（7590） | Publish:Mon, Apr 21, 2014 IR「BRIDGE REPORT」

BRIDGE REPORT
（7590）

スタンダード

Takasho Corporation (7590)

President
Nobuo Takaoka

Company	Takasho Corporation
Code No.	7590
Exchange	JASDAQ
Industry	Retail (Commerce)
President	Nobuo Takaoka
HQ Address	Minami Akasaka 20-1, Kainan-shi, Wakayama-ken
Year-end	January 20
URL	http://takasho.jp/

Share Price	Shares Outstanding		Market Cap.	ROE (actual)	Trading Unit
¥469	12,278,452 shares		¥5.758 billion	7.8%	100 shares
DPS (Est.)	Dividend Yield (Est.)	EPS (Est.)	PER (Est.)	BPS (actual)	PBR (actual)
¥17.00	3.6%	¥55.29	8.5x	¥587.21	0.8x

* Stock price as of closing on 2014/3/14. Number of shares at the end of the most recent quarter excluding treasury shares.

Fiscal Year	Sales	Operating Profit	Current Profit	Net Profit	EPS	Dividend (¥)
January 2010	12,756	580	584	296	35.00	14.00
January 2011	13,019	687	657	339	40.34	14.00
January 2012	14,969	708	690	315	37.86	14.00
January 2013	16,751	881	956	422	43.80	15.00
January 2014	18,069	1,006	973	508	43.04	19.00
January 2015 Est.	19,490	1,209	1,194	679	55.29	17.00

* Estimates are those of the Company.

We present this Bridge Report along with the earnings for the fiscal year January 2014 earnings results for Takasho Corporation.

Key Points

Company Overview

Takasho Corporation maintains a basic business concept of contributing to the "creation of comfortable spaces" and manufactures and sells artificial and natural wooden fences, garden furniture, greenery materials, and other gardening related products and materials. Takasho also provides customers with solutions in LED and other lighting fixtures, ponds, waterfalls and water fountain related materials, and spot gardening. The Takasho Group manufactures products in Japan and China for sale in Japan, Europe, Asia, and Oceania. The Group's integrated structure with the ability to plan, manufacture and sell products has allowed it to become the leading company within the "gardening market," which is growing to become a firmly established in Japan. The Takasho Group is comprised of the parent company, 18 consolidated subsidiaries and 3 affiliated companies.

Takasho's marketing division can be divided into sales routes of "professional use" products used by house makers and midsized construction companies, "home use" products sold to home centers on a wholesale basis for use by general consumers, "E-commerce and catalog sales," and "exports." Each of these respective routes accounted for 54.0%, 37.9%, 2.5%, and 5.6% respectively in fiscal year January 2014. "Professional use" products are products sold primarily through the "PROEX" catalog, which is the industry's largest catalog with 250,000 copies printed and distributed by direct mail to gardening and landscaping companies, architects and designers, construction companies specializing in exterior construction, commercial facilities and other users. Pictures of actual gardens using Takasho's products are included in the catalogs, and customers can fill in diagrams provided within to order products they want to use in actual landscapes and facilities they are creating. Customers send these diagrams by fax or email to Takasho. In turn, Takasho will then create image diagrams using CAD and CG technologies to be sent back to customers within the same day to show what the gardens and landscapes they are creating look like using Takasho products. The Company also boasts of the ability to supply products ordered in a very short period of time.

Business Strategy

Takasho's basic business concept is to contribute to the "creation of comforting spaces." The Company is expanding its business realm as a lifestyle maker that provides various solutions responding to a wide range of gardening needs. Takasho has established long term targets for sales and operating profit of ¥60.0 and ¥5.0 billion to be achieved in fiscal year January 2025 and is implementing a vertical business expansion which ranges from planning to customer services. At the same time, Takasho has identified four key areas as the main part of its business strategy to achieve these targets, including vertical business expansion ranging from planning to customer services, global business deployment that leverages manufacturing facilities in China and a worldwide sales network, total business solutions where collaboration with house builders and development of non-house application use siding and building materials is conducted, and modernization business where LED illumination, solar lighting, and low voltage lighting is sold.

Takasho imports products with high cultural value from overseas markets, while at the same time manufacturing products including wood products, solar lighting, wire products and others at its plant in Jiangxi, China to be exported to various parts of the world. Products for the United Kingdom gardening market, which is estimated to amount to ¥4 trillion and compares with the Japanese market at ¥600.0 billion, are exported from Japan, while products for the United States market manufactured in China are listed in catalogs of a mail order company called "GARDENER'S," with which Takasho has formed a collaborative alliance. In addition to these regions, the Company also conducts business in Germany, Australia, and Korea. In order to pursue its worldwide business expansion, Takasho needs to establish sales subsidiaries in large markets like the United Kingdom.

Takasho focuses upon exterior (New construction exterior siding), gardening (Garden lifestyle proposals), and contracting (Non-residential building materials, exterior siding) products. It develops highly unique products based upon the unique concept that "gardens are a paradise that exists in harmony with homes they surround."

In its endeavors with house makers, "Ever Art Wood" has come to be highly regarded and the number of products listed in major manufacturers' exterior and gardening catalogs is increasing. In addition the "5th ROOM" (Proposal of the garden to play the role as the fifth room in homes in addition to living rooms, dining rooms, and bedrooms) and "Smart Living Gardens" concepts (To be described later) are also growing in popularity.

The contract (Non-residential building materials and exterior siding) realm focuses upon the landscape construction materials business. Takasho is also expected to implement efforts to fortify its "Ever Art Wood" and "Ever Bamboo" product lineup ("Ever Art Wood" has received certification from the Ministry of Land, Infrastructure, Transportation and Tourism as a fire proof material, and can be used in both exterior and interior applications). Moreover, non-residential construction investment exceeded ¥12 trillion during fiscal year 2012 and is expected to expand a step further during fiscal year 2013.

As a group of professionals in the realm of gardens, the "Renovated Gardening Club" seeks to increase communication between distributors and construction services providers. Furthermore, the "Exterior and Gardening Meister System" and "Water Garden Meister System" certification systems were established in February 2010 with the goal of energizing the industry. "Exterior and Gardening Meister System" training was conducted at 49 different locations within Japan and attended by 3,051 individuals from 1,426 different companies. Furthermore, "Water Garden Meister System" training was conducted at 14 different locations and attended by 1,027 individuals from 540 different companies.

As a part of the "Smart Living Garden" concept, Takasho is promoting development and sales of LED illumination, solar lighting, low voltage lighting and other products using natural energy and energy saving technologies to propose energy-conserving objectives in the garden. Takasho also proposes garden creation through the "Smart Living Garden" concept, which was born from the "Smart House" concept and fuses the Energy Management System starting in Gardens (GEMS), to realize "energy conserving", "energy creation", and "energy storage" in both the home and gardens.

Japan's first authentic garden center called "GARDENER'S JAPAN" was opened adjacent to the Takasho headquarter in April 2012. Half of the "GARDENER'S JAPAN" facility is surrounded by greenery, and it boasts of open gardens that allow customers to thoroughly enjoy their visit to the facilities. Takasho is expected to strengthen the connection between the mail order site "Aoyama Garden"
(http://www.aoyama-g.co.jp/) and its gardening magazine "BISES."

GARDENER'S JAPAN: Wakayama Prefecture, Kainan-shi, Minami Akasaka 3-3
Tel: 073-482-3333 Fax: 073-482-3332

Fiscal Year January 2014 Earnings Results

Sales, Current Profit Rise 7.9%, 1.7%

Sales rose by 7.9% year-over-year to ¥18.069 billion. Ever Art Wood related product sales rose by 22% year-over-year to ¥2.541 billion, and outdoor lighting products (100 volt, low volt lights) also rose 22% year-over-year to ¥2.480 billion. By route, sales of the home use segment fell by 6.9% year-over-year to ¥5.644 billion. However, fortification of the professional use segment structure allowed its sales to rise by 11.9% year-over-year to ¥8.043 billion. At the same time, sales of Takasho's subsidiaries trended favorably, with Toko Shizai Corporation's opening of marketing offices in Niigata and Nagaoka contributing to a 27.8% year-over-year increase to ¥629 million in its sales. Furthermore, overseas sales rose by 56.3% year-over-year to ¥2.363 billion, boosting its share of total sales from 9% in fiscal year January 2013 to 13% in fiscal year January 2014. Direct trading of Jiangxi Takasho is trending favorably and sales rose by 25.5% year-over-year to ¥1.386 billion. Reductions in sales discounts of Takasho Europe and the influence of the foreign exchange allowed sales to rise by 14.2% year-over-year to ¥1.013 billion.

With regards to profits, capital investments by the manufacturing subsidiary contributed to improvements in manufacturing efficiency and allowed gross profit margin to improve from 39.9% to 41.2%. Higher labor expenses arising from increases in personnel, and higher sales promotion and advertising expenses contributed to an increase in sales, general and administrative expense ratio from 5.3% to 5.6%. Foreign exchange translation gains declined from ¥106 million in the previous term to ¥13 million in the current term, and current profit rose by 1.7% year-over-year to ¥973 million. With regards to overseas subsidiaries, Takasho Europe's current loss contracted from ¥171 million to ¥95 million. A ¥19 yearend dividend is expected to be paid.

Current assets rose by ¥1.022 billion from the end of the previous fiscal year to ¥9.918 billion at the end of the current fiscal year. Factors influencing this increase include the rise in sales and a subsequent ¥908 million increase in notes and accounts receivables to ¥3.376 billion. At the same time, fixed assets grew by ¥533 million to ¥4.996 billion on the back of a ¥262 million rise in buildings and structures to ¥2.414 billion. As a result of these changes, total assets grew by ¥1.555 billion to ¥14.914 billion. Current liabilities rose by ¥84 million to ¥5.151 billion on the back of a ¥554 million increase in notes and accounts payables to ¥2.346 billion while short term debt declined ¥469 million to ¥814 million. Fixed liabilities rose by ¥24 million to ¥2.483 billion due in part to the formation of new leases, which rose by ¥12 million to ¥54 million, by domestic subsidiaries. Consequently, total liabilities rose by ¥108 million to ¥7.635 billion. Net assets rose by ¥1.446 billion to ¥7.278 billion on the back of increases in capital and retained earnings of ¥480 million each to ¥1.307 and ¥1.358 billion respectively. At the end of fiscal year January 2014, equity ratio improved by 4.9% points from the end of the previous term to 48.3%. Moreover, the issuance of 2.30 million new shares allowed Takasho to raise ¥962 million, which will be used for investments in distribution, manufacturing and marketing facilities and systems. In addition, the Company has also established a ¥3.0 billion commitment line with its three major banks with the objective of being able to respond flexibly to business development and to reduce interest bearing liabilities.

At the end of fiscal year January 2014, cash and equivalents declined by ¥331 million to ¥1.777 billion. Operating cash flow turned to a net outflow of ¥205 million in fiscal year January 2014 from a net inflow of ¥352 million during the previous term due in part to increases in both accounts receivables and payables. Acquisition of tangible and intangible fixed assets contributed to a decline in the margin of net outflow in investing cash flow from ¥705 million in the previous term to ¥557 million in the current term. As a result of these changes, the net outflow of free cash flow expanded from ¥352 million to ¥762 million. Financing cash flow saw a decline in the net inflow from ¥620 to ¥357 million on the back of the issuance of shares and payment of dividends.

Fiscal Year January 2015 Earnings Estimates

Estimates Call for Sales, Current Profit to Rise 7.9%, 22.7% in FY1/15

Takasho's estimates for fiscal year January 2015 call for sales and current profit to rise by 7.9% and 22.7% year-over-year to ¥19.490 and ¥1.194 billion respectively. Based upon the concept of the garden playing a role of the "5th Room" in homes, the Company has fortified sales of its gardening and exterior products in keeping with its position as a garden lifestyle maker. In addition, Takasho will endeavor to strengthen its structure and nationwide marketing function with the goal of helping customers create and renovate gardens through various customer and maintenance services in the aftermarket category.

Furthermore, Takasho will not only manufacture and sell products in China to match the growing demand for gardening and exterior products arising from continued economic growth within China, but will also strengthen direct exports of these products to North America, Europe, Asia, and Oceania regions. Moreover, interest-bearing liabilities are expected to decline from ¥4.255 billion at the end of fiscal year January 2014 to ¥3.527 billion at the end of fiscal year January 2015. A dividend of ¥17 per share is expected to be paid at the end of the term.

Conclusions

Demand for professional use products from major house makers is growing (Takasho garden and exterior products are listed in major house makers' catalogs). In addition, efforts are being implemented to make lighting fixtures the third cornerstone of its product lineup following garden fences and garden materials with introduction of new items including low voltage lighting (12 volts), LED lighting, and 100 volt LED lights. At the same time, Takasho is leveraging its certification system called the "Exterior and Gardening Meister System" to train its staff and increase their expertise in the realm of nighttime lighting for gardens.
Takasho has conducted aggressive investments both within Japan and in overseas markets including approximately ¥2.3 billion spent during the past two years for its China plant and new backbone systems. Despite these investments, the Company has been able to achieve four consecutive terms of higher sales and five consecutive terms of increases in profits. During fiscal year January 2015, there are concerns regarding the influence of rebounds from the rush to purchase ahead of the implementation of a hike in the consumption tax from April 1, 2014. Despite these trends, Takasho expects to see continued sales growth due to the contribution of its subsidiaries, various measures within Japan, and continued strong sales overseas. With regards to profits, the potential for improvements arising from recovery in depressed profitability due to anticipatory investments in overseas subsidiaries and from continued growth in sales overall is expected to be large.

Stagnant prices put Takasho's shares at a price to earnings ratio of less than 10 times and price to book ratio of less than 1 time. In addition, the relatively high dividend yield (Target dividend payout ratio is 30%) is yet another reason that Takasho could regain popularity.

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.

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