| SHINWA WISE HOLDINGS CO., LTD. (2437) |
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Company Name |
SHINWA WISE HOLDINGS CO., LTD. |
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Stock Code |
2437 |
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Exchange |
JASDAQ |
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Industry |
Services |
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President |
Yoichiro Kurata |
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Headquarters |
2nd floor of Ginza Medical Bldg., 7-4-12 Ginza, Chuo-ku, Tokyo |
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Fiscal Year End |
End of May |
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Home Page |
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*Stock price as of closing on February 7, 2018. Number of shares at the end of the most recent quarter excluding treasury shares. ROE is from the FY 5/17 and BPS is from the 2Q of FY5/18.
Rounded off to the million yen. Dividend yield, PER, and PBR are rounded to one decimal place. Hereinafter the same shall apply. |
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* Estimates are those of the Company. Consolidated accounts began being released from FY5/14. A 100 for 1 stock split was performed on December 1, 2013. The definition for net profit has changed to net profit attributable to shareholders of the parent company (Abbreviated as parent net profit).
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| Key Points |
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| Company Overview |
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In addition to the above two subsidiaries, major group companies include Shinwa Prive Co., Ltd., which engages in art dealing and the gallery business, and Shinwa Market Co., LTD., which develops auctions for jewelry and online auctions. <Company History>
Shinwa Art Auction was founded in August 1987 as an organization called "Shinwa-kai" for the exchange of artworks by art dealers. The Company's first auction called "Shinwa Art Auction's First Modern Art Auction" was held in September 1990. In June 1991, the Company adopted the name of Shinwa Art Auction Co., Ltd. Subsequently, it held the "First Modern Ceramic Auction" in 1996, the "First Japanese Tea Utensils Auction" in 1997, and the "First Modern Painting, Prints and Crafts Auction" in 1999. Shinwa Art Auction listed its shares on the Hercules Market of the Osaka Securities Exchange (currently known as the JASDAQ Market of the Tokyo Stock Exchange) in April 2005. It acquired the shares of Apec Co., Ltd. (currently known as Shinwa ARTEX Co., Ltd.) and turned it into a subsidiary in April 2013. Shinwa Medical Co., Ltd. (currently known as Shinwa Medico Co., Ltd.) was also established in April 2013. Through these initiatives, the Company has worked to diversify its revenue base leveraging its high net worth customers, while keeping the auction business at the core of its businesses.In December 2017, the Company was transformed into a holding company, while considering that in order to grow further and maximize its corporate value, it is desirable to divide the planning and implementation functions for the Group's growth strategies, streamline the decision-making process for group administration, and establish a system in which each group company can flexibly respond to changes in the business environment. <Market Environment>
The market for artworks within Japan (total bids for items sold through auctions) had shrunk to ¥1.4 billion in the wake of the bursting of the bubble economy in 1992. But after the start of public auctions in 1999, the auction market recovered to exceed the previous peak in 1990, and expanded to ¥21.8 billion. After the occurrence of the 2008-09 financial crisis, the artwork auction market once again shrank to less than ¥10 billion in 2011, but it recovered to approximately ¥15 billion (the latest). However, it remains well below the recent peak achieved in 2007.As is explained later in this report, Shinwa Wise Group believes that Japanese artworks are extremely undervalued. Therefore, the "Regeneration Project of Japanese Modern Art" has been established to remedy this situation and expand the market to a minimum of ¥100 billion. <Business Description>
The business segments to be reported are the Auction Related business and the Energy Related business. In addition, the Company aims to nurture future core businesses, by developing and expanding businesses in various fields.
① Auction Related Business
The Auction Related business is composed of auction business as well as other auction related business.
(1) Auction Business
In addition to the holding of auctions based upon product and price categories including modern art, modern ceramic art, and other modern artworks on a regularly scheduled basis, Shinwa Auction also conducts auctions for wine, European decorative art, and other products on an ad hoc basis. J Auction Co., Ltd. (currently known as Shinwa Market Co., LTD.) was established as a subsidiary in October 2013 to provide auction services for high-end brand items, watches, jewelry, and other products.Bidding commissions are the main component of sales (consisting of both bidding and exhibition commissions). Bidding commissions are 15.0% of a bidding price for items with a bidding price of under ¥2 million, 12.0% with a bidding price of over ¥2 million and under ¥50 million, and 10.0% with a bidding price over ¥50 million. Also, an exhibition fee is charged for all products put up for sale at a rate of 10.0% of a bidding price (consumption tax is separately charged). Furthermore, Shinwa Auction also purchases items for sale at auctions and through private channels. The prices of directly purchased artworks sold at auctions and through private sales will be booked as sales. Therefore, changes in these inventory product sales will lead to fluctuations in sales. In addition, other revenues include catalog sales and listing fees on those catalogs collected from the consignors, and membership fees collected from fee-based memberships. (2) Other Auction Related Business
Private sales are the primary service conducted within this business. Private sale which is conducted by the subsidiary, Shinwa Prive Co., Ltd is the name used to describe artworks sold through negotiated transactions. As in auction transactions, sales commissions are charged to both sellers and purchasers of artworks based upon the prices of the artworks sold. In addition, some artworks are purchased by Shinwa Prive and kept as inventory for sale to customers.
 ② Energy Related Business
Shinwa ARTEX Co., Ltd. conducts sales of low voltage 50kW solar power generating facilities to high net worth individual customers and corporations. Furthermore, the company sells high voltage solar power generating facilities, some of which Shinwa ARTEX Co., Ltd. itself owns to generate electric power for sale. In addition, Shinwa Wise Group, endeavoring to develop new earnings drivers, has started the PKS business (natural biomass energy business derived from coconut shell that is a byproduct of palm oil manufacturing) in Malaysia by acquiring Shinwa APEC Malaysia Sdn. Bhd. It is also developing a business for promoting ZEH (Net Zero Energy House).
③ Others
Shinwa ARTEX's subsidiary Shinwa Medico Co., Ltd. is commercializing medical tourism for Shinwa Wise Group's high net worth customers. Shinwa Medico introduces medical services to the wealthy individuals both in Japan and other parts of Asia, through cooperation with medical institutions that provide advanced medical services, advanced regenerative medicine services, and advanced medical examinations. It also operates the used house brokerage business, the insurance business, the business of selling diamond for protecting clients' assets, the cultural support business in Texas, and the microfinance business in Myanmar.
<Characteristics and Strengths>
In the market of expensive artworks in Japan, Shinwa Auction Co., Ltd. is estimated to occupy a top-class share.
Since experts very well-versed with modern art are employed by the Company, auction items, especially high-end luxury items, can be accurately evaluated. Therefore, a strong brand reputation linking Shinwa Auction to luxury goods has been established amongst customers. In addition, being the only publicly traded auctioneer, Shinwa Auction's position is all the more preeminent. ① Top-Class Auction Company in Japan Shinwa Wise Holdings Co., Ltd., which has Shinwa Auction Co., Ltd. under its umbrella, is the only listed company that holds auctions for artworks, and is unrivaled in the aspect of reliability. ② Business Leveraging Strong Network of High Net Worth Individuals
Many of both sellers and buyers of artworks in auctions held by Shinwa Auction are high net worth individuals.Over the 30 years of its operations, the Company has cultivated a customer list of nearly 30,000 high net worth individuals who require strategies for wealth management, tax savings, inheritance and other issues. Consequently, the Company can take advantage of this customer list and provide a variety of other businesses in addition to the auction business. Therefore, the energy related, medical institution support businesses, overseas real estate brokerage business and the business of selling diamond for protecting assets are conducted to exploit these opportunities. The Company intends to pursue various other services going forward.  |
| First Half of Fiscal Year May 2018 Earning Results |
 Sales and profit decreased.
Sales were 1,210 million yen, down 32.5% year on year. The sales of the auction related business grew, as auctioned items increased, while the sales of the energy related business dropped, because of the sluggish sales of low-pressure solar power generation facilities. Operating loss augmented year on year from 0 million yen to 38 million yen. The auction related business moved into the black, while the energy related business fell into the red. In the auction related business, the sales of diamond handled by Shinwa ARTEX were smaller than the estimate, and in the energy related business, the sales of solar power generation facilities were stagnant. Accordingly, neither sales nor profit reached the initial estimate.  ① Auction related business
The number of auctions in the current term is not changed from 13 at the same period of the previous term. Contrary to this decline, the number of artworks put up for auction rose from 3,305 at the same period of the previous term to 3,403 in the current term. The average successful bid price in the modern art auction decreased by 6.6% year on year, while that in the modern pottery art auction increased by 35.7% year on year, as the performance of antiques remained favorable, and that in the modern art auction Part II rose by 29.3% year on year. I) Auction Business As for other auctions, the wine auction remained healthy.  II) Other Auction Related Business
As for private sales, the company established a wholly owned subsidiary, Shinwa Prive Co., Ltd., which specializes in the gallery business and aggressive efforts are made to take careful measures for customers' needs. Furthermore, Shinwa Diamond club was organized to start diamond sales for protecting clients' assets based on the high net worth customer business which the Company has cultivated so far. Since it took longer than expected to instill "From Gold to Diamond," sales went below the plan. As for the overall private sales, however, both the amount of transactions and sales increased significantly. ① Energy Related Business
As for the sale of 50kW-level low-pressure solar power generation facilities, the demand for them with the purpose of applying the tax system for promoting the investment in equipment for increasing productivity shifted to the demand for them with the purpose of improving investment yield, and the Company strived to procure solar power generation facilities that could be the targets of investment for earning profits. Demand for purchase remains strong, but the market plunged into turmoil, because the certification system was changed significantly pursuant to the amended FIT law, which was enforced in April 2017. Since it took time to select a procurement project that allows interconnection surely, the number of facilities sold was only 13 (61 in the same period of the previous year), while the target number was 50. As the market turmoil has subsided as a whole and the Company is about to secure a procurement project, most plans in the first half will be achieved in the second half. The sales of power supply from the Company's own solar power generation facilities were healthy. Furthermore, the Company acquired Shinwa APEC Malaysia Sdn. Bhd. in Malaysia, to develop a new source of revenue, and started procuring and selling products in the PKS business. ② Others
As introduced in the previous report, the Company entered the wealth management field, in which the sale of overseas real estate is mainly mediated, and launched the business of introducing used real estate in Texas, the U.S. Since the tax system, economic situation, and real estate circumstances there were little known in Japan, it took much more time than expected to diffuse the information that the real estate is worth investing for obtaining capital gain. Accordingly, the quantity of real estate sold and profit rate did not reach the respective initial estimates at all. In Myanmar, the Company obtained a license to do the microfinance business for improving the standard of living of farmers and small-scale enterprises by offering small loans, and started the microfinance business.  As a result, capital-to-asset ratio rose by 3.0% from the end of the previous term to 34.2%.  Investing CF became positive, due to the decrease in purchase of property, plant and equipment. Free CF also became positive. Short-term debts, which augmented in the same period of the previous year, decreased in the first half of this term. Accordingly, financing CF became negative. The cash position improved. |
| Fiscal Year May 2018 Earnings Estimates |
 No change to the earnings forecast. Sales and profit are estimated to grow by double digits.
Shinwa Wise Holdings' fiscal year May 2018 earnings estimates call for sales and operating profit to rise by 11.5% and 18.6% year-on-year to ¥5,960 million and ¥432 million, respectively.The auction related business is expected to see the increase in sales of diamond for protecting assets, while the energy related business is expected to witness the sale of a significant number of low-pressure solar power generation facilities. The same level of dividend of ¥7.20 per share is expected, for an anticipated dividend payout ratio of 19.2%. |
| Holdings Systems, New Business Concepts and Strategy |
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The Company shifted to a holding company structure, thus renamed Shinwa Wise Holdings Co., Ltd. This transformation was done based on the idea that, in order to realize further growth and maximize corporate value, the Company should build a structure in which all of its group companies can respond flexibly to changes in the business environment while endeavoring to separate its planning and execution functions, and accelerating its decision-making process.  (2) Strategy and History The first phase of the new 10-year Medium Term Management Plan, which was designed for the Company to grow further while defining the year 2013, or the 25th anniversary of the start of business, as the second startup year, will end this term, and the second phase (June 2018 to May 2023) will begin next term. The shift to the holding company structure is considered as the culmination of the first phase of the Medium-Term Management Plan. After the shift to the holding company structure, the Company aims to establish a core business in the second phase while operating various businesses, and achieving sales of 50 billion yen and an ordinary profit of 5 billion yen. After the second phase, the Company plans to start "Triple 1 Campaign (June 2023 to May 2028)" with the aim of getting listed on the first section of Tokyo Stock Exchange and achieving sales of 100 billion yen and an ordinary profit of 10 billion yen, from June 2023. (3) Group Business Strategy The Company aims to become "a selection service company for building a carefully-selected platform covering the entire society based on the network of high net worth individuals, which began with fine arts." ① The Core of Group Business Strategy
The core of the new Group's business strategy will continue to be built on the two concepts of "Regeneration Project of Japanese Modern Art" and "Leveraging High Net Worth Customer Network." The Company will "develop a platform for next-generation social infrastructure" for the purposes of developing a society utilizing renewable energy infrastructure, operating social business and microfinance, investing in and developing a block-chain platform, etc. These three business strategies will become the bedrock of the Group's business.
<1. Regeneration Project of Japanese Modern Art>
Based upon the belief that the current valuation of modern Japanese art, which is viewed to be amongst the highest quality art in the world, is too low, Shinwa Wise Holdings Co., Ltd. will implement various efforts that leverage its experiences, networks and strong capital standing to regenerate the market and realize the true value of modern Japanese art.Along with educational activities conducted to help raise the artistic and economic values of artworks, efforts will be made to grow earnings. The current value of the market is estimated to be ¥10 to ¥15 billion, and Shinwa Wise Group seeks to expand this to at least ¥1,000 billion within ten years. It is also keenly aware of the strong need to fortify its capital position. While enhancing the profitability of the auction business, the Company will take advantage of equity finance actively. <2. Leveraging High Net Worth Customer Network>
Shinwa Wise Group will maintain the goal of regenerating Japanese modern art. At the same time, the Company will endeavor to grow its overall earnings and fortify the earnings generating capability of the auction related business by leveraging its network of high net worth customers.Services other than auction related services will be provided to the extensive network of high net worth customers cultivated for around 30 years in art auction operations.  <3. Development of a Platform for Next-Generation Social Infrastructure>
While conducting the business targeted at high net worth individuals, which began with artworks, the Company will develop and invest in a platform for next-generation social infrastructure, with the aim of producing the following business portfolio.
② Major New Business Strategies
(New Business 1: Efforts on Blockchain)
Shinwa Wise Group believes that having the ability to conduct settlements using cryptocurrencies is critical in expanding and invigorating the auction market.The Company focuses on the "block chain technology," which guarantees the safety and reliability of cryptocurrency circulation, and actively utilizes it.  Collaborative demonstration experiment on the blockchain with CAICA Inc. (JASDAQ, 2315)Shinwa Wise Group has started validation experiments for Blockchain from February 2017, in cooperation with CAICA, Inc. (JASDAQ, 2315), which has a forty year plus track record developing systems primarily for companies in the finance industry as well as manufacturers, logistics companies and public institutions. These validation experiments were initiated to confirm the applications of Blockchain technologies in escrow and art property management services in the auction business. As an initial step, the Company endeavors to create a platform for escrow services based on the outcome of these validation experiments. Introduction of a system for payment with BitcoinIn consideration of the convenient usage of Bitcoin by overseas participants of auctions, a decision was made as of March 2017 to introduce Bitcoin settlement methods from the auction held in July 2017. Basic agreement on concluding a contract for capital and business alliances with Fisco Cryptocurrency Exchange Inc.Shinwa Wise Group has reached a fundamental agreement for collaboration and capital exchange in April 2017 with Fisco Ltd. (JASDAQ, 3807), which operates a cryptocurrency exchange for work on cryptocurrency financing, financial derivative instrument development and operations, and various services related to the usages of Blockchain. According to this agreement, Shinwa Wise Group will acquire shares of Fisco's cryptocurrency exchange and conduct joint validation experiments for cryptocurrencies, in addition to promoting joint development and validation experiments for use of Blockchain technologies in artworks registration system. In addition, the Group is thinking of an application of cryptocurrencies to the microfinance business launched in Myanmar, and ICO (Initial Coin Offering), including the issuance of Shinwa coins and tokens. (New business 2: Shinwa Diamond Club)
The Shinwa Wise Group considers diamond as the most stable asset for protecting wealth and will suggest the "reform of an asset portfolio by incorporating diamond" for Japanese high net worth individuals.<Scheme> In diamond trading, "Rapaport price (offer price used by traders in New York)" is used commonly as an indicator for auctions and spot trading. Rapaport Diamond Report is an international standard, to which professionals in diamond trading refer. It announces prices according to the size, color, clarity, and cut of diamond. In general, diamond is priced 3-6 times higher than the Rapaport price at luxury brand shops inside and outside Japan, and priced 2-4 times higher than the Rapaport price at Japanese department stores. Shinwa Diamond Club aims to procure diamond so that it can be converted into money that is over 80% of the acquisition price (65% of the Rapaport price), offering it to clients.  (New business 3: Shinwa Microfinance)
Shinwa Microfinance Co., Ltd., which is a 100% subsidiary of Shinwa ARTEX, launched the microfinance business, while considering that improving the standard of living of many farmers and small-scale enterprises in Myanmar by offering small loans is socially meaningful and this business is promising.In this business, the Company adopted a system called "Group Guarantee," which was modeled after "Group Lending," the microfinance business model of Grameen Bank in People's Republic of Bangladesh, which was proposed by Mr. Muhammad Yunus, who was awarded the Nobel Peace Prize. In detail, while enlisting cooperation from local governments in Myanmar, the Company organizes a group of about 10 members in a local community, to offer small unsecured loans while the members guarantee repayment mutually. In addition, the Company invites 2 experts in microfinance as consultants, trains local employees and conducts appropriate management and operation. The Company opened two branches in Kyauktada and Pyay, to offer three types of loans: Group Loan, Loan for Civil Servants, and Loans for Individuals.  |
| Conclusions |
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| <Reference: Regarding Corporate Governance> |
 ◎ Corporate Governance Report
Last Update Date: December 18, 2017.<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)> The Company states that it complies with all basic principles of the Corporate Governance Code as a JASDAQ listed company. 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 come 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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