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PiPEDO HD, Inc. (JP-3919) Tokyo Stock Exchange First Section ( II )

2019-06-05  提供機構:FISCO  作者:FISCO  點閱次數:1

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◆Results trends

FY2/19 earnings undercut forecasts, but not a cause for concern

• Summary of FY2/19 results

(1) Profit-and-loss conditions

In FY2/19, the Company reported ¥5,419mn in net sales (+5.4% YoY), ¥394mn in operating profit (-47.5%), ¥390mn in recurring profit (-47.9%) and ¥140mn in profit attributable to owners of parent (-69.3%). Net sales fell slightly short of the forecast, and upfront investments were executed as planned, so operating profit also undercut the forecast made during the year. Still, the results were generally within the expected range, and are not a cause for major concern. The large decline in profit attributable to owners of parent was due to the posting of impairment on related software as extraordinary losses resulting from the delay in BIREKI’s business.

Overall net sales were approximately ¥400mn below the initial forecast. Net sales in the information asset platform business fell approximately ¥300mn short of the forecast, while net sales in the sales promotion CRM solutions business fell approximately ¥300mn short as well. Meanwhile, net sales in the advertising business were roughly ¥200mn above the forecast, while net sales in both the xTech business and the social innovation business were generally in line with the projections. Overall operating profit undercut the forecast by approximately ¥100mn. On an individual business basis, operating profit in the information asset platform business and the sales promotion CRM solutions business undercut forecasts by roughly ¥100mn and ¥50mn, respectively, while operating profit in the advertising business exceeded the initial forecast by approximately ¥50mn.

(2) Trend in the number of employees

The Company had declared that it would aggressively hire (invest) in FY2/18 and FY2/19 in order to realize goals in the medium-term business plan that lasts through FY2/20, as explained below. In fact, it hired 90 people in FY2/18 and another 76, including both mid-career and new university graduates, in FY2/19.

As a result, the number of employees greatly increased to 466 people (an increase of 63 people or 15.6%) by the end of FY2/18.

(3) Profit and loss by segment

The profit and loss in the Function-based Segment was as follows.

a) Information asset platform business

This business posted ¥3,669mn in net sales (+3.1% YoY), and operating profit of ¥828mn (-26.9%). Net sales of the main product SPIRAL® increased by ¥153mn, but growth was duller than forecast, mainly due to the fact that it is taking longer than initially expected for newly-hired personnel to contribute after being placed in the field. Consequently, segment net sales only increased 3.1%, while profit declined due to the rise in expenses in conjunction with the increase in personnel.

b) Sales promotion CRM solutions business

Net sales from development contracting increased ¥107mn, while digital CRM net sales declined ¥229mn, largely due to the impact of a large spot deal acquired in FY2/18. As a result, net sales in the segment totaled ¥1,025mn (down 10.2%), while segment operating profit was ¥45mn (down 71.5%).

c) Advertising business

Partly due to efforts to provide multi-faceted proposals to existing clients in order to increase average sales per customer, net sales of SPIRAL Affiliate increased ¥216mn, and agency sales for online advertising increased ¥56mn due to factors including the upturn in the joint business with the advertising-related subsidiary of East Japan Railway Company <9020>. As a result, segment net sales totaled ¥482mn (+130.4%), which was a significant increase, and operating profit also improved considerably to ¥81mn (compared to an operating loss of ¥17mn in the previous fiscal year).

Profit and loss in the Field-based Segment was as follows.

d) xTech business

This business engages in projects expected to create innovative services in the industry by utilizing IT to share information across company and organizational lines. Net sales were ¥163mn (-1.8%), while operating loss of ¥55mn (versus a loss of ¥22mn in the year-earlier period) was recorded. The main services of the business are as follows.

1) ArchiTech: BIM construction information platform ArchiSymphony®

2) BeauTech: Provides BIREKI®, an app that provides an electronic hair design records for customers and salons

3) HRTech: Custom-made personnel development contracting business to innovate company’s development of personnel, started a paid occupational referral business in March 2018 after receiving approval from the Minister of Health, Labour and Welfare

4) FinTech: Electronic regional currency platforms

e) Social innovation business

This business engages in activities with public benefits, aiming to not just help individual companies and industries solve internal problems, but to also solve broader societal issues. The business booked net sales of ¥78mn (+19.1%) and a loss of ¥38mn (versus a loss of ¥26mn in the year-earlier period). My Public Relations Bulletin, a service that helps municipalities open up and utilize their PR magazines, continued to grow steadily, and the number of posting municipalities has already exceeded 700, which covers roughly 40% of the approximately 1,750 total municipalities. In addition, both the online voting-related business and Seijiyama®, the politics and election information website, are both enjoying healthy growth.

(4) Financial standing and cash flow conditions

Looking at the financial position at the end of FY2/19, total assets were up ¥770mn from the end of the previous fiscal year to ¥5,877mn. Current assets increased by ¥670mn, with the main factors being an increase in cash and deposits of ¥507mn and in notes and accounts receivable of ¥118mn. Fixed assets increased ¥100mn, primarily due to a decrease in intangible fixed assets of ¥68mn and an increase in investments and other assets of ¥183mn. Total liabilities were up ¥715mn from the end of the previous fiscal year to ¥3,434mn. This was mainly due to an increase in short-term loans payable (including the current portion of long-term loans payable) of ¥495mn and an increase in accounts payable of ¥136mn. Net assets were ¥2,443mn, up ¥55mn. This was mainly due to the increase in retained earnings of ¥19mn following the recording of net income.

Cash provided by operating activities was ¥458mn, with the main income items being the recording of net profit before income taxes of ¥305mn and depreciation and amortization of ¥218mn. Cash used in investing activities was ¥383mn, with the main expenditure items including the acquisition of intangible fixed assets (largely software) of ¥200mn and of investment securities of ¥159mn. Cash provided by financing activities was ¥431mn, with the main items including ¥535mn for the net increase of borrowings and ¥121mn for the payment of dividends. As a result, during the period, cash and cash equivalents increased ¥507mn, and the balance of cash and cash equivalents at the end of the period was ¥2,423mn.

(5) Main policies and topics during 2H FY2/19

a) Strengthened coordinated solutions between SPIRAL® and LINE (September 2018)

The Company enhanced the coordination between SPIRAL® and LINE, creating compatibility with Flex Message, which allows users to send personal messages that are easy to create and highly-designable, as well as LINE Bot, which automatically responds to messages entered by users with pre-set responses.

b) Started issuing the electronic regional currency Shimokita Coin, which can be used in the Shimokitazawa area (September 2018)

As discussed above, Shimokita Coin was established in March 2018 as a subsidiary of L Coin. Using an electronic regional currency platform provided by L Coin, the company began issuing electronic regional currency limited to the Shimokitazawa area. Also, the company is working with I LOVE, INC. to attract investment and member stores among local shops, and aims to energize the local economy. Over 1,000 people used the electronic regional currency at the curry festival held in October 2018.

c) Received awards at the ASPIC IoT/AI/Cloud Awards 2018 (November 2018)

At the ASPIC IoT/AI/Cloud Awards 2018 held by the ASP-SaaS-IoT Cloud Consortium (ASPIC), PIPED BITS won the runner-up prize in the core operations category for its SPIRAL My Number Management Service. Also, Center for Mental Health Screening® received the Best Corporate Citizenship Award in this same category, while Publica’s “My Public Relations Bulletin” won the Best Innovation Award in the data utilization category.

d) Began providing an automated call/voice response solution (November 2018)

The Company started providing Autocall BB, a service that increases the efficiency of phone call response operations with automated calling and automated voice response. This service includes a function to convert text into voice, and a function to automatically make calls to a designated list of contacts on a designated day. The service can be purchased from a minimum of one desk.

e) SPIRAL EC® collaboration with World Shopping BIZ (November 2018)

The apparel-focused EC platform SPIRAL EC® began cooperating with World Shopping BIZ, a cross-border EC solution. This makes it possible to have an EC site function across 125 countries in as little as one day, and comprehensively solves personnel costs and operational issues.

f) Began supporting the introduction of Instagram shopping by SPIRAL EC® users (December 2018)

Began offering a service that supports linking the shopping functions of EC sites, Facebook and Instagram with apparel EC platform SPIRAL EC®.

g) Launched online application solution for installment payments and credit cards (February 2019)

Started providing online application solutions for installment payments and credit cards, and by digitizing various application procedures which used to be done using paper, the work required for both applicants and service providers is reduced and made more efficient.

h) Launch of new SPIRAL® version 1.12.6 (February 2019)

The Company began providing the new SPIRAL® version 1.12.6, which includes a function that allows users to efficiently and safely switch forms created using SPIRAL®, and prevents down-time in association with form switches as well as contributes to a reduction in personnel needed for switches.

◆Business outlook

Forecasts a major recovery in FY2/20, with a 204.5% increase in operating profit

1. FY2/20 outlook

In FY2/20, the Company is forecasting ¥6,500mn in net sales (+19.9% YoY), ¥1,200mn in operating profit (+204.5%), ¥1,190mn in recurring profit (+204.7%) and ¥700mn in profit attributable to owners of parent (+397.4%). The Company is forecasting a large increase in operating profit and all lower profit lines, and because the profitability of the Company’s core cloud-based business has a high upper limit, these figures should be achievable as long as the Company secures net sales. The key to achieving these targets is whether the large number of personnel hired over the past two years (FY2/18 and FY2/19) contribute to the Company’s business as planned.

2. Grounds for achieving the increase in net sales

The Company has given the following reasons as grounds for its forecast of a nearly 20% increase in net sales in FY2/20.

(1) Growth in main product SPIRAL®

One reason for the lack of growth in the main product SPIRAL® in FY2/19 was the fact that many existing salespeople (veterans) spent some of their time teaching newly-hired salespeople. Over the past two years, the Company has hired many new employees (166 people), and has been aggressively training these new employees so that they can contribute. Many of the Company’s existing salespeople were involved in the education and training of the new employees, and this negatively impacted the performance of these existing salespeople. In FY2/20, not only will newly-hired salespeople contribute to the Company’s performance, but veteran salespeople will be able to focus on their own sales efforts, thereby growing the sales of the main product.

(2) Growth in large value general sales

Up until this past fiscal year, the Company’s overall strategy had been to emphasize contract sales (ongoing contracts in which sales are posted each month), while general sales (one-off sales of large amounts) were somewhat less of a priority than contract sales. Because FY2/20 is the final fiscal year of the medium-term business plan, the Company plans to go after general sales more aggressively than before (while still keeping a balance with contract sales), and therefore expects net sales to increase.

(3) Growth in SPIRAL EC®

In FY2/19, the Company both worked on developing a new SPIRAL EC® product for EC, and also worked to transfer this business from PIPED BITS to FRIENDIT. As a result, net sales related to SPIRAL EC® fell to a lower-than-usual level. However, in FY2/20, net sales are expected to recover due to the fact that the development work and the business transfer have been completed.

(4) Rebound in sales promotion CRM solutions

The sales promotion CRM solutions business generally sees high year-to-year fluctuations in net sales, and in FY2/18 the business acquired relatively large projects. The Company expected a recoil decline in FY2/19, but actual net sales fell even more than forecast. Looking at FY2/20, the Company is expecting a rebound increase from last year’s large decline, so the Company is projecting a recovery in the sales promotion CRM solutions business. Still, recovery means a return to the FY2/18 level, so the expectations are not excessive.

(5) Ongoing strong performance in the advertising business

The advertising business is expected to perform strongly in continuation from FY2/19. In particular, the joint business with an advertising-related subsidiary of East Japan Railway Company, which the Company has been focusing on, finally got up and running in earnest in FY2/19, so the Company expects the advertising business to continue to see an increase in net sales going forward.

As discussed above, there are buds for growth in net sales in each business in FY2/20, and a 20% increase in net sales should not be too hard to achieve. Also, as discussed above, the Company’s business has a high maximum profit margin, so as long as the Company can maintain an increase in net sales, it should be able to achieve a 200% increase in operating profit.

◆Medium- to long-term growth strategy

Medium-term plan goals unchanged at ¥7,300mn in net sales and ¥1,700mn in operating profit in FY2/20

1. Medium-Term Business Plan 2020 goals unchanged

The Company announced the Medium-Term Business Plan 2020, a new medium-term business plan with FY2/20 as the final year. The new plan sets goals of ¥7,300mn in net sales and ¥1,700mn in operating profit in FY2/20 that work out to compound average growth rates (CAGR) from FY2/17 of 15.0% in net sales (vs. 24.0% in the previous plan) and 26.2% in operating profit (vs. 14.4%).

Meanwhile, however, in its official earnings report, the Company announced a net sales forecast of ¥6,500mn (+19.9% YoY) and an operating profit forecast of ¥1,200mn (+204.5%) for FY2/20. These forecasts are a bit conservative, as they take a variety of risks into consideration at the management level.

In contrast, the forecasts in the medium-term business plan (net sales = ¥7,300mn; operating profit = ¥1,700mn) are the aggregates of the projections for each operating company. Therefore, internally, no revisions have been made to the forecasts for FY2/20. In other words, all of the operating companies are working towards achieving these internal targets. These are extremely high targets, but certainly not impossible to reach. Again, as long as the Company can book net sales, profits will come easily.

We will keep a close watch on the Company’s trends going forward, focusing on whether or not the Company is able to make full use of the large number of employees hired over the past two years as planned.

2. Priority measures

The Company uses a title of “Re-Innovation” for the new medium-term plan and seeks to become a “corporate group that contributes to a rich information lifestyle with a future.” It intends to implement the priority measures covered below to achieve this goal and the above-mentioned numerical targets.

(1) Promote “real × IT”

The Company intends to strengthen the contact point between real business and IT and pursue innovative businesses. The establishment of new subsidiaries was a specific example.

a) VOTE FOR

The Company established this entity in Mach 2017 to conduct “real × IT” business using the Seijiyama® political and election information website that existed internally. It aims to build voting systems that utilize blockchain and other new technologies that facilitate Internet-based voting with emphasis on Seijiyama® and Internet-based voting.

b) I LOVE

The Company created this entity to make further progress in the “I LOVE Shimokitazawa” local revitalization project that had already been taking place internally and apply this knowhow to cultivate “towns capable of delivering enjoyable services on par with shopping malls and theme parks.” Specifically, it will pursue development of a new transaction format for single-coin donations, tips, and other small-sum transactions employing electronic regional currency.

(2) Group hiring and group development

Group companies will conduct common elementary education in the IT field in order to boost the overall knowledge level and reduce time spent on training front-line staff. With a goal of maximizing profits in FY2/20, the Company hired 90 people in FY2/18 (including new university graduates and recent graduates with work experience) and another 76 people in FY2/19. There will be a respite in large-scale hiring after this phase.

Subsidiary BLOOM NOTES (established in October 2016) will support the group hiring and development. This entity’s main business is a customized personnel training service through arrangement of unique knowhow at customer companies into a program and assists in implementation, and the Company plans to harness the same program for development of its own Group personnel.

(3) Effective utilization of information assets at Group companies

The Company intends to further promote customer and product/service matching at Group companies and create new transactions and businesses.

3. Fund-raising initiative

The Company announced the following share buyback and fund-raising plan that targets future growth.

(1) Acquiring its own shares from subsidiaries

The Company acquired 500,000 shares of its stock owned by consolidated subsidiary PIPED BITS for ¥767mn. However, this transaction simply transferred ownership and does not affect consolidated results because it obtained the Company’s own shares held by a consolidated subsidiary. PIPED BITS originally purchased these shares in response to a request from a minority shareholder prior to formation of the holding company.

(2) Issuance of No.5 and No.6 new share warrants

Additionally, the Company issued new share warrants (No.5: 250,000 shares; No.6: 250,000 shares) for third-party allotment to Macquarie Bank Limited. (Refer to the Company’s website for details.)

Key points are a ¥1,800 exercise price for No.5 (with no revisions to the exercise price) and a ¥1,800 bottom in the exercise price for No.6, but an ability to raise this level to over ¥1,800 by the Company resolution. This puts the maximum number of shares available for allocation at 500,000 shares and supports a minimum procurement value of ¥900mn. Additionally, total outstanding issuance volume should not increase if warrants are exercised because the Company plans to utilize the above-mentioned treasury shares acquired from the subsidiary (500,000 shares). Existing shareholders hence would not incur dilution.

Furthermore, Macquarie Bank Limited, the recipient of the new share warrants, paid ¥5,872,000 for the warrants and is unlikely to exercise the rights until the shares trade at ¥1,800 or above in order to recoup its outlay. We expect gradual sale of acquired shares in the market after purchase using the warrants and contribution to better liquidity in the stock market once these shares enter the market.

While this fund-raising scheme is attractive to all stakeholders (the Company, existing investors, and the warrant recipient), it requires a share price of over ¥1,800. We think the Company hence must attain goals from the above-mentioned FY2/20 forecast.

◆Shareholder return policy

Forecasting an annual dividend of ¥21 in FY2/20

The Company is committed to a 30% dividend payout ratio as a shareholder return policy. It paid a ¥21.0 annual dividend in FY2/18, and despite the decline in profits it paid a ¥12.0 annual dividend in FY2/19 (resulting in a 64.9% dividend payout ratio due to the special nature of the operating results). Furthermore, in FY2/20, the Company has announced that it will pay an annual dividend of ¥21.0 based on its forecast for an increase in profit. However, this would result a dividend payout ratio of only 22.8% if the forecast profits are achieved, so there is a possibility that the Company will increase the dividend to maintain a dividend payout ratio of 30% if the forecasted profits are achieved.

 

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