC (corporate venture capital). The company will pursue a synergistic effect as well as opportunities for capital gains.
 
 
Second Quarter of Fiscal Year September 2018 Earnings Results
Substantial growth in both sales and profit Trading volume rose favorably by 66.9% year on year to 26,363 million yen. This lead sales to grow 38.4% year on year to 3,458 million yen, and operating income to grow 150.9% year on year to 808 million yen, both marking a record high. In the Japanese standard, operating income was recorded as a loss of 127 million yen, and the differences from the IFRS were +837 million yen for investment profit, +88 million yen for amortization of goodwill, etc. The profit generated through the investment business is allocated to the growth investment for its online travel business "AirTrip." (1) Online travel agency business Growth recorded in sales but profit declined. (Online travel agency business) *B to C services (operation of a website for directly selling travel commodities to general consumers by PC and smartphone) Users increased steadily, because the company enhanced the measures for reeling in new customers, such as mass marketing, strengthening of SEM, major upgrades to core systems, and improved UI for increasing repeat customers. Additionally, the company carried out strategic price setting and spent heavily on brand development expenses to improve the popularity of "AirTrip" and attracting new customers. *B to B to C services (business of offering travel contents by using the brands of business partners) Sales grew, because the company strengthened development of major business partners and increased communication with clients, for the purpose of offering services that meet the needs of major clients. Also, like in its BtoC services, the company carried out the marketing and tie-up measures, mainly to boost its customer base. *B to B services (business of wholesale to other travel agencies) As the number of domestic flights increased, the online travel agency industry that handles domestic airline tickets was active and sales trended favorably. *BTM services (business of managing the in-company procedures for approval for business trips and arranging business trips in an integrated manner) In the business model of the company, sales grow in parallel with the growth of the number of client companies and the rate of utilization. Accordingly, sales grew, because the company increased sales staff and promoted customers who had not used their services frequently to use them. (2) IT offshore development business Sales and profit grew substantially. An increase of engineers and a rise in the unit price due to efficiency improvements in development resulted in greater sales. (3) Investment business The company now invests in 32 companies. Due to an increase in "cash, etc." as well as "trade receivables, etc.," current assets grew 3.2 billion yen from the end of the previous term. Due to the increased goodwill, noncurrent assets also grew 1.5 billion yen over the same period. Total assets were 12.7 billion yen, up 4.8 billion yen. Due to the increased interest-bearing debts, total liabilities grew 3.7 billion yen to 8.1 billion yen from the end of the previous term. With both capital surplus and retained earnings having increased, capital grew 1.1 billion yen to 4.6 billion yen over the same period. As a result, equity ratio declined 5.9% from 39.4% at the end of the previous term to 33.5%. Due to an increase in trade investment securities, etc., operating CF turned negative. With an increase in purchase of investments in subsidiaries resulting in change in scope of consolidation, the negative gap in the investing CF widened. Free CF turned negative. Financing CF turned positive due to the increased income from the long-term debts. The cash position improved.
 
 
Fiscal Year September 2018 Earnings Estimates
No changes to the earnings forecast. Significant increase in sales and profit this term too. No changes to the forecast. The sales revenue is forecasted to be 7 billion yen, up 25.1% year on year. The trading volume is estimated to increase 74.4% to 70 billion yen. The use of internet by travelers is expected to increase even further, and the market will continue to expand. Increases in sales revenue will be relatively lower than those of trading volumes, due to a conservative approach towards the sales mix and pricing. Operating income is projected to increase 48.8% to 1.5 billion yen. Economies of scale will continue to grow, offsetting SG&A expenses and resulting in significantly higher profit. Operating income ratio is expected to rise 3.3% year on year. The dividend is to be 10 yen/share, an increase of 3 yen/share. The estimated payout ratio is 19.4%. The company plans to discretionally apply IFRS from this term, with the aim of expanding corporate value through "strengthening the foundation of group management to accelerate global development" and "improving the international comparability of financial statements on capital markets." Under IFRS, goodwill resulting from M&As is not subject to amortization (intangible assets such as client assets are subject to amortization), which means that the amortization expenses of goodwill will be lower compared to when using the Japanese accounting standards. It also becomes possible to evaluate investment business more effectively, because gains and losses on valuation are recorded based on the fair value of invested shares. Thus, the company concluded that IFRS is more appropriate for evaluating their business structure and development.
 
 
Topics
The company previously had set "a trading volume of 100 billion yen in 2019" as its target, but it changed the target trading volume to 200 billion yen, after acquiring "DeNA Travel" - the largest OTA in Japan for overseas air tickets and travels, trading approx. 70 billion yen - as explained below. The most recent topics are as follows: (1) Online Travel Agency Business ◎ Acquisition of "DeNA Travel," the largest OTA in Japan for overseas air tickets and travels, as a subsidiary In May 2018, the company purchased all shares of DeNA Travel from its parent company DeNA Co., Ltd. (2432, 1st section of TSE) for 1,200 million yen (rough estimate) and made it into a subsidiary. DeNA Travel: overview According to Evolable Asia, DeNA Travel's consolidated trading volume in FY March 2018 was approximately 70 billion yen, making it the largest OTA in Japan for overseas flights and travels. It has direct contracts with 37 international full-service carriers, while it has an API cooperation relationship with 15 international LCC carriers. It operates the comprehensive travel site "DeNA Travel," which has about 2.02 million members, and also has about 1,400 corporate members for its business trip services. In FY March 2019, it is expecting the trading volume of 73,500 million yen, 5,600 million yen in sales, and 500 million yen in EBITDA. Synergy effects The following synergy effects are expected after this acquisition: (1) Expansion of sales channels and the product lineup Evolable Asia, with its strength for domestic flights, and DeNA Travel, with its strength for overseas hotels, and domestic/overseas tours, can complement each other's products and become one comprehensive OTA offering even more advantageous range of products. The 520,000 AirTrip members and 2,020,000 DeNA travel members will create the membership of 2,540,000 across the group, and the corporate travel membership will grow from 1,273 of Evolable Asia and DeNA Travel 1,388 to a total of 2,661, which makes the profit growth from cross-selling to each other's customers a tangible prospect. Additionally, this M&A is expected to boost the total trading volume of Evolable Asia to 140 billion yen, making the company the second largest comprehensive OTA in the industry, and it is well within its right to think that the increased market share will enhance its brand strength. (2) Cost reduction The company is poised to enjoy the reduction of purchase costs from volume discounts, the reduction of development costs from more efficient and shared development, and the reduction of costs through complementary human resources, etc. Incidentally, the effect of this purchase on the business results of the current term is being examined at the moment. ◎ Growth of "AirTrip" The company regards "AirTrip" as a comprehensive travel platform, having already added domestic accommodations, overseas flights, private home accommodation on top of the domestic flights by the end of the previous term, it has further added the following services this term: "shinkansen (bullet trains)," "car rentals," "hotels," "high-end ryokans," and "activities." Also with the acquisition of DeNA Travel, the "domestic tours" and "overseas flights + hotels" services of DeNA Travel were added, expanding its menu. As the second phase of its multilingual development, the company newly opened the websites in Vietnamese, simplified Chinese, traditional Chinese and Korean. This increased the number of languages available for overseas flights booking from just two (Japanese & English) to six. The company is planning to further increase the number of languages available in order to seize the growing number of customers from the East and South East Asian regions, and strengthening its position globally. To enhance the recognition rate and to establish the brand of "AirTrip," the company employed a popular stand-up comedian in its TV ads aired in the Sapporo, Fukuoka and Okinawa areas as well as the mega-market, Kanto region: this had the desired effect to improve its brand popularity and the number of AirTrip members has started growing rapidly. ◎ Steady increase of BTM clients As of the end of Mar. 2018, the number of clients for the BTM business increased by 491 from the end of Mar. 2017 to 1,273. This will lead to stable growth of stock profit. (2) Inbound Travel Business ◎ Acquisition of "Destination Japan, inc," a Wi-Fi rental service provider for the visitors to Japan, as a subsidiary In April 2018, the company made "Destination Japan,inc" - a Wi-Fi rental service provider for the visitors to Japan - into a subsidiary. Destination Japan, inc: overview With its management motto "Make too many Japan-Lovers in the world," it operates "Japan Wireless," a Wi-Fi rental service for visitors to Japan. Established in 2013, it is the oldest Wi-Fi rental service provider for visitors to Japan, and it enjoys its strong brand based on the longtime trusts and word of mouth. The Wi-Fi rental service for visitors to Japan "Japan Wireless" boasts the following features and strengths. 1. Cheapest level in Japan 2. High customer satisfaction rate (Over 90%) 3. Accepts online orders and credit card payment 4. Receiving and returning anywhere in Japan 5. Customer services available in both Japanese and English (Pricing and customer satisfaction rates according to Destination Japan, inc, as of April 2018. Future developments Evolable Asia will apply the knowhow of marketing and operations accumulated through its online travel business, as well as its resources of engineers for its IT offshore development business, to the business of Destination Japan, inc in order to expand its business contents even further. In the general businesses for the foreign tourists visiting Japan, it aims to develop the services to capture the inbound demands by working on the Wi-Fi rental service even more rigorously, on top of the existing services such as camping cars, currency exchange and private home accommodation. ◎ Business tie-up with 6 companies to expand the "one-stop services" for Airbnb nationwide In June 2018, the company announced the business tie-up with 6 major companies from various regions of Japan to assist with the nationwide expansion of AirTrip Stay Services, a subsidiary of Evolable Asia and the first official Japanese partner of Airbnb as its one-stop service provider. Background The Residential Accommodation Business Act (aka "The New Vacation Rental Act") went into effect on June 15th, 2018. As numerous real estate owners and management businesses are considering entering the market, AirTrip Stay Services is offering "one-stop services" to them in cooperation with diverse companies in order to respond to their support needs such as "preparation" and "operation" necessary to set up the business. These so-called one-stop services include numerous support services that are needed to provide high-quality home-sharing services, and even include the services that have to be provided on-site, such as checking-in and cleaning. For this reason, the services were only offered in certain cities as a trial until recently. As the company is now looking to expand the services to wider areas, it has decided to enter into franchise agreements with the major companies from each region. Each of the tie-up companies will combine the elements from its own services and AirTrip Stay's one-stop services, which will enable them to create the most appropriate services suited to the residential accommodation businesses in each region. (3) IT Offshore Development Business ◎ Developing favorably, the group companies included The number of lab personnel currently stands at around 900. Since the beginning of the current term, there have been 9 new orders received, including one from NTT DoCoMo. The demands for Evolable Asia Solutions' upstream process engineers remain high, and the stable growth trend continues from the previous term. (4) Investment Business ◎ First listing In March 2018, Wagokoro Co., Ltd. (code no. 9271) was listed in the TSE Mothers, making it the first listed company in Evolable Asia's investment program. Under its management motto "Japanese culture to the world," Wagokoro mainly offers foreign visitors to Japan the products and services imbued with elements of Japanese traditions, culture and arts. Its main businesses include the sales of ornamental hairpins and Japanese traditional umbrellas, kimono fitting services, and rental kimono delivery services. ◎ Strengthening investment & development The company continues to strengthen its investment and development programs, and as of March 2018, it was investing a total of 1,400 million yen in 32 different companies.
 
 
Conclusions
The company continues active business operation so as to realize “Swift response, execution, and speed!!" specified in the code of conduct. Especially, the M&A of DeNA Travel will be meaningful in strengthening the company's position as a comprehensive OTA. We would like to see its progress toward its new target trading volume of 200 billion yen.
 
 
<Reference: Regarding Corporate Governance>
◎ Corporate Governance Report Last updated on Dec. 28, 2017. <Basic policy> Our company group considers the swift decision-making in response to the changes in the business environment, lasting business development, and gaining trust from stakeholders as the most significant business challenges. To improve the health, transparency and efficiency of the operations, all of us are striving to enhance the structure of corporate governance, thorough compliance, and timely and appropriate disclosure (of information).
 
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 provided 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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