（7590） | Publish:Fri, May 20, 2016 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	20-1 Minami Akasaka 20-1, Kainan-shi, Wakayama-ken
Year-end	January 20
URL	http://takasho.co.jp/

Share Price	Shares Outstanding		Market Cap.	ROE (actual)	Trading Unit
¥447	12,278,452 shares		¥5.488 billion	3.2%	100 shares
DPS (Est.)	Dividend Yield (Est.)	EPS (Est.)	PER (Est.)	BPS (actual)	PBR (actual)
¥12.00	2.7%	¥29.48	15.2x	¥599.69	0.7x

* Stock price as of closing on 2016/3/11. Number of shares at the end of the most recent quarter excluding treasury shares.

Fiscal Year	Sales	Operating Profit	Current Profit	Net Profit	EPS	DPS (¥)
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	18,484	603	679	323	26.31	17.00
January 2016	17,853	722	597	240	19.63	17.00
January 2017 Est.	18,311	785	724	362	29.48	12.00

* Estimates are those of the Company.

We present this Bridge Report along with the earnings results for the fiscal year January 2016 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 market in Japan. As of January 2016, the Takasho Group was comprised of 18 consolidated subsidiaries and 3 affiliated companies.

Takasho's marketing division can be divided into sales routes of "professional use" products used by home builders and midsized construction companies, "home use" products sold to home improvement centers on a wholesale basis for use by general consumers, "GARDENER'S," and "exports." Each of these routes accounted for 57.6%, 34.8%, 2.9%, and 4.7% of sales respectively in fiscal year January 2016. "Professional use" products are products sold primarily through Takasho's "PROEX" catalog, which is the industry's largest catalog with approximately 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 the catalogs 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 returned to customers along with estimates within the same day to show what the gardens and landscapes they are creating look like using Takasho products and how much they will cost. The Company also boasts of the ability to supply ordered products 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 always forecast changes to come in the future to accurately create new value addition that matches the market's needs and pursued the goal of becoming the "only global company" contributing broadly to gardening culture in urban environments. Takasho's vision is to "create happy family lifestyles and healthy environments that put smiles on the people that live within them".

The Company has established long term targets for sales and operating profit of ¥50.0 and ¥5.0 billion to be achieved in fiscal year January 2025 and is implementing a vertically integrated business expansion which ranges from planning to customer services. At the same time, Takasho has identified four key areas within its business strategy to be achieved, including vertically integrated 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. Business segments are divided into the professional use, home use, and global businesses.

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 only ¥600.0 billion, are exported from Japan. Efforts will be made to fortify sales within the United States market along with the establishment of "VegTrug USA" on February 3, 2015, which has been fully funded by the United Kingdom sales subsidiary (VegTrug). 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.

Examples of VegTrug Products

Takasho focuses upon exterior (New construction exterior siding), gardening (Garden lifestyle solutions), 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, and don't exist without surrounds."

In its collaborative endeavors with house builders, Takasho's "Ever Art Wood" has come to be highly regarded and the number of its 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). The Company provides total packages comprised of extensive product combinations that appropriately match various garden environments for exteriors and interiors of various facilities, and it boasts of experiences in delivering a multitude of packages across the country.

As a group of professionals in the realm of gardens, the "Reform 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, and "Exterior and Garden Meister System" was also established in May 2014 with the goal of rejuvenating the industry. Visitors to Takasho's Garden and Exterior Fair 2015 held in July 2015 rose by 10% from previous year to 3,573 people. Takasho also actively supports its network of construction companies. The number of the Takasho Reform Garden Club member companies is approximately 700. The Company also held over 180 networking and regional training events throughout Japan based upon their corporate theme of "learn together, grow together".

The "12th Takasho Garden and Exterior Fair 2015" exhibition showing future product strategies was held at the Tokyo Ryutsu Center on July 29 to 30, 2015, and the number of visitors exceeded the previous year. At the same time, the Tokyo Metropolitan Showroom was established on September 14, 2015, and activities to raise the awareness within the market were conducted. At the showroom, special exhibits that allow customers to see and feel the colors and texture qualities of various products have been created as part of the strengthened marketing areas designed to improve service levels in the main Tokyo and surrounding Kanto region, which is expected to see strong growth. Furthermore, a structure that can respond to the request of customers and gather and provide the most up to date information has also been facilitated.

As 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 themes 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 GEMS energy management system starting in gardens, to realize "energy conserving", "energy creation", and "energy storage" in both the home and gardens. Moreover, 100% use of LED for outdoor lighting was achieved in October 2014. Furthermore, the awarding of "Takasho Low Voltage Light System" with the "Best Selection Award" in the fourth award event hosted by the HEAD (Study Group on Home Environment and Advanced Design) contributed to an increase in consumer awareness of these products.

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: +81-73-482-3333 Fax: +81-73-482-3332

Fiscal Year January 2016 Earnings Results

Sales, Current Profit Decline by 3.4%, 12.2%

Sales declined by 3.4% year-on-year to ¥17.853 billion. The professional use segment reported brisk sales of "Art Fence" series of products using artificial aluminum wood "Ever Art Wood" and "Ever Art Wood" used in garden exteriors. At the same time, its new aluminum composite plate "Ever Art Board" used to replicate Japanese style natural materials such as wood, stone and lacquered walls trended favorably. With regards to "lighting" related equipment designed to highlight yards at nighttime, efforts to expand the number of "Exterior and Gardening Meister System" certified staff, and the launch of low volt LED lighting (12 and 24 volt) and other new products contributed to strong sales of lighting fixtures. At the same time, sales of strengthened artificial bamboo and other Japanese style products declined, but efforts to strengthen marketing allowed sales from third quarter onwards to rise and to remain in line with the previous year's levels over the full year.

With regards to the home use business, new product introductions grew from the previous term. However, the overall home improvement industry encountered weak business conditions due to lackluster sales of sun shades and other products due to inclement weather and declines in the repeat implementation of products. As for overseas business development, efforts were made to cultivate new customers, introduce new products, raise quality standards, improve inventory management function and establish a solid distribution structure of the China subsidiary. However, the influence of stronger yen relative to some foreign currencies compared with previous term, delivery delays, and review of unprofitable business transactions contributed a decline in sales.

With regards to profits, gross profit margin rose by 1.0% point year-on-year and boosted profits by ¥0.18 billion. And while sales, general and administrative expense margin rose due to the decline in sales, operating profit still managed to rise by 19.7% year-on-year to ¥722 million. However, non-operating income turned to a net loss due to the negative influence of foreign exchange translation and caused current and net profits to decline by 12.2% and 25.4% year-on-year to ¥597 and ¥240 million respectively. While sales and operating profit were in line with Takasho's earnings estimates, current and net profits fell below estimates due to the influence of foreign exchange.

The Japanese subsidiary Garden Create saw favorable business conditions. Takasho Digitec Co., Ltd. acted as a driver to boost contract service sales higher, but higher sales, general and administrative expenses attributed to increases in personnel expense caused profits to decline. Tokushima Gardening Center Co., Ltd. recorded weak sales of professional use business products during the first half, and an increase in depreciation arising from anticipatory investments contributed to declines in both sales and profits. With regards to overseas subsidiaries, sales of Jiangxi Takasho/ Jiujiang Takasho (Jiangxi, China) to Japan declined. The fluctuation in foreign exchange rates caused cost of sales of Takasho Europe to rise, delays of year end sales to next year and the rise of the yen relative to the euro contributed to a decline in sales. VegTrug also saw a decline in its sales due to organizational restructuring of some of its clients, reviews of suppliers and the negative influence of the stronger yen.

In Japan, sales and operating profit rose by 1.2% and 46.3% year-on-year to ¥15.939 billion and ¥862 million respectively. Despite a decline in sales due to inclement weather and a decrease in repeat ratio of product implementations, sales of new home use products, including Ever Art Wood, and lighting trended favorably due in part to an underlying upward trend in new housing starts. Sales in the professional use business segment rose, and gross profit margin improved, contributing to a large increase in profits.

In Europe, sales decline by 19.4% year-on-year to ¥1.215 billion, and operating loss expanded to ¥129 million from ¥33 million in the previous term. Despite new product introductions by sales subsidiaries, sales declined due in part to the impact of early spring extreme weather conditions in Europe and delays in deliveries. With regards to profit, increases in materials and product sourcing prices due to the influence of foreign exchange rate fluctuations contributed cost of goods sold to rise. Within China, sales and operating profit declined by 46.9% and 53.1% year-on-year to ¥519 and ¥102 million respectively. While continuous efforts were made to fortify quality standards, and facilitate inventory management function and delivery structures of manufacturing subsidiaries, sales and profits declined.

At the end of fiscal year January 2016, total assets rose by ¥1.8 billion from the previous fiscal year end to ¥16.755 billion. Current assets rose by ¥84 million to ¥11.247 billion due in part to an increase in notes and accounts receivables (receivables) of ¥336 million to ¥3.498 billion. Noncurrent assets declined by ¥65 million to ¥5.57 billion. At the same time, investments in securities declined by ¥27 million to ¥129 million on the back of sale of investment securities. Current liabilities rose by ¥897 million year-on-year to ¥8.343 billion. Short term debt increased by ¥348 million to ¥2.747 billion due in part to a shift in the sources of working capital from long term to short term debt. Fixed liabilities declined by ¥605 million year-on-year to ¥966 million due in part to a shift in the sources of working capital from long term to short term debt, which in turn allowed long term debt to decline by ¥612 million to ¥753 million. Interest bearing liabilities are used mainly for working capital and loans receivables. A reduction target of ¥4.0 billion in interest bearing liabilities is expected to be achieved through increases in commitment line and improvements in the efficiency of liquidity. Net assets declined by ¥272 million to ¥7.445 billion, and capital adequacy ratio fell by 1.7% points from the end of the previous term to 43.9%.

At the end of fiscal year January 2016, cash and equivalents declined by ¥247 million to ¥2.136 billion. An increase in payables of ¥659 million allowed the net inflow of operating cash flow to rise by ¥952 million year-on-year to ¥1.723 billion. ¥845 million in short term loans receivables contributed to an increase in the net outflow in investing cash flow by ¥948 million year-on-year to ¥1.403 billion. As a result of these changes, the net inflow of free cash flow expanded by ¥4 million from the previous term to ¥319 million. Financing cash flow turned to a net outflow of ¥571 million in the current term from a net inflow of ¥256 million during the previous term due in part to a decline in short term debts from ¥1.580 billion in the previous term to ¥370 million in the current term.

Fiscal Year January 2017 Earnings Estimates

Takasho Estimates Call for Sales, Current Profit to Rise by 2.6% and 21.2% Year-On-Year

Takasho's earnings estimates for fiscal year January 2017 call for sales and current profit to rise by 2.6% and 21.2% year-on-year to ¥18.311 billion and ¥724 million respectively. Based upon its "5th Room" concept, Takasho, as the lifestyle maker of gardening, is endeavoring to strengthen sales of its gardening and exterior products a step further by establishing showrooms, fortifying marketing activities, and facilitating manufacturing facilities within Japan. With regards to global business deployment, efforts will be made to strengthen the manufacturing division in China. In addition to sales activities in Europe, Asia and Oceania, measures to strengthen sales activities within North America, where sales were launched last year, will be implemented. A dividend of ¥12 per share is expected to be paid at the end of the term.

Earnings estimates for the first half of the fiscal year are provided below.

Conclusions

The home use business segment stagnated due to weakness in the home improvement market and inclement weather. However, the professional use business trended favorably despite weak growth in the exterior products market. During fiscal year January 2016, the businesses within the Japan trended favorably, while overseas business encountered difficulties. However, successful results of anticipatory investments and various measures have begun to appear, and restart of growth in the overseas business is also anticipated. And while the influence of foreign exchange fluctuations acted negatively upon profits during fiscal year January 2016, the recent trends in foreign exchange rates point to the potential for positive contributions to earnings in the coming term. Takasho's price to book valuation (PBR) has fallen far below 1 currently. While anticipatory investments and low levels of profitability are currently issues to be resolved, Takasho's efforts to resolve these issues should be watched closely for clues as to how the valuations and share price will trend.

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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