| Koshidaka HOLDINGS Co., Ltd. (2157) |
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Company |
Koshidaka HOLDINGS Co., Ltd. |
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Code No. |
2157 |
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Exchange |
JASDAQ |
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Industry |
Service |
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President |
Hiroshi Koshidaka |
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HQ Address |
World Trade Center Building, 2-4-1 Hamamatsucho Minato-ku, Tokyo |
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Year-end |
August |
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URL |
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* Share price as of close on April 15, 2016. Outstanding shares as of most recent quarter end, excluding treasury stock.
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* Estimates are those of the Company. From fiscal year August 2016, the definition of net profit has been changed to net profit attributable to the parent company shareholders.
A 400 for 1 stock split was conducted in September 2011, and a 2 for 1 stock split in September 2014. This Bridge Report presents Koshidaka Holding's earnings results for the first half of fiscal year August 2016 and other details of the Company. |
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| Key Points |
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| Company Overview |
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<Corporate Philosophy: Contribute to the Creation of a Peaceful World by Providing Bountiful Hope and Lifestyles Rich with Entertainment>
Koshidaka maintains a corporate philosophy of "contributing to the creation of a peaceful world by providing bountiful hope and lifestyles rich with entertainment, while continuing to provide evolutionary and significant services and products to people worldwide." Based upon this corporate philosophy, Koshidaka has also established five visions: 1) cultivating new businesses in existing industries to provide easily accessible entertainment that only require short amount of time, and are close and reasonable, 2) developing optimized businesses and structures based upon conditions in each country, area, and industry, 3) continuing to offer surprising and highly satisfying services and products with customers' needs in mind, 4) fostering inspired and entrepreneurial human resources, and 5) seeking to cultivate and maximize synergies between the various businesses of the Group.
<Corporate History>
Koshidaka Holdings was founded in 1954 as a restaurant operating in Tokyo. Later in 1964, the Company moved its headquarters to its current location in Maebashi City, Gunma Prefecture. In 1967 the Company was officially registered as a corporate entity called "Shinseiken Limited." The Company started to change significantly after President Hiroshi Koshidaka became the de facto President. Under Hiroshi's leadership, the Company entered the karaoke box business during the 1990s. Koshidaka Holdings began its growth phase by successfully promoting the shift in the karaoke industry from pubs and bars to specialized "karaoke box" type clubs (clubs with individual rooms for customers to sing with their friends) using laserdisc karaoke equipment. Hiroshi Koshidaka was able to take advantage of the consolidation within the karaoke industry by taking over bankrupt karaoke clubs after becoming President officially in August 1995. In March 2000, the Company was reorganized and its name was changed to Koshidaka Co., Ltd.In March 2006, Koshidaka opened its first Curves Fitness Club franchise. In June 2007, Koshidaka was listed on the JASDAQ stock exchange. In October 2007, it took over Curves Japan Co., Ltd. as a 90% owned subsidiary. Currently Koshidaka is responsible for the headquarter function, directly operated clubs and franchise operations for Curves Fitness Clubs. Koshidaka adopted a pure holding company structure and its name was changed to Koshidaka Holdings Co., Ltd in September 2010. In its overseas business deployment activities, the first "Karaoke Honpo Manekineko" facility was opened in Seoul, Korea in June 2011. KOSHIDAKA INTERNATIONAL Pte. Ltd. was established in November 2013 to serve as an intermediary holding company (Oversee operations of the karaoke business in Southeast Asia). Under this holding company, KOSHIDAKA MANAGEMENT SINGAPORE Pte. Ltd. was established in February 2014 and it then acquired K BOX ENTERTAINMENT GROUP Pte. Ltd., which operated 11 karaoke clubs in Singapore, and converted it to a subsidiary. In July 2014, the headquarters function was moved to Tokyo. In April 2015, Moon Corporation, which operates 21 karaoke clubs and a café facility in Kanagawa Prefecture, was acquired and converted to a subsidiary. <Business Segments and Group Structure>
The Koshidaka Holdings Group currently divides its business into four main segments. In the karaoke business segment, the Company operates both the "Karaoke Honpo Manekineko" clubs (Suburban regions) and the "One Kara" individual use Karaoke clubs (Urban regions). In the Curves Fitness Club business, fitness clubs providing specialized 30 minute workout programs targeting middle to older aged female customers called "Curves" are operated. And as a new business segment, hot spring facilities and other new businesses are also being undertaken (Leveraging the facility operation know-how of taking over and operating existing facilities). Also, real estate management services are provided.Sales of the karaoke club, Curves Fitness Club, hot spring bathing and real estate management business segments during fiscal year August 2015 accounted for 53.8%, 42.1%, 3.4%, and 0.7% of total sales respectively. With regards to profits, the karaoke club, Curves Fitness Club, hot spring bathing and real estate management business segments during fiscal year August 2015 accounted for 23.6%, 75.6%, -1.7%, and 2.5% of total profits respectively.   <Growth Strategy>
The possibilities within the Japanese leisure related market are considered to be unlimited given its massive size of about ¥73 trillion (Source: Japan Productivity Center, Leisure White Paper 2015). Moreover, the number of baby boomers approaching the age of 75 (Peak number being born between 1947 to 1949) is expected to increase and contribute to growth in the market over the next ten years. Based upon the business concept of becoming a "comprehensive leisure services company," Koshidaka seeks to cultivate synergies between the four realms of "amusement (karaoke)," "sports and fitness (Curves)," "tourism and travel (hot springs)," and "hobbies and cultural activities" to promote a strategy of "creating new businesses in existing industries." Koshidaka also maintains a medium- to long-term goal of achieving Group sales of ¥100.0 billion.According to the "Karaoke White Paper 2015," the karaoke market within Japan in fiscal year 2014 (April 1, 2014 to March 31, 2015) benefitted from strength in karaoke box type club openings and demand from elderly segment of the market, allowing it to grow on a year-on-year basis to ¥397.9 billion (From ¥391.2 billion in fiscal year 2012). Since 2009, the market has trended between ¥380.0 to ¥390.0 billion. According to newspaper reports, the fitness club market has continued to trend sideways during the past several years at around ¥410.0 billion. Karaoke Club Business Strategy
While the karaoke club industry in Japan is being aggregated by the major karaoke chain operators, competition for customers is intensifying. In addition to fortification of its club network, Koshidaka is implementing efforts to leverage its characteristics of "ease of use, safety, reasonableness, and friendliness" to provide customers with new ways to have fun, while at the same time developing new services as a means of differentiating its Karaoke clubs. Along with the shift from the traditional "regional and suburban existing club take over and refurbishment" strategy to a new "major metropolitan, station front, downtown area new club opening" strategy, Koshidaka is stepping up openings of "Karaoke Manekineko" in the Tokyo Metropolitan Area (inside the National Route 16 Loop around Tokyo, as well as Kanagawa, Saitama and Chiba Prefectures) with a view to establishing a network of 1,000 clubs. Also, efforts are being made to expand the "One Kara" individual use karaoke club network and the "Zero Kara" clubs targeting high school and younger karaoke users to satisfy the diversifying needs of karaoke users. In addition, efforts are being made to introduce new ways to enjoy karaoke, including the introduction of its own new karaoke system developed in-house called "Sukitto" (Karaoke commander) at all of its clubs and to establish a solid customer base of "Sukitto members" and One Kara clubs "Singer Club members, and as a means of achieving differentiation. "Sukitto" provides the facility for all customers to enjoy karaoke by expanding ways customers can use karaoke clubs through collaboration with contents holders. With a long-term perspective to maintaining growth, efforts to expand the Karaoke club business into overseas markets like Korea and Singapore are being promoted. With 13 clubs operating in Korea (As of end first half of FY8/16), Koshidaka has succeeded in establishing its business model and seeks to establish a "100 club network within five years" in Korea including facilities operated on a franchise basis. At the same time, the Singaporean subsidiary, K Box Entertainment Group Pte. Ltd. (K Box hereafter), operates 10 karaoke clubs and is implementing their conversion into "Karaoke Honpo Manekineko" clubs, to introduce the Japanese way in terms of both facility and management style. Curves Fitness Club Business Strategy
Amidst the rapid advance of the aging society, the Curves Fitness Club business concept supports and promotes the health of each individual user by providing healthy ways to exercise and contributes to improvements in health and extension of life expectancy of members, while at the same time growing its business. The Curves Fitness Club business will be deployed to create a fitness club (franchisee clubs) network that is easy to access. Furthermore, close collaboration between the headquarters and club franchisees will be conducted to achieve the common goal of building a community that allows members to enjoy participation in the activities at each club.The milestones of 1,500 Curves Fitness Clubs and 650,000 members were reached in October 2014 (As of end fiscal year August 2015, 1,602 clubs and 711,000 members). Efforts will be promoted to increase the number of clubs operated by existing franchisees and to boost the total number of clubs to 1,800, grow the number of members per club, reduce the withdrawal rates, increase new member introductions from existing members, and improve customer satisfaction. On the back of general public's improved awareness of health and well-being, potential demand for fitness clubs is larger than initially expected. Local governments also show interest in Curves Fitness Club business. The target number of clubs is likely to be increased. In addition, Koshidaka will continue to expand sales of protein by leveraging the positive effect of protein when administered along with exercise programs and fortify product sales for club members, offering simple dietary diagnosis testing, and proposing programs to improve dietary balance of club customers. Hot Spring Business Strategy
Five facilities, including the "Tokyo Health Land Maneki No Yu" (Tokyo), "Koriyama Yudokoro Maneki No Yu" (Fukushima Prefecture), "Misato Onsen Maneki No Yu" (Gunma Prefecture), "Oita Mori Onsen Maneki No Yu" (Oita Prefecture) and "Oita Lamp No Yu Hanazonoten" (Oita Prefecture), are currently operated. Fixed cost reduction efforts, including use of human resource development systems in employee training and operation of facilities (hospitality), and leveraging of know-how developed in the karaoke club business have been implemented to bring about a an anticipated turn to profitability of the hot spring business in fiscal year August 2016.With regards to energy conservation, gas powered cogeneration systems for both power generation and hot water heating have been introduced in conjunction with water saving showers at all facilities. Reserve tanks have been expanded to accommodate natural hot spring water, and energy efficient water recirculation systems including state of the art filtration equipment have also been installed. Operations of the main hot spring facility "Tokyo Health Land Maneki No Yu" has started from November 2014 (Contribute to reductions in water heating costs and attraction of a greater number of customers). Also, events with comedians giving live performances and health promoting exercises coordinated with music are also conducted as a means of attracting a greater number of customers. |
| First Half of Fiscal Year August 2016 Earnings Results |
 Earnings Exceed Initial Estimates despite Burden from Anticipatory Investments for Karaoke Club Business
Sales rose by 14.3% year-on-year to ¥24.388 billion. The new club opening strategy focused upon the Tokyo Metropolitan Area, favorable trends in existing facility sales and the strong launch of the "Zero Kara" ( ) service in September allowed sales of the karaoke club business to rise by 17.6% year-on-year. Meanwhile in Singapore, the transition of the karaoke club brand from "K Box" to "Karaoke Manekineko," as well as refurbishment of existing facilities is underway. Among such facilities, three clubs that underwent brand conversion and store refurbishment, owing to the revision of price schedule to a more reasonable one, and improvements in customer service, allowed their numbers of customers to grow by about 2.5 fold and sales to double. At the same time, the Curves Fitness business was able to record an 11.3% year-on-year increase in sales on the back of smooth openings of new clubs and increase in member numbers at existing clubs. Success of various fortification measures enabled the hot spring business to overcome a decline in facility numbers and record a 1.3% increase in its sales.With regards to profits, new club openings in the karaoke club business and increases in sales of protein and other products in the Curves Fitness Club business contributed to a decline in gross profit margin. At the same time, increases in new club opening expenses in the karaoke club business and other factors contributed to a 22.5% year-on-year rise in sales, general and administrative expenses, which in turn led to a 4.7% year-on-year decline in operating profits to ¥2.577 billion. A foreign exchange translation loss of ¥99 million (A ¥13 million profit in the previous term) on loans extended to overseas subsidiaries led to a 9.7% year-on-year decline in ordinary profit to ¥2.481 billion. Net profit grew on the back of a decline in extraordinary loss (An extraordinary loss of ¥256 million arising from loss on disposal of noncurrent assets, impairment loss, and facility closure expenses was booked in the previous term). ( ) "Zero Kara" targets groups of two or more high school students and provides them with free usage of karaoke rooms with no time limitations (Time limit during peak hours. Service unavailable after 10PM). This service has been introduced as a means of expanding earnings, which had been negatively influenced by the downward trend in high school students and in response to sluggish growth of senior citizen customers. "Zero Kara" has been successful in capturing family users, and clubs offering this service have recorded a 5% to 7% increase in customer numbers.
  With regards to profits, the increase in new facility openings contributed to a deterioration in gross profit margin and an increase in sales, general and administrative expenses led to a decline in operating profit. However, favorable trends in existing facility sales allowed operating profit to exceed initial estimates of ¥560 million. In addition, the "One Kara" service got on the right track and turned profitable. The number of clubs at the end of the first half rose by 58 to 433 from 375 at the end of the previous first half (412 at the end of the full year). New club openings rose from 15 in the previous first half to 22 in the current first half (17 newly constructed, and 5 acquired through M&A). Of the newly constructed facilities, 16 were opened in the Tokyo Metropolitan Area (10 in Tokyo, 1 in Kanagawa, 2 in Chiba, and 3 in Saitama). In addition to these, another 13 facilities were renovated. The 19 facilities opened under the "Be Ambitious" franchise system, where club managers at existing directly operated facilities are given training and opportunities to become franchise club owners themselves, operated favorably. Facilities opened in areas outside of major metropolitan regions tend to be small to medium sized and therefore their operations tend to be more heavily influenced by the skills of the club managers. The number of facilities operating overseas included 10 in Singapore and 13 in Korea for a total of 23 (Compared with 11 in Singapore and 5 in Korea at the end of the previous first half). The conversion of 3 of the 10 clubs in Singapore from the original "K BOX" brand to the "Karaoke Manekineko" brand contributed to about 2.5 fold increase in customer numbers and a doubling of sales at these three clubs.    At the end of the first half, the number of Curves Fitness Clubs rose by 113 from 1,534 at the end of the previous first half to 1,647 (1,602 at the end of the previous fiscal year). The number of members also rose by 71,000 from 650,000 at the end of the previous first half to 721,000 (711,000 at the end of the previous fiscal year). The age distribution of club members in their 30s, 40s, 50s, 60s and over 70 stood at 4.8%, 10.0%, 25.1%, 38.4%, and 21.7% respectively (The number of members over 40 comprised 95.2%).   The factors behind this recovery in profitability include a ¥10 million increase in sales and various measures to reduce costs. Specifically, water and other utility bills, rent, labor, consumables and other expenses were reduced by ¥40, ¥13, ¥13, ¥6 and ¥6 million respectively (in contrast to a 2% increase in purchases. The introduction of a state of the art filtration system has led to reductions in electricity and water usage, and the introduction of a demand monitoring system has enabled to visualize optimal usage volume.   |
| Fiscal Year August 2016 Earnings Estimates |
 Full Year Earnings Estimates Left Unchanged, Call for Sales, Ordinary Profit to Rise by 12.1%, 11.7% Year-On-Year
Sales are expected to rise by 12.1% year-on-year to ¥49.607 billion on the back of an increase in the number of domestic facilities and favorable trends in overseas operations, which are expected to lead to a 15.1% year-on-year increase in sales of the karaoke club business segment. Growth in member numbers and product sales is expected contribute to an 8.7% year-on-year increase in sales of the Curves Fitness Club business. Popularity of the natural hot spring at the Tokyo Kenko Land Maneki No Yu facility is expected to allow sales of the hot spring business to rise by 8.2% year-on-year.Operating profit is expected to rise by 12.4% year-on-year to ¥4.939 billion. The reasoning behind this estimate is outlook for growth in profits of the Curves Fitness Club, as well as karaoke club business expected to start growing profit in the second half and maintaining the trend of increasing profit for the full year. Growth in sales and successful cost reduction efforts are expected to allow the hot spring business to remain profitable during the second half. The same level of yearend dividend payment seen in the previous term of ¥15 per share is expected to be paid, for a full year dividend of ¥30 when combined with the ¥15 dividend paid at the end of the first half.  (2) Second Half Business Strategy
Karaoke Club Business
The full year new facility opening plan remains unchanged with a total of 40 new facilities expected to be opened, including 30 newly constructed and 10 existing facilities taken over from other operators. During the second half, Koshidaka will shift its strategy of opening by "takeover and refurbishment of existing clubs operated by other companies in suburban regions" to "construction of clubs in urban locations in front of stations and busy business districts". And while competition within the Tokyo Metropolitan Area is intense, Koshidaka's share of this regional market remains low and the potential for growth is high. Supported by the favorable reputation of Koshidaka's facilities service characteristics of "safety, security, reasonableness, and friendliness", the Company expects that it can open more than 200 facilities in Tokyo and the surrounding region including Kanagawa, Chiba, and Saitama Prefectures. Koshidaka is endeavoring to achieve a network of 1,000 facilities through expansion in the Nagoya and Kansai regions based upon the experiences in the Tokyo region and based upon the achievement of profitability during the first half of all "One Kara" facilities.With regards to marketing, "Zero Kara Plus", which is an updated version of "Zero Kara," has been launched, and contents provided through the original "Sukitto" karaoke commander service has been fortified. "Zero Kara Plus" provides high school users access to facilities at a student discount of 50% by registering as a member until they are 20 years of age. Along with an increase in new facility under construction in the Tokyo Metropolitan Area, the know-how and experiences cultivated in the traditional "takeover of existing stores and regional" opening strategies will be used to facilitate the hardware for and to expand the customers of the "Sukitto" service, in addition to absorbing increases in costs and preventing declines in asset efficiencies. In overseas markets, Kashidaka's Korean operations seek to achieve profitability on a monthly basis, and its Singapore operations will renovate and convert facilities from the "K Box" brand to the Koshidaka's own "Karaoke Honpo Manekineko" brand format. In addition, the Company will endeavor to achieve a 1,000 facility network with an eye to operations in Southeast Asia as part of its overall business strategy. Curves Fitness Club Business
The number of members at nearly all of the Curves Fitness Club facilities is growing, and efforts will be implemented to achieve a total number of members of 1 million and to open between 100 and 120 new facilities per year. With regards to marketing, efforts will be made to raise customer satisfaction by strengthening the skills of instructors at the club facilities. In addition, new products in new realms are being developed to strengthen product sales business, and infomercial advertising (30 second television commercials) are being broadcast to raise the brand awareness of the Curves Fitness Clubs. Furthermore, Koshidaka will endeavor to create new business models by strengthening collaboration with regional government bodies based upon the success of the Curves Oyamacho Health Center (Tottori Prefecture).
Hot Spring Bathing Business
Koshidaka will strengthen its energy saving capabilities at facilities with the goal of achieving profits on a full year basis. With regards to fortification of the facility operations, various campaigns, including free admission for elementary school students and bingo games for all users, will continue to be implemented and strengthened, along with the introduction of carbonated spring, which has been popular at the Tokyo Kenko Land Maneki No Yu facility, at other facilities. Moreover, new services designed to satisfy the needs of customers (Designed to capture inbound demand for overnight stay functions at the Tokyo Kenko Land Maneki No Yu facility) and fortified contents will also be introduced. At the same time, energy conserving capabilities will be strengthened, including air conditioning, water filtration, boiler and other fundamental functions, to achieve further energy savings. The next goal after achieving profits on a full year basis is to raise operating profit margin to 10%.
(3) Shareholders' Benefit Plan
Shareholder hospitality coupons and catalog product gifts will be presented to shareholders as of the shareholder registry date of August 31 holding at least one minimum trading lot of 100 shares.
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| Conclusions |
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In the Curves Fitness Club business, the number of facilities and members continue to grow, and demand of the approximately 450 franchise operators to open new clubs remains strong. The system of new member referred by existing members contributed to a strengthening of member numbers in existing operating territories, and the maximum number of potential clubs which can be opened has been raised from 1,800 to between 2,100 and 2,200 within Japan. The total number of Japanese females over the age of 50 is estimated to be approximately 25.00 million and the total number of Curves Fitness Club members who are in this age category is only 720,000 or 2.9% of this total. Consequently, Koshidaka believes that the potential to open more clubs remains strong based upon this diffusion data. At the same time, the ability of the hot spring business to achieve profits on a full year basis is now within sight. And after profitability has been achieved, the next goal will be to raise operating profit margin to 10%. Consequently, priority will be given to strengthening existing facilities rather than opening new facilities as the main focus of the strategy in this business. A strong earthquake registering a maximum 7 on the Japanese seismic intensity scale struck the Kumamoto region in southern Japan on April 14, 2016 and numerous large aftershocks of over seismic intensity scale 6 have continued to plague the region thereafter. And while there had been some concerns that these earthquakes would affect the Curves Fitness Club operations in Kumamoto operated on a franchised basis, there have been no personal injuries and no large negative impact seen. Furthermore, President Hiroshi Koshidaka gave his condolences to the victims of the Kumamoto earthquake disaster in his opening remarks at the earnings announcement presentation. 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 Investment Bridge Co., Ltd. All Rights Reserved. |
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