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SFP Holdings Co., Ltd. (JP-3198) Tokyo Stock Exchange First Section ( II )

2019-05-31  提供機構:FISCO  作者:FISCO  點閱次數:1

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◆Initiatives

Despite the format conversions producing less improvements to business results than expected, a certain level of results was achieved, such as the Alliance Conception (M&A)

To summarize the activities in the previous fiscal year, the Company strategically kept down openings of new locations for the second consecutive period while it worked to use the excess investment capacity as a result of this to strengthen existing locations and to reduce the number of unprofitable locations through actively investing in format conversions. It has also achieved a certain level of results in terms of developing the strategy of “multiple contents in prime locations,”* and it completed the first M&A (the details are given below) toward realizing the new Alliance Conception. The results of the main activities are as described below.

* To fully leverage the strength of its unique income model of “street-level restaurants in prime locations adjacent to train stations,” the Company’s strategy is to respond to the needs of a broad range of customers and realize sustainable growth by implementing a variety of contents in the ISOMARU SUISAN model (changing products and provision methods).

1. Format conversion initiatives

The Company conducted format conversions of 26 locations in order to reduce the number of unprofitable locations (such as those in the suburbs), of which a certain number have occurred due to the large number of openings in the past. Within this number, 20 locations were converted from ISOMARU SUISAN to Toriyoshi Shoten. As a result, it seems that while some locations achieved results as expected, overall, the results were less than expected. It is thought that the locations that did not produce results are the candidates for exits in this fiscal period. However, it is considered that the empirical rules obtained through these efforts, including for the parts for which there had been misConceptionions, will constitute important expertise toward improving the accuracy of the “multiple contents in prime locations” strategy. So, on this point, the results can be evaluated as being more significant than merely closing locations.

2. M&A results

In January 2019, the Company decided to acquire the shares of JS*, which mainly manages the Maekawa Suigun izakaya in Kumamoto Prefecture, and to make it a subsidiary (consolidated from March 1, 2019). It has been positioned as the first project in the Alliance Conception, which is the new growth strategy. So it can be said that the Company has made a good start toward increasing the number of locations in regional cities through M&A.

* The results of JS in the most recent fiscal year (FY3/18) were net sales of ¥1,478mn and operating income of ¥141mn from the management of 19 locations.

◆Future growth strategy

Aiming to accelerate growth from continuous organic growth and the Company’s own Alliance Conception

1. SFP Food Alliance Conception

The Company has established the Alliance Conception to respond to a situation in which external factors (such as recruitment difficulties, including of restaurant staff) and internal factors (like the limit on the control range alongside the growth in scale, and the shortage of human resources for middle management) are acting as a drag on growth, and also as a strategy to effectively enter into regional cities. Specifically, in regional cities, it is putting in place a mechanism to support growth through conducting capital tie-ups with companies that manage izakaya and that have an abundance of management expertise and then providing them with the Company’s main brands (including ISOMARU SUISAN). For the Company, this mechanism enables it to quickly lock in place a business foundation in regional cities (such as acquiring sites for openings, human resources, and a regional network, and also excellent management-level employees who are competent and ambitious). For its partners, it enables them to add popular brands, such as ISOMARU SUISAN and Toriyoshi Shoten, to serve as a second growth engine (source of earnings), while they continue with their own brands, while also providing them with various scale merits and opportunities to expand scale (such as the nationwide expansion of the partners’ brands). Moreover, it also makes possible the sharing of business formats and knowledge between the partners. In other words, it is not merely the addition to the Company’s result from an M&A, and its features include that it is ultimately one part of a growth strategy centered on the main brands and that it utilizes the partner’s independence and desire for growth. This strategy benefits from 1) popular brands that can be lined up even in the regions, 2) a track record of breaking away from owner companies, 3) and the fact that Company itself had been an acquired in an M&A deal. Therefore, as it is being conducted by the Company, it can be said that it is a model that is sufficiently persuasive.

Entering into regional cities through M&A and franchises is one of the growth axes that the Company has investigated. But the reasons for changing direction at this juncture are thought to be external factors that are proving beneficial for conducting M&A, in addition to responding to the aforementioned environmental changes. It is targeting, for example, managers who have been successful in establishing appealing brands locally but who are having problems in finding successors, and young managers who are struggling to overcome barriers to growth, and it is planning partnerships with around 10 companies in the next 3 years.

2. Medium-term management plan

Alongside the start of the Alliance Conception, the Company has announced a new three-year medium-term management plan. The targets for the plan’s final fiscal year (FY2/22) are net sales of ¥59,000mn, ordinary income of ¥4,200mn, and net income of ¥2,500mn. It has positioned the current fiscal period (FY2/20) as a year to build the foundations on which to advance the Alliance Conception, and it plans to fully get on a growth track from the next fiscal period onwards. Also, for organic growth by the Company itself, it is working on various measures, including continuing to open restaurants at prime locations, mainly in the Tokyo metropolitan area, and at the same time, to develop new brands and advance the “multiple contents in prime locations” strategy. So it is depicting a two-layered image of growth, of accelerating growth through the continuous organic growth and the Alliance Conception.

At FISCO, we do not think that the targets are that high of a hurdle because, for example, if the Company partners with companies with sales on a scale of ¥1bn to ¥1.5bn, the same as JS, the first company, then its sales would double from the opening of 3 to 5 ISOMARU SUISAN locations. Based on this premise, we provisionally calculate an expected increase of sales of ¥20bn through partnerships with 10 companies with sales of ¥1bn. Therefore, it seems that the key to success will be how it will gather supporters for the Alliance Conception in the core cities in each region across the country. The more supporters it gathers, the greater we can expect its value as a platform to increase. In addition, for the organic growth of the Company itself, there remains ample room to open locations in the Tokyo metropolitan area, including openings of multiple formats in the same location, and we can expect results to be supported by the “multiple contents in prime locations” strategy, for which a certain level of response is being obtained. Therefore, there has been no change to our view that sustainable growth is possible.

◆Outlook

Outlook for FY2/20 is for a temporary decrease in profits, although sales will increase Working to building the foundation on which to advance the Alliance Conception

The Company expects higher sales but lower profits in FY2/20 mainly due to closure of unprofitable locations with a 3.3% increase in net sales YoY to ¥39,000mn, a 17.4% decrease in operating income to ¥2,400mn, a 16.2% decrease in ordinary income to ¥2,700mn, and an 18.2% decrease in profit attributable to owners of parent to ¥1,600mn.

The consolidation of JS, which is the first Alliance Conception project, is expected to contribute to the increase in sales. However, the reason why the sales increase rate will be only moderate is that the Company will work on improvements toward realizing a more robust management structure by curtailing new openings to 7 locations and working to support existing locations, at the same time as actively withdrawing from unprofitable locations. In particular, its policy is to assign new recruits and employees who had worked at locations it has exited from to existing locations, and to conduct measures to improve productivity.

The outlook is for a temporary decrease in profits because of costs relating to the support for existing locations (costs for renovations and repairs) and to exit from unprofitable locations, and also for upfront costs toward accelerating growth in the future (including personnel costs due to the strengthening of recruitment, and upfront costs toward realizing M&A).

Therefore, results will remain stagnated. But it is necessary to be aware that, as previously stated, the Company has positioned the current fiscal period as a year in which to build the foundation on which to advance the growth strategy in the future through both defensive measures (curtailing openings of new locations and strengthening existing locations alongside the exits from unprofitable ones) and an offensive measure (advancing the Alliance Conception).

At FISCO, we understand the level of the Company’s forecasts to be its minimum commitment. Also, to advance the Alliance Conception, we evaluate that it decision to first strengthen its own existing locations and maintain a solid earnings foundation to be a rational one, and in this process, we accept as unavoidable that results will remain stagnated. The biggest focal point for the Company will be to create a path that guides success for the Alliance Conception project; this obviously includes the results of the PMI at JS in creating synergies in the integration process, but also ways to disclose more specific results such as acquisition of partner to follow on from JS, which serves as the first Alliance Conception project. We think that this will affect the accuracy and speed toward increasing the number of partners in the future. In particular, the Company is planning to increase the number of locations through alliances in the next 3 years from the current 229 locations to around 470 locations, and it is necessary to be aware that this may become an upside factor for results depending on the speed of this increase and the conditions for the PMI.

◆Shareholder returns

Focuses on paying stable and continuous dividends Outlook for FY2/20 is to maintain the annual dividend of ¥26

The Company aims for a stable dividend. It plans to pay a ¥26 annual dividend (¥13 interim, ¥13 year-end) for FY2/19, in line with initial forecast (putting payout ratio at 34.4%). It is targeting ¥26 (¥13 interim, ¥13 year-end) again in FY2/20 (payout ratio at 42.0%).

The Company has also adopted a shareholder gift program. It allocates food coupons that can be used as the Company’s restaurants twice a year (covering shareholders with 100 or more shares listed in the shareholder registry at the end of February and the end of August). The gift amount varies depending on the number of shares owned.

 

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