Hamee 3134

Hamee

Recent Updates

2021-09-30

Q1 FY04/22 report update

2021-09-13

Q1 FY04/22 flash update

2021-07-08

Full-year FY04/21 report update

Get in touch

Square O2 2-12-10, Sakae-cho, Odawara, Kanagawa, Japan 250-0011

https://hamee.co.jp/

0465-22-8064

Summary

Hamee Corp.’s main business areas are Commerce and Platform. In the Commerce business, the company runs online retail stores handling smartphone accessories such as cases and also sells these products wholesale to major variety stores and electronics retailers.

Internet & Direct Marketing Retail

Key dates

2021-12-13

Next earnings announcement

2019-07-12

Coverage initiation

Full Report

2021-09-30

Q1 FY04/22 flash update

2021-09-13

Download

Executive summary

Business overview

Hamee Corp’s growth driver is its Platform business, in which it provides cloud-based (SaaS) systems to online store operators, while its earnings base is its Commerce business, in which it sells products such as smartphone cases. The company started as an online retailer of mobile phone straps and expanded its product mix to include smartphone accessories as smartphones became increasingly common. In recent years, it has deepened and diversified its business by turning its attention to external sales of Next Engine, a platform it developed and uses itself as an online store operator to sell products through multiple e-commerce stores.

In the Platform business (FY04/21 sales of JPY2.3bn, 18.7% of total sales, 27.6% of total operating profit), the company handles Next Engine, its cloud-based (SaaS) business management system for online store operators. Through this service, users (online store operators) can streamline their operations by automating routine e-commerce-related tasks (including order confirmation, inventory allocation, and shipping preparation). Users can also increase sales opportunities by opening multiple online stores even with a small number of staff, allowing them to focus their management resources on creative areas such as marketing activities. Due in part to the benefits of such convenience, Next Engine is one of the largest e-commerce backyard systems.

Sales from Next Engine, which are the bulk of Platform business sales, can be expressed as average revenue per user (ARPU) × number of companies under contract. ARPU comprises fixed charges (usage charges for main functions, JPY10,000 monthly) + pay-per-use charges (pay-per-use portion + charges for additional functions). The number of companies under contract can be expressed as existing user count x (100% - churn rate) + new user count. With expansion of the e‑commerce market, ARPU is trending upward (in FY04/21, average pay-per-use charges were JPY26,539, +7.0% YoY). In addition, Hamee is working to enhance client success by adjusting its staffing structure to support existing users and acquire new ones, and the number of companies under contract (4,739 at end-FY04/21, +18.6% YoY) is on the rise due to a lower churn rate and growth in new users.

In the Commerce business (FY04/21 sales of JPY9.7bn, 78.7% of total sales, 72.4% of total operating profit), the mainstay product is smartphone cases (with retail prices of about JPY3,000). Hamee’s designers plan and develop products that are then produced overseas at the company’s own plants or by contract manufacturers and purchased by Hamee for sale both inside and outside Japan. The key iFace brand, which accounts for more than 70% of domestic Commerce business sales stands out from the competition with distinctive designs, functionality, and strong brand recognition. The company’s retail (online sales) and wholesale (sales to variety stores and electronics mass retailers) channels each account for about 50% of segment sales. In the retail channel, the company sells some 6,000 products to consumers through its own websites, and via nine domestic e-commerce malls including Rakuten Ichiba, Yahoo! Shopping, and Amazon. Selling its products both online and in physical stores allows the company to better track consumer purchasing behavior.

Trends and outlook

In FY04/21, the company posted sales of JPY12.4bn (+9.2% YoY), operating profit of JPY2.2bn (+24.9% YoY), and net income attributable to owners of the parent of JPY1.6bn (+45.5% YoY). GPM was 61.2%, up from 56.8% in FY04/20. Sales grew in the Platform business, which has a higher marginal profit ratio, and there was an increase in the proportion of high-margin retail sales in the Commerce business. The company paid an annual dividend of JPY10 per share for FY04/21 (payout ratio of 10.2%).

For FY04/22, the company forecasts sales of JPY14.0bn (+13.2% YoY), operating profit of JPY2.3bn (+3.2% YoY), and net income attributable to owners of the parent of JPY1.6bn (+3.6% YoY). In the Platform business, the company projects sales of JPY2.8bn (+19.2% YoY) and operating profit of JPY1.1bn (+10.1% YoY). It will increase the number of companies under contract through continuing to focus on initiatives to drive client success, including the digitization of routine tasks, enhanced analog communication, and webinars to help clients improve operational proficiency. In addition, Hamee Consulting will actively utilize group resources to maximize synergy benefits, for instance by starting to offer contracted services for setting up Next Engine. In the Commerce business, the company expects sales of JPY10.6bn (+8.5% YoY) and operating profit of JPY2.6bn (+2.1% YoY). Domestic wholesale sales are expected to remain in line with the previous year levels, reflecting the continued impact of the pandemic. On the other hand, domestic retail sales are expected to increase on the back of continued growth in the e-commerce market in Japan.

Strengths and weaknesses

Shared Research sees Hamee’s strengths as follows: 1) a positive feedback loop between the Platform and Commerce businesses that contributes to mutual growth; 2) a business model in the Platform business where improved productivity at Next Engine users helps grow its own business; and 3) the ability to continue bringing lucrative, differentiated new products to market in the Commerce business.

Weaknesses include 1) in the Commerce business, the limited growth potential of the smartphone case market, as penetration rate for smartphones is close to peak; 2) high degree of dependence on iFace-related products; and 3) the inability to hire IT staff capable of aiding platform building efforts, resulting in opportunity loss (see “Strengths and weaknesses” section for details).

Key financial data

Income statement		FY04/14	FY04/15	FY04/16	FY04/17	FY04/18	FY04/19	FY04/20	FY04/21	FY04/22
(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.
Sales		4,681	5,658	6,501	8,502	9,377	10,303	11,325	12,364	14,000
	YoY	12.3%	20.9%	14.9%	30.8%	10.3%	9.9%	9.9%	9.2%	13.2%
Gross profit		1,894	2,271	2,688	4,022	4,761	5,244	6,431	7,562	-
	YoY	9.4%	19.9%	18.4%	49.6%	18.4%	10.2%	22.6%	17.6%	-
	Gross profit margin	40.5%	40.1%	41.3%	47.3%	50.8%	50.9%	56.8%	61.2%	-
SG&A expenses		1,667	1,935	2,237	2,916	3,381	4,081	4,686	5,382	-
	YoY	7.7%	16.0%	15.6%	30.3%	15.9%	20.7%	14.8%	14.9%	-
	SG&A ratio	35.6%	34.2%	34.4%	34.3%	36.1%	39.6%	41.4%	43.5%	-
Operating profit		227	336	451	1,106	1,380	1,164	1,745	2,180	2,250
	YoY	23.8%	48.1%	34.0%	145.5%	24.7%	-15.7%	50.0%	24.9%	3.2%
	Operating profit margin	4.8%	5.9%	6.9%	13.0%	14.7%	11.3%	15.4%	17.6%	16.1%
Recurring profit		223	329	427	1,048	1,267	1,179	1,757	2,149	2,248
	YoY	5.3%	47.9%	29.6%	145.4%	20.9%	-6.9%	49.0%	22.3%	4.6%
	Recurring profit margin	4.8%	5.8%	6.6%	12.3%	13.5%	11.4%	15.5%	17.4%	16.1%
Net income		122	193	258	696	873	821	1,069	1,556	1,612
	YoY	-14.0%	58.4%	33.8%	169.7%	25.4%	-5.9%	30.2%	45.5%	3.6%
	Net margin	2.6%	3.4%	4.0%	8.2%	9.3%	8.0%	9.4%	12.6%	11.5%
Per-share data (split-adjusted; JPY)
Shares outstanding (ex. treasury shares; year-end, mn)		0.2	3.8	3.9	15.8	16.1	15.9	15.8	15.9	-
EPS (JPY)		9.9	15.5	16.6	44.2	54.7	51.2	67.4	98.4	101.5
EPS (fully diluted)		-	-	-	-	-	-	-	-	-
Dividend per share (JPY)		-	-	3.0	4.5	5.5	6.5	7.0	10.0	20.5
Book value per share (JPY)		55	113	127	170	216	254	297	405	-
Balance sheet (JPYmn)
	Cash and cash equivalent	526	1,437	1,103	1,324	1,695	1,660	3,453	3,355	-
Total current assets		1,533	2,713	2,644	3,574	3,989	4,374	6,259	6,457	-
Tangible fixed assets		54	47	52	97	264	277	569	619	-
Investments and other assets		86	69	133	354	358	394	507	659	-
Intangible assets		67	78	187	216	432	716	761	604	-
Total assets		1,740	2,907	3,016	4,240	5,042	5,761	8,097	8,339	-
	Short-term debt	240	174	215	406	100	300	1,648	60	-
Current liabilities		725	785	822	1,408	1,235	1,382	3,146	1,746	-
	Long-term debt	318	358	168	62	198	140	92	44	-
Fixed liabilities		339	385	201	76	211	190	126	65	-
Total liabilities		1,064	1,170	1,022	1,484	1,445	1,572	3,272	1,811	-
	Shareholders' equity	676	1,737	1,994	2,697	3,467	4,048	4,685	6,429	-
Total net assets		676	1,737	1,994	2,756	3,597	4,189	4,824	6,528	-
Total interest-bearing debt		558	532	383	468	298	440	1,740	104	-
Cash flow statement (JPYmn)
Cash flows from operating activities		-2	111	71	576	1,246	651	1,934	1,941	-
Cash flows from investing activities		-136	-69	-263	-433	-674	-671	-1,019	-412	-
Cash flows from financing activities		309	815	-139	69	-230	-7	933	-1,736	-
Financial ratio
ROA (RP-based)		15.1%	14.2%	14.4%	28.9%	27.3%	21.8%	25.4%	26.1%	-
ROE		19.8%	16.0%	13.8%	29.7%	28.3%	21.9%	24.5%	28.0%	-
Equity ratio		38.8%	59.8%	66.1%	63.6%	68.8%	70.3%	57.9%	77.1%	-

Source: Shared Research based on company data; per-share data is adjusted for stock splits.
Note: Figures may differ from company materials due to differences in rounding methods.

Recent updates

Q1 FY04/22 report update

2021-09-29

Shared Research updated the report following interviews with Hamee Corp.

Q1 FY04/22 flash update

2021-09-13

Hamee Corp. announced earnings results for Q1 FY04/22; see the results section for details.

Trends and outlook

Quarterly trends and results

Cumulative		FY04/20				FY04/21				FY04/22				FY04/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Sales		2,558	5,413	8,660	11,325	2,684	5,622	9,056	12,364	2,617				18.7%	14,000
	YoY	14.5%	16.7%	13.0%	9.9%	4.9%	3.8%	4.6%	9.2%	-2.5%					13.2%
Gross profit		1,406	2,954	4,773	6,431	1,634	3,469	5,610	7,562	1,665				-	-
	YoY	26.3%	27.1%	22.3%	22.6%	16.2%	17.4%	17.5%	17.6%	1.9%					-
	Gross profit margin	55.0%	54.6%	55.1%	56.8%	60.9%	61.7%	62.0%	61.2%	63.6%					-
SG&A expenses		1,022	2,111	3,389	4,686	1,218	2,476	3,955	5,382	1,337				-	-
	YoY	16.2%	13.7%	12.2%	14.8%	19.2%	17.3%	16.7%	14.9%	9.7%					-
	SG&A ratio	40.0%	39.0%	39.1%	41.4%	45.4%	44.0%	43.7%	43.5%	51.1%					-
Operating profit		385	843	1,384	1,745	416	993	1,655	2,180	328				14.6%	2,250
	YoY	63.9%	80.7%	56.9%	50.0%	8.2%	17.8%	19.6%	24.9%	-21.2%					3.2%
	Operating profit margin	15.0%	15.6%	16.0%	15.4%	15.5%	17.7%	18.3%	17.6%	12.5%					16.1%
Recurring profit		400	878	1,396	1,757	400	969	1,610	2,149	348				15.5%	2,248
	YoY	66.7%	87.0%	58.6%	49.0%	0.2%	10.4%	15.3%	22.3%	-13.2%					4.6%
	Recurring profit margin	15.6%	16.2%	16.1%	15.5%	14.9%	17.2%	17.8%	17.4%	13.3%					16.1%
Net income		292	603	958	1,069	261	672	1,145	1,556	254				15.8%	1,612
	YoY	66.7%	78.8%	51.8%	30.2%	-10.6%	11.5%	19.5%	45.5%	-2.4%					3.6%
	Net margin	11.4%	11.1%	11.1%	9.4%	9.7%	12.0%	12.6%	12.6%	9.7%					11.5%
Quarterly		FY04/20				FY04/21				FY04/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales		2,558	2,856	3,247	2,665	2,684	2,938	3,434	3,308	2,617
	YoY	14.5%	18.8%	7.3%	1.0%	4.9%	2.9%	5.8%	24.1%	-2.5%
Gross profit		1,406	1,547	1,819	1,658	1,634	1,835	2,142	1,951	1,665
	YoY	26.3%	27.9%	15.1%	23.7%	16.2%	18.6%	17.7%	17.7%	1.9%
	Gross profit margin	55.0%	54.2%	56.0%	62.2%	60.9%	62.4%	62.4%	59.0%	63.6%
SG&A expenses		1,022	1,089	1,279	1,297	1,218	1,258	1,480	1,427	1,337
	YoY	16.2%	11.3%	9.8%	22.5%	19.2%	15.5%	15.7%	10.0%	9.7%
	SG&A ratio	40.0%	38.1%	39.4%	48.7%	45.4%	42.8%	43.1%	43.1%	51.1%
Operating profit		385	458	541	361	416	577	662	525	328
	YoY	63.9%	97.7%	30.1%	28.3%	8.2%	25.8%	22.4%	45.3%	-21.2%
	Operating profit margin	15.0%	16.1%	16.7%	13.6%	15.5%	19.6%	19.3%	15.9%	12.5%
Recurring profit		400	478	519	361	400	569	642	538	348
	YoY	66.7%	108.2%	26.1%	20.7%	0.2%	18.9%	23.7%	49.3%	-13.2%
	Recurring profit margin	15.6%	16.7%	16.0%	13.5%	14.9%	19.4%	18.7%	16.3%	13.3%
Net income		292	311	355	111	261	411	473	411	254
	YoY	66.7%	91.8%	20.8%	-41.4%	-10.6%	32.2%	33.2%	269.1%	-2.4%
	Net margin	11.4%	10.9%	10.9%	4.2%	9.7%	14.0%	13.8%	12.4%	9.7%

Segments				FY04/20				FY04/21				FY04/22				FY04/22
Quarterly (JPYmn)				Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	% of Est.	FY Est.
Sales				2,558	2,856	3,247	2,665	2,684	2,938	3,434	3,308	2,617				18.7%	14,000
	YoY			14.5%	18.8%	7.3%	1.0%	4.9%	2.9%	5.8%	24.1%	-2.5%					13.2%
	Platform			451	447	465	492	550	538	603	618	657				23.9%	2,750
		YoY		7.5%	7.1%	5.1%	11.1%	21.9%	20.3%	29.5%	25.6%	19.5%					19.1%
		% of total		17.6%	15.7%	14.3%	18.5%	20.5%	18.3%	17.5%	18.7%	25.1%					19.6%
		Next Engine		394	386	403	424	486	459	507	517	553
			YoY	13.9%	13.5%	6.6%	11.9%	23.3%	18.9%	25.8%	21.9%	13.7%
		Consulting		56	61	62	61	63	79	95	101	103
			YoY	-22.7%	-21.1%	-3.4%	-4.3%	12.1%	29.2%	51.8%	65.4%	62.9%
	Commerce			2,075	2,369	2,629	2,137	2,085	2,341	2,670	2,631	1,900				18.0%	10,550
		YoY		14.6%	19.5%	2.1%	-1.7%	0.5%	-1.2%	1.5%	23.2%	-8.9%					8.5%
		% of total		81.1%	82.9%	81.0%	80.2%	77.7%	79.7%	77.7%	79.6%	72.6%					75.4%
		Retail		932	1,046	1,329	1,253	1,218	1,094	1,721	1,458	1,141
			YoY	23.4%	23.3%	3.0%	17.9%	30.7%	4.6%	29.5%	16.4%	-6.3%
			% of total	36.4%	36.6%	40.9%	47.0%	45.4%	37.2%	50.1%	44.1%	43.6%
		Wholesale		1,059	1,324	1,188	1,068	681	1,158	1,034	1,085	704
			YoY	0.3%	16.7%	-7.6%	-3.9%	-35.7%	-12.5%	-13.0%	1.6%	3.4%
			% of total	41.4%	46.4%	36.6%	40.1%	25.4%	39.4%	30.1%	32.8%	26.9%
	Other			32	46	153	37	50	59	162	58	60				8.6%	700
		YoY		645.6%	1,048.9%	1,918.4%	78.0%	54.6%	28.2%	5.8%	59.6%	20.6%					112.4%
		% of total		1.3%	1.6%	4.7%	1.4%	1.9%	2.0%	4.7%	1.8%	2.3%					5.0%
Operating profit				385	458	541	361	416	577	662	525	328				14.6%	2,250
	YoY			63.9%	97.7%	30.1%	28.3%	8.2%	25.8%	22.4%	45.3%	-21.2%					3.2%
	Operating profit margin			15.0%	16.1%	16.7%	13.6%	15.5%	19.6%	19.3%	15.9%	12.5%					16.1%
	Platform			127	142	145	171	231	222	259	243	273				26.0%	1,050
		YoY		-4.4%	24.9%	13.8%	11.6%	81.2%	56.2%	78.5%	42.1%	18.3%					10.0%
		Segment profit margin		28.2%	31.8%	31.2%	34.8%	42.0%	41.3%	42.9%	39.4%	41.5%					38.2%
		% of total		21.5%	21.4%	19.1%	29.0%	35.2%	26.1%	28.6%	31.7%	49.8%					31.3%
		Next Engine		147	145	158	176	239	220	259	242	275				47.8%	960
			YoY	29.0%	31.9%	25.3%	16.6%	62.6%	52.0%	63.5%	37.6%	15.1%					53.4%
			EBITDA margin	37.2%	37.5%	39.3%	41.5%	49.1%	48.0%	51.1%	46.8%	49.7%					-
		Consulting		-20	-3	-13	-5	-8	2	0	6	-2				-	-5
			YoY	-	-	-	-	-	-	-	-	-					-
			EBITDA margin	-34.8%	-4.4%	-21.6%	-7.4%	-	2.4%	0.3%	5.9%	-					-
	Commerce			501	567	620	532	507	717	652	623	359				14.1%	2,550
		YoY		42.5%	55.9%	13.3%	42.1%	1.1%	26.5%	5.1%	17.1%	-29.2%				-	2.1%
		Segment profit margin		24.2%	23.9%	23.6%	24.9%	24.3%	30.6%	24.4%	23.7%	18.9%				-	24.2%
	Other			-38	-44	-8	-89	-82	-87	-6	-99	-83				-	-250
		YoY		-	-	-	-	-	-	-	-	-				-	-
		Segment profit margin		-	-	-	-	-	-	-	-	-				-	-
	Adjustments			-206	-206	-216	-230	-240	-275	-243	-243	-221				-	-1,100

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

KPIs related to Next Engine

KPI related to Next Engine			FY04/20				FY04/21				FY04/22
Quarterly			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
KPI related to Next Engine			393	385	397	430	485	460	506	517	553
	YoY		-	-	-	-	23.4%	19.5%	27.5%	20.2%	14.0%
Total contracts for main service features			3,718	3,790	3,849	3,997	4,179	4,351	4,513	4,739	4,949
	YoY		14.1%	10.2%	9.6%	10.4%	12.4%	14.8%	17.3%	18.6%	18.4%
Stores using Next Engine			28,814	29,376	30,034	30,835	31,771	33,114	34,461	36,004	37,765
	YoY		15.1%	12.7%	11.2%	10.1%	10.3%	12.7%	14.7%	16.8%	18.9%
Monthly churn rate			1.00%	1.06%	0.87%	0.98%	0.82%	0.88%	0.86%	0.87%	0.81%
ARPU (JPY)			35,264	33,891	34,316	35,740	38,489	34,902	36,949	35,815	36,525
LTV (JPY'000) (⁼ARPU÷churn rate)			35,264	31,973	39,444	36,469	46,938	39,661	42,964	41,167	45,093
	Number of orders processed (mn)		22.48	21.33	23.02	28.64	33.94	28.76	33.65	33.20	35.43
		YoY	-5.9%	11.8%	6.1%	36.1%	51.0%	34.8%	46.2%	15.9%	4.4%
	Gross merchandise value (JPYbn)		158.5	169.4	184.8	209.2	237.1	208.4	253.6	245.3	263.1
		YoY	3.9%	27.7%	14.1%	37.9%	49.6%	23.0%	37.2%	17.3%	11.0%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Results for Q1 FY04/22 (out September 13, 2021)

In FY04/21, sales were JPY2.6bn (-2.5% YoY), operating profit was JPY328mn (-21.2% YoY), recurring profit was JPY348mn (-13.2%) and net income attributable to owners of the parent was JPY254mn (-2.4% YoY).

In a change to accounting policy, the Accounting Standard for Revenue Recognition (ASBJ No. 29, March 31, 2020) has been applied since Q1. There is limited impact on reported results.

In the Platform business, growth in the number of companies under contract boosted sales YoY in Q1, but sales were down in the Commerce business due to weak sales of smartphone accessories and products sourced from other companies, which lead to an overall sales decline.

Gross profit came to JPY1.7bn (+2.1% YoY) and GPM was 63.6% (+2.9pp YoY), which has a higher marginal profit ratio, and there was an increase in the proportion of high-margin retail sales in the Commerce business.

Operating profit declined YoY. In line with the initial company plan, expenses to increase the head count and shift to cloud servers went up YoY.

Progress versus full-year company forecast

Progress versus the full-year FY04/22 company forecast was 18.7% for sales (in Q1 FY04/21, 21.7% of the full-year FY04/21 result), 14.6% for operating profit (19.1%), 15.5% for recurring profit (18.6%), and 15.8% for net income attributable to owners of the parent (16.8%). Although progress rates are below 25%, this is due to seasonal factors and on track versus the company plan. Hamee's sales and profits are lower in Q1 (May - July) than in other quarters, because demand is boosted in Q2 (August - October) by the release of new iPhone models, in Q3 (November - January) by the holiday shopping season, and in Q4 (February - April) by the start of the academic year and university graduates beginning work.

Initiatives in Q2 onward

In the Next Engine business, the company began test marketing in July 2021 for joint development of "retargeting ads" in collaboration with a French company Criteo, which delivers online ads. Retargeting ads are delivered to users who have used e-commerce sites based on their browsing history, etc., to encourage them to revisit these sites. The company plans to lift sales of Next Engine user companies by harnessing the know-how of Criteo, which has one of Japan's largest ad networks, by introducing a semi-automated mechanism for displaying retargeting ads on their e-commerce sites.

In August 2021, Hamee Consulting began an outsourcing service for setting up Next Engine. The company aims to improve earnings of the overall Platform business by pursuing synergies with Next Engine, as well as continuing to step up the hiring and on-the-job training of consultants, because supply is not keeping up with demand.

The company began selling two new ranges of iFace smartphone cases, starting with online presales of the completely transparent Look in Clear at end-July 2021 (general sales started in August), followed by the notebook type Cardina, for which the company began taking advance orders at all Hamee stores in August 2021 and began sales in stages from September. These two product ranges were developed based on answers to customer questionnaire surveys. Both have recorded strong initial sales and are likely to contribute to sales growth in Q2 onward. Hamee also began selling new products for iPhones in September, starting with cases for the new iPhone models in the mainstay First Class and Reflection series. It is considering cases for new iPhone models in the Look in Clear and Cardina ranges as well.

In May 2021, the company signed an exclusive sales agreement for Pixio brand gaming monitors in the Japanese market with Pixio USA Inc. The gaming monitor market has been growing amid the COVID-19 pandemic, because consumers are spending more time at home. The company forecast FY04/22 sales of around JPY665mn of Pixio monitors on its e-commerce site, but the planned launch in Q2 was postponed until Q3 due to the shortage of IC chips, which meant a delay in sourcing the monitors. Thus sales of Pixio monitors may fall short of the company target.

In terms of expenses, the company plans to continue upfront investing in shifting to cloud servers. However, the company is repeatedly making improvements to Hamic Pocket features and performance aiming for product/market fit, which may result in the postponement of advertising and promotional spending.

Platform business

Sales in the Platform business were JPY657mn (+19.5% YoY) and operating profit was JPY273mn (+18.3% YoY).

Both Next Engine and Hamee Consulting generated higher sales and profits YoY.

Next Engine

Next Engine generated Q1 sales of JPY553mn (+14.0% YoY) and operating profit of JPY275mn (+15.1% YoY). ARPU was lower than a year earlier, but the the number of companies under contract increased. ARPU and the number of companies under contract increased from the previous quarter.

Next Engine sales are calculated as average revenue per user (ARPU) × number of companies under contract. ARPU comprises fixed charges (usage charges for main functions, JPY10,000 monthly) + pay-per-use charges (pay per use + charges for additional functions). The number of companies under contract can be expressed as existing user count x (100% - churn rate) + new user count.

Average revenue per user (ARPU): Q1 FY04/22 ARPU fell 5.1% YoY to JPY36,525. Pay-per-use charges mainly vary according to the number of orders received and processed. In Q1 FY04/21, ARPU increased as a result of the e-commerce market growing amid the COVID-19 pandemic. ARPU was down YoY in Q1 FY04/22 because of this year-ago temporary rise. That being said, ARPU increased 2.0% QoQ and is generally on an upward trend.

Efforts to upsell, such as an app to automatically deliver product recommendation emails, have also contributed to the rise in ARPU. The app had been offered free from December 2018, but the company began charging for it in June 2021. Around 600 companies used it during the free trial period, of which roughly half have continued to use the app with pay service. The company plans to improve the app's features to increase the number of user companies and raise ARPU.

The app that automatically sends product recommendation emails works as follows. The app automatically attaches products recommendations (selected by Next Engine AI from the e-commerce company's offerings as those likely to interest the consumer) to emails automatically sent to consumers who buy products via Next Engine (order confirmation, shipment complete, follow-up, etc.). The company explained that although affiliate ads usually charge 2% of the sale price if the ad results in a purchase within a month, it receives 5% of the sale price if the recommendation email results in a sale within 24 hours. This scheme makes it clear that the purchase is the result of the recommendation email because of the short response time, and charges a higher fee.

Companies under contract: In Q1 FY04/22, the number of companies under contract rose 210 from end-FY04/21 to 4,949. In Q2 FY04/21, Hamee began outsourcing call center operations previously conducted in-house and transferred about 20 employees who had previously been handling call center operations to the newly established contract rate improvement division and churn rate improvement division. It now has a personnel structure that enables the strengthening of customer success initiatives, such as support for existing customers and attracting new customers, which has led to an upward trend in companies under contract.

Churn rate: In Q1 FY04/22, the average monthly churn rate was 0.81% (0.82% in Q1 FY04/21), which is a record low. Hamee aims to keep the annual churn rate below 10%, or below 0.83% on a monthly basis. The churn rate fluctuates in the short term, but has been falling over the longer term. The company plans to maintain the current trend.

Net increase in number of users: In Q1, there was a net increase of 210 companies under contract versus end-FY04/21. The quarterly net increase is on an upward trend, from 70–150 in FY04/20 to 160–220 in FY04/21, and over 200 in the last two quarters. The majority of Next Engine user companies run multiple online stores with monthly sales of around JPY2 - 3mn. Next Engine is popular with these companies, because the basic monthly fee remains constant at JPY10,000 even if a user has multiple stores on e-commerce malls, and inventory management can be centralized, reducing the burden of indirect operations.

Expenses: There was an increase in expenses (cost of sales) related to the switch from rental servers to cloud computing services. As a provider of a cloud-based (SaaS) business management system, such spending is an investment to strengthen the stability of operations and to anticipate future growth in the number of companies under contract. When using its own servers, the company needed to ensure it had the capacity to handle peak order volumes, but the switch to a cloud environment helps it control costs. Although the transition to cloud computing is scheduled for completion in FY04/22, the company will use both rental servers and cloud computing services through Q3. For this reason, the company will record system-related expenses of around JPY240mn per quarter (+JPY30mn or so compared with before it started using cloud computing services).

Hamee Consulting

In Q1 FY04/22, Hamee Consulting posted sales of JPY103mn (+61.5% YoY) and operating loss of JPY2mn (versus operating loss of JPY6mn in Q1 FY04/22). Winning contracts with major companies contributed to sales. The high turnover rate of consultants had been an issue, but a Q1 FY04/21 review of the organizational structure in relation to consultants resulted in improved the retention rate. This allowed the company to establish a system for acquiring new clients and to support existing ones, curbing recruiting costs and contributing to earnings improvement.

Commerce business

Sales in the Commerce business were JPY1.9bn (-8.9% YoY) and operating profit was JPY359mn (-29.2% YoY).

Sales in the Commerce business declined by JPY184mn. This broke down into a JPY133mn decline in the domestic business, JPY79mn increase in the overseas business, and JPY130mn decline in consolidated adjustments. Although sales were down YoY due to lower consolidated adjustments and sales of smartphone-related accessories and other products, sales of the mainstay iFace range of smartphone cases (accounting for 70% of total sales of the Commerce business) were nearly flat YoY.

Consolidated adjustments declined to JPY54mn in a rebound after increasing to JPY184mn in Q1 FY04/21. Unrealized gains that are part of the wholesale sales value, which arise at the time of consolidation as a result of different fiscal years of Hamee (sales company) and the Korean subsidiary (manufacturing base), are booked as consolidated adjustments. This figure recorded a one-time increase in Q1 FY04/21 due to the irregular timing of shipments from the Korean subsidiary and atypical sales trends because of COVID-19.

Operating profit was down JPY147mn YoY. This broke down into a JPY72mn decline in gross profit because of lower sales in the domestic business and other factors, and a JPY60mn rise in personnel and other expenses (of which JPY15mn was a personnel expense increase associated with reorganization and JPY20–30mn was a personnel expense increase at the Korean subsidiary and forex-related increase).

Trends by product

By product, sales of the mainstay iFace range held steady YoY, but sales of smartphone-related accessories declined.

iFace: The second-generation iPhone SE went on sale in Q1 FY04/21, but sales were unchanged YoY in Q1 FY04/22 despite no new iPhone model release on robust sales of the long-selling iFace First Class and products released in 2019 such as iFace Reflection and Air Pods CASE.

Smartphone accessories: In Q3 FY04/21, the company reduced the number of product development personnel for smartphone accessories and increased the number of iFace developers to strengthen iFace development. The company narrowed down the number of some product items developed such as neck straps, ring holders and chargers. The reduced number of product items was reflected in lower sales.

Outside brand products: The company sourced fewer outside brand products (mainly accessories and toys) because of the IC chip shortage, which resulted in lower sales.

Results by sales channel

By sales channel, e-commerce (retail) sales declined, but physical (wholesale) sales increased.

E-commerce (retail): The company's e-commerce site posted sales of JPY1.1bn (-6.3% YoY). Sales declined due to weak smartphone accessory sales stemming from a reduced number of product items, slowing growth of the e-commerce market and effects of competitors cutting prices.

Physical stores (wholesale): Wholesale sales to electronics retailers, smartphone carrier stores, and variety goods stores came to JPY704mn (+3.4% YoY). Sales declined in reaction to pent-up demand a year-ago after the state of emergency ending and another state of emergency in Q1 FY04/22 covering a wider region, which depressed demand around the country. However, sales in the overseas business increased, contributing to the overall sales increase.

Overseas Business trends

Sales were up 89% YoY in the US business. Customer traffic increased at physical stores as US economic activity picked up, which led to growth in wholesale sales of music toy Otamatone, character-related goods, and capsule toys. Sales of the mainstay iFace range have been trending up as well. Sales of items featuring characters that US consumers are familiar with have been increasing.

Other (new businesses)

Sales were JPY60mn (+20.6% YoY) and the operating loss was JPY83mn (JPY81mn loss in Q1 FY04/21). Losses increased despite an improvement in sales.

Peak demand for the Hometown Tax donation support service is in December, and thus 80% of sales are recorded in Q3 (November–January). Q1 FY04/22 is a time to prepare for Q3. The company hired additional web designers in May 2021 to strengthen e-commerce marketing measures such as utilizing online ads and delivery of email newsletters. The company is making good progress with winning new contracts, including large-scale contracts.

The company is working on improving both hardware and software of Hamic POCKET (a mobile handset with a parental monitoring feature targeting elementary school students) and aims for product-market fit in FY04/22.

Company forecast for FY04/22

		FY04/20			FY04/21			FY04/22
(JPYmn)		1H	2H	FY	1H	2H	FY	FY Est.
Sales		5,413	5,912	11,325	5,622	6,741	12,363	14,000
	YoY	16.7%	4.4%	9.9%	3.8%	14.0%	9.2%	13.2%
Cost of sales		2,460	2,435	4,894	2,153	2,649	4,802	-
Gross profit		2,954	3,477	6,431	3,469	4,093	7,562	-
	YoY	27.1%	19.1%	22.6%	17.4%	17.7%	17.6%	-
	Gross profit margin	54.6%	58.8%	56.8%	61.7%	60.7%	61.2%	-
SG&A expenses		2,111	2,575	4,686	2,476	2,906	5,382	-
	YoY	13.7%	15.8%	14.8%	17.3%	12.9%	14.9%	-
	SG&A ratio	39.0%	43.6%	41.4%	44.0%	43.1%	43.5%	-
Operating profit		843	902	1,745	993	1,187	2,180	2,250
	YoY	80.7%	29.4%	50.0%	17.8%	31.6%	24.9%	3.2%
	Operating profit margin	15.6%	15.3%	15.4%	17.7%	17.6%	17.6%	16.1%
Recurring profit		878	879	1,757	969	1,180	2,149	2,248
	YoY	87.0%	23.8%	49.0%	10.4%	34.2%	22.3%	4.6%
	Recurring profit margin	16.2%	14.9%	15.5%	17.2%	17.5%	17.4%	16.1%
Net income		603	467	1,069	672	884	1,556	1,612
	YoY	78.8%	-3.6%	30.2%	11.5%	89.5%	45.5%	3.6%
	Net margin	11.1%	7.9%	9.4%	12.0%	13.1%	12.6%	11.5%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

FY04/22 forecast by segment

Forecasts by segment			FY04/20			FY04/21			FY04/22
(JPYmn)			1H	2H	FY	1H	2H	FY	FY Est.
Sales			5,413	5,912	11,325	5,622	6,742	12,364	14,000
	YoY		16.7%	4.4%	9.9%	3.8%	14.0%	9.2%	13.2%
	Platform		898	950	1,848	1,087	1,221	2,308	2,750
		YoY	7.3%	7.3%	7.3%	21.1%	28.5%	24.9%	19.1%
		% of total	16.6%	16.1%	16.3%	19.3%	18.1%	18.7%	19.6%
	Commerce		4,443	4,766	9,209	4,426	5,301	9,727	10,550
		YoY	17.1%	0.3%	7.8%	-0.4%	11.2%	5.6%	8.5%
		% of total	82.0%	80.7%	81.3%	78.7%	78.6%	78.7%	75.4%
	Other		79	190	268	109	220	330	700
		YoY	839.6%	574.6%	635.5%	39.1%	16.1%	22.9%	112.4%
		% of total	1.5%	3.2%	2.4%	1.9%	3.3%	2.7%	5.0%
	Adjustments		-6	6	0	-1	-0	-1	0
Operating profit			843	902	1,745	993	1,187	2,180	2,250
	YoY		80.7%	29.4%	50.0%	17.8%	31.6%	24.9%	3.2%
	Operating profit margin		15.6%	15.3%	15.4%	17.7%	17.6%	17.6%	16.1%
	Platform		269	316	586	453	502	955	1,050
		YoY	9.1%	12.6%	10.9%	68.0%	58.8%	63.0%	10.0%
		Segment profit margin	30.0%	33.3%	31.7%	41.6%	41.1%	41.4%	38.2%
	Commerce		1,068	1,130	2,198	1,224	1,275	2,499	2,550
		YoY	49.3%	22.6%	34.2%	14.5%	12.8%	13.7%	2.1%
		Segment profit margin	24.0%	23.7%	23.9%	27.6%	24.1%	25.7%	24.2%
	Other		-82	-97	-179	-168	-105	-273	-250
		YoY	-	-	-	-	-	-	-
		Segment profit margin	-	-	-	-	-	-	-
	Adjustments		-413	-447	-860	-515	-486	-1,001	-1,100

Source: Shared Research based on company data

Hamee forecasts full-year FY04/22 sales of JPY14.0bn (+13.2% YoY), operating profit of JPY2.3bn (+3.2% YoY), and net income of JPY1.6bn (+3.6% YoY). It projects a full-year dividend of JPY20.5 per share (payout ratio of 20.1%).

Platform business

The company targets Platform business sales of JPY2.8bn (+19.2% YoY) and operating profit of JPY1.1bn (+10.1% YoY). At Next Engine, the company plans to increase the number of companies under contract by continuing to enhance client success activities, including promoting the digitization of routine tasks, deepening analog communication, and conducting webinars to help users improve operational proficiency. Hamee Consulting aims to maximize synergies by actively using group resources, for example to launch Next Engine configuration services. In anticipation of future growth, the company will continue to increase investment in servers, mainly to support cloud computing. Personnel expenses are also likely to increase due to hiring of development staff and new graduates. Such spending will slow operating profit growth.

Next Engine

Hamee forecasts Next Engine sales of JPY2.3bn (+17.6% YoY) and operating profit of JPY1.0bn (+8.1% YoY) in FY04/22. The pandemic has triggered acceleration of the digital shift, which should serve as a tailwind to the Next Engine business.

The company is targeting ARPU of about the same level as in FY04/21 (JPY36,539). ARPU grew 5.0% YoY in FY04/21 due to the greater speed of the digital shift in light of the pandemic, but Hamee is not expecting any similar gain in FY04/22. ARPU tends to be linked to sales trends in the e-commerce market, but the company aims at least to maintain the ARPU level by making the Automated Recommendation Email Delivery app a paid service and developing and expanding additional functions.

Automated Recommendation Email Delivery app: Hamee plans to make its Automated Recommendation Email Delivery app, which has been available for free since December 2018, into a paid app starting in July 2021. When automatically distributing order confirmation (thank you) emails, shipping completion emails, follow-up emails, and so on to consumers who have purchased products via Next Engine, the app automatically attaches recommendations for products that may be of interest to the consumer from among the products offered by the online store operator. It is possible to determine what products may be of interest by analyzing Next Engine data. Hamee says that, with standard affiliate advertising, if the consumer makes a purchase within a month of an advertisement being delivered, the seller typically pays a commission of about 2% of the selling price, but in the case of its recommendation email app, if the consumer purchases the recommended product within 24 hours, Hamee receives 5% of the selling price. The scheme is designed to clarify the effectiveness of the recommendation emails by shortening the eligible response period, but also setting a higher commission.

Companies under contract: At Next Engine, Hamee aims to have some 5,500 companies under contract (+761 companies, +16.1% YoY) by end-FY04/22. There were net increases of 375 in FY04/20 and 742 in FY04/21 (of which 226 were acquired in Q4 alone), so the company believes its FY04/22 target is achievable. It will focus on increasing the number of companies under contract by allocating personnel to keep the churn rate under control and improve the contract rate (rate of conversion of free users to paid users). The company will also continue working to lower the churn rate by enhancing initiatives to drive client success, such as conducting webinars to help users improve operational efficiency. In addition, it will strengthen its efforts to capture e commerce operators, especially those with multiple online stores. Beyond typical response methods, it will enhance its individualized response using a chat function and other methods to improve user convenience.

Hamee Consulting

For FY04/22, the company forecasts Hamee Consulting sales of JPY433mn (+28.1% YoY) and operating profit of JPY17mn (versus operating loss of JPY6mn in FY04/21). Sales from recurring-revenue clients, to which the company provides ongoing consulting support, account for 70% of total sales, and such sales are stable. In addition, recruiting costs are declining due to increased retention rates, no significant increase in other costs is expected, and the burden of goodwill amortization will disappear, helping the business to move into the black.

The company plans to conduct advertising and promotion to acquire new clients and has launched fee-based Next Engine configuration services, which it hopes will lead to the capture of new consulting clients. It also hopes to increase the average client spend by enhancing its service menu.

Commerce business

Hamee forecasts Commerce business sales of JPY10.6bn (+8.5% YoY) and operating profit of JPY2.6bn (+2.1% YoY). It expects increased sales of iFace-related products and the launch of gaming monitors in FY04/22 to contribute about JPY665mn, pushing segment sales higher YoY. The company expects operating profit to grow as well, but not by as much as sales due to planned investment (JPY224mn in Japan and JPY11mn in South Korea) centered on advertising and promotion for the new cosmetics business.

Sales outlook for iFace-related products

During FY04/22, the iPhone 13 is likely to be released in September 2021, and Hamee plans to roll out a new series of smartphone cases under the iFace brand to coincide with that. The company will also continue efforts to improve customer satisfaction, while securing means to maintain contact with customers, for example by releasing an iFace app and distributing exclusive content. By sales channel, it expects wholesale sales to be flat YoY, since there is little expectation of recovery in sales at brick-and-mortar stores as the impact of the COVID-19 pandemic continues. On the other hand, it sees ongoing growth in retail sales, since it assumes that more time spent at home will lead to greater consumption and that the digital shift will continue. Overseas, the company projects retail sales (accounting for some 80% of overseas sales) will expand through the use of Amazon, especially in the US.

Expansion of product line under iFace brand

The company plans to expand its product line beyond smartphone cases to include a range of lifestyle products using the strength of the iFace brand. Smartphone cases and other products using the iFace brand have remained popular especially among women in their late teens and early twenties, due to their distinctive design, functionality, and high brand recognition. The company will initially target its main iFace customer base with iFace branded cosmetics (scheduled to launch in November 2021) and gradually increase the product line thereafter.

Sale of gaming monitors

In May 2021, Hamee entered an agreement with Pixio USA Inc. to serve as the exclusive distributor of the gaming monitor brand Pixio in the Japan market. This business opportunity arose because the Hamee group’s overseas base, Hamee Global Inc. (Seoul, South Korea) already had dealings with Pixio USA. Since the COVID-19 outbreak began, the gaming monitor market has been expanding as people spend more time at home. The company expects to achieve about JPY665mn in annual sales through its e-commerce sites.

Other (new businesses)

Hamee forecasts sales from other businesses of JPY700mn (+12.8% YoY) and operating loss of JPY250mn (versus operating loss of JPY273mn in FY04/21). Making use of data from the Platform and Commerce businesses, the company plans to provide its distinctive added value (in products and services) to increase corporate value.

Hometown Tax

The company targets a 52% YoY increase in Hometown Tax donation support service sales. It aims to increase the amount of donations by increasing the number of web designers making improvements to the portal sites of existing clients (municipalities). It will also seek to capture new municipalities by increasing sales staff.

Hamic POCKET

Hamee launched Hamic POCKET (Android OS, JPY15,000 for device itself, with JPY1,000 basic monthly charge) in February 2021. It is a mobile device with a monitoring capability targeting elementary school students. The business uses a recurring-revenue model (based on the JPY1,000 basic monthly charge) rather than a one-time sales model. By maintaining contact with the customer even after sale of the device itself, the company can propose subsequent products—when the customer decides to discontinue Hamic POCKET service—or even subscription services such as smartphone insurance. It believes demand for smartphones for elementary school students will continue to grow and therefore aims to create products that meet the needs of both parents and children. Currently, it only sells Hamic POCKET on its own e-commerce sites, but once it achieves product/market fit, it plans to develop Hamic POCKET into a new mainstay product for the Other segment by advertising and expanding to other sales channels. However, during FY04/22, it expects early-stage investment to result in operating loss of JPY382mn.

RUKAMO

RUKAMO is an e-commerce site launched in March 2020 to help companies dispose of slow-moving inventory. In FY04/22, the company aims to increase sales by increasing distribution volume and developing new mechanisms for distributing slow-moving inventory.

RUKAMO: This is an e-commerce site opened in March 2020 as an initiative to reduce waste by encouraging ethical consumption through the active listing of companies’ slow-moving inventory items and products at risk of disposal. The site does not require sellers to offer large discounts, but aims to attract customers by offering a loyalty points equal to 50% of the price of each product. When a product is sold, Hamee earns 10% of the selling price as a commission.

Company forecasts versus results

Results vs. Initial Est.	FY04/14	FY04/15	FY04/16	FY04/17	FY04/18	FY04/19	FY04/20	FY04/21	FY04/22
(JPYmn)	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.
Sales (Initial Est.)	-	-	6,349	7,479	9,320	10,214	10,949	12,832	14,000
Sales (Results)	4,681	5,658	6,501	8,502	9,377	10,303	11,325	12,364	-
Results vs. Initial Est.			2.4%	13.7%	0.6%	0.9%	3.4%	-3.6%	-
Operating profit (Initial Est.)	-	-	464	531	1,161	1,403	1,092	1,778	2,250
Operating profit (Results)	227	336	451	1,106	1,380	1,164	1,745	2,180	-
Results vs. Initial Est.			-2.9%	108.3%	18.9%	-17.1%	59.8%	22.6%	-
Recurring profit (Initial Est.)	-	-	432	511	1,157	1,391	1,082	1,764	2,248
Recurring profit (Results)	223	329	427	1,048	1,267	1,179	1,757	2,149	-
Results vs. Initial Est.			-1.1%	105.1%	9.5%	-15.2%	62.4%	21.8%	-
Net income (Initial Est.)	-	-	271	338	755	979	801	1,260	1,612
Net income (Results)	122	193	258	696	873	821	1,069	1,556	-
Results vs. Initial Est.			-4.8%	105.9%	15.6%	-16.1%	33.5%	23.5%	-

Source: Shared Research based on company data

Business

Business model

Hamee operates the Platform business, which provides cloud-based (SaaS) business management services to online store operators, and the Commerce business, which focuses on online retail sales of smartphone accessories and wholesale sales to variety stores and electronics mass retailers. In FY04/21, Platform business sales were JPY2.3bn (18.7% of total sales), Commerce business sales were JPY9.7bn (78.7% of total sales), and Other (new businesses including Hometown Tax donation support service and Hamic POCKET) sales were JPY330mn (2.7% of total sales). By segment, OPM was 41.4% for the Platform business and 25.7% for the Commerce business, ensuring relatively high profitability. However, the Other segment recorded operating loss of JPY273mn, partly due to early-stage investment in new businesses, and adjustment for companywide expenses came to JPY1.0bn, resulting in overall operating profit of JPY2.2bn and OPM of 17.6%.

Performance by business segment

Segments				FY04/13	FY04/14	FY04/15	FY04/16	FY04/17	FY04/18	FY04/19	FY04/20	FY04/21
(JPYmn)				Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.
Sales				4,168	4,681	5,658	6,501	8,502	9,377	10,303	11,325	12,364
	YoY			-	12.3%	20.9%	14.9%	30.8%	10.3%	9.9%	9.9%	9.2%
	Platform			340	490	633	807	1,018	1,238	1,722	1,848	2,308
		YoY		-	43.8%	29.2%	27.5%	26.2%	21.6%	39.1%	7.3%	24.9%
		% of total		8.2%	10.5%	11.2%	12.4%	12.0%	13.2%	16.7%	16.3%	18.7%
	Commerce			3,827	4,192	5,025	5,695	7,484	8,120	8,544	9,209	9,727
		YoY		-	9.5%	19.9%	13.3%	31.4%	8.5%	5.2%	7.8%	5.6%
		% of total		91.8%	89.5%	88.8%	87.6%	88.0%	86.6%	82.9%	81.3%	78.7%
		Retail		1,934	2,138	2,458	2,730	3,021	3,637	3,956	4,560	5,491
			YoY	-	10.5%	15.0%	11.1%	10.7%	20.4%	8.8%	15.3%	20.4%
			% of total	46.4%	45.7%	43.4%	42.0%	35.5%	38.8%	38.4%	40.3%	44.4%
		Wholesale		1,893	2,054	2,567	2,965	4,463	4,483	4,588	4,648	3,958
			YoY	-	8.5%	25.0%	15.5%	50.5%	0.5%	2.3%	1.3%	-14.8%
			% of total	45.4%	43.9%	45.4%	45.6%	52.5%	47.8%	44.5%	41.0%	32.0%
	Other			-	-	-	-	-	18	36	268	330
		YoY		-	-	-	-	-	-	102.1%	635.5%	22.9%
		% of total		-	-	-	-	-	0.2%	0.4%	2.4%	2.7%
	Adjustments			0	0	-0	0	-0	0	0	0	-1
Operating profit				183	227	336	451	1,106	1,380	1,164	1,745	2,180
	YoY			-	23.8%	48.1%	34.0%	145.5%	24.7%	-15.7%	50.0%	24.9%
	Operating profit margin			4.4%	4.8%	5.9%	6.9%	13.0%	14.7%	11.3%	15.4%	17.6%
	Platform			61	74	123	182	389	399	528	586	955
		YoY		-	20.8%	67.0%	47.8%	113.2%	2.6%	32.3%	10.9%	63.0%
		Segment profit margin		18.0%	15.1%	19.5%	22.6%	38.2%	32.2%	30.7%	31.7%	41.4%
		% of total		33.4%	32.6%	36.7%	40.5%	35.2%	28.9%	45.4%	33.6%	43.8%
	Commerce			122	153	213	268	1,350	1,781	1,638	2,198	2,499
		YoY		-	25.3%	39.0%	26.0%	403.4%	31.9%	-8.0%	34.2%	13.7%
		Segment profit margin		3.2%	3.7%	4.2%	4.7%	18.0%	21.9%	19.2%	23.9%	25.7%
		% of total		66.6%	67.4%	63.3%	59.5%	77.6%	84.4%	81.7%	84.4%	78.6%
	Other			-	-	-	-	-	-70	-162	-179	-273
		YoY		-	-	-	-	-	-	-	-	-
		Segment profit margin		-	-	-	-	-	-	-	-	-
	Adjustments			-	0	0	0	-633	-730	-840	-860	-1,001

Source: Shared Research based on company data

Platform

Provides Next Engine service to online store operators

In the Platform business, the main service is Next Engine, a cloud-based (SaaS) system that automates routine tasks for online store operators, but the company also provides consulting services for online store operators. By adopting Next Engine, online store operators can conduct routine e-commerce-related tasks automatically (including sending order confirmation emails, confirming payment, allocating inventory, preparing delivery slips, arranging shipment, and sending shipping confirmation emails and follow-up emails). Next Engine provides the ability to centrally manage inventory status and other data, so even if an operator opens stores at multiple e-commerce malls and is trying to increase sales opportunities, there is limited additional workload involved.

Number of companies under contract (left) and number of orders processed (right)

Source: Shared Research based on company data

Business process flow utilizing Next Engine

Source: Shared Research based on company data

Business process flow utilizing Next Engine

Source: Shared Research based on company data

With Next Engine, companies operating multiple online stores can register products once and have the product data reflected across all their stores; registered data on individual products such as product names, prices, and other attributes can be edited either collectively or selectively (by marketplace or by product), and discount sales can be organized or canceled easily. The Next Engine service is highly rated by users because it incorporates know-how and user experience features that were nurtured in the process of operating Hamee’s own Commerce business. Among the companies that won Rakuten Shop of the Year 2020 awards (announced in January 2021), 25 were Next Engine users and the number of awards they won in multiple categories totaled 172.

Rakuten Shop of the Year: The best performing shops are selected for the award out of approximately 53,000 that sell on Rakuten Ichiba. Award winners are chosen on the basis of consumer votes, annual sales, number of orders, sales growth rate, customer service, and other factors. Rakuten Shop of the Year 2020 selected 10 shops for overall performance, 124 for awards in 56 categories, 23 for service awards, and 12 special award winners for a total of 148.

Next Engine users

Next Engine has 4,739 client companies (as of end-April 2021, +18.6% YoY), and the company says this is the largest number for any backyard system in the e-commerce industry. When Hamee began selling Next Engine externally in 2008, it was common for the initial investment in e-commerce to run to several million yen, with monthly operating costs of several hundred thousand yen. Against this backdrop, the company created a real bargain by offering its cloud-based (SaaS) business management system to online store operators for monthly fees of just JPY30–40,000. Thanks in part to a first-mover advantage, the number of companies under contract rose steadily after the service was launched, and good brand recognition supports its business foundation even now.

Clients include apparel-related companies (35.6% of users as of end-April 2021), companies selling general merchandise, furniture, and home interior goods (27.2%), companies selling foods and alcoholic and other beverages (6.8%), and companies selling cosmetics and pharmaceuticals (7.8%). These clients typically operate multiple online stores, handle a large number of products, and have complicated product management. Next Engine is characterized by its ability to automate routine tasks (including order confirmation, inventory allocation, and shipping preparation) when client companies sell through multiple online stores, and it appears that those clients rate the service highly.

Fee model for Next Engine

Next Engine’s fee model has a two-tier structure. The first tier is a basic monthly fee of JPY10,000 per company. This is a fixed price regardless of the number of stores the user operates or the number of online marketplaces such stores are operated in. Although other companies offer centralized management systems for online store operators, many charge a basic monthly fee based on store count. In Japan and South Korea, where store operators often need to expand their sales opportunities by opening stores in multiple online marketplaces, Next Engine–harnessing Hamee’s expertise in this area–is a useful tool. In contrast, in the US, where Amazon is dominant, there is no incentive to open stores in multiple online malls so the company is less likely to be able to exploit its strengths in its fee model.

The second tier is a pay-per-use charge. In Hamee’s case, this charge is linked to the number of orders processed per month, starting at JPY25/order for 401–1,000 orders, JPY20/order for 1,001–3,000 orders, JPY15/order for 3,001–5,000 orders, JPY10/order for 5,001–7,000 orders, and JPY5/order for over 7,000 orders (free for users with 400 or fewer orders per month). Since additional costs scale downward relative to the increase in order volume, this fee model incentivizes users to win more orders. The benefit of using Next Engine grows in tandem with the increase in the number of orders, which means volume growth also reduces the risk of users canceling the service.

Usage fee model of Next Engine (basic monthly fee + pay-per-use charge)

Source: Shared Research based on company data

A cost estimate of performing routine tasks using human labor is shown below, illustrating the substantial time and cost savings derived from using Next Engine. Assuming 1,500 orders are processed per month for 100 product items over six stores, the monthly labor cost of routine tasks such as sending emails, registering products, and sending delivery statements based on an hourly wage of JPY900 comes to JPY225,000 and labor input to 15,000 minutes (250 hours). By using Next Engine, the cost is reduced to monthly usage fees of JPY35,000 (JPY10,000 basic fee + JPY25,000 pay-per-use charge) and labor input to 1,500 minutes (15 minutes per item for product registration x 100, or JPY22,500 at JPY900 per hour).

Cost of routine tasks using human labor

Source: Shared Research based on company data

KPIs related to Next Engine

KPI related to Next Engine			FY04/14	FY04/15	FY04/16	FY04/17	FY04/18	FY04/19	FY04/20	FY04/21
(FY)
Total contracts for main service features			1,496	1,816	2,228	2,642	3,095	3,622	3,997	4,739
	YoY		25.0%	21.4%	22.7%	18.6%	17.1%	17.0%	10.4%	18.6%
Stores using Next Engine			10,708	13,472	16,793	20,268	23,852	28,006	30,835	36,004
	YoY		61.3%	25.8%	24.7%	20.7%	17.7%	17.4%	10.1%	16.8%
	Number of orders processed (mn)		26.56	33.00	42.59	53.68	68.60	85.71	95.47	129.55
		YoY	54.2%	24.2%	29.1%	26.0%	27.8%	24.9%	11.4%	35.7%
	Gross merchandise value (JPYbn)		-	244.1	315.0	376.0	492.4	598.8	721.9	944.4
		YoY	-	-	29.0%	19.4%	31.0%	21.6%	20.6%	30.8%

Source: Shared Research based on company data

Developing apps to expand functions

Next Engine’s main functionality includes standard functions that contribute to the convenience of operations at online store operators, but the company has additional applications (apps) to meet special needs, allowing client companies to add functions to suit their individual characteristics. Such apps that serve specific needs (expanded functions) include an app for automated distribution of emails with product recommendations and apps for CRM, transaction lending, and data utilization. In addition, to improve client convenience, the company is developing apps that link with other companies’ services (including accounting software and distribution/warehousing software).

Examples of apps (expanded features)

Merchandise analysis and inventory management	Support for increasing sales	Links with accounting software	Links with distribution and warehousing
App for slow-moving inventories	Automated distribution of emails with product recommendations	App linked with accounting software freee	Shippinno, an automated shipment app for Logizard ZERO
App to send slow-moving inventories to RAKUMO, a service to visualize products not shipped within a certain amount of time and help distribute them	App that automatically inserts product recommendations in emails sent by e-commerce operators using recommendation AI that utilizes data held by Next Engine	App that links data held by Next Engine such as order receipt and purchase forms with freee K.K.'s accounting software freee	App that links Logizard Co., Ltd.'s (4391) Logizard ZERO with Next Engine to enable automated shipment
CRM (customer management and analysis)	Cross-border e-commerce	Data utilization and extended features
App for syncing with e-commerce CRM LTV-Lab	Links with Wandou platform	Production of customized next-engine data
App that visualizes repeat sales and repeat customer rates using data held by Next Engine to help users formulate strategies to improve repeat customer rates.	Cross-border e-commerce shopping app that enables sale of products registered with Next Engine to the Chinese market	App that enables users to acquire data held by Next Engine customized with specific conditions and format for various purposes

Source: Shared Research based on company data

Scope for expansion of Next Engine

According to Rakuten (TSE1: 4755), the number of stores in its online marketplace Rakuten Ichiba exceeded 53,000 as of June 2021. Assuming two stores per company, 26,500 companies have stores in Rakuten Ichiba alone. If Hamee were to attain its target of 5,500 clients, all of which have stores in Rakuten Ichiba, the usage rate would only be about 20%. Thus, Shared Research sees considerable scope for expanding sales of Next Engine.

The main marketing method of the Platform business is to participate in events and seminars targeting online store operators, informing them about its services centered on Next Engine, and making specific proposals to companies that take an interest. To win contracts, the company offers consultations to prospective client companies. The process for entering a contract starts with the prospective client registering at the official Next Engine website, signing up for a one-month free trial, and completing the configuration process. After a month has elapsed, the client switches to a paid contract if desired. The ratio of clients switching from free to paid contracts is between 30% and 50%. Although the company does use online advertising to attract clients, it controls the frequency and scale of advertising to avoid any decline in service level that might occur with a sudden increase in inquiries and free contracts.

Strengthening consulting service

In April 2018, Hamee acquired JS Consulting (now Hamee Consulting), which specializes in consulting for online store operators and has a strong track record in providing an integrated sales support service spanning proposal and execution of analyses and strategies to verification of actions taken. Its operations include analyses of clients’ own e-commerce sites and online marketplaces (such as Rakuten Ichiba, Yahoo! Shopping, and Amazon), consulting, and contracted production of e-commerce sites. JS Consulting also has experience automating some of its in-house site analysis and report preparation functions. Sales from recurring-revenue clients to which the company provides ongoing consulting support account for 70% of total sales, and such sales are stable. However, due in part to the high turnover rate of consultants, operating profit only improved to the breakeven level in FY04/21.

Leveraging the subsidiary’s expertise, Hamee plans to utilize its own data to automate consulting work, and provide consulting services best suited to the stage of growth of the online store operators that use Next Engine. By offering clients the best partnership arrangement in this way, Hamee seeks to become a dominant player in the business. Starting in FY04/21, it aims to maximize synergies by actively using group resources, for example to launch Next Engine configuration services.

Commerce

Commerce: Mainstay products are iFace smartphone cases

The Commerce business is the company’s founding business. Hamee was established by President and CEO Atsushi Higuchi in 1998 as a company that designs and sells (online retail and wholesale) mobile phone accessories. The mainstay product at the time was mobile phone straps, but the current mainstay is smartphone cases. The company also sells peripherals such as protective films, finger rings, chargers, and batteries.

Commerce: sales, operating profit, and OPM

Source: Shared Research based on company data

Hamee’s smartphone cases, which retail for around JPY3,000 each, stand out for their sophisticated design and performance (known for excellent shock resistance), brands, and characters featured. According to the company, its core brand iFace is well known among women in their late teens and early twenties. In terms of smartphone cases, there are many competing products, so the company uses online advertising and other measures to maintain and enhance brand recognition

Mainstay iFace brand smartphone cases

salisty