FT COMMUNICATIONS (2763)
Transcription
FT COMMUNICATIONS (2763)
URL: www.walden.co.jp Written by Yoshiyuki Muroya E-mail: [email protected] Phone:+81 3 3553 3769 FT COMMUNICATIONS (2763) Consolidated Fiscal Year Sales (Million Yen) FY03/2013 45,879 FY03/2014 35,837 FY03/2015CoE 38,000 FY03/2014 YoY (21.9%) FY03/2015CoE YoY 6.0% Consolidated Q1 to Q3 Sales (Million Yen) Q1 to Q3 FY03/2014 26,469 Q1 to Q3 FY03/2015 25,874 Q1 to Q3 FY03/2015 YoY (2.2%) Source: Company Data, WRJ Calculation OP RP NP 3,108 3,761 4,800 21.0% 27.6% OP 3,285 4,113 5,000 25.2% 21.6% RP 1,760 2,654 2,800 50.7% 5.5% NP 2,582 3,018 16.9% 2,786 3,278 17.7% 1,832 2,017 10.1% EPS DPS BPS (Yen) (Yen) (Yen) 160.5 30.0 528.3 232.3 50.0 720.0 240.0 70.0 EPS DPS BPS (Yen) (Yen) (Yen) - 1.0 Executive Summary (19 March 2015) Coping with Security Enhancement FT COMMUNICATIONS, being involved with selling diverse merchandises & services mainly to small-sized corporates as the key earnings pillar, is calling for prospective recurring profit ¥10,000m as midterm target. “Development & promotion of new business”, “enhancement of market shares in existing business” and “accumulation of stock income” are the three major management strategies for the Company to achieve the midterm target. Meanwhile, recent trading has been driven by surging sales of server & UTM (Unified Threat Management), corporate-use mobile phones and website productions (e.g., EC sites), as well as by takeoff of CFC-free natural refrigerant gas (adopted in air-conditioners). In regards to server & UTM, sales have risen some 1.8 times over the year. As far as we could gather, the Company well succeeds in incorporating increasing needs for security enhancement among small-sized corporates (headcounts less than 20), i.e., the Company’s mainstay customer base. Meanwhile, sales of corporate-use mobile phones have quadrupled over the year. In Q1 to Q3 FY03/2015, sales came in at ¥25,874m (down 2.2% YoY) and recurring profit ¥3,278m (up 17.7%). Corporate Business saw sales ¥21,935m (up 19.2%) and segment profit ¥2,939m (up 14.1%), while sales ¥4,466m (up 12.5%) and segment profit ¥281m (down 27.3%) for Consumer Business. In regards to Marking Supply Business, from which the Company pulled out as of the end of Q1 FY03/2014, the Company saw sales ¥4,728m and segment loss ¥38m over the year. Thus, sales of the Company as a whole have been decreased while segment profit increased as much as suggested by these figures over the year. In Corporate Business, sales and earnings increased favorably over the year in line with “development & promotion of new business” and “enhancement of market shares in existing business”, as discussed above. Meanwhile, in regards to Consumer Business, dedicated to sales for general consumers, sales of optical line services have 1 remained buoyant, but segment profit came down over the year as it was not substantial enough to fully compensate for increasing expenses stemming from frontloaded investments to newly set up a call center in Osaka, etc. Meanwhile, the Company reveals an intention to make remarkable progresses in “accumulation of stock income” by means of being heavily involved with own-brand operations in “Hikari Collaboration”, representing a wholesale model for NTT’s optical line services to start up in March 2015, as FVNO (Fixed Virtual Network Operator). Initial Company forecasts in FY03/2015 have remained unchanged, calling for prospective sales ¥38,000m (up 6.0% YoY) and recurring profit ¥5,000m (up 21.6%). The Company saw recurring profit better than initially expected in H1 (Q1 to Q2), but this did not continue into Q3, as far as we could gather. Progress rate in Q1 to Q3 against full-year Company forecasts was rather disappointing for recurring profit, when compared with results in the previous year. Recent trading associated with environmental-related merchandises, comprising LED lighting and CFC-free natural refrigerant gas (adopted in air-conditioners), looks undershooting, when compared with assumptions of Company forecasts. Meanwhile, dividend per share remains increasing and so does payout ratio, in line with the Company’s measure to share increasing earnings with shareholders. Prospective dividend per share is ¥70.0, implying payout ratio 29.2%, in FY03/2015, versus ¥50.0, implying payout ratio 21.5%, in FY03/2014, while ¥30.0, implying payout ratio 18.7%, in FY03/2013. IR Representative: Corporate Division (+81 3 5847 2777 [email protected]) 2 2.0 Company Profile Selling Merchandises & Services to Small-Sized Corporates Company Name FT COMMUNICATIONS CO., LTD. Company Website IR Information Share Price Established 1 August 1985 Listing 12 March 2003: Tokyo Stock Exchange JASDAQ Standard (Ticker: 2763) Capital ¥1,309m (As of the end of December 2014) No. of Shares 11,916,800 shares, including 194,728 treasury shares (As of the end of Dec. 2014) Main Features More than 90% exposed to small-sized corporates whose headcounts below 20 in Corporate Business Businesses Well coping with security enhancement among customers HIKARI TSUSHIN, INC., the parent company since 27 June 2013 Ⅰ. Corporate Business Ⅱ. Consumer Business Top Management Chairman & Executive Director: Makoto Kuroyanagi Representative Director, President & CEO: Toshiyuki Hirasaki Shareholders HIKARI TSUSHIN, INC. 30.9%, Makoto Kuroyanagi 14.0%, H-Communications, Inc. 10.8% (As of the end of September 2014) Headquarters Chuo-ku, Tokyo JAPAN No. of Employees Consolidated: 1,400, Parent: 598 (As of the end of December 2014) Source: Company Data 3 3.0 Recent Trading & Prospects Q1 to Q3 FY03/2015 Results In Q1 to Q3 FY03/2015, sales came in at ¥25,874m (down 2.2% YoY), operating profit ¥3,018m (up 16.9%), recurring profit ¥3,278m (up 17.7%) and net profit ¥2,017m (up 10.1%), while operating profit margin 11.7% (up 1.9% points). Sales (Million Yen) Corporate Business Consumer Business Marking Supply Business 10,000 5,000 Q4 FY03/2015 Q3 FY03/2015 Q2 FY03/2015 Q1 FY03/2015 Q4 FY03/2014 Q3 FY03/2014 Q2 FY03/2014 Q1 FY03/2014 Q4 FY03/2013 Q3 FY03/2013 Q2 FY03/2013 Q1 FY03/2013 0 Segment Profit (Million Yen) 4 Corporate Business Consumer Business Marking Supply Business 1,500 1,000 500 0 Q4 FY03/2015 Q3 FY03/2015 Q2 FY03/2015 Q1 FY03/2015 Q4 FY03/2014 Q3 FY03/2014 Q2 FY03/2014 Q1 FY03/2014 Q4 FY03/2013 Q3 FY03/2013 Q2 FY03/2013 Q1 FY03/2013 (500) Source: Company Data, WRJ Calculation Meanwhile, progress rate came in at 68.1% in sales against full-year Company forecasts, 62.9% in operating profit, 65.6% in recurring profit and 72.1% in net profit. In terms of recurring profit, which is the key management indicator for the Company, progress rate was 67.8% over the year in results, suggesting progress rate this year 2.2% points lower over the year. Thus, it could be the case that recurring profit may have fallen short of expectations as much as this. Segmented information, disclosed by the Company, implies that earnings of the Company heavily hinge on those of Corporate Business, having accounted for 91.3% of collective segment profit of the Company in Q1 to Q3 results. Meanwhile, the gap between operating profit and recurring profit suggests net add-ons ¥260m at the non-operating level, which mainly came from royalty income ¥207m (up 23.7%) to have been collected. As the royalty income is persistently generated, stemming from sales of merchandises & services, i.e., the Company’s mainstay business, the Company argues that recurring profit is more appropriate than operating profit for grasping the underlying earnings of the Company. By business segment, Corporate Business presumably accounts for almost everything of the royalty income and thus, in terms of recurring profit, the Company’s earnings are even more dependent on Corporate Business than in terms of aforementioned segment profit. At present, the Company’s business comprises Corporate Business and Consumer Business by business segment. This has been the case since the suspension of Marking Supply Business as of the end of Q1 FY03/2014. In Q1 FY03/2014, this business segment saw sales ¥4,728m and segment loss ¥38m. In here, the Company was involved with trading of printing-related supplies (represented by toner cartridges), imported furniture, environment-business-related merchandises, etc. as a wholesaler. Meanwhile, it was found out to be too difficult for the Company to improve added value created in here even in the future. Thus, the Company sold all those operations. In Corporate Business, the Company runs operations to sell diverse merchandises & services mainly to small-sized corporates (headcounts below 20, accounting for more than 90%). On top of conventional mainstay merchandises, i.e., OA equipment (multifunctional printers) and business phones, all those operations include sales of environmental-related merchandises, i.e., own-brand LED lighting and CFC-free natural refrigerant gas (adopted in air-conditioners), as well as, sales of server & UTM (Unified Threat Management) to well cope with needs to beef up security in small-sized corporates, sales of corporate-use mobile phones and website productions. On top of this, sales of ALEXON Co., ltd., which plans, manufactures and sells cable broadcasting equipment & tuners, etc., to have been newly consolidated since Q4 FY03/2014 are also included in here. On 20 December 2013, the Company disclosed that it was going to procure shares of Newtech Co., Ltd. (capital ¥11m), while having consolidated this as a subsidiary in Q4 FY03/2014. The aim of this deal was to take in CFC-free natural refrigerant gas (adopted in air-conditioners) as own new merchandises that have a potential to become almost as substantial as own-brand LED lighting in terms of sales amounts in the near future, eventually enhancing own exposure to environmental-related merchandises, comprising own-brand LED lighting and them. 5 In Q4 FY03/2014, when the consolidation was carried out, sales of the merchandises came in at ¥160m, while ¥290m in Q1, ¥290m in Q2 and ¥230m in Q3, so far in FY03/2015, just roughly speaking. Thus, sales have adjusted in Q3. As far as we could gather, this had a lot to do with an issue that the Company failed to come up with sufficient capacity to install them in a timely manner, having made own sales forces to focus on merchandises & services other than them. Nevertheless, as focus on other than them did succeed as mentioned earlier, and thus the negative impacts from here are not so substantial as a whole for the Company. Meanwhile, intensifying competition led to delayed recovery for sales of LED lighting, but this has been also compensated for by strengths elsewhere, as far as we could gather. Newtech Co., Ltd. has competitive knowhow, etc. on CFC-free natural refrigerant gas (adopted in air-conditioners). Still, lacking in management resources to make it commercially viable, it was decided for the Company to utilize own sales networks, etc. to do so. This means nothing but acquisition of promising new merchandises in a view of the Company. As CFC-free natural refrigerant gas (adopted in air-conditioners) is constituted literally and exclusively by natural refrigerants (carbon dioxide, ammonia, hydrocarbons, etc. i.e., materials existing in nature), it causes no environmental issues, e.g., destruction of ozone layer, global warming, etc. Thus, the gas has a high potential to gradually replace existing CFCs including specified CFCs and CFC alternatives, going forward. On the expenses side, meanwhile, it is noteworthy that the adoption of CFC-free natural refrigerant gas reduces power consumption of air-conditioners 15% to 40%. Thus, the superiority on the expenses side could be the key driver to facilitate the changeover to this new format from all those existing formats. When simply assuming expenses on power (electric bills) are cutback 15% to 40%, initial expenses will be fully compensated for in two and half years to 6 years, while only benefits from here are to be generated after all those years. Thus, customers of the Company adopting CFC-free natural refrigerant gas (adopted in air-conditioners) are supposed to see net decreases of future expenses as much as this. Meanwhile, the Company argues that incorporating ALEXON Co., ltd. (capital ¥90m) in Q4 FY03/2014, heavily involved with manufacturing of cable broadcasting equipment & tuners, etc. as own consolidated subsidiary through procuring the shares should generate opportunities for the Company to learn about knowhow, etc. as a manufacturer. Thus, the Company has been implementing mergers as a means to make progresses in “development & promotion of new business”, while all those recent deals suggest that it has been done both horizontally and vertically, i.e., for acquisitions of new merchandises to increase sales and enhancement of exposure to manufacturing of own merchandises, respectively. 6 Income Statement (Cumulative, Quarterly) Income Statement (Million Yen) Sales Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Q1 Q1 to Q2 Q1 to Q3 Q1 to Q4 Q1 Q1 to Q2 Q1 to Q3 Q1 to Q4 YoY 03/2014 03/2014 03/2014 03/2014 03/2015 03/2015 03/2015 03/2015 Net Chg. 11,409 18,880 26,469 35,837 8,233 17,101 25,874 - (594) Cost of Sales 7,686 11,285 15,032 19,637 3,986 8,252 12,508 - (2,524) Gross Profit 3,722 7,595 11,436 16,200 4,247 8,849 13,365 - +1,929 SG&A Expenses 3,134 5,954 8,840 12,424 3,312 6,905 10,345 - +1,504 584 1,630 2,582 3,761 928 1,941 3,018 - +435 24 131 204 352 55 175 260 - +56 609 1,762 2,786 4,113 984 2,117 3,278 - +491 Operating Profit Non Operating Balance Recurring Profit Extraordinary Balance 3 (193) 266 388 (2) 12 12 - (254) Pretax Profit 613 1,568 3,053 4,501 981 2,129 3,291 - +237 Tax Charges, etc. 195 571 987 1,608 371 799 1,248 - +260 (7) - 233 239 11 16 25 - (208) 424 996 1,832 2,654 598 1,314 2,017 - +185 Minorities' Interests Net Profit Sales YoY +4.8% (13.4%) (21.4%) (21.9%) (27.8%) (9.4%) (2.2%) - - Operating Profit YoY (23.3%) (0.2%) +6.0% +21.0% +58.8% +19.1% +16.9% - - Recurring Profit YoY (22.0%) +3.8% +10.9% +25.2% +61.4% +20.1% +17.7% - - (1.0%) +11.3% +41.3% +50.7% +41.0% +31.9% +10.1% - - Net Profit YoY Gross Profit Margin 32.6% 40.2% 43.2% 45.2% 51.6% 51.7% 51.7% - +8.4% SG&A / Sales 27.5% 31.5% 33.4% 34.7% 40.2% 40.4% 40.0% - +6.6% Operating Profit Margin 5.1% 8.6% 9.8% 10.5% 11.3% 11.4% 11.7% - +1.9% Recurring Profit Margin 5.3% 9.3% 10.5% 11.5% 12.0% 12.4% 12.7% - +2.1% Net Profit Margin 3.7% 5.2% 6.9% 7.4% 7.3% 7.7% 7.8% - +0.9% +5.6% Tax Charges, etc. / Pretax Profit Income Statement (Million Yen) Sales 31.9% 36.4% 32.4% 35.7% 37.9% 37.6% 37.9% - Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 YoY 03/2014 03/2014 03/2014 03/2014 03/2015 03/2015 03/2015 03/2015 Net Chg. +1,184 11,409 7,471 7,588 9,368 8,233 8,868 8,772 - Cost of Sales 7,686 3,598 3,747 4,604 3,986 4,266 4,256 - +509 Gross Profit 3,722 3,872 3,841 4,763 4,247 4,602 4,515 - +674 SG&A Expenses 3,134 2,820 2,885 3,584 3,312 3,593 3,439 - +553 584 1,045 951 1,178 928 1,012 1,076 - +124 Operating Profit Non Operating Balance Recurring Profit Extraordinary Balance 24 106 72 147 55 120 84 - +12 609 1,152 1,024 1,326 984 1,132 1,161 - +137 3 (196) 460 121 (2) 15 - - (460) Pretax Profit 613 955 1,485 1,447 981 1,148 1,161 - (323) Tax Charges, etc. 195 375 416 620 371 427 448 - +31 (7) 7 232 5 11 4 9 - (223) Minorities' Interests Net Profit 424 572 835 822 598 715 703 - (132) Sales YoY +4.8% (31.6%) (36.0%) (23.3%) (27.8%) +18.7% +15.6% - - Operating Profit YoY (23.3%) +20.0% +18.8% +75.0% +58.8% (3.2%) +13.1% - - Recurring Profit YoY (22.0%) +25.8% +25.7% +71.5% +61.4% (1.7%) +13.4% - - (1.0%) +22.5% +108.4% +77.0% +41.0% +25.1% (15.8%) - - Net Profit YoY Gross Profit Margin 32.6% 51.8% 50.6% 50.9% 51.6% 51.9% 51.5% - +0.9% SG&A / Sales 27.5% 37.7% 38.0% 38.3% 40.2% 40.5% 39.2% - +1.2% Operating Profit Margin 5.1% 14.0% 12.5% 12.6% 11.3% 11.4% 12.3% - (0.3%) Recurring Profit Margin 5.3% 15.4% 13.5% 14.2% 12.0% 12.8% 13.2% - (0.3%) Net Profit Margin 3.7% 7.7% 11.0% 8.8% 7.3% 8.1% 8.0% - (3.0%) 31.9% 39.3% 28.1% 42.8% 37.9% 37.3% 38.6% - +10.5% Tax Charges, etc. / Pretax Profit Source: Company Data, WRJ Calculation 7 Segmented Information (Cumulative, Quarterly) Segmented Information (Million Yen) Corporate Business Consumer Business Marking Supply Business Sales (Before Adjustments) Elimination Sales Corporate Business Consumer Business Marking Supply Business Sales (YoY) Corporate Business Consumer Business Marking Supply Business Sales (Composition) Corporate Business Consumer Business Marking Supply Business Segment Profit Elimination Operating Profit Corporate Business Consumer Business Marking Supply Business Segment Profit (YoY) Corporate Business Consumer Business Marking Supply Business Segment Profit (Composition) Segmented Information (Million Yen) Corporate Business Consumer Business Marking Supply Business Sales (Before Adjustments) Elimination Sales Corporate Business Consumer Business Marking Supply Business Sales (YoY) Corporate Business Consumer Business Marking Supply Business Sales (Composition) Corporate Business Consumer Business Marking Supply Business Segment Profit Elimination Operating Profit Corporate Business Consumer Business Marking Supply Business Segment Profit (YoY) Corporate Business Consumer Business Marking Supply Business Segment Profit (Composition) Source: Company Data, WRJ Calculation Cons.Act Q1 03/2014 5,632 1,267 4,728 11,629 (219) 11,409 +14.9% +14.9% (5.2%) +4.8% 48.4% 10.9% 40.7% 100.0% 670 64 (38) 696 (111) 584 +1.9% (35.6%) (23.3%) 96.2% 9.3% (5.6%) 100.0% Cons.Act Q1 03/2014 5,632 1,267 4,728 11,629 (219) 11,409 +14.9% +14.9% (5.2%) +4.8% 48.4% 10.9% 40.7% 100.0% 670 64 (38) 696 (111) 584 +1.9% (35.6%) (23.3%) 96.2% 9.3% (5.6%) 100.0% Cons.Act Q1 to Q2 03/2014 12,046 2,539 4,728 19,314 (434) 18,880 +19.6% +9.3% (51.0%) (13.4%) 62.4% 13.1% 24.5% 100.0% 1,658 208 (38) 1,828 (197) 1,630 +19.9% (0.5%) (0.2%) 90.7% 11.4% (2.1%) 100.0% Cons.Act Q2 03/2014 6,413 1,271 7,685 (214) 7,471 +24.0% +4.3% (31.6%) 83.5% 16.5% 100.0% 988 143 1,131 (86) 1,045 +36.1% +32.0% +20.0% 87.3% 12.7% 100.0% Cons.Act Q1 to Q3 03/2014 18,403 3,968 4,728 27,101 (632) 26,469 +20.3% +11.8% (69.0%) (21.4%) 67.9% 14.6% 17.4% 100.0% 2,576 387 (38) 2,925 (342) 2,582 +26.8% +17.0% +6.0% 88.1% 13.2% (1.3%) 100.0% Cons.Act Q3 03/2014 6,356 1,429 7,786 (198) 7,588 +21.8% +16.5% (36.0%) 81.6% 18.4% 100.0% 918 178 1,096 (144) 951 +41.8% +47.2% +18.8% 83.7% 16.3% 100.0% Cons.Act Q1 to Q4 03/2014 26,280 5,664 4,728 36,674 (837) 35,837 +25.3% +16.6% (77.1%) (21.9%) 71.7% 15.4% 12.9% 100.0% 3,662 622 (38) 4,246 (484) 3,761 +32.7% +43.1% +21.0% 86.3% 14.7% (0.9%) 100.0% Cons.Act Q4 03/2014 7,877 1,696 9,573 (204) 9,368 +38.6% +29.5% (23.3%) 82.3% 17.7% 100.0% 1,085 235 1,320 (142) 1,178 +49.1% +125.8% +75.0% 82.2% 17.8% 100.0% Cons.Act Q1 03/2015 6,893 1,507 8,400 (167) 8,233 +22.4% +18.9% (27.8%) 82.1% 17.9% 100.0% 905 91 997 (69) 928 +35.2% +41.4% +58.8% 90.8% 9.2% 100.0% Cons.Act Q1 03/2015 6,893 1,507 8,400 (167) 8,233 +22.4% +18.9% (27.8%) 82.1% 17.9% 100.0% 905 91 997 (69) 928 +35.2% +41.4% +58.8% 90.8% 9.2% 100.0% Cons.Act Q1 to Q2 03/2015 14,482 2,970 17,453 (351) 17,101 +20.2% +17.0% (9.4%) 83.0% 17.0% 100.0% 1,928 159 2,088 (146) 1,941 +16.3% (23.6%) +19.1% 92.4% 7.6% 100.0% Cons.Act Q2 03/2015 7,588 1,463 9,052 (184) 8,868 +18.3% +15.1% +18.7% 83.8% 16.2% 100.0% 1,022 67 1,090 (77) 1,012 +3.5% (53.1%) (3.2%) 93.8% 6.2% 100.0% Cons.Act Q1 to Q3 03/2015 21,935 4,466 26,401 (527) 25,874 +19.2% +12.5% (2.2%) 83.1% 16.9% 100.0% 2,939 281 3,221 (203) 3,018 +14.1% (27.3%) +16.9% 91.3% 8.7% 100.0% Cons.Act Q3 03/2015 7,453 1,495 8,948 (176) 8,772 +17.2% +4.6% +15.6% 83.3% 16.7% 100.0% 1,011 121 1,133 (56) 1,076 +10.1% (31.6%) +13.1% 89.2% 10.8% 100.0% Cons.Act Q1 to Q4 03/2015 Cons.Act Q4 03/2015 - YoY Net Chg. +3,531 +497 (4,728) (699) +104 (594) +363 (105) +38 +296 +139 +435 YoY Net Chg. +1,096 +65 +1,161 +22 +1,184 +92 (56) +36 +88 +124 - 8 Balance Sheet (Quarterly) Balance Sheet Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 YoY 03/2014 03/2014 03/2014 03/2014 03/2015 03/2015 03/2015 03/2015 Net Chg. Cash & Deposit 5,756 4,722 5,323 6,137 6,423 7,543 8,224 - +2,901 Accounts Receivables 5,519 3,335 3,943 5,063 4,323 4,521 4,201 - +257 Inventory 2,917 1,372 1,655 1,647 1,454 1,363 1,355 - (299) (Million Yen) Other Current Assets Tangible Assets Intangible Assets Investments & Other Assets Cons.Act 874 684 692 934 770 829 695 - +3 15,067 10,115 11,614 13,782 12,972 14,258 14,477 - +2,862 1,192 1,146 1,497 1,471 1,496 1,476 1,461 - (36) 150 131 266 271 262 254 246 - (20) 1,378 1,034 1,104 1,529 1,518 1,552 1,627 - +522 Fixed Assets 2,721 2,313 2,869 3,272 3,277 3,283 3,335 - +465 Total Assets +3,328 17,789 12,428 14,484 17,054 16,250 17,541 17,812 - Accounts Payables 3,560 1,317 1,977 2,266 2,076 2,052 2,270 - +292 Short Term Debt 3,243 559 809 783 810 903 932 - +122 Corporate Bond (Less than 1 year) Other Current Liabilities 20 20 20 170 170 170 170 - +150 3,003 3,033 2,994 4,608 3,808 4,329 4,081 - +1,087 9,827 4,929 5,801 7,828 6,865 7,455 7,454 - +1,653 Corporate Bond 50 50 190 40 30 30 20 - (170) Long Term Debt 562 282 335 291 238 212 165 - (170) Other 122 61 84 109 89 86 72 - (11) 735 394 609 441 357 329 257 - (351) 10,563 5,323 6,411 8,270 7,222 7,784 7,712 - +1,301 6,165 6,750 7,418 8,296 8,552 9,282 9,635 - +2,216 Other 1,060 354 654 488 475 474 465 - (189) Total Assets 7,226 7,104 8,073 8,784 9,027 9,756 10,100 - +2,026 17,789 12,428 14,484 17,054 16,250 17,541 17,812 - +3,328 6,177 6,790 7,468 8,400 8,633 9,351 9,685 - +2,217 Fixed Liabilities Total Liabilities Shareholders' Equity Total Liabilities & net Assets Equity Capital Interest Bearing Debt Net Debt Equity Capital Ratio 3,876 911 1,354 1,285 1,248 1,316 1,287 - (67) (1,880) (3,811) (3,969) (4,851) (5,174) (6,226) (6,937) - (2,968) 34.7% 54.6% 51.6% 49.3% 53.1% 53.3% 54.4% - +2.8% (30.5%) (56.5%) (53.5%) (58.5%) (60.5%) (67.1%) (72.0%) - (18.5%) ROE (12 months) 32.6% 31.3% 35.6% 36.9% 38.2% 36.8% 33.1% - (2.5%) ROA (12 months) 17.6% 22.8% 21.9% 22.7% 26.4% 29.8% 28.5% - +6.7% 35 35 40 33 33 29 29 - - Net-Debt-Equity Ratio Days for Inventory Turnover Inventory Turnover 10.5 10.5 9.1 11.2 11.0 12.5 12.6 - Quick Ratio 115% 163% 160% 143% 157% 162% 167% - - Current Ratio 153% 205% 200% 176% 189% 191% 194% - - Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Q1 Q1 to Q2 Q1 to Q3 Q1 to Q4 Q1 Q1 to Q2 Q1 to Q3 Q1 to Q4 YoY 03/2014 03/2014 03/2014 03/2014 03/2015 03/2015 03/2015 03/2015 Net Chg. - Source: Company Data, WRJ Calculation Cash Flow Statement (Cumulative) Cash Flow Statement (Million Yen) Operating Cash Flow na 875 na 2,939 na 1,860 na - Investing Cash Flow na (1,257) na (1,678) na (130) na - - na (381) na 1,260 na 1,729 na - - na (678) na (1,017) na (328) na - - Operating CF & Investing CF Financing Cash Flow Source: Company Data, WRJ Calculation 9 FY03/2015 Company Forecasts FY03/2015 Company forecasts have remained unchanged, going for prospective sales ¥38,000m (up 6.0% YoY), operating profit ¥4,800m (up 27.6%), recurring profit ¥5,000m (up 21.6%) and net profit ¥2,800m (up 5.5%), while operating profit margin 12.6% (up 2.1% points). Compared with those of recurring profit, net profit is to see limited increases over the year. This is mainly due to a non-reappearance of negative goodwill write-off ¥611m, booked as extraordinary profit in FY03/2014. Meanwhile, this was in line with shares acquisition of ALEXON Co., ltd. Quarterly Sales and Operating Profit Margin Sales (Million Yen) 15,000 20.0% 12,221 11,409 7,471 7,588 9,368 8,233 8,868 8,772 12,125 Q1 FY03/2014 Q2 FY03/2014 Q3 FY03/2014 Q4 FY03/2014 Q1 FY03/2015 Q2 FY03/2015 Q3 FY03/2015 Q4 FY03/2015 0.0% Q4 FY03/2013 10.0% 11,851 5.1% Q3 FY03/2013 5.5% 10,921 7 6.8% Q2 FY03/2013 0 8.0% 10,885 5,000 7.0% 14.7% 14.0% 12.5% 12.6% 11.3% 11.4% 12.3% Q1 FY03/2013 10,000 Operating Profit Margin (%) (10.0%) Source: Company Data, WRJ Calculation The Company, considering that sharing earnings with shareholders is one of the primary management issues, claims that the basic dividend policy is to persistently carry out payouts of stable dividend. Meanwhile, however, given steady earnings growth in FY03/2014 over FY03/2013, the Company raised dividend per share up to ¥50.0, implying payout ratio 21.5%, from ¥30.0 (after retroactive adjustments for 1:100 share split, effective on 1 October 2013), implying payout ratio 18.7%. In regards to prospective dividend per share in FY03/2015, the Company was initially going for ¥50.0, unchanged from FY03/2014, implying payout ratio 20.8%. However, on 7 November 2014, the Company disclosed to increase divided per share up to ¥70.0, implying payout ratio 29.2%. Given H1 (Q1 to Q2) results exceeding Company forecasts, the Company decided to pay out dividend per share ¥30.0 as of the end of Q2 versus ¥20.0 initially planned. Meanwhile, in regards to payouts of divided as of the end of Q4, the Company has decided to go for commemorative dividend ¥10.0 per share for its 30th anniversary on 1 August 2015, on top of ¥30.0 initially planned. 10 Long-Term Prospects As midterm target, the Company suggests prospective recurring profit ¥10,000m to be achieved. While trying to get at the target as soon as possible, the Company mentions that corporate strategies to be carried out for this include “enhancement of market shares in existing business”, “accumulation of stock income” and “development & promotion of new business”. Long-Term Prospects Sales (Million Yen) Recurring Profit (Million Yen) Recurring Profit Margin (%) 60,000 50.0% 3.1% 20.0% 10.0% 0.0% (10.0%) FY03/2015 FY03/2014 FY03/2013 FY03/2012 FY03/2011 (20.0%) FY03/2010 0 30.0% 10,000 762 10,000 1.2% 5,000 2.0% 20,000 7.2% 35,837 38,000 11.5% 13.2% 4,113 30,000 3,286 37,690 40.0% 44,402 45,879 1,395 40,000 41,520 494 50,000 Source: Company Data, WRJ Calculation Existing business of “enhancement of market shares in existing business” comprises business phones, OA equipment (multifunctional printers), etc. belonging to Corporate Business. The Company is planning to enhance market shares in here, by means of promoting enclosure of existing customers through focusing on cross selling and/or up selling based on CRM (Customer Relationship Management) system, while developing new partner companies, i.e., external distributors for own merchandises and implementing mergers to aggressively and efficiently take advantage of excess cash (net cash ¥6,937m as of the end of Q3 FY03/2015). Nevertheless, recent mergers have contributed rather to “development & promotion of new business”. In order to promote “accumulation of stock income”, the Company is trying to enhance that of the mainstay Internet services, while doing so for that of corporate services, comprising maintenance and services associated with business phones, OA equipment (multifunctional printers), etc. at the same time. In Q1 to Q3 FY03/2015, stock income accounted for 12% of sales for the Company as a whole and 11% of gross profit, roughly speaking, implying gross profit margin relatively lower than the rest of the business, i.e., outright sales of merchandises and services. Nevertheless, future increases of exposure to stock income should make recurring profit margin improved in that stock income requires less SG&A expenses than outright sales. 11 The bulk of stock income in mainstay domain of Internet services is accounted for by sales stemming from operations to run own ISP services for general consumers. Now, given “Hikari Collaboration”, representing a wholesale model for NTT’s optical line services to start up in March 2015, the business in here should make a dramatic change. The Company reveals an intention to aggressively work on developing own-brand services for general consumers as FVNO (Fixed Virtual Network Operator) in here. 4.0 Business Model Selling Merchandises to Small-Sized Corporates The Company is in charge of a part of corporate business in the HIKARI TSUSHIN group. The Company started up its capital & operational tie-up with HIKARI TSUSHIN, INC., triggered by acceptance of capital injections from HIKARI TSUSHIN, INC. in 2006. In order to further promote operational tie-up with the Company, HIKARI TSUSHIN, INC. implemented tender offer for the Company’s shares while procuring the shares from the market at the same time, having resulted in that HIKARI TSUSHIN, INC. became the parent company for the Company on 27 June 2013. The number of shares of the Company, held by the HIKARI TSUSHIN group, stood at 4,967,100 as of the end of Q2 FY03/2015, equating to 41.7% of shares outstanding, comprising those held by HIKARI TSUSHIN, INC. and its 100% consolidated subsidiary, i.e., H-Communications, Inc. Mainstay Merchandises & Services 12 LED Lighting Business Phones, OA Equipment, etc. Docomo shop Mercury Lamp Type Halogen Type UTM (Unified Threat Management) Server Gift Site Call Center, Marketing Natural Refrigerant Gas Hydrocarbon Refrigerant R441a R443a Mobile LTE Telecom Facilities Construction , etc. Tablet Devices, Smartphones, etc. Settlement Services GISTAR PREMIUM C to C Internet Services Business Phone Installation Credit card settlement services, based on the use of Smartphones, etc. Source: Company Data C to C Used Car Trading Portal ISP Website Productions LED Lighting Installation Industrial Solar Power Panel Installation In the Company’s Corporate Business, the Company sells merchandises and services for small-sized corporates and more than 90% of sales in here are associated with those with headcounts less than 20. At the same time, FT COMMUNICATIONS CO., LTD. is directly involved with the operations as much as more than 60% in terms of sales, comprising own-brand LED lighting, business phones, OA equipment (multifunctional printers), server & UTM (Unified Threat Management) and CFC-free natural refrigerant gas (adopted in air-conditioners). FT COMMUNICATIONS CO., LTD. is also heavily involved with telecom facilities construction, maintenance and services for all those merchandises at the same time. The remaining less than 40% of sales in this business segment are accounted for by operations by the Company’s consolidated subsidiaries, mainly comprising ISP services, website productions and sales of corporate-use mobile phones. In Consumer Business, meanwhile, the Company runs operations to sell mobile phones for general consumers by means of running mobile phone stores, while selling optical line services and house-operated ISP services as well as being involved with contracted outright sales of ISP services run by HIKARI TSUSHIN, INC., i.e., the parent company. 13 Disclaimer Information here is a summary of “IR Information” of the Company, compiled by Walden Research Japan, from a neutral and professional standing point, in the form of a report. “IR Information” of the Company comprises a) contents of our interview with the Company, b) contents of presentations for institutional investors, c) contents of timely disclosed information and d) contents of the homepage etc. Company Name: Walden Research Japan Incorporated Headquarters Office:#1110 4-12-4 Hatchobori, Chuo-ku, Tokyo 104-0032, JAPAN URL: www.walden.co.jp E-mail: [email protected] Phone:+81 3 3553 3769 Copyright 2015 Walden Research Japan Incorporated