bridge report nihon enterprise co., ltd. (4829) details solutions website and application...

Bridge Report (4829) July 15, 2015 http://www.bridge-salon.jp/company_e

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Bridge Report Nihon Enterprise Co., Ltd. (4829)

Stock Information

Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit

¥331 40,516,700 shares ¥13.411 billion 3.8% 100 shares

DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)

¥3.00 0.9% ¥4.69 70.6x ¥126.65 2.6x

* Share price as of close on July 14, 2015. Shares outstanding as of end of most recent quarter and exclude treasury shares.

Consolidated Earnings Trends (Units: ¥Mn)

Fiscal Year Sales Operating Profit Ordinary Profit Net Profit EPS (¥) DPS (¥)

May 2012 2,790 304 318 170 451.18 130.00

May 2013 4,134 372 391 354 941.63 180.00

May 2014 4,508 335 340 437 11.59 3.00

May 2015 5,116 189 204 177 4.57 3.00

May 2016 Est. 6,100 450 470 190 4.69 3.00

* Estimates are those of the Company. A 100 for 1 stock split was conducted on December 1, 2013.

This Bridge Report provides details of Nihon Enterprise Co., Ltd. and information pertaining to earnings results for the fiscal year

May 2015.

1. Company Overview

2. Growth Strategy

3. Fiscal Year May 2015 Earnings Results

4. Full Fiscal Year May 2016 Earnings Estimates

5. Conclusions

Katsunori Ueda, President

Company Nihon Enterprise Co., Ltd.

Code No. 4829

Exchange Tokyo Stock Exchange, First Section

Industry Information, Communications

President Katsunori Ueda

HQ Address 1-17-8 Shibuya, Shibuya-ku, Tokyo, Japan

Business

Description

The two pillars of its business are: 1) contents creation and provision of contents services,

and 2) contents creation and operations solutions provided to client companies.

Year-End May

Home Page http://www.nihon-e.co.jp/en/index.html

http://www.bridge-salon.jp/


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Key Points

1. Company Overview Nihon Enterprise is a “mobile solutions company” with two main business segments including the contents services business, where various

contents including lifestyle and traffic information services are created and distributed to smartphones and other mobile devices, and the

solutions business, where contents creation, operations, systems integration, affiliate advertising, reverse auctions, IP phones and other

business support solutions (Cost reduction) are provided. Furthermore, Nihon Enterprise is also promoting efforts to expand its business

into overseas markets and has established a business platform for the provision of Japanese contents in China and India.

Nihon Enterprise listed its shares on the NASDAQ Japan Market (Currently called the JASDAQ Market) of the Osaka Securities Exchange

on February 16, 2001. On July 10, 2007, it moved its listing to the Second Section Market of the Tokyo Stock Exchange, and then to the

First Section Market on February 28, 2014.

<Corporate Philosophy>

Nihon Enterprise’s employees have an obligation to maintain the basic corporate philosophy for eternity by repeatedly learning from the

corporate philosophy reflected in its “Mission Statement, Doctrine, and Five Spirits” and “Nihon Enterprise Management Principles.”

President Katsunori Ueda believes that it is Nihon Enterprise’s obligation to maximize “shareholder value” and “make effective use of capital

by not wasting a single yen”.

From the start, President Ueda founded Nihon Enterprise with the strong motivation of “contributing to society through its businesses” and

the Company pursues the achievement of this goal. Consequently, the Company seeks to contribute to society by increasing the satisfaction

of its users through the provision of convenient information technology equipment and interesting and diverse contents and services. Based

upon the management philosophy of President Ueda, the bulk of the ordinary Profit earned in the founding year of the Company was donated

to the Japan Red Cross Society, the Japan National Council of Social Welfare and various children’s institutions. Also, donations were made

to the Japan Red Cross Society at the time of the Great East Japan Earthquake to support the victims and the reconstruction efforts in the

Tohoku region.

・ Sales rose by 13.5% but ordinary profit declined by 39.9% year-on-year. In-Store affiliate services acted as a driver of growth within

the solutions business, allowing sales to rise by 28.0% year-on-year. Despite the slowing in diffusion of smartphones as they approach

saturation, strong sales of game and traffic information allowed the contents services business to grow by 1.5% year-on-year. However,

changes in the sale mix contributed to an increase in cost of sales, and anticipatory investments in game development and advertising

expenses negatively impacted profits and caused operating profit to decline by 43.4% year-on-year.

・ Sales and ordinary profit are expected to rise by 19.2% and 129.7% year-on-year respectively during fiscal year May 2016.

Consigned development and advertising are expected to contribute to growth in the solutions business. Furthermore, contents provided

to communication carriers and native applications developed in-house are also expected to maintain steady sales of the contents

business. With regards to profits, the influence of the higher sales and the decrease of the advertising expenses for native apps due to

the transition from the member acquisition phase to the profitability improvement phase through operation makes its operating profits

expand by 2.4 times year-on-year. The same level of dividends as at the current term end of ¥3 per share is scheduled to be paid.

・ Nihon Enterprise established a subsidiary to participate in the smart community business. In the future, solar power generation

business is expected to become this subsidiary’s stable source of profit. This subsidiary will provide each of the households, i.e. the

buyers of electricity, with lifestyle support services using information technologies. In Ube City, Yamaguchi Prefecture, where the

subsidiary’s headquarters is located, an important issue is how to raise the quality of life by providing safety and security for the large

number of senior citizens living alone in the region. Consequently there is a strong need for security, medical and shopping solutions

applications. In addition to the societal importance of these issues, Nihon Enterprise considers the large number of local government

bodies that are dealing with these issues as attractive business opportunities.



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Mission Statement

Nihon Enterprise seeks to contribute to society and to promote culture through its activities conducted as a commercial entity.

Philosophy

Nihon Enterprise vows to achieve the five commitments listed below in its pursuit of improving employment conditions.

The Commitments of Nihon Enterprise

- Commitment to Business

- Commitment to Selfless Devotion

- Commitment to Grow Earnings

- Commitment to Take on New Challenges

- Commitment to Always Being Appreciative

<Overview of Business Segments>

Main Genres, Contents, Services Provided in the Contents Services Business

Genre Main Contents Main Services Provided

Traffic Information ATIS traffic information, etc. Traffic information for roads, railways, including visual images

Lifestyle Beauty Rhythm for Women,

etc.

A membership service that provides health management information for women, and special

discounted travel, food, beauty related services for nationwide facilities

Music Uta & Mero Tori Hodai, etc. Original music and arranged music, ringtone songs, music, voice, and others

Mail Deco, Deco Stamps, etc. Decorative mail including popular stamps for messenger applications with bountiful characters

E-book BOOKSMART Digital publications website with 150,000 different publications in a wide variety of genres

Games Chotto Game, etc. A game portal website distributing simple to play, long selling games, mini games

Overseas JiuDingJi, etc. Digital comics in China

Categories and Details of the Solutions Business

Categories Details

Solutions Website and application development for corporate clients, user support, program debugging confirmation and validation, and

consigned operation of corporate websites

Advertising Sale of contents on a performance based compensation system through collaboration with cellular telephone sales companies.

Advertising Profit from the corporate website and applications.

Overseas Development services for corporate websites and applications in China, “cellular telephone sales and agency business” of China

Telecom

Goods Sales CD sales, electronic commerce website services

<Corporate Group: 8 Consolidated Subsidiaries, 4 Non-Consolidated Subsidiaries>

The Nihon Enterprise Group is comprised of eight consolidated subsidiaries including the company Dive Co., Ltd., which provides

advertising services, At The LOUNGE Co., Ltd. which provides music related services, Advanced Traffic Information Services, Corporation

(ATIS Corp.), which provides traffic and other information services, 4QUALIA Co., Ltd., which provides web and mobile site development

and maintenance services and contents development, HighLab Co., Ltd., which conducts native application development as part of the mobile

contents business, Enterprise (Beijing) Information Technology Co., Ltd., which operates cellular telephone retail shops in China, Beijing

YZH Wireless Net Technology Co., Ltd., which provides mobile contents planning, development and solutions, and Rice CZ (Beijing) New

media technology Co., Ltd., which provides IT related educational services. The Group also boasts of another four non-consolidated

subsidiaries including and One, Inc., which provides voice communications related solution services, Aizu Laboratory, Inc., which provides

smartphone application planning and development, Rise MC (Beijing) Digital Information Technology Co., Ltd., which provides mobile

contents distribution and character licensing services, and NE Mobile Services (India) Private Limited, a local company operating in India.

※ “and One Inc.” and “Aizu Laboratory, Inc.” became consolidated from fiscal year May 2016.

※ Yamaguchi Regenerative Energy Factory Co., Ltd., was established in June 2015 to provide smart community services, and was turned into a

non-consolidated subsidiary through the acquisition of shares through a third party private placement conducted in July. Promote, Inc., which conducts

The Management Principles of Nihon Enterprise

1. Raise the Spirit of Our Management

2. Leverage the Collective Knowledge in Management of Our Company

3. Pursue Profits Fairly

4. Comply with Principles

5. Always Place Customers Interests First

6. Maintain a Family Management Style

7. Strict Adherence to Performance

8. Promote Work Based upon “Relationships of Cooperation and Trust”



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kitting tool business, was also added as a non-consolidated subsidiary in fiscal year May 2016. (Currently 10 consolidated subsidiaries, 4 non-consolidated

subsidiaries).

<Characteristics, Strengths>

A characteristic and strength of Nihon Enterprise is its “devotion to in-house development”. Nihon Enterprise maintains a unique strategy

focused upon the development and ownership of its own contents created in-house as part of its unique business model. This strategy has

also enabled the Company to expand sales of its performance based compensation (Success fees) contents through cooperation with cellular

telephone sales companies to conduct affiliate program contents sales (In-Store affiliates developed independently). In addition, these

experiences are leveraged in its mobile communications solutions for corporations.

Examples of Contents

2. Growth Strategy With regards to the contents services business, Nihon Enterprise will endeavor to fortify its earnings structure through the provision of

contents to official carrier fixed rate services along with global deployment of “contents platforms” through mutual collaboration with native

and messenger applications. At the same time, consigned development for smart devices, business support services, advertising (In-Store

affiliate) and collaborations (Alliance type) are expected to become growth drivers for expansion of the solutions business.

Native applications is a term used to describe game and other applications which can be downloaded to and used on smartphones and other

digital handsets. Previously, online browser applications had been used by feature phones because of their inability to download

applications.

(1) Contents Services Business Strategy

In the near term, applications for smartphones provided to carrier fixed rate services and carrier official site monthly subscription services

trended favorably. Consequently, smartphone sales accounted for 71% of segment sales during the fourth quarter (69% during the third

quarter).

“Woman’s DIARY” is an important specialized application that allows women to manage their physiological cycles. It allows

women to record and manage various physiological characteristics including their menstrual cycle, and provides various health related

information and advice.

“ATIS traffic information” provides unique ATIS highway and surface street traffic information, and other information including

navigational routing, transfer, delays and other train operational information, parking lot, ferry, weather and other helpful information.



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Carrier Fixed Rate Services Expand

Applications are provided across the carrier fixed rate services including “au Smart Pass (KDDI)”, “Sugo Toku Contents (NTT Docomo)”,

“App Pass (Softbank Mobile)” and “Appli Chou Houdai (Source Next)”. The current growth in sales is expected to continue on the back of

the addition of contents and through provision across new fixed rate services. During the fourth quarter of fiscal year May 2015, provision

of "Nekketsu! Yankee sports festival", "Yowamushi Pedal Sugoroku" (Provided to au Smart Pass), “Nadeshiko Fan!!” (Provided to Sugo

Toku Contents), and “Natsume Yu-jin-cho Let’s play with Nyanko sensei” has been started.

Contents and Applications Provided Across Main Carrier Fixed Rate Services

(Source: Nihon Enterprise)

Native Application Lineup Fortification: Cultivate Businesses Non-Dependent upon Carrier Official Sites

With regards to native applications, social applications including games (Original native games), tools (Tool applications which can be used

with other applications), healthcare (Health support application for women’s hearts and bodies), and communities (Bulletin board style

schedule sharing application) will be fortified. At the same time, Nihon Enterprise will pursue synergies (Deploying across “contents

platforms” for smartphones) through coordination of these applications with messenger services (“Fivetalk” free chat application).

Contents Platform Deployment


Measures during Fiscal Year May 2016

The three applications "Honey Plus" (Android, iOS), “PasteLius” (Android), and "Brush up my dear darling" (Android) were introduced as

part of the native application product lineup fortification strategy during the fourth quarter of fiscal year May 2015. During fiscal year May

2016, additional steps to fortify the native application lineup and improve profitability will be taken, including the introduction of healthcare

and messenger applications.

Collaboration between three applications newly introduced and “Women's DIARY, which boasts of 3 million downloads and some paid for

services, has been conducted as part of a strategy of developing new contents in various stages of women’s lives in the realm of healthcare

applications. Specifically, new applications providing information about pregnancy (Reports, diagnosis, columns, diagnostic records,

pregnancy records) and child rearing (Family information sharing, albums, educational games for children) are being introduced that leverage

The largest volume of contents is provided through the

fixed rate service of “au Smart Pass”, which was one of

the first platforms used, and highly popular contents are

also expected to be provided across “Sugo Toku

Contents” and “App Pass”.



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the core application “Women’s DIARY”, an application targeting women interested in marriage (Includes information regarding menstrual

cycles, weight management, and basic body temperature management).

At the same time, collaboration for the “Fivetalk” free chat application messenger applications with various companies and various other

applications are being conducted. As part of these collaborations, “Fivetalk” has been provided as an onboard chat application for cars as

part of the “Apps” application store of “T-Connect” next generation telematics (A service that provides various information to

communications equipment and GPS systems) of the Toyota Motor Corporation. Various efforts are being promoted to develop new

collaborations for “Fivetalk” with game applications to enable players to message other players, and other applications.


(2) Solutions Business Strategy

The realm of website and application development services provided to corporations and local governments is expanding, along with the

expansion of corporate business process support services, solutions for declining birthrates and “my number” tax systems (Consigned

development and operations of applications and systems), expansion in “touch points” (Store numbers) and improvements in withdrawal rates

and other collaborative efforts with In-Store affiliates designed to increase the advertising value.

Solutions Expansion

Along with the increase in system investments accompanying the recovery in the economy, the business environment for solutions is

favorable. In addition, the arrival of the smart device age has led to an expansion in Nihon Enterprise’s business realm and increases in its

technological expertise. For example, in recent years IP telephones, smart grid, big data, Internet of Things (IoT) and other trends are on the

rise. And from fiscal year May 2015 onwards, regional economy rejuvenation, Tokyo Olympics and Paralympics, “my number” tax and

social security identification system are generating a growing range of services.

Smart Community Business Participation

Information communications technology (ICT) are leveraging regenerative energy to link families, schools, traffic systems, etc. to create local

communities that promote more effective use of energy (Smart communities) and are being promoted on a global basis. Within Japan,

efforts of the national and local governments and private sectors to realize the creation of environmentally friendly communities (or smart

communities) are contributing to growth in solar electric and wind power generation businesses, and the leveraging of other regenerative

energy sources.

Amidst these trends, NTT Neomeit, which is a client of the consolidated subsidiary 4QUALIA Co., Ltd. that conducts contents development

and web mobile site development and maintenance services, has been selected by the Ministry of Economy, Trade and Industry to participate

in its “Smart Community Concept Diffusion Support Project” and has begun work on the “Solar Power Generation Verification and

Validation Project” of Ube City in Yamaguchi Prefecture. Nihon Enterprise will leverage its office in Yamaguchi Prefecture and the

extensive business and human network of its subsidiary 4QUALIA Co., Ltd. as a participant in the “Smart Community Concept Promotion

Support Project”, and has established “Yamaguchi Renewable Energy Factory Co., Ltd.” as a joint venture company and subsidiary in June

2015 for the sale of electricity generated from solar power. Through this joint venture company, Nihon Enterprise seeks to contribute to the

realization of smart communities and promote the smart community business as part of its efforts to rejuvenate regional economies.



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Company Name: Yamaguchi Renewable Energy Factory Co., Ltd.

Location: Ube City, Yamaguchi Prefecture

Representative: President Katsunori Ueda (President of Nihon Enterprise)

Business: Sales, supervision and management of the electric power generated from natural energy business

Capital: ¥40 million

Established: June 4, 2015

Fiscal Year End: May 31

Capital Contribution: Nihon Enterprise 38.27%, 4QUALIA 12.35%, Others 49.38%

Expansion in the Realm of Consigned Development Business, Strengthening of the Operational Support Business

In the consigned development business, traditionally only a portion of the overall functions had been outsourced for development, but in

recent years requests for entire systems to be developed have been increasing. This trend has led to an increase in the overall size of

consignment projects. In addition, development for local governments and inquiries for FEMS, HEMS related work are on the rise recently.

Therefore, Nihon Enterprise has endeavored to raise its technological expertise and expand the realm of its services.

At the same time, Nihon Enterprise will endeavor to expand sales of the reverse auction “Profair” (Purchasing support system), “AplosOne

softphone” (internal phone system function applications for smartphones), and messenger service “BizTalk” (Secured corporate internal

phone communication application) in addition to fortifying its business support application development.

(Note: FEMS, HEMS)

FEMS is an acronym for Factory Energy Management Systems and refers to factory energy management systems. HEMS is an acronym for Home Energy

Management System. EMS refers to solar power regenerative energy and electric power storage control systems that allow for electric power usage to be

visualized (Monitored) and controlled for use in BEMS for commercial buildings and CEMS for overall regions.

Expansion of Solutions for Local Governments

Implementation of regional declining birthrate countermeasure subsidies and the start of the “my number” tax and social security

identification system are contributing to an expansion in demand for various solutions from local governments. And based upon

experiences in work with the Chiba Prefecture Government, Nihon Enterprise seeks to expand its solutions services provided to other local

governments.

Nihon Enterprise boasts of a track record based upon its validation tests in the declining birthrate countermeasure fortification solution

outsourced by the Chiba Prefectural Government during fiscal year May 2015. This project was based upon the service platform developed

for smartphones called “Chiba Woman Diary” to provide various information and functions pertaining to and supporting marriage, pregnancy,

birth, and child rearing. Specifically, a monitoring program was conducted for women who are at the stage of marriage, pregnancy,

childbirth, and child rearing in 10 cities and towns within Chiba Prefecture. Under this program, various “support information,” “specialized

health and childcare information of medical and healthcare experts,” and “calendar and other convenient health care management tools” have

been provided over the “Chiba Woman Diary” platform to participants in the program (The results of the validation tests are being considered

to determine whether or not operations of this platform will be continued).



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“Declining Birthrate Countermeasure Fortification” Consignment Project of Chiba Prefecture


Strengthening In-Store Affiliates

Nihon Enterprise has begun collaborating with cellular telephone sales companies, which have strengths in regions outside of the major

metropolitan areas, to form In-Store affiliates first in the Kyushu and Tohoku regions, and then in the Chugoku and Shikoku regions.

Currently, the Company is conducting efforts to expand its business in the major metropolitan regions, where competition is the fiercest.

Because of a peaking in handset sales being encountered by cellular telephone sales companies, they are seeking ways to acquire new

earnings sources and are open to pursuing collaboration. Nihon Enterprise will expand its “customer contact points” (Stores) by cultivating

new collaborative partners, in addition to increasing advertising value by expanding the number of stores managed by existing collaborative

partners, improving the performance of weaker stores, and reducing the withdrawal rates. Moreover, efforts will be made to strengthen

advertising sales for feature phones where competition is not as intense as for smartphones.

In-Store Affiliate Business Model


3. Fiscal Year May 2015 Earnings (1) Consolidated Earnings (Units: ¥Mn)

FY5/14 Share FY5/15 Share YY Change 11/15 Revised Est. Divergence

Sales 4,508 100.0% 5,116 100.0% +13.5% 5,130 -0.3%

Gross Profit 2,193 48.6% 2,411 47.1% +10.0% - -

SG&A 1,857 41.2% 2,222 43.4% +19.6% - -

Operating Profit 335 7.4% 189 3.7% -43.4% 220 -13.8%

Ordinary Profit 340 7.5% 204 4.0% -39.9% 230 -11.0%

Net Profit 437 9.7% 177 3.5% -59.4% 150 +18.4%

※ Figures include reference figures calculated by Investment Bridge Co., Ltd., and may differ from actual results (applies to all tables in this report).



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Sales Rise 13.5%, Ordinary Profit Decline 39.9%

Sales rose by 13.5% year-on-year to ¥5.116 billion. By category of sales, sales of games within carrier fixed rate services doubled and traffic

information within both monthly subscription and carrier fixed rate services trended favorably, allowing the contents business sales to rise by

1.5% year-on-year to ¥2.506 billion. Advertising (In-Store affiliate) sales rose by a large margin, boosting solutions business sales by 28.0%

year-on-year to a record high level of ¥2.609 billion.

Operating profit, on the other hand, declined by 43.4% year-on-year to ¥189 million. An increase in the share of advertising sales relative to

overall sales and a rise in game development expenses caused cost of sales margin to rise by 1.5% point year-on-year to 52.9%. Strategic

investments in advertising and human resources, and expenses for the move of offices of subsidiaries contributed to a 19.6% year-on-year

increase in selling, general and administrative expenses. Declines in payment commissions allowed non-operating profit to improve, but

declines in profits on the sale of investment securities (¥516 to ¥341 million) caused net profit to decline by 59.4% year-on-year to ¥177

million. A yearend dividend of ¥3 per share is expected to be paid. The commemorative dividend of ¥1 per share will be eliminated, but

the regular dividend will be raised by the same ¥1 per share.

Contents Services Business Sales Composition (Units: ¥Mn)

FY5/14 Share FY5/15 Share YY Change

Traffic Information 850 34.5% 924 36.9% +8.6%

Lifestyle Information 459 18.6% 413 16.5% -10.0%

Digital Publications 216 8.8% 137 5.5% -36.3%

Overseas 27 1.1% 40 1.6% +49.8%

Games 169 6.9% 345 13.8% +103.8%

Mail 339 13.7% 295 11.8% -12.9%

Music 407 16.5% 349 13.9% -14.3%

Sales 2,469 100.0% 2,506 100.0% +1.5%

Solutions Business Sales Composition (Units: ¥Mn)


Solutions 1,086 53.3% 1,192 45.7% +9.8%

Advertising 679 33.3% 1,168 44.8% +72.0%

Overseas 273 13.4% 249 9.5% -8.9%

Sales 2,039 100.0% 2,609 100.0% +28.0%

SG&A Details (Units: ¥Mn)


Advertising 515 11.4% 711 13.9% +38.0%

Labor 778 17.3% 874 17.1% +12.3%

Doubtful Account Reserves 5 0.1% 23 0.5% -

Others 558 12.4% 612 12.0% +9.8%

※ The main factors behind the higher advertising expense were ¥90 million for promoting carrier fixed rate services and ¥110 million for acquiring native

application users.



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(2) Quarterly Earnings

Quarterly Earnings Trend (Units: ¥Mn)

14/5-1Q 2Q 3Q 4Q 15/5-1Q 2Q 3Q 4Q

Contents Services 579 613 638 638 647 643 621 595

Solutions 559 421 464 593 669 555 604 780

Sales 1,139 1,035 1,103 1,231 1,316 1,198 1,225 1,375

CGS 617 517 550 629 687 615 642 758

CGS Margin 54.2% 50.0% 49.9% 51.1% 52.2% 51.3% 52.4% 55.2%

SG&A 461 417 457 521 576 572 530 542

Advertising 113 96 127 178 212 215 153 129

SG&A Margin 40.5% 40.3% 41.4% 42.4% 43.8% 47.8% 43.3% 39.4%

Operating Profit 59 100 95 79 52 10 52 74

During the fourth quarter of fiscal year May 2015, the booking of sales of large solutions projects allowed the solutions business sales to rise

to ¥780 million. At the same time, game related sales rose on the back of aggressive advertising during the first half and effective

introductions of new contents (Four fixed rate services, three native applications), but the arrival of a transitory period for the carrier business

due to saturation of smartphones led to relatively weak demand for other contents within the contents business.

With regards to costs, the transition from the member acquisition phase to the operational phase contributed to a decline in advertising

expenses within the contents business.

Contents Service Sales Composition (Units: ¥Mn)

14/5-1Q 2Q 3Q 4Q 15/5-1Q 2Q 3Q 4Q

Traffic Information 186 224 217 222 244 235 224 220

Lifestyle Information 105 109 128 116 116 109 102 85

Digital Publications 63 55 50 47 39 35 32 29

Overseas 7 5 7 6 5 12 7 15

Games 15 27 59 67 63 86 95 100

Mail 91 86 78 82 79 76 75 64

Music 109 105 97 95 98 87 84 78

Sales 579 613 638 638 647 643 621 595

Solution Sales Composition (Units: ¥Mn)

14/5-1Q 2Q 3Q 4Q 15/5-1Q 2Q 3Q 4Q

Solutions 249 264 255 316 219 263 264 444

Advertising 207 98 147 225 404 247 257 259

Overseas 101 58 61 51 46 44 82 76

Sales 559 421 464 593 669 555 604 780



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(3) Financial Conditions

Balance Sheet Summary (Units: ¥Mn)

5/14 5/15 5/14 5/15

Cash, Equivalents 3,247 4,075 Payables 279 297

Receivables 639 684 Unpaid Taxes 290 223

Current Assets 4,010 4,981 Deferred Tax Liabilities 246 138

Tangible Noncurrent Assets 85 89 Liabilities 1,180 985

Intangible Noncurrent Assets 313 389 Net Assets 4,360 5,302

Investments, Others 1,131 827 Total Liabilities, Net Assets 5,541 6,288

Noncurrent Assets 1,531 1,306 Interest Bearing Liabilities - -

※ Interest Bearing Liabilities = Debt + Bonds + Lease Liabilities

Total assets rose by ¥746 million from the end of the previous term to ¥6.288 billion due to the sourcing of over ¥1.0 billion through issuance

of new shares (¥853 million) and a third party private placement (¥153 million) conducted during the third quarter of the current term. In

addition, capital of consolidated subsidiaries was fortified (¥0.2 billion for HighLab, which conducts development of native applications, ¥0.1

billion for 4QUALIA, which conducts web and mobile website development and maintenance and contents development, and ¥40 million for

and One, which provides voice communication related solutions). Current ratio improved from 451.7% during the previous term to 621.3%

during the current term, fixed ratio declined from 36.5% to 25.5%, and equity ratio rose from 75.7% to 81.6% over the same period.

Cash Flow Summary (Units: ¥Mn)

FY5/14 FY5/15 YY Change

Operating Cash Flow (A) 153 -123 -276 -

Investing Cash Flow (B) 453 -76 -530 -

Free Cash Flow (A＋B) 606 -200 -806 -

Financing Cash Flow -72 866 +939 -

Cash, Equivalents at Term End 2,808 3,557 +749 +26.7%

A decline in profit before taxes, increase in tax expenses (¥381 to ¥421 million), and a decrease in income from liquidation of investment

securities caused the net inflow of ¥606 million in free cash flow recorded during the previous fiscal year to turn to a net outflow of ¥200

million during the current term. However, funds sourced from the capital markets contributed to a ¥749 million year-on-year increase in

cash and equivalents to ¥3.557 billion at the end of the current term.



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ROE Analysis

FY5/11 FY5/12 FY5/13 FY5/14 FY5/15

ROE 5.94% 5.70% 10.31% 10.91% 3.81%

Net Profit Margin 7.13% 6.09% 8.59% 9.69% 3.47%

Asset Turnover Ratio (x) 0.76x 0.82x 0.96x 0.85x 0.87x

Leverage (x) 1.10x 1.14x 1.26x 1.32x 1.27x

* ROE (return on equity) is an indicator reflective of the three indicators of net profit margin (Net Profit / Sales), asset turnover ratio (Sales/Total assets), and

leverage (Total assets/Equity, or the invers of equity ratio). ROE: Net Profit margin X Asset turnover ratio X Leverage

* Data in the above table are derived from the earnings announcement statement and financial filing reports, and ROE, asset turnover ratio and leverage are

calculated using the average of total assets and equity during the term (Adding the values at the end of the previous and current terms and dividing by two. The

value for leveage may not necessary be a direct calculation as the inverse of the equity ratio as the equity ratio shown in both the earnings announcement and

financial filing reports are calculated using the current term end value.)

In addition to the anticipatory investments conducted during fiscal year May 2015, a decline in profits from the sale of investment securities

contributed to a decline in net profit margin. The decline in leverage caused by the increased capital arising from financings was among the

factors that contributed to a decline in ROE.

3. Fiscal Year May 2016 Earnings Estimates

Consolidated Earnings (Units: ¥Mn)

FY5/15 Share FY5/16 Est. Share YY Change

Sales 5,116 100.0% 6,100 100.0% +19.2%

Operating Profit 189 3.7% 450 7.4% +137.2%

Ordinary Profit 204 4.0% 470 7.7% +129.7%

Net Profit 177 3.5% 190 3.1% +7.0%

Estimates Call for Sales, Ordinary Profit to Rise by 19.2, 129.7% Year-On-Year

Nihon Enterprise’s earnings estimates call for sales to rise by 19.2% year-on-year to ¥6.1 billion during fiscal year May 2016. Growth in

solutions and advertising sales is expected to boost sales of the solutions business. At the same time, contents and native applications

provided to carriers are expected to trend favorably and to contribute to strength in the contents services business. Consigned development

of applications for smartphone and tablets are expected to increase, and advertising sales are expected to grow on the back of development of

new customers and strengthening of relationships with existing mobile phone vendor customers. Also, sales of the contents business are

expected to rise on the back of fortification of contents provided to carrier fixed rate services, and promotion of “contents platforms” designed

to increase collaboration between native game, healthcare and messenger applications.

While fortification of marketing for healthcare and messenger applications will be conducted, the shift from the member acquisition phase to

profit cultivation phase is expected to contribute to a decline in advertising expenses. Combined with the higher sales, operating profit

margin is expected to improve by a large margin and to allow operating profit to rise by 2.4 times year-on-year. And while no contribution

from sales of investment securities has been included in these estimates, net profit is still expected to rise by 7.0% year-on-year to ¥190

million.

A dividend of ¥3 per share is expected to be paid at the term end. Nihon Enterprise views the return of profits to shareholders as an

important management issue, and it seeks to implement a shareholder return policy of achieving a stable level of returns that are in line with

earnings performance, cash flow, return on equity capital, equity ratio and the Company’s future capital investment needs.

5. Conclusions Nihon Enterprise’s participation in the smart community concept through its newly established subsidiary Yamaguchi Renewal Energy

Factory Co., Ltd. is a highly interesting development. The Company will provide various lifestyle support services that leverage

information technologies to individual households that are buyers of electric power and the solar power energy generation business is

expected to become a stable source of earnings. There is a strong need for elderly care, medical and shopping related solutions to provide

safety and security to the large number of elderly Japanese living alone in Ube City of Yamaguchi Prefecture, where Yamaguchi Renewal



13

Energy Factory’s headquarter is located. The potential contribution to society of such services is large.

Aggressive advertising for native games contributed to a decline in profits during fiscal year May 2015, but profits would have risen if

advertising had been held to the same level as in the previous fiscal year May 2014. Therefore, the impact of these aggressive anticipatory

investments in advertising will have to be closely watched during the coming fiscal year. In addition, the growing size of solutions projects

in the solutions business is also acting as an opportunity for Nihon Enterprise to grow its earnings. The firm establishment of profitability of

native applications and the increase in project size of solutions are expected to fuel growth in Nihon Enterprise’s businesses from fiscal year

May 2017 onwards, combined with its participation in the smart community concept project.

This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and

opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable.

However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said

information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which

may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only

after proper consideration.

Copyright(C) 2015, All Rights Reserved by Investment Bridge Co., Ltd.

For further information regarding Bridge Reports on Nihon Enterprise (4829) and related information, please refer to the website at the url listed below.

www.birdge-salon.jp/


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