Thinking Points

  • Arbeit Times (TSE: 2341) publishes free job search magazines and operates job search websites mainly targeting part-time and temporary workers in the Tokyo, Nagoya, and Shizuoka areas.
  • The 2008-2010 global financial crisis was a particularly challenging time for the company, with a revenue decline of 72.8% and subsequent layoffs.
  • Arbeit Times doesn’t have a notable competitive advantage, however, it’s focus on shareholder returns over the last 8 years makes it a rare find in small cap Japan.
  • At 187 yen per share, the company trades at an adjusted EV/EBIT of 0.9 with a market cap of 4,936 million yen ($44.2 million USD).
  • Investors can expect an investment CAGR of between 6.5% and 9.5%, inclusive of dividends, over the next three years.

Introduction

Arbeit Times (TSE: 2341) primarily publishes free job search magazines and operates job search websites mainly targeting part-time and temporary workers in the Tokyo, Nagoya, and Shizuoka regions. Additionally, the company delivers magazines for other publishers using its own delivery network. Although the company operates through two segments – Information services and sales promotion support – its revenues are best digested when broken down by category:

Source: Company filings


The company has had a difficult history, particularly during the 2008-2010 global financial crisis, when it experienced a revenue decline of 72.8%. Although revenues haven’t recovered to anywhere near pre-crisis levels, Arbeit Times has managed to generate profits consistently since 2011.

The business & environment

Arbeit Times was founded in 1973 by then fresh college graduate Yoshinori Mitsui. Based out of Shizuoka prefecture, a remote area between Nagoya and Tokyo metros, the company launched the “Weekly Arbeit Times”, a free magazine with job listings. Later renaming the magazine to “DOMO”, Arbeit Times expanded into Yokohama in 1997, then Shibuya/Shinjuku (Tokyo) in 1999.

With business expanding in the Tokyo area, the company moved its headquarters to Tokyo in 2003. By 2004, Arbeit Times had expanded into Nagoya and Osaka. At the same time, it launched its first website catering to Shizuoka job seekers. More recently, the company is involved with a recruitment company in Myanmar and started operating several preschools in Shizuoka prefecture.

The 2008-2010 global financial crisis had a deeply negative impact on Arbeit Times, resulting in a two-year decline of 72.8% and significant operating losses:

Source: Company filings


Although revenues never fully recovered, the company was able to generate profits again in 2011. This was mainly because the company setup an early retirement program, reducing employee headcount as a result. At the end of fiscal 2008, the company had 312 employees. By the end of fiscal 2011,  when Arbeit Times returned to profitability, this figure declined to 118.

While the company is considerably smaller now, its business performance is more stable. In a 2016 interview with Jinjibu (Japanese), a human resources website, Arbeit Times CEO Yasuharu Kakiuchi commented about the company’s medium-agnostic approach. Although much of the recruitment industry already shifted to the internet, Yasuharu argues that in many cases – particularly in rural areas – free job search magazines are still a viable tool for recruiting.

At the same time, Yasuharu makes it clear that Arbeit Times isn’t 100% focused on paper-based or web-based media. Instead, he talks about being locally focused and using whatever medium (or combination of mediums) works best. Recent revenues by category shows that Arbeit Times is a considerably more balanced company compared to a decade ago:

Source: Company filings


Still, Arbeit Times relies heavily on its paper-based media offering. More recently, the company partnered with a Myanmar-based company in 2014 to setup a joint company. Since then, Arbeit Times started offering foreign staff placement support services. To be sure, this isn’t unique to Arbeit Times as many staffing firms look outside of Japan to fill the country’s labor shortage.

Although the staffing placement support business wouldn’t count as a competitive advantage, Arbeit Times did operate a staffing and placement agency until 2006, when it sold the business to Pasona Group (TSE: 2168). In other words, Arbeit Times isn’t new to the staffing industry. As far as competitive advantages go, however, the only thing worth mentioning is the fact that Arbeit Times has brand recognition and a distribution network in Shizuoka. At this point, it’s unlikely that another competitor would emerge in rural paper-based media.

As of this writing (May 2019), only the short form filing (i.e., Tanshin), which does not show revenue by category, has been filed. Based on the commentary, however, management indicated that revenues from its Job Sites increased while Free Paper Delivery revenues decreased after a large customer suspended publishing.

While Arbeit Times has successfully grown its web-based revenues from 2011 and on, the key question going forward is whether the company can grow web-based revenues fast enough to offset a decline in paper-based media. A decline in Free Paper Delivery revenues is critical as well, since the logistical efficiency in the distribution network also declines.

For fiscal 2020, Arbeit Times is guiding for 5,090 million yen ($45.6 million USD, -6.9% YoY) in revenues and 484 million yen ($4.3 million USD, -12.6% YoY) in operating income.

Shareholders

As of Q4 2019 (ending February 28th, 2019), Arbeit Times had 32,237,249 shares issued and 5,844,059 shares in treasury, putting outstanding shares at 26,393,190 shares.

Here are the major shareholders:

Source: Company filings and Nikkei


In December 2018, founder Yoshinori Mitsui donated 700,000 shares to the Employment Support Foundation, which is his foundation. Collectively, the founder controls 39.1% of outstanding shares.

Over the last 8 years, Arbeit Times consistently repurchased shares:

Source: Company filings


Interestingly, revenue per share has grown at an 8 year CAGR of 10.7% as a result of the consistent repurchases.

Financials & Valuation

  • Arbeit Times publishes free job search magazines and operates job search websites mainly targeting part-time and temporary workers in the Tokyo, Nagoya, and Shizuoka areas.
  • The 2008-2010 global financial crisis was a particularly challenging time for the company, with a revenue decline of 72.8% and subsequent layoffs.
  • Arbeit Times doesn’t have a notable competitive advantage, however, it’s focus on shareholder returns over the last 8 years makes it a rare find in small cap Japan.
  • At 187 yen per share, the company trades at an adjusted EV/EBIT of 0.9 with a market cap of 4,936 million yen ($44.2 million USD).
  • Investors can expect an investment CAGR of between 6.5% and 9.5%, inclusive of dividends, over the next three years.

Arbeit Times publishes free job search magazines and operates job search websites mainly targeting part-time and temporary workers in the Tokyo, Nagoya, and Shizuoka areas. The 2008-2010 global financial crisis hit the company particularly hard, with revenues declining 72.8% between 2008 and 2010.

The company managed to return to profitability in 2011 after downsizing, reducing headcount to less than half of pre-crash levels. Since then, Arbeit Times has proactively repurchased shares and paid out dividends.

Meanwhile, company revenues have increasingly shifted online. With Job Site revenues now accounting for 20.6% of 2018 annual revenues compared to 1.7% in 2009. The key question now is whether Arbeit Times can grow web-based revenues quickly enough to offset the decline in print-based revenues, which operates less efficiently as the distribution network moves fewer magazines. Although print-based revenues recovered from 2011 to 2016, it has since been on a decline.

As far as the balance sheet goes, Arbeit Times has no debt with a net cash balance of 3,502 million yen ($31.4 million USD), or 64% of annual revenues. Unless the company experiences a decline similar to the 2008-2010 global financial crisis, it is financially healthy. As for fixed assets, the company owns land in Shizuoka prefecture, but the book values of its three key properties appear to be either in-line or above current market prices.

At 187 yen per share, Arbeit Times trades at 1.0x EV/EBIT with a market capitalization of 4,936 million yen ($44.2 million USD). Adjusted for investment security holdings, the company trades for 0.9x EV/EBIT.

To be clear, Arbeit Times’ business quality is somewhere between low and medium. While it’s highly unlikely for a new competitor to challenge the company for its paper-based business lines, any meaningful growth in the business is equally unlikely. Meanwhile, Arbeit Times is pressured to build out its web-based business, or some other new business in order to maintain profitability.

For fiscal 2020, the company is expecting a revenue decline of 6.9% and operating income decline of 12.6%. If this trend continues three years out, and the company repurchases 500,000 shares annually while maintaining a 7 yen per share dividend, investors can expect an investment CAGR of 6.5% over three years at an adjusted EV/EBIT of 1x.

In a more optimistic scenario, if Arbeit Times maintains 2019-level performance over the next three years, repurchased 700,000 shares annually, and maintained a 7 yen per share dividend, investors can expect an investment CAGR of 9.5% over three years at an adjusted EV/EBIT of 1x.

The bottom line

Arbeit Times operates a low to medium quality business, publishing free job search magazines and operating job search websites. While the company holds healthy assets with a historical focus on shareholder returns, its operating business – mostly paper-based publishing – has limited future growth opportunities. Investors can expect an investment CAGR of between 6.5% and 9.5%, inclusive of dividends, over the next three years.


Kenkyo Investing
Kenkyo Investing

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