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MEIKO NETWORK JAPAN CO., LTD. (JP-4668) Tokyo Stock Exchange First Section ( I )

2018-05-16  提供機構:FISCO  作者:FISCO  點閱次數:2

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◆Summary

Aiming to rapidly recover student numbers by introducing MEIKO Style Coaching, enhancing learning content that utilizes ICT, and strengthening web marketing

MEIKO NETWORK JAPAN CO., LTD. <4668> (hereafter, also “the Company”) offers a variety of educational services centered on the directly operated and franchised operations for the Meiko Gijuku private tutorial schools, but that also include soccer schools, medical-related preparatory schools, after-school care, and Japanese language schools for overseas students. Its strengths include its expertise in franchised operations and its features are that its business is highly profitable and it has a strong financial position.

1. 1H FY8/18 results

In the 1H FY8/18 (September 2017 to February 2018) consolidated results announced on April 12, net sales decreased 3.7% year on year (YoY) to ¥9,769mn and operating income decreased 41.8% to ¥1,186mn. The main reasons for the decrease in sales and profits were a continued decline in student numbers in the mainstay Meiko Gijuku business and the Company’s investment in strategic advertising and sales promotion alongside the fully fledged launch of MEIKO Style Coaching*, which is its new learning guidance method. However, compared to the Company forecasts, advertising and sales promotion expenses were less than expected, and so on an operating income basis, the result was ¥262mn above forecast. In the other businesses, sales continued to increase alongside the growth in student numbers in the Meiko Kids Schools, the Japanese language schools, and the Waseda Academy Kobetsu Schools.

* MEIKO Style Coaching is a learning guidance method that further raises students’ understanding capabilities during learning through the tutor giving them hints, and the students then solving problems using their own capabilities and explaining what they have understood in their own words to the tutor, and recording this in review notes. It is a guidance method that further evolves the Meiko Style - Independent Learning that the Company has been developing up until now.

2. Measures for the renewed growth of the Meiko Gijuku business

Aiming for the renewed growth of the Meiko Gijuku business, the Company began the fully fledged introduction of MEIKO Style Coaching in the spring of 2018 as its differentiation strategy, and it is also promoting the introduction of learning content that utilizes ICT. Both have been favorably received by parents and guardians and students, and going forward, they are expected to contribute to an increase in student numbers. The Company is also working on strengthening web marketing to acquire new students. In recent years, there has been an increase in the percentage of parents using comparison websites to judge tutorial schools, so it is aiming to improve the enrollment rate via the web while conducting data analysis, such as of web access, and enhancing the functions of contact centers. Recently, we have begun to see signs of a recovery in student numbers, including the number of newly enrolled students in directly operated schools exceeding the number in the same period in the previous fiscal year, and it seems that the effects of these measures are gradually starting to appear.

3. The initial forecasts for FY8/18 have been left unchanged

The initial forecasts for the FY8/18 consolidated results have been left unchanged, of net sales to increase 5.3% YoY to ¥20,415mn and operating income to decrease 23.1% to ¥2,011mn. As student numbers in the Meiko Gijuku business are trending lower than expected, it is possible that net sales will be below forecast. But at FISCO, we think that the forecast will be achieved on a profits basis. The Company is aiming to achieve the full fiscal year forecasts by acquiring new students in summer courses and increasing sales per student through the introduction of new content.

4. Policy for returning profits to shareholders is to continue to increase dividends

The Company’s policy on returns to shareholders is to continue its current proactive stance. For dividends, it intends to continue the consecutive increases in dividends that it has maintained since its listing. In FY8/18, it is planning to increase its dividend per share by ¥2.0 YoY to ¥42.0 even while forecasting reduced profits. Moreover, under the shareholder benefit program, the Company gives QUO cards worth ¥1,000-5,000 to shareholders as of the end of August, according to the number of shares held and the length of time held. The gross investment yield per share unit including the shareholder benefit program is at the 4-6% level at the current share price (¥1,245 as of May 2).

◆Business overview

Aiming to become a top company in human development through expanding the mainstay Meiko Gijuku business and other educational services

Based on its educational philosophy of human development through independent learning, the industry leader in private tutorial schools primarily operates the Meiko Gijuku business (directly operated and franchised operations). The Company is also actively expanding into other businesses related to educational services. Specifically, it operates the Meiko Soccer Schools, soccer schools for children; Waseda Academy Kobetsu Schools, which provide tutorial instruction to junior high school and high school students seeking entry into prestigious high schools and universities; and Meiko Kids Schools, which provide nursery care for preschool children and after-school care for elementary school children. Additionally, its subsidiaries operate Tokyo Ishin Gakuin, a preparatory school that specializes in the medical university field, and Waseda EDU Japanese language school and JCLI Japanese language schools as schools that cater to overseas students learning Japanese. Other businesses include subsidiary Kotoh Jimusho Co., Ltd., which operates businesses related to university education and exams; subsidiary Youdec Co., Ltd., which publishes an exam information magazine, produces mock exam questions, sells educational materials, and offers private instruction to students at their schools; and Youdec’s subsidiary Koyo Shobo Co., Ltd., which is involved in the academic publishing business.

In overseas businesses, the Company operates a nursery school for Japanese residents in Singapore (non-consolidated subsidiary COCO-RO PTE LTD) and has invested in NEXCUBE Corporation, Inc. (equity-method affiliate; 23.7% stake), which operates private tutorial schools in South Korea, and Taiwan-based Meiko Bunkyo (affiliated company not accounted for by the equity method; 25% stake), which operates the Meiko Gijuku business in Taiwan.

By business segment for 1H FY8/18, the Meiko Gijuku business (directly operated and franchised operations) is clearly the primary source of the Company’s income at 76.0% of net sales and 85.6% of profits. The Company’s policy, as its medium-term strategy, is to aim for Group-wide growth by maintaining the expansion of the Meiko Gijuku business while developing its other educational services businesses.

◆Business performance

In the 1H FY8/18 results, net sales were slightly below forecast, but operating income exceeded its forecast

1. Overview of 1H FY8/18 results

The Company’s basic policies for FY8/18 include strengthening the Meiko Gijuku business, bolstering the profitability of all businesses, and developing human resources. In particular, for the Meiko Gijuku business, it is advancing measures including introduction of its MEIKO Style Coaching, which is a new learning guidance method, and Meiko e-Po*, an e-portfolio system, into franchise schools, and introduction of English content that utilizes ICT for elementary and junior high school students. Also, as promotion measures to acquire students, the Company is strengthening web advertising and establishing a contact center structure. Moreover, from Q2, it began broadcasting TV commercials that feature the Olympic gymnast Kohei Uchimura.

* A system that records learning records, etc., through the schools’ tablet devices and students’ smartphones. Not only the students, but also the parents and guardians can check the progress of their child’s learning on their smartphones.

Within the progress being made for these measures, the 1H consolidated results were that net sales decreased 3.7% YoY to ¥9,769mn, operating income declined 41.8% to ¥1,186mn, ordinary income fell 41.7% to ¥1,261mn, and net income attributable to owners of the parent decreased 60.1% to ¥683mn. The decline in net sales was mainly due to that in the mainstay Meiko Gijuku business (directly operated and franchised operations), as the numbers of schools and students are continuing to trend downward against the backdrop of intensified competition. At the end of Q2, the number of Meiko Gijuku schools had decreased 1.9% YoY to 2,066 schools, the number of students had declined 6.0% to 125,045 students, and total system-wide sales had fallen 5.8%. At the end of Q1, the number of students had declined 4.4%, so it seems that the rate of decrease is growing. In terms of the reasons for this, in addition to the intensifying competition to acquire students, compared to a typical year there has been an increase in cases of parents using comparison websites to decide on a tutorial school, and as a result of this, it seems that the timing of admissions is tending to be delayed.

In addition to the lower net sales, the decline in operating income can be attributed to the increase in SG&A expenses of ¥371mn, which included Meiko Gijuku marketing expenses and advertising and sales promotion expenses in order to renew the brand. Also, in the same period in the previous fiscal year, the Company recorded extraordinary income due to a gain on the sale of non-current assets, which caused the larger rate of decrease in net income.

Looking at the comparison with the initial Company forecasts, net sales were 2.8% below forecast because student numbers declined more than expected in the Meiko Gijuku business. However, operating income was 28.3% above forecast, as the Company kept down advertising and sales promotion expenses to less than forecast, and it also worked to keep down other expenses.

Lower sales and profits in the Meiko Gijuku business and the preparatory school business, but higher sales and profits in other businesses

2. Segment trends

(1) Meiko Gijuku directly operated business

Net sales in the Meiko Gijuku directly operated business dropped 6.2% YoY to ¥4,822mn, while segment income declined 26.6% to ¥672mn. The main reason for the lower sales was the decline in student numbers.

Within the above, in the Company’s directly operated business, net sales decreased 7.7% YoY to ¥3,342mn and operating income fell 30.7% to ¥563mn. Sales from the subsidiary MAXIS Education Co., Ltd. (hereafter, MAXIS) declined 2.8% to ¥1,479mn, while its operating income increased 3.4% to ¥181mn (amortization of goodwill of ¥71mn). Profits increased at MAXIS mainly due to the reductions in personnel expenses and other expenses.

Looking at the various indicators, for the Company’s directly operated schools at the end of Q2, the number of schools had increased by 2 YoY to 233 schools, the average number of enrolled students during the period had decreased 5.7% to 16,967 students, and sales per student during the period had fallen 2.1% to ¥197,000. On the other hand, at MAXIS, the number of schools had risen by 1 to 95 schools, the average number of enrolled students during the period had decreased 3.9% to 6,748 students, and sales per student during the period had increased 1.2% to ¥219,300. Sales per student increased, if only slightly, YoY. The average number of students per school continues to trend downward in the Company’s directly operated schools, decreasing 6.5% to 72.9 students, and in MAXIS schools, falling 5.7% to 71.0 students.

(2) Meiko Gijuku franchised operations business

In the Meiko Gijuku franchised operations business, net sales decreased 7.4% YoY to ¥2,606mn and segment income declined 40.0% to ¥885mn. The Company held training sessions for the introduction of its new learning guidance method of MEIKO Style Coaching, Meiko e-Po, and English content for elementary and junior high school students. It also implemented initiatives together with the directly operated schools toward recovering student numbers, including providing counselling training. However, profits declined mainly because sales from royalties decreased alongside the fall in student numbers and also due to the increase in upfront investment expenses for advertising and sales promotion expenses and enhancing ICT content.

At the end of Q2, the number of schools had decreased by 42 YoY to 1,738 schools, the average number of enrolled students during the period had fallen 4.6% to 105,797 students, the average number of students per school had declined 2.4% to 60.8 students, and sales from royalties were down 5.0% to ¥1,783mn.

(3) Preparatory school business

In the preparatory school business, which is conducted by consolidated subsidiary Tokyo Ishin Gakuin Co., Ltd., net sales decreased 29.1% YoY to ¥233mn and the segment loss was ¥16mn (compared to income of ¥63mn in the same period in the previous fiscal year). In addition to newly establishing small classes and private tutorial courses during the fiscal period, the Company started pilot operations of ICT tools that support student guidance and learning. However, sales and profits decreased because at the end of Q2, the number of students had declined 26.5% to 97 students, because 2017 spring enrollments for courses for graduates were sluggish.

(4) Other businesses

In the other businesses, net sales increased 13.5% YoY to ¥2,107mn and segment income rose 37.4% to ¥279mn. The businesses that contributed to the higher sales and profits included those of the Meiko Kids Schools, the Japanese language schools, Kotoh Jimusho and Koyo Shobo. Within them, the Meiko Kids Schools and Japanese language schools businesses are steadily expanding, with double-digit increases in sales.

In the Waseda Academy Kobetsu Schools business, net sales increased 4.3% YoY to ¥269mn and operating income declined slightly to ¥9mn. Sales grew due to the increase in student numbers, but profits were down because of higher fixed expenses following the opening of one new directly operated school. At the end of Q2, the number of schools had increased by 4 YoY to 35 schools. Breaking this down, the Company’s directly operated schools (including MAXIS) increased by 2 to 12 schools, franchised operations schools also increased by 2 to 12 schools, and Waseda Academy directly operated schools remained unchanged at 11 schools. Also, the number of enrolled students at all schools increased steadily, up 11.9% to 2,422 students. It would seem the main factor behind this was the improvement in name recognition among private tutorial schools due to the increase in the number of students passing exams to enter prestigious junior high and high schools.

In the Meiko Kids Schools business, net sales increased 43.2% YoY to ¥126mn and the operating loss shrunk to ¥5mn. In the directly operated Meiko Kids Schools (7 schools), which provide nursery care for preschool children and after-school care for elementary school children, the number of regular members had steadily increased by 132 YoY to 360 members at the end of Q2. In the consignment operations business also, the number of consignment operations schools is steadily increasing, rising by 1 to 7 schools. In April 2018, the Company started consignment operations for on-campus after-school care at the private Urawa Lutheran Elementary School (Saitama City) and operations for the after-school J Smile Kids in collaboration with JS Corporation. Going forward, its policy is to expand the consignment operations business that can become profitable at an early stage.

In the Meiko Soccer Schools business, net sales decreased 2.9% YoY to ¥68mn, and operating income was ¥1mn (compared to a loss of ¥5mn in the same period in the previous fiscal year). At the end of Q2, the number of directly operated schools had decreased by 2 YoY to 14 (in addition to 1 franchised operations school) while the number of students had declined 7.3% to 931, slumping in the last few years. The priority issue for the time being is strengthening the profitability of existing schools, and the Company is working to improve customer satisfaction by bolstering student counseling and reviewing the operation system. At the same time, it is working to acquire new students, including by renewing the homepage and holding events.

The Japanese language schools business is comprised of one Waseda EDU Japanese language school, which is managed by consolidated subsidiary Waseda EDU Co., Ltd., and three JCLI Japanese language schools, which are managed by Kokusai Jinzai Kaihatsu Co., Ltd. Overseas student numbers continue to increase, including from China, Southeast Asia, and other countries, and at the end of Q2, the number of students had steadily risen by 16.7% YoY to 656 students in the Waseda EDU Japanese language school (it can accommodate 710 students) and 8.3% to 1,183 students in the JCLI Japanese language schools (it can accommodate 1,380 students). In this business as a whole, net sales increased 12.8% to ¥652mn, and operating income after deducting goodwill was ¥87mn (amortization of goodwill of ¥84mn). In order to respond to the increase in the number of students, the Waseda EDU Japanese language school relocated to a new building in January 2018, and the related costs of ¥35mn were a factor behind the higher costs.

Looking at sales conditions in the other consolidated subsidiaries, in Kotoh Jimusho, net sales rose 4.7% YoY to ¥403mn due to the increase in the number of orders in the main business of solutions to university entrance exam questions. Sales at Koyo Shobo also grew significantly, up 124.3% to ¥157mn, because of the increase in new publications.

Healthy financial standing with abundant surplus cash and effectively debt-free operations

3. Financial position and management indicators

Looking at the financial condition at the end of Q2 FY8/18, net assets were up ¥120mn on the end of the previous fiscal year to ¥19,434mn. The main change factors were that in current assets, cash and deposits increased ¥69mn, but securities and accounts receivable decreased ¥200mn and ¥102mn, respectively. In non-current assets, there were decreases in goodwill of ¥193mn and long-term deposits of ¥99mn, but investment securities rose ¥696mn due to the increases in the market values of securities held.

Total liabilities were down ¥418mn compared to the end of the previous fiscal year to ¥4,479mn. In current liabilities, income taxes payable decreased ¥467mn and advances received fell ¥278mn, while in non-current liabilities, deferred tax liabilities increased ¥199mn. Also, net assets were up ¥539mn compared to the end of the previous fiscal year to ¥14,955mn, resulting from the increases in retained earnings of ¥152mn and valuation difference on available-for-sale securities of ¥380mn.

Looking at business indicators, the equity ratio increased from 74.5% at the end of the previous fiscal year to 76.8% because of the decrease in liabilities. The Company also maintains effectively debt-free operations with an interest-bearing debt ratio of 0.5%, and we think that its financial position continues to be healthy.

 

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