Storm CORPORATE RESEARCH・ストームコーポレート

30th May 2024

Fibergate (9450, Corporate)

Share price: ¥ 1,245

Business-Use emergence

Market cap: ¥25.6bn

3Q earnings confirmed the emergence of the Business-Use division as a new driver of long-term
earnings growth.

Company sector•

Broadly in line 1-3Q FY 6/24 earnings included a 3Q acceleration in BusinessUse division sales & OP due to a number of large, high margin contracts
facilitated by an increase in sales partnerships.

•

In contrast, Home-Use existing building sales were slightly weaker than
expected due to slower existing building demand versus tough YoY hurdles,
although we note new building demand remained strong & the cross-selling
ratio improved.

•

Due to their complex nature & large scale, Business-Use lead times are long. As
a result, the pick-up in sales growth post COVID has been slow, but the 3Q
acceleration confirms it has begun, driven by both new project sales & priceincreases.

•

Given the robust Business-Use order pipeline, allied to strong DX & internetrelated project demand, we expect growth to prove sustainable over the longterm. We also note the lack of direct competition & that Fibergate is 20-30%
cheaper than equipment makers that do overlap, ensuring a compelling priceadvantage.

•

Having started cross-selling related equipment in June 2023, including services
such as the FG Smart Call doorbell, FGTV & network cameras, sales haveprogressed to the point where 3Q cross-sales exceeded 10% of Home-Use
divisional flow sales, with further gains likely in the medium term.

•With a strong balance sheet, consistently high returns, a rising dividend &improving underlying performance, we conclude Fibergate is strongly
positioned to continue growing its business over the long-term. On 15x FY 6/24
earnings, we propose investors get in touch to book time with senior
management: here.

Diversified Telecommunication (GICS Industry)

Stock data

Price (¥)
Mkt cap (¥bn)/($m)
52-week range (¥)
Shares O/S (m)Average daily value ($m)
Free float (%)
Foreign shareholding (%)
TickerExchange
Net Debt/Equity (x)1,24525.6 / 163.3
875 - 1,606
20.6
0.9
45.4
9.8
9450
Tokyo Prime
51.4

Source: Bloomberg

BUSINESS OVERVIEW
Fibergate is the #2 ranked supplier ofdomestic wireless telecom services,
including free Wi-Fi spot construction,
maintenance & operation.
Next event
FY 6/24 results in August 2024.
Storm Corporate: +44 (0) 121 288 3402
info@stormresearch.co.uk
Storm corporate profile page

Fibergate is a research client of Storm
Research

Year end

6/2022

6/2023

1-3Q 6/2024

6/2024E

Sales (¥bn)

10.6

12.8

9.5

13.7

OP (¥bn)
NP (¥bn)

1.7
1.1

2.3
1.5

1.9
1.3

2.5
1.7

EPS (¥)

52.6

72.7

61.9

82.3

DPS (¥)

4.5

10.0

5.0

17.5

Sales growth YoY (%)

+25.1

+20.4

+15.9

+7.2

OP growth YoY (%)

+6.0

+40.4

+8.3

+9.1

NP growth YoY (%)

+ 5.3

+38.1

+6.8

+13.4

EPS growth YoY (%)

+5.0

+38.2

+7.3

+13.2

PER (x)

18.1

20.5

15.1

15.1

EV/EBITDA (x)

8.3

8.6

6.5

7.0

PBR (x)

5.9

6.4

4.3

4.6

ROE (%)

30.9

37.1

31.6

n/a

ROIC (%)

12.6

16.7

16.2

n/a

FCF yield (%)
Dividend yield (%)

0.5
0.5

6.2
0.7

n/a
n/a

n/a
1.4

Storm CORPORATE RESEARCH・ストームコーポレート

RESULTS VSFORECAST HISTORYEARNINGS

1-3Q results were broadly in line with the company forecast, with slightly weaker than
expected Home-Use earnings offset by above plan Business-Use sales & OP. There werealso Real Estate division sales recorded ahead of schedule in the 3Q, whilst the cross-sell flow
(installation) sales ratio was 10.6%.
Home-Use new building sales strength persisted & stock business revenue is continuing tosteadily accumulate, but existing building unit sales were weaker versus tough high margin
flow unit hurdles & were slightly disappointing.
We note 4Q 6/23 sales had been weaker QoQ following a strong 3Q, but Fibergate does not
anticipate 4Q weakness recurring in FY 6/24 & YoY comparisons are likely to be easier. There
has been no major change in market conditions.
3Q Business-Use sales accelerated & we expect this business to drive earnings growth
given the healthy order pipeline & strong sales channels developed through diverse
nationwide partnerships.
- Costs: Whilst personnel & amortisation expenses continue to rise, the company expects thisto be offset by sales growth & an increase in profitable Business-Use contracts in the 2H,
resulting in a forecast OPM improvement of +0.4ppt to 18.5% in FY 6/24.

HOME-USE(JPY Millions)
Sales
OP
OPM

1Q 6/24
Results
2,521
714
28.3%

YoY

1H 6/24
Results
5,086
1,482
29.1%

11.7%
6.4%
-1.4%

YoY
13.0%
6.7%
-1.7%

1-3Q 6/24
Results
7,816
2,299
29.4%

YoY
9.6%
0.6%
-2.6%

6/24
CoE
11,020
3,290
29.9%

YoY
14.8%
10.8%
-1.1%

Standalone 3Q Home-Use sales increased +3.7%YoY but OP declined -8.9%YoY. Monthly
subscription (stock) business OP continued to grow, but installation (flow) sales were weakerYoY resulting in a temporary decline in divisional OP.
The number of active connections for the Residence Wi-Fi service reached 603,700 at
the end of the 3Q, continuing a steady increase of connections per quarter, with 1Q +18,700,
2Q +21,200 & 3Q +22,700, totalling +62,600 FYTD.

Fibergate (9450) / 30th May 2024

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Storm CORPORATE RESEARCH・ストームコーポレート

In FY 6/24, Fibergate assumes +>90,000 new Wi-Fi units to total 626,000. At the current pace,
new units are likely to fall slightly short of target after slower existing building growth in the
3Q, but Fibergate does not consider this a concern as any shortfall can be offset by growthin the accelerating Business-Use division.
The total number of new connections installed in the 3Q declined -4%YoY, with strong
sustained growth in new construction installations but a slightly disappointing outcome forexisting units against tough YoY hurdles. As a result, the proportion of new build connections
reached 57% of the total.

Source: Company- Cross selling: Fibergate started to focus on cross-selling of related equipment from June
2023. Services include the FG Smart Call doorbell, FG TV, network cameras, delivery box
installation, smart lock & smart sensor & EV charging systems.
Additional product sales totalled ¥80m, or 10.6% of 3Q Home-Use flow sales, versus theaverage of 6.5% in FY 6/23 & 7.5% in 1H 6/24, & were in line with the company’s target of
10%.
Longer term cross-selling is likely to focus on renewable energy, including solar panels &storage batteries, & Fibergate aims to raise its cross-selling sales ratio target to approx. 1015%.
- Pricing: Monthly subscription prices remained flat YoY as they are tied to rents which,despite recent inflationary product price increases, have not yet been positively impacted.
Fibergate expects rents to rise in the medium term, enabling it to raise its prices.

Fibergate (9450) / 30th May 2024

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Storm CORPORATE RESEARCH・ストームコーポレート

BUSINESS-USE(JPY Millions)
Sales
OP
OPM

1Q 6/24
Results
327
56
17.1%

YoY
-0.6%
21.7%
3.1%

1H 6/24
Results
683
154
22.5%

YoY
0.4%
32.8%

5.5%

1-3Q 6/24
Results
1,174
318
27.1%

YoY
10.5%
54.4%
7.7%

6/24
CoE
1,860
460
24.7%

YoY
23.0%
59.2%
5.6%

Following a slow start in FY 6/23 & 1H 6/24, 3Q sales & OP accelerated, with sales growth of+28.5%YoY generating an OPM of 33.3%. Fibergate assumes a 2H OPM of 25.8%, a level weconsider conservative.
Strong 3Q sales & OP growth was driven by new project sales & price increases thatwere gradually implemented into new customers’ monthly subscriptions & equipment fromthe 1Q.
The Business-Use division has been a key target for growth of large-scale projects & highvalue-added services, but it had a slow start due to long lead times at large institutions for
decision making on significant & complex projects with connections to existing systems,
existing IoT networks or for DX. These more complex services include customised services
with higher prices & margins.
Fibergate does not have any direct competitors specialising in Wi-Fi services & mainlycompetes with large equipment makers & companies such as NEC (6701) or NTT (9432),
but is 20-30% cheaper, making it extremely competitive from a price perspective. Although it
occasionally competes with installation companies which can be cheaper, Fibergate offers
higher levels of service before & after installation, making it more attractive.
Fibergate has been targeting Business-Use growth for 18 months & orders are finallytranslating into sales, driving both sales mix & OPM improvement. Orders remain strong &we expect robust sales & OP growth to continue into the 4Q & over the medium term due tohigh demand for DX & internet related projects, although the large size of some projects risks
causing a degree of quarterly earnings volatility.
Weak 1H sales indicate the company’s FY 6/24 sales forecast is set to be challenging but, withabove plan 3Q OP & a similar OPM expected in the 4Q, Fibergate is likely to beat its FY 6/24
OP forecast, offsetting any potential shortfall in the Home-Use division.
Fibergate’s key target areas are: Medical (hospitals) & Nursing (care homes), which accountfor 16% of BU sales; Public Transport / Logistics (8%); & Tourism (6%). B2B equipment
accounts for 24% of sales & the remainder is others. Fibergate does not disclose its orderbacklog but confirms that the pipeline is growing.
- Sales partners: As of 3Q 6/24, Fibergate had increased its sales partners by +35%YoY to
81 & expects the higher numbers to drive sales growth. It targets 150 partners in themedium term versus 50 in FY 6/23.
Key partners include small regional companies with sales networks that sell directly topotential Business-Use customers. For example, regional banks that have salespeople
regularly talking to potential Business-Use customers, or bed sensor makers that havesalespeople regularly visiting care homes.

Fibergate (9450) / 30th May 2024

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Storm CORPORATE RESEARCH・ストームコーポレート

REAL ESTATE(JPYMillions)
Sales
OP
OPM

1Q 6/24
Results
4
-2
n/a

YoY
-20.0%
n/an/a

1H 6/24
Results
36
10
27.8%

YoY
89.5%
n/a
n/a

1-3Q 6/24
Results
547
74
13.5%

YoY
1609.4%
n/a
n/a

6/24
CoE
830
80
9.6%

YoY
-50.4%-41.2%
1.5%

1-3Q sales were strong YoY as FY 6/23 real estate sales were concentrated in the 4Q. In
addition, a portion of sales originally planned for the 4Q 6/24 was realised in the 3Q &commanded a higher than forecast OPM due to a conservative forecast.
Fibergate expects 1 building sale in the 4Q, but it is difficult to gauge whether it will be
realised or delayed into the 1Q 6/25 given the lack of visibility over sales timing. Fibergate
also procured one building in the 3Q which it aims to sell in FY 6/25.
Fibergate’s Renewable Energy business (included within Real Estate as it remains small) has
moved from test phase into phase 2 of actual installation in various Home-Use locations. Asof the 3Q, the company posted small renewable energy sales & OP.
Fibergate targets the start of its VPP (Virtual Power Plant) service from 2025 as part of phase
3 &, longer term, as part of phase 4 (in 2030), its introduction into 30,000 apartments &generating power equivalent to a nuclear power plant of approx. 1 million kW. The final
phase is to establish an offgrid system. Fibergate anticipates the contribution from renewableenergy increasing from FY 6/25.

Fibergate is focused on capital efficiency with regard to both shareholder returns & its shareprice.

CAPITALEFFICIENCY

The 3Q FY 6/24 RoIC was 16.2% & has been consistently improving since FY 6/18, when it was
11.8%. The company is targeting 17.5% by FY 6/24 & Fibergate is focused on achieving highreturns, with its RoIC having consistently exceeded its WACC since IPO. Similarly, its RoE has
been consistently >30%.

SHAREHOLDER
RETURNSThe company plans to divide its use of profits into three, with one third allocated forshareholder return dividends, one third for employee incentives, & one third to be retained
as internal reserves.
As a result, Fibergate has revised its final FY 6/24 dividend from ¥5 to ¥12.5, with the FY 6/24
dividend totalling ¥17.5, +75%YoY versus the FY 6/23 dividend of ¥10, which included a ¥2commemorative dividend. The implied FY 6/24 payout ratio is 21.2% versus 12.2% in FY 6/23.

PREVIOUS REPORTS••

5th March 2024: ‘Business-Use traction’1st Dec 2023: ‘Growth in tandem’•

28th Sep 2023: ‘Improving momentum’•

5th Jun 2023: ‘Renovation & new build WiFi’•

3rd March 2023: ‘Laying foundations’•25th Nov 2022: ‘Strong residential WiFi’•

11th Nov 2022: Initiating coverage: ‘Residential & business WiFi’

Fibergate (9450) / 30th May 2024~5~

Storm CORPORATE RESEARCH・ストームコーポレート

COMPANYINFORMATIONREPORTS

Key corporate timeline
2003
2004
2005

Began fully-fledged operations. Core business: selling broadband lines via the internet
and a network of multiple brick-and-mortar locations
Started business: free internet for communal housing

2006

Established Tokyo Office in Minato-ku, Tokyo
Started business: free internet for communal housing using wireless LAN
Unified all services and began operation using the FGBB® Series across the board
Began providing free internet for communal housing using a private brand2008

Started business: internet connection for monthly serviced apartments

2009

Call centre began providing customer service to tenants of FGBB® equipped properties in
multiple languages
Started business: the free Wi-Fi service “Wi-Fi Nex®”
Established Osaka Office in Chuo-ku, Osaka

2011
2013
2014

2015

2016

2017

2018

2019
2020

2021

2022

2023

Fibergate (9450) / 30th May 2024

Established NOIS Inc. as a wholly-owned subsidiary to plan, develop, and sell computer
hardware and software, and to act as an internet line agency
Started business: the sale of company-developed communication devices
Began providing Wi-Fi services for stores and commercial facilities under a private brandEstablished Fukuoka Office in Hakata-ku, Fukuoka
Established Nagoya Office in Atsuta-ku, Nagoya
Acquired Telecommunications Contractor Authorization (Governor of Hokkaido
Authorization (Fune-26) Ishi No.22017)
Began providing the Wi-Fi service “SHINOBI Wi-Fi” to visiting foreigners
Established Fibergate Taiwan Inc. as a wholly-owned subsidiary in Taiwan
Acquired a license as a telecommunications business in accordance with theTelecommunications Business Act (Registration Number: No.358)
Certified as a Management Innovation Plan Approval Company by the Governor of
Hokkaido (Sekishoro: No.74-33)
Acquired Privacy Mark certification (Registration Number: No. 17002586 (01)End of fiscal year changed from December to June
Nagoya Office moved to Naka-ku, Nagoya
Satellite office opened in the Tokyo OfficeOsaka Office moved to Chuo-ku, Osaka
Established Sendai Office in Miyagino-ku, Sendai
Fukuoka Office moved within Hakata-ku, Fukuoka
Listed on TSE Mothers
Began providing the “One-Touch Wi-Fi” service as a Wi-Fi service for offices and stores
Acquired certification as an Information Security Management System (ISMS)(Certification No.: MSA-IS-284)
Transferred to the TSE 1st Section
Listed on the Main Market of the Sapporo Securities Exchange
Established FG-Lab Inc. as a wholly-owned subsidiary that researches and develops
company-provided telecommunication devices and systems
Established BizGenesis Inc. to provide telecommunication services to corporations
Relocated Fukuoka office within Hakata-ku, Fukuoka
Established FG Smart Asset Inc. as a wholly-owned subsidiary to engage in real estaterelated business including the purchase, sale, leasing, and management of real estate
Established OffGrid-Lab Inc. to operate a renewable energy business
Acquired TM Asset Inc. as a wholly-owned sub-subsidiary to engage in real estate sales
and leasing
Merged with BizGenesis Inc., a telecommunication service provider for enterprises
Started the Renewable Energy business.

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Storm CORPORATE RESEARCH・ストームコーポレート

Major shareholders

Stake %MI Corp KK

23.06

Masanori Inomata
Taizou Matsumoto

21.99
5.30
3.35

GPIF Japan

3.26

Newton Investment
Bank of New York Mellon Corp

1.81
1.56

Fibergate
Nomura Hdgs
Vanguard Group Inc

1.54
1.31

Sumitomo Mitsui Trust Hdgs

0.96

Source: Bloomberg

Company contact details
060-0061 No.28 Keiwa Building, 10-3 Minami 1
Nishi 8, Chuo-ku, Sapporo-shi, HokkaidoJapanWebsite: https://www.fibergate.co.jp/
IR Contact: fgir@fibergate.co.jp
TEL: +81-11-204-6121

Fibergate (9450) / 30th May 2024

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Storm CORPORATE RESEARCH・ストームコーポレート

J GAAP Financial statements
Income statement
(¥bn)
Sales
COGS
Gross profit
Gross profit margin (%)
Operating expense
Total OPOP margin (%)
Non-Op Income (Loss)
Pretax Income
Tax
Effective tax rate (%)
Net income

Balance sheet(¥bn)
Cash & equivalents
Accounts & notes receivable
Inventories
Other short-term assets
Current assets
Property, plant & equipment (netof depreciation)Long term investments &receivables
Other long-term assets
Total non-current assets
Total assets
Payables & accruals
Short-term debt
Other short-term liabilities
Total current liabilities
Long term debt
Other long-term liabilities
Total non-current liabilities
Total liabilities
Share capital & APIC
Treasury stock
Retained earnings
Other equity
Equity before minority interest
Total equity
Total liabilities & equity

FY
6/21
8.5
4.1
4.4
51.2
2.8
1.6
18.4
0.1
1.5
0.5
31.0
1.0

FY
6/22
10.6
5.8
4.8
45.5
3.2
1.7
15.5
0.1
1.6
0.5
32.2
1.1

FY
6/23
12.8
7.1
5.7
44.9
3.4
2.3
18.1
0.1
2.2
0.7
31.7
1.5

FY
6/21
2.2
1.2
0.4
0.1
3.9
5.2

FY
6/22
2.3
1.4
2.1
0.1
6.0
6.2

FY
6/23
2.4
1.6
1.3
0.1
5.6
6.6

0.0

0.1

0.1

0.2
5.5
9.4
1.0
1.2
0.2
2.4
3.3
0.1
3.3
5.7
0.9
0.1
2.9
0.0
3.7
3.7
9.4

0.8
7.1
13.1
0.9
2.6
2.2
5.6
4.1
0.1
4.2
9.8
0.9
0.2
2.6
0.0
3.3
3.3
13.1

0.6
7.2
12.8
1.1
1.4
2.1
4.7
3.3
0.0
3.3
8.0
0.9
0.2
4.0
0.0
4.7
4.8
12.8

Fibergate (9450) / 30th May 2024

Cash flow statement(¥bn)
Net income/pre-tax profit
Depreciation/amortization
Other non-cash items
Changes in working capital
Net cash from discontinued
operations
Cash from Operating Activities
Change in fixed & intangible assets
Net change in long-term investments
Net cash from acquisitions &divestitures
Other investing activities
Net cash from discontinued
operations
Cash from Investing Activities
Dividends paid
Cash from (repayment) debt
Cash from (repurchase) of equity
Other financing activities
Net cash from discontinued
operations
Cash from Financing Activities
FX impact
Net cash flow

FY
6/21
1.0
1.0
-0.1
-0.2
0.0

FY
6/22
1.1
1.2
0.1
-0.1
0.0

FY
6/23
1.5
1.5
0.6
0.8
0.0

1.7
-2.2
0.0
0.0

2.3
-2.3
0.0
-0.3

4.3
-2.2
0.0
0.0

0.0
0.0

0.0
0.0

0.0
0.0

-2.3
-0.1
1.4
0.0
0.0
0.0

-2.6
-0.1
0.6
-0.1
-0.1
0.0

-2.2
-0.1
-1.9
0.0
0.0
0.0

1.3
0.0
0.8

0.4
0.0
0.1

-2.0
0.0
0.1

Free cash flow
EBITDA

-0.5
2.6

0.1
2.9

1.9
3.8

Key metrics
Profitability
Gross margin (%)
Operating margin (%)
Net margin (%)
ROIC (%)
Liquidity
Current ratio (x)Quick ratio (x)Leverage
Debt/Equity ratio
Net Debt/Equity ratio

~8~

FY
6/21

FY
6/22

FY
6/23

51.2
18.4
12.0
15.0

45.5
15.5
10.1
12.6

44.9
18.1
11.6
16.6

1.6
1.4

1.1
0.7

1.2
0.8

121.1
61.4

202.9
132.6

99.1
48.1

Storm CORPORATE RESEARCH・ストームコーポレート

DISCLAIMER
This report has been commissioned by Fibergate & prepared & issued by Storm Corporate in consideration of a fee payable by Fibergate.
All information and data used in the publication of this report has been compiled from publicly available sources that are believed to bereliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be
independently verified. To the fullest extent allowed by law Storm Corporate shall not be liable for any direct, indirect or consequential
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should it be considered or intended as Storm Corporate’s solicitation to effect, or attempt to effect, any transaction in a security. Storm
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Fibergate (9450) / 30th May 2024~9~