BRIDGE REPORT
SAKURA Internet (3778)
Kunihiro Tanaka, President
Kunihiro Tanaka,
President
Corporate Profile
Company
SAKURA Internet
Code No.
3778
Exchange
Tokyo Stock Exchange Mothers
Industry
Information and communication
President
Kunihiro Tanaka
HQ
Sakaisuji Honmachi Bldg. 1-8-14 Minami-Honmachi, Chuo-ku, Osaka
Business description
Operates data centers in three areas; Tokyo, Osaka, Hokkaido. A leading enterprise in the industry. Sojitz Corporation executed TOB aiming to acquire the company as its consolidated subsidiary, but the company maintains its policy to be listed on the Tokyo Stock Exchange
Year-end
March
URL
Stock Information
Share Price Shares Outstanding
(excluding Treasury stocks)
Market Cap. ROE (Actual) Trading Unit
708Yen 8,677,489 shares 6,144 Million Yen 16.2% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Actual) PBR (Actual)
5.00Yen 0.7% 57.62Yen 12.3times 365.80Yen 1.9times
* Stock price as of the close on 4/26. Number of shares at the end of the most recent quarter excluding treasury shares.
ROE, BPS based on previous term's results.
 
Non-consolidated Earnings Trends
Fiscal Year Sales Operating Profit Current Profit Net Profit EPS (¥) Dividend (¥)
March 2010 (Actual) 7,812 748 723 567 12,906.39 1,000.00
March 2011 (Actual) 8,584 1,225 1,194 572 13,202.24 1,000.00
March 2012 (Actual) 9,164 873 808 556 64.13 5.00
March 2013 (Actual) 9,482 867 812 479 55.20 5.00
March 2014 (Estimate) 11,000 1,000 820 500 57.20 5.00
* Estimates are those of the company. In October 2011 a stock was divided into 200 stocks.
 
Company Overview
 
SAKURA Internet operates data centers in three areas; Tokyo (Nishi-Shinjuku, Higashi-Shinjuku, Daikanyama), Osaka (Dojima), and Hokkaido (Ishikari). The company deals with housing service, which provides server installation space, power supply and network lines, and hosting service, which provides server environment (computer resource) on the internet. While many hosting service companies depend on external infrastructures (data center facilities), the company seeks for higher profits by maintaining the infrastructures by itself (which is the main driver for its price competitiveness). By using these infrastructures for housing service, the company can raise the utilization rate and lower the risk (infrastructure possession risk) of fixed costs.
 
Business overview
The company's business is divided into housing service (from now on referred to as housing), hosting, and other associated services such as consulting for domain acquisition and server construction and Cloud computing. The shares of these three fields in total sales of FY3/13 were 32.8%, 57.6%, and 9.6% respectively. The company's housing mainly deals with rack-lending (one customer possesses one rack), but at the data center in Ishikari they are lending out space for large-scale use as well. The data center in Ishikari also provides remote housing and covers the handicap in remote locations by doing all physical work on behalf of its users (users do not need to go to the location even in case of emergency). However, the hosting is divided into physical hosting, where the company lends out physical servers (providing services for both dedicated servers and rental servers), and virtual hosting (providing both Cloud and VPS services), where the company creates various virtual machines (VM) on physical servers and provides services by VM units.
 
 
Characteristics and strength
Leading IT infrastructure base on a domestic scale
SAKURA Internet has the largest domestic backbone network (network nucleus part) with an external connection of 269Gbps. By connecting to leading IXs in Japan (a connection point to interconnect networks from different internet service providers and academic networks etc.) and multiple major ISPs (internet service provider) in Tokyo and Osaka, the company manages to lower the risk of network failure to nearly zero and achieve high availability (low risk of system failure) and overwhelming traffic transmission capabilities.
 
A consistent system from development to operation and support (in-house data centers and internal value chains)
While many hosting service companies depend on external infrastructures (data center facilities), the company maintains its own infrastructures and by using these infrastructures for housing service, which helps to raise the utilization rate and reduce the risk of fixed costs (infrastructure possession risk).
 
Top-class customer base and brand value in Japan with successful risk diversification
The company is highly recognized among IT engineers for operating high quality data center with low costs and its data centers are utilized widely from individuals to companies (unlike rival companies which are highly dependent on limited number of large customers, the company's customer base is mainly comprised of small customers, which enables them to diversify risks).
 
 
New Mid-term Business Plan (FY3/13 - FY3/15)
 
As earnings targets for FY3/15 which is the final year of its mid-term plan, the company seeks for 12.5 billion yen in sales, and 1.25 billion yen in ordinary profit. Also, in order to achieve these targets, it assumes the sales growth rate with more than 10%, the gross profit margin with more than 30%, and the ordinary profit margin with more than 10%.
 
 
 
Fiscal Year March 2013 Earnings Results
 
 
3.5% increase in revenue compared to previous term and 0.5% increase in ordinary profit
The sales increased 3.5% compared to the previous term to 9,482 million yen. The housing sales have gone up 3.3% after the influence from the cancellation of a big contract during the first half was absorbed by the operation of a new big project. The hosting sales have also increased 3.5%, as the decrease in dedicated servers has been absorbed by the increase in rental servers, VPS etc.
On the profit side, the gross profit margin dropped slightly due to increased depreciation expenses (1,263 million yen 1,466 million yen), but the company achieved operating profit almost the same level as last term on the back of the revenue expansion, despite of SG&A increase (mainly personnel costs) due to the expansion of business content and the start of full operation of Ishikari data center. Although the non-operating income has improved due to the additional tax refund and income from facilities, due to an increase in special loss and an increase in tax burden, net profit has decreased by 13,9% to 479 million yen.
 
 
 
 
 
Fiscal Year March 2014 Earnings Estimates
 
 
16.0% increase in sales compared to previous term and 0.9% increase in ordinary profit
The sales expanded 16.0% compared to the previous term to 11,000 million yen. Considering the order trend of the fourth quarter of FY3/13, the utilization rate of Ishikari data center building 1 is expected to be high and the building 2 which will start operation during this term should also contribute, and the sales are likely to show strong growth. When it comes to the service, sales of both housing and rental server are expected to grow by more than 200 million yen, with VPS sales growth by more than 500 million yen, cloud sales by about 300 million yen.

On the profit side, the increased cost for the construction of Ishikari data center building 2 should be absorbed by the increase in marginal income by higher utilization rate of building 1, and the operating profit is expected to increase 15.3 %. The non-operating income will decrease due to an increase in financial costs etc., while the net income is expected to increase by 4.4% to 500 million yen due to improvement of the special profit and loss.

Capital investment is planned at a total amount of 5,000 million yen; 3,000 million at the data center in Ishikari and 2,000 million at existing data centers. The depreciation costs are expected to increase by approximately 300 million yen to 1,850 million yen. During this term, the electricity supply will be available in all zones at Ishikari data center building 1 and the construction on the site of building 2 is scheduled to be completed.
 
 
Conclusions
 
The data center market is expected to maintain a steady growth due to widespread use of mobile devices and Web applications, in particular virtual hosting in VPS and cloud computing has a high growth potential. In this circumstance, the company has cleared all the hurdles which it needs to overcome to be a successful data center operator, such as "preparation of cloud service menus," "local data center usage," and "preparation of disaster-related menus." This is reflected in the sales growth of "SAKURA cloud" and the start of construction on site of Ishikari data center building 2 one year earlier than planned. As a result, the company continues to achieve record-high sales, but the profit growth has remained low due to upfront investment burdens. However, operating profit is expected to shift to record 2-digit growth in FY3/14, and reach record-high in FY3/15.
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) 2013 Investment Bridge Co., Ltd. All Rights Reserved.
 
 
PAGE TOP