R Demae-can / 2484 COVERAGE INITIATED ON: 2017.12.25 LAST UPDATE: 2020.02.07 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. Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://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 ------------------------------------------------------------------------------------------------------------------------------------- 5 Recent updates ---------------------------------------------------------------------------------------------------------------------------------------- 6 Highlights ------------------------------------------------------------------------------------------------------------------------------------------------------------6 Trends and outlook ----------------------------------------------------------------------------------------------------------------------------------- 7 Monthly trends -----------------------------------------------------------------------------------------------------------------------------------------------------7 Quarterly trends and results -----------------------------------------------------------------------------------------------------------------------------------8 Q1 FY08/20 results ------------------------------------------------------------------------------------------------------------------------------------------------9 Initial forecasts for FY08/20 ----------------------------------------------------------------------------------------------------------------------------------- 12 Historical forecast accuracy ---------------------------------------------------------------------------------------------------------------------------------- 13 Medium-term management plan -------------------------------------------------------------------------------------------------------------------------- 14 Business ------------------------------------------------------------------------------------------------------------------------------------------------ 17 Business description -------------------------------------------------------------------------------------------------------------------------------------------- 17 Demae-can business -------------------------------------------------------------------------------------------------------------------------------------------- 17 Mail Order business -------------------------------------------------------------------------------------------------------------------------------------------- 26 Group companies ----------------------------------------------------------------------------------------------------------------------------------------------- 26 Market overview ------------------------------------------------------------------------------------------------------------------------------------------------- 27 Information on competitors ---------------------------------------------------------------------------------------------------------------------------------- 29 Strengths and weaknesses ------------------------------------------------------------------------------------------------------------------------------------ 30 Historical performance ---------------------------------------------------------------------------------------------------------------------------- 32 Income statement ----------------------------------------------------------------------------------------------------------------------------------------------- 32 Parent earnings --------------------------------------------------------------------------------------------------------------------------------------------------- 33 Segment earnings ----------------------------------------------------------------------------------------------------------------------------------------------- 35 Balance sheet ----------------------------------------------------------------------------------------------------------------------------------------------------- 36 Cash flow statement -------------------------------------------------------------------------------------------------------------------------------------------- 38 Other information ---------------------------------------------------------------------------------------------------------------------------------- 39 ESG-related -------------------------------------------------------------------------------------------------------------------------------------------------------- 39 Shareholder returns--------------------------------------------------------------------------------------------------------------------------------------------- 39 Top management ----------------------------------------------------------------------------------------------------------------------------------------------- 40 Major shareholders --------------------------------------------------------------------------------------------------------------------------------------------- 40 Employees --------------------------------------------------------------------------------------------------------------------------------------------------------- 41 Historical performance, news and topics ---------------------------------------------------------------------------------------------------- 42 Historical performance ---------------------------------------------------------------------------------------------------------------------------------------- 42 News and topics ------------------------------------------------------------------------------------------------------------------------------------------------- 55 Profile --------------------------------------------------------------------------------------------------------------------------------------------------- 56 02/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Executive summary Business overview Main businesses: The company’s main businesses are its Demae-can business and its mail order business for restaurants. The ◤ Demae-can business reported total revenue of JPY5.4bn and an operating loss of JPY18mn in FY08/19, while the mail order business reported revenue of JPY1.3bn and an operating profit of JP224mn. Under its Demae-can business, the company operates a dedicated online platform through which consumers looking for speedy home delivery service (in as little as 20 minutes) can order food from affiliated restaurants. Most of the revenues from the Demae-can business are obtained through the company’s function as an intermediary in the restaurant food home delivery process and the various fee income that it collects from the restaurants for its services in this capacity. Competitors and market share: In the US, Grubhub, Inc. (NYSE: GRUB) has the same business model; in Japan, direct ◤ competitors include Uber Eats and Rakuten Delivery (Rakuten, TSE1: 4755). Following the sale of its overseas subsidiary, the company has operated solely in the domestic market since September 2018. The company estimates that it had roughly an 11% share, as well as a gross merchandise volume of approximately JPY77.0bn in the home food delivery market in Japan (company estimate for FY08/19). Outsourced delivery service (Sharing Delivery): Sharing Delivery is the company’s online platform that provides home ◤ delivery services to restaurants that do not operate their own delivery service. Some of the delivery bases used for Sharing Delivery are operated directly while others are operated through partnerships with other companies, allowing the company to operate a high-quality delivery service that is also efficient. Sharing Delivery depended heavily on partner companies early on, but the company has steadily increased the proportion of delivery bases it operates directly and, as of the end of FY08/19, was directly operating 115 bases versus 100 operated by partner companies. The company says it is looking to create more than a simple food delivery service; it wants to create “life infrastructure.” Key Performance Indicators: The company discloses three key performance indicators that it watches closely: the number ◤ of orders, the number of affiliated restaurants, and the number of active users. For FY08/19, the company reported a total of 28.45mn orders, 19,911 affiliated restaurants, and some 3.0mn users. Growth in the number of orders flows leads directly to growth in top-line revenue, while the number of affiliated restaurants and active users together create the base for continued order growth. In addition, the number of delivery bases established for the company’s Sharing Delivery service also serves