<Japanese Equity Research>

IR Street REPORT（Growing company・Highly profitable company）

8920 TOSHO CO.,LTD

JASDAQ

sector: Service （Operation of fitness clubs）

31-Aug-10

Operates Holiday Sports Clubs mainly in the regions.

Boasts the highest profit and profit margin in the industry.
Contact；

IR STREET （Ms.Oda）

oda@irstreet.com

TEL；+81-3-3560-5444 (TOKYO, JAPAN)

Company profile
Representative
Head OfficeBusinees line
Shraes issued(as of March 31, 2010)

Major Holders(as of March 31, 2010)

Toshihiro Kutsuna
URL: http://www.to-sho.net/
Established
Listed
1-16-5 Mikawa-Anjo-cho, Anjo-shi, Aichi
Holiday Sports Club business, Hotel business, lease business
27-Aug-10
17,592,351
Special owners 87.2％,Foreign owners 0.5％,Japanese funds 0.1％,Floating stock 9.4％ Stock price (\）
Toshihiro Kutsuna 61.4%、Yuuichiro Kutsuna 11.8％、Mayumi
PER(E)
Kutsuna 4.1%, Kazuki Kutsuna 3.4％
PBR
ROE
Market cap
Trade Unit

Net Sales

Ordinary income

Net income

Dividend

EPS

ROE(\ million ）(\ million ）(\ million ）

(Yen)

(Yen)

(%)

Mar 08Mar 09
Mar 10Mar 11(E)10,808
10,901
10,597
10,815

1,6031,954
2,087
2,200885
1,087
1,106
1,200

12
10101053.6
65.8
65.4
68.2

23.20%

1Q Mar 11 (YoY）

2,674(+1.9%)

576(+25.2%)

277(+9.1%)--(\ million)
12000
11000
10000
9000
8000
7000
6000
5000
Mar08

Mar09

Net Sales (\ million ）Mar102700(\ million)
1500

1800

1000

900

500

00Mar 11(E)

442
6.5
1.2
18.5%
7,776
100

(\ million）

23.6%
19.2%
(EPS \)
66
58
50

Mar

Ordinary income (\ million ）March 1979
February 2004

08

Mar09

Mar

10Mar 11(E)Net income (\ million ）EPS (Yen)（Corporate History)
The company was originally established as a construction company in Aichi Prefecture by the founder and current President, Mr. Kutsuna, in 1979. The company used the knowhow it had
accumulated from its activities in building shops, condominiums and factories to begin its golf practice range business in 1989, its sports club operation in 1996 and its hotel business in1999. The ‘Holiday Sports’ brand fitness club operation is the main growth driver amongst the company’s businesses and accounts for approximately 80% of sales. The major companies
in the sector, led by the top operator Konami Sports & Life, have built up their businesses by developing luxurious facilities aimed at city dwellers and have engaged in an ever-widening,highly competitive war of attrition centred on the concept of sports training. In contrast, ‘Holiday Sports Club’ concentrates on regional cities (with populations of 100,000 and above) andhas leveraged both facets of its unique knowledge base - its ‘hard’ attributes such as its knowhow in building and operating its own, efficient facilities and its ‘soft’ features which include
providing reasonably priced and enjoyable health-building services to first-timers – to become the eighth largest company in the sector by sales and by far the most profitable company interms of ordinary income. By tapping latent demand resulting from insufficient physical exercise amongst adults in regional areas, Tosho aims to expand the number of its facilities from 37
at present to 100 by 2018. The company is already in the top class in the industry in terms of profitability, ROE and other financial metrics but, being a regional operator, the lack of namerecognition for its ‘Holiday Sports Club’ brand in urban areas has also influenced the stock market, resulting in Tosho looking highly attractive as an investment prospect and extremelyundervalued in relative terms given its low PER of less than 7x (less than half the sector average PER of 16x) . FY3/2011 1Q results brought year-on-year growth in both sales andearnings. Ordinary income was particularly strong with earnings rising 25.2% year-on-year at this level. In terms of rewarding shareholders, Tosho has announced a dividend policy linked
to earnings performance, and is currently engaged in further positive development of its IR activities.

（Business strategy）
With Japan facing the problems of an ageing society and a falling birth-rate and health-oriented consumption booming, the future growth prospects for this market look very promising. The
sector which is made up of fitness clubs aimed at eliminating insufficient levels of physical exercise amongst urban dwellers is a business model characterized by a red ocean of excessivecompetition, huge amounts of capital expenditure and an extremely difficult environment in which to make money. By contrast, the development of the motorization of regional areas hascreated an environment in which the level of inadequacy in physical exercise amongst residents is even higher than that for urban dwellers resulting in latent demand for sports clubs to
help them maintain good health and eliminate the problem of insufficient exercise from their lifestyles. That said, regional sports clubs have, to date, consisted of swimming schools aimed
at children and the conventional wisdom in the sector has been that the prospects for making money from the development of sports clubs for adults are bleak. In the face of thiscommonly-held view, Tosho has built up its business model to suit the demands of adult residents of regional areas keen to improve their health on the foundation of its key principles of‘building low-cost, high-quality facilities by using its own knowhow’, ‘nurturing and training its employees to become instructors’, ‘running a varied range of new programmes’ and ‘creating a
low-fee operating structure’ and continues to win through with these core concepts. Tosho has created an astoundingly profitable business model with a ordinary income ratio of over 30%
and an ROI against funds invested on an ordinary income basis of in excess of 18% . Its highly profitable model for new club openings targets regional cities with populations of 150,000
and over with a ¥400 million budget for investment per facility, 2,500 members, an average monthly membership fee of ¥7,000, annual revenues of ¥210 million and ordinary income of ¥75 million (ordinary income ratio of 35%). The fitness population is 3% in Japan (against 15% in America) which means that, with 4,000 members as the market, it is possible to run facilities
with profit margins of over 40%. By keeping head-office costs low, Tosho aims to raise the overall ordinary income ratio for the company into the medium-term from 19.7% at present to
25% in FY3/2015 (raising ordinary income from ¥2.1 billion to ¥4.4 billion).
Corporate analysis by IR STREETStrength
1.Has knowhow in building and operating facilities unlike any other companies
2.Most profitable company in the industry
3.The average age of employees is the youngest among the JASDAQ listedcompanies and conducts human resources programs

Opportunity
1.Health conscious associated with aging
2.Regional towns and cities with high potential demand
3.Drop in land prices and securing human resources will pave the way for business expansion

Weakness
Risk
1.Lack of recognition of individual investors, with many concentrated in urban areas 1.Financial institutions’ lending stance
2.Demand for funds for the opening of new clubs (reliance on low-capital-cost bank
2.Maintaining policy of opening facilities in suitable locationsloans)《Peer comparison》

FY2009Ordinary income(￥million)

Sales

Click for IRTosho（Holiday Sports Club）
Central Sports
Renaissance
Megalos

10,59746,60836,41913,694

2,087
1,372
754
419

YoY(%)Net income(￥million)

106.8%
156.0%
103.5%
66.8%

1,106632
142
206

Market cap(￥billion)

EPS(￥)

80
100
6540

CLICK HERE TO GET MORE IR INFORMATION OF THE COMPANY
Copyright© 2010

Finantec Co., Ltd. All Right Reserved.

This report is provided for information purpose only, and constitutes neither investment advice nor the recommendation to purchase or sell securities named in this report.

65.4
55.1
6.7
54.1

ＰＥＲ（times）Dividend yield(￥)

6.9
15.9
45.7
19.1

2.2%
2.2%
1.0%
1.9%