Thinking Points

  • Career Design Center (TSE1: 2410) is a human resources services company operating one of Japan’s leading job search sites, type. 
  • More recently, the company has faced intensifying competition in its core Media Information business (which operates type) even before the novel coronavirus affected the company.
  • Meanwhile its IT Worker Dispatch business has grown at double-digit CAGR, although this has also slowed down in light of the pandemic.
  • At 867 yen per share, CDC trades at 5.5x EV/EBIT (TTM) with a market capitalization of JPY5.9bn.
  • Investors can expect an investment CAGR of between -13.3% and 5.3%, inclusive of dividends, over a three to five year period.

Introduction

Career Design Center (TSE: 2410) is a human resources services company operating one of Japan’s leading job search sites, type. Target areas include IT engineering, sales, and women. The company also runs a fast growing IT Worker Dispatch business.

The company runs a single segment operation, but provides five sales categories:

Source: Kenkyo Investing, based on company filings

More recently, Career Design Center has been severely impacted by the novel coronavirus outbreak, recording a loss in Q3 FY09/20 (non-cumulative). The Media Information business, which requires upfront investment in advertising, was heavily affected in particular. On a cumulative basis, sales were down 3.7% YoY, and the company expects Q4 to be worse as the business environment for Media Information, Recruiting Agency, and New Graduate Introduction businesses deteriorate.

The business & environment

Career Design Center was founded by a former director of Recruit Holdings (TSE1: 6098), one of Japan’s biggest recruitment services and the parent company of US-based Indeed. CDC caters to career-minded people in their 30s, specifically targeting IT engineers, salespeople, and women looking for full-time permanent positions.  

The company is best known for its job search site, @type, which is among Japan’s largest. Other major job search sites include Rikunabi Next by Recruit Holdings, Mynavi Tenshoku by Mynavi Corporation (private), doda by Persol Holdings (TSE1: 2181), and ecareer by Softbank Group (TSE1: 9434). 

In recent years, however, CDC has noted the intensifying competition in its Media Information business, which includes the operation of @type. The company has seen recurring profits fall since FY09/18.

Source: Kenkyo Investing, based on company data

Still, CDC has grown its top-line consistently since the global financial crisis. Recent growth has been driven by the IT Worker Dispatch business, where the company picks mostly IT engineers from its internal database of job seekers and dispatches them to client companies. This business has delivered a top-line CAGR of 38.5% between FY09/11 and FY09/19.

Source: Kenkyo Investing, based on company data

More recently, Career Design Center has been severely impacted by the novel coronavirus outbreak, recording a loss in Q3 FY09/20 (non-cumulative). The Media Information business, which requires upfront investment in advertising, was particularly affected. 

On a cumulative basis, sales were down 3.7% YoY, and the company expects Q4 to be worse as the business environment for Media Information, Recruiting Agency, and New Graduate Introduction businesses deteriorate.

While Japan’s tight labor market has eased up since the novel coronavirus outbreak, given the country’s shrinking workforce, it’s fair to assume that the industry environment would revert to pre-corona conditions after the pandemic is settled.

One key risk for CDC is type’s stagnating user registration numbers despite the pandemic forcing an online shift for job seekers. It’s also important to note that the company’s growing IT Worker Dispatch business isn’t exactly independent of type as it relies on the type to attract IT personnel. 

With intensifying competition in the Media Information business, the lack of a barrier to entry in the growing IT Worker Dispatch business, and access to similar information among competitors (i.e., job requirements, job seeker skillset), it may be naive to assume that growth will continue at double-digit CAGR post-corona. 

For FY09/20, CDC initially forecasted sales of JPY13.1bn (+8.1% YoY), operating profit of JPY1,250mn (+25.6% YoY), recurring profit of JPY1,250mn (+24.6% YoY), and net income of JPY862mn (+19.5% YoY). However, it withdrew its forecast on April 30, 2020, when it announced 1H results. 

As of Q3 FY09/20, the company reported sales of JPY8.6bn (-3.7% YoY), operating profit of JPY182mn (-70.9% YoY), recurring profit of JPY202mn (-68.2% YoY), and net income of JPY125mn (-74.4% YoY).

Shareholders

As of Q3 FY09/20 (ending June 30, 2020), Career Design Center had 7,054,400 shares issued and 304,328 shares in treasury, putting outstanding shares at 6,750,072.

Here are the major shareholders:

Source: Kenkyo Investing, based on company data & Nikkei

Founder-CEO Hiromi Tada owns a significant non-controlling stake. He has not bought or sold shares in recent years.

In terms of shareholder returns, CDC repurchased 0.6% of outstanding shares in FY09/16 and 1.8% of outstanding shares in FY09/17 through Tostnet-3 transactions, which are often driven by significant shareholders approaching the listed company to unload a meaningful stake. As for dividends, the company has historically maintained around a 30% payout ratio since FY09/11, but did not pay dividends through the global financial crisis.

Financials & Valuation

  • Career Design Center is a human resources services company operating one of Japan’s leading job search sites, type. 
  • More recently, the company has faced intensifying competition in its core Media Information business (which operates type) even before the novel coronavirus affected the company.
  • Meanwhile its IT Worker Dispatch business has grown at double-digit CAGR, although this has also slowed down in light of the pandemic.
  • At 867 yen per share, CDC trades at 5.5x EV/EBIT (TTM) with a market capitalization of JPY5.9bn.
  • Investors can expect an investment CAGR of between -13.3% and 5.3%, inclusive of dividends, over a three to five year period.

Career Design Center operates one of Japan’s leading job search sites, type. Additionally, through its fast-growing IT Worker Dispatch business, the company leverages its access to information such as job requirements and job seeker skillset to provide client companies with IT personnel. 

At the same time, CDC faces rising competitive pressures in its mainstay Media Information business, which may also flow into its IT Worker Dispatch business moving forward. Although the company’s recent growth has been driven by specifically focusing on the IT field and narrowing its target market to people in their 30s, there are no obvious barriers to entry. If industry titans like Recruit and Persol leverage their resources and mindshare to expand into more specialized services, this may affect CDC. With that said, it’s also possible that CDC is an acquisition target for industry leaders.

Excluding the potential M&A activity, it’s prudent to view CDC as a small business with a more grounded post-COVID recovery or growth scenario. This is especially true given that the company has no clear competitive advantage other than the fact that it targets specific markets.

As an optimistic case, if we assume CDC makes a full recovery to JPY900mn level operating profit in FY09/23 with a fair value EV/EBIT multiple of around 4x, investors can expect an investment CAGR of around 5.3%, inclusive of dividends, over three years.

In a more grounded scenario, where recovery takes five years (FY09/25), investors can expect an investment CAGR of 5.0%, inclusive of dividends. It’s important to keep in mind that small Japanese companies with a broken growth case often trade lower than 4x EV/EBIT, so the downside may be greater. 

Although CDC’s business has changed dramatically over the last decade and a half, particularly with the rise of its IT Worker Dispatch business, it took roughly 10 years for operating profits to recover to FY09/06 levels following the global financial crisis. The IT Worker Dispatch business appears to offer more stability compared to the rest of CDC’s businesses in the near term, which will likely prevent a 2008-level sharp decline (90+%) in share prices. As a reference, CDC shares are down about 34.7% YoY as of September 7, 2020. For the purpose of making reasonable worst case estimates, we will assume an EV of 0 in FY09/23 as the worst case scenario. 

Overall, investors can expect an investment CAGR of between -13.3% and 5.3%, inclusive of dividends, over a three to five year period. 

The bottom line

Career Design Center operates one of Japan’s leading job search sites in an increasingly competitive industry environment. Although the company has a solid double-digit CAGR growth record since the end of the global financial crisis, the upcoming years may prove challenging given the COVID situation and growing competitive pressures. As such, a more grounded view of the business is prudent, and investors can expect an investment CAGR of between -13.3% and 5.3%, inclusive of dividends, over the next three to five 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.