BRIDGE REPORT
(2157)

プライム

Koshidaka HOLDINGS Co., Ltd. (2157)
Hiroshi Koshidaka, President
Hiroshi Koshidaka,
President
Corporate Profile
Company
Koshidaka HOLDINGS Co., Ltd.
Code No.
2157
Exchange
JASDAQ
Industry
Service
President
Hiroshi Koshidaka
HQ Address
World Trade Center Building, 2-4-1 Hamamatsucho Minato-ku, Tokyo
Year-end
August
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥1,728 17,954,591 shares ¥31.026 billion 14.1% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥32.00 1.9% ¥148.44 11.6x ¥755.09 2.3x
* Share price as of close on October 14, 2016. Outstanding shares as of most recent quarter end, excluding treasury stock.
 
Consolidated Earnings Trends
Fiscal Year Sales Operating
Profit
Ordinary Profit Net Profit EPS (¥) Dividend (¥)
August 2013 34,515 4,151 4,237 3,072 162.09 50.00
August 2014 37,720 4,276 4,370 2,423 127.87 55.00
August 2015 44,257 4,394 4,492 2,098 112.79 30.00
August 2016 51,170 4,810 4,699 1,900 104.71 32.00
August 2017 (Est.) 55,112 5,468 5,519 2,694 148.44 32.00
* Estimates are those of the Company. From fiscal year August 2016, the definition of net profit has been changed to net profit attributable to 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 HOLDINGS's earnings results for the fiscal year August 2016 and other details of the Company.
 
Key Points
 
 
 
Company Overview
 
Koshidaka HOLDINGS Co., Ltd. is a "comprehensive entertainment and leisure services provider" and it promotes a strategy of "creating new businesses in existing industries" in the four realms of "amusement," "sports and fitness," "tourism and travel," and "hobbies and cultural activities." Based upon its two mainstay businesses of karaoke clubs, which boasts of stable growth, and Curves Fitness Clubs, which boasts of high growth, Koshidaka has been able to continue to grow both sales and profits since its listing and is cultivating new businesses such as its hot spring facilities. Moreover, the Company will take on a new perspective to target new customers by creating new services and operational methods to establish unique business models as part of its strategy of creating "new businesses in existing industries" based upon the Company's expertise within these industries.
 
<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.
 
<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 specialized for middle to older aged female users 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 and real estate management business segments during fiscal year August 2016 accounted for 54.0%, 42.3%, 3.0%, and 0.6% of total sales respectively. With regard to operating profits, the karaoke club, Curves Fitness Club, hot spring and real estate management business segments during fiscal year August 2016 accounted for 21.0%, 75.9%, 1.4% and 1.8% of total profits respectively.
 
 
 
The non-consolidated subsidiaries include English Island Co., Ltd., which uses the television conference software application "Skype" to provide English lessons with native English speaking teachers living overseas, EEIKAIWA, Inc., and Koshidaka R&C Co., Ltd.
 
<Growth Strategy>
The possibilities within the Japanese leisure related market are considered to be limitless, given its massive size of about ¥72.3 trillion (Source: Japan Productivity Center, Leisure White Paper 2016). Moreover, an increase in the number of baby boomers approaching the age of 75 (Peak number being born between 1947 to 1949) is expected to contribute to strong growth in the market. 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 goal of achieving Group sales of ¥100.0 billion at an early stage.

According to the "Karaoke White Paper 2015," the karaoke market within Japan in fiscal year 2015 (April 1, 2015 to March 31, 2016) grew on a year-on-year basis to ¥399.4 billion from ¥397.9, ¥395.7 and ¥391.2 billion in fiscal years 2014, 2013 and 2012 respectively. According to newspaper reports, the fitness club market has continued to trend sideways during the past several years at around ¥410.0 billion.
 
Strategies by Business Segment
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 clubs in Tokyo and three neighboring prefectures. Based on the favorable reputation of Koshidaka's facilities service characteristics of "safety, security, reasonableness, and friendliness", the Company will conduct efforts to expand its karaoke system developed in-house "Sukitto" (Smart Karaoke Internet Terminal) and its "Zero Kara" clubs targeting high school and younger karaoke users in Tokyo and three neighboring prefectures. While the share of sales booked in Tokyo and three neighboring prefectures during fiscal year August 2012 was 21.1%, it has grown to 31.5% in fiscal year August 2016 and has helped to offset weakness encountered in other outer lying regions.

Sales and profits of the Singaporean subsidiary are growing on the back of the injection of knowhow developed in the Japanese karaoke club business and as part of the efforts to leverage profits recorded within Japan to develop the overseas business. As of the end of fiscal year August 2016, there are 457 facilities operated in Japan and 24 facilities operated outside Japan.

Koshidaka has been able to achieve low withdrawal rates by leveraging its unique knowhow to build communities at the store level in the Curves Fitness Club business. While the normal exercise programs at Curves requires only 30 minutes, the ability to enjoy the program allows members to realize positive results because they do not get bored or tired of the programs (The most important point of exercise programs is to ability to sustain exercise over prolonged periods of time). An aggressive new club opening strategy where attention will be paid upon avoiding cannibalization of members and sales with existing clubs is being promoted to maintain growth in both club facilities and membership numbers. In addition, Koshidaka will pursue disease prevention and lengthening of healthy life expectancy rates through collaborations with regional government bodies and corporations, and efforts to cultivate synergies between exercise programs and highly effective protein supplements and other product sales to members. Measures are also being implemented to create a club network and systems to grow the total membership number to 1.00 million. As of end fiscal year August 2016, Koshidaka operated 1,722 fitness clubs (Including 55 directly operated clubs) and boasted of 772,000 members.

In the hot spring business, Koshidaka currently operates five facilities including the "Tokyo Health Land Maneki No Yu Natural Hot Springs" (Tokyo), "Koriyama Yudokoro Maneki No Yu" (Fukushima Prefecture), "Misato Onsen Maneki No Yu" (Gunma Prefecture), "Oita Mori Onsen Maneki No Yu" and "Oita Lamp No Yu Hanazonoten" (The last two are located in Oita Prefecture). Fixed cost reduction efforts through use of human resource development systems in employee training, and efforts to improve operations of facilities (hospitality) by leveraging knowhow developed in the karaoke club business have been implemented to achieve a turn to profitability of the hot spring business in fiscal year August 2016. Koshidaka now maintains near term goals of operating profit margin of 10% and increases in customer numbers of 10% by introducing new contents and special campaigns, and refurbishment of some facilities to improve operating efficiencies.
 
 
Fiscal Year August 2016 Earnings Results
 
 
Ninth Consecutive Term of Higher Sales, Profits and Dividends
Sales rose by 15.6% year-on-year to ¥51.170 billion. Success of the structural reforms within Japan through implementation of a new club opening strategy that focuses upon the Tokyo and neighboring three main prefectures, and the favorable conditions in the Singapore business allowed karaoke club business sales to rise by 16.2% year-on-year. In addition, increases in club and member numbers, and higher sales of protein allowed the Curves Fitness Club business sales to rise by 16.2% year-on-year as well. And while no new facilities were opened, sales of the hot spring business rose by 3.8% year-on-year due to an increase in customers.

With regard to profits, increases in sales derived from increases in new club openings in the karaoke club business and higher sales of protein in the Curves Fitness Club business caused gross profit margin to decline by 0.2% point year-on-year. However, the higher sales absorbed higher sales general and administrative expenses and allowed operating profits to rise by 9.5% year-on-year to ¥4.810 billion. At the same time, deterioration in non-operating income due to booking of foreign exchange translation loss of ¥177 million (Compared with a gain of ¥30 million in the previous term) and a temporary rise in the tax rate from 45.1% to 53.4% due to weakness in the Korean subsidiary, which is not subject to consolidated tax payment, contributed to a decline in net profit of 9.5% year-on-year to ¥1.9 billion.

The yearend dividend payment is expected to be raised by ¥2 to ¥17 per share, for a full year dividend of ¥32 per share (Compared with ¥30 in the previous term).
 
 
Sales rose by 16.2% year-on-year to ¥27.643 billion but operating profit fell by 2.7% year-on-year to ¥1.170 billion. The number of karaoke clubs at the end of the fiscal year rose by 45 to 457 compared to 402 at the end of the previous term. Of the 47 newly opened clubs, 15 were acquired and 32 newly constructed (Compared with 19 and 13 respectively for a total of 32 newly opened clubs in the previous term), and another 25 clubs were renovated (Compared with 37 in the previous term). At the same time, 2 clubs were closed (Compared with 7 in the previous term). The number of overseas clubs stood at 11 in Singapore and 13 in Korea, totaling 24 clubs at the end of the term (Compared with 10 and 9 in Singapore and Korea respectively, and a total of 19 at the end of the previous term).

By type of clubs within Japan, Menekineko accounted for 426, One Kara 10, and Moon and Sincere 21 (Compared with 381, 10 and 21 at the pervious term end). Koshidaka Co., Ltd. absorbed Moon Corporation as of September 1, 2016, and the "Moon" and "Sincere" brand clubs are being converted to "Manekineko" brand clubs, with completion expected in November.

Sales rose by ¥3.85 billion, but of this total increase ¥2.8 billion was derived from new club openings and ¥1.0 billion from the contribution of existing clubs operating overseas. Existing club sales within Japan trended at 100.1% of the previous year's level (Customer numbers and pricing trended at 101.1% and 99.0%), allowing the negative influence of club closures to be nearly totally offset. The new club opening strategy focused upon Tokyo and three neighboring major prefectures and the "Zero Kara" (Service provided to high school students where room usage is free for two or more students with a minimum food order of one dish per student) started in September 2015 have trended favorably and the number of customers recovered during the second half. Furthermore, the "Asa Uta" (Morning karaoke) service provided from July 2016 has been successful in capturing demand from senior citizen users in the morning time and is steadily ramping up.

In Singapore, conversion of the traditional "K BOX" brand to Koshidaka's "Manekineko" brand is progressing smoothly. As of the term end, 6 of 11 clubs had been successfully converted and one new "Manekineko" club had been opened. While the stronger yen led to a decline in sales, optimization of operations allowed profits to grow. At the same time, the medium term new club opening plan in Korea has been revised down from 9 to 4 clubs in light of the decline in customers at existing clubs. Renovation of the clubs, which had no facility for dining, is being promoted to allow for dining capabilities (Local regulations require minimum amounts of dining space to provide food and beverages).

With regard to profits, the burden of anticipatory expenses for new club openings and renovations has been relatively large for the One Kara service, which first opened five years ago and became profitable in its first year. Relative to sales growth of about ¥3.85 billion, increases in labor, depreciation, rent and total cost of sales amounted to ¥1.01, ¥0.82, ¥0.61 and ¥3.06 billion respectively. Furthermore, opening expenses, goodwill amortization, advertising and sales, general and administrative expenses also rose by ¥0.36, ¥0.1, ¥0.1 and ¥0.81 billion respectively.
 
Nationwide Promotion: "Zero Kara" and "Asa Uta"
"Asa Uta" morning karaoke service was created to capture demand from senior citizen users to sing at karaoke clubs in the morning, and "Zero Kara" service to offset the decline in usage by high school students noted on a nationwide basis. Both have gotten off to good starts and are seeing increases in customer numbers and sales. "Zero Kara" is also seeing increased usage of services other than karaoke, and the number of high school users is increasing by a large margin. "Asa Uta" is seeing usage by customers in groups.
 
 
Curves Fitness Club business celebrated its 10th year of operations (First club was opened in March 2006) during the current term and achieved growth in sales and operating profits of 16.2% and 9.8% year-on-year to ¥21.667 and ¥4.235 billion respectively. The number of clubs and customers at the end of the term rose by 120 or 7.5% year-on-year from 1,602 at the previous term end to 1,722 (Including 55 directly operated clubs) and 61,000 or 8.6% year-on-year to 772,000 respectively.

Of the sales increase of ¥3.0 billion, sales of protein, royalty and other ongoing income, existing club exercise machines and directly operated clubs accounted for ¥1.67, ¥0.96, ¥0.51 and ¥0.13 billion respectively. The age distribution of club members in their 30s, 40s, 50s, 60s and over 70 stood at 4.1%, 8.9%, 23.6%, 40.0%, and 23.4% respectively (The number of members over 40 comprised 95.9%).
 
 
 
Sales rose by 3.8% year-on-year to ¥1.552 billion and operating profit of ¥77 million was recorded (Compared with a loss of ¥89 million in the previous term). The various measures including special events conducted on a daily basis and other campaigns, high concentration artificial carbonated spring water, free admission for elementary school aged and younger children, and discounts for junior high school aged and above students have been successful in growing customer numbers and sales. At the same time, cost reduction measures including energy conservation have contributed to a ¥67 million reduction in water, heating and other utility expenses and overall reductions in cost of sales from in the previous term of ¥1.492 to ¥1.414 billion in the current term. Also, sales, general and administrative expenses have also been reduced from ¥92 to ¥60 million on the back of reductions in labor, rent and advertising expenses of ¥15, ¥14, and ¥11 million respectively.
 
 
Total assets rose by ¥2.854 billion from the end of the previous term to ¥33.517 billion at the end of the current term due in part to increases in total clubs in operation from new club openings, and in long term loans. From the end of the previous term to the current term, the current ratio declined marginally from 114.1% to 114.0%, fixed ratio rose from 143.4% to 157.3%, fixed long term compliance ratio rose from 96.2% to 96.4%, capital adequacy ratio fell from 43.7% to 40.4%, and return on invested capital ratio fell from 12.8% to 10.6%.
 
 
 
Fiscal Year August 2017 Earnings Estimates
 
 
Estimates Call for Sales, Operating Profit to Rise by 7.7%, 13.7%, Marking 10th Consecutive Term of Growth in Sales and Profits
Koshidaka HOLDINGS' earnings estimates call for sales to rise by 7.7% year-on-year to ¥55.112 billion. The karaoke club business is expected to see sales growth of 9.6% year-on-year based on a recovery in customer numbers visiting existing clubs, and strength of the new club opening strategy focused upon Tokyo and neighboring three major prefectures. Sales of the Curves Fitness Club business are expected to grow by 5.6% year-on-year on the back of opening plans for 90 new clubs. Also, sales of the hot spring business is expected to grow by 5.5% year-on-year on the back of 10% growth in customer numbers at the five facilities currently operated.

With regard to profits, operating profit of the karaoke club business is expected to rise by 24.1% year-on-year on strength in existing store usage. In addition, higher sales, effective energy conservation and other measures are expected to allow operating profit of the hot spring business to grow by 70.1% year-on-year. Advertising expenses to increase the brand awareness of the Curves Fitness Club business are expected to be absorbed to allow operating profit to rise by 7.4% year-on-year.
 
 
Karaoke Club Business
Koshidaka expects to open 50 new clubs, including 15 acquired and 35 newly constructed clubs, during the coming term. Structural reforms including a shift in 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" are being implemented along with acceleration in the new club opening strategy focused upon Tokyo and three neighboring prefectures. In addition, the Company will strengthen its marketing capability in Kanagawa Prefecture by converting the "Moon" and "Sincere" clubs operated by the consolidated subsidiary Moon Corporation, which was absorbed, to "Manekineko" brand clubs. Koshidaka is also considering new openings of One Kara clubs, all of which turned profitable during the previous term.

With regard to the marketing function, Koshidaka is endeavoring to fine-tune its "Zero Kara" service by steaming video contents over smartphones and personal computers to increase its brand recognition. The Company will also promote activities to strengthen its "Asa Uta" morning karaoke service and to capture a wider segment of the senior citizen audience. Moreover, the original "Sukitto" karaoke commander service will be leveraged in various collaborations and new services including Internet based reservation services will be implemented. Another development is the banning of smoking in all rooms of "Manekineko" karaoke clubs in the Tokyo and neighboring three prefectures.

All of the karaoke clubs in Korea will be converted to new layouts that accommodate dining functions, with the first renovated club being opened at the beginning of 2017 and all clubs being renovated and reopened by spring 2017. At the same time, the transformation of existing clubs to Koshidaka's own "Manekineko" brand clubs is being promoted in Singapore, and business expansion activities in Southeast Asia will be launched from the regional headquarter in Singapore. Koshidaka is considering a business deployment strategy that will enable them to start business in Indonesia, the Philippines, and Vietnam at an early stage.
In addition to the above mentioned business developments, Koshidaka is also facilitating its human resources strategy that allows employees to completely use their paid vacation as a means of increasing the motivation of its employees. It will also introduce a frequent user system called "Manekineko Miles". Moreover, the "Be Ambitious" franchise system, where club managers at existing directly operated facilities are given training and opportunities to become franchise club owners themselves, is also being promoted on an ongoing basis.
 
Curves Fitness Club Business
Koshidaka expects to open 90 new clubs, and promote measures to create a system and store network that will enable them to achieve a member network of 1.00 million. With regard to marketing, Koshidaka will conduct collaborations with national brands, strengthen the "Curves Food Drive" event, and promote 30-minute television infomercials to increase the brand awareness of the Curves Fitness Clubs. The first collaboration was created with Morinaga Milk Industry Co., Ltd. called "Oishiku! Tanoshiku! Hajimeyo Kenko Shukan Campaign" (Delicious! Fun! Start Healthy Habits Campaign!) and was launched in October 2016. In addition to protein products, other new products and services are being developed for customers.

Koshidaka will offer one free trial usage tickets for its Curves Fitness Clubs in the collaborative "Oishiku! Tanoshiku! Hajimeyo Kenko Shukan Campaign" (Held from October 1, 2016 to January 31, 2017) to be attached to Morinaga's "Good Tasting Low Fat Milk" (500 and 1000 milliliters), "Non Fat Milk" (500 and 1000 milliliters) and "Kraft Torokeru Slice Half" (Diet cheese product) products. The "food drive" is a philanthropic activity where unused foods are collected from individuals for donation to women, children and senior citizens in need of foods.
 
Hot Spring Business
Koshidaka's near term target in this business is to achieve operating profit margin of 10%. The Company also seeks to achieve 10% growth in customers at all of its five facilities through the introduction of various measures including free admission for children of elementary school age and under and daily campaigns. At the same time, it will conduct efforts to optimize operations a step further. Opening of new facilities and introduction of new equipment and systems are also being considered as part of the business expansion strategy.
 
(3) Shareholder Returns
Dividends of ¥16 are expected to be paid at the end of the first half and full year for a full year dividend payment of ¥32 per share. Furthermore, Koshidaka also offers ¥5,000 in shareholder coupons to all shareholders holding more than 100 shares and different catalog gifts in accordance with the number of shares held as of the registry date of August 31, 2016 as part of its shareholder benefit program. Shareholders of over 100 but less than 1,000 shares are offered catalog gifts worth ¥3,000, and those holding over 1,000 share are offered catalog gifts worth ¥5,000.
 
 
Conclusions
 
Successes of the new club opening strategy focused upon Tokyo and three neighboring prefectures conducted since fiscal year August 2014 have begun to appear, and the new "Zero Kara" and "Asa Uta" services are ramping up steadily. In the overseas business, Koshidaka is encountering difficulties in Korea but the transformation of existing clubs to the "Manekineko" brand is progressing smoothly in Singapore. A key point to fiscal year August 2017 will be Koshidaka's ability to maintain its current momentum in its business endeavors in Japan and overseas. At the same time, the Company has been able to surprise analysts and fund managers concerned over the saturation of Curves Fitness Club facilities by achieving continued growth in facility and member numbers. Furthermore, Koshidaka management believes that there are new measures it can implement to achieve its goal of 1.00 million members (Member numbers stood at 770,000 at end fiscal year August 2016). While the Company has achieved its goal of turning the hot spring business profitable during fiscal year August 2016, it will maintain its efforts to grow this business and firmly establish its profitability.

While Koshidaka must endeavor to overcome various issues in its businesses, Investment Bridge remains optimistic over the future outlook for Koshidaka HOLDINGS. Investment Bridge's optimism is based on the ongoing shift of Japanese consumers from "goods" to "experiences" and because of the unique knowhow of Koshidaka as a company providing "experiences".

The origin of Koshidaka HOLDINGS is a ramen noodle stall that Mr. Yoshiharu Koshidaka started in 1954 to serve customers in the Sakura Shinmachi district of Setagaya Ward, Tokyo. In 1964, Yoshiharu Koshidaka moved his business to Maebashi City, Gunma Prefecture, which is close to his hometown of Sano City, Tochigi Prefecture and established a Chinese restaurant called "Shinseiken". In March 1967, he incorporated his business. The current President Hiroshi Koshidaka began and focused upon the karaoke business after he took over the reins of the Company. Thereafter, various M&A efforts have been conducted including the start of the Curves Fitness Club business and its subsequent strong growth has allowed it to become a cornerstone of earnings. Fiscal year August 2017 marks Koshidaka's 50th anniversary of operations and the Company will endeavor to achieve its 10th consecutive year of growth in both sales and profits during fiscal year August 2017.
 
 
<Reference: Regarding Corporate Governance>
 
 
◎ Corporate Governance Report
Updated on Sep. 6, 2016
Basic Views
The fundamental policy of our corporate group on corporate governance is to realize expeditious decision-making and swift organizational management to increase our business competitiveness in the rapidly changing management environment, while maintaining business transparency and soundness, so that our corporate value to shareholders can be maximized. For that, we have established a system and take various measures.

Our company, as a company listed on the JASDAQ market, implements every general principle 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) 2017 Investment Bridge Co., Ltd. All Rights Reserved.
 
 
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