Bridge Report (4829) July 15, 2015 http://www.bridge-salon.jp/company_e 1 Bridge Report Nihon Enterprise Co., Ltd. (4829) Stock Information Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit ¥331 40,516,700 shares ¥13.411 billion 3.8% 100 shares DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual) ¥3.00 0.9% ¥4.69 70.6x ¥126.65 2.6x * Share price as of close on July 14, 2015. Shares outstanding as of end of most recent quarter and exclude treasury shares. Consolidated Earnings Trends (Units: ¥Mn) Fiscal Year Sales Operating Profit Ordinary Profit Net Profit EPS (¥) DPS (¥) May 2012 2,790 304 318 170 451.18 130.00 May 2013 4,134 372 391 354 941.63 180.00 May 2014 4,508 335 340 437 11.59 3.00 May 2015 5,116 189 204 177 4.57 3.00 May 2016 Est. 6,100 450 470 190 4.69 3.00 * Estimates are those of the Company. A 100 for 1 stock split was conducted on December 1, 2013. This Bridge Report provides details of Nihon Enterprise Co., Ltd. and information pertaining to earnings results for the fiscal year May 2015. 1. Company Overview 2. Growth Strategy 3. Fiscal Year May 2015 Earnings Results 4. Full Fiscal Year May 2016 Earnings Estimates 5. Conclusions Katsunori Ueda, President Company Nihon Enterprise Co., Ltd. Code No. 4829 Exchange Tokyo Stock Exchange, First Section Industry Information, Communications President Katsunori Ueda HQ Address 1-17-8 Shibuya, Shibuya-ku, Tokyo, Japan Business Description The two pillars of its business are: 1) contents creation and provision of contents services, and 2) contents creation and operations solutions provided to client companies. Year-End May Home Page http://www.nihon-e.co.jp/en/index.html
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Bridge Report (4829) July 15, 2015 http://www.bridge-salon.jp/company_e
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Bridge Report Nihon Enterprise Co., Ltd. (4829)
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
Bridge Report (4829) July 15, 2015 http://www.bridge-salon.jp/company_e
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Key Points
1. Company Overview Nihon Enterprise is a “mobile solutions company” with two main business segments including the contents services business, where various
contents including lifestyle and traffic information services are created and distributed to smartphones and other mobile devices, and the
solutions business, where contents creation, operations, systems integration, affiliate advertising, reverse auctions, IP phones and other
business support solutions (Cost reduction) are provided. Furthermore, Nihon Enterprise is also promoting efforts to expand its business
into overseas markets and has established a business platform for the provision of Japanese contents in China and India.
Nihon Enterprise listed its shares on the NASDAQ Japan Market (Currently called the JASDAQ Market) of the Osaka Securities Exchange
on February 16, 2001. On July 10, 2007, it moved its listing to the Second Section Market of the Tokyo Stock Exchange, and then to the
First Section Market on February 28, 2014.
<Corporate Philosophy>
Nihon Enterprise’s employees have an obligation to maintain the basic corporate philosophy for eternity by repeatedly learning from the
corporate philosophy reflected in its “Mission Statement, Doctrine, and Five Spirits” and “Nihon Enterprise Management Principles.”
President Katsunori Ueda believes that it is Nihon Enterprise’s obligation to maximize “shareholder value” and “make effective use of capital
by not wasting a single yen”.
From the start, President Ueda founded Nihon Enterprise with the strong motivation of “contributing to society through its businesses” and
the Company pursues the achievement of this goal. Consequently, the Company seeks to contribute to society by increasing the satisfaction
of its users through the provision of convenient information technology equipment and interesting and diverse contents and services. Based
upon the management philosophy of President Ueda, the bulk of the ordinary Profit earned in the founding year of the Company was donated
to the Japan Red Cross Society, the Japan National Council of Social Welfare and various children’s institutions. Also, donations were made
to the Japan Red Cross Society at the time of the Great East Japan Earthquake to support the victims and the reconstruction efforts in the
Tohoku region.
・ Sales rose by 13.5% but ordinary profit declined by 39.9% year-on-year. In-Store affiliate services acted as a driver of growth within
the solutions business, allowing sales to rise by 28.0% year-on-year. Despite the slowing in diffusion of smartphones as they approach
saturation, strong sales of game and traffic information allowed the contents services business to grow by 1.5% year-on-year. However,
changes in the sale mix contributed to an increase in cost of sales, and anticipatory investments in game development and advertising
expenses negatively impacted profits and caused operating profit to decline by 43.4% year-on-year.
・ Sales and ordinary profit are expected to rise by 19.2% and 129.7% year-on-year respectively during fiscal year May 2016.
Consigned development and advertising are expected to contribute to growth in the solutions business. Furthermore, contents provided
to communication carriers and native applications developed in-house are also expected to maintain steady sales of the contents
business. With regards to profits, the influence of the higher sales and the decrease of the advertising expenses for native apps due to
the transition from the member acquisition phase to the profitability improvement phase through operation makes its operating profits
expand by 2.4 times year-on-year. The same level of dividends as at the current term end of ¥3 per share is scheduled to be paid.
・ Nihon Enterprise established a subsidiary to participate in the smart community business. In the future, solar power generation
business is expected to become this subsidiary’s stable source of profit. This subsidiary will provide each of the households, i.e. the
buyers of electricity, with lifestyle support services using information technologies. In Ube City, Yamaguchi Prefecture, where the
subsidiary’s headquarters is located, an important issue is how to raise the quality of life by providing safety and security for the large
number of senior citizens living alone in the region. Consequently there is a strong need for security, medical and shopping solutions
applications. In addition to the societal importance of these issues, Nihon Enterprise considers the large number of local government
bodies that are dealing with these issues as attractive business opportunities.
Bridge Report (4829) July 15, 2015 http://www.bridge-salon.jp/company_e
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kitting tool business, was also added as a non-consolidated subsidiary in fiscal year May 2016. (Currently 10 consolidated subsidiaries, 4 non-consolidated
subsidiaries).
<Characteristics, Strengths>
A characteristic and strength of Nihon Enterprise is its “devotion to in-house development”. Nihon Enterprise maintains a unique strategy
focused upon the development and ownership of its own contents created in-house as part of its unique business model. This strategy has
also enabled the Company to expand sales of its performance based compensation (Success fees) contents through cooperation with cellular
telephone sales companies to conduct affiliate program contents sales (In-Store affiliates developed independently). In addition, these
experiences are leveraged in its mobile communications solutions for corporations.
Examples of Contents
2. Growth Strategy With regards to the contents services business, Nihon Enterprise will endeavor to fortify its earnings structure through the provision of
contents to official carrier fixed rate services along with global deployment of “contents platforms” through mutual collaboration with native
and messenger applications. At the same time, consigned development for smart devices, business support services, advertising (In-Store
affiliate) and collaborations (Alliance type) are expected to become growth drivers for expansion of the solutions business.
Native applications is a term used to describe game and other applications which can be downloaded to and used on smartphones and other
digital handsets. Previously, online browser applications had been used by feature phones because of their inability to download
applications.
(1) Contents Services Business Strategy
In the near term, applications for smartphones provided to carrier fixed rate services and carrier official site monthly subscription services
trended favorably. Consequently, smartphone sales accounted for 71% of segment sales during the fourth quarter (69% during the third
quarter).
“Woman’s DIARY” is an important specialized application that allows women to manage their physiological cycles. It allows
women to record and manage various physiological characteristics including their menstrual cycle, and provides various health related
information and advice.
“ATIS traffic information” provides unique ATIS highway and surface street traffic information, and other information including
navigational routing, transfer, delays and other train operational information, parking lot, ferry, weather and other helpful information.
※ Figures include reference figures calculated by Investment Bridge Co., Ltd., and may differ from actual results (applies to all tables in this report).
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Sales Rise 13.5%, Ordinary Profit Decline 39.9%
Sales rose by 13.5% year-on-year to ¥5.116 billion. By category of sales, sales of games within carrier fixed rate services doubled and traffic
information within both monthly subscription and carrier fixed rate services trended favorably, allowing the contents business sales to rise by
1.5% year-on-year to ¥2.506 billion. Advertising (In-Store affiliate) sales rose by a large margin, boosting solutions business sales by 28.0%
year-on-year to a record high level of ¥2.609 billion.
Operating profit, on the other hand, declined by 43.4% year-on-year to ¥189 million. An increase in the share of advertising sales relative to
overall sales and a rise in game development expenses caused cost of sales margin to rise by 1.5% point year-on-year to 52.9%. Strategic
investments in advertising and human resources, and expenses for the move of offices of subsidiaries contributed to a 19.6% year-on-year
increase in selling, general and administrative expenses. Declines in payment commissions allowed non-operating profit to improve, but
declines in profits on the sale of investment securities (¥516 to ¥341 million) caused net profit to decline by 59.4% year-on-year to ¥177
million. A yearend dividend of ¥3 per share is expected to be paid. The commemorative dividend of ¥1 per share will be eliminated, but
the regular dividend will be raised by the same ¥1 per share.
Contents Services Business Sales Composition (Units: ¥Mn)
FY5/14 Share FY5/15 Share YY Change
Traffic Information 850 34.5% 924 36.9% +8.6%
Lifestyle Information 459 18.6% 413 16.5% -10.0%
Digital Publications 216 8.8% 137 5.5% -36.3%
Overseas 27 1.1% 40 1.6% +49.8%
Games 169 6.9% 345 13.8% +103.8%
Mail 339 13.7% 295 11.8% -12.9%
Music 407 16.5% 349 13.9% -14.3%
Sales 2,469 100.0% 2,506 100.0% +1.5%
Solutions Business Sales Composition (Units: ¥Mn)
FY5/14 Share FY5/15 Share YY Change
Solutions 1,086 53.3% 1,192 45.7% +9.8%
Advertising 679 33.3% 1,168 44.8% +72.0%
Overseas 273 13.4% 249 9.5% -8.9%
Sales 2,039 100.0% 2,609 100.0% +28.0%
SG&A Details (Units: ¥Mn)
FY5/14 Share FY5/15 Share YY Change
Advertising 515 11.4% 711 13.9% +38.0%
Labor 778 17.3% 874 17.1% +12.3%
Doubtful Account Reserves 5 0.1% 23 0.5% -
Others 558 12.4% 612 12.0% +9.8%
※ The main factors behind the higher advertising expense were ¥90 million for promoting carrier fixed rate services and ¥110 million for acquiring native
Bridge Report (4829) July 15, 2015 http://www.bridge-salon.jp/company_e
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ROE Analysis
FY5/11 FY5/12 FY5/13 FY5/14 FY5/15
ROE 5.94% 5.70% 10.31% 10.91% 3.81%
Net Profit Margin 7.13% 6.09% 8.59% 9.69% 3.47%
Asset Turnover Ratio (x) 0.76x 0.82x 0.96x 0.85x 0.87x
Leverage (x) 1.10x 1.14x 1.26x 1.32x 1.27x
* ROE (return on equity) is an indicator reflective of the three indicators of net profit margin (Net Profit / Sales), asset turnover ratio (Sales/Total assets), and
leverage (Total assets/Equity, or the invers of equity ratio). ROE: Net Profit margin X Asset turnover ratio X Leverage
* Data in the above table are derived from the earnings announcement statement and financial filing reports, and ROE, asset turnover ratio and leverage are
calculated using the average of total assets and equity during the term (Adding the values at the end of the previous and current terms and dividing by two. The
value for leveage may not necessary be a direct calculation as the inverse of the equity ratio as the equity ratio shown in both the earnings announcement and
financial filing reports are calculated using the current term end value.)
In addition to the anticipatory investments conducted during fiscal year May 2015, a decline in profits from the sale of investment securities
contributed to a decline in net profit margin. The decline in leverage caused by the increased capital arising from financings was among the
factors that contributed to a decline in ROE.
3. Fiscal Year May 2016 Earnings Estimates
Consolidated Earnings (Units: ¥Mn)
FY5/15 Share FY5/16 Est. Share YY Change
Sales 5,116 100.0% 6,100 100.0% +19.2%
Operating Profit 189 3.7% 450 7.4% +137.2%
Ordinary Profit 204 4.0% 470 7.7% +129.7%
Net Profit 177 3.5% 190 3.1% +7.0%
Estimates Call for Sales, Ordinary Profit to Rise by 19.2, 129.7% Year-On-Year
Nihon Enterprise’s earnings estimates call for sales to rise by 19.2% year-on-year to ¥6.1 billion during fiscal year May 2016. Growth in
solutions and advertising sales is expected to boost sales of the solutions business. At the same time, contents and native applications
provided to carriers are expected to trend favorably and to contribute to strength in the contents services business. Consigned development
of applications for smartphone and tablets are expected to increase, and advertising sales are expected to grow on the back of development of
new customers and strengthening of relationships with existing mobile phone vendor customers. Also, sales of the contents business are
expected to rise on the back of fortification of contents provided to carrier fixed rate services, and promotion of “contents platforms” designed
to increase collaboration between native game, healthcare and messenger applications.
While fortification of marketing for healthcare and messenger applications will be conducted, the shift from the member acquisition phase to
profit cultivation phase is expected to contribute to a decline in advertising expenses. Combined with the higher sales, operating profit
margin is expected to improve by a large margin and to allow operating profit to rise by 2.4 times year-on-year. And while no contribution
from sales of investment securities has been included in these estimates, net profit is still expected to rise by 7.0% year-on-year to ¥190
million.
A dividend of ¥3 per share is expected to be paid at the term end. Nihon Enterprise views the return of profits to shareholders as an
important management issue, and it seeks to implement a shareholder return policy of achieving a stable level of returns that are in line with
earnings performance, cash flow, return on equity capital, equity ratio and the Company’s future capital investment needs.
5. Conclusions Nihon Enterprise’s participation in the smart community concept through its newly established subsidiary Yamaguchi Renewal Energy
Factory Co., Ltd. is a highly interesting development. The Company will provide various lifestyle support services that leverage
information technologies to individual households that are buyers of electric power and the solar power energy generation business is
expected to become a stable source of earnings. There is a strong need for elderly care, medical and shopping related solutions to provide
safety and security to the large number of elderly Japanese living alone in Ube City of Yamaguchi Prefecture, where Yamaguchi Renewal
Bridge Report (4829) July 15, 2015 http://www.bridge-salon.jp/company_e
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Energy Factory’s headquarter is located. The potential contribution to society of such services is large.
Aggressive advertising for native games contributed to a decline in profits during fiscal year May 2015, but profits would have risen if
advertising had been held to the same level as in the previous fiscal year May 2014. Therefore, the impact of these aggressive anticipatory
investments in advertising will have to be closely watched during the coming fiscal year. In addition, the growing size of solutions projects
in the solutions business is also acting as an opportunity for Nihon Enterprise to grow its earnings. The firm establishment of profitability of
native applications and the increase in project size of solutions are expected to fuel growth in Nihon Enterprise’s businesses from fiscal year
May 2017 onwards, combined with its participation in the smart community concept project.
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) 2015, All Rights Reserved by Investment Bridge Co., Ltd.
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