BRIDGE REPORT
(9616)

東証1部

Kyoritsu Maintenance Co., Ltd. (9616)
Haruhisa Ishizuka, Chairman
Haruhisa Ishizuka,
Chairman
Takumi Ueda, President
Takumi Ueda,
President
 
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
(Excluding Treasury Shares)
Market Cap. ROE (Act.) Trading Unit
¥4,505 38,985,202 shares ¥175,628 million 12.9% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Act.) PBR (Act.)
¥43.00 1.0% ¥243.68 18.5x ¥1,842.79 2.4x
* Share price as of closing on December 25, 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 4,387 272.29 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 152,021 13,087 12,928 8,778 225.86 40.00
March 2019 Est. 164,600 14,300 13,900 9,500 243.68 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 the first half of fiscal year March 2019 earnings results and full-year estimates.
 
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. The composition of consolidated fiscal year March 2018 sales by business segment is 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, 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 Quantitative Targets: Average annual profit growth rate of over 10% 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 Required Number of New Graduate Hires 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 31.76 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. Other Measures ■ Activities of Comprehensive Customer Network Section ■ Start of the point program ■ Renewal of the corporate website (3) Development Plan Development Plan to Achieve Sustained Growth 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. The progress rates have reached 57.6% in the Dormitory Business, 98.0% in the Dormy Inn Division and 96.6% in the Resort Hotel Division. (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 was expected to be spent on developmental investments over five years at the initial estimate. 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 The liquidation of real estate is progressing at a higher pace than assumed, as the company liquidated 14 pieces of real estate at 65 billion yen with Sumitomo Mitsui Finance and Leasing Company, Limited. Accordingly, it is projected that 300 million yen from off-balance sheet items will swing upward. (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) To revitalize the Company's website and aim to reduce channel cost Customers tend to use Rakuten Travel, etc. to book a room of the company's facilities, probably because the website of the company is not user-friendly. 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 ¥450 million.
 
 
First Half of Fiscal Year March 2019 Earnings Results
Sales and ordinary income grew 11.7% and 11.0%, respectively, year on year. Sales were 79,204 million yen, up 11.7% year on year. In the first half, the environment surrounding Kyoritsu Maintenance witnessed unexpected natural disasters, including the earthquake in northern Osaka, the torrential rain in western Japan, the earthquake in the eastern Iburi region of Hokkaido, and large-scale typhoons, since June, while seeing the rise in the rate of advancement to college, the continuous growth of demand from foreign visitors to Japan, etc. Under these circumstances, all the staff joined hands to overcome the natural disasters early, and proceeded steadily with "Improving Customer Satisfaction" and "Anticipatory Investments in Development," which are included in the gist of the Medium-Term Business Plan. As for profits, the company posted expenses for preparing for starting operations, etc. amounting to about 940 million yen, large-scale renewal costs for improving customer satisfaction level amounting to about 220 million yen, etc., but gained profit from the liquidation of real estate. Consequently, operating income was 8,044 million yen, up 11.5% year on year, ordinary income was 7,839 million yen, up 11.0% year on year, and profit attributable to owners of parent was 5,319 million yen, up 14.8% year on year. All of profits marked a record high, as the Dormitory Business grew stably, the Hotel Business overcame the natural disasters, and the company gained profit from development. First-half ordinary income increased for the 8th consecutive term, and hit a record high for the 6th consecutive term. Sales and profits exceeded the initial estimates of the company. In the first half of this term, the company developed and sold real estate, and there were some temporary factors, including disasters. Sales, excluding the revenue from sale of developed real estate, increased 7.9% year on year. As for profits, the company estimates that operating income, excluding special factors such as disasters, rose 17.6% year on year and performance-based operating income, excluding the income from real estate development, increased 6.8% year on year. The dividend is to be 20.0 yen/share as initially planned. Operating income rate was 10.2%, nearly unchanged from the same period of the previous year. While the income rates of the Dormitory and Hotel Businesses declined, the company gained significantly greater profit in the other business segment from the liquidation of real estate in the Development Business. This contributed to the rise in the income rate. Dormitory Business Sales were 24,283 million yen, up 4.0% year on year, while operating income was 3,727 million yen, up 0.8% year on year. The occupancy rate at the beginning of the term was 97.7%, down 0.6 points from the previous year, because some units became temporarily vacant due to the timing of completion of new school dormitories. The number of contracts for student dormitories was larger than that in the same period of the previous year and started increasing again like before. The number of contracts for company dormitories increased, as more enterprises adopted the dormitory system. As for expenses, the company posted the cost for preparing for opening new business establishments amounting to about 130 million yen and the cost for considerably renewing existing business establishments amounting to about 80 million yen. Newly opened dormitories contributed significantly to sales and also the rise in operating income. The primary factors in decreasing profit from existing dormitories by 120 million yen are the repair cost amounting to about 70 million yen and the cost for energy, including electric power and gas, amounting to about 50 million yen. Hotel Business Sales were 39,043 million yen, up 12.3% year on year, while operating income was 4,782 million yen, up 1.8% year on year. This sales growth absorbed the expenses for preparing for opening new businesses, including new hotels scheduled to open in the future, amounting to 800 million yen and the cost for significantly renewing existing hotels amounting to about 140 million yen. Profit increased, although some hotels were affected by natural disasters. Dormy Inn (Business Hotel) Division Sales were 23.2 billion yen, operating income was 3.8 billion yen, and operating income rate was 16.5%. In the first half of this term, the company opened 5 hotels: "Natural Springs Nanbu no Yu Dormy Inn Honhachinohe," "Natural Springs Shiraito no Yu Dormy Inn Oita," "Natural Springs Naniwa no Yu Dormy Inn Osaka Tanimachi," "Kasuga no Yu Dormy Inn Korakuen," and "Dormy Inn global cabin Hamamatsu." In addition, the number of foreign hotel guests in each month increased considerably year on year. In the late first half, this business was affected by natural disasters, but it recovered in a short period of time, thanks to the increase of domestic customers, and RevPAR (guest room occupancy rate × ADR), which is an important indicator for operation, rose. Occupancy rate has been healthy until Aug., but dropped in Sep. as the hotel in Hakodate stopped operation temporarily when the company suffered Typhoon No. 21 and the earthquake in eastern Iburi of Hokkaido. However, the performance in other areas increased even in Jun., when the earthquake occurred in northern Osaka, and Jul., when western Japan was ravaged by torrential rains, offsetting the drop. The major factors in decreasing profit from existing hotels by 20 million yen are the fluctuation in RevPAR that raised profit by 270 million yen (including the effect of natural disasters that decreased profit by 240 million yen), the augmentation of large-scale repair cost that decreased profit by 110 million yen, the decline in depreciation that increased profit by 90 million yen, the rise in commissions that dropped profit by 150 million yen, and the augmentation of personnel expenses that decreased profit by 140 million yen. In South Korea, occupancy rate increased considerably, and one out of two hotels moved into the black. The ratio of foreign hotel guests is rising year by year. The hotel guests from South Korea, Hong Kong, Taiwan, and China account for 29%, 26%, 13%, and 6%, respectively. In addition, ADR for foreign hotel guests is high. Resort Hotel Division Sales were 15.7 billion yen, and operating income was 900 million yen. In the Resort Business, the company has been developing resorts that would be loved by and get familiar to a broad range of customers under the brand logo that was released this term. Due to the natural disasters in the late first half, occupancy rate dropped in Sep. and it is taking some time to recover it, but the company controlled costs rigorously through flexible staffing according to the operational situation. Other Business Sales were 26,826 million yen, up 1.3% year on year, while operating income was 1,060 million yen, up 129.9% year on year. As for the Contracted Services Business, sales were 7,440 million yen, up 14.8% year on year, and operating income was 31 million yen, down 77.2% year on year. Sales grew thanks to the increase of construction transactions, but profit declined due to the termination of some contracts in the building management division, etc. As for the Food Services Business, sales were 3,420 million yen, up 1.2% year on year, and operating income was 25 million yen, down 57.2% year on year. Sales grew due to the increase of transactions in the Consigned Hotel Restaurant Business, but profit declined due to the expenses for preparing for opening restaurants in the Restaurant Business, etc. As for the Development Business, sales were 9,732 million yen, down 8.8% year on year, while operating income was 1,046 million yen, up 164.8% year on year. Sales dropped due to the decrease of construction transactions, but profit grew considerably thanks to the liquidation of real estate, etc. As for other businesses, including the Senior Life Business (senior citizen residence management and operations), Public Kyoritsu Partnership Business (PKP: Jointly conducted consigned services business for regional government bodies), the services of supporting single people, the insurance agency services, the comprehensive staffing services, the financing services, and the paperwork services, sales were 6,232 million yen, up 4.7% year on year, and operating loss was 43 million yen (operating loss: 131 million yen in the same period of the previous year). The sales of the Senior Life Business have exceeded the break-even point. The total assets as of the end of the first half were 200,487 million yen, up 9,557 million yen from the end of the previous term. Major factors include the increase in cash & deposits and real estate for sale in process. Liabilities were 124,017 million yen, up 4,927 million yen from the end of the previous term. Major factors include the augmentation of short-term debts. Net assets were 76,469 million yen, up 4,630 million yen from the end of the previous term. Major factors include the rise in retained earnings. Capital-to-asset ratio was 38.1%, up 0.5 points from the end of the previous term. Net D/E ratio, onto which the company puts importance, was 0.9, indicating the soundness of business performance. The balance of cash and cash equivalents as of the end of the first half was 19,790 million yen, up 3,320 million yen from the end of the previous term. Operating CF was positive 6,112 million yen, as income grew 3,042 million yen year on year due to the changes in accounts receivable and accounts payable. Investing CF was negative 10,906 million yen, as expenditure dropped 2,323 million yen year on year due to the expenses for purchase of property, plant and equipment and payments for lease and guarantee deposits. Accordingly, free CF was negative 4,794 million yen, as expenditure decreased 5,365 million yen year on year. Financing CF was positive 7,584 million yen, as income declined 4,218 million yen year on year due to the net increase (decrease) in short-term loans payable and the expenses for the redemption of corporate bonds.
 
 
Fiscal Year March 2019 Earnings Estimates
The earnings forecast has been revised upwardly, and sales and ordinary income are estimated to increase 8.3% and 7.5%, respectively, year on year. It is projected that annual sales will be 164.6 billion yen, up 8.3% year on year, and ordinary income will be 13.9 billion yen, up 7.5% year on year. It was first forecasted that annual growth rate of operating income will increase 7.0% from the previous term, as the company will incur about 1.9 billion yen as the expenses for preparing for opening business establishments in upfront development in accordance with the Medium-Term Business Plan and about 800 million yen as the cost for large-scale renewal for enhancing customer satisfaction level. Overcoming the natural disasters, the Dormitory and Hotel Businesses, which are the core businesses of Kyoritsu Maintenance, grew stably, and the liquidation of real estate contributed. Accordingly, the forecast has been revised upwardly, and sales are estimated to grow 9.3% year on year. As for the Dormitory Business, occupancy rate at the beginning of the term was 97.7%, down 0.6 points from the previous year, because some units became vacant temporarily due to the timing of completion of dormitories exclusively for new schools. Since the number of contracts rose during the term, the number of contracts has started increasing again like before. As for the Hotel Business, the company will accelerate development further in order to complete the Medium-Term Business Plan. The annual dividend is to be 43.0 yen/share (including the 20.0 yen/share dividend for the first half). If the results exceed the full-year forecast, payout ratio will be 17.6%; therefore, the company mentioned the possibility of increasing dividends.
 
 
Conclusions
Despite some successive natural disasters, the performance in the first half exceeded the estimate of the company, and the company revised the full-year earnings forecast upwardly. It seems that its earnings forecast and medium-term plan are conservative. While the Hotel Business, which is supported by foreign visitors to Japan, and the Dormitory Business, which has been healthy, contribute to the favorable business results, the Senior Life Business in other businesses moved into the black in gross income basis. We would like to pay attention to such meticulous business administration of Kyoritsu Maintenance. For the next term, the occupancy rate at the beginning of the term in the Dormitory Business is estimated to be as high as 98.0%, and the Hotel Business is expected to see the effects of the increase of facilities and the recovery from the natural disasters it faced this term. The long-term outlook has become brighter, because World Expo 2025 will be held in Osaka, after the Tokyo Olympics in 2020. PER is over 20, but it can be said that share price is still to be improved.
 
 
<Reference: Regarding Corporate Governance>
◎ Corporate Governance Report The company submitted the latest corporate governance report on December 25, 2018 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> Principles of the Corporate Governance Code that are not implemented, and reasons for the non-compliance <Disclosure Based on the Principles of the Corporate Governance Code>
 
<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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