Thinking Points

  • Crie Anabuki (TSE: 4336) is a human resources services company with a strong regional presence in the Shikoku and Chugoku regions, mainly because of its parent company Anabuki Kosan (TSE: 8928).
  • Though its business performance doesn’t highlight the story, the company’s gone through a dramatic business transition, stopping the freefall of its core Staffing segment and quickly starting a brand new Outsourcing segment.
  • Crie Anabuki effectively let go of its Tokyo, Nagoya, and Osaka operations to refocus on its home turf – the more remote Shikoku and Chugoku regions.
  • As a part of its renewed effort, the company is targeting people seeking jobs in the countryside and doubling down on mothers with young children. Its first “Mama Square” (offices with daycare services) is slated to open in December 2018.
  • Though the company is a Magic Formula stock, it’s too early to tell how Mama Square fits into the picture. Market cap agnostic investors ought to stay tuned for fiscal 2019 results as it will better highlight how Mama Square performs.

Introduction

Crie Anabuki (TSE: 4336) is a human resources services company with a strong presence in the Shikoku and Chugoku regions of Japan. The company is part of the Anabuki group lead by Anabuki Housing Services (private), which is a controlling grandparent company. Crie Anabuki operates through five segments today:

Source: company filings, chart created by author

 

The company has an incredibly small market cap at 1,353 million yen ($11.9 million USD) as of November 26th, 2018 closing and trades on the JASDAQ Standard section of the Tokyo Stock Exchange. Crie Anabuki is also extremely asset-light, with virtually no fixed assets.

 

The business & environment

The Anabuki Group

The Anabuki Group got its start in 1905 when Kisaku Anabuki founded Anabuki Construction (general contractor) in Kagawa prefecture (Shikoku region). In 1945, Kisaku’s son Natsuji Anabuki took over the company and built it into a regional powerhouse.

Source: Google Maps, info added by author

 

Natsuji, a Talmudic believer when it came to business and finance, founded Anabuki Kosan (TSE: 8928) in 1964 as a real estate brokerage independent of Anabuki Construction. His two sons, Hidetaka (eldest) and Tadatsugu eventually took charge of Anabuki Construction and Anabuki Kosan, respectively.

Anabuki Construction started building residential houses in 1969, then started developing “Surpass” branded condominiums in 1978. The company eventually became Japan’s top condo supplier in 2007, then filed for bankruptcy protection in 2009. Corporate ownership moved to its biggest competitor Daikyo (TSE: 8840) and the Anabuki family no longer has any stake in the company.

Anabuki Kosan was founded as a real estate brokerage, but expanded into parking structures in 1970, hotels in 1979, condominium development in 1985 (“Alpha” condominiums), and is now also involved in elder care homes, nursing services, travel services, advertising, and more. Basically, there is nobody from the Shikoku region who doesn’t know the Anabuki name.

Unlike many family controlled Japanese business groups, Anabuki Kosan never had any capital or personnel ties with Anabuki Construction. In fact, they are considered as two different Anabuki groups, only one of which survived. Today, Anabuki Kosan is alive and well, still maintaining its Shikoku region stronghold.

 

Crie Anabuki

Crie Anabuki is Anabuki Kosan’s human resource services arm. The Staffing segment and Outsourcing segment account for over 90% of company revenues. But Crie Anabuki has gone through quite a change over the last 7 years, as the Staffing segment went through a sharp decline and the Outsourcing segment went from virtually non-existent to critical.

In fiscal 2008, revenues were at 7,710 million yen ($68 million USD). This figure steadily declined through fiscal 2012 down to 6,012 million yen ($53 million USD). The company had a sizeable business outside of the Shikoku and Chugoku regions, mainly in Tokyo, Osaka, and Nagoya, which had weakened.

Then in late fiscal 2012, Crie Anabuki signed a five year deal with Cecile Business and Staffing (subsidiary of today’s Dinos Cecile, online clothing retailer) to manage its 3 logistics facilities. The company setup Crie LogiPlus Inc (90% Crie Anabuki ownership) to handle the work, and this is now the bulk of the Outsourcing segment. The original five year contract period is already up and the contract is renewed annually now. Dinos Cecile has accounted for over 20% of company revenues since fiscal 2013.

Around the same time Crie Anabuki signed the Dinos Cecile deal, the company decided to refocus its efforts in the Shikoku and Chugoku regions, the company’s home turf. The Staffing and Outsourcing segments have more or less stabilized since.

Source: historical company filings

 

It’s an interesting time for Crie Anabuki to leverage its regional brand. For the first time in mid-2016, the jobs to applicants ratio went above 1.0 in all 47 Japanese prefectures. The level of labor shortage is particularly severe in metropolitan areas like Tokyo, Nagoya, and Osaka, where Crie Anabuki effectively pulled out of.

With that said, Kagawa prefecture, the company’s home turf, has the 11th highest jobs to applicants ratio as of September 2018. Moreover, Crie Anabuki is targeting two key types of workers:

  1. Workers that went out to one of the big cities and wants to make a “U turn” back to the peaceful countryside (i.e., Shikoku and Chugoku regions).
  2. Mothers that want to get back into the workforce, but not necessarily on a full-time basis.

Crie Anabuki is paying special attention to mothers looking to get back into the workforce. In fact, all 9 of its branch offices have a kids area (Japanese) so mothers can comfortably talk to Crie Anabuki staff without looking for a babysitter.

Moreover, Anabuki Kosan recently partnered with Mama Square (Japanese), a Tokyo based company focused on providing workspaces alongside kids areas for mothers. Crie Anabuki will be opening its first Mama Square location (Japanese) within its headquarters in Takamatsu, Kagawa prefecture on December 3rd, 2018.

Source: Crie Anabuki website

 

While Japan’s aging and declining population is common knowledge, its shortage of daycare facilities probably isn’t. In fact, bringing women back into the workforce has been part of Prime Minister Shinzo Abe’s “womenomics” plan for Japan. So far, womenomics has delivered mixed results, but in terms of the number of women aged between 25 and 44 actively involved in the workforce (regardless of the job role), there appears to be some improvement:

Source: Gender Equality Bureau Cabinet Office (Japanese)

 

Even with the improvement in employment rate, there is still considerable room for further improvement. There is no way of telling how well Crie Anabuki’s Mama Square tie up would perform, but it seems to be a sensible way to leverage Anabuki’s regional brand given Anabuki Kosan’s history in real estate and Crie Anabuki’s core business of human resource services.

 

Management Guidance

With the first Crie Anabuki Mama Square franchise opening on December 3rd, 2018, the impact on company financials ought to be trivial. This venture will be reporting in the Outsourcing segment as the company plans to take on outsourced administrative work.

Crie Anabuki’s fiscal period ends in March. For fiscal 2019, management is guiding the following:

Source: Q2 2019 & fiscal 2018 filings

 

Shareholders

As of Q2 2019 (ending September 30th, 2018), Crie Anabuki had 2,340,000 shares issued and 27,473 shares in treasury, leaving outstanding shares at 2,312,600.

Here are the major shareholders:

Source: Nikkei and company filings

 

Tadatsugu Anabuki has control over Crie Anabuki with his position and holdings in Anabuki Kosan as well as Anabuki Housing Service (100% ownership by Anabuki family).

Toru Kurata is the Anabuki Group CEO and current board chairman of Crie Anabuki. He also served as the CEO of Crie Anabuki between 1996 and 2017.

Current CEO of Crie Anabuki is Hiroshi Jouguchi.

 

Financials & Valuation

  • Though Crie Anabuki’s business performance over the last decade doesn’t reflect it, the company’s gone through quite a transition, trying to stabilize its Staffing segment’s freefall and quickly building its Outsourcing segment from nothing.
  • Since fiscal 2013, the company has shifted focus to its home turf: the Shikoku and Chugoku regions, effectively letting go of its Tokyo, Nagoya, and Osaka operations (other than those related to Shikoku/Chugoku regions)
  • Crie Anabuki now targets “U-turn” demands (people who want to work in the countryside) and mothers with young kids, hoping to leverage its regionally strong “Anabuki” name.
  • As a part of targeting mothers, the company is embarking on a new venture by opening its first administrative office with an attached daycare. This will be a part of its Outsourcing segment going forward.
  • Investors ought to wait until fiscal 2019 earnings to get a better feel on how its first Mama Square franchise performs and where the company is headed overall.

 

One key factor to note is that Crie Anabuki is an extremely asset-light company. As of Q2 2019, 87.7% of its assets are in current assets. 55.8% of total assets is in cash. The company has a net cash balance of 798 million yen ($7 million USD).

As a reference, the market capitalization is at 1,353 million yen ($11.9 million USD), or 170% of NCAV. Current enterprise value is at 389 million yen ($3.4 million USD). Using the management projections for fiscal 2019 (op. Income of 101 million yen [$890K USD]), EV/EBIT multiple is at 3.9x.

The 3.9x EV/EBIT multiple is a little high for a company of Crie Anabuki’s size. With that said, it looks like the tough part of the transition is over, and the company is fixing to further build its Outsourcing segment by leveraging its regionally strong brand name. It’s too early to tell how well the Mama Square franchise will perform, but the company ought to give investors a better idea of what to expect at the end of fiscal 2019.

I’ll skip the valuation portion of this report for now.

 

The bottom line

Crie Anabuki is human resource services company that’s gone through quite a transition over the last decade, though the financials don’t reflect it. The company effectively closed its Tokyo, Nagoya, and Osaka operations to refocus on the Shikoku and Chugoku regions – its home turf. So far, the transition seems to have stabilized the company. And Crie Anabuki is now embarking on a new venture by opening its first Mama Square franchise, targeting mothers with young children. It’s too early to tell what the business impact of this venture is, but management ought to have a better idea come fiscal 2019 year end. Market cap agnostic investors ought to hold off making an investment and make a decision after more information on the Mama Square business becomes available.

 


Kenkyo Investing
Kenkyo Investing

Kenkyo Investing applies a value investing approach to Japanese equities, providing insights that are often unavailable to non-Japanese speakers.