TT-391 -- JAC does IPO, ebiz news from Japan

General Edition Sunday, September 17, 2006 Issue No. 391

+++ INDEX
- What's new
- News
- Candidate roundup
- Upcoming events
- News credits

Tyler Foundation

The Tyler Foundation for Childhood Cancer presents: Sports Extravaganza 2006, September 29 through October 1.

Cricket and rugby celebrities from the UK, South Africa, India, Australia and New Zealand will come to Tokyo for 3 days of sport, fun and fundraising! Sports Dinner at the Grand Hyatt, Golf Day and Celebrity Cricket match.
All proceeds benefit children with cancer in Japan.

Shine On! www.tylershineon.org
For more information on the Sports Extravaganza 2006, see:
http://www.tylershineon.org/index.php/events/sports_extravaganza

+++ WHAT'S NEW

In Japan's recruiting world, apart from the 800lb gorilla called Recruit, there really isn't any company that has bridged the various disciplines of the industry. Instead, success for those companies which have gone public has come from specializing in a particular skill area. There are the temp staffing agents, the online job boards, the outplacement agencies, and as of this week, the real McCoy
-- executive and personnel placement.

Actually, It's interesting to notice that while the leaders in the peripheral industries have all already had IPOs, such as TempStaff, DrakeBeamMorin (now private again), and En-Japan, no one in the core field of personnel placement has. This anomaly will end on September 22nd, with the IPO of JAC Japan, probably Japan's largest traditional recruiting company.

JAC Japan was established in 1988 as a subsidiary of a UK-based firm, interestingly owned in London by a Japanese expatriate named Tadayoshi Tazaki. It is on track to earn itself a market capitalization after listing of about JPY14.6bn (US$127m), based on a notional PER of about 35 times earnings. JAC's sales for last year were JPY5.8bn
(US$50m) with profits of JPY594m (US$5.16m). The forecast for this year is for sales of about 50% more, with a small profit increase of about 5%.

Compared to last week's Mixi IPO and other recruiters in other sectors, though, JAC's JPY14.6bn valuation and PER of
35 is rather modest. Even online recruiter En-Japan enjoys a market cap of JPY130bn (US$1.13bn) on sales of JPY11.4bn US$99m).

The reason of course, is low profitability. Basically, En-Japan earns about 3 times as much profit on revenues than JAC does, mainly because although it has 800 people compared to JAC's 400, most of these are sales people and have little to do with the actual work process itself. JAC, on the other hand, has a business process which is focused on manually matching candidates with jobs, by using consultants. This business model is not only labor intensive, it also penalizes the company for growth because consultant commissions are predicated on revenues and climb accordingly.

[Continued below.]

Start a Company in Japan

Entrepreneur's Handbook Seminar: 30th of September

If you have been considering setting up your own company, find out what it takes to make it successful. Terrie Lloyd, founder of over 13 start-up companies in Japan, will be giving an English-language seminar and Q&A on starting up a company in Japan. This is an ideal opportunity to find out what is involved, and to ask specific questions that are not normally answered in business books. All materials are in English and are Japan-focused.

For more details: http://www.japaninc.com/handbook_seminar3

This of course is the big conundrum for operators of physical recruitment agencies in Japan. They are initially attracted to the industry because of its low cost to entry and high per-transaction rewards. But as revenues climb, and they have to find or train more and more consultants, they come to realize that their's is a traditional business
-- which of course is a fundamentally unattractive proposition for shareholders looking for more leverage and less costs to production.

Nihon Brain Center, the original owner of En-Japan saw this problem very early on and in 1995 formed the now famous online recruiting subsidiary. They have reaped the rewards for moving to a more efficient model, and have accepted that the parent will remain in the shadows. Thus our advice to the management of JAC Japan is that rather than using the bulk of those IPO proceeds for "capital spending and office facilities" we think you should go out and buy one of the many online recruiting businesses that are the future of the industry.

That said, though, there is also another important influencer in JAC's business. Going forward, the condition of the global economy and thus the Japanese one has a huge impact on results. Recruiting as an industry only does well in a period of economic expansion, which we have had plenty of in the last 3 years, but it is now starting to become saturated with hopeful newcomers, as well as suffering from a scarcity of candidates. This is being reflected in the recent results of all players, where revenues may still be going up, but profit growth is slowing.

Further proof of the vulnerability of traditional recruiting can be found by looking at JAC's profit results in the 2 years prior to the current expansion (FY2001 and FY2002). There you will see the dramatic impact that 9/11 and the fall-off of activity by international companies had on the company here in Japan.

Our take is that if the US economy does shrink and we do have a medium-to-hard landing in 2007, then based on past experience the foreign firms will be among the first to pull back on expansion plans -- causing the market for traditional recruiters such as JAC to become quite severe.

In the meantime, though, we congratulate them for being first across the IPO finish line.

...The information janitors/

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+++ NEWS

- Abe to offer FDI sweeteners
- Defense satellites
- Mixi rockets 90% above IPO price
- New material cools office buildings
- Consumer finance rate compromise

-> Abe to offer FDI sweeteners

Odds-on favorite for the LDP presidency, and thus for the prime ministership later this month, Shinzo Abe, has said that he is studying a variety of tax incentives, subsidies, and low-interest loans provided by central government to encourage both Japanese and foreign firms to set up manufacturing facilities in regional cities rather than Tokyo. The measures are part of Abe's reaffirmation that he wants to reach current-PM Koizumi's goal of doubling Foreign Direct Investment (FDI) by 2010. ***Ed: As the Nikkei points out, the only fly in the FDI ointment is the fact that FDI growth has been negative since the second half of 2005**! (Source: TT commentary from nikkei.co.jp, Sep 17, 2006)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20060916D16JF309.htm

->Defense satellites

Further reinforcing Abe's hawkish image, the Yomiuri newspaper has leaked details of an LDP bill that will sponsor the development of spy satellites by Japan. Critics are saying that Japan's current technology is insufficient to provide the resolution needed to detect North Korean pre-launch activity and that the bill may be too soon.
***Ed: We imagine that the message of the nation's growing security needs, whether real or imagined, will become a common one over the next couple of years, and lead to a significant increase in expenditures on military spending.
This bodes well for Mitsubishi and other companies that traditionally supply weapons and technology to the
SDF.**

(Source: TT commentary from bloomberg.com, Sep 17, 2006)

http://tinyurl.com/larsh

->Mixi rockets 90% above IPO price
Mixi opened at more than 90% above its IPO price, scotching commentary that the shares were overpriced. Of course, they may be over-priced NOW, but for the time being, they have made its CEO a US billionaire. By Friday afternoon, Mixi had climbed to a market cap of JPY21.99bn (US$1.91bn). Mixi has less than 100 employees and now has a PER of 178 times its forecasted earnings for next March. (Source: TT commentary from signonsandeigo.com, Sep 14, 2006)

http://tinyurl.com/nwcgk

->New material cools office buildings

Building companies Kajima and Geostr have announced that they have developed a water-retentive concrete material that can be used to insulate the tops of office buildings.
Created as a low-cost alternative to having roof-top gardens, as recommended by the Tokyo Metropolitan Government as an energy-saving measure, the concrete has a high cellulose content and absorbs up to 500ml of rainwater in a 30cm square, 2.5cm thick slab. The idea is that after it rains, slabs of the material retain rainwater for up to 10 days, acting as an insulator against temperature extremes while the water evaporates. The companies say that in tests they were able to reduce roof-top temperatures by
15 degrees C to 20 degrees C on average, and the temperature of the office floor below by 5C -- promising significant energy savings. (Source: TT commentary from nikkei.co.jp, Sep 15, 2006)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20060915D15HH216.htm

-> Consumer finance rate compromise

As could be imagined, the pragmatists appear to have won the day on the recent consumer finance loan rate debate, and the government will allow the current "grey zone" upper interest rates to persist for another 5 years -- essentially allowing lending companies to continue business as usual. As we've explained previously, the "grey zone"
refers to two conflicting interest rate laws which either allow lenders to set a higher limit of either 29.2% or 20%, depending on what the lender feels like charging. After the 5-year compromise period, it looks like the upper interest rate will be reduced to either of 20% or 25.5%, pending some additional terms and conditions. (Source: TT commentary from japantimes.co.jp, Sep 16, 2006)

http://search.japantimes.co.jp/cgi-bin/nb20060916a2.htm

NOTE: Broken links
Many online news sources are now removing their articles after just a few days of posting them, thus breaking our links -- we apologize for the inconvenience.

Logistics: The So-Fast Corporation

Seeing is believing: see our company in action

So Fast Corporation, an innovative logistics company, is offering tours of its Heiwajima warehouse.
See why 8 of 10 foreign company presidents choose So Fast after a visit. Read in the autumn issue of J@pan Inc Magazine why SNOVA Corporation selected So Fast and are glad they did.

For details or appointment, contact Katsuhiko Kakuchiyama.
Phone: 03-5753-3101
Email: k.kakuchi@so-fast.co.jp

Logistics warehouse Dates:
Sep 1 - Oct 31
Time: 8:45a.m. - noon

http://www.so-fast.co.jp/en/index.html

+++ CANDIDATE ROUND UP

No listings this week.

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+++ UPCOMING EVENTS/ANNOUNCEMENTS

ICA Events - Sep 21

Speaker: Andrew Perons, Manager, Risk & Compliance, Strata Works K.K.
Topic: "Corporate Governance - Changing Regulations
and Implications"

Details: Event details at http://www.icajapan.jp/ (RSVP)

Date: Thursday, Sept 21, 2006
Time: 6:30 Doors open, buffet dinner included
Cost: 3,000 yen (members), 5,500 yen (non-members) Open to all - Location is Foreign Correspondents' Club

Start a Company in Japan

Entrepreneur's Handbook Seminar: 30th of September

If you have been considering setting up your own company, find out what it takes to make it successful.
Terrie Lloyd, founder of over 13 start-up companies in Japan, will be giving an English-language seminar and Q&A on starting up a company in Japan. This is an ideal opportunity to find out what is involved, and to ask specific questions that are not normally answered in business books. All materials are in English and are Japan-focused. Fully revised for new commercial code.

More details: http://www.japaninc.com/handbook_seminar3/

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IT events announcements are priced at JPY50,000 per week.
For more information, contact sales@japaninc.com

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+++ ABOUT US

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