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MEIKO NETWORK JAPAN (JP-4668) Tokyo Stock Exchange First Section ( I )

2018-11-22  提供機構:FISCO  作者:FISCO  點閱次數:7

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◆Summary

Rebuilding the business foundation toward renewed growth by introducing MEIKO Style Coaching into all schools and enhancing new content that utilizes ICT

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 medical-related preparatory schools, soccer schools, after-school care, and Japanese language schools for overseas students. Its strengths include its expertise in franchised operations and the Company is aiming to become a top company in human development while expanding business domains with M&A activities.

1. FY8/18 results

In the FY8/18 consolidated results, sales and profits decreased for the first time in two fiscal years, with net sales declining 1.4% year on year (YoY) to ¥19,116mn and operating income falling 44.9% to ¥1,441mn. This is mainly due to a continued decline in the number of students for the third consecutive fiscal year. In the mainstay Meiko Gijuku business (including the franchised operations), the Company aimed to advance the introduction of MEIKO Style Coaching*, its new learning guidance method, and recover student numbers. Despite this effort, at the end of the period, the number of students was down 7.1% on the end of the previous fiscal year, intensifying the struggles of both the directly operated and the franchised operation schools. Another reason for the profit decline was that the Company actively invested in TV commercials and other measures, so sales promotions expenses increased ¥550mn YoY alongside the renewal of the brand. However, the steady expansion of other businesses such as the Kids Schools and the Japanese language schools are clear signs that the Company’s new businesses secondary to the Meiko Gijuku business are growing.

* MEIKO Style Coaching is a learning guidance method that 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 had developed.

2. FY8/19 outlook and the Meiko Gijuku business strategy

The forecasts for the FY8/19 consolidated earnings are for higher sales and profits, with net sales to increase 6.3% YoY to ¥20,320mn and operating income to rise 29.0% to ¥1,860mn. The main reason for the increase in net sales will be the addition of nearly ¥1bn from K. Line Co., Ltd., which conducts Meiko Gijuku franchised operations, after it was made a subsidiary in the previous 4Q. Sales will also increase in the other businesses, including the Kids Schools and the Japanese language schools. Looking at the Meiko Gijuku business as a whole, the sales level is expected to be basically unchanged YoY. Profits are forecast to increase due to higher sales in the other businesses, in addition to the effect of promotional expenses that the Company actively invested in the previous fiscal year returning to the level of a typical year. In the Meiko Gijuku business, the Company is sequentially introducing MEIKO Style Coaching into the franchised operations schools, and it plans to have completed its introduction into all schools by the new student recruitment season in the spring of 2019. This is expected to lead to the recovery of student numbers from the spring of 2019 onwards. Competition between private tutorial schools continues to intensify, and the Company plans to realize renewed growth through spreading the use of its new learning guidance method and the utilization of ICT to all schools at the same time as improving the quality of its services, and also by providing educational services that are optimized to each student group, of elementary, junior high, and high school students.

3. Trends in the other businesses

Although the scale of the businesses other than Meiko Gijuku business is still small, providing only around 5% of total profits, they continue to steadily grow. Among them, the Group’s Japanese language schools for overseas students has the highest number of students in Japan, and in its FY8/18 results, net sales increased 11% YoY to ¥1,317mn and operating income was ¥52mn. While the level of profits appears low, this is because it recorded amortization of goodwill of ¥169mn, and the profit margin before the amortization of goodwill was around 17%, indicating that it is a highly profitable business. Going forward, sales are forecast to continue to increase against the backdrop of the rise in the number of overseas students in Japan. Moreover, in FY8/18 the Kids Schools business was profitable for the first time since it was launched. In addition to the increase in student numbers in the Meiko Kids Schools, a factor behind this was the rise in the number of consignment operations projects for nursery care for preschool children and after-school care for elementary school children. The demand for nursery care and after-school care has also been increasing year by year and is expected to continue to grow in the future.

4. Shareholder return policy

There has been no change to the Company’s policy of actively returning profits to shareholders. The FY8/19 dividend per share will be ¥30 (dividend payout ratio, 78.1%), down ¥12 YoY, which will be the first decrease since the Company was listed. However, its policy is to set an upper limit for the dividend payout ratio of 80%. There have also been no changes to the shareholder benefit program, in which the Company gives QUO cards worth ¥1,000 to ¥5,000 to shareholders as of the end of August, according to the number of shares they hold and the length of time that they have held them. The gross investment yield per share unit, including the shareholder benefit program, is at the 4-6% level at the current share price (¥1,001 as of October 19).

◆Business overview

Aiming to become a top company in human development through the mainstay Meiko Gijuku business and expanding into 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, aiming to become a top company in human development. 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.

* Meiko Gijuku’s share of the private tutorial schools market in FY2017 was approximately 10%. In reference to the mar­ket-scale values in the 2017 Education Industry White Paper by Yano Research Institute Ltd., the Company assumed Meiko Gijuku total system-wide sales as ¥43,778mn in FY2017, from the period of September 2016 to August 2017.

In overseas businesses, the mainstay 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.

Looking at the percentages of results in FY8/18 by business segment, the Meiko Gijuku business (the directly operated and franchised operations businesses) contributed 77.3% of net sales and 95.2% of income (85.9% based on income before amortization), and it is the main business. It contributed 87.5% of net sales and 99.7% of income 5 fiscal years ago (FY8/14). But during this time, the Company has conducted M&A, including for the Japanese language schools business, so the percentages provided by the other businesses have risen slightly.

◆Business performance

Actively implemented promotions measures for MEIKO Style Coaching, the new learning guidance method, and to improve name awareness, but profits fell in FY8/18 for the first time in 2 fiscal years

1. Overview of FY8/18 results

In FY8/18 consolidated results announced on October 11, net sales decreased 1.4% YoY to ¥19,116mn, operating income declined 44.9% to ¥1,441mn, ordinary income fell 44.5% to ¥1,558mn, and net income attributable to owners of the parent was down 67.8% to ¥657mn.

Net sales decreased for the first time in two fiscal years; although sales steadily increased in businesses such as the Kids Schools and Japanese language schools, they declined in the Meiko Gijuku business (directly operated and franchised operations business) and the preparatory school business. Profits also declined for the first time in two fiscal periods due to the decrease in net sales in both these businesses. The large decrease for operating income was because of the major rise in sales promotions expenses, which increased ¥550mn YoY to ¥1,597mn. On the introduction in the Meiko Gijuku business of MEIKO Style Coaching, the new learning guidance method, the Company actively conducted promotions activities, including TV commercials and Internet advertising, in order to improve name awareness and recruit students. In addition, the extraordinary income recorded in the previous fiscal year, of a gain on sale of non-current assets of ¥539mn, was not recorded in this fiscal year, which meant net income also decreased significantly.

Compared to the initial Company forecasts, net sales and operating income were below their forecasts by 6.4% and 28.3% respectively. At the initial stage, it was thought that the number of Meiko Gijuku students at the end of the period would have increased slightly from the effects of the introduction of the new learning guidance method and the promotions. But in fact, the number of newly admitted students in the spring of 2018 trended at a low level, and the number at the end of the period had declined by 7.1% on the end of the previous fiscal year to 116,374 students, which is why the results was below the forecasts. Results in the preparatory school business were also less than forecast, which, in the same way, was due to the low number of newly acquired students in the spring of 2018.

In the Meiko Gijuku business, the total number of directly operated and franchised operations schools declined 2.2% on the end of the previous fiscal year to 2,029 schools, the third consecutive fiscal year of decline, while total system-wide sales also fell 4.9% YoY to ¥41,637mn, the sixth consecutive fiscal year of decline. While the number of the Company’s directly operated schools remained unchanged, the number of franchised operations schools declined by 45 schools, including due to closures and cancellations. Also, the average number of students during the period declined 5.6% to 119,537 students, which was the sixth consecutive fiscal year of decline, and it was a 12% decrease compared to the peak level in FY8/12. But if looking only at elementary school students, the number increased 0.3% for the first increase in 5 fiscal years, which can be seen as a positive sign for the future.

Although the Meiko Gijuku business continues to struggle, the Japanese language schools and Kids Schools businesses are steadily growing

2. Segment trends

(1) Meiko Gijuku directly operated business

In the Meiko Gijuku directly operated business, net sales decreased 1.2% YoY to ¥9,530mn and segment income declined 23.8% to ¥865mn. Within these amounts, in the Company’s directly operated business, net sales fell 6.8% to ¥6,282mn and operating income decreased 30.9% ¥721mn. In the subsidiary MAXIS Education Co., Ltd. (hereafter, MAXIS), net sales declined 1.1% to ¥2,878mn and operating income increased 1.3% to ¥238mn. In K. Line, whose results were added from the previous 4Q when it was made a subsidiary, net sales were ¥370mn and operating income was ¥68mn. Amortization of goodwill was ¥158mn (¥143mn in MAXIS, ¥14mn in K. Line). The main reason for the lower sales and profits was that the average number of students during the period slumped in the Company’s directly operated business, falling 6.2% YoY.

The Company worked on the following as the priority measures in the fiscal period under review toward the renewed growth of the Meiko Gijuku business: Accumulating and making visible the MEIKO Style Coaching learning guidance method and learning programs to realize the students’ improved academic performance through their independent learning; improving customer satisfaction by introducing Meiko e-Po, which is an ICT tool that enables students, parents, and guardians to have a sense of (the students’) growth; and enhancing learning programs that utilize ICT (including Meiko Mirai Eigo, which is English content for elementary school students, and Meiko Chugaku Listening, which is English content for junior high school students, and classes to prepare for the English proficiency test). With such measures, the Company worked to recover student numbers and the unit price per student. The reason for the large rate of decrease in operating income was the increases in expenses, which were mainly promotions expenses for MEIKO Style Coaching and to implement strategic, upfront investment to enhance ICT content (introducing tablet devices and developing and managing Meiko e-Po).

Within these measures, in the fall of 2017 the Company started introducing MEIKO Style Coaching into its directly operated schools, and it had introduced it into all directly operated schools by the end of the fiscal year. Even in just the short space of time of around one year, many parents and students said it had led to an improvement in academic performance. However, as yet it has not led to a visible result, of a recovery in student numbers. This would seem to be partly because, as in the new student recruitment season in the spring of 2018, it took some time to introduce the new learning guidance method, such as to train the part-time tutors, which meant that the schools were unable to allocate sufficient time to recruitment activities. The Company plans to continue to refine the content of MEIKO Style Coaching, so it seems that it will take some time for it to be fully completed and established.

Conversely, signs of a recovery are starting to appear for the sales unit price per student. Although the decreasing trend continued in the Company’s directly operated schools, down 0.6% YoY, the decrease in 1H compared to in the same period in the previous fiscal year was 2.1%. So if looking only at 2H, we find that the trend changed direction to an increase. In MAXIS also, it rose 3.0%, which was the first increase since it was made a subsidiary (up 1.2% YoY in 1H). The fact that MAXIS was able to halt the trend, with results at basically the same level as in the previous fiscal year despite the fact the average number of students during the period decreased 3.9% YoY, was due to the rise in the sales unit price per student. The main factor behind this rise in the sales unit price was the increase in the number of students taking the newly launched programs, including Meiko Mirai Eigo for elementary school students and Meiko Chugaku Listening for junior high school students.

(2) Meiko Gijuku franchised operations business

In the Meiko Gijuku franchised operations business, net sales decreased 6.2% YoY to ¥5,242mn and segment income declined 34.6% to ¥1,729mn, meaning net sales decreased for the seventh consecutive fiscal year and segment income declined for the first time in two fiscal years. The average number of students during the period decreased 6.2%, the average number of students per school declined 3.4%, and average royalty sales per school fell 2.9%, so each continued to trend downward. Against the backdrop of the worsening of profits due to the decline in the number of students per school, the Company progressed the closure and cancellation of unprofitable schools at a pace exceeding its opening of new schools and expansion of existing schools. Therefore, the number of schools at the end of the period had decreased by 85 on the end of the previous fiscal year to 1,661 schools (excluding MAXIS and K. Line), and within this number, on an actual basis excluding K. Line, there was a decrease of 43 schools. The rate of decrease in the average number of students was below the rate in the directly operated business, which can be seen as an effect of the progress made in closing unprofitable schools with few students.

In the franchised operations schools, the reason for the declines in student numbers and net sales was that the schools were unable to allocate sufficient time to student recruitment activities, mainly because of the time they required to conduct training sessions to introduce MEIKO Style Coaching, Meiko e-Po, and various types of ICT content. The factors behind the lower profits were the fall in sales and also the increase in strategic investment costs, including to introduce ICT content.

(3) Preparatory school business

In the preparatory school business, which is conducted by the consolidated subsidiary Tokyo Ishin Gakuin Co., Ltd., net sales decreased 22.6% YoY to ¥443mn and the segment loss was ¥21mn (compared to income of ¥71mn in the previous fiscal year). In the medical-related preparatory schools also, competition is intensifying each year and the slump for the second consecutive fiscal year in the number of new students in the spring of 2018 resulted in the worsening of earnings. The number of students at the end of the period was down 25.0%, or 78 students, on the end of the previous fiscal year (of which, down 13.0%, or 67 students, for already graduated students, and down 59.3%, or 11 students, for those still at high school). This is a decline to around half the level of the recent peak in FY8/15, of 153 students.

(4) Other businesses

In the other businesses, net sales increased 9.0% YoY to ¥3,899mn and segment income rose 81.0% to ¥151mn. Segment income before amortization, which includes the amortization of goodwill in the Japanese language schools and Kotoh Jimusho (¥243mn), increased 20.8% YoY to ¥395mn, and the profit margin exceeded 10%. Sales are increasing in most of the businesses, centered on the Japanese language schools business, the Kids Schools business, and Kotoh Jimusho. Profits also increased, because in addition to the rise in profits at the Japanese language schools and Kotoh Jimusho, the Kids Schools business was profitable for the first time since it was launched.

Looking at the trends in detail, in Waseda Academy Kobetsu Schools, net sales increased ¥25mn YoY to ¥372mn, and the operating loss was ¥11mn (a loss of ¥11mn in the previous fiscal year). The number of schools at the end of the period had increased by 3 on the end of the previous fiscal year (up 1 Company directly operated school, 1 franchised operations school, and 1 Waseda Academy directly operated school) to 35 schools (7 Company directly operated schools, 5 MAXIS directly operated schools, 11 franchised operations schools, and 12 Waseda Academy directly operated schools). The number of enrolled students in all schools had risen by 244 to 2,839 students. The number of students per school at the end of the period, which was affected by the establishment of new schools, was basically unchanged on the end of the previous fiscal year, at 81.1 students. But due to the improvement in the awareness of the track record of the schools’ students passing entrance exams for prestigious, difficult-to-enter schools, student numbers are steadily increasing in existing schools.

The Kids Schools business benefitted from the increase in demand for nursery care and after-school care, with net sales increasing ¥62mn YoY to ¥298mn and operating income of ¥3mn. In addition to the increase in student numbers in directly operated schools, in the fiscal year under review the Company strengthened consignment operations services for nursery care and after-school care, which can be monetized at an early stage, which led to the increase in earnings. At the end of the period, there were 19 schools (7 directly operated schools, 1 nursery care club facility, and 11 consignment operations and related facilities), which was an increase of 4 schools on the end of the previous fiscal year (up 4 consignment operations and related facilities), while the number of students enrolled in the schools had increased by 220 to 1,002 students.

For consignment operations, the Company received an order for consignment operations for private nursery and after-school care businesses in Nerima Ward, Tokyo. It has also acquired orders for consignment operations in various forms, including on-campus, after-school care at a private elementary school (Saitama City, Saitama Prefecture), Kids Schools consignment operations at a kindergarten (Hiratsuka City, Kanagawa Prefecture), and the after-school J Smile Kids in collaboration with JS Corporation. The only fixed costs in consignment operations are personnel costs, so they can be expected to contribute to profits from the first fiscal year. Therefore, going forward, the Company’s policy is to expand its provision of consignment-operations services to customers including local governments, school corporations, and kindergartens.

In the Soccer Schools business, net sales decreased ¥10mn YoY to ¥141mn and operating income was ¥7mn (a loss of ¥1mn in the previous fiscal year). The number of schools at the end of the period had decreased by 1 on the end of the previous fiscal year to 13 schools (down 1 directly operated school due to a consolidation), while student numbers had declined by 83 to 843 students. Although net sales fell, the Company has set out a policy of prioritizing improving earnings, and operating income was in profit for the first time in seven fiscal periods. It would seem that the review of the management structure into two types of schools–namely, Meiko Soccer School Academies, which aim for students to acquire the fully fledged techniques to become professional players in the future, and Meiko Soccer Schools, which provide enjoyable coaching for students to acquire practical skills to become better at soccer–contributed to the improved earnings.

The Japanese language schools for overseas students consist of the Waseda EDU Japanese language school managed by the consolidated subsidiary Waseda EDU and the JCLI Japanese language school managed by Kokusai Jinzai Kaihatsu Co., Ltd. As the totals for the 2 schools, net sales increased 10.7% YoY to ¥1,317mn and operating income was ¥52mn. Before deducting the amortization of goodwill (¥169mn), operating income was ¥221mn and the profit margin was around 17%, so it is a highly profitable business. This is because, against the backdrop of the rise in the number of overseas students in Japan from China, Southeast Asia, and elsewhere, student numbers continue to trend upwards in both schools. In the Waseda EDU Japanese language school, the number of students at the end of the period increased by 89 on the end of the previous fiscal year to 686 students. As the former school building was small, in December 2017 it relocated to a new building (in Ichigaya, Shinjuku Ward, Tokyo), which is about 1.5 times larger than the former building, and this has made it possible to increase the number of students it can accommodate above the current number of 710 students. On the other hand, in the JCLI Japanese language school, the number of students at the end of the period had increased by 13 on the end of the previous fiscal year to 1,131 students. In the past, this school was managed over three branches, but in anticipation of an increase in student numbers in the future, in October 2018 the three branches were integrated into a single, new school building (Toshima, Kita Ward, Tokyo), which increased the size of the school by around 1.4 times. It currently can accommodate 1,380 students, but going forward it plans to raise this number while keeping a close watch on the demand trend.

The consolidated subsidiary Kotoh Jimusho performed strongly, with net sales increasing ¥52mn YoY to ¥518mn. This was primarily due to the increase in new orders for the main service of solutions to university entrance exams. Conversely, in the consolidated subsidiary Youdec, net sales decreased ¥46mn to ¥633mn due to the slumping performance of its entrance exam questions service. Its subsidiary, Koyo Shobo, performed well, with net sales rising ¥67mn to ¥352mn, from increases in new publications of academic journals and the number of resale points. The totals for these school-support businesses and specialist, academic publishing business were net sales of ¥1,503mn and operating income of ¥188mn, meaning sales and profits increased YoY.

Other operations include programming schools and new educational services that utilize ICT. In particular, interest in the programming schools is increasing, as from academic year 2020, it will become a compulsory subject in elementary schools. It seems that the number of applicants to the approximately 30 Meiko Gijuku and Meiko Kids schools being opened in the Tokyo metropolitan area and Kansai is steadily increasing.

 

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