Startia(3393 TSE Mothers)

Transcription

1 Startia(3393 TSE Mothers) Issued: June 20, 2012 Research: June 6, 2012 Method: Company visit, etc. One-stop source of OA/IT products and services for middle-market companies and SMEs Another year of record sales and earnings backed by growth in steady-revenue businesses and e-book software > Summary FY3/12 performance surpasses company s plan due to steady-revenue business growth Startia posted record-high sales and earnings for the second consecutive year. Sales increased 27% to 5,084 million, operating income increased 68% to 459 million and net income increased 115% to 278 million. Sales from businesses that generate steady revenues from billing increased 45% to 1.66 billion. Growth was supported by e-book production software, cloud online storage, a service where demand increased following the March 2011 earthquake, and multi-function printers, as orders increased along with proposals for document management systems associated with e-book software and cloud storage services. Growth in revenue from regular billing is stabilizing performance; forecast record-high earnings again in FY3/13 In FY3/13, Startia plans on sales of 6,039 million, up 19%, operating income of 600 million, up 31%, and net income of 300 million, up 8%. This outlook includes a 34% increase in steady-revenue business sales to 2,221 million. The Nagoya branch, which opened in October 2011, will make its first full-year contribution to performance. Posting a Web Solutions salesperson at the Osaka office starting in April 2012 and other measures will also contribute to earnings growth. Our analyst forecasts its sales of 6.2 billion, up 22%, operating income of 620 million, up 35%, and net income of 310 million, up 12%. These forecasts are higher than Startia s plan because we expect growth in the number of companies using e-book software and in Network Solutions sales associated with rising interest in cloud services to be greater than Startia anticipates. Industry: Wholesale sales Analyst:Shigeki Kousaka +81 (0) kousaka@holistic-r.org Major Indicators 2012/6/15 Stock price (yen) 881 Shares outstanding (share) 4,956,200 Market capitalization (million yen) 4,366 Listing date (year/month/day) 2005/12/20 Stock price performance since listing (%) FY3/12(A) FY3/13(E) PER(times) PBR(times) Dividend yield(%) σ β Risk indicator % 2.00 KPI(Key Performance Indicators) Quarterly Result ActiBook subscriptions (No. of company) Steady-revenue businesses (million yen) yoy(%) 1Q2011 1, Q2011 1, Q2011 1, Q2011 1, Q2012 1, Stock Price Performance 1 month 3 months 12 months Return (%) vs TOPIX (%) *Please refer explanations of terms at the final page The Stock Research Center Investigation Committee examination in any other way without permission. 1/12

2 Startia(3393 TSE Mothers) > Investment Rating We believe that a forecasted PER of 14x-16x is appropriate because of Startia s strong growth The PER based on Startia s FY3/13 forecast is 15x. Although this multiple is lower than the PER of Forval Telecom (18x), which provides telecommunications services to SMEs, Startia carries a higher valuation than the stocks of e-book sales company Papyless (8x) and rental server company GMO Cloud (10x). However, our analyst forecasts strong medium-term earnings growth of 30% (compound annual growth obtained by dividing the FY3/15 operating income forecast by FY3/12 operating income). The earnings growth rate will not slow down following the 24% annual rate during the past three years. We believe that Startia should receive a valuation that reflects its growth rate that is higher than at peer companies. After reaching a peak stock price in late April 2011 ( 1,447) following an increase in the FY3/12 earnings forecast, Startia s stock price has declined and is currently close to the year-to-date low ( 860 in early January 2012). Based on the company s growth prospects, we believe that a suitable stock price over a next few years is 1,400 to 1,700 (PER of 14x-16x). in any other way without permission. 2/12

3 Startia(3393 TSE Mothers) > Earnings Model FY 3/11 FY 3/12 FY 3/13 FY 3/13 FY 3/14 FY3/15 FY 3/16 million yen Actual Actual Company's Forecast Forecast Forecast Forecast Forecast Net sales 4,000 5,084 6,039 6,200 7,200 8,400 9,400 (yoy) 19.3% 27.1% 18.8% 22.0% 16.1% 16.7% 11.9% Operating income ,000 1,150 (yoy) 70.8% 68.0% 30.7% 35.1% 37.1% 17.6% 15.0% Ordinary income ,000 1,150 (yoy) 68.7% 71.1% 26.1% 30.5% 37.1% 17.6% 15.0% Net income (yoy) 12.3% 115.2% 7.7% 11.5% 41.9% 18.2% 15.4% Shareholders' equity at end of year 2,404 2,658-2,937 3,333 3,801 4,341 Number of shares outstanding (share) 4,953,400 4,956,200 4,956,200 4,956,200 4,956,200 4,956,200 4,956,200 EPS (yen) Dividends per share (yen) BPS (yen) ROE 6.9% 11.0% % 14.1% 14.6% 14.8% Stock price (yen) 1,355 1, PER (times) Dividend yield (yen) 0.4% 0.5% 0.7% 0.7% 1.0% 1.2% 1.4% PBR (times) Note: PER, Dividend yield and PBR forecasts are calculated based on the stock price as of June 15. > Stock Price yen 13wk Moving Avg. 26wk Moving Avg. in any other way without permission. 3/12

4 Profile >Business Operations Startia serves middle market companies and SMEs by providing assistance with the installation, maintenance and invoicing operations involving ICT devices and services. One-stop source of ICT-related outsourcing services for middle-market companies and SMEs Startia provides a complete line of products and services involving information & communication technology (ICT) to middle-market companies and SMEs (generally companies with fewer than 300 employees) that are unable to establish a department of their own for ICT systems. All expenses are in a single invoice, which streamlines accounting procedures for client companies and cuts the cost of making payments. Startia has three business segments. 1) Web Solutions: Development and provision of e-book production software and assistance in the production of company websites 2) Network Solutions: Selection of communication environments for offices, assembly of networks, including network devices, and the rental of servers and external storage equipment accessed via networks (online storage) Note: FY3/12; Source: Company 3) Business Solutions: Sale, rental and maintenance of business phones, multi-function printers and other office equipment and resale of OTOKU Line, a direct access wireline telephone service of Softbank Telecom <Sales of steady-revenue businesses> (Million yen) e-book Hosting OTOKU Line Source: Company, Estimate Copy Counter NW devices Rental, etc Focusing on steady-revenue businesses that generate consistent revenue from customers Since 2009, Startia has been shifting emphasis from a sales business model in which products are sold through lease companies to a business model in which monthly fees are received from product rental contracts and maintenance contracts. These steady-revenue businesses require up-front expenses for sales, but these expenses generate a revenue stream that lasts for several years after a contract is signed (the contract cancelation rate is only about 5%). Using this model offers advantages for customers (uniform expenses, lower risk of holding outdated assets due to technological advances, easier maintenance) and for Startia by stabilizing earnings. Steady-revenue businesses have been growing steadily. In FY3/13, sales from these businesses rose 45% from the previous fiscal year to 1.66 billion and accounted for 33% of sales. 4/12

5 e-book production software is sold for catalogs and other business applications <Sales of Actibook-related and the number of companies using Actibook> (100 Million yen) (Companies) Source: Company, Estimate Actibook is a software product that allows even someone with no specialized knowledge to produce an e-book with ease from a text file or visual data. Only a single editing process is required to simultaneously make an e-book that can be viewed on numerous viewing devices, such as PCs, ipads and iphones, and Android OS devices. Actibook offers many convenient functions for viewers, such as the ability to attach a sticky note. There is also a multitude of functions for companies that distribute e-books, such as the ability to use graphs to analyze pages viewed by readers and see the page view rates. With these capabilities, Actibook can be used as a marketing tool. Actibook is already compatible with Facebook. Actibook is very popular not only among printing and publishing companies, but also for the manufacturers of consumer products and e-commerce companies, which utilize e-catalogs and other promotional materials. Launching a SaaS version of Actibook (lower-priced version requiring only a monthly fee) sparked rapid growth in its customers. At the end of March 2012, 1,521 companies were using this software, increased 488 more from last year. In FY3/13, sales associated with Actibook are expected to surpass 1 billion. 5/12

6 Performance summary >Financial result <Financial Result for FY3/12> Company Actual plan (unit) million yen million yen Net sales 4,700 5, % Operating income % Ordinary income % Net income % Source: Company Steady growth in sales from steady-revenue businesses along with increase in multi-function device contracts associated with Secure Samba. Nagoya branch opened in October 2011 also contributed to earnings. yoy FY3/12 sales up 27% and operating income up 68% to all-time highs In FY3/12, sales increased 27% to 5,084 million, operating income increased 68% to 459 million and net income increased 115% to 278 million. The fiscal year dividend was (Startia s policy is to pay a dividend of 10% of net income per share.) As was explained earlier, Startia has been steadily increasing the number of customers in steady-revenue businesses and revenue from these customers is obtained without operating expenses after introduction year. Therefore, we can see these businesses will contribute to an improvement in Startia s operating profit margin. As the base for earnings expands, the smaller drag on earnings from fixed expenses, such as head office expenses, will also contribute to higher earnings. Financial result in FY3/12 was better than the forecasts of our analyst ( 4.9 billion for sales, 400 million for operating income and 200 million for net income). The main reason was that Business Solutions sales were better than expected. For example, 1) the effectiveness of the Secure Samba online storage service as a back-up server was proven by the March 2011 earthquake. In addition, services linked to multi-function printer (storage on a network file server of data from a fax or scanner, using a multi-function printer to print out data when needed) performed well, resulting in growth in multi-function printer contracts. And 2) the Nagoya branch that opened in October 2011 had a strong start mainly because of OTOKU Line subscription registration services and multi-function printer sales. >Financial forecast <Quarterly operating income> (million yen) 1Q 2Q 3Q 4Q FY3/ FY3/ FY3/ FY3/13E Note: Rounded figures. FY3/13E; company forecast Source: Company Startia plans on increases of 19% in sales and 31% in operating income in FY3/13 In FY3/13, Startia forecasts sales of 6.0 billion, up 19%, operating income of 600 million, up 31%, net income of 300 million, up 8%, and a dividend of This forecast assumes that sales from steady-revenue businesses will increase 34% to 2.22 billion. Normally, Startia has reported a loss in the first quarter because of the cost of training new employees (53 in FY3/12, 65 in FY3/13). The company then offsets this loss with earnings in the following quarters. However, growth in the number of customers in 6/12

7 steady-revenue businesses is expected to reduce this fluctuation in earnings (see table on the left). Compared with the medium-term plan announced early in FY3/12, Startia has raised the sales forecast by 5.7 billion but made no revisions to the operating income and net income forecasts. <Forecast for FY3/13> Company plan Analyst estimate unit million yen million yen yoy Net sales 6,039 6, % Web 1,604 1, % NW 1,445 1, % Business 2,990 3, % Steady-revenue businesses 2,221 2, % Gross profit - 3, % SGA - 2, % Operating income % Ordinary income % Net income % Source: Company Our analyst s forecast is shown in the table on the below: sales of 6.2 billion, operating income of 620 million and net income of 310 million. These figures differ from Startia s forecast for the following reasons. 1) Startia has a tendency of announcing conservative forecasts. 2) In the Web Solutions business, we believe that the number of users will increase more than Startia expects because of the growing use of smartphones and growing interest in Internet marketing that uses Facebook and other platforms. 3) In the Network Solutions business, we expect more sales growth than Startia is planning on (up 1.2%; increased 16% in FY3/12) because of growing interest in cloud computing, associated restructuring of LANs and reexaminations of contract formats (switch from purchase contracts for current equipment to rental contracts for the most recent equipment). Our sales forecast is 400 million higher than in the previous report. However, Startia s personnel and office opening expenses are increasing and, if the company believes the earnings will exceed its target, it may add sales promotion expenses. Consequently, there is no change in our earnings forecast. 7/12

8 >Growth Strategy Established software development base in China. Speeding up work on creating upgraded versions to keep up with advances in devices while cutting costs. The new base is probably also the first step toward starting business operations in China. Sales of smartphones will accelerate cross-selling for multiple services involving OTOKU Line, Actibook, Secure Samba and multi-function devices. FY3/12 topics As we have explained, Startia has been concentrating on adding more customer base in its steady-revenue businesses and increasing the use of Actibook. In addition to these two initiatives and the opening of a Nagoya branch to start operations in this region of Japan, Startia took the following actions in FY3/12. 1) Startiasoft was established in Xi an China in January 2012 with Startia holding a 30% equity stake. Company president Zhiqi Wang has served as a group leader at a Japanese IT company. Kenichi Kitamura, president of Startia Lab, a subsidiary that developed Actibook, will also participate in management of the Chinese company. Startia plans to outsource the development of Actibook to this company. We believe the new company in China will cut costs by enabling Startia to move development work offshore and that the company will serve as a base for the launch of business operations in China in the future. 2) Startia purchased 34% of the equity of Urban Plan in January This company, prepares office layouts and handles interior renovation work. Startia hopes that this company will become a source of new customers. Urban Plan has expertise in larger projects than MAC Office, which became a Startia equity-method in May ) Started sales agent business for cell phones and other devices (mainly the iphone and ipad) for companies. This will allow Startia to offer customers new ways to improve efficiency. Using these devices with OTOKU Line can cut communication expenses. Furthermore, these devices can be used to allow viewing almost anywhere documents that were scanned using a multi-function printer and stored on Secure Samba and e-catalogs produced using Actibook. FY3/13 initiatives As in prior years, Startia will expand steady-revenue businesses work on increasing the use of Actibook as a system for responding to the increasing use of electronic and mobile technologies for business tools like catalogs, pamphlets and manuals (not e-book store operations). To accomplish these goals, Startia will assign most of the 65 recently hired new college graduates to its Web Solutions business. Startia will also continue to pursue other 8/12

9 strategies in FY3/13. Startia s business plan for FY3/13 includes the following actions. Startia is stepping up recruiting and training activities with the goals of establishing offices in all of Japan s major cities and starting overseas operations in the future. 1) Assign an individual devoted exclusively to Web Solutions to the Osaka office to develop ties with new customers (in April 2012, effectively sets up as Osaka Startia Lab branch office). Due to the limited number of employees, Startia s Actibook sales activities had been restricted to the Tokyo area, other than participation in exhibitions. 2) Following the strong performance at the recently opened Nagoya branch, Startia has started to consider opening offices in other major cities in Japan. Startia also plans to add locations in response to the opening of branches by middle-market companies. The company is currently selecting candidate locations and performing test marketing. 3) Recruiting and training programs are priorities because Startia is thinking about starting overseas operations. More than 80 new college graduates will join the company in April Startia plans to make big investments in its workforce. The company is considering the establishment of internal training programs, including a program that will give selected employees skills needed for international business operations. The alliance with Scinex is the first step in establishing channels for selling products and services to local governments, which have massive volumes of documents and equally enormous requirements for converting these documents to electronic data and posting them on the Internet. 4) Startia Lab established a business alliance on March 21, 2012 with Scinex Corporation, which is known as the publisher of the Telepal 50 telephone directory. Scinex publishes community government information directory called Wagamachi Jiten ( My Town Directory ) in collaboration with about 300 cities and other local governments throughout Japan. Startia Lab will help create e-book versions of these directories and Scinex will assist with Actibook sales and cooperate in other ways. Gaining a sales channel to local governments, a market sector with high barriers to new entrants, will probably produce significant benefits for Startia. 9/12

10 Investment Opinion >Stock Valuation Forecasted PER of 15x is high compared with peer company multiples The table next page compares Startia with three companies that have about the same market capitalization and are active in the same business sectors (Papyless, which sells e-books, GMO Cloud, which provides ICT services to SMEs, and Forval Telecom). Comparisons cover performance and stock price valuations. Although Startia appears to have a higher valuation than its peers, we believe a PER of even 15x is justified because of the company s strong growth. Startia has a PER of 14.6x based on the FY3/13 earnings forecast and a FY3/12 PBR of 1.6x. Startia appears to be expensive in relation to Papyless, where these two multiples are 8.1x and 1.2x, and GMO Cloud, which has multiples of 9.9x and 1.2x. However, Papyless increased sales 18% and operating income 15% in the past fiscal year and has an average operating income growth rate of 10.5% over the past three years. At GMO Cloud, sales were up 8.3%, operating income was down 28.5% and the three-year operating income growth rate is -1.8%. Startia s growth is much higher. There were increases of 27% in sales and 68% in operating income in FY3/12 and the three-year operating income growth rate is 24%. Our analyst foresees no loss of momentum in earnings growth, forecasting an annual earnings growth rate of 29.6% over the next three years. Startia s valuation should reflect this strong growth outlook. >Outlook for Stock Price <Stock price of Startia and TOPIX> (yen) Left Right A forecasted PER of 14x to 16x is justified by the high earnings growth rate Startia s stock price started climbing at the end of February 2012 (after the third quarter earnings announcement on February 17 confirmed the growth in operating income, as we predicted in the previous Startia report). The price reached a year-to-date high of 1,447 in late April after Startia raised its FY3/12 forecast and then declined because of selling as investors took their profits. The stock price fell faster when Startia announced FY3/12 results of operations and is currently near its year-to-date low ( 860 in early January). There is no change in our stance in our initial Startia report that, because of the company s strong earnings growth, Startia deserves a forecasted PER of at least 14x rather than about 11x, the average for all TSE first section stocks. Based on a PER of 14x to 16x and 10/12

11 our analyst s FY3/15 EPS forecast of 105, we believe that Startia s stock price should climb to between 1,400 and 1,700 over about the next three years. Consequently, we believe that the stock is currently undervalued. In addition to general market factors, there are a number of developments that can raise Startia s stock price: 1) the first quarter earnings announcement (confirmation that Startia was profitable despite personnel expenses for new employees); 2) expectations for Startia to raise its FY3/13 forecast prior to the first half earnings announcement; and 3) renewed interest in e-books following the release of Windows 8 (an OS with many elements for tablet PCs) in late <Stock valuation comparison among the peer companies> Startia Papyless GMO Cloud Forval Telecom unit Stock code Closing month of FY March March December March Net sales million yen 6,039 6,016 9,728 12,900 (Operating profit margin) % Net income million yen Net assets million yen 2,650 1,865 3,999 1,840 ROE % PER forecast times PBR actual times Dvidend yield forecast % Growth rate over the past 3 years % Operating income growth rate % Stock price (2012/06/15) yen 881 1,825 41,850 23,750 Market capitalization million yen 4,366 2,356 4,877 3,965 Note1: Growth rate over the past three years = an average annual sales growth rate. PBR is calculated based on net assets per share in the previous fiscal year. ROE figures are for the previous fiscal year. Note2: Financial results for this fiscal year are forecasts released by the companies. PER and dividend yield forecasts are calculated based on the stock price as of June15. 11/12

12 Primary Features of this Report Neutral and fair information This report was prepared by an analyst belonging to The Stock Research Center who analyzed this company and evaluated its stock price from an independent perspective. This report was then checked by the Waseda University Intellectual Capital Research Society. The result is high-quality and objective investment information that can contribute to the vitality of capital markets in Japan. Coverage of companies that have hidden strengths but are not attracting the attention of investors We focus mainly on small-company stock markets and use an approach that includes the evaluation of a company s intellectual capital (hidden strengths). Using this approach allows us to identify listed companies where stock prices do not reflect a company s true value. Our goal is to improve company valuations by preparing and distributing analyst reports. Analysis that tells readers about a company s KPI and intellectual capital (hidden strengths) The analysis and evaluations in this report use traditional methods such as SWOT analysis and the competitive superiority analysis of M. Porter to identify the key characteristics of each company. In addition, reports include key performance indicators (KPI) that are essential for determining a company s growth potential. As a result, reports provide investors with broad range of information for reaching investment decisions. Furthermore, reports use the format created by ICMG Co., Ltd. for providing information about a company s intellectual capital. Using this format makes it possible to evaluate companies from the standpoint of looking for their hidden strengths, too. Glossary Performance since listing Investment return (compound annual return) based on a company s stock price for its initial public offering. PER(Price Earnings Ratio) Calculated by dividing the stock price by net income per share. This ratio shows the stock price as a multiple of net income per share. PBR(Price Book Value) Calculated by dividing the stock price by net assets per share. This ratio shows the stock price as a multiple of net assets per share. Dividend yield Calculated by dividing the annual dividend by the stock price. The yield shows how much dividend income is received in relation to the amount invested. σ (sigma) (Standard deviation; SD) SD shows the degree of dispersion of returns from the average. The degree of dispersion increases as this number becomes larger. β (beta) Beta shows how much the volatility of a particular stock is in relation to changes in a market index (such as TOPIX). A beta of one means that the stock and market index move in tandem. A beta above one means that the stock has more volatility than the market index and a beta below one shows volatility that is less than the market index. SWOT analysis This is a comprehensive method for evaluating companies that includes four elements: strengths, weaknesses, opportunities and threats. ESG ESG stands for information about the environment, society and governance. In recent years, there has been growing public interest in environmental issues and the need for companies to fulfill their social obligations. As a result, ESG is often used as one way to reach an investment decision about a company, primarily by overseas pension funds. KPI(Key Performance Indicators) Indicators used to determine a company s progress in reaching its strategic goals. Intellectual capital Intellectual capital is hidden company resources such as customer relationships, business models and human resources that support financial performance but do not appear in financial statements. When selecting companies to cover in these reports, the intellectual capital assessment method of ICMG Co., Ltd. is used. Relationship capital Relationships with customers and suppliers, brand equity and other external relationships. Organizational capital Intellectual property, knowledge, business processes, organizational units, corporate culture and other elements that exist in an organization. Human capital The executives and employees of a company. Disclaimer This report was prepared for the purpose of providing a broad range of investors with useful information concerning stock investments. This report was written by securities analysts at The Stock Research Center and has been checked by the Waseda University Intellectual Capital Research Society. This report is not a recommendation to buy or sell or a solicitation concerning a particular security or financial instrument. The contents of this report are based on information that is available to the public and includes additional information as required that was obtained by analysts. The individuals who prepared this report are prohibited from using insider information and from receiving insider information. We believe that the information in this report is accurate and reliable, but the accuracy has not been objectively verified. In addition, this report is not intended to include all information that is required by investors. Information in this report may no longer be up to date because of changes in financial markets, the economy and other items. The value of stocks discussed in this report either directly or indirectly may fall below the cost of the original investment due to stock price movements, changes in the business or financial status of the issuer, movements in interest rates and foreign exchange rates, and other causes. Past performance is not an indicator or guarantee concerning future performance. Unless specified otherwise, forecasts concerning future performance are the forecasts of each analyst based on reasons that the analyst believes are proper. Actual performance may differ from these forecasts. Consequently, these forecasts, whether stated or implied, are not guarantees concerning future performance. Opinions and other views in this report may be revised at any time without prior notice. The Stock Research Center and Waseda University Intellectual Capital Research Society have no obligation to update the information of views in this report. The Stock Research Center and Waseda University Intellectual Capital Research Society assume no responsibility whatsoever regarding any results, including but not limited to direct and indirect losses, lost earnings, and damages, that are associated with the use of this report or the information in this report. Investors must reach final investment decisions themselves and investors who use this report are completely responsible for their decisions. This report is copyrighted by The Stock Research Center. Copying, reusing, quoting and using this report in any other way is prohibited without permission. 12/12