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WILLPLUS Holdings Corporation (JP-3538) Tokyo Stock Exchange First Section ( I )

2018-11-06  提供機構:FISCO  作者:FISCO  點閱次數:2

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◆Summary

WILLPLUS Holdings is seeking growth based on three strategies: the multi-brand strategy, dominant strategy, and the M&A strategy. The Company’s strength is the virtuous cycle in which past performance builds trust, which then leads to subsequent growth opportunities

WILLPLUS Holdings Corporation (hereafter, also “the Company”) <3538> is a pure holding company. The Group is engaged in sales of imported cars. In the Fukuoka area and Tokyo/Kanagawa area, the Group sells nine automobile brands, centered on FIAT, Alfa Romeo, JEEP, BMW, MINI, and VOLVO through 26 authorized dealerships (figures as of June 30, 2018).

1. Nine brands and 26 dealerships in the Fukuoka area and the Tokyo/Kanagawa area

WILLPLUS Holdings is a pure holding company. The Company has four operating companies under its umbrella, and engages in sales of imported cars. As of June 30, 2018, the Group operates a total of 26 dealerships in the Fukuoka area and the Tokyo/Kanagawa area. The Group has been growing based on its multi-brand strategy, and currently carries nine brands centered on FIAT, Alfa Romeo, JEEP, BMW, MINI and VOLVO, but the Group will likely offer more brands going forward. The Group’s core operating company is CHECKER MOTORS CORPORATION which used to be the exclusive import agency for FIAT and Alfa Romeo, and still has the largest market share in Japan in terms of the number of import vehicles sold.

2. Growth through both M&A and new dealership openings. The Company has created a virtuous cycle whereby a high level of trust from the outside leads to subsequent growth

The Company has expanded its business both through M&A and new dealership openings on its own. By leveraging its sound corporate management to acquire new brands through M&A, and by managing profitability on an individual dealership basis through a scrap and build program based on stringent management control, the Company has succeeded in making all of its operating companies profitable. The strength of the Company is the virtuous cycle that it has created, whereby its strong business results, as well as its maintenance of employment as one of its key principles has allowed the Company to earn the trust of importers and industry peers alike, which in turn has led to introductions of M&A deals and otherwise helped to drive further growth.

3. Seeking growth through the multi-brand strategy, dominant strategy, and M&A strategy

The Company has an overall growth strategy comprising the multi-brand strategy, the dominant strategy and the M&A strategy. These are not being implemented individually on their own, but rather the Company is working to have each of the strategies work together organically to create synergies as a means of realizing the Companies’ goals. As a specific example, the multi-brand strategy for leveling the impact of the model cycle on revenues also plays an important role also in the dominant strategy, while the presence of the dealership network based on the dominant strategy greatly contributes to maximizing the effects of M&A activity.

4. Operating performance continues to grow stably. Sales and profits are expected to increase in FY6/19, supported by the release of new models of core models

In FY6/18, net sales totaled ¥25,770mn (+ 9.3% YoY) and operating profit was ¥1,261mn (+ 4.3%). The increase in net sales was due to the effect of the multi-brand strategy, as sales of Alfa Romeo and FIAT made up for weak sales of new BMW and VOLVO cars, as well as growth in used car sales. For FY6/19, the Company expects both net sales and operating profit to increase once again, as it is forecasting net sales of ¥29,510mn (+ 14.5%) and operating profit of ¥1,344mn (+ 6.6%). In FY6/19, four new models are expected to be launched, including models that match the SUV popularity in Japan and core models. Another point to watch will be the Company’s first entry into Tohoku market.

◆Company profile

The Company’s current president launched the business immediately after acquiring a family business, and has used M&A to expand the scope of operations

1. History

In 1997, the father of Takaaki Naruse, the current President established Sunflower CJ in Kitakyushu City, Fukuoka Prefecture. Soon thereafter, the Sunflower CJ acquired a Chrysler (U.S.) dealership, changed its name to Fukuoka Chrysler Co., Ltd., and began operating as an official Chrysler dealer.

After engaging in new and used car sales as Fukuoka Chrysler, Takaaki Naruse acquired all the shares of Fukuoka Chrysler in October 2004, and became independent, upon which he launched the business that has led to the present day. In 2005, the Company entered the Tokyo market by opening a dealership in Ota-ku, Tokyo. In 2007, the company acquired the shares of Four Pillars Co., Ltd. from Quinland Cars Ltd., which was listed on OSE Hercules, and converted the company into a subsidiary. With this as a springboard, WILLPLUS Holdings Corporation was established in October 2007, completing the holding company structure which has been maintained through the present day, with Fukuoka Chrysler and Four Pillars as the two wholly-owned subsidiaries at the time.

WILLPLUS Holdings then reached a major turning point in the 2008-2009 period. During this time, in rapid succes­sion the Company made CHECKER MOTORS CORPORATION, currently the core operating company, a subsidiary, and took over the business of a number of authorized BMW/MINI dealerships. At the time, the imported car market was plummeting due to the impact of the Lehman Brothers bankruptcy. Amid this challenging environment, the Company leveraged its strong management foundation to enter the M&A market as a buyer, and succeeded in acquiring the large platform that has enabled its growth through the present day. Even today, this strong management foundation remains the Company’s greatest strength.

In 2014, the Company made authorized VOLVO dealership Teio Auto Corporation a subsidiary, and with this move the current lineup was mostly in place. Most recently, in April 2018, CHECKER MOTORS started the Jaguar/ Land Rover business through a business takeover, and WILLPLUS Holdings itself established its fourth operating company, Willplus Eins Corporation (November 2017), which is preparing to open an authorized Porsche dealership in January 2019.

WILLPLUS Holdings Corporation listed its shares on the TSE’s JASDAQ (Standard) market in March 2016. In September 2017, its shares move to the Second Section of the TSE, and are then reassigned to the First Section of the TSE in February 2018.

Comprising four operating companies, WILLPLUS Holdings operates a total of 26 authorized import car dealerships in the Tokyo/ Kanagawa and Fukuoka areas

2. Business overview

(1) Configuration of Operating Companies

WILLPLUS Holdings is engaged in business related to imported car sales. The Company itself is a pure holding company and has four operating companies (all are wholly-owned subsidiaries) under its umbrella, and each oper­ating company is an authorized dealer for imported cars. As of June 30, 2018, there are a total of 26 dealerships.

The Group is structured this way because in many cases contracts with importers (exclusive import agency, an automaker’s Japanese subsidiary in many cases) prohibit a single operating company from being an authorized dealer for another automaker. CHECKER MOTORS carries a wide range of brands because: 1) CHECKER MOTORS was originally an authorized dealer of FIAT and Alfa Romeo, but Chrysler and FIAT became FCA (Fiat Chrysler Automobiles) after business integration, and; 2) Both importers (FCA and Jaguar/Land Rover Japan) accepted auction sales with other brands. As of June 30, 2018, CHECKER MOTORS operates a total of 14 dealerships, including Alfa Romeo Ota which opened in 2018.

Willplus Motoren operates authorized dealerships for BMW and MINI. As of June 30, 2018, the company operates a total of seven dealerships. Five of these are in Fukuoka Prefecture and two are in Tokyo.

Teio Auto Corporation was engaged in the authorized dealer business for VOLVO in Fukuoka Prefecture. After the company was added to the Group, VOLVO Cars Odawara was acquired through a business takeover in May 2017. As of June 30, 2018, Teio Auto Corporation operates a total of five dealerships. Four of these are located in Fukuoka Prefecture and one is in Kanagawa Prefecture.

Willplus Eins Corporation plans to open its first dealership (provisional name: Porsche Center Koriyama) in Fukushima Prefecture in January 2019.

(2) Description of business

Each of the operating companies engages in the following: purchase and sales of new cars, purchase and trade-ins of used cars, maintenance, repairs and other after-services, and the automobile insurance agency business. Accordingly, WILLPLUS Holdings discloses a breakdown of sales by category.

In FY6/18, new car sales totaled ¥12,955mn, accounting for 50.3% of overall net sales. This may appear to be a low percentage, but the reason for this is that many of the brands carried by the Company are premium import brands with high price ranges, and as discussed below, the operating companies aggressively utilize used cars in their sales strategies.

Used car sales are an important part of the Company’s business, with sales to both individual and corporate customers, centered on certified, late-model used cars with low mileage (accounted for as Used car sales). Meanwhile, the Company uses automobile auctions and other means to sell used cars of other brands acquired through trade-ins (domestic cars, for example) and other vehicles that do not meet the standards for classification as a certified used car (accounted for as Auto auction sales). Others includes automobile insurance (voluntary insurance) agency commissions and new car sales-related incentives, among other items. The Company is focusing on insurance sales as a recurring revenue-based business, and the new voluntary automobile insurance attachment rate (the ratio of new car buyers who simultaneously enroll in voluntary insurance) is 36.4% (FY6/18 results), which is more than double the industry average of approximately 17%.

The category with the highest profitability is Other services, which includes insurance agency commissions and incentives, while New car sales is the least profitable category. While this category’s low profitability is due to the high cost of sales of new car sales, new car buyers are highly loyal to the dealership and the brand itself, so they often bring their cars to the dealership where they purchased it for maintenance, inspections, and other services. The aforementioned insurance enrollment is one such example. Constant engagement with customers over the long term has helped to maintain a solid level of profitability on the whole.

The profitability of used car sales exceeds that of new car sales if one’s view is limited to the profits related to the sale of vehicles alone. On the other hand, because online purchases can be made by customers anywhere in Japan, it is usually difficult to maintain an ongoing relationship with such customers after a car is sold; remote buyers often take the vehicle to a local dealership for maintenance and other services.

Vehicle maintenance is a highly profitable category, and we see profits in this category continuing to grow over the medium to long term. One reason for this is the increase in the cumulative number of vehicles sold. Another reason is that automobile owners are increasingly taking their vehicles to dealers for maintenance and repairs, as automobiles are increasingly using electronics, while automakers are increasingly enclosing customers by keeping diagnostic equipment and software out of the hands of outside technicians. As automobiles become more functional and complex, consumers are also looking more and more to take their cars to authorized dealers for maintenance for safety concerns and to gain peace of mind.

WILLPLUS Holdings has achieved growth with the right combination of M&A and dealership openings, has earned a high level of trust from importers and other players in the market, and has established a virtuous cycle in which this trust leads to subsequent growth

(3) Strength

As discussed above, the Company’s business effectively started in 2004, when current President Takaaki Naruse acquired all of the shares of Fukuoka Chrysler, but the business really started to grow after October 2007, when WILLPLUS Holdings was established and the holding company structure was adopted. At the end of that fiscal year (FY6/08), the Company had four dealerships and net sales of ¥3.0 bn. Subsequently, the number of dealerships was increased through M&A, and as of June 30, 2018, the Company has 26 dealerships and net sales of approximately ¥25.7bn, with net sales per dealership having increased over this period as well.

Based on past operating performance and the Company’s M&A strategy, which is one of its growth strategies for the future, WILLPLUS Holdings tends to be seen as a company that has expanded its business through M&A, but this view is based on observing only half of the Company.

It is true that M&A has played an important role in the Company’s efforts to acquire new brands, but we believe that the Company’s steady growth has been driven by new dealership openings by the Company itself. WILLPLUS Holdings is the company it is today because both M&A and new dealership openings have matched one another well.

This is evident by looking at dealership openings and closings over the years. The Company counts the number of dealerships on a physical building basis. Therefore, if multiple brands are carried in the same building, it is counted as one dealership. Multiple brands within a single dealership often begin being carried at different times. Tracking dealership openings and closings on an individual brand basis yields the table below. From its founding through June 30, 2018, the Company has operated 35 dealerships through either M&A or new dealership openings. Of these dealerships, nine have been closed or merged into other dealerships, and seven of these were dealerships acquired through M&A. Meanwhile, only two of the 17 dealerships that the Company has opened on its own have been closed or merged. The large gap in the survival rate between dealerships acquired through M&A and dealerships that the Company has opened on its own is obvious.

Note: As discussed above, the Company counts the number of dealerships on a physical building basis. As of June 30, 2018, the Company has 26 dealerships. The list of dealerships is included at the end of this report.

We believe that the reason for this history of dealership openings and closings is that the Company has been managed with an extremely close eye on dealership profits. As discussed below, M&A is an important part of the Company’s growth strategy, but this is predicated on the strength of the Company itself which makes this possible. M&A itself is not the objective, and the Company has always made sure to focus on what an M&A action will help it achieve, as it has cool-headedly monitored the profitability of acquired dealerships. As a result, almost all of the current 26 dealerships are profitable, and the Company is solidly maintaining the strength to make the next move forward.

In this way, the Company is managed with an eye to accelerate the scrap and build cycle. In terms of the criteria for making decisions, there are times when the Company watches the revenue of a dealership over a certain period of time and then decides to shut that dealership down, but there are also times when the Company has decided to exit a dealership right away if it has determined that the dealership in question has no future as a result of changes in the environment. The Company’s ability to make this determination is one benefit of the dominant strategy. The Company has multiple dealerships close to one another, so even if a certain dealership is shut down, customers are redirected to one of the Company’s nearby dealerships in order to prevent a decline in the level of service and to keep customers from taking their business to other providers.

Meanwhile, the Company’s thorough focus on low-cost operations is a key reason why its new dealership openings have been consistently successful. For starters, the Company’s basic approach when opening a new dealership is to lease furnished land and buildings from existing car dealers and then refurbish the space in accordance with the brand corporate identity requirements demanded by importers. This approach reduces opening costs. This also matches well with the Company’s management philosophy of lightening the balance sheet. According to the Company, its dealership opening costs are significantly lower than those of domestic car dealers. In terms of operations, the Company is optimizing operating costs by flexibly assigning personnel according to how sales are going. This is another big benefit of the dominant strategy.

Regardless of whether through M&A or a new dealership opening, the Company always places a quick turn to profitability as its first goal when it starts to operate a new dealership. If a dealership is acquired through M&A, there are existing customers, so the fundamental approach is to maintain and strengthen those relationships. For example, the Company first works to increase sales of low-priced used cars to develop trust, a track record, and a customer base, which it when leverages both vertically and horizontally to lead to new car sales. Meanwhile, for new dealership openings, the first step is to attract customers, so the Company builds a business base through steady efforts such as boosting recognition through advertisements and building up recurring revenue-based businesses.

As discussed above, the Company’s growth is not simply the result of dealership expansion through M&A, but is attributable to its strong ability to subsequently manage dealerships on an individual basis. The Company currently has a roughly 1:1 ratio of dealerships acquired through M&A and newly-opened dealerships. This is proof of the Company’s overall ability to manage dealerships, including site selection and overall costs, such as dealership opening costs and running costs. This track record, along with the Company’s ability to keep and retain the employees of companies it has acquired in its series of dealership reorganization through M&A has earned the trust of importers and industry peers alike, which in turn has created a virtuous cycle linking to the Company’s three growth strategies in the form of M&A referrals and business area expansion. We believe that this virtuous cycle is the Company’s greatest strength.

◆Medium- to long-term growth strategy

Pursuing synergies and higher profits centered on the multi-brand strategy, dominant strategy, and M&A strategy

1. Overall group strategy

In order to understand the Company’s growth strategy, an understanding of the business practices specific to the imported car dealer industry is required. One such practice is the existence of the aforementioned exclusive contracts with importers. If a dealer becomes an authorized dealer of automobile brand A, it generally cannot be an authorized dealer of another automaker (there are some exceptions). Therefore, it must establish an operating company for each brand that it carries. In that respect, the Company’s holding company structure is well suited for the imported car dealer business.

Another practice specific to the industry is that imported car dealers are basically area franchises. A business area is allocated to each business operator, which then does business in that area (it is perfectly fine for a customer to purchase a vehicle at a dealership in a different area). There are both positive and negative sides to this area franchise system. On the one hand, it can hold back enthusiastic, well-managed businesses. Conversely, because they are protected by the area franchise system, dealers can sometimes operate without putting forth much effort thanks to the economy and the brand strength of the vehicles it carries.

Based on these business practices for imported car dealers, the Company is looking to achieve sustainable growth over the medium to long term with three strategies: the multi-brand strategy, dominant strategy and M&A strategy, with a high level of awareness of overall management, from governance as a listed company to the profitability levels of individual dealerships. The details of each strategy are discussed below, but the key point to stress here is that the three strategies themselves are not the objectives. The Company is making every effort to combine the three strategies according to the market environment (region, target customer, etc.) as it changes to generate synergies and increase earnings.

A strategy is merely a means or method leading to a goal, but companies often lose sight of their goals and the strategy itself becomes the goal. WILLPLUS Holdings has maintained a sound management approach while avoiding this pitfall, and we view this as the source of the Company’s strength.

Level out the impact of differences in the timing of launching new models among brands

2. Multi-brand strategy

The multi-brand strategy aims to achieve stable growth by carrying multiple brands to level out the fluctuations in earnings caused by the difference in the timing of new model launches between brands.

The Company currently carries nine brands. While at first glance this number seems to be enough to sufficiently realize the multi-brand strategy, we do not necessarily believe this to be the case. When regrouped by individual importers, the Company actually only carries four groups: Alfa Romeo/FIAT/ABARTH/JEEP, Jaguar/Land Rover, BMW/MINI, and VOLVO. On an individual operating company basis, while CHECKER MOTORS ranked first in the number of vehicles sold in 2017 (total of five brands under the FCA umbrella), Willplus Motoren and Teio Auto both ranked sixth (for Willplus Motoren, it is the number of MINI vehicles sold. BMW’s share is likely lower). Given this, we speculate that the Company’s true intention is to further stabilize earnings by further promoting the multi-branding strategy. To achieve this, we would like to see an increase in the number of brands carried, in tandem with progress on the M&A strategy. The acquisition of major brands with large domestic sales volumes is especially desirable.

Aiming to maximize profits with fluid personnel assignments and productive customer follow-ups

3. Dominant strategy

The dominant strategy refers to the strategy of opening dealerships in a concentrated manner in specific areas. However, this is not easy for an imported car dealer to do, as the commercial area is expansive and the area franchise system exists.

The Company’s multi-brand strategy is helping to clear this hurdle. By combining its three operating companies and nine brands, the Company is opening 5 to 10 dealerships in a single region in a dominant manner.

As of June 30, 2018, 13 of the Company’s 26 dealerships are located in Fukuoka Prefecture, while 13 are in the Tokyo/Kanagawa area. The dealerships in Tokyo are concentrated in the Jonan part of Setagaya-ku and Ota-ku (as exceptions, there is one dealership in both Shinjuku and Ikebukuro), so the Company has established regional dominance in the Tokyo/Kanagawa area.

The Company has cited the ability to fluidly and optimally assign personnel within the Group, as well as the ability to follow up with customers in person. Following up with customers in person refers to providing an individual customer with information on all of the three operating companies’ brands and keeping this customer within the Group. On this point, we had thought that this approach would not work since imported car owners are very loyal to their brand, but in fact imported car owners like to switch to another brand during downtime in the model cycle or they want to try the same type of car (SUV, for example) of another brand, so the Company’s dominant strategy appears to be having the desired effect.

We are paying close attention to the aspect of fluidly and optimally assigning personnel within the Group. The Company has been carrying out its dealership scrap and build initiative at a faster pace than its competitors, and is focused on keeping stores “fresh” and ensuring that dealerships are profitable. We view the dominant strategy as being a major factor making this possible. When engaging in M&A, the Company positions maintaining employment as a major principle, and the same holds true for existing dealerships as well. Maximizing profits by keeping a balance between maintaining employment and efficiently managing and growing dealerships is a key point of the dominant strategy.

Aggressively utilizing M&A to acquire new areas and new brands, as well as to expand existing brands

4. M&A strategy

The Company has fully utilized M&A during its business expansion process, and how it has acquired the strong profitability making its M&A strategy achievable is as discussed above.

Going forward, the Company plans to continue to proactively utilize M&A in order to: 1) enter new areas; 2) acquire new brands (advance the multi-brand strategy); and 3) expand existing brands.

Sourcing is the most important part of M&A. Broadly speaking, there are three entryways: financial institutions (including securities companies), importers, and direct introductions (the Company’s own contacts and contact from other companies’ owners), and the Company always has multiple deals on the table. The Company performs due diligence on those deals that meet its criteria, and follows this with negotiations that ultimately lead to deals being finalized.

The key point here is that the most important thing is the evaluation from the viewpoint of the Company’s multi-brand strategy and dominant strategy, not to mention quantitative criteria such as the investment recovery period. The Company steadfastly adheres to its own rule of not acquiring dealerships that are out of its strike zone in terms of its multi-brand strategy or its geographic range, even if a particular M&A deal would be highly profitable.

 

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