BRIDGE REPORT
(9616)

東証1部

Kyoritsu Maintenance Co., Ltd. (9616)
Chairman Haruhisa Ishizuka
Chairman
Haruhisa Ishizuka
President Takumi Ueda
President
Takumi Ueda
 
Corporate Profile
Company
Kyoritsu Maintenance Co., Ltd.
Code No.
9616
Exchange
TSE 1st Section
Chairman
Haruhisa Ishizuka
President
Takumi Ueda
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
¥3,450 38,732,906 shares ¥133.629 billion 11.7% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥36.00 1.0% ¥206.54 16.7x ¥1,660.61 2.1x
*Share price as of closing on June 14, 2017. 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 135,828 11,815 11,514 7,135 368.70 62.00
March 2018 Est. 148,200 12,200 11,700 8,000 206.54 36.00
* Estimates are those of the Company. A 1.2 for 1 stock split was conducted on April 1, 2015. A2 for 1 stock split was conducted on April 1, 2017.
This Bridge Report provides information about Kyoritsu Maintenance Co., Ltd. including a review of its fiscal year March 2017 earnings.
 
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 services 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.
 
 
<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, the Company established a two story wooden structure with 28 small four Japanese straw mat rooms as its first dormitory facility in Sakura City, Chiba Prefecture. 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 June 1993, the Company moved its headquarters to its current location and in July of the same year it entered the resort hotel business 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, Kyoritsu 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 Jump Up Plan":
5 Years from Fiscal Year March 2018 to 2022
 
(1) Review of "Kyoritsu Full Accelerator Plan"
 
The policies listed below are part of Kyoritsu Maintenance's fundamental business strategy:
1. Concentrated and aggressive investments in development function responding to the needs of our customers
2. Strengthen earnings generating capability through optimizing a balance between pricing and value

Kyoritsu Maintenance has been able to achieve its operating and ordinary income targets one year ahead of schedule in fiscal year March 2017. Future factors in the operating environment that are viewed as positives include 1) large increases in inbound travelers from overseas, 2) the 2020 Tokyo Olympics, and 3) implementation of the "Super Global University System". At the same time, future factors viewed as negatives include 1) increase in construction costs, 2) shortage of labor, 3) exit of the United Kingdom from the EU and other uncertainties in the global arena, 4) entry to the dormitory and hotel business by traditional and new competitors.
In light of these factors, Kyoritsu Maintenance believes that creating a solid financial foundation is critical to beat its competition.
 
(2) "Kyoritsu Jump Up Plan" Overview
Name: "Kyoritsu Jump Up Plan"
Fundamental Strategy
I. Improving Customer Satisfaction
Kyoritsu seeks to increase its credibility amongst clients by creating products and services that lead to improvements in customer satisfaction.
II. Anticipatory Investments in Development
Kyoritsu endeavors to create a solid business foundation by expanding its business.
 
Period: April 2017 to March 2022

FY3/22 Quantitative Targets: Sales and Operating Income of ¥220.0 and ¥19.0 Billion (Average annual growth of 10%)
 
Kyoritsu Maintenance recognizes the importance if maintaining its goal of "keeping customers' needs first" in its efforts to quickly create a solid business foundation to beat its competition. Therefore, it maintains a fundamental strategy of conducting "anticipatory investments in development" as a means of increasing its credibility amongst its clients.
 
(3) Important Measures to Raise Customer Satisfaction
1. Strengthening Human Resources Training
Kyoritsu Maintenance will implement measures to secure human resources needed to ensure that the speed of its business expansion can be maintained. Along with aggressive hiring of new graduates, efforts will be made to secure a stable supply of highly skilled human resources that can respond accurately to the needs of our customers.
 
 
Stable Securing of Human Resources: Further Strengthen Hiring Capabilities, Promote High Rates of Retention
Fortify Training Programs: Maintain, Improve Service Levels, Fortify Training by Occupational Category
Leverage Diverse Range of Human Resources: Secure and Leverage Diverse Range of Human Resources that Respond to the Trend for Globalization
Improve Customer Satisfaction
 
2. Dormitory Business
Fortify Product Lineup, Strengthen Value Addition
 
 
3. Hotel Business
Improve the Company's website to strengthen its influence as a sales channel.
Introduce Special Brand Memberships on Website
Reduce sales channel costs including agent fees
Acquire repeat customers by raising brand loyalty
Expand fan, repeat customer base
 
Expand repeat customers through renewal of HOTESPA.net website.
Improve usability and member privileges of corporate website. Strengthen customer base by accumulating customer information to create a benevolent cycle that yields high repeat customer usage.
 
 
(4) Development Plan
Development Plan to Achieve Sustained Growth
 
 
 
(5) Quantitative Targets
"Anticipatory Development Type" Plan to Achieve Large Leaps and Bounds
"Anticipatory Development Period" from FY3/18 to FY3/19 to Achieve Accelerated Growth in FY3/20 to FY3/22
 
 
 
(6) Financial Strategy
A total of ¥140.0 billion is expected to be spent on developmental investments over five years. Of this total investment, ¥70.0 billion is expected to be derived from cash flow, ¥30.0 billion from off balance sheet items (Sale and leaseback), and ¥40.0 billion from external funding. Kyoritsu Maintenance expects to maintain its financial health by maintaining a debt to equity ratio of less than 1.0
 
(7) Dividend Payout Ratio Target
Kyoritsu Maintenance has continuously raised dividends from fiscal year March 2013 onwards, but its dividend payout ratio has remained in the 10% range. However, it maintains a target dividend payout ratio over 20% to be achieved by fiscal year March 2022.
 
 
Fiscal Year March 2017 Earnings Results
 
 
Sales, Ordinary Income Rise 0.6%, 17.8% Year-On-Year
Sales rose by 0.6% year-on-year to ¥135.828 billion. With the goal of realizing targets of the Medium Term Business Plan "Kyoritsu Full Accelerator Plan", development investments and efforts to strengthen earnings generating capabilities were implemented. Also, Kyoritsu Maintenance also conducted various investor relations activities, including setting up booths at exhibitions, and sponsored the "Tokyo Hakone Collegiate Road Relay Race", which is closely related to the Company's business, as part of its strategy of raising its brand recognition amongst in the public domain. The dormitory business continues to contribute to steady growth in profits. And while the opening of eight new facilities in the hotel business contributed to a rise in opening related expenses, strong demand from growth in inbound travelers from overseas allowed both occupancy rates and ADR to trend strongly. Consequently, gross income, and sales, general and administrative expense margins rose by 1.9% and 0.8% points year-on-year respectively, allowing operating income margin to rise by 1.1% point year-on-year. As a result, operating, ordinary and parent net incomes rose by 15.3%, 17.8%, and 19.5% year-on-year to ¥11.815, ¥11.514 and ¥7.135 billion respectively. These results enabled Kyoritsu Maintenance to achieve the profit targets of its "Kyoritsu Full Accelerator Plan" ahead of schedule.
 
 
Operating income margin rose by 1.1% point year-on-year to 8.7%, due in part to stable growth based upon the favorable trends in the dormitory business, which has been Kyoritsu Maintenance's main business since its founding. Profitability of the high growth hotel business also improved.
 
Dormitory Business
Sales and operating income rose by 2.8% and 10.2% year-on-year to ¥45.644 and ¥7.243 billion respectively. Occupancy rates got off to a good start at the beginning of fiscal year March 2017 by rising 1.0% point year-on-year to 98.3%. Also, strong trends in occupancy throughout the entire year, and normalization of costs allowed profits to grow by a large margin. Student dormitories benefitted from rises in both college advancement rates and inbound student numbers from overseas, and from cooperative agreements with seven new universities including the Tokyo University of Technology. At the same time, the number of contracted student residents declined by 154 to 20,420, and sales fell by 0.4% year-on-year to ¥25.280 billion due to the negative effect of declines in the number of students enrolled in college preparatory cram schools nationwide. Corporate dormitories benefitted from a tailwind of strong hiring activities and increases in introduction of dormitories by corporations, allowing the number of contracted residents to rise by a large margin of 835 year-on-year to 10.833, and sales to rise by 7.2% year-on-year to ¥12.108 billion. With regard to the "Domeal" studio type condominium dormitories, efforts to expand the number of affiliated schools and colleges, resident referrals and an ongoing switch from dormitories with commissary services allowed the number of contracted residents to rise by 304 year-on-year to 5,221, and sales to grow by 6.4% year-on-year to ¥4.430 billion. With regard to consigned dormitory services, where corporations and educational institutions outsource the management of their dormitories to Kyoritsu Maintenance, the Company was able to grow sales by 7.7% year-on-year to ¥3.824 billion through its efforts to differentiate its service by offering "the best traditional Japanese boarding house operations in Japan". Consequent to these developments, Kyoritsu Maintenance was able to grow the total number of facilities within its dormitory business by 10 to 465 (Excluding consigned management facilities), and the number of residents by 864 to 37,040.
 
 
Hotel Business
Sales and operating income rose by 13.1% and 15.4% year-on-year to ¥60.408 and ¥6.931 billion respectively. Continued growth in demand from Japanese travelling domestically and inbound travelers from overseas, and favorable repeat user demand allowed occupancy rates to trend above the previous year's level. Furthermore, ADR also rose and contributed largely to the growth in profits.

Factors influencing profits of the hotel business are outlined below.
 
 
Dormy Inn (Business Hotel) Business
During fiscal year March 2017, seven new facilities were opened including "Natural Hot Springs Tento No Yu Dormy Inn Abashiri", "Global Cabin Gotanda", "Natural Hot Springs Toyama Tsurugi No Yu Onyado Nono", and "Natural Hot Springs Zenko no Yu Dormy Inn Nagano", "Tenma no Yu Dormy Inn Premium Tokyo Kodenmacho", "Natural Hot Spring Kafu no Yu Onyado Nono Nanba", and "Dormy Inn Seoul Gangnam". The "Global Cabin Gotanda" facility combines the rational characteristic of capsule hotels with the comforting amenities of Dormy Inn to provide cabin type hotel with private spaces that respond to diversifying needs of customers. Demand from repeat customers and from inbound travelers from overseas for existing facilities also grew. Occupancy rates of existing facilities within Japan rose by 1.0% point year-on-year to 89.5%, and ADR rose by ¥400 to ¥10,400. Furthermore, increases in RevPAR (ADR x occupancy rates) from ¥8,800 in the previous term to ¥9,300 in the current term and reductions in renovation expenses allowed new opening expenses to be absorbed.
 
 
Increases in usage by overseas travelers boosted the share of inbound travelers from overseas by 2.9% points to 20.5% during the current term. The total number of customers rose by 25% year-on-year to 872,000. By country, visitors from Korea, Hong Kong, Taiwan, China, and the United States accounted for 25%, 21%, 17% 10% and 4% of total overseas visitors respectively. The bulk of overseas visitors using Kyoritsu Facilities came in two or more customers per room and helped to drive the average price per room higher. Consequently, the price per room of overseas travelers rose by ¥700 to ¥13,200, and room ADR for Japanese travelers rose by ¥3,200 to ¥10,000.
 
 
Resort Hotel Business
"Naruko Onsen Yumoto Kissho" was opened in fiscal year March 2017. Furthermore, occupancy rates at the Hakone facility have risen above normal levels to 93.5% since the volcanic activity warning issued for the Hakone region in the previous term has withdrawn. In addition, flexible allocation of staff based upon occupancy rates of each facility and other measures to strictly control costs have been implemented. Consequently, occupancy rates rose by 3.1% points from the previous term to 87.4%, and ADR rose by ¥900 to ¥40,700 per room. As a result, RevPAR (ADR x occupancy rates) rose from ¥33,500 to ¥35,500. These positive profit factors allowed opening expenses to be absorbed.
 
 
Other Business
Sales and operating income rose by 16.2% and 14.9% year-on-year to ¥56.632 and ¥1.115 billion respectively, for an operating income margin of 2.0%. Contracted services sales and operating income rose by 7.4% and 1.9% year-on-year to ¥15.953 and ¥0.518 billion respectively due to increases in the number of building management and construction projects. The food services division sales rose by 12.3% year-on-year to ¥6.498 billion, and an operating income of ¥53 million was booked (Compared with a loss of ¥4 million in the previous term). Consigned hotel management sales rose and profitability was achieved due a rise in the number of projects. The construction division sales and operating income rose by large margins of 41.0% and 39.7% year-on-year to ¥23.007 and ¥0.946 billion respectively on the back of increases in hotel development project orders. The other business overall saw a decline in sales of 5.2% year-on-year to ¥11.172 billion, and an operating loss of ¥404 million (Compared with a loss of ¥212 million in the previous term).
 
 
Total assets rose by ¥12.206 billion from the end of the previous term to ¥173.609 billion at the end of fiscal year March 2017 due in part to increases in real estate and construction in progress. Total liabilities rose by ¥5.861 to ¥109.289 billion over the same period due in part to an increase in corporate bonds and a decline in debt. Net assets also rose by ¥6.345 to ¥64.320 billion over the same period on the back of an increase in retained earnings. Capital adequacy ratio rose by 1.1% points from the end of the previous term to 37.0% at the end of the current term. Moreover, net interest berating liabilities rose from ¥41.0 to ¥56.1 billion due to capital investments for facilities. However, debt to equity ratio, which is an important management benchmark for Kyoritsu Maintenance, remained at a healthy level of 0.9.
 
 
Cash and equivalents declined by ¥10.750 billion from the end of the previous term to ¥14.853 billion at the end of fiscal year March 2017. The margin of net inflow of operating cash flow rose by ¥6.190 billion from the previous term to ¥14.412 billion in the current term due in part to declines in accounts payable and inventories. The margin of net outflow of investing cash flow expanded by ¥14.292 to ¥28.263 billion due in part to payment for acquisition of plant, property and equipment and deposits. The net outflow of free cash flow expanded by ¥8.102 to ¥13.851 billion. The margin of net inflow of financing cash flow decreased by ¥12.569 to ¥3.139 billion on the back of declines in short term debt due to repayment and in issuance of corporate bonds.
 
 
Fiscal Year March 2018 Earnings Estimates
 
 
Sales, Ordinary Income Expected to Rise 9.1%, 1.6% Year-On-Year
Kyoritsu Maintenance earnings estimates call for sales and ordinary income to rise by 9.1% and 1.6% year-on-year to ¥148.2 and ¥11.7 billion respectively during fiscal year March 2018.
 
 
Sales and operating income of the dormitory business are expected to rise by 2.6% and 2.8% year-on-year to ¥46.818 and ¥7.443 billion respectively. Fiscal year March 2018 got off to a good start with occupancy rates remaining at the same level as in the previous term of 98.3%. Demand in the dormitory business is expected to trend favorably, and flexible responses to match the increasingly diverse needs of residents is expected to combine with cost cutting measures to ensure a stable earnings structure is maintained. During the coming year, Kyoritsu Maintenance expects increases in residents arising from the opening of 13 new facilities with 1,001 rooms to contribute to higher sales and profits.

Sales and operating income of the hotel business are expected to rise by 16.5% and 7.7% year-on-year to ¥70.404 and ¥7.462 billion respectively. Nine new facilities are expected to be opened within the Dormy Inn division including "Myojin no Yu Dormy Inn Premium Kanda", "Natural Hot Spring Hyuga no Yu Dormy Inn Miyazaki (Provisional name)", "Natural Hot Spring Kaijin no Yu Dormy Inn Epxress Sendai Seaside (Provisional name)", "Global Cabin Suidobashi (Provisional name)", "Dormy Inn Kofu Marunouchi (Provisional name)", "Dormy Inn Izumo (Provisional name)", "Onyado Nono Nara (Provisional name)", "Dormy Inn Kochi (Provisional name)",and "Dormy Inn Matsuyama (Provisional name)". In the resort hotel division, the company plans to open four new facilities including "Inishienoyado Taisya no Yu Keiun(Provisional name)", "Oyado Tsukiyo no Usagi (Provisional name)", "Le Cian Karuizawa (Provisional name)", and "Setsu Getsu Ka Bettei Goura Suiun (Provisional name)". A total of ¥1.270 billion in opening preparatory expenses anticipated to be incurred from these new hotel facility openings is expected to suppress growth in operating income to below that of sales.
 
 
In the other business segment, sales are expected to rise by 3.7% year-on-year to ¥58.736 billion, but operating income is expected to fall by 9.6% year-on-year to ¥1.008 billion. Efforts were actively promoted in the contracted services division to increase its competitiveness in the market by providing high quality building related services through its new organizational structure with increased comprehensive capabilities, and by improving technological and product lineup based upon highly credible knowledge of its client base. In the food services division, efforts will be made to develop products and services that contribute to increases in customer satisfaction and strict measures to control variable expenses as means of improving the overall earnings generating structure will be implemented. Efforts will be made to strictly manage cost of sales, develop new clients, and support development and new facility openings within the Kyoritsu Maintenance Group within the construction business. In the other business division (Not included as an officially reported segment), efforts will be made to establish the senior citizen related and PKP services as cornerstones of our overall business model and to realize higher levels of earnings from these services in the near future.. Kyoritsu Maintenance expects to pay a full year dividend payment of ¥36 (¥18 dividends at the ends of both the interim and full year periods) per share.
 
 
Conclusions
 
As anticipated, Kyoritsu Maintenance was able to achieve the targets of its Medium Term Business Plan "Kyoritsu Full Accelerator Plan" one year ahead of schedule. And while estimates call for only small margin of growth in profits in fiscal year March 2018, details of the New Medium Term Business Plan "Kyoritsu Jump Up Plan" appear to be reasonable. Occupancy rates within the dormitory business remained at high levels at the start of the year, and occupancy rates of existing Dormy Inn facilities rose by 0.5% year-on-year to 87.2%. In addition, the new facility "Meishin no Yu Dormy Inn Premium Kanda" opened in April also saw a good start with occupancy rates ramping up quickly to 89%.

Furthermore, the operating environment for hotels remains strong with the outlook for continued double digit growth in inbound travelers from overseas. At the same time, a key issue is expected to be Kyoritsu Maintenance's ability to secure human resources as the labor shortage in Japan is becoming a chronic problem for various labor intensive industries. And while human resources retention rates within the hotel industry are low, Kyoritsu Maintenance boasts of higher than industry retention rates and will implement measures to "secure steady supply of human resources" by implementing various measures focused upon hiring and training as called for in the New Medium Term Business Plan. Consequently, a key to the Company's business growth will be its ability to secure labor suited for their business expansions.
 
 
<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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