Analyst Report Kenkou Corporation Inc (RIZAP Group)

ANALYST NET Company Report

Kenkou corporation, Inc. (Code 2928: Sapporo Securities Exchange’s Ambitious Market) Issue Date: March 12, 2015

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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


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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


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“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”


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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



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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



6/20





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


7/20





increase in acquired

subsidiaries which have not

yet fully implemented the


model”

Anticipate operating margin

to improve by strengthening

management with the

“Commit 2020” plan

Lively and enthusiastic

employees support the


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


8/20





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


9/20





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 (%)


10/20





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


11/20





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


12/20





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


13/20





“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


14/20





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


15/20





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


16/20





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


17/20





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



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


18/20





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


19/20





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




Third series of stock acquisition rights 1,200,000 1,200,000 600,000

Number of exercised rights 0 600,000 600,000





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


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Analyst Report Kenkou Corporation Inc (RIZAP Group)