R Yume no Machi Souzou Iinkai / 2484 COVERAGE INITIATED ON: 2017.12.25 LAST UPDATE: 2018.08.10 Shared Research Inc. has produced this report by request from the company discussed herein. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, neutral analysis. To highlight any biases, we clearly attribute our data and findings. We always present opinions from company management as such. The views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg. Research Coverage Report by Shared Research Inc. Yume no Machi Souzou Iinkai / 2484 RCoverage LAST UPDATE: 2018.08.10 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp INDEX How to read a Shared Research report: This report begins with the Trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the later Business section. Executive summary ----------------------------------------------------------------------------------------------------------------------------------- 3 Key financial data ------------------------------------------------------------------------------------------------------------------------------------- 4 Recent updates ---------------------------------------------------------------------------------------------------------------------------------------- 5 Highlights ------------------------------------------------------------------------------------------------------------------------------------------------------------5 Trends and outlook ----------------------------------------------------------------------------------------------------------------------------------- 6 Monthly trends -----------------------------------------------------------------------------------------------------------------------------------------------------6 Quarterly trends and results -----------------------------------------------------------------------------------------------------------------------------------7 Q3 FY08/18 results (out June 27, 2018) -------------------------------------------------------------------------------------------------------------------8 Full-year company forecasts --------------------------------------------------------------------------------------------------------------------------------- 16 Medium-term outlook ----------------------------------------------------------------------------------------------------------------------------------------- 17 Medium-term management plan (out October 12, 2017) ---------------------------------------------------------------------------------------- 18 Business ------------------------------------------------------------------------------------------------------------------------------------------------ 28 Business description -------------------------------------------------------------------------------------------------------------------------------------------- 28 Strengths and weaknesses ------------------------------------------------------------------------------------------------------------------------------------ 39 Historical performance ---------------------------------------------------------------------------------------------------------------------------- 40 Income statement ----------------------------------------------------------------------------------------------------------------------------------------------- 40 Parent earnings --------------------------------------------------------------------------------------------------------------------------------------------------- 41 Segment earnings ----------------------------------------------------------------------------------------------------------------------------------------------- 42 Balance sheet ----------------------------------------------------------------------------------------------------------------------------------------------------- 43 Cash flow statement -------------------------------------------------------------------------------------------------------------------------------------------- 46 Other information ---------------------------------------------------------------------------------------------------------------------------------- 47 ESG-related -------------------------------------------------------------------------------------------------------------------------------------------------------- 47 Shareholder returns--------------------------------------------------------------------------------------------------------------------------------------------- 48 Top management ----------------------------------------------------------------------------------------------------------------------------------------------- 49 Major shareholders --------------------------------------------------------------------------------------------------------------------------------------------- 49 Employees --------------------------------------------------------------------------------------------------------------------------------------------------------- 49 Historical performance, news and topics ---------------------------------------------------------------------------------------------------- 50 Historical performance ---------------------------------------------------------------------------------------------------------------------------------------- 50 1H FY08/18 results (out March 29, 2018) --------------------------------------------------------------------------------------------------------------- 50 FY08/17 results (out October 12, 2017) ----------------------------------------------------------------------------------------------------------------- 57 News and topics ------------------------------------------------------------------------------------------------------------------------------------------------- 61 Profile ---------------------------------------------------------------------------------------------------------------------------------------------------------------- 62 02/63 Yume no Machi Souzou Iinkai / 2484 RCoverage LAST UPDATE: 2018.08.10 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Executive summary The name “Yume no Machi Souzou Iinkai” (“Committee to Create a Dream Town”) reflects management’s desire to offer innovative services. President Nakamura explains the company’s mission of expanding earnings while creating new socially beneficial systems: “We want our employees to experience the struggles and joys of starting up a business and grow while providing satisfaction to many people.” The company core is food delivery platform Demae-can, contributing 71% of revenue and 77% of operating profit in FY08/17. Enabling food delivery in just 20 minutes, Demae-can has successfully attracted both restaurants and consumers. The company sees FY08/18–FY08/20 as a period to focus on Demae-can growth. In the first two years, the aim is to spend aggressively on advertising and promotion despite temporarily reducing profitability. In the third year, management looks to return OPM to normal levels and then increase margins through revenue growth. Increasing market share by promoting online food orders Japan’s food delivery market is worth about JPY600bn. The company aims to help shift half of that market (about JPY300bn) online and to capture roughly half of that online delivery market (about JPY150bn). As of FY08/17, about 15% (JPY90bn) of orders were placed online; telephone orders made up the remaining 85%. From Demae-can’s gross merchandise value (roughly JPY47bn), we infer that it already has roughly half of the market. The other half comprises restaurants with proprietary delivery methods, such as pizza delivery operators; some restaurants in this category also use the company’s services. Expanding online orders is expected to drive market expansion. The company is trying to win new users (through partnerships with NTT Docomo, Inc. [TSE1:9437] and LINE Corporation [TSE1: 3938], and increasing the number of affiliated restaurants) and increase the repeat order rate of existing users. Expanding food delivery market To expand the food delivery market in FY08/17, Yume no Machi launched Sharing Delivery™, which provides outsourced delivery services to restaurants. Of Japan’s roughly 600,000 restaurants, only 30,000 have their own delivery services. Through Sharing Delivery™, the company aims to create new opportunities for restaurant operators. Sharing Delivery™ is based on the company’s twofold management philosophy: contribute to revitalization of local restaurants and give consumers access to a more attractive product selection. Medium-term management targets 100% Revenue YoY (left axis) 9.4 10 3,500 Operating profit OPM (right axis) 35% 90% 9 3,000 2,861 30% 80% 8 7.1 70% 7 2,500 25% 60% 5.4 6 4.9 2,000 20% 50% 5 4.2 1,480 1,500 15% 40% 3.6 3.7 4 30% 3 819 2.1 1,000 801 10% 573 20% 1.4 2 547 1.2 1.3 362 500 278 5% 10% 1 234 244 211 0% 0 0 0% FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 Est. Est. (JPYbn) (JPYmn) Est. Est. Source: Shared Research based on company data In October 2017, the company unveiled a management plan through FY08/20 (rolling plan subject to annual review). The plan calls for aggressive investment to accelerate growth in the core Demae-can business. Gross merchandise value of JPY120bn and 20% market share are