ANALYST NET Company Report
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
1/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report
is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the content. JPR
shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced, transcribed or cited
without the written consent of the company.
Kenkou is rapidly expanding with its high-marginal-return products and services in
satisfying people’s “self-actualization” needs
Since 2003, when it was established, Kenkou’s business domain has been to assist
customers’ “self-Investment” to satisfy their “self-actualization needs” for a healthier,
glorious life. The company has increased sales by over 30% every year since the
establishment until the financial crisis led by the Lehman bankruptcy, between
FY2010/3-FY2011/3 and between FY2013/3 – FY 2014/3. The impressive growth has been
contributed by four distinctive factors: (1) increase in high-marginal-return products and
services, realized by advanced planning; (2) data-based reproducible marketing strategy;
(3) high customer satisfaction enabled by trained, highly-motivated employees; and (4)
aggressive M&A activities. The “Medium-Term Vision 2018” (announced December
2013), with the targets of (1) promoting M&A; (2) separating sales and management; and
(3) establishing a “self-Investment” brand, was achieved two years ahead of plan. In
particular, the personal training gym “RIZAP” business, launched in fiscal 2012, has
already achieved sales of ¥10 billion. RIZAP’s advantages are (1) low capital spending
requirements; (2) little constraint in terms of locations; (3) over 70% marginal return; and
(4) highly-reproducible data-based marketing strategy that enables swift attraction of
customers. The success of RIZAP has encouraged Kenkou to fortify its “rapid growth
business model” in the “self-Investment” industry. Kenkou is expecting over 50%
consolidated sales growth in the current fiscal year ending in March 2015. It is expected to
achieve the highest monthly sales ever for February and March on the basis of the number
of inquiries in January
Further evolution in scale and quality with the “Commit 2020” plan
Kenkou announced the medium-term management plan “Commit 2020” on February 12,
2015. It aims to further define its business model by (1) entering the medical field; (2)
expanding overseas; and (3) enhancing its growth infrastructure. The company is
committed to increase sales by over 40% a year from the current level to ¥300 billion by
fiscal 2020 (ending March 2021) and to increase operating income by 17.5 times to ¥35
billion. “Self-actualization needs for a healthier, glorious life” is immense and universal.
Kenkou’s pursuit for globally expansion and formidable growth is beginning in earnest.
Stock has further growth potential from a comprehensive perspective
based on the DCF analysis
On the date of announcement of the “Commit 2020” plan, Kenkou also announced a capital
and business tie-up with Dream Vision Co., Ltd. (listed in the Tokyo Stock Exchange’s
Mothers; #3185). The tie-up is expected to further enhance sales power. At the same time, a
plan to increase capital by using new share acquisition rights was announced. Based on
DCF analysis, assuming Kenkou’s “rapid growth business model” will be advanced with
those measures, the stock price is estimated to have upside potential to about ¥2,000 on a
fully-diluted basis.
Basic report
J-Phoenix Research Inc.
Osamu Miyashita, CFA
Basic corporate data
Location Shinjuku-ku,
Tokyo
Representative Takeshi Seto
Established April 2003
Capital ¥100mn
Listed May 2006
URL www.kenkoucorp.co.jp
Industry sector Chemical
Employees 931
Share information as of
March 11, 2015
Stock price ¥1,417
52-week high ¥1,513
52-week low ¥217
Shares o/s 61,718,000
Trading unit 100
Market cap ¥87,454mn
DPS (est.) ¥3.36-3.74
FY2014 EPS
(est.) ¥18.68
PER (est.) 75.86x
BPS (actual) ¥98.35
PBR (actual) 14.41x
(Note: EPS and the stock prices are adjusted, based on 61,718,000 shares as outstanding shares. Some slides from the company’s presentation materials is
used on this report upon approval from the company.)
Fiscal term end Sales ¥mn
YOY %
Operating income
¥mn
YOY %
Ordinary income
¥mn
YOY %
Net income ¥mn
YOY %
EPS ¥
Term-end closing share price ¥
High Low
March 2012 13,445 -0.9 909 -24.3 938 -17.7 887 41.5 14.4 221 166
March 2013 17,840 32.7 832 -8.5 941 0.3 402 -54.7 6.5 345 190
March 2014 23,910 34.0 1,127 35.5 1,303 38.5 2,698 571.1 43.7 614 217
9 mo to Dec. 2013 15,448 15.0 229 (Profit) 481 597.1 1,979 (Profit) 32.1 614 286
9 mo to Dec. 2014 28,365 83.6 1,402 512.2 1,210 151.6 1,172 -40.8 19.0 925 273
March 2015 Est. 37,062 55.0 2,018 79.0 1,931 48.2 1,153 -57.3 18.7 - -+-
Kenkou’s “rapid expansion business model” focused
on the “self-investment” industry
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
2/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
Expanded business with
aggressive M&As
Kenkou now has four
business segment: Beauty
and health, Apparel, Life
style, and Entertainment
■ President Takeshi Seto founded Kenkou in 2003
President Takeshi Seto founded Kenkou in 2003 with its business domain being in
assisting customers’ “self-Investment,” which means to help people to satisfy their
“self-actualization needs” for a healthier, glorious life. Three years after foundation,
Kenkou was listed in the Sapporo Securities Exchange’s Ambitious Market. It has
expanded products and services in the company’s business domain and has been
aggressive in M&A activities.
2003 Established Kenkou Corporation Inc. for home shopping of healthy foods.
Began online shopping on its website
2004 Opened an online shop on the Rakuten shopping mall
2006 Listed in the Sapporo Securities Exchange’s Ambitious Market
2007 Turned JAPAN GALS co.,ltd., System Parts Co., Ltd., and Konyusha Co.,
Ltd. into subsidiaries. Turned into a pure holding company and changed
corporate name to Kenkou Corporation, Inc.
2010 Established Global Medical Laboratory Research Corporation, Inc.
(present RIZAP, Inc.)
2011 Turned Miu Cosmetics Co., Ltd. and Asti Co., Ltd (present JAPAN GALS
SC Co., Ltd.) into a subsidiary
2012 Took over Kenkou Corporation CO., Ltd. and shifted it to an operating
holding company. Turned Angeliebe Co., Ltd. into a subsidiary.
2013 As a spun-off from Japan Gals Co., Ltd., established JG Beauty Co., Ltd.
Turned Japan Relent Co.,Ltd., IDEA INTERNATIONAL CO., Ltd., and
Marimura Co., Ltd. into subsidiaries. Sold all shares of Konyusha Co., Ltd.
2014 Turned GEODINOS Co., Ltd.(present SD ENTERTAINMENT,Inc.), Drop
Wave Inc. (present Xio, Inc.) ., and Auntie Rosa co., Ltd. into subsidiaries
2015 Entered into a capital and business tie-up with Dream Vision Co., Ltd.
Kenkou began with the health-related business but has expanded its business
portfolio by developing new businesses, M&As, and business integration. It now
has four business segments: Beauty and Health, Food, Apparel, Life style, and
Entertainment business segments.
Fiscal year Business segment lineup
FY2010 Beauty and health; Food
FY2011 Beauty and health; Food
FY2012 Beauty and health; Food-; Apparel
FY2013 Beauty and health; Apparel; Life style; Entertainment
All of products and services
target to assist
“self-investment”
All of Kenkou’s businesses focus on assisting customers’ “self-Investment,” which
means to help them satisfy their “self-actualization needs” for a healthier, glorious
life.
Kenkou Group’s one-and-only mission
Support personal “Self-Investment” need to stay healthy and glorious
Kenkou Group’s products and services (as a means of personal “Self-Investment”)
Health food Entertain-
ment
Bodybuilding
Fitness
Medical
alliance
Cosmetics
Beauty care
equipment
Apparel Variety
goods・・・
× ・・・
Corporate profile and business portfolio
History and
business portfolio
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
3/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
“Self-actualization needs” is
the top level of Maslow’s
five-level hierarchy of needs
Kenkou targets the global
market of ¥163 trillion in
2013 and ¥500 trillion
projected for 2030
■ Kenkou’s business domain exists in an immense growth market
Kenkou’s business domain targets the top level of Maslow’s five-level hierarchy of
needs. The market for such top-level needs does not become saturated but can grow
even in the matured developed markets. In the present deflationary environment
where supply in general exceeds demand, Kenkou’s exposure in this business
domain is promising and effective in pursuing further growth.
■ Growth potential
As shown in the Japanese government’s Japan Revitalization Strategy (approved by
the Cabinet in June 2013), the global health-related market is estimated to be as large
as ¥163 trillion and expected to expand rapidly. This gives a strong backdrop for the
high growth potential of Kenkou’s targeted market, which focuses on
self-actualization.
Self-
actualization
Esteem
Love/belonging
Safety
Physiological
Support people’s self-actualization need to stay
healthy and glorious
“Self-Investment industry”
= Kenkou Group’s business domain
Attain advanced needs = Support raising
the quality and quantity of personal “happiness”
Commodity industry
= Out of our business domain
Along with economic development,
demand exists for satisfying needs for self-actualization
<Maslow’s hierarchy of needs >
Our Focus
Japan Revitalization Strategy (approved by the Cabinet, June 2013)
Theme 1: Extending the nation’s “healthy life expectancy”
Strategic areas: Health promotion and preventive care services, living assistance
services, pharmaceuticals and medical devices, housing for the elderly, etc.
Market size
(Yen trillion)2013 2020 2030
Domestic 16 26 37
Overseas 163 311 525
(Source: Japan Revitalization Strategy – Japan Is Back, issued June 14, 2013)
CAGR
7.1%
CAGR
9.6%
CAGR
3.4%
CAGR
5.3%
Among the above markets, the “Self-Investment” industry is expected
to grow strongly as perceived need for self-actualization heightens.
Characteristics of business model
“Rapid growth
business model”
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
4/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
The company has increased
sales by over 30% every
year since the establishment
until the financial crisis led
by the Lehman bankruptcy
and between
FY2010/3-FY2011/3,
between FY2013/3 – FY
2014/3. Company plans
over year on year 55%
increase of the Sales of FY
2015/3.
■ Over 30% annual growth rate except for two years
Since its establishment in 2003, Kenkou’s sales has increased by over 30% a year,
except in FY2008 (ended March 2009), due to the financial crisis led by the Lehman
bankruptcy, and FY2011 (ended March 2011). Kenkou has achieved such impressive
growth by creating new demand for products and services which satisfy unlimited
top-level needs.
■Four elements of Kenkou’s “rapid growth business model”
Kenkou’s impressive growth has been enabled by the following four factors.
1)
High marginal
return, realized by
advanced product
and service
planning
· Kenkou’s business domain is to assist
customers’ “self-Investment” to satisfy “self
-actualization needs” for a healthier, glorious
life.
· The products and services that satisfy such
needs are high in value-added and tend to
realize high marginal return.
· Also, they tend to require little capital
spending, enabling flexible expansion of
supply.
2) Data-based
marketing strategy
· Kenkou has promoted the advertising, PR, and
marketing strategies by itself from the time of
its foundation.
· Kenkou has analyzed advertising effects and
customer satisfaction data, has established a
reproducible, predictable marketing strategy,
and has developed a steady-growth business
model.
3) Enhanced training
for employees
· It is critically important that employees
understand customers’ needs and respond
appropriately.
· Kenkou has invested heavily to raise
employees’ skills and knowledge and has
emphasized creating a lively exciting working
environment.
4) Aggressive M&A
strategy
· Kenkou is aggressive in acquiring companies
which can realize more value by utilizing
Kenkou’s capability in marketing and
provision of their products and services.
Those four elements have shaped Kenkou’s business model, which plays out in the
following steps.
2004/3 2005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 2015/3
Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Plan
Sales 24 898 2,429 10,701 15,707 6,993 9,667 13,574 13,445 17,840 23,910 37,062
Sales Growth Rate 3641.7% 170.5% 340.6% 46.8% -55.5% 38.2% 40.4% -1.0% 32.7% 34.0% 55.0%
-5
0
5
10
15
20
25
30
35
40
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Mill. Yen
Four supporting
elements for rapid
growth
Financial crisis led
by the Lehman bankruptcy
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
5/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
Establish a system to realize
high growth by taking steps
Reproducible, data-based
marketing strategy
Aggressive M&A strategy
that supports high growth
Impart permanency to the
“rapid growth business
【Step 1: Planning】
Use advanced capability in development and planning, and develop
high-marginal-return products and services that support “self-investment.”
Enable flexible supply expansion with little capital spending.
Use various effective advertising methods based on the archived data.
Prepare a system to provide products and services.
【Step 2: Test marketing】
Do test marketing.
Analyze the number of inquiries, customer acquisition rate, etc.
Monitor and find the most effective advertising method with the highest
customer acquisition rate.
【Step 3: Bold advertising spending and supply expansion】
Invest in the most effective advertising method.
Make projections of customer acquisition, based on the most reliable data
analyses.
Expand a product and service system that matches projected demand.
【Step 4: Sales generation and pursuit for profit】
Curb ad spending and generate profit
Enhance training for employees to raise the overall customer satisfaction
rate.
Improve customer retention rate and repeat rate, and generate sales without
spending on ads.
【Step 5: Acquisition 】
Realize further growth by acquiring companies that can raise corporate
value (see the chart below).
(6)
(5)
(4)
(3)
(2)
(1)
0
1
2
3
4
5
6
FY2005/3 FY2006/3 FY2007/3 FY2008/3 FY2009/3 FY2010/3 FY2011/3 FY2012/3 FY2013/3 FY2014/3
Beauty and health Foods
Apparel Life style
Entertainment Business infrastrucuture
Acquisition
Divesture
Financial crisis led
by the Lehman bankruptcy
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
6/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
model” from fiscal 2011
Turn into the red in the first
quarter due to ad spending
and then reverts to
increasing profit in the
subsequent quarters
A virtuous cycle of analysis
to planning, investment, and
profit has been established
Operating margin dropped
below 10% due to an
■ Characteristic quarterly business pattern: imparting permanency to the “rapid
growth business model”
A seasonal pattern has emerged in Kenkou’s quarterly operating profit since fiscal
2011 (ended March 2012). The company turns into the red in the first quarter of a
year and then reverts to increasing profit in the subsequent three quarters.
This profit pattern since fiscal 2011 can be explained as the company invests heavily
in ads and marketing for the focused products and services in the first quarter, then
begins to acquire customers, and accumulate profit up to the end of the year. This
data-based, highly-reproducible marketing method and the resultant virtuous cycle
of analysis to planning, investment, and profit deserves high evaluation. Kenkou’s
annual cycle of the “rapid growth business model” has become well embedded.
300 212
279
109
409 465
161
323 250
(245)
301 230
625
(464)
(33)
477
853
(592)
(76)
898 897
(458)
537
1,323
(1,000)
(500)
0
500
1,000
1,500
4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
FY2010/3 FY2011/3 FY2012/3 FY2013/3 FY2014/3 FY2015/3
Mili. YenOperating Profits of every quater
Aggressive
investment in
advertisement
Swift attraction of
customers
Development of high
value products and
service
Data-based
marketing strategy
and improvement of
the ability to plan
products and
services
Analysis
Investment
ProfitsPlan
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
7/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
increase in acquired
subsidiaries which have not
yet fully implemented the
“rapid growth business
model”
Anticipate operating margin
to improve by strengthening
management with the
“Commit 2020” plan
Lively and enthusiastic
employees support the
“rapid growth business
model”
Enhanced employee training
leads to improve customer
satisfaction
Improved customer retention
rate and repeat rate
contribute to improve
profitability
The quarterly operating profit margin is shown in the following graph. Since April
2011, the margin has dropped below 10%, which is attributable to aggressive M&A
activities and an increase in forward-looking expenses. Recently, operating profit
margin is improving on the basis of the enhancement of business infrastructure.
Going forward, the operating margin is expected to improve as Kenkou intends to
strengthen its management and to take measures to improve values of the acquired
companies in the “Commit 2020” plan (more details later.)
■ Enhanced employee training leads to more profits
Among the four elements of the “rapid growth business model” let us focus on the
“enhanced training of employees.” For provision of high value-added products and
services which satisfy self-actualization needs of customers, it is critically important
that employees understand customers’ needs and respond appropriately. Kenkou has
thus invested greatly in raising employees’ skills and knowledge and has emphasized
creating a lively and exciting working environment. The trained employees establish
strong ties with customers, leading to long-term relationships and provision of more
diverse products and services based on deeper understanding of personal needs of
those customers. Moreover, employees who work in a lively and exciting
environment can be expected to become more skillful and knowledgeable to satisfy
customers’ self-actualization needs, improve their attitude to serve customers, and
stay longer with the company.
3.8%
4.6%
8.6%
10.8%10.4%
11.2%
9.2%
10.2%
8.8%
3.6%
4.7%
4.0%
6.8%
5.0%
2.3%
3.6%
4.7%
3.8% 3.6%
5.5%
4.7% 4.5%
5.7%
6.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
FY2010/3 FY2011/3 FY2012/3 FY2013/3 FY2014/3 FY2015/3
Operating Profit Margin of Moving Average of 4 Quarters
Health food Entertain-
ment
Bodybuilding
Fitness
Medical
alliance
Cosmetics
Beauty care
equipment
Apparel Variety
goods
Higher customer satisfaction enabled by the enhanced training of employees
Establishment of strong ties with customers, leading to long-term relationshipsand deeper understanding of personal needs of those customers.
Provision of more diverse products and services of high marginal margin which satisfy self-actualization needs without advertisement costs
RIZAP business
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
8/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
High marginal return is
achieved with the
unprecedented unique
personal training gym
business
Appealing ad strategy shows
result-driven commitment of
RIZAP
Upon consultation,
individual weight reduction
targets are set and achieved
by 99% of customers at all
RIZAP gyms
Business with little
constraint to growth
Reproducible, data-based
marketing strategy
■ RIZAP is a typical success case of the “rapid growth business model”
The personal training gym RIZAP is a successful example of Kenkou’s “rapid
growth business model” After being launched in 2012, sales are expected to be as
much as ¥20 billion in the next fiscal year ending March 2016. Let us review the
four elements of this case.
1) High marginal return, realized by advanced product/service planning
RIZAP is an unprecedented unique personal training gym that is committed to
customers achieving their goal.
i) Result-driven, scientific-based combination of training sessions and
consulting on diet
ii) One-on-one training with well-selected personal trainers
iii) Luxurious private space where a customer can concentrate on his or her
training
iv) 30-day full-refund guarantee program
v) Program that enables customers to attain good lifestyle habits and health
Regarding weight reduction targets, the limit is determined for each customer upon
consultation, depending on weight, body type and body constitution. At all RIZAP
gyms, 99% of customers have been achieving their targets.
The operation of RIZAP, to obtain an ideal body or an ideal life, is suitable to
Kenkou as a “self-Investment” brand to satisfy customers’ “self-actualization needs.”
The RIZAP business is achieving a 70% profit margin as shown below.
The RIZAP business has little constraint to rapid growth as it requires little capital
spending and acquires customers without relying too much on location of a gym.
High profitability
RIZAP Typical gym
Sales 100% 100%
Cost of sales 28% 65~78%
Personnel 18% 20~30%
Rent 5% 20%
Utilities 1% 10%
Maintenance 1% 5~8%
Depreciation 1% 7~10%
Marginal profit 74% 22~35%
Emphasize not on “goods” but on supporting
customers’ activities and lifestyle
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
9/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
Growth potential with an
immense age bracket of
seniors
Diverse scientific training
menus for employees
2) Data-based marketing strategy
The marketing strategy to raise brand appeal was effective in increasing the number
of members from 3,000 in April 2013 to 25,000 in January 2015. In January,
Hidekazu Akai, a popular TV talent in his fifties, appeared in the ad, which has
sparked huge interest, resulting in the record-high number of inquiries for the month
and further growth potential. In overseas markets, RIZAP in Shanghai has become
profitably, demonstrating effectiveness of its marketing strategy with high
reproducibility in an overseas market.
Customers in the 60s age bracket represent only 3.4% for RIZAP, which is much
lower compared to other fitness gyms, suggesting further room for growth for
RIZAP.
3) Enhanced training for employees
RIZAP’s trainers go through a well-thought-out training program and become
knowledgeable on science, psychology, exercise physiology, and nutritional science,
so that they can better assist customers achieve their target. They also learn the
manner of serving customers, which helps them establish a good relationship with
customers. Customers’ non-personal information and training menus are shared
across all the gyms, which helps to maintain 99% of customers achieving their
target. Personnel share information and discuss ideas so that customers’ programs
can be personally adjusted and satisfactory, and they can keep motivated to reach
their goal.
RIZAP’s unique high-quality business is thus realized by training highly-motivated
personal trainers who are eager to help their customers realize self-actualization,
through their information sharing and discussions.
36.6
26.9 27.4
3.4
0
5
10
15
20
25
30
35
40
Company A Company B Company B RIZAP
Share of over 60 year old customers of leading
fttines gym (%)
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
10/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
Tie-ups with medical
institutions promote adding
values and expanding
market for Kenkou
Tie-ups can be mutually
beneficial and synergies can
be expected
4) Aggressive M&A (tie-up) strategy
Medical institutions can expect to raise their value through synergies with RIZAP’s
know-how. Tie-up with a medical institution has begun by obtaining introductions to
its patients and medical check-up customers. RIZAP initially takes the following
three measures.
i) RIZAP’s programs are to be authorized by medical specialists.
ii) Clinical data on health improvement by the RIZAP method are to be obtained
at the medical institution in cooperation.
iii) Tie-ups with medical institutions are promoted nationwide, based on the
authorized programs and clinical data.
Medical and analytic institutions
Guests Patients, visitors to clinic
Hospitals Medical
checkup
institutions
Blood testing
institutions
Genetic test
institutions
Offer solutions, as needed
Trainers Nutritionists
Tie-up
Give health information-
based guidance
Provide medical and medical checkup
services
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
11/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
It would be extremely
difficult to imitate Kenkou’s
distinctive service programs
and organizational capability
to provide value
■Extremely positive competitive landscape
Kenkou’s main business RIZAP has established strong advantages in all five forces.
The service is highly differentiated and strong relationships are built with
customers. In the future when the brand is established globally, new- entry risk or
an alternative risk should become extremely low.
■Established competent management base and resources
In terms of the VRIO factors, namely, value, rareness, imitability, and organization,
Kenkou has an extremely strong management base and resources in all those
factors. In particular, the company stands out in rareness, as it focuses on
“self-investment” to satisfy self-actualization needs. It is extremely difficult for any
organization to imitate all the elements of the “rapid growth business model”. Thus,
Kenkou deserves high evaluation with its highly competent business model.
Compared to conventional fitness gyms and personal training gyms, RIZAP is
differentiated by far, with a variety of programs. Its model is difficult to imitate as
shown below.
Maintain the strong long-term relationship
with customers through building of mutual trust
Customer
RIZAP is only one personal training gym which
commits the results in the world
Rivalry
Low entrants risk because of establishing a
“self-Investment” brand
New Entrants
Low substitutes risk because of a lot of the
differentiated products and services
Substitutes
Establishment of the mutual beneficial
relationship with suppliers which can promote
adding values with Kenkou Corp.
Supply
Provide very high value to satisfy self
actualization needs
Value
It is very difficult to imitate the “rapid growth
model”
ImitabilityPlanning ability to develop products and
services for self-investment industry, data-based
marketing strategy and enhanced training for
employees are structurally maintained and
enhanced
Organization
Rarity of RIZAP is very high because it is the
only personal training gym which commits the
results in the world
Rareness
Conventional
fitness gym
Values as felt by
customers
Space for
sustained exercise
program
Training with a
personal trainer
Enable the customer to attain his/her best
body, confidence, and feeling, exceeding
expectations
Service contents
Comfort and
convenience with
equipment
One-shot service
without any
commitments
Commit the customer to reaching the
targeted weight or features tagging
along the customer
Qualification
needed to a trainer
Exercise
experience,
knowledge on how
to use machines,
etc.
Training theory
Training theory, theory of body, anatomy,
physiology, nutrition, psychology, human
skills, communication skill, coaching,
hospitality, etc.
Competitive
strengthsー
Proprietary
training theory
Ability to attract customers by using
Kenkou’s advertising know-how
Scientific approach to find congruency based
on bodybuilding data of about 20,000
customers and develop reproducibility
Conventional personal
training service RIZAP
Business model evaluation
Five force analysis
VRIO analysis
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
12/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
Established the
“self-investment” brand with
RIZAP during the
“Medium-Term Vision 2018”
Evolution of the “rapid growth
business model” in scale and
quality
Be a global No. 1 brand in the
“self-investment” industry
■ The “Medium-Term Vision 2018,” announced in 2013, was achieved two
years ahead
As stated above, the “Commit 2020” was adopted since the previous
“Medium-Term Vision 2018” was achieved two years ahead of plan. The new
plan’s main strategies are (1) to enter the medical field; (2) to expand overseas;
and (3) to enhance growth infrastructure.
The personal training gym RIZAP has become a well-known “self-investment”
brand thanks to aggressive ad spending. Since its launch, sales expanded at an
exceptional speed, exceeding ¥10 billion in 3 years with more upside potential
beyond that. One could say that RIZAP’s success has completed Kenkou’s “rapid
growth business model.”
The three main strategies of the “Commit 2020” are described below. Kenkou
plans to evolve its “rapid growth business model” in the self-investment industry
in scale and quality with those strategies.
The company is committed to increase sales by over 40% a year from the current
level to ¥300 billion by fiscal 2020 (ending March 2021) and to increase operating
income by 17.5 times to ¥35 billion. “Self-actualization needs for a healthier,
glorious life” is immense and universal. Kenkou’s pursuit for global expansion
and formidable growth is beginning in earnest.
Vision 2018(Adopted in December 2013)
FY3/2014-FY3/2018
1. Promote M&A
2. Separate sales and
management
3. Build a “Self-Investment”
brand
Achieved the target in two years
Commit 2020FY3/2016-FY3/2020
1. Enter the medical field
2. Expand overseas
3. Enhance growth
infrastructure
Aims to attain a global No. 1 position
in the “Self-Investment” industry
3. Further strengthen the
basis for growth1. Enter the medical field 2.Expand overseas
Strengthen the marketing
strategy and expand the
customer base
Create more value-added
services to be utilized by
customers throughout life
Continue to strengthen the
business infrastructure
Create new services by
combining advanced medical
knowledge with Kenkou’s know-
how
Offer health-related services to
patients and visitors to medical
institutions
Extend people’s health span
Accelerate overseas growth with
“RIZAP” as a main pillar
Expand in North America, Europe,
Asia, and Middle East
Aim at 70% brand recognition in
the markets entered
Attain a position as a global No. 1 brand in the “Self-Investment” industry
Medium-term management plan “Commit 2020”
Background
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
13/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
“Self-actualization needs for a
healthier, glorious life” is
immense and universal
Pursuit for global expansion
and formidable growth is
beginning in earnest with the
“Commic 2020”
Full entry to the medical field
in 2015
Worth watching how the
“rapid growth business model”
evolves
Current data analysis shows
promising results
The overall roadmap to enter the medical field is as follows. Kenkou plans a rapid
growth in 2015. As it has accumulated know-how with RIZAP, its “rapid growth
business model” is expected to evolve further.
Kenkou is currently establishing a process flow which can medically ensure
reproducible health enhancement effects, as shown below. It is also drawing a
marketing strategy to medical institutions focused on health check and testing
services. So far, the company has been receiving positive feedback and strong
interests from institutions contacted.
Operating Profit (Consolidated)Sales (Consolidated)
(Bil.Yen) (Bil.Yen)
3723
2021/3
Commitment
2017/3
Commitment
100 bil.
300 bil.
2015/3
Forecast
2014/3
Actual
21
2021/3
Commitment
2017/3
Commitment
10 bil.
35 bil.
2015/3
Forecast
2014/3
Actual
FY2014: Preparation
Scientific analysis of RIZAP’s health
effects and safety
1st half of FY2015: Business model setup
Established a tie-up business with
a medical
institution
2nd half of FY2015: Rapid growth
Rapidly expand the market by
RIZAP’s customer acquisition
process
FY2016: Continual growth
Based on relationships of trust with
customers and doctors, make the
business sustainable and value-added.
Doctors, once affiliated with us, will help
create an entry barrier to other firms.
Maintain a long-term highly profitable
business.
Feb. 2015
Opened a RIZAP site
inside the Ariyoshi
Clinic
Joint development of services with allied medical
institutions
Health enhancement program
• RIZAP X 2 complete medical checkups X
Blood test X Medical concierge (nurse and
nutritionist)
Blood test service
• Review the effects of RIZAP programs
with before-and-after blood work
• Consulting with nurses over the phone
Step 1: New service launch
Medical institutions
Collected data is thoroughly analyzed by a
medical institution to check the health effects of
RIZAP programs
Kenkou (RIZAP)
Maximize the health enhancement effects based
on the data
Establish
reproducibility
with a large
number of
customers
Step 2: Analysis of test results
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
14/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
Anticipate synergies from a
win-win relationship with
medical institutions
High-level interests of seniors
can be a growth driver going
forward
Steady overseas record.
Globally implementing the
“rapid growth business model”
As a business model, RIZAP will build a win-win relationship with medical
institutions by mutually introducing customers. By teaming up with medical
institutions and analytic clinics, Kenkou is expected to expand its role in health
enhancement (Reference figures below are the same shown before).
A promotion video and ad with Hidekazu Akai in January 2015 have led to a
record-high number of inquiries, confirming strong health-related demand among
middle-aged and senior people, which are also the main target for the medical
tie-up business. This has given Kenkou further confidence in the long-term
potential of this business to the company.
Regarding overseas expansion, Kenkou opened RIZAP gyms in Shanghai, Taipei,
and Singapore. RIZAP in Shanghai acquired many local customers, confirming
overseas market potential. Competing fitness gyms and personal training gyms
exist in those overseas markets but the RIZAP method, in which trainers assists
customers throughout and help them achieve personal commit to their targeted
results, has proven to be competent and distinct.
Medical and analytic institutions
Guests Patients, visitors to clinic
Hospitals Medical
checkup
institutions
Blood testing
institutions
Genetic test
institutions
Offer solutions, as needed
Trainers Nutritionists
Tie-up
Give health information-
based guidance
Provide medical and medical checkup
services
Number of inquiries to RIZAP
11211105432 96 7 8
2014 2015
New RIZAP ads from
January with Hidekazu
Akai, a TV star popular
among the middle-aged,
led to renewing a record-
high number of inquiries
per month.
The middle-aged, who are
our main target in the
Medical Field, are in great
need of health consulting
(month)
(year)
7,260
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
15/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
Anticipate the acquired
companies to enhance growth
base and improve profitability
Growth comes ahead of
shareholder return for now
Financially assist growth by
optimal use of debt or equity
financing
In order to enhance growth infrastructure, Kenkou will strive to expand its
customer base and area sales channels, and provide maximal value-added services
and products to customers. By applying the “rapid growth business model,” which
can be said to be completed with RIZAP, to the acquired companies, Kenkou
expects to boost overall profitability.
Kenkou’s financial strategy and shareholder return policy are described below.
The company gives higher priority to growth, rather than dividend payment. By
optimal use of debt or equity financing, the company plans to achieve growth
target with due consideration given to balancing financial stability and growth in
per-share earnings.
Shanghai
Taipei
Singapore
Accelerate overseas expansion
by entering into
• Asia and Oceania,
• North America, and
• Europe
Plan to open 10 RIZAP gyms in
fiscal 2015 and open more
RIZAPs overseas than in Japan
within the “Commit 2020” period
Establish a No. 1 global
brand positioning
Expand customer base
① Strengthen data-based evidence by working with research
Objective data verification enhances reliability and appeal
② Group members’ use of Kenkou Corporation’s marketing ability
Integrate the Group’s marketing know-how for more effective
marketing
Expand area sales
channels
① Speed up a group-wide expansion to electronic commerce
② Exert group-wide synergy in opening stores
Provide maximal value-
added services and
products to customers
① Provide customers services to be used for their entire life
Propose optimal services to clients based on their data
② Provide more value-added services
Data-based advanced RIZAP training programs
Share each company’s strength within the Group
Tie-up of SD Fitness and RIZAP; utilization of merchandise
of other Group companies by use of the Group EC
Strategy Specific measure
Financial
stability
and funding
policy
Shareholder
return
policy
• Give priority on growth up
to FY2020
• From FY2021, balance
growth with shareholder
return
• Optimal use of debt and
equity financing to
support agile growth
• Balance business growth
with financial stability and
EPS growth
Policy Targets
• 18-20% up to FY3/2021
(Current level)
• 30% in FY3/2022
(Target)
• About 2x at maximum
during business expansion
phases
• Aims at less than 1x during
stable business phases
Net D/E ratio
Dividend ratio
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
16/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
The decline in equity ratio
will show improvement due
to high earnings reserves and
funding that leads to ¥7.5
billion increase in capital
All three listed companies
Kenkou acquired a stake saw
a significant rise in their
stock prices
Their stock prices discount
expectation that Kenkou
creates value by acquiring
undervalued companies
■ Expect record-high sales and profit due to RIZAP and M&A
In the first 9 months of the current fiscal year (ending March 2015), sales increased
by 83.6% y-o-y to ¥28,365 million and operating profit surged by 5 times to ¥1,402
million. Full-year forecasts are sales of ¥37,062 million, up 55%, and operating
profit of ¥2,018 million, up 79.1%.
Total assets at the end of December 2015 increased by ¥5.5 billion from the end of
the previous fiscal year. This was mainly attributable to a ¥2.8 billion increase in
accounts receivable, a ¥0.4 billion increase in goodwill due to acquisition, and a
¥1.4 billion increase in other cash.
The equity ratio is 18% after an increase in debts for financing aggressive M&A
activities. Going forward, the company plans to increase its equity ratio,
anticipating higher profit at the acquired companies by use of Kenkou’s know-how,
and issuing new stock acquisition rights to raise capital by about ¥7.5 billion in
total (more details later.)
The current stock prices of Dream Vision Co., Ltd. (Tokyo Stock Exchange’s
Mothers; #3185), IDEA International Co., Ltd. (Tokyo Stock Exchange’s JASDAQ;
#3140), and Geodinos Co., Ltd. (present SD Entertainment Co., Ltd.: Tokyo Stock
Exchange’s Mothers; #4650) are significantly higher than the prices when Kenkou
invested and when the news on Kenkou’s investment was announced. They appear
to have reflected investors’ expectation for improvement in earnings.
(Mill. Yen)
9 mo to
Dec. 2011
9 mo to
Dec. 2012
9 mo to
Dec. 2013
9 mo to
Dec. 2014YoY
Sales 10,014 13,435 15,448 28,365 83.6%
SG&A expenses 5,835 7,278 8,439 16,691 97.8%
Operating profit 283 ▲ 21 229 1,402 512.2%
Current profit 302 69 481 1,210 151.6%
Net profit 97 ▲ 80 1,979 1,172 -40.8%
(Mill. Yen)
FY2012/3 FY2013/3 FY2014/3 FY2015/3 YoY
Actual Actual Actual Plan
Sales 13,445 17,840 23,910 37,062 55.0%
Operating profit 909 832 1,127 2,018 79.1%
Current profit 938 941 1,303 1,931 48.2%
Net profit 887 402 2,968 1,153 -61.2%
(Mill. Yen)
End of End of
FY2014/3 FY2015/3 3Q
Current assets 14,404 19,158
Fixed assets 13,483 14,259
Current liabilities 13,685 16,927
Fixed liabilities 8,587 9,776
Net assets 5,675 6,794
Total assets 27,948 33,498
(Mill. Yen)
End of End of End of End of End of
FY2011/3 FY2012/3 FY2013/3 FY2014/3 FY2015/3 3Q
Cash and debosits 2,284 2,517 2,437 4,373 5,845
Debt 4,164 4,902 5,399 12,947 15,033
Net debt 1,880 2,385 2,962 8,574 9,188
Shareholders' equity 1,369 2,209 2,494 5,142 6,070
Total assets 7,624 9,159 11,469 27,948 33,498
Net debt/shareholders' equity 1.37 1.08 1.19 1.67 1.51
Equity ratio 18.0% 24.1% 21.7% 18.4% 18.1%
Stock exchange TSE JASDAQ TSE JASDAQ TSE MothersSecurities code 3140 4650 3185
Present corporate name IDEA International Co., Ltd. SD Entertainment Co., Ltd. Dream Vision Co., Ltd.Former corporate name - Geodinos Co., Ltd. -
Matter of announcementCapital increase
by third-party allotmentNotice on takeover bid
Capital increaseby third-party allotment
Date of announcement 2013/9/25 2013/12/4 2015/2/12① Stock price when Kenkou
invested531 178 192
② Closing price of theannouncement date
413 349 656
③ Closing price on 2015/3/6 1,444 1,534 1,052③÷① 2.7 8.6 5.5③÷② 3.5 4.4 1.6
Fiscal 2014 earnings
Record-high sales and
operating profit
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
17/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
Issuance of stock acquisition
rights suggests 7.8% dilution
hen thoroughly exercised,
about ¥7.5 billion will be
funded
Successful funding will
strengthen net assets and
accelerate investment
activities
Watch for a virtuous cycle of
“profit growth by evolution
of the ‘rapid growth business
model’ in scale and quality”
“higher stock price”
“financing by exercise of
stock acquisition rights”
“more profit growth led by
more investment.”
■ Issuance of 4.8 million stock acquisition rights at exercise prices of ¥1,300,
¥1,600, and ¥2,000
On February 2, 2015, Kenkou issued 4.8 million stock acquisition rights, allotted to
Deutsche Bank AG, London Branch. When exercised, the dilution rate should be
7.8%. The exercise prices are set at ¥1,300, ¥1,600, and ¥2,000, with respective
issuance of 2 million, 1.6 million, and 1.2 million shares. Unless the stock price
rises to those levels, dilution will not occur, proving that consideration has been
given to existing shareholders in the choice of financing method. This financing
arrangement will result in procurement of ¥7.5 billion at maximum with a two-year
exercise period. The company’s approval is required for Deutsche Bank to request
exercise. It is expected that Kenkou will give full consideration to the impact on its
stock price and the market’s sales trend after third-party allotment. There is an
option for Kenkou to revise the exercise price from March 2, 2015. The proceeds of
around ¥6 billion will be used as capital for entering the medical field and overseas
expansion among the measures of the medium-term “Commit 2020” plan.
As mentioned above, Kenkou has virtually completed its “rapid growth business
model” with the RIZAP operation and is planning to evolve it in scale and quality
with the new medium-term “Commit 2020” plan. Under the strong leadership of
President Takeshi Seto, Kenkou is steadily taking measures to realize its objectives.
Reflecting such expectation, the current stock price exceeds the exercise price of
¥1,300 for the first series of stock acquisition rights. On March 2, Kenkou approved
exercise of 500,000 rights . It is worth focusing on whether funding by the issuance
of stock acquisition rights will create a virtuous cycle of “profit growth by evolution
of the ‘rapid growth business model’ in scale and quality” “higher stock price”
“financing by exercise of stock acquisition rights” “more profit growth led by
more investment.”
Stock Price (Yen), Source JPR on the basis of FactSet
Stock acquisition rightsTotal number of stock acquisiton rights 2,000,000 rights 1,600,000 rights 1,200,000 rightsAggregate amount to be paid in 1,500,000 yen 560,000 yen 300,000 yenPer share amount to be paid in 0.75 yen 0.35 yen 0.25 yenPer share exercise price 1,300 yen 1,600 yen 2,000 yenItem concerning revision to exercise priceExercise periodConditions for the exercise of stock acquisition rights
Two years Two years Two yearsYes Yes Yes
First series Second series Third series
Yes Yes Yes
75 Days Moving Average
25 Days Moving Average
5 Days Moving Average
400
600
800
1,000
1,200
1,400
1,600
2015
/3/1
0
2015
/3/9
2015
/3/4
2015
/2/2
7
2015
/2/2
4
2015
/2/1
9
2015
/2/1
6
2015
/2/1
0
2015
/2/5
2015
/2/2
2015
/1/2
8
2015
/1/2
3
2015
/1/2
0
2015
/1/1
5
2015
/1/9
2015
/1/6
2014
/12/
29
2014
/12/
24
2014
/12/
18
2014
/12/
15
2014
/12/
10
2014
/12/
5
2014
/12/
2
2014
/11/
27
2014
/11/
21
2014
/11/
18
2014
/11/
13
2014
/11/
10
2014
/11/
5
2014
/10/
30
2014
/10/
27
2014
/10/
22
2014
/10/
17
2014
/10/
14Equity financing
Third-party allotment
using stock acquisition
rights
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
18/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
Upside potential to ¥2,000,
assuming no more rise in
WACC
■ Calculate DCF-based corporate value, reflecting Kenkou’s significant growth
In calculating Kenkou’s corporate value based on the assumption of its significant
growth rate, it is hardly possible to find a comparative company. Thus, future cash
flow is estimated, assuming high growth rate, and a DCF model is used to estimate
corporate value and shareholder value.
The key assumptions are as follows. Beta is calculated based on the past 3-year
daily stock price fluctuation. Regarding capital spending, 7% is used, which is the
5-year average (up to fiscal 2013) of the ratio of an increase in annual depreciable
tangible fixed assets combined with the depreciation, relative to sales. Projected
sales and operating income announced in the “Commit 2020” are also used for
calculation.
Capital spending: 7% of sales
Weighted-average cost of capital (WACC): 6.9% (see the table below)
(Yen million; %)
Sales growth rate: Conservatively assuming 0% in and after fiscal year 2021
Dividend payout ratio: 20% up to fiscal 2020, and 30% from fiscal 2021
Interest rate: 1.5% on the average balance of interest-bearing debts
Corporate tax rate: 35.64% in and after fiscal 2015
Working capital assumption (based on daily turnover; unit in days):
Followed past data and adopted as follows.
The fully-diluted fair stock price is calculated to be ¥2,304. The results of sensitivity
analysis with capital spending at 7% to 10% of sales and WACC at 6%, 7%, 8% are
shown below. Assuming 7% in WACC and 8% in the capital spending ratio, the
calculated fair stock price is ¥2,136. When the business becomes more stable, it is
hard to imagine WACC would significantly exceed the present forecasted 6.9% as
beta will decrease. Rather, WACC could come down. In summary, the stock price
could theoretically and reasonably have upside potential to around ¥2,000 if one
assumes growth expected in the “Commit 2020” plan can be realized.
Market cap 87,454
Debt 13,779
β 1.50
Market risk premium 5.00
Risk premium 7.50
Risk free rate 0.41
Cost of shareholders equity 7.91
Cost of liabilities 1.5
WACC 6.9
(Cash and deposits)/Sales X 365 57.6
(Accounts receivable)/Sales X 365 81.9
(Inventories)/Sales X 365 33.6
(Other current assets)/Sales X 365 13.6
(Accounts payable)/Sales X 365 21.5
(Other current liabilities)/Sales X 365 21.2
(Yen)
WACC
2,304 7.0% 8.0% 9.0% 10.0%
6.0% 2,949 2,835 2,722 2,602
7.0% 2,244 2,136 2,029 1,916
8.0% 1,733 1,630 1,530 1,423
9.0% 1,351 1,253 1,158 1,056
Capital Expenditure/Sales
Calculating corporate value based on DCF
Theoretical upside
potential to around
¥2,000
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
19/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
FY2015/3 FY2016/3 FY2017/3 FY2018/3 FY2019/3 FY2020/3 FY2021/3 FY2022/3 FY2023/3 Perpetuity
Plan Plan Plan Plan Plan Plan Plan Plan Plan
Sales 37,062 65,000 100,000 140,000 190,000 240,000 300,000 300,000 300,000
COGS 15,454 26,715 41,100 57,540 78,090 98,640 123,300 123,300 123,300
Gross profit 22,146 38,285 58,900 82,460 111,910 141,360 176,700 176,700 176,700
SG&A expenses 19,446 32,685 48,900 67,760 91,010 113,760 141,700 141,700 141,700
Operating profit 2,018 5,600 10,000 14,700 20,900 27,600 35,000 35,000 35,000
Interest expense 195 234 328 504 736 971 1,204 1,269 1,141
Non-operating income (expense) 108 108 108 108 108 108 108 108 108
Ordinary profit 1,931 5,258 9,564 14,088 20,057 26,521 33,689 33,623 33,751
Extraordinary gain (loss) 371 0 0 0 0 0 0 0 0
Pretax profit 2,302 5,258 9,564 14,088 20,057 26,521 33,689 33,623 33,751
Income and other taxes 1,109 1,860 3,394 5,007 7,134 9,438 11,992 11,969 12,015
Minority interests 40 40 40 40 40 40 40 40 40
Net profit 1,153 3,359 6,130 9,041 12,883 17,043 21,656 21,614 21,697
Dividend 209 672 1,226 1,808 2,577 3,409 4,331 6,484 6,509
Retained earnings 944 2,687 4,904 7,233 10,306 13,635 17,325 15,130 15,188
Cash and deposits 5,845 10,251 15,771 22,079 29,965 37,850 47,313 47,313 47,313
Surplus 716 0 0 0 0 0 0 0 0
Accounts receivable 8,321 14,594 22,452 31,432 42,658 53,884 67,355 67,355 67,355
Inventories 3,415 5,989 9,213 12,899 17,506 22,112 27,640 27,640 27,640
Other current assets 1,378 2,416 3,717 5,204 7,063 8,922 11,152 11,152 11,152
Current assets 19,674 33,250 51,153 71,615 97,191 122,768 153,460 153,460 153,460
Depreciable tangible fixed assets 6,408 7,958 11,958 17,758 25,058 33,858 43,858 51,858 57,858
Land 2,749 2,749 2,749 2,749 2,749 2,749 2,749 2,749 2,749
Goodwill 2,028 1,770 1,513 1,256 999 741 484 227 1
Other assets 3,156 3,156 3,156 3,156 3,156 3,156 3,156 3,156 3,156
Total assets 34,015 48,883 70,529 96,533 129,153 163,272 203,707 211,449 217,223
Accounts payable 2,182 3,827 5,888 8,243 11,187 14,131 17,664 17,664 17,664
Accrued Expenses 2,150 3,770 5,801 8,121 11,021 13,921 17,402 17,402 17,402
Other current liabilities 6,856 6,856 6,856 6,856 6,856 6,856 6,856 6,856 6,856
Short-term borrowings 5,739 7,551 11,606 17,831 25,106 31,572 38,682 35,393 31,207
Current liabilities 16,927 22,004 30,151 41,051 54,170 66,480 80,604 77,315 73,129
Long-term debt 8,040 9,500 14,602 22,433 31,587 39,721 48,667 44,529 39,262
Total interest-bearing debts 13,779 17,051 26,208 40,264 56,693 71,293 87,349 79,922 70,468
Other long-term liabilities 3,887 3,887 3,887 3,887 3,887 3,887 3,887 3,887 3,887
Total liabilities 26,704 35,391 48,640 67,371 89,644 110,088 133,158 125,731 116,277
Paid in capital 939 4,394 7,849 7,849 7,849 7,849 7,849 7,849 7,849
Retained earnings 5,797 8,484 13,388 20,621 30,927 44,561 61,886 77,016 92,204
Shareholders equity 6,736 12,878 21,237 28,470 38,776 52,410 69,735 84,865 100,053
Minority interests 567 607 647 687 727 767 807 847 887
Net assets 7,311 13,492 21,890 29,163 39,509 53,183 70,548 85,718 100,946
Total net assets and liabilities 34,015 48,883 70,529 96,533 129,153 163,272 203,707 211,449 217,223
Capital expenditures 2,594 4,550 7,000 9,800 13,300 16,800 21,000 21,000 21,000
Depreciation 2,000 3,000 3,000 4,000 6,000 8,000 11,000 13,000 15,000
Goodwill amortization 257 257 257 257 257 257 257 257 226
Sales growth rate 55.0% 75.4% 53.8% 40.0% 35.7% 26.3% 25.0% 0.0% 0.0%
Gross profit to sales 41.7% 41.1% 41.1% 41.1% 41.1% 41.1% 41.1% 41.1% 41.1%
SG&A expenses to sales 52.5% 50.3% 48.9% 48.4% 47.9% 47.4% 47.2% 47.2% 47.2%
Operating profit margin 5.4% 8.6% 10.0% 10.5% 11.0% 11.5% 11.7% 11.7% 11.7%
Corporate tax rate 49.0% 35.6% 35.6% 35.6% 35.6% 35.6% 35.6% 35.6% 35.6%
Dividend payout ratio 18.1% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 30.0% 30.0%
Depreciation to sales 23.7% 23.7% 23.7% 23.7% 23.7% 23.7% 23.7% 23.7% 23.7%
Capital expenditures to sales 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Tangible fixed assets to sales 5.8 8.2 8.4 7.9 7.6 7.1 6.8 5.8 5.2
Interest rate 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
(Cash and deposits)/Sales X 365 57.6 57.6 57.6 57.6 57.6 57.6 57.6 57.6 57.6
(Accounts receivable)/Sales X 365 81.9 81.9 81.9 81.9 81.9 81.9 81.9 81.9 81.9
(Inventories)/Sales X 365 33.6 33.6 33.6 33.6 33.6 33.6 33.6 33.6 33.6
(Other current assets)/Sales X 365 13.6 13.6 13.6 13.6 13.6 13.6 13.6 13.6 13.6
(Accounts payable)/Sales X 365 21.5 21.5 21.5 21.5 21.5 21.5 21.5 21.5 21.5
(Other current liabilities)/Sales X 365 21.2 21.2 21.2 21.2 21.2 21.2 21.2 21.2 21.2
Equity ratio 19.8% 26.3% 30.1% 29.5% 30.0% 32.1% 34.2% 40.1% 46.1%
net debt 7,217.8 6,799.6 10,437.3 18,184.5 26,727.9 33,442.7 40,036.6 32,609.5 23,155.9
Net debt/shareholders equity 1.07 0.53 0.49 0.64 0.69 0.64 0.57 0.38 0.23
Number of shares 62,218,000 64,368,000 66,518,000 66,518,000 66,518,000 66,518,000 66,518,000 66,518,000 66,518,000
First series of stock acquisition rights 2,000,000 1,500,000 750,000
Number of exercised rights 500,000 750,000 750,000
Number of remaining rights 1,500,000 750,000 0
Per unit amount of rights 0.75 0.75 0.75
Aggregate value of rights 1.13 0.56 0.00
Second series of stock acquisition rights 1,600,000 1,600,000 800,000
Number of exercised rights 0 800,000 800,000
Number of remaining rights 1,600,000 800,000 0
Per unit amount of rights 0.35 0.35 0.35
Aggregate value of rights 0.56 0.28 0.00
Third series of stock acquisition rights 1,200,000 1,200,000 600,000
Number of exercised rights 0 600,000 600,000
Number of remaining rights 1,200,000 600,000 0
Per unit amount of rights 0.25 0.25 0.25
Aggregate value of rights 0.30 0.15 0.00
Aggregate value of rights 1.99 0.99 0.00
Increase in capital 650 3,455 3,455
Total number of exercised rights 500,000 2,150,000 2,150,000
NOPAT 3,509 6,341 9,366 13,356 17,668 22,431 22,431 22,431
Depreciation 3,257 3,257 4,257 6,257 8,257 11,257 13,257 15,226
Capital expenditures 4,550 7,000 9,800 13,300 16,800 21,000 21,000 21,000
Increase (decrease) in working capital 8,240 10,323 11,798 14,747 14,747 17,697 0 0
FCF -6,024 -7,725 -7,975 -8,434 -5,622 -5,008 14,688 16,657
WACC 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9
DF 0.94 0.88 0.82 0.77 0.72 0.67 0.63 0.59
PV -5,635 -6,760 -6,528 -6,458 -4,027 -3,356 9,207 9,767 174,969
NPV 161,180
Cash and deposits 5,845
Interest-bearing debts 13,779
Shareholders value 153,246
Fully-diluted number of shares 66,518,000
Fully-diluted stock price (yen) 2,304
Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015
20/20
This report is created by J-Phoenix Research Inc. (hereinafter JPR) simply for the purpose of providing information to the investors, not for soliciting any trading of securities. Although the report is based on information and resources that JPR believed to be reliable, JPR does not guarantee against the accuracy, reliability, completeness, conformity or timeliness of any of the
content. JPR shall not be liable for any direct or indirect damage caused by the investors resulting from the use or reliance on the information contained herein. Investors are responsible for their
own trading of securities and other financial products. The intellectual property rights of this report belong to Toward the Infinite World, Inc. No part of this report may be reproduced,
transcribed or cited without the written consent of the company.
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