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平山 Research Memo(10):営業利益で年率20%強の成長を目指す

Hirayama Research Memo (10): Aim for a strong 20% annual growth in operating profit.

Fisco Japan ·  Oct 10 23:10

■ Future outlook of Hirayama Holdings <7781>

2. Future growth strategy. (1) Elementary and junior high school department. Step <9795> has been working on increasing its share in the Yokohama-Kawasaki area, where an increase in the number of students is expected, as its most important priority in order to continue to grow as a teaching institute specialized in Kanagawa prefecture in the medium to long term. The number of successful applicants at public schools in Yokohama City in the spring of 2024 widened the gap with other schools, and for the second consecutive year, the number of successful applicants to Yokohama Suiran High School, which is considered the most difficult school in the prefecture, accounted for over 40% of the total successful applicants, further strengthening the brand power in the Yokohama area. The company aims to continue to achieve overwhelming numbers of successful applicants at Yokohama Suiran in the future. In the case of the company, the selection of desired schools is left up to the students' initiative, so it is unlikely that the number of successful applicants to Yokohama Suiran High School will suddenly increase. However, the company expects that the number of successful applicants will continue to increase in the future, as they plan to increase the number of students in the Yokohama-Kawasaki area. Regarding Tama High School, which is considered the most difficult in Kawasaki City, the number of successful applicants in the spring of 2024 was 59, which is 17 less than the previous year, and the difference with the top institute (124) has widened. It is believed that this is due to a decrease in the number of expectations from STEP students, as well as the influence of the top institute increasing its number of schools and strengthening them in the vicinity of Tama School. However, the company has increased the number of schools and students along the JR Nanbu Line and Odakyu Line in recent years, so it is expected to take the top position within the next two years. (2) High school department. Among the students attending public junior high schools in Kanagawa prefecture, the proportion of STEP students was 11.0% as of October 2023. Of this, 14.5% were in areas other than Yokohama and Kawasaki, 9.2% were in Yokohama City, and 5.0% were in Kawasaki City. On the other hand, according to population forecasts up to 2030, the northern part of Yokohama City and Kawasaki City are expected to continue to increase, while the western part of the prefecture and Yokosuka City are expected to continue to decline, making it reasonable to expand the number of schools and increase the share in the Yokohama-Kawasaki area. As an immediate goal, the company aims to increase the share of junior high school department students in the Yokohama-Kawasaki area to about 15%, and plans to open new schools at a pace of approximately 3 to 4 schools per year in these areas. It is believed that it will be possible to achieve a 15% share in the Kawasaki area with around 15 schools and in the Yokohama area with around 25 schools, and the expansion of share in the Yokohama-Kawasaki area could increase the number of students to 1.34 times the current level, assuming that the number of STEP students at other public junior high schools remains stable. If this is achieved over a 10-year period, the increase in the number of students would be an annual rate of 3%. Looking at the share of students in major urban areas, there are regions that have higher shares than 15%, such as Fujisawa City, where the company is headquartered, at 26.0%, Kamakura City at 22.7%, and Ebina City at 19.9%, so there is sufficient potential for the Yokohama-Kawasaki area to achieve a share of over 15% in the long term. In fact, the share has already been extended to the 16% range in Aoba and Totsuka districts of Yokohama City. The pace of school development depends on the development of teachers and the availability of appropriate real estate. As for the search for real estate, the market environment for finding property has become easier compared to before, as competitor institutes withdraw from the market or financial institutions consolidate their sales bases. In fact, the Hi-STEP Shin-Yurigaoka School was opened in a property that had been withdrawn by a competitor institute.

The company announced its long-term vision for 2030 'VISION HIRAYAMA 2030' in July 2024, as well as the mid-term management plan 'First Stage 2027' from June 2025 to June 2027. 'First Stage 2027' is positioned as a three-year period to build a business foundation for transformation and sustainable growth towards achieving 'VISION HIRAYAMA 2030', aiming to be the only global company to constantly develop unique services as a manufacturing support company. The basic strategy promotes sustainability as a 'manufacturing industry without equipment and premises', resolves the social issue of 'shortage of skilled workers' through human resource education, enhances earning power by establishing a more robust management foundation, aims for further enhancement of corporate value by expanding business scale through M&A and alliance strategies.

(1) Management targets

As for the management financial targets, the company aims for sales revenue of 60 billion yen, operating profit of 3.6 billion yen (operating profit margin of 6.0%), and ROE exceeding 24% by the end of June 2030. The average annual growth rates for the next 6 years are 9.2% for sales revenue and 21.5% for operating profit. The target for the final year of the mid-term management plan in June 2027 is set at 46 billion yen for sales revenue, 2.2 billion yen for operating profit, with ROE exceeding 20%, planning to expand operating profit to approximately double in 3 years. The sales target does not include the effects of M&A. The increase in operating profit margin will be realized through improvements in gross profit margin and sales and administrative expense ratio. The improvement in gross profit margin will be achieved through the growth of high-profit businesses such as consulting services and foreign employee management support services, as well as the improvement in bidding capabilities through on-site improvement consulting and expansion of high value-added business. Regarding the sales and administrative expense ratio, it expects consolidation of office work at each location through the promotion of DX and improvement in recruitment and education expenses due to increased retention rates. The company believes that if the recruitment and training of personnel progresses smoothly, performance targets are achievable, but even if recruitment does not proceed as planned, it believes that the shortfall can be filled by M&A implementation.

(2) Basic strategy of 'First Stage 2027'

a) Strengthening earning power, transitioning to a high profitability structure

Actively investing management resources in insourcing and dispatch businesses, focusing on key customers such as auto parts and medical device industries where annual growth of 10% is expected, actively expanding into the semiconductor industry expected to grow at 10% annually, strengthening recruitment and training for high-value job categories such as design engineers and field engineers.

In addition, in order to shift towards a high-profit structure, efforts are being made to strengthen the highly profitable consulting business and foreign employee management support business. In the consulting business, the enhancement of consulting functions is aimed at by increasing the number of consultants and expanding training centers. By improving on-site improvement capabilities related to consignment operations (cost reduction), efforts are made to capture customers. In the field improvement consulting, the strategy is to enhance profitability by utilizing AI/IoT solutions, aiming for higher added value, and cultivating high added value human resources such as field engineers and IT infrastructure engineers, providing them with operators and packages. In existing transactions, efforts are being made to expand transaction share by expanding to other business locations, and in existing dispatch locations, efforts are made to switch to consignment contracts by demonstrating successful cases.

b) M&A and Alliance Strategy

In Japan, there are many businesses ranging from large enterprises to small and medium-sized enterprises engaging in manufacturing consignment and dispatch, with the market share of the top 20 companies accounting for approximately half of the total revenue in the fiscal year 2022. However, in recent years, due to issues with succession in small and medium-sized businesses, the situation has been leaning towards the monopolization by large enterprises. In this context, the company is prioritizing companies engaged in technician dispatch as merger and acquisition (M&A) targets, especially those with a large number of technicians. The company is particularly targeting the expansion into specialized fields such as AI and overseas fields not yet handled by them. Furthermore, the industry is planning to expand into areas beyond semiconductors, such as biochemistry, chemical fields, research and development fields. As the consolidation by large companies progresses in manufacturing consignment and dispatch, the hiring environment has become more challenging. Therefore, in addition to M&A, the company is considering group expansion through alliance strategies to enhance human resources. Additionally, in terms of M&A, the company focuses on efficiency by utilizing Return on Invested Capital (ROIC) as an investment indicator.

c) Strengthening Business Foundation

As part of the measures to strengthen the business foundation, efforts are being made to enhance the recruitment, training, deployment, and support system of personnel to enable stable service provision even in rapidly changing external environments. The aim is to become a group of companies chosen by workers by creating a work environment that is easy to work in and allows for career development. Furthermore, efforts are being made to promote the development of direct and indirect personnel based on the growth stage of each business, as well as to promote human capital utilization by introducing DX to improve business practices and establish a profitable structure. Moreover, by building a database of employee skill maps, a system is being established to assign the most suitable personnel according to customer needs, and efforts are being made to increase unit prices through skill improvement and career changes.

In addition, efforts are being made to promote the training and deployment of direct and indirect personnel according to the growth stage of each business, and to promote the foundation establishment of human capital utilization, advancing business improvement through DX introduction, and building a profitable structure. By establishing an employee skill map database, a system is being put in place to assign the most suitable personnel based on customer needs and work towards raising prices through skill improvement and career changes.

(Written by FISCO guest analyst, Jo Sato)

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more
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