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
¥6,240 38,984,045 shares ¥243,260 million 12.9% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥43.00 0.7% ¥238.56 26.2x ¥1,842.79 3.4x
* Share price as of closing on June 13, 2018. Number of shares outstanding as of the end of the most recent quarter excluding treasury shares. ROE is the value as of the end of the previous term.
 
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 4,387 275.29 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 152,021 13,087 12,928 8,778 225.86 40.00
March 2019 Est. 164,600 14,000 13,600 9,300 238.56 43.00
* 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 fiscal year March 2018 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 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, offering 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 headquarter 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
The New Medium -Term Business Plan "Kyoritsu Jump Up Plan" started in the fiscal year ended March 2018 has been performing well since the first year. As it is progressing much faster than the plan, the Company is making the progress with some course corrections. (1) "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 Kyoritsu Maintenance recognizes the importance of maintaining its goal of "customers first" in its efforts to quickly create a solid business foundation to survive in a changing environment. Therefore, it maintains a fundamental strategy of conducting "upfront investment in development" as a means of increasing its credibility amongst its clients. (2) 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 proactive hiring of new graduates, efforts will be made to secure a stable supply of highly skilled human resources that can respond well to the needs of our customers. Stable Securing of Human Resources: Further Strengthen Hiring Capabilities, Promote High Rates of Retention Kyoritsu Maintenance employed 38 international students in the fiscal year ended March 2018. There are no restrictions in the number of recruits for international students, and the company will actively recruit excellent personnel. Recruitment route - The company utilized the good relationships with schools that it cultivated in the Dormitory Business. The number of recruits who graduated and were introduced from the schools that used the Company's dormitories was 145, which is 47% of the total recruits, in the fiscal year ended March 2018. 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, Improve Value Addition 3. Hotel Business In the Dormy Inn, RevPAR is expected to grow higher than initial estimates The number of foreign visitors to Japan was 24.04 million in 2016, 28.69 million in 2017, and it is expected to reach 33.42 million in 2018, making the government's target of having 40 million visitors in 2020 achievable. Against this backdrop, both the occupancy rates and ADR are going strong, and RevPAR is exceeding the assumed value of the medium-term plan. (Note) RevPAR is considered as KPI (Key Performance Indicator for evaluating the degree of achievement of corporate goals) of the Hotel Business, which refers to ADR × occupancy rate. (3) Development Plan The Company plans to develop 7,000 rooms in the Dormitory Business, 9,000 rooms in the Dormy Inn Division, and 1,400 rooms in the Resort Hotel Division. However, as shown in the table below, the progress rates have reached 57.6% in the Dormitory Business, 93.0% in the Dormy Inn Division and 96.6% in the Resort Hotel Division. Especially in the Osaka namba area, the occupancy rate is nearly 100%. Most of customers are inbound customers and now they are not able to get reservations. Therefore, the Company is planning to develop 3 facilities in the area. (4) 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 Also, the forecasts shown in the figure below have been adjusted to a plan, which realizes profit growth even during Anticipatory Development Period, from the initial estimates. (5) 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, ¥65.0 billion (increased from the initial plan of ¥30 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 Also, the Company will add ¥30 billion (cost basis) to the off-balance-sheet assets, other than the ¥65 billion mentioned above, with the liquidation of real estate. (6) 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. (7) Additional Measures New Measures Relating to Medium Term Business Plan were announced last December. As a new structure reporting directly to the president, the "comprehensive customer network office" was established to strengthen relationships with customers. The Company seeks to deliver all the products and appropriate services in a timely manner, based upon strengths of its businesses, to students, working adults, middle aged consumers, senior citizens, and next generation, building life-time relationships. To revitalize the Company's website and aim to reduce channel cost Many reservations for stay at the Company's facilities are made through Rakuten Travel, etc. In response to this, the Company aims to reduce the channel cost (payment commission) by promoting the reservations from its own website. By raising the ratio of reservations from the Company's website to 15.2%, the Company aims to reduce the cost by about ¥500 million in the fiscal year ending March 2022.
 
 
Fiscal Year March 2018 Earnings Results
Sales and Ordinary Income Rose 11.9% and 12.3%, respectively, Year-On-Year Sales rose 11.9% year-on-year to ¥152.021 billion. Sales increased 3.1% in the Dormitory Business due to favorable occupancy rates at the start of the term and sales also increased 16.1% in the Hotel Business due to new opening effects and continued demand from foreign visitors to Japan. Operating income was ¥13.087 billion, up 10.8% year-on-year. Both Dormitory and Hotel Businesses absorbed the opening expenses arising from anticipatory development and secured two-digit growth of consolidated profit. Ordinary income increased 12.3% year-on-year to ¥12.928 billion due to an increase in gain of investments in partnership and a decrease in interest paid. As for South Korea Kyoritsu Maintenance Co., Ltd., which is a subsidiary in South Korea, although impairment loss was recorded for assets held in a view of securing financial soundness, profit attributable to owners of parent rose 23.0% to ¥8.778 billion as a result of gain on sale of securities and no loss from the disasters arisen in the previous term. The forecasts at the beginning of the fiscal year showed ¥148.2 billion for sales, ¥12.2 billion for operating income, ¥11.7 billion for ordinary income, and ¥8.0 billion for profit attributable to owners of parent and it was revised upward on February 9th, but still the results exceeded the revised forecasts. The Company established the five-year Medium-Term Business Plan "Kyoritsu Jump Up Plan," which was started in the current term, and steadily promoted the main objectives of the plan (i.e., "increase customer satisfaction" and "implement anticipatory development.") While reforming the corporate slogan and formulating a corporate symbol for brand development, the Company made effort to raise its brand recognition by continuing to sponsor "University Hakone Ekiden," which is in a close relationship with its business, and by participating in various IR events, etc. Operating income rate dropped 0.1% point year-on-year to 8.6%. It declined in both Dormitory and Hotel Businesses due to upfront investment. It grew drastically in other businesses such as Food Services Business and Development Business. Dormitory Business Sales rose 3.1% year-on-year to ¥47.052 billion and operating income rose 4.6% year-on-year to ¥7.579 billion. Within the Dormitory Business, room occupancy rate at the beginning of the term, which is a key performance indicator (KPI), got off to a good start by recording the same level as the previous year of 98.3%. The number of offices increased by 8 year-on-year to 473 offices (excluding contracts), and the number of personnel increased to 38,125, up 1,085 year-on-year. The number of resident contractors as of the end of March is 37,391, up 917 year-on-year. In addition to its steady growth throughout the year, successful optimization of cost led to increased profits. The number of contracts in Student Dormitories Business decreased 221 year-on-year to 20,199, and sales were ¥25.272 billion, which is the same level as the previous year. Needs remained high due to rises in college-going rate and the number of international students. The ratio of international students was 12.7%. New tie-ups with 6 universities were realized. On the other hand, a decrease in the number of preparatory school students brought some effects. The number of contracts in the Corporate Dormitories Business increased 1,066 year-on-year to 11,899, and sales rose 8.2% year-on-year to ¥13.1 billion. The number of contracts saw a great rise due to continued contribution from improvement in the employment environment and increased introduction of corporate dormitory system. The number of Domeal contracts grew by 72 year-on-year to 5,293, and sales were ¥4.465 billion, up 0.8% year-on-year. As a single-room condominium type dormitory, the Company responded to relocation demand from dormitories providing meals, etc. in addition to mediation from partner schools and companies. Sales of the Consigned Dormitory Business rose by 10.2% year-on-year to ¥4.214 billion. It is a business to administer and manage the dormitories owned by schools and companies through consignment contracting, and it is developing by differentiating it by "the management capability as the Japan's best lodging house." Hotel Business Sales rose 16.1% year-on-year to ¥70.160 billion and operating income increased 3.2% year-on-year to ¥7.155 billion. Profitability dropped due to the effects of opening expenses of approx. ¥1.8 billion for opening 13 new facilities. Dormy Inn (Business Hotel) Division Nine facilities were opened in the fiscal year ended March 2018, including "Myojin No Yu Dormy Inn PREMIUM Kanda," "Natural Hot Springs Hyuga No Yu Dormy Inn Miyazaki," "Natural Hot Springs Yakumo No Yu Dormy Inn Izumo," "Natural Hot Springs Kaijin No Yu Dormy Inn EXPRESS Sendai Seaside," "Natural Hot Springs Shoun No Yu Dormy Inn Kofu Marunouchi," "Natural Hot Springs Yoshino-zakura No Yu Onyado Nono Nara," "global cabin Tokyo Suidobashi," "Natural Hot Springs Ishite No Yu Dormy Inn Matsuyama" and "Natural Hot Springs Kompeki No Yu Dormy Inn Kochi." Inbound customers have been increasing. The number of inbound customer guests in the fiscal year ended March 2018 was 1,380,000, up 58% year-on-year, and the ratio of inbound customers rose by 6.6 points year-on-year to 27.1%. As inbound customers mostly are accompanied by someone, increase in the inbound ratio leads to an increase in ADR. The occupancy rates also exceeded the previous term. RevPAR rose from ¥9,303 in the previous term to ¥9,781 as the level of customer satisfaction improved. Resort Hotel Division Two facilities, "Inishie No Yado Keiun" and "Oyado Tsukiyo No Usagi," which are the first facilities in Chugoku and Shikoku areas, were opened in the vicinity of Izumo Taisha. Also, the first hotel of Kyoritsu Resort allowing pets "Le Chien Kyu-karuizawa" and a high-grade "Gora Hot Springs Setsugetsuka Bettei Suiun," which is the 4th facility in Hakone area, were opened. In addition, the room occupancy rates and ADR for the existing facilities exceeded those in the previous term despite the influence of a typhoon. Both the occupancy rates and ADR exceeded those in the previous year and RevPAR increased from ¥35,023 to ¥35,795. Other Business Sales declined 1.3% year-on-year to ¥55.906 billion, and operating income rose 33.6% year-on-year to ¥1.490 billion. Contracted Services Business sales decreased 6.7% year-on-year to ¥14.877 billion, and operating income also declined 2.7% year-on-year to ¥504 million. The comprehensive impact of large construction projects in the previous term led to decline in sales and operating income. Food Services Business sales grew 3.6% year-on-year to ¥6.732 billion and operating income also rose 196.3% to ¥158 million. An increase in the number of projects of the Consigned Hotel Restaurant Business and closure of unprofitable facilities allowed the sales and operating income to grow. Development Business sales dropped 2.4% year-on-year to ¥22.450 billion but operating income rose 18.0% year-on-year to ¥1.117 billion. Despite a decrease in sales due to a decline in condominium development, income increased due to the liquidation of real estate and other factors. Sales of other businesses (businesses that are not included in the report segment, i.e., Senior Life Business (senior citizen residence management and operations), Public Kyoritsu Partnership business (PKP: Jointly conducted consigned services business for regional government bodies), single resident insurance and other lifestyle support services, comprehensive human resources services, and financing services and administrative outsourcing services increased 6.0% year-on-year to ¥11.845 billion, and its operating loss amounted to ¥290 million (¥404 million in the previous term). Total assets at the end of the fiscal year ended March 2018 increased ¥17.387 billion from the end of the previous term to ¥190.996 billion. The main reason was increases in land and real estate for sale in progress. Liabilities increased ¥9.868 billion from the end of the previous term to ¥119.157 billion. The main reasons were the increase in corporate bonds and decrease in borrowings. Net assets rose ¥7.518 billion from the end of the previous term to ¥71.839 billion. The main reason was the increase in retained earnings and others. Capital-to-asset ratio was 37.6%, rising 0.6 points from the end of the previous term. Cash and equivalents rose ¥2.118 billion from the end of the previous term to ¥16.972 billion at the end of the fiscal year ended March 2018. The influence of changes in accounts receivable and inventories caused the net inflow of operating cash flow to decline by ¥1.382 billion from the previous term to ¥13.029 billion. The net outflow of investing cash dropped ¥11.587 billion from the previous term to ¥16.676 billion due to purchase of property, plant and equipment and proceeds from sales of property, plant and equipment. The influence of proceeds from issuance of bonds and repayments of long-term loans payable allowed net inflow of financing cash flow to increase by ¥2.664 billion from the previous term to ¥5.804 billion.
 
 
Fiscal Year March 2019 Earnings Estimates
Sales and Ordinary Income Estimated to Rise 8.3% and 5.2% Year-On-Year, Respectively Kyoritsu Maintenance estimates the sales to rise 8.3% year-on-year to ¥164.6 billion, and ordinary income to increase 5.2% year-on-year to ¥13.6 billion. The occupancy rate of the Dormitory Business at the beginning of the term in April dropped by 0.6% points year-on-year to 97.7%, but this is due to temporary vacancies, etc., that occurred with the completion of student dormitories. It is expected to recover in the beginning of the next fiscal year. Overall, the number of contracts of students at the start of the fiscal year, which decreased in the previous term, is forecasted to increase and occupancy rates, which are stable, are expected to remain strong. At the same time, the Company will respond flexibly to diversification of residents and needs, and will maintain a stable profit structure through optimization of cost. With regard to the Hotel Business, 11 facilities, "Dormy Inn Honhachinohe," "Dormy Inn Osaka Tanimachi Yonchome," "Dormy Inn Oita," "Dormy Inn Korakuen," "global cabin Hamamatsu," "global cabin Yokohama Chinatown," "Dormy Inn Takamatsu Central Park," "Dormy Inn PREMIUM Namba ANNEX," "Dormy Inn PREMIUM Osaka Kitahama," "Dormy Inn Maebashi"and "Dormy Inn Fukui" (all temporary names), in the Dormy Inn Division, and 3 facilities, "La Vista Kirishima Hills," "Shirakawago Onyado Yui No Sho" and "Echigo Yuzawa Hot Springs Yukemuri Yuki No Hana," in the Resort Hotel Division are expected to open. Therefore, the Company will accelerate the development to achieve the Medium-Term Business Plan. As for other business, the Company will improve the product and technological skills including expertise to gain trust from customers further in the Contracted Services Business. In addition, the Company will provide high-quality building services in a new organizational structure that has enhanced comprehensive capabilities, and actively strengthen the market competitiveness. In the Food Services Business, the Company will strive to improve the profit structure by thoroughly managing the variable costs while developing the products and services with even higher customer satisfaction. In the Development Business, the Company will support the development and store opening plans of the Kyoritsu Group, and thoroughly strengthen the cost management system and development of external business partners. In other business, the Company will establish a business model at an early stage and realize further profits in future, in order to make the Senior Life Business and PKP Business the pillars of the next-generation business. The Company is expected to pay a full year dividend of ¥43 per share (Including a dividend of ¥20in the first half of the term).
 
 
Conclusions
Kyoritsu Maintenance has been performing well under a favorable external environment. A declining number of contracts for student dormitories in the Dormitory Business was one concern, but it did not pose a problem because it has seen a drastic increase in the beginning of the fiscal year ending March 2019. As long as the number of inbound overseas customers do not decrease due to natural disasters or a significant yen appreciation, the performance of the fiscal year ending March 2019 is expected to be better than the initial forecasts. With respect to the medium-term plan, the development is particularly advanced in the Hotel Business, and liquidation of real estate and securing of cash are progressing. The business environment is favorable as the number of foreign customers visiting Japan is increasing by double digits every month. Development plans and numerical goals have not been changed, but they are likely to be revised upwardly in future. The future task will be to secure human resources. We would like to pay continuous attention to how the Company secures personnel appropriate for business expansion in future.
 
 
<Reference: Regarding Corporate Governance>
◎ Corporate Governance Report The company submitted the latest corporate governance report on July 26, 2017 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. <Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>
 
<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) 2018 Investment Bridge Co., Ltd. All Rights Reserved.
 
 
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