BRIDGE REPORT
(9616)

東証1部

Kyoritsu Maintenance Co., Ltd. (9616)
Chairman Haruhisa Ishizuka
Chairman
Haruhisa Ishizuka
President Mitsutaka Sato
President
Mitsutaka Sato
 
Corporate Profile
Company
Kyoritsu Maintenance Co., Ltd.
Code No.
9616
Exchange
TSE 1st Section
Chairman
Haruhisa Ishizuka
President
Mitsutaka Sato
HQ Address
2-18-8 Soto Kanda, Chiyoda-ku, Tokyo
Year-end
March
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥6,840 19,352,120 shares ¥132.369 billion 11.4% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥52.00 0.8% ¥356.71 19.2x ¥3,174.81 2.2x
*Share price as of closing on December 5, 2016. Number of shares outstanding as of most recent quarter end excluding treasury shares.
 
Consolidated Earnings Trends
Fiscal Year Sales Operating
Income
Ordinary
Income
Net Income EPS(¥) Dividend(¥)
March 2010 84,513 4,033 3,012 1,254 87.33 38.00
March 2011 84,983 4,610 3,308 1,052 73.29 38.00
March 2012 91,170 6,017 4,602 2,376 166.35 38.00
March 2013 99,472 6,521 5,599 3,206 227.21 43.00
March 2014 105,216 7,490 6,796 3,829 241.86 48.00
March 2015 110,212 8,217 7,663 4,387 272.29 50.00
March 2016 135,053 10,244 9,775 5,970 314.56 52.00
March 2017 Est. 138,000 11,500 11,000 6,900 356.71 52.00
* Estimates are those of the Company. A 1.2 for 1 stock split was conducted on April 1, 2015.
This Bridge Report provides information about Kyoritsu Maintenance Co., Ltd. including a review of it's the first half of fiscal year March 2017 earnings results.
 
Key Points
 
 
Company Overview
 
Kyoritsu Maintenance bases its management policy upon the concept of "contributing to a broad based development of society through the provision of healthy food and comfortable living services in various stages of people's lives." In its dormitory business, Kyoritsu seeks to provide modern versions of the "traditional Japanese boarding house" (Geshukuya - Traditional Japanese dormitories that also provide food services). Its hotel business segment can be divided into the business hotel operations, where "large hot spring type bathing facilities" and "good tasting breakfast menus" developed in its dormitory business are provided, and resort hotel operations, where "reasonable and high quality resort lifestyles" are provided. Kyoritsu also provides various services including building maintenance for both residential and office buildings, building rental and leasing services, parking lot operations management and other services in its contracted services business segment. In its food service business, restaurant operations and outsourced food facility management services are provided. Furthermore, Kyoritsu is using its overwhelmingly strong brand recognition to maintain its position as the leader within the dormitory business, and to accelerate growth in its hotel business.
The composition of consolidated fiscal year March 2016 sales by business segment are provided below.
 
 
<Corporate History>
Kyoritsu Maintenance was established in September 1979. The founder, Haruhisa Ishizuka, has long been associated with the food service industry and started the Company by taking on the operations of corporate cafeteria facilities on a consigned basis. In the following year of 1980 in Sakura City, Chiba Prefecture, the Company established a two story wooden structure with 28 small four Japanese straw mat rooms as its first dormitory facility. Based on the principle of providing "food" that "fosters the health and well being of students to put their parents' minds at ease," Kyoritsu was able to steadily expand its student dormitory business through partnerships with various schools. The Company steadily expanded its operating territory to cover the Tokyo, Kanagawa, Nagoya and Osaka regions. In April 1985, Kyoritsu began offering corporate dormitories to employees that offered highly unique features of "individual rooms with commissary functions providing breakfast and dinner," and "large bathing facilities" as comforting amenities for residents. In May 1987, the Company expanded the business field to food business by utilizing its boarding know-how developed through outsourced business in student dormitory, corporate dormitory, cafeteria and so on. In June 1993, Kyoritsu moved its headquarters to its current location and in July of the same year it entered the resort hotel division with the opening of a facility in Nagano Prefecture, followed by their entry to the business hotel realm in August with the opening of a facility in Saitama Prefecture. In September 1994, the Company listed its shares on the JASDAQ Market (At the time called the OTC Market), in March 1999 it moved its listing to the Second Section of the Tokyo Stock Exchange, and then to the First Section in September 2001.
 
 
New Medium Term Business Plan "Kyoritsu Full Accelerator Plan" :
3 Years From Fiscal Year March 2016 to 2018
 
Kyoritsu Maintenance created a new Medium Term Business Plan entitled "Kyoritsu Full Accelerator Plan" in May 2015.
 
Business Environment
Unprecedented levels of easy monetary policy lead to low interest rates, weaker yen
Construction costs remain at high levels
 
"Japan Revitalization Strategy" 2014 Revised
Leverage tourism assets, promote inbound visitors
University reforms, globalization
Gradual reductions in corporate tax
Establish corporate governance code
 
Future Events
Consumption tax to be raised from 8% to 10% in October 2019 (Originally anticipated in April 2017)
Tokyo Olympics, Paralympics to be held in 2020
 
The targets defined within the "Kyoritsu Full Accelerator Plan" for fiscal year March 2018 are listed below.
 
Basic Policies
1. Concentrated and aggressive development investments will be made with the goal of satisfying customer needs
2. Strengthen profitability by achieving an appropriate balance between value and pricing
 
The number of rooms under development in the dormitory and Domeal, Dormy Inn, resort hotel divisions is 4,930, 2,794 and 641 respectively.
 
 
Business Hotel, Resort Hotel Business Development Plans
 
 
The average prices per room of the Dormy Inn and resort hotels rose by 5.3% and 6.1% respectively over the past three years (FY3/13 to FY3/15) in the hotel business, and are expected to grow by 2.7% and 2.3% according to its three year plan from fiscal year March 2016. Dormy Inn saw a large increase of 14.4%, and resort hotels 1.8% in fiscal year March 2016.
 
Develop Plans Progressing Ahead of Schedule, New Medium Term Business Plan from Next term
Development investments in fiscal year March 2016 and plans for fiscal year March 2017 call for ¥15.7 and ¥26.2 billion to be spent respectively, for a total of ¥41.9 billion over two years. Therefore, the target of ¥44.0 billion outlined in the Medium Term Business Plan is expected to be achieved during fiscal year March 2017. In addition, investment of ¥11.0 billion has already been decided for fiscal year March 2018 and actual investments are now likely to surpass the target of the Medium Business Plan by a large margin. At the same time, the target for ordinary income is expected to be achieved one year earlier than expected.

Based upon these developments, Kyoritsu Maintenance is expected to create a new Medium Term Business Plan sometime in fiscal year March 2018.
 
 
 
First Half of Fiscal Year March 2017 Earnings Results
 
 
Sales, Ordinary Income Rise 2.4%, 19.0% Year-On-Year
Sales rose by 2.4% year-on-year to ¥68.477 billion on the back of a 1.0% point year-on-year rise in dormitory occupancy rates at the start of the term to 98.3%. In the hotel business, Dormy Inns and resort hotels trended strongly with high room pricing on the back of strong demand from inbound overseas visitors and Japanese travelers. In the other business segment, the construction division saw a large increase in sales. Consequently, gross income margin rose by a strong margin of 2.1% points and allowed operating income margin to rise by 1.3% points despite a 0.8% point rise in sales, general and administrative expense to sales margin. As a result of these developments, operating, ordinary and parent net incomes rose by 16.6%, 19.0% and 12.3% year-on-year to ¥7.173, ¥6.861 and ¥4.268 billion respectively.
 
 
Operating income margin rose by 1.3% year-on-year to 10.5%. In addition to the main dormitory business which has grown stably since the Company's founding, profit margins in the high growth hotel business are also rising. Large improvements were also seen in the other business segment.
 
Dormitory Business
Sales and operating income rose by 3.2% and 19.4% year-on-year to ¥22.555 and ¥3.546 billion respectively. Occupancy rates got off to a good start at the beginning of the term and rose by 1.0% point to 98.3%. The number of resident contracts rose by 1,021 to 33,708 as of end September. Efforts to capture inbound demand from overseas students allowed the student dormitory business to trend favorably. In addition, an increase in new graduate hires and a rise in the introduction of dormitories by corporations contributed to strength in the corporate dormitory division and a large increase in the number of resident contracts. Moreover, the influence of the Kumamoto earthquake was limited.

With regard to profits, Kyoritsu's implementation of strict cost controls on a dormitory by dormitory basis allowed profit margins to improve by 2.1% point and profits to grow by a large margin.
 
 
Hotel Business
Sales and operating income rose by 12.6% and 14.9% year-on-year to ¥30.074 and ¥4.624 billion respectively. Increases in repeat Japanese visitor usage and a rise in demand from inbound overseas visitors allowed occupancy rates and room pricing of both the Dormy Inn and resort hotel divisions to trend at high levels.

Efforts to improve the quality of service by conducting sustained staff hiring and implementing training for the entire hotel business staff were implemented. At the same time, measures to strengthen the branding of various services, implement revenue management methods, and create an inbound sales team in the Dormy Inn division, combined with efforts to collaborate with influential real estate agents in the resort hotel division were effective in raising the RevPAR (Room pricing x Occupancy rates) of both divisions.
 
 
Dormy Inn (Business Hotel) Division
During the first half, four new facilities were opened including "Natural Springs Tento No Yu Dormy Inn Abashiri", "Global Cabin Gotanda", "Natural Springs Toyama Tsurugi No Yu Onyado Nono", and "Natural Springs Zenko No Yu Dormy Inn Nagano". Existing facilities benefited from strong demand from repeat Japanese travelers and inbound overseas visitors. Occupancy rates at domestic facilities rose by 1.0% point from the previous term to 89.7%, and room pricing rose by ¥400 to ¥10,600. These developments contributed to a ¥338 million increase in profits and offset the negative influence of the Kumamoto earthquake disaster and burden of new facility opening expenses which depressed profits by ¥156 and ¥66 million respectively. Occupancy rates at overseas facilities rose by 11.9% points to 73.6% and room pricing rose by ¥2,200 to ¥13,400, for an increase in profits of ¥172 million.
 
 
Use by overseas visitors is steadily rising. The share of inbound visitors to total visitors rose by 1.8% point year-on-year during the first half to 17.9%, and the total number of accommodation guests rose by 13.9% year-on-year to 368,000. Kyoritsu Maintenance boasts of a wide distribution of inbound guests with visitors from Korea, Taiwan, Hong Kong, China and the United States accounted for 26%, 21%, 18%, 10% and 4% of inbound visitors respectively. In addition, the increase in inbound visitors contributed to increases in occupancy rates and a rise in the pricing of rooms used by inbound visitors of ¥800 to ¥13,300, which is higher than Japanese visitor use room pricing of ¥10,300.
 
 
Resort Hotel Division
The raising of the volcanic activity warning levels in May 2015 for the Hakone Mountain region contributed to difficult conditions, but the warning was lowered and occupancy rates at Kyoritsu's nearby resort hotel have recovered to normal levels. Occupancy rates have risen by 3.5% points to 87.2% and room pricing has increased by ¥800 to ¥41,2000. Increases in occupancy rates and room pricing at existing facilities contributed to a ¥262 million increase in profits, and absorbed opening costs and profits lost because of typhoons and inclement weather in August and September of ¥57 and ¥50 million respectively.
 
 
Other Business
Sales and operating income of the other business segment rose by10.7% and 64.1% year-on-year to ¥25.157 and ¥0.553 billion respectively. Operating margin rose by 0.7% year-on-year to 2.2%. The contracted services division saw declines in sales and operating income of 8.3% and 19.3% year-on-year to ¥6.467 and ¥0.151 billion respectively. Delays in construction projects are a major reason for the declines in both sales and profits. The food service division saw a 17.3% year-on-year increase in sales to ¥3.163 billion, but incurred an operating loss of¥26 million, compared with a loss in the previous first half of ¥17 million. An increase in hotel restaurant operation consignment work contributed to the higher sales, but difficult conditions in the spa services led to the loss. The construction division saw increases in sales and operating income of 39.2% and 185.7% year-on-year to ¥9.864 and ¥0.537 billion respectively.. Increases in orders for hotel development contributed to the higher sales and profits. In the other business segment (Including the senior citizen related services, PKP, and other services), sales fell by 3.9% year-on-year to ¥5.660 billion, and operating loss expanded from ¥21 million in the previous first half. to ¥108 million in the current first half.
 
 
Total assets declined by ¥4.005 billion from the end of the previous term to ¥157.397 billion at the end of the current first half due in part to a decline in cash and equivalents. Total liabilities declined by ¥7.469 to ¥95.958 billion primarily to declines in prepayments, and accounts and notes payables. Net assets rose by ¥3.464 to ¥61.439 billion due to an increase in retained earnings. Capital adequacy ratio rose by 3.1% points to 39.0%. Moreover, capital investments for development of new facilities caused cash and equivalents to decline and contributed to an increase in net interest bearing liabilities from ¥41.3 to ¥52.3 billion. However, debt to equity ratio, which is a key management benchmark, fell below the target of 1.5 times to 0.9 times, a reflection of the healthy financial standing of Kyoritsu Maintenance.
 
 
Cash, Equivalents at the end of the current first half decreased by ¥11,545 million from the end of the previous term to ¥14,057 million. Operating cash flow totaled ¥3,368 million yen, an increase of ¥4,831 million yen from the same period of the previous fiscal year due to a decrease in trades receivable and inventories. The net outflow of investing cash flow expanded by ¥9.279 to ¥14.024 billion due to payments for tangible assets acquisition, deposits and security deposits. The net outflow of free cash flow expanded by ¥4.449 to ¥10.656 billion. Repayment of long term loans caused financing cash flow to turn from a net inflow seen in the previous term of ¥4.240 billion to a net outflow of ¥780 million.
 
 
Fiscal Year March 2017 Earnings Estimates
 
 
Estimates Call for Sales, Ordinary Income to Rise 2.2%, 12.5% Year-On-Year
Kyoritsu Maintenance's earnings estimates remain unchanged and call for sales and ordinary income to rise by 2.2% and 12.5% year-on-year to ¥138.0 and ¥11.0 billion respectively in the full fiscal year March 2017. The dormitory business got off to a good start to the year with occupancy rates rising by 1.0% point to 98.3%. The hotel business saw strong occupancy rates and room pricing of 92.0% and ¥10,700 respectively, with resort hotels also seeing favorable occupancy rates and room pricing of 91.0% and ¥39,800 respectively. A full year dividend of ¥52 per share (¥26 dividend paid at end of first half) is anticipated.
 
 
Conclusions
 
Steady achievements in earnings growth are being realized. And while inbound overseas visitor demand is rumored to be close to peaking out, this outlook only refers to the visitors from China with high spending power and the total number of overall inbound overseas visitors continues to grow and act as a driver of Kyoritsu's earnings growth. Even should overseas visitor demand peak out, the Company is confident that it can maintain high occupancy rates due to the strong latent demand from Japanese guests who could not get rooms because facilities have been fully booked.

Looking at the coming term, the dormitory business is expected to see a 0.2% point rise in occupancy rates to 98.5% at the start of the coming term. Furthermore, occupancy rates at facilities in the hotel business are expected to continue to trend at high levels, and newly opened hotel facilities in the current term will contribute to earnings on a full year basis from the coming term. Another positive factor is the weaker yen. Kyoritsu's implementation "Kyoritsu Full Accelerator Plan" based upon its steadfast and healthy financial structure are also positive, and close attention should be paid to the announcement of the next Medium Term Business Plan.
 
 
<Reference: Regarding Corporate Governance>
 
 
◎Corporate Governance Report
The company submitted the latest corporate governance report on July 27, 2016 after applying the Corporate Governance Code.
<Basic Policy>
Our company has, since inauguration, been following our management philosophy of "customers first" and striving for attaining our management policy of great contribution to society through provision of services for diverse life stages of people. In addition, we consider that it is essential to enrich our corporate governance system in order to achieve sustainable company development and long-term maximization of shareholder's interest and therefore take multitudinous measures, including acceleration of management decision-making, strengthening of the function of management supervision, enhanced and thorough accountability, expeditious and appropriate information disclosure, and the like. Our company has recognized that one of the most important business challenges is to secure transparency, soundness, etc.
Furthermore, our company as an organization in compliance with the Companies Act has set up general meetings of shareholders, directors, the board of directors, the audit and supervisory board, and accounting auditors. We have also established management information meetings, the compliance committee, and meetings to exchange management information on our corporate group.

<Implementation of each principle of the Corporate Governance Code>
The company implements every principle.
 
 
<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) 2017 All Rights Reserved by Investment Bridge Co., Ltd.
 
 
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