WORLD HOLDINGS 2429
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2022-05-13
2022-04-08
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Fukuoka Asahi Building 6F, 2-1-1 Hakata Ekimae, Hakata-ku, Fukuoka-shi, Fukuoka Prefecture 812-0011
Summary
World Holdings Co., Ltd. is a pure holding company with 33 consolidated subsidiaries under its umbrella and operates in four business domains. The Human Resources and Education business mainly provides subcontracting and staffing for various professional services. The Real Estate business focuses on new condominium development and renovations. The Information and Telecommunications business is mainly engaged in mobile phone handset sales, and the Other businesses cover management of agricultural park facilities.
Professional ServicesReal Estate Management & DevelopmentDiversified Telecommunication ServicesCommercial Services & SuppliesHotels, Restaurants & Leisure
Key dates
2020-09-18
Coverage initiation
Executive summary
Business overview
World Holdings Co., Ltd. is a pure holding company with 34 consolidated subsidiaries under its umbrella and operates in four business domains. The Human Resources and Education business (67.1% of total revenue and 69.6% of total operating profit) mainly provides subcontracting and staffing for various professional services. The Real Estate business (23.7%, 29.2%) focuses on new condominium development and renovations. The Information and Telecommunications business (6.0%, 1.2%) is mainly engaged in mobile phone handset sales, and the Other businesses (2.5%, 0.1%) cover management of agricultural park facilities (revenue and operating profit weightings based on FY12/21 results).
World Holdings uses its diverse business portfolio to hedge against market fluctuation and other business risks. It operates across a range of geographic regions and industries, and incorporates both recurring-revenue business (Human Resources and Education, Information and Telecommunications) and one-time revenue business (Real Estate). While the Human Resources and Education business represents the bulk of its operations, the company has expanded into other businesses as well. Launched in December 2005, the Information and Telecommunications business helped offset the slump in the staffing business amid the global financial crisis in 2008. The crisis also left the real estate industry with a dwindling number of players, and World Holdings capitalized on that opportunity to make a full-fledged push into the Real Estate business in 2010.
The core Human Resources and Education business consists of four segments. The factory staffing business (45.4% of total revenue, 35.6% of segment operating profit) runs staffing and subcontracting in the manufacturing industry. The technology staffing business (11.9%, 21.9%) conducts tech staffing and subcontracting. The R&D staffing business (5.1%, 8.7%) conducts research and development staffing and subcontracting, and the sales and marketing staffing business (4.7%, 3.4%) provides sales and call center staffing. With its focus on the manufacturing industry (production processes, R&D), the company’s strength lies in blue-collar staffing and subcontracting. The company has achieved substantial growth in the fields of semiconductors and machinery-related manufacturing, and it further expanded into third-party logistics (3PL) in 2012 when it began handling logistics duties for Amazon Japan (Amazon Japan is now a major customer, accounting for 17.7% of companywide revenue and 38.8% of revenue in the factory staffing business in FY12/21). The company has also been working to augment its business portfolio by expanding its scope beyond manufacturing to design and development of machinery and electronics, as well as R&D for pharmaceuticals and biotechnology. Most recently, it has also been spreading out into white-collar staffing services.
The Human Resources and Education business has a labor-intensive earnings structure. Earnings in subcontracting are determined by the formula “revenue = number of contracts x contract value.” In the staffing business, the formula is “revenue = number of registered workers x billing rates,” and ongoing revenues are generated commensurate with the number of registered workers. Registrations have been on the rise in the years since the global financial crisis, and billing rates as well have been growing.
The Real Estate business began in earnest in 2010, after the global financial crisis, by launching development operations in Japan’s central Kanto region. The company is particularly adept at the “seed lot” business. It makes strategic purchases of small parcels of land (“seed lots”), negotiates for the rights to surrounding land, and then puts them up for either sale or joint development. The company primarily develops and sells new condominiums (of 20 to 60 units selling for an average of around JPY26mn per unit). For large development projects it mostly teams up with major developers. The company also excels in renovation, i.e., fixing up and adding new value to pre-owned properties, and most recently it has been venturing into conversion work as well, in which it redesignates the use of existing buildings, fully refurbishes them, and converts them to new buildings.
Lead times in the Real Estate business, from sourcing through design, construction, completion, and sale, vary depending on property type. In condominium development, lead times are long, taking two to three years from sourcing to handover, and capital turnover is slow. Conversely, detached homes and conversion have lead times of six to 12 months. Renovation is a one-time revenue business with lead times of four to six months. Prefabricated homes and property management are high capital turnover, recurring-revenue businesses with revenues generated on an ongoing basis over the duration of contract. The formula for the Real Estate business is “revenue = revenue generated along the duration vector (time of property delivery, month-to-month) x the quantity of respective properties).” The company works to ensure stability within the Real Estate business by diversifying its portfolio over business type, capital turnover times, and recurring vs. one-time revenue operations.
Trends and outlook
World Holdings posted FY12/21 revenue of JPY154.7bn (+7.8% YoY), operating profit of JPY7.5bn (+19.7%), recurring profit of JPY7.7bn (+14.0%), and net income attributable to owners of the parent of JPY4.6bn (-21.8%). Operating profit rose thanks to a JPY1.6bn increase in the Human Resources and Education business, which offset a JPY573mn drop in the Real Estate business. Seamless collaboration between the factory staffing business and the technology staffing business, as well as inter-group collaboration helped create demand and drive growth. The company focused on personnel development to boost the skills and qualifications of its staff and provide higher quality technological expertise.
The company’s FY12/22 forecast calls for revenue of JPY168.8bn (+9.1% YoY), operating profit JPY6.2bn (-16.5%), recurring profit JPY6.1bn (-21.8%), and net income attributable to owners of the parent JPY3.9bn (-16.5%). For 1H, it forecasts revenue of JPY77.3bn (+18.8% YoY), operating profit JPY1.1bn (-53.8% YoY), recurring profit JPY1.0bn (-60.1% YoY), and net income attributable to owners of the parent JPY628mn (-66.7% YoY). The company has formulated a new medium-term management plan and has positioned FY12/22 as a year for upfront investment under the five-year plan.
Strengths and weaknesses
Strengths
・ Business portfolio conducive to well-balanced risk hedging against changes in business conditions and industry fluctuation.
・ In its core Human Resources and Education business, the company has differentiated itself from competing staffing companies by expanding its range of subcontracting schemes.
・ One-stop services from upstream to downstream manufacturing processes (from R&D through design and development, manufacturing, logistics, and repair work).
Weaknesses
・ Inter-segment fragmentation leads to inefficient resource allocation and keeps low-profit businesses artificially alive.
・ Little sign of disciplined judgment in business development.
・ High dependency on the company’s owner in the Real Estate business puts sustainable operations at risk.
Key financial data
Note: Figures may differ from company materials due to differences in rounding methods.
Recent updates
Announcement of upward revision of dividend forecast
On May 12, 2022, World Holdings Co., Ltd. announced an upward revision of year-end dividend forecast for FY12/22.
The company has revised upward its FY12/22 year-end dividend forecast in light of recent performance trends and other factors.
Revised dividend forecast: JPY80 per share (previous forecast as of February 9, 2022 was JPY66.4 per share)
Trends and outlook
Quarterly trends and results
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Segment profit margins are calculated using segment revenue for results and segment revenue from external customers for forecasts.
Q1 FY12/22 results
Overview:
Key takeaways
Revenue in Q1 FY12/21 rose JPY7.7bn YoY to JPY40.7bn. By segment, revenue was up JPY5.9bn YoY in Human Resources and Education, up JPY2.0bn YoY in Real Estate, down JPY286mn YoY in Information and Telecommunications, and up JPY99mn YoY in Agricultural Park. The core Human Resources and Education business performed well.
Operating profit declined JPY468mn YoY to JPY1.2bn. By segment, operating profit was up JPY392mn YoY in Human Resources and Education, down JPY797mn YoY in Real Estate, down JPY41mn YoY in Information and Telecommunications, and down JPY21mn YoY in Agricultural Park. Segment profit in the Human Resources and Education business was significantly higher than the company's Q1 forecast.
Revision of earnings forecast: None
FY12/22 outlook
Numerical targets
The company’s FY12/22 forecast calls for revenue of JPY168.8bn (+9.1% YoY), operating profit JPY6.2bn (-16.5%), recurring profit JPY6.1bn (-21.8%), and net income attributable to owners of the parent JPY3.9bn (-16.5%). For 1H, it forecasts revenue of JPY77.3bn (+18.8% YoY), operating profit JPY1.1bn (-53.8% YoY), recurring profit JPY1.0bn (-60.1% YoY), and net income attributable to owners of the parent JPY628mn (-66.7% YoY). The company has formulated a new medium-term management plan and has positioned FY12/22 as a year for upfront investment under the five-year plan.
Segment breakdown
Segment change
The company changed its business segments in FY12/22 (see table below). The company reorganized the four businesses comprising the Human Resources and Education segment into the manufacturing-related products HR Business (former factory staffing, technology staffing, and R&D staffing businesses) and the service-related service HR Business (former sales and marketing staffing and logistics businesses). The logistics business, which was previously part of Factory staffing, was integrated with the service HR business.
Medium-term management plan
New Medium-term Management Plan 2026 (FY12/22– FY12/26)
Numerical targets
The company unveiled its New Medium-term Management Plan 2026 on February 24, 2022. FY12/26 targets are revenue of JPY275bn, operating profit of JPY15bn, and a dividend payout ratio of 30%.
Note: Figures may differ from company materials due to differences in rounding methods.
Overall strategy
Purpose
The company has newly defined its purpose as: "Contribute to happiness and a sustainable society through the creation of a variety of ways we live worldwide" and describes each business, defined as businesses that support the ways we live, as follows (excerpts from company materials).
best match their skills and goals in order to enable them to experience the joy and satisfaction of work. By providing training, we give people the skills to achieve their full potential, which supports the growth and advancement of businesses.
enjoyable and fulfilling lives. By designing these communities, we provide an environment for vibrant
and satisfying lifestyles. Activities place priority on preserving the environment and natural resources in
order to be a responsible member of society.
Human Resources and Education business
The company plans to deepen the Products HR business, which serves the manufacturing sector, to broaden the range of services offered. The business seeks to retain employees by providing education to achieve further growth.
Strategic direction
Products HR business
Service HR business
Real Estate business
Real estate prices remain high as the property bubble continues. The company believes it is essential to identify the turning point in market trends amid the ongoing uncertainty of outlook, and takes the basic stance of growth on an appropriate scale without overreaching.
The Real Estate business includes development of condominiums, commercial land, and detached houses, condominium management, property renovation (renovations, conversions, regional redevelopment, rebuilding condominiums), and finance (asset management and REIT). The company is expanding into real estate finance in addition to strengthening its physical real estate business that harnesses its expertise in commercial land development.
Strategic direction
Information and Telecommunications business
The role of physical stores is changing amid the price war among carriers and subscription plans only available online. The company aims to evolve from a mobile phone reseller into a community partner that provides a full package of services and solutions by expanding and enhancing its business portfolio.
Strategic direction
Agricultural Park business
Local governments are increasingly outsourcing the management of public parks to the private sector amid the growing popularity of outdoor activities.
Strategic direction
Business
Business model overview
Business segments
World Holdings operates in four business domains. The Human Resources and Education business (67.1% of total revenue and 69.6% of total operating profit in FY12/21) mainly provides subcontracting and staffing for the manufacturing sector. The Real Estate business (23.7%, 29.2%) focuses on new condominium development and renovations. The Information and Telecommunications business (6.0%, 1.2%) is mainly engaged in mobile phone handset sales, and the Other businesses (2.5%, 0.1%) cover management of agricultural park facilities (weightings based on FY12/21 results). In its mainstay Human Resources and Education business, the company provides subcontracting and staffing services focused on full-time employment or regularly employed worker dispatching. It is particularly adept at blue collar and R&D professions, and covers general professions to some extent as well. The company is also actively working to tap into new fields. Unusual for a staffing service company, World Holdings has expanded into third party logistics (3PL) operations in e-commerce logistics (sorting, packaging, etc.), which it is cultivating into a core business. In addition, the company is expanding into the materials and tourism industries in collaboration with industry majors.
Segment change
The company changed its business segments in FY12/22 (see table below). The company reorganized the four businesses comprising the Human Resources and Education segment into the manufacturing-related products HR Business (former factory staffing, technology staffing, and R&D staffing businesses) and the service-related service HR Business (former sales and marketing staffing and logistics businesses). The logistics business, which was previously part of factory staffing, was integrated with the service HR business.
Revenue of the factory staffing business was JPY70.7bn, of which revenue from Amazon Japan was JPY27.4bn in FY12/21 based on the company's securities report. The logistics business (including work for Amazon Japan) will be integrated with the sales and marketing staffing business. Accordingly, an estimated breakdown of revenue of the Human Resources and Education business of JPY104.5bn is JPY70bn for the products HR business and JPY35bn for the service HR business.
History of business expansion
Origins
World Holdings traces its roots back to Mikuni Sangyo (now Mikuni Co., Ltd.), founded in 1981 by Eikichi Iida (the company’s president). Mikuni originally handled built-to-order and built-for-sale housing, but it currently runs general real estate operations under World Holdings’ umbrella. Having survived the bursting of Japan’s bubble economy in February 1991, Iida sought out other lines of business, and in February 1993 he founded the blue-collar staffing and subcontracting company World Intec Co., Ltd. (the core unit of World Holdings). The company’s growth got a boost in March 2004 when the revised Worker Dispatching Act lifted the ban on dispatching on-site workers for manufacturing industries.
Leads the industry in formulating a manufacturing subcontracting standards manual
From 2006 to 2007, fraudulent subcontracting at manufacturers such as Canon (TSE1: 7751) and Panasonic (TSE1: 6752) emerged as a public scandal. The underlying issue was the lack of clear distinction between worker staffing and subcontracting. In 2005, World Holdings led the industry in compiling its own manufacturing subcontracting standards manual. By obtaining certification from labor regulators, the company established the standards for manufacturing contracting that clearly separates subcontracting from staffing. By doing so, it was able to differentiate itself from its competitors and build up a successful track record in the subcontracting business. The industry shakeout triggered by the fraudulent subcontracting scandal presented an opportunity, which the company seized upon to accelerate the transition of manufacturing staffing to subcontracting. Meanwhile, one of the company’s greatest strengths is government-corporate collaboration, which it has leveraged to advocate for employee training, job creation, and employment stability.
The value World Holdings delivers to its customers
Thanks to its manufacturing subcontracting standards manual, the company is able to satisfy the standards for staffing and subcontracting business (Ministry of Labour notice no. 37) as well as adapt flexibly to its customers’ needs by fully leveraging the mechanisms of both types of business. It uses staffing contracts for all work outside the purview of the subcontracting standards manual, while also pursuing the transition to subcontracting during the duration of the staffing contract.
The subcontracting business has the advantage of building up employee skills and expertise since the company’s team assumes the core work pertaining to design, development, and production. It also facilitates the securing of long-term ongoing contracts. Manufacturers also benefit from stable operations of production lines and the securing of technology successors. The disadvantage of subcontracting for the company (subcontractor) is that it has to burden additional costs incurred by failing to complete the work by the contract date.
In the staffing business, the company can anticipate revenue commensurate with the number of registered workers. The disadvantage is that it has to keep regularly employed staffing workers on the payroll even when they are on standby due to a shortage of customer demand. There are also barriers to reducing salaries accordingly when staffing fees are reduced.
World Holdings has dedicated itself to three main prerequisites for powering its competitive edge: (1) compliance, (2) rigorous employment training to enable the execution of subcontracted production work, and (3) the financial base required for investments in personnel and subcontracting. Handling warehousing for Amazon Japan has enabled the company to make a name for itself in the 3PL industry, and what helped it achieve this is its highly rated track record pertaining to the mechanisms and productivity of its subcontracting services.
Transition to a holding company
The company expanded into the Information and Telecommunications business in December 2005, and by leveraging the features of recurring revenue business, it partly compensated for the slump in the staffing business when the global financial crisis hit in 2008, and managed to weather the crisis. Capitalizing on the shrinking number of players in the real estate industry following the crisis, the company made a full-fledged push into the Real Estate business in 2010 as a condominium developer. On July 1, 2014, it transitioned to a holding company structure (the present-day World Holdings). The company has conducted a number of M&A in the same industries it operates in as well as in different industries, such as the acquisition of the agricultural park management business, and most of these were corporate rehabilitation offers, the main exceptions being Hoeikensetsu Co., Ltd. (which has now been sold off) and Mikuni Co., Ltd. (President Iida’s original company).
Balanced management using optimal scale to generate ongoing optimal profits
Multiple cornerstone businesses, including staffing and real estate
World Holdings aims to build a business structure resistant to the impacts of changes in the socioeconomic and business environments. In fact, it has achieved stable business management by running its business in a well-balanced way, using geographic and industry diversification and incorporating both recurring-revenue and one-time revenue businesses. It has also conducted numerous M&A in the same industries it operates in as well as in different industries (most of them corporate rehabilitations). It currently has multiple cornerstone businesses, including the Human Resources and Education business and Real Estate business. These segments respectively cover different business domains, and this accords the double benefits of mutual defense against the impact of fluctuation in individual industries as well as the dispersion of business resources.
Optimal scale business
Since founding the company, President Iida has undertaken a variety of businesses, from real estate to the staffing and education business, information and telecommunications, and agricultural parks management. Along with business domain expansion, Mr. Iida has worked to ensure business management of suitable scale. He asserts that limiting the company’s main and subordinate businesses to three each holds the key to successfully running an optimally balanced, stable business. Rather than chasing the top position in each individual business, President Iida places higher priority on generating optimal profit on an ongoing basis using the optimal scale conducive to control under a holding company structure.
Recurring-revenue and one-time revenue businesses
Human Resources and Education business
The Human Resources and Education business is basically a recurring-revenue business. Staffing is a labor-intensive business, with earnings determined by the formula “revenue = number of registered workers x billing rates,” and generates ongoing revenues commensurate with the number of registered workers. Worker registrations have been on the rise in the years since the global financial crisis of 2008, and billing rates as well have been growing. When retention and utilization rates of registered workers are stable, there is little fluctuation in revenue and the business can secure stable earnings.
Real Estate business
The Real Estate business primarily develops and sells new condominiums (of 20 to 60 units, selling for an average price of around JPY26mn per unit). The company also focuses on renovation, i.e., fixing up and adding new value to pre-owned properties, and most recently it has been venturing into conversion work as well, in which it redesignates the use of existing buildings, fully refurbishes them, and converts them to new buildings. The company’s four regional subsidiaries (respectively covering the Greater Tokyo area, and the Tohoku, Kinki, and Kyushu regions) run community-rooted businesses as mid-sized developers of condominiums designed for families, and the company is engaged in renovation nationwide.
Development and conversion are basically one-time revenue businesses. The company sees its renovation operations as close to a recurring-revenue business since its steady procurement and a large customer base enable it to obtain ongoing orders. Prefabricated home rentals, property management, and asset management (REITs, funds) are recurring-revenue businesses.
The Real Estate business consists of a variety of operations of varying capital turnover. In condominium development, lead times are long, taking two to three years from sourcing to handover, and capital turnover is slow. Conversely, detached homes and conversion have lead times of six to 12 months. Renovation has lead times of four to six months. Prefabricated homes and property management are high capital turnover recurring-revenue businesses with revenue generated on an ongoing basis during the duration of contracts. The formula for the Real Estate business is “revenue = revenue generated along the duration vector (time property delivery, month-to-month) x the quantity of respective properties”.
The company is particularly adept at the neighboring land development from “seed lots” that major real estate corporations generally do not utilize (this involves realignment of property rights), as well as renovation and conversion. It purchases small parcels of land (seed lots), negotiates rights to surrounding land, and develops large-scale commercial premises, which paves the way to build its own condominiums or jointly develop properties with major developers. In recent years, the company has seen an increase in the sale of undeveloped commercial premises, in which large commercial premise arrangements attract direct buyers from major developers or hotel operators.
Information and Telecommunications business
The Information and Telecommunications business is a recurring-revenue business consisting primarily of mobile handset sales. It has one of the largest store networks in the Kyushu region, and aims to expand market share in Kyushu in conjunction with its corporate business (solutions proposals). The mobile phone business operates on the formula “revenue = {revenue generated upon contract signing + service charges commensurate with monthly telecom fees (for the duration of the contract)} x number of subscribers.” The company says that, in the future, it aims to take on full-fledged commissioned software development, and leverage the synergistic effects with its enterprise solutions business to augment its Information and Telecommunications business.
Globalization
Even before founding World Intec, President Iida had always had his eyes on globalization and has made attempts at international expansion. The company’s name even reflects his ambition for worldwide business deployment. In Mr. Iida’s mind, globalization is both outbound and inbound. For the past 30 years he has frequently traveled abroad, worked to gather information, and has broadened his outlook on the world. The company currently has 15 offices overseas, largely in China, Taiwan, Indonesia, France, and the US, and has been engaging in overseas businesses (i.e., outbound) for more than 20 years. Although they are struggling to contribute to earnings, they have steadily sown the seeds for business. Meanwhile, thanks to domestic globalization (inbound), the percentage of revenue contributed by overseas companies has risen steadily. Notably, in the factory staffing segment of the Human Resources and Education business, logistics subcontracting for Amazon Japan (sorting, packaging, etc.) has grown into a high-volume operation, accounting for 17.7% of overall revenue in FY12/21 (or JPY27.4bn).
Expansion into real estate finance business
Loan servicing business and asset management business
The company has traditionally dealt only in actual real estate, but having gone through various real estate cycles, it has come to handle real estate derivatives as well. Its expansion into the real estate financial business is spearheaded by two subsidiaries (World Asset Management Co., Ltd. and Mirai Servicing Co., Ltd.) and World Capital Solution Co., Ltd. Mirai Servicing is positioned as a financial instruments portal in the capacity of a servicer, and World Asset Management forms private real estate funds and private REITs as an advisor and agent.
Servicer
A loan servicer is a debt servicing specialist licensed by Japan’s Minister of Justice to handle the management and collection of “specified monetary debts” either on behalf of a financial institution or transferred from one. The company’s aim is to form deeper collaborative ties by allying with financial institutions’ servicers as well as collecting payments on behalf of financial institutions that have no servicers.
Other real estate finance operations
The company’s consolidated subsidiary Mikuni has jointly developed a reverse mortgage product called “Mikuni Guaranteed Purchase Type” together with The Bank of Fukuoka. The bank has previously offered only trust-type reverse mortgages, but it has now added the non-trust standard-type “Mikuni Guaranteed Purchase Type” to its lineup. Leveraging its expertise in purchase assessment, Mikuni handles the real estate property appraisal duties involved in the new reverse mortgage product. Mikuni fields requests for collateral property appraisal from The Bank of Fukuoka, and handles the appraisal of the property used as collateral when reverse mortgage customers sign their contracts (the property undergoes annual reappraisal). When it comes time to sell the real estate property in question, Mikuni uses specialist brokers to handle sales and purchases of collateral property and allocates it to the repayment of the customer’s loan.
Diversification through M&A (corporate revitalization)
The company’s core segment, the Human Resources and Education business has achieved all of its growth through its own home-grown efforts. In contrast, when it comes to the Real Estate business and other combined and diversified business segments, its basic strategy is to expand into and augment new business through M&A. However, the only bona fide M&A actions the company has taken are when it made Hoeikensetsu Co., Ltd. (which has now been sold off) and Mikuni Co., Ltd. (President Iida’s original company) subsidiaries. The rest are nearly all corporate rehabilitation offers. Farm Co., Ltd. was undergoing court-supervised rehabilitation under Japan’s Civil Rehabilitation Act when the company acquired it and made it a subsidiary in February 2017. Three years later, Farm was profitable again, and the company says it has since seen an increase in inquiries and negotiations from local governments (cities, towns, and villages) for park management and administration. By leveraging human talents, the company has imbued its philosophy of “Creating the ways we live” in all activity, from putting people to work in its Human Resources and Education business through corporate rehabilitation. Thus, its use of M&A is one of the ways in which it puts its philosophy into practice.
Specific examples
Group business overview
The World Holdings Group consists of a pure holding company, World Holdings, and its 34 consolidated subsidiaries.
Key consolidated subsidiaries in the Human Resources and Education business
Factory staffing business
World Intec Co., Ltd.
Active industries: Focus on manufacturing, covering a wide range of fields including semiconductors, electrical and electronics, logistics, automotive, machinery, environment and energy, groceries and consumer goods, and chemicals
Professions: Subcontracting and staffing primarily for manufacturing and production management companies in areas including manufacturing and assembly, inspection and quality control, logistics/sorting/packaging.
Tohoworld Corporation: Joint venture with Toho Titanium. Staffing business aimed at the continuance of technologies and skills specializing in the materials industry.
World Intec Taiwan Co., Ltd.: Recruitment and manufacturing staffing in Taiwan
EngmaIntec Co., Ltd.: Subcontracting business in China
Technology staffing business
World Intec Co., Ltd.
Active industries: Semiconductors, machinery, automotive, and information and telecommunications services
Professions: Staffing and subcontracting primarily for production technology, design and development, maintenance, as well as product repair work outsourced from manufacturers.
Nikken Techno Co., Ltd.: Camera and home electronics repair
World Construction Co., Ltd.: Construction technician staffing
Saihi Information Service Co., Ltd.*: Commissioned software development
Geographic Information of Kyushu, Inc. (special subsidiary): Geographic information systems (GIS), general systems development, maintenance, and administration, and diagram and text systems operations
Creation View Co.. Ltd.: Contract software development
R&D staffing business
World Intec Co., Ltd. (research staffing unit): Staffing of researchers specializing in bio and chemicals, staffing of pharmacists, nurses, and clinical trial technicians and other development staff, and pharmaceuticals safety information management staffing
DOT World Co., Ltd. (CRO unit): Commissioned clinical testing services for pharmaceuticals development
Sales and marketing staffing business
World Staffing Co., Ltd.: Staffing of sales clerks for the fashion industry and department stores and mass retailers, call center operators, and light duty staff in the logistics field
JW Solution Co., Ltd.: Joint venture with JTB providing staffing service for the tourism industry
Key consolidated subsidiaries in the Real Estate business
World Residential Co., Ltd. (Greater Tokyo area), World iCity Co., Ltd. (Tohoku region), World Wisteria Homes Co., Ltd. (Kinki region), World Mikuni Co., Ltd. (Kyushu region): These four subsidiaries run community-rooted businesses as mid-sized developers of condominiums designed for families
Mikuni Co., Ltd.: Renovations, real estate brokerage, and rental property management
Omachi World Co., Ltd.*: Manufacture, sale, and rental of prefabricated homes in the Tohoku and Kyushu regions
World Asset Management Co., Ltd. (non-consolidated): Investment advisory and agency
Mirai Servicing Co., Ltd. (non-consolidated): Loan servicing and bond management consulting
Key consolidated subsidiaries in the Information and Telecommunications business
E-support, Inc. and associated subsidiaries: Mobile store management, call center operations, sales of LED lighting and OA equipment and other energy cost saving solutions for businesses
Key consolidated subsidiaries in the Other businesses
World Intec Co., Ltd., Farm Co., Ltd., and associated subsidiaries: Agricultural park facilities operation including management of four directly operated facilities and numerous designated management facilities nationwide
Advan Co., Ltd.: Personal computer schools, website creation, and staff cultivation for the Human Resources and Education business.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Segment revenue forecasts are calculated using revenue from external customers (YoY comparisons are provisionally calculated using revenue excluding company-wide expenses and eliminations)
Segment business overview
Human Resources and Education business (67.1% of total revenue, 69.6% of total operating profit in FY12/21)
In its mainstay Human Resources and Education business, the company provides subcontracting and staffing services focused on full-time employment or regularly employed worker dispatching. The R&D staffing business handles upstream processes in the manufacturing field. The technology staffing business handles mid- to upstream processes (although repairs are downstream). The factory staffing business handles mid- to downstream processes, and the sales and marketing staffing business handles post-manufacturing downstream domains.
In the Human Resources and Education business, because of the large scale of revenue in the logistics field, the subcontracting ratio for factory staffing business has risen. The rise in the company’s ratio of subcontracting is largely attributable to the successful use of its manufacturing subcontracting standards manual, which enabled it to differentiate itself from its competitors by clearly delineating the difference between staffing and subcontracting and satisfying compliance standards. Another significant factor is the compartmentalization of manufacturing processes on the client side. Whereas the scope of subcontracting was traditionally focused on downstream processes where competition among subcontractors was concentrated, it has now expanded to upstream processes as well. For example, in logistics subcontracting, subcontracting was traditionally limited to truck loading and destination sorting, but the scope has now expanded to encompass upstream processes such as merchandise picking and shipment packaging.
Factory staffing business (45.4% of total revenue, 35.6% of segment operating profit in FY12/21)
In FY12/21, this segment’s revenue breakdown by industry was 14.9% electrical and electronics, 37.8% logistics, 5.1% automotive, 12.5% semiconductors, 12.5% machinery, 3.0% environment and energy, and 14.2% other.
Employee count include regular employees (on-site specialists and administrators), external staff seconded from other companies, and consignment staff from overseas or governments. The number of on-site specialists (quarterly average) has been increasingly each year in the form of fresh graduates and mid-career hires. The number of employee in the factory staffing business was 23,677 (+7.1% YoY) at end-FY12/21, increasing sharply in semiconductors and machinery because of brisk 5G-related demand and attracting demand from new logistics facilities.
In logistics (such as Amazon Japan), subcontracting at warehouses had been the realm of freight companies such as Nippon Express (TSE1: 9062). World Holdings is unique among staffing companies for expanding into the warehousing market and cultivating customers. Leveraging the skills in production and process management it has accumulated in manufacturing industry staffing and subcontracting, the company has grown to become a major player in its subcontracting of logistics operations (sorting, packaging, etc.) at Amazon Japan.
As part of its undertakings in new business domains, World Holdings established the staffing business company Tohoworld, a joint venture with major materials manufacturer Toho Titanium (TSE1: 5727) specializing in the materials industry. The materials industry has been a difficult one for staffing agencies to penetrate since it requires highly specialized skills. At the same time, though, workers in the materials industry are aging, and with technical skills at risk of dying out, this is driving up the need for apprenticing. Tohoworld has pioneered to meet those needs by drawing on the experience and expertise of both World Holdings and Toho Titanium.
Note: Figures may differ from company materials due to differences in rounding methods.
Technology staffing business (11.9% of total revenue, 21.9% of segment operating profit in FY12/21)
In FY12/21, this segment’s revenue breakdown by industry was 32.6% semiconductors, 21.7% IT services, 4.2% machinery, 7.7% automotive, 11.4% construction, and 22.4% other. The company has achieved steady growth through the use of training programs to cultivate inexperienced workers and place them as technicians. It is working to place workers in highly advanced areas by focusing on hiring experienced workers and enhancing training programs to boost worker skills.
The segment’s employees consist of regular employees (both on-site specialists and administrators), and it hires fresh graduates as well. The number of on-site specialists (average for Q4) has been growing each year, with notable increases in workers in the areas of design and development, as well as construction and repair, and other technologies (the number of production engineering workers is holding steady).
Note: Figures may differ from company materials due to differences in rounding methods.
R&D staffing business (5.1% of total revenue, 8.7% of segment operating profit in FY12/21)
In FY12/21, this segment’s revenue breakdown by industry was 26.3% biotechnology, 22.7% chemical, 34.7% analysis, 8.9% pharmacovigilance/clinical, and 8.9% CRO. The mainstay research staffing business was brisk for pharmaceutical-related fields such as biotechnology, chemical, and analysis. The company is providing quality technological skills by training engineers to upskill and deploying them strategically to facilitate career advancement.
The segment’s registered workers consist of regular employees (both on-site specialists and administrator), and it hires fresh graduates as well. The company has put in place a framework for cultivating human resources through research labs jointly run with partner universities (University of Tokyo, Kyoto University, Osaka University, and others), which has also contributed to the securing of hiring slots. The number of on-site specialists (average for Q4) has been growing each year.
Note: Figures may differ from company materials due to differences in rounding methods.
Sales and marketing staffing business (4.7% of total revenue, 3.4% of segment operating profit in FY12/21)
The segment’s workforce shrank by from 2,761 (as of end-FY12/16) to 1,541 (end-FY12/20). The company attributes this to the need to slim down operations as part of the structural reforms carried out to enhance its compliance systems. The segment’s registered workers consist of regular employees (administrators) and registered contract employees (on-site specialists).
As part of its undertakings in new business domains, the company is strengthening hiring through measures such as using a consortium model recruiting. The company has begun collaborating with JTB to quickly expand nationwide into the tourism industry. With joint funding by JTB, the company has substantially augmented operations at JW Solution, a staffing service company specializing in the hotel industry.
The company expanded the scope of its business in FY12/21, establishing a call center, promoting subcontracting of light work, providing a sales outsourcing service to retailers, and exploring the subcontracting of BPO-related work. Employee count at end-December 2021 was 2,550, increasing by more than 1,000 YoY.
Note: Figures may differ from company materials due to differences in rounding methods.
Real Estate business (23.7% of total revenue,29.2% of total operating profit in FY12/21)
In FY12/21, the Real Estate business’s revenue breakdown was 73.0% development related, 20.6% renovation, and 6.4% prefab homes.
The company’s basic strategy on sourcing land is to acquire small land parcels (seed lots) first, and then acquire adjacent land by negotiation for realignment of property rights. Development operations primarily consist of condominium development, but recently it is increasingly taking commercial premises acquired for condominium development and selling them as is. In terms of sourcing land, the company maintains a cautious approach, but purchases quality properties by harnessing its commercial land development know-how. Real estate for sale totaled JPY35.0bn (+JPY7.2bn YoY) at end-FY12/21.
Given the persistent real estate bubble, the company has maintained a cautious stance on land sourcing, while it is also working to build a foundation for asset management and other financial services business in preparation for a turnaround in the external environment.
Note: Figures may differ from company materials due to differences in rounding methods.
Information and Telecommunications business (6.0% of total revenue, 1.2% of total operating profit in FY12/21)
In FY12/21, the Information and Telecommunications business’s revenue breakdown was 87.6% mobile store operation and 12.4% enterprise solutions. The segment’s registered workforce includes regular employees (administrators).
The segment is essentially positioned as a secondary agent for optical telecommunications. It currently operates SoftBank mobile stores and au mobile stores, and has one of the largest store networks in the Kyushu region. During the slump in the Human Resources and Education business amid the global financial crisis of 2008, the Information and Telecommunications business made major contributions to earnings, but profit margins have recently been declining due to the impact of mobile store consolidation.
The company faces an adverse business environment, with lower ARPU dragging down recurring revenue earnings and replacement cycles becoming longer, but there are finally some signs of the situation easing down. Further, mobile carriers have been maintaining a selective stance on distribution agents. Meanwhile, with the launch of 5G commercial service, customer needs are expected to become more diversified.
The company anticipates a prolonged phase of mobile store consolidation. Accordingly, it continues to invest in preparations for assembling a top-notch store network (investing in areas such as organization, store consolidation and upgrades, customer reception quality, and personnel training). Consequently, profit levels have fallen temporarily.
Note: Figures may differ from company materials due to differences in rounding methods.
Other businesses (2.5% of total revenue, 0.1% of operating loss in FY12/21)
In FY12/21, other businesses’ revenue breakdown was 90.7% agricultural park related (Farm Co., Ltd., etc.) and 9.3% school related (Advan Co., Ltd.). The segment’s registered workforce includes full-time employees (administrative and specialists).
Farm Co., Ltd., achieved profitability in FY12/19, three years after World Holdings took it over. In 2020, the business was impacted by the shelter-in-place measures in response to the COVID-19 pandemic, but the company expects a bounce back after the state of emergency declaration is lifted as it highlights the advantages of outdoor facilities. Park visitors in Q4 FY12/21 were up sharply YoY and showing a recovery trend.
Note: Figures may differ from company materials due to differences in rounding methods.
Profitability analysis
With its three mainstay businesses of Human Resources and Education, Real Estate, and Information and Telecommunications, World Holdings places priority on running its operations with a proper balance of both recurring revenue business (Human Resources and Education, Information and Telecommunications) and one-time revenue business (Real Estate). Each of these three segments covers different business domains. By spreading out its business over different regions and industries, the company attains mutual protection against industry fluctuation. A diversified business portfolio does have its drawbacks, however. Business fragmentation results in inefficient allocation of resources and keeps low-profit businesses on life-support. This makes streamlining more difficult than specialist companies, and tends to keep profit margins low (World Holdings’ OPM was 4.8% in FY12/21).
The company’s GPM has been holding steady at around 19.0% in the past 10 fiscal years. In response to market fluctuation in its one-time revenue business (Real Estate), the company has taken a cautious approach to sourcing, while its recurring-revenue business (Human Resources and Education) provides a steady earnings base, thus buttressing stable operations. In terms of its OPM, the company’s previous medium-term plan (FY12/12–FY12/16) emphasized generating profits through structural reform, while its new medium-term plan (FY12/17–FY12/21) clearly shows an inclination toward strategic investments (which bring down profit margins). The OPM in fact improved from 2.3% in FY12/12 to 7.9% in FY12/16, but then fell to 3.5% in FY12/19. OPM was 4.4% in FY12/20 and rose to 4.8% in FY12/21.
Regarding the company’s earnings structure, the Human Resources and Education business is a labor-intensive business. At the same time, the majority of total assets are inventories (real estate for sale, real estate for sale in process, etc.), and the majority of total liabilities are interest-bearing debt in the Real Estate business. Turnover rates for both total assets and inventories tend to decline along with growth in the Real Estate business.
The staffing business has a short cash cycle (less than a month) but since the company also conducts real estate operations, which have a long cycle (of up to two years) from sourcing of property to recoupment of investment, on a companywide basis, World Holdings’ cash cycle is about five months. Thanks to its cash flow generation in its Human Resources and Education business and its buildup of trust with local banks, the company has attained high credit ratings from financial institutions (with preferential interest rates in the 0.4% level). In FY12/21, actual interest rates on the company’s interest-bearing debt were as low as 0.52%.
Note: Figures may differ from company materials due to differences in rounding methods.
Market and value chain
Competition
Staffing industry
Key competitors
Among majors alone, there are 50 companies in the staffing industry, which can be broadly categorized into four major groups.
World Holdings offers a manufacturing-focused specialist staffing service. In size, it is no match for Recruit Holdings, Persol Holdings, or Pasona Group, but it thinks boosting the quality of its staff and registered workers by enhancing their skills and raising billing rates can drive growth.
Note: Figures may differ from company materials due to differences in rounding methods.
Outsourcing Inc. (TSE1: 2427)
Major tech-oriented staffing company. Employs a profit sharing model (combining business resources and batch processing under contract) which it provides for companies in the manufacturing, technology, management, and service industries in Japan and overseas. For example, in the manufacturing industry it dispatches process engineers to companies in the automobile, semiconductor, chemical, pharmaceutical, plant, and electronics industries and manages foreign workforces under contract. It is involved in a wide range of services in its mainstay automobile industry, including R&D project support and development of engine performance tests. It is expanding contract management of international workers and expanding their use in the workforce. Revenue breaks down to 21.9% domestic technology-related outsourcing, 17.7% domestic manufacturing-related outsourcing, 5.1% domestic services-related outsourcing, 30.8% overseas manufacturing- and services-related outsourcing, 24.3% overseas technology-related outsourcing, and 0.3% other (FY12/21).
UT Group Co., Ltd. (TSE1: 2146)
Manufacturing industry outsourcing company. Staffing and subcontracting (end-to-end services from processes involved in manufacturing operations through device maintenance) for Japanese semiconductor, electronics parts, and automobile companies. Segments include Manufacturing (open-ended staffing contracts and subcontracting for manufacturing plants), Solution (dispatching UT Group employees and subcontracting to assist major companies with structural reform), and Engineering (staffing for design, development, and IT engineering). Revenue breaks down into Manufacturing 60.1%, Solution 25.8%, and Engineering 14.1% (FY03/21). This major company has roughly 30,000 permanent engineers on staff, and 40% of its business is for semiconductor and electronics parts makers. Got its start in semiconductors, and branched out into electronics parts and environment and energy (liquid crystals, solar cells, and secondary batteries).
BeNext-Yumeshin Group (TSE1: 2362)
BeNext-Yumeshin Group is a technician staffing company. Key business entails dispatch of construction supervisors (responsible for workflow outsourcing, process and safety management, quality control, blueprint drafting, and human resources development) to construction sites. Also involved in engineer dispatch (manufacturing and IT), primarily construction management engineers to construction sites. The BeNext Group engages in subcontracting and personnel dispatch in the machinery and electrical, IT, and manufacturing sectors. The largest construction technician staffing company in Japan (dispatches construction supervisors, project managers, designers, and CAD operators). Yumeshin Holdings merged with BeNEXT Group in April 2022.
Nisso Corporation (TSE1: 6569)
Subcontracting and staffing services provider specialized in manufacturing. Provides manufacturing, maintenance, and design services under contract and dispatches production and design technology engineers to the automobile, electronic device, precision and electrical equipment, and residential equipment industries. In addition, it is involved in the dispatch of clerical staff, business process outsourcing, and workforce management support in clerical HR services, as well as in nursing care and welfare services (nursing care in facilities and at home). It also operates factory job board websites Kojo Kyujin Navi and Kyujin Navi Sha-in. In FY03/21, manufacturing staffing and subcontracting services revenue broke down to: automobiles 43.3%, electronic devices 29.4%, precision and electrical equipment 12.7%, and other 14.6%.
Meitec Corporation (TSE1: 9744)
One of Japan’s leading engineer staffing companies. Provides outsourced engineering services and recruitment services specializing in engineers to the manufacturing industry. In automobile, transport equipment, machinery, electronics/electrical, industrial machinery, information and telecommunications equipment, and computer software fields, the company provides design, development, and support services for digital cameras, smartphones, eco cars, industrial robots, precision medical equipment, and aircraft. Key customers include Mitsubishi Heavy Industries, Denso, Sony Semiconductor Solutions, Panasonic, Nikon, and Toyota Motor. Revenue breaks down to Engineering Solutions 98.7% and Recruiting and Placement for Engineers 1.3% (FY03/21).
TechnoPro Holdings, Inc. (TSE1: 6028)
2apan’s largest provider of technology-focused human resources services with 22,000 engineers and researchers and dealings with more than 2,00 customers, covering technological fields in virtually all industries. TechnoPro supports customers’ R&D activities (in the fields of outsourced R&D and construction management) through temporary staffing, subcontracting, and outsourcing services provided by the company’s engineers and researchers. It provides engineer dispatch and subcontracted services in machinery, electrical/electronics, embedded control, IT networks, business applications, systems maintenance and operations, and biochemistry. Overseas, it has expanded into China, India, and Singapore. Revenue breakdown was R&D 78.6%, Construction Management 12.1%, Other businesses in Japan 2.3%, and Overseas 7.0% (FY06/21).
Real estate industry
The real estate majors’ “remora strategy”
The benchmark companies for World Holdings’ Real Estate business are real estate majors. Mikuni Co., Ltd, founded by company President Eikichi Iida, previously signed an exclusive agency agreement with Mitsui Real Estate Sales (currently Mitsui Fudosan Realty) and also established the joint venture Kyushu Hokubu Rehouse Co., Ltd. Although World Holdings is not after size, the direction in which it aims to go is along the same lines as the real estate majors (e.g., redevelopment projects). President Iida self-deprecatingly refers to this as a “remora strategy.” The company’s preferred approach is to develop neighboring property (realignment of property rights) from seed lots that the majors tend not to bother with.
Comparison to five real estate specialists
Using independent specialists with comparable revenue for benchmark comparison
Japan’s real estate industry is a thronging mass of countless companies, but it is hard to find companies of similar size to World Holdings that also run a diverse business portfolio encompassing different industries. Furthermore, for the company the Real Estate business is seen as part of its overall business portfolio and complementary to the core Human Resources and Education business. Because their aims are different, there is little significance in comparing the company’s Real Estate business with those of other real estate companies. However, the company is considering expanding its real estate financing services, so similar sized real estate specialists are listed for the purposes of comparison.
Note: The company’s revenue and OPM are values for the Real Estate business (ROE and equity ratio are companywide figures)
Market trends
Staffing industry
Worker staffing market
The staffing industry is divided into two general categories in Japan. The first type is the dispatching of back-office and manufacturing workers (formerly “general worker dispatching”), which is primarily labor-intensive work and is susceptible to adjustments in production volume. The second type is the dispatching of technicians that requires a high level of specialization (formerly “specified worker dispatching”). The former is relatively concentrated in industry majors since the difficulty in differentiating workers by skill level means that competitive strength is largely determined by the number of registered workers and the quantity of clients. On the other hand, in the case of the latter, there are numerous SMEs running locally-rooted business. In response to revised Worker Dispatching Act, Japan’s domestic companies have been corralling top-performing temp staff by making them regular employees, as well as making greater use of temp workers to cut down on excessively long working hours. Consequently, the competition for hiring has been growing fiercer in recent years.
Owing to these circumstances, clients are more amenable to higher contract rates for top-notch temp workers, while the current difficulty in hiring top-class staff has led to an increase in job offers requiring no qualifications or experience. Consequently, average hourly wages for technical specialists tends to decline in some cases (although the general trend is for wages to rise due to labor shortage). In the long term, temp staffing of labor-intensive jobs requiring no particular skills or expertise could be replaced by advances in technologies such as robotic process automation (RPA) and artificial intelligence (AI). In contrast, there appears to be relatively little risk of technical staffing being replaced due to the need for the creative abilities of such temp workers.
According to data from the Ministry of International Affairs and Communications’ Statistics Bureau, the number of people employed in Japan in 2020 numbered 56.2mn (average for the year, excluding executives). This figure represents a rise of 4.8mn from the 2010 level of 51.4mn people and a decline of 400,000 from 2019. Indefinite-term employees accounted for 35.3mn, and fixed-term employees came to 20.9mn. In 2010, indefinite-term employees numbered 33.7mn (rising 1.6mn by 2020), and fixed-term employees totaled 17.6mn (rising 327,000 by 2020). The ratio of fixed-term employees rose from 34.3% of the total in 2010 to 38.3% in 2019. It declined to 37.2% in 2020 due to the impact of the pandemic. Japan’s working-age population (people aged 15 to 64) has shrunk since its peak at 87.2mn in 1995 to 76.3mn in 2015, but labor force participation has grown. Fixed-term employees, in particular, have supported this trend.
According to the Ministry of Economy, Trade and Industry’s Basic Survey of Japanese Business Structure and Activities, the most prevalent use of dispatched workers is in the manufacturing industry, at 58%. Most of Within this category, use of dispatched workers is particularly high in the automotive industry (manufacture of transportation equipment), at 16%. Manufacturing categories outside the automotive industry where the use of dispatched workers is high include electrical machinery/equipment (5%) and electronic components, devices, and circuits (4%). Non-manufacturing areas where the use of dispatched workers is high are information and communications (14%), wholesaling (9%), and retail (6%). This survey notes that 425,000 dispatched staff work in the manufacturing industry.
Market size
According to Yano Research Institute, the three main human resources markets (staffing, recruitment agency, and reemployment support service) were worth JPY8.2tn (+0.3% YoY) in total on a revenue basis. This breaks down into JPY7.9tn for staffing (+0.9%), JPY252.0bn (-18.2% YoY) for recruitment agency, and JPY30.5bn (+23.0% YoY) for reemployment support.
Real estate industry
Benchmark land prices
According to the Ministry of Land, Infrastructure, Transport and Tourism (2022), the average land price for all land types, residential land, and commercial land nationwide turned up for the first time in two years.
The average price for all land types and residential land turned up for the first time in two years in all three of Japan's major metropolitan areas (Tokyo, Osaka, and Nagoya). The average price of commercial land in the Tokyo and Nagoya areas increased, while it remained flat in the Osaka area.
In regional areas, the average price for all land types, residential land, and commercial land all turned up for the first time in two years. In the four core regional cities (Sapporo, Sendai, Hiroshima, and Fukuoka), the average price for all land types, residential land, and commercial land all continued to increase at a faster rate.
Land prices turned up, because demand for residential land recovered amid improved business confidence as interest rates remained low and government policies to help house buyers underpinned housing demand. Demand for commercial land for retail stores and condominiums in suburbs near downtown Tokyo increased, with prices turning up in many areas. Overall, land prices have recovered from year-ago levels, because the impact of COVID-19 is gradually fading. Demand for land to build large logistics facilities is robust amid the growth of online shopping. The rise in land prices accelerated in industrial parks in convenient locations (such as those near expressway interchanges) that are suitable for these facilities.
Strengths and weaknesses
Strengths
Business portfolio conducive to well-balanced risk hedging against changes in business conditions and industry fluctuation
Running a staffing or subcontracting business in a specific field makes business more vulnerable to the influence of the business environment. In fact, the thing that compensated for the slump in the staffing business amid the global financial crisis in 2008 was the company’s Information and Telecommunications segment, which it launched in December 2005. Rather than vying for the top market spot in its various lines of business, World Holdings has placed higher priority on optimal scale to generate ongoing optimal profit, and it has seen limiting its core operations to just three main segments as the key to running a stable business. The company has assembled a business portfolio that provides mutual protection against market fluctuation and other business risks by striking a proper balance of recurring-revenue business (Human Resources and Education, and Information and Telecommunications) and one-time revenue business (Real Estate). It has also focused on the balance in terms of geography (Fukuoka-Kitakyushu head office, Tokyo headquarters, and presence in key regional cities), industry (Human Resources and Education, Real Estate, Information and Telecommunications, and others), and scheduling (order receipt and delivery lead times). In fact, since it conducts both staffing business, which has a short cash cycle (less than a month), and real estate business, which have a long cycle (of up to two years) from sourcing of property to recoupment of investment, World Holdings’ cash cycle is about five months on a companywide basis and its gross margin holds steady at around 19%. The company is able to get financing at interest rates in the 0.4% range, which we see as proof of financial institutions’ acknowledgement of the cash flow generating abilities of the company’s staffing-based business.
In its Human Resources and Education business, the company has differentiated itself from competing staffing companies by expanding its range of subcontracting schemes.
When considering investment in the staffing industry, Shared Research believes that there is higher added value to be had in subcontracting rather than temp staff dispatching. When World Holdings obtains a subcontracting contract with a client company, it signs a contract with the laborer in the capacity of a subcontractor (the laborer works under the instruction of World Holdings, who acts as a subcontractor). By using education and training to raise productivity, the company will be able to complete work with fewer staff, and thereby raise profit margins. It therefore stands to reason that the company is moving in the direction of a higher percentage of subcontracting business. On that point, we think the growth in subcontracting work from Amazon Japan’s logistics business (Amazon Japan acc