Septeni Holdings Co., Ltd. (4293) Earnings Call Transcript & Summary

My name is Sato. Thank you for joining the business results meeting of Septeni Holdings despite your busy schedules. Today, I will present our business results focusing on Q3. This is the agenda for today. First, I will describe the consolidated earnings overview from Q1 to Q3 of this year. Then I will talk about the overview of the Q3 consolidated earnings, followed by segment-by-segment business results. In the latter half of the presentation, I will touch upon the revised earnings estimates and progress against the estimates. Page 4 shows the consolidated earnings overview from Q1 to Q3 of this year. For the group as a whole, both revenue and profit increased year-on-year and earnings per share, EPS, for the first 3 quarters exceeded the full year results of the previous year and was above initial estimates. Revenue was JPY 21.567 billion; operating profit, JPY 4.778 billion; and EPS, JPY 22.72. Year-on-year, revenue increased about 35%; operating profit, 59%; EPS, JPY 4.9. We posted growth in all 3 indicators. Page 5 is earnings highlights by business segment. The Digital Marketing Business, partly due to the newly consolidated company since January, posted high growth year-on-year, both in revenue and operating profit. As you see, revenue grew by 38%, operating profit by 36%. In the Media Platform Business, revenue showed a steady increase led by the Manga Content Business and operating loss decreased. Page 6 shows the outline of the consolidated income statement. As you see on the slide, we posted growth in all indicators. In addition to organic growth of the business, equity and earnings of affiliates grew, thanks to the new equity method affiliate this year then to digital. Furthermore, valuation gains on securities held through funds contributed significantly to financial income in the third quarter. As a result, profit for the period grew significantly. In short, organic growth plus increase in various profit factors contributed to the results. Here, we look at earnings trends by business segment for the first 3 quarters of this year. The Digital Marketing Business is in blue. The Media Platform Business is in red on Page 7. Driven by high growth in the Digital Marketing Business, both revenue and operating profit grew significantly. From Page 9 onwards is the consolidated earnings overview for April to June. The consolidated income statement shows solid growth in the top line. As I mentioned before, profit for the period was pushed up significantly. On a year-on-year basis, revenue grew by 35%, operating profit by 45%. Financial income posted tremendous growth year-on-year. Equity in earnings of affiliates, which was almost 0 last year, was very high. And as a result, profit for the period grew by over 50% year-on-year. The growth rate was higher than last year. Page 10 is the quarterly trend in consolidated earnings. So far, I discussed the results up to Q3. We started to see the effects of the new consolidation from Q2 with significant growth year-on-year in revenue. Page 11 is the breakdown of expenses. With the expansion of business, both cost of sales and SG&A grew year-on-year. But on a Q-on-Q basis, expenses were almost flat. This slide shows the quarterly consolidated SG&A trend. Every year in the third quarter in April, new graduates joined the company, leading to increasing labor costs, which pushes up overall expenses. This year, in April, 126 people joined the company, the highest ever increase in headcount for the company. From this page onward, let me explain each business segment. Page 14 is the summary for the Digital Marketing Business. The trend is similar to that of the consolidated income statement. In Q3, revenue and non-GAAP operating profit progressed smoothly with the addition of 2 newly consolidated companies. Both top line and bottom line numbers showed solid growth. Page 15 is the quarterly earnings trend. Year-on-year, revenue and operating profit increased. But with the new consolidation, operating profit margin declined slightly. Page 16 shows the Digital Marketing Business' progress in the business alliance with the Dentsu Group, which we have been disclosing every quarter. The gray portion is organic sales. The blue portion is Dentsu alliance sales. And the orange line is the share. In Q3, both organic sales and Dentsu alliance sales grew solidly year-on-year. Page 18 is the Media Platform Business earnings overview. Revenue reached a record high. We are currently in the investment phase, but the size of losses shrank. The steady increase in the top line led to the reduction of losses. Page 19 is the Media Platform Business quarterly earnings trend. Investments to expand into new business domains is included in the numbers for this business. But excluding these investments, we see steady decrease in losses. We are now entering a phase where we achieve return on investment as we grow the top line. Page 20 is the revenue trend of the Manga Content Business in the Media Platform Business. We disclosed numbers separately for advertisement and charge business. The numbers are indexed with volume in Q1 of 2018 index to 100. In Q3, we continued to post growth with charge revenue driving the growth. There is seasonality to advertising revenue, but it has bottomed out, and we are on a steady path to expansion. Page 21 is the Manga Content Business subscription revenue trend. We are seeing solid growth. Although Q3 is not a business season for the entertainment market, we posted growth with a year-on-year increase of 1.5x. As you see, the user base is accumulating steadily. Please turn to Page 22, which shows the commerce revenue trend of the Manga Content Business. Again, Q3 is not a busy season. Q2 and Q4 are the high season for commerce revenue. Yet we are seeing high revenue numbers. Sales of ebooks, in particular, of top GANMA! titles at partner bookstores is expanding significantly, leading to e-commerce revenue 1.9x as high as the previous year. High growth is continuing. Page 23 is a topic from the Manga Content Business. We have our own Manga and Anime Studio to develop IP. The enthusiasm of our customers is enhanced through our platform, leading to diverse revenue streams. Our popular series title on GANMA!, My Lv999 Love for Yamada-kun, won the grand prize of the 6th TSUTAYA Comic Awards run by TSUTAYA. We are very pleased with this achievement. The award winner of this comic award is determined by readership votes only. Supported by the enthusiasm of our fans, we were able to win this prestigious award. Enhancing the value of IP developed buyers significantly allowed us to expand business. You can see that a big hit IP in the Manga Content Business led to growth in our business. So far, I talked about the main topics for each business. Now let me turn to revised earnings estimates and progress towards the estimates. Page 25 is the revised full year earnings estimates. As we now have a clearer picture of progress in our business, we revised our guidance. High growth in the Digital Marketing Business increased in equity and earnings of affiliates, and valuation gains in securities held by the company are pushing up profits. This led to the upward revision of earnings estimates. For the full year, JPY 30 billion in revenue, JPY 6 billion in operating profit, JPY 4.85 billion in profit for the period, JPY 25.7 for EPS are the revised estimates. There is no change to revenue, but the numbers for operating profit, profit for the period and EPS are revised upward. Guidance on dividend and payout ratio was newly disclosed. Dividend is JPY 3.9 per share. Payout ratio is 15.2%. Year-on-year, dividend increases from JPY 3.4 to JPY 3.9 per share. Page 26 is the revision of full year earnings by segment. Consolidated revenue remains unchanged, but the breakdown between digital marketing and media platform is revised slightly. With it, operating profit in the digital marketing business is revised upward, which pushes up consolidated earnings. There is no change to the Media Platform business operating profit. Page 27 shows the progress towards the revised estimates. 71% in revenue, 79% in operating profit, 84% in profit for the period, all showing good progress against the estimate. For EPS, as I mentioned at the outset, EPS for Q1 to Q3 of this year is higher than the full year EPS of last year. And the full year estimate for this year is over JPY 25. During the year, we issued new shares, leading to a significant increase in the number of shares issued, but still EPS grew. This proves in numbers that the financing round was beneficial to the shareholders. Page 28 is the progress towards earnings estimates by segment. Finally, on Page 29 is the FY 2021 integrated report, which has already been disclosed. The FY 2021 integrated report was issued with content that has expanded from the previous year. Today's meeting focused on quarterly results, but the report discusses the growth image in the medium to long term, the enterprise value creation model that we have in mind, sustainability initiatives to ensure long-term growth. The report focuses more on medium- to long-term aspects, which are not topics in business results meetings. So please take a look at the integrated report. That concludes my presentation. Thank you for your participation. I look forward to your continued support of our group.