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【FISCO】COMPANY RESEARCH AND ANALYSIS REPORT:TOKAI Holdings Corporation-3167-Tokyo Stock Exchange First Section( I )

2019-07-03  提供機構:FISCO  作者:FISCO  點閱次數:109

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◆Summary

The Group’s customer base is expanding and the outlook is once again for record high results in FY3/20

Based in Shizuoka Prefecture, TOKAI Holdings <3167> (hereafter, also “the Company”) is a comprehensive life­style-infrastructure company that is developing “energy and lifestyle-related services,” primarily the provision of liquefied petroleum gas (LP gas), and “information and communications services.” In addition to realizing the Total Life Concierge (comprehensive services for living) concept*1, from FY3/19 it has started measures for a second theme, of ABCIR+S*2, which utilizes new service technologies that will lead to the next generation of businesses, and it is aiming to take a further leap forward while advancing an M&A strategy.

*1 Total Life Concierge concept: a vision that aims to improve customer satisfaction by providing comprehensive and detailed support for customers’ comfortable lifestyles through the various services provided by the TOKAI Group.

*2 ABCIR+S: the TOKAI Group’s strategy for technological innovation. It is the acronym of AI (A), Big Data (B), Cloud (C), IoT (I), Robotics (R), and Smart Phone (S).

1. FY3/19 results

In the FY3/19 consolidated results, the number of Group customers, which is the foundation of earnings, steadily grew by 26,000 on the end of the previous fiscal year to 2.9 million customers. As a result, net sales increased 3.0% year-on-year (YoY) to ¥191,600mn and operating profit rose 19.0% to ¥13,057mn, with both being new record highs. Sales increased in each of the mainstay businesses, of the gas and petroleum business, the information and communications services business, and the CATV business. Profits also increased in all of the business segments except the gas and petroleum business, in which profits declined due to the effects of the warm weather and the rise in purchase costs. Compared to the Company forecasts, operating profit was around ¥900mn below forecast, but this was mainly due to a decline in profits of ¥2.4bn in the gas and petroleum business due to the warm weather and the rise in purchase costs, and when excluding these factors, profits were actually above forecast.

2. FY3/20 earnings outlook

The outlook for the FY3/20 consolidated results is for record highs for the second consecutive fiscal year, with net sales rising 4.8% YoY to ¥200,800mn and operating profit increasing 8.5% to ¥14,170mn. With an eye to growth from the next fiscal period onwards, the Company is forecasting an increase in costs of ¥1.9bn as the total to invest in ABCIR+S and in human resources. But this will be covered by the profit-improvement effects, including the increase in monthly revenue due to the growth in the number of Group customers (up by 100,000 on the end of the previous fiscal year to 3 million customers) and the reduction in purchase costs in the gas and petroleum business. The Company is carefully investigating proposals for M&A, but this has not been incorporated into the results forecasts.

3. Medium-term management plan (IP20)

In the medium-term management plan (Innovation Plan 2020 “JUMP”), the targets for FY3/21 are net sales of ¥339.3bn and operating profit of ¥22.5bn. The Group is striving to grow the number of Group customers to more than 4.32 million while actively utilizing M&A and maximizing earnings per customer by increasing the customer contract rate for multiple services* from 17.8% at the end of FY3/19 to 20%. As it intends the number of customers to have grown 3 million organically by the end of FY3/20, the key to achieving the targets in the medium-term management plan will be the success or failure of the M&A. The Company is targeting M&A not only for the CATV business, the gas and petroleum business, and the information and communications services business, but also new businesses, and is progressing investigations upon setting on investment framework of around ¥100bn.

* Contract rate for multiple services = (total number of service contracts ÷ number of customers) -1

4. Shareholder return policy

There has been no change to the policy of continuously and stably returning profits to shareholders. The forecast dividend per share for FY3/20 is ¥28.0 (dividend payout ratio, 44.6%), which is unchanged from the previous fiscal year. Going forward, the Company intends to pay dividends while observing profit trends and financing needs, with a benchmark dividend payout ratio of 40% to 50%. Also, at the end of March and the end of September, it presents one gift to shareholders from among several possible choices, such as an Aqua product, a QUO card, and points for a TLC member service worth ¥1,000. When including the gifts to shareholders in an estimate of the total investment yield per share unit from the current share price level (closing price of ¥892 on May 24, 2019), it is in the range of 4.3% to 7.7%*.

* In the case of selecting either a QUO card or an Aqua product as the shareholder gift

◆Business overview

Under the Total Life Concierge concept, provides various services for everyday life, including LP gas, the Internet, and CATV

Based in Shizuoka Prefecture, Japan, the Company is expanding its two main businesses, “energy and lifestyle-re­lated services,” primarily the provision of liquefied petroleum (LP) gas, and “information and communications services,” and it is aiming to achieve its management vision of being a “Total Life Concierge” (TLC). It provides a complete range of services for everyday life under a one contract, one stop, and one call-center model and while deepening its connections with its customers, their local communities, society, and the global environment, it is striving to enrich people’s lives and to contribute to the development of local communities and to the conservation of the global environment, and also to a grow as a comprehensive provider of life services that represents Japan.

The Company currently discloses information on six business segments; the gas and petroleum business, the information and communications services business, the CATV business, the building and real estate business, the Aqua business, and other businesses. Looking at the sales structure by segment for FY3/19 results, the Company’s original business, the gas and petroleum business accounted for 40.7% of sales, the information and communications services business for 26.7%, and the CATV business for 15.9%. These three mainstay businesses accounted for over 80% of sales. The details by business segment are as follows.

1. Gas and petroleum business

In this business, 84% of net sales are provided by the LP gas business and 16% by the city gas business. The mainstay LP gas business is developed by TOKAI Corporation, primarily for homes and businesses. The service areas are mainly in the Shizuoka and Kanto regions, but since 2015 it has also gradually expanded into other areas including the south Tohoku, Chubu/Tokai, Chugoku, and Kyushu areas. As of the end of March 2019, it had 628,000 contracts, and in direct sales, it ranked third after Iwatani Corporation <8088> and Nippon Gas <8174>. In terms of market share, it is the leader in Shizuoka, its home territory, with around 20%, while it has a share of just under 10% in the highly competitive Kanto region, putting it in second place. As there are approximately 20 million households nationwide that use LP gas, its nationwide market share is still at the level of around 3%, and going forward there remains room for it to grow its share, including by expanding sales areas and conducting M&A.

In the city gas business, TOKAI GAS CORPORATION supplies city gas in Yaizu City, Fujieda City, and Shimada City in Shizuoka Prefecture. The number of contracts has trended stably in the last few years and was 56,000 at the end of February 2019. There are approximately 200 operators nationwide in the city gas market, but with the exception of the four largest companies, most are (private- and publically-operated) small- to medium-sized operators with limited service areas. Following the liberalization of the retail city gas market in April 2017, the Company has been implementing a strategy of increasing customer numbers by bringing operators in various regions into the Group through M&A.

2. Information and communications services business

The information and communications services business, which is conducted by TOKAI Communications Corporation, is comprised of the consumer ISP (Internet service provider) business and mobile business (sales of mobile phones), and a business to provide communication lines, data center services and systems development for corporations. Looking at the percentages of total net sales for FY3/19 results, the consumer business contributed 60% and the corporate business 40%.

The ISP business provides the “@ T COM” service for the nationwide service area and the TOKAI Network Club (TNC) service for the Shizuoka Prefecture service area, and it has the leading share within Shizuoka Prefecture of approximately 21%. In addition, from February 2015 it launched the Hikari Collaboration service (@TCOM Hikari and TNC Hikari services), in which it receives wholesale provision of optical lines from NTT <9432> and provides its own optical (hikari) Internet connection service. As of the end of March 2019, the Company had 419,000 customers using its existing ISP service and 327,000 customers using its Hikari Collaboration service and customers are shifting toward Hikari Collaboration. The two services have a total of 746,000 customers. This number has steadily declined from 863,000 as of the end of March 2015, immediately after the Hikari Collaboration service was launched. This decline has occurred because customers have been leaving the service at a faster pace than new customers can be enrolled, as major mobile phone carriers conduct sales of service bundles at discounted prices, including mobile phone fees, making use of NTT’s wholesale optical line business.

The mobile business operates 12 mobile phone stores, mainly within Shizuoka Prefecture, as a sales agency of Softbank Corp <9434>, and as of the end of March 2019, it had 217,000 customers. Also, in February 2017 the Company began sales of LIBMO, which is a low-cost smartphone service, as an MVNO business*. The number of LIBMO customers had steadily increased to 41,000 at the end of March 2019.

* MVNO (Mobile Virtual Network Operator): Operators who provide services by borrowing other companies’ wireless communication infrastructure, such as for mobile phones.

3. CATV business

In the CATV business, the Company provides services in Tokyo and five prefectures: Shizuoka, Kanagawa, Chiba, Nagano and Okayama. Currently, the CATV business is undertaken by nine Group companies. As of March 2019, the number of customers stood at 789,000 for broadcasting services and 274,000 for communications services, bringing the total to 1,063,000 customers. In the CATV industry, the J:COM (Jupiter Telecommunications Co., Ltd.) Group holds a market share of just over 50% based on the number of subscribing households. The second-largest CATV company and smaller players have market shares in the single digits and are locked in a tight race for market share. The Company has around 3% of shares, and its strategy is to continue increasing its market share through proactive M&As going forward.

4. Building and real estate business

In this business, TOKAI Corporation engages in the construction and design of detached housing, multi-dwelling housing, stores, and office buildings. It also provides a building management service, sells home facilities and equipment, provides a security service (classified in the gas and petroleum business), operates insurance agencies (classified in other businesses), and develops and trades real estate. In addition, TOKAI Corporation and Tokai Gas Corporation are developing a renovation business.

5. Aqua business

In the Aqua business (bottled water home delivery business), TOKAI launched the Delicious Water Home Delivery returnable (using returnable bottles) service in 2007 in Shizuoka Prefecture, and since 2011, it has been providing its water product Ulunom as a one-way (using disposable bottles) service in areas other than Shizuoka Prefecture. It has two bottle manufacturing plants within Shizuoka Prefecture for Mt. Fuji natural water (production capacity of approximately 180,000 bottles), and at the end of March 2019, it had 156,000 customers. At the end of 2018, the number of customers in the industry as a whole was 3.85 million, so the Company’s share is around the 4% level (approximately 50% share in Shizuoka Prefecture). The Delicious Water Home Delivery service was selected as ranking first in the 2019 Oricon Customer Satisfaction Ranking of Water Servers*.

* A questionnaire survey conducted by oricon ME Inc. It had a sample size of 8,081 people, who were questioned about 48 companies.

6. Other businesses

Other businesses include a nursing care business operated by TOKAI LIFE PLUS CORPORATION, a wedding ceremony business by TOKAI City Service Corporation, and a shipbuilding and repairs business by Tokaizosen-unyu Corporation. The Company launched the nursing care business in 2011, and as of March 2019, it operated six day service facilities, a short stay facility, and a paid-for nursing home in Shizuoka Prefecture. In addition, it has opened two care plan centers. For its wedding ceremony business, it operates one facility in Shizuoka Prefecture.

◆Results trends

Customer numbers steadily increased, achieving record highs in FY3/19

1. Overview of the FY3/19 results

In the FY3/19 consolidated results, net sales increased 3.0% YoY to ¥191,600mn, operating profit grew 19.0% to ¥13,057mn, recurring profit climbed 18.5% to ¥13,259mn, and net income attributable to owners of the parent increased 17.4% to ¥7,772mn. Sales increased in each of the mainstay businesses, of the gas and petroleum business, the information and communications services business, and the CATV business, mainly due to the effects of the growth in the number of customers, which constitutes the foundation of earnings, and the M&A conducted in the previous fiscal year. Moreover, sales were a record high for the first time in five fiscal years. In profits, despite the negative impacts from the fall in LP gas sales volume (¥600mn) due to the warm weather and the rise in LP gas purchase costs (¥1.8bn), alongside the increase in the number of Group customers (up 26,000 on the end of the previous fiscal year to 2,902,000 customers), the profit-increase factors were ¥3.4bn mainly from the rise in monthly earnings, ¥900mn from a reduction in customer-acquisition costs, and ¥200mn from the improvement in the profit-loss condition of LIBMO. As a result, all of the profit items were record highs for the first time in two fiscal years.

Compared to the initial Company forecasts, net sales and profits were slightly below forecast. In the CATV business and the Aqua business, results exceeded forecasts mainly due to the increase in the number of customers. But in the LP gas business, results were below forecast, with the main reasons being the negative impacts of factors other than operating activities, of the warm weather and the rise in purchase costs. If excluding these factors, profits were also above forecast.

One of the Company’s priority measures in the medium-term management plan is a strategy of accelerating growth through actively conducting M&A. In FY3/19, it completed two deals in order to promote the expansion of areas for the city gas business. In the first deal, it acquired the gas business*1 operated by Shimonita Town in Gunma Prefecture, and in April 2019, its subsidiary TOKAI GAS took over this business. In the second deal, in March 2019 it was granted the first refusal rights to acquire the city gas business*2 operated by Nikaho City in Akita Prefecture, and the plan is for TOKAI GAS to take over this business in April 2020. This will be the Group’s first entry into the Akita Prefecture area. It seems that the main reason that the Company was granted the first refusal rights was that its proposal, of providing various services relating to daily life that will lead to the revitalization of the region, was evaluated.

*1 It has 1,336 customers and annual net sales of ¥143mn (FY16 results).

*2 It has 5,255 customers and annual net sales of ¥411mn (FY17 results).

In these new areas, going forward the aim is to propose to customers multiple living-related services provided by the Group’s companies, with the city gas service as the starting point, and to increase the number of contracts by 2.5 times from the current number by five years’ time. This level of 2.5 times is based on the rate of multiple service contracts among city gas business customers in Shizuoka Prefecture. The multiple services transactions rate for the Group as a whole is 17.8%, but in contrast, the rate for city gas business customers in Shizuoka Prefecture is as high as 62.8%. This is mainly because the connection between the region and the customers is deeper than for other services, and the Company plans to deploy the expertise it has accumulated in Shizuoka Prefecture in new areas also. In addition, it considers that there is room for demand to develop not only for consumers, but for industry as well.

In addition, in the information and communications services business, with the aim of strengthening measures related to ABCIR+S, in September 2018 TOKAI Communications made a consolidated subsidiary of Cyze Inc.*, whose main business is developing and providing on-line questionnaire systems. In the future, in the digital marketing strategy for the Group’s customers, it will utilize Cyze’s questionnaire system, and the goal is also to create synergies through mutually leveraging their respective customer bases, business expertise, and resources. Moreover, in September of the same year, the Company concluded a capital and business alliance with Tripleize Co., Ltd., which has strengths in cutting-edge technologies, such as IoT, AI and blockchain. Going forward, they will create synergies by leveraging each other’s strengths, and the aim is to further expand the Group’s information and communications services business.

* Cyze posted net sales of ¥179mn and operating profit of ¥36mn in FY11/18. The Company’s shareholding ratio in Cyze is 100%.

In addition, in October 2018, the Company started providing the TLC Points App, which is a smartphone app that aims to improve the convenience of the TLC member services*, including by enabling members to check, use, and exchange their TLC points on the app. They can also confirm in a timely manner the various information disseminated by the Group, such as about services. At the end of the fiscal period, the app had been downloaded slightly over 30,000 times, and in the future the Company plans to continue to expand its functions and improve its convenience, so it is attracting attention is one of the measures to acquire customers.

* Points that are granted to customers by using the Company Group’s services. It is possible to pay for usage fees with points and also to exchange the points, such as for other point services and electronic money. Since the launch of the service in December 2012, the number of members has reached 805,000 as of the end of March 2019.

Sales increased in every business segment, and profits rose in every segment except the gas and petroleum business

2. Trends by business segment

(1) Gas and petroleum business

In the gas and petroleum business, net sales increased 2.5% YoY to ¥77,977mn, and operating profit before the allocation of indirect costs and other costs (same below in this section) decreased 7.5% to ¥6,815mn. Within sales, net sales in the LP gas business rose 1.6%. The weather was warmer than in an average year, which led to a decline in the consumption volume per customer. However, the reasons for the higher sales were that at the end of the fiscal period, the number of customers had increased by 22,000 on the end of the previous fiscal period to 628,000 customers, and in addition, the implementation of price transferring was in response to the rise in purchase prices in the 2H. The number of customers increased in both the new business areas (north Kanto, south Tohoku, Aichi Prefecture, Gifu Prefecture, Okayama Prefecture, and Fukuoka Prefecture) and the existing sales areas (including Shizuoka Prefecture and the Tokyo Metropolitan area). In the new areas, customer numbers steadily rose by 14,000 on the end of the previous fiscal period to 27,000 customers.

Meanwhile, in the city gas business, net sales rose 7.4% to ¥12,412mn from the previous year-end, partly due to a rise in sales prices, as well as a slight increase of 2,000 in the number of customers to 56,000.

Sales increased for the second consecutive fiscal period. However, the profit-decrease factors were approximately ¥600mn from the reduction in sales volume per LP gas customer for households due to the warm weather, and around ¥1.8bn from the rise in purchase prices alongside the high price of crude oil. Therefore, operating profit declined for the second consecutive period.

(2) Information and communications services business

In the information and communications services business, net sales increased 0.7% YoY to ¥51,234mn and oper­ating profit rose 20.6% to ¥3,827mn. Within which, sales to consumers decreased 2.8% to ¥30,813mn. This was because although customer numbers increased for Hikari Collaboration, which has high monthly revenue, rising by 5,000 on the end of the previous fiscal year to 327,000 customers, and also for the inexpensive smartphone LIBMO, growing by 12,000 to 41,000 customers, the number of customers for the existing ISP service and other services decreased sharply, by 46,000 to 419,000 customers. In addition, results for Hikari Collaboration have levelled-off since peaking in June 2018 due to the intensification of competition to acquire customers.

Conversely, the corporate business performed steadily, with net sales increasing 6.4% YoY to ¥20,421mn. Sales of communications services and data center services trended firmly against the backdrop of the expansion of the cloud services market, and also sales increased for outsourced systems development with active IT demand from corporate customers.

Operating profit increased ¥400mn YoY due to profits increasing ¥300mn from SG&A expenses being kept down, mainly LIBMO sales promotions expenses for consumers, and also because of the rise in sales for corporations.

(3) CATV business

In the CATV business, net sales increased 7.5% YoY to ¥30,511mn and operating profit rose 39.4% to ¥4,953mn, and once again the results were record highs. The Company made subsidiaries of Tokyo Bay Network Co., Ltd., and TV Tsuyama Inc., in FY3/18 Q2 and Q4 respectively, and the effects of these M&A were to increase net sales by approximately ¥1bn and operating profit by around ¥100mn. In addition to the effects of the M&A, the effects of the sales measures are continuing to appear, such as the discount service by subscribing to a bundle of services for broadcasting and communication and for smartphones through a collaboration with a major mobile carrier, and also the measures to prevent contract cancellations. Therefore, at the end of the fiscal period, the number of customers had steadily increased for both broadcasting services, up by 14,000 on the end of the previous fiscal year to 789,000 customers, and for communications services, up by 17,000 to 274,000 customers.

For profits, in addition to the effects of the higher sales, the main factor behind the higher profits was that amor­tization expenses (including the amortization of goodwill) decreased ¥491mn YoY. Also, looking at the operating profit margin before amortization, we find that it changed direction and increased for the first time in two fiscal periods, rising 0.7 of a percentage point to 33.4%. As well as the effects of the higher sales, it is considered that this was due to the rise in the broadcasting and communications set contract rate and the increase in revenue per customer in the existing areas.

(4) Building and real estate business

In the building and real estate business, net sales increased 1.4% YoY to ¥20,090mn and operating profit rose 21.4% to ¥1,615mn. The reasons for the higher sales and profits included that orders in the renovation business grew due to the strengthening of the sales structure in the Shizuoka area, and that building and facilities construction projects performed strongly.

(5) Aqua business

Sales and profits increased in the Aqua business, with net sales rising 13.0% YoY to ¥7,004mn and operating profit growing 209.8% to ¥762mn. The factor behind the higher sales was the steady progress made in acquiring customers, such as at large-scale commercial facilities, which meant that at the end of the fiscal period, the number of customers had increased by 10,000 on the end of the previous fiscal period to 156,000 customers.

In profits, in addition to the effects of the higher sales, the Company concluded a business-alliance agreement with TOELL Co., Ltd. <3361>, a peer company in the bottled water delivery industry that came into effect on November, 2018, with the aim of streamlining delivery operations and enhancing service quality in the home water delivery business in the Kanto area, and this also contributed to the higher profits. TOELL has 250,000 customers in the Kanto area and has constructed its own delivery system. The alliance has the benefit that it will improve the efficiency of the delivery service through delivering the Company’s products at the same time.

(6) Other businesses and adjustments

In the other businesses, net sales increased 1.6% YoY to ¥4,781mn. Breaking this down, in the nursing business, sales rose 3.8% to ¥1,075mn alongside the increase in the number of facility users, and in the shipbuilding busi­ness, sales grew 5.8% to ¥1,520mn due to the increase in the volume of ship repair work. However, in the wedding ceremony business, sales fell 3.7% to ¥1,477mn because of the decline in the number of wedding ceremonies. The segment’s operating loss, including internal adjustments, slightly worsened to ¥4,916mn (compared to a loss of ¥4,699mn in the previous fiscal year).

 

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