Japan Language Firm That Surged 1,093% Eyes New Businesses

(Bloomberg) -- A Japanese language school whose stock soared almost 12-fold last year is planning to expand into new businesses as its chief executive officer tries to keep the rally alive.

RareJob Inc., a Tokyo-based online English conversation school that uses teachers in the Philippines, will focus on areas including leadership training and job placement, Gaku Nakamura, the company’s founder and chief executive officer, said in an interview. Nakamura said one of his goals is to boost the company’s market value to 100 billion yen ($916 million) from its current level of about 25 billion yen.

RareJob surged 1,093% in 2019, the second-best performance in Japan’s Mothers market of smaller shares, after it surprised investors by saying earnings would jump. Analysts -- and history -- suggest it will be difficult to keep up those gains after the company’s valuation exceeded 100 times estimated profit.

“A lot of retail investors have already piled into the stock,” said Tomoichiro Kubota, an analyst at Matsui Securities Co. in Tokyo. “Unless earnings turn out to be even better than they’ve been, the shares may start to lose steam.”

RareJob’s shares extended gains on Thursday, rising as much as 4.4% in Tokyo trading.

It’s not unusual for some small-cap Japanese companies to post huge surges in a given year. But in most cases, the rally then reverses. Over the 10 years through 2018, the best performer in the Mothers Index rose an average of 967%, according to data compiled by Bloomberg. They fell an average of 29% the following year.

Nakamura, 39, sees RareJob as an exception.

“The starting point was quite low to begin with,” he said.

RareJob’s sales rose to a record 3.6 billion yen in the fiscal year ended March. Operating profit climbed to 178 million yen in the period and is forecast to more than double this fiscal year. The stock’s annual gain last year came after four straight years of declines.

“I want to get involved in the business of developing global leaders through professional training in areas such as negotiation,” Nakamura said. He said he plans to target students who have already learned to speak English.

At the same time, Nakamura said he intends to expand overseas, particularly in Asia.

The company’s main business is starting to work after initial struggles, Nakamura said. At first, Japanese language learners were wary of taking lessons from people whose mother tongue isn’t English. “People were wondering why they should learn English from Filipinos,” Nakamura said.

Strategy Shift

So Nakamura decided for a while to hire only graduates from the Philippines’ top university. That helped get Japanese people onside.

One RareJob study plan has a fixed monthly fee of about $54 for a 25-minute lesson as often as every day, according to the company.

But if the lessons are cheap, the stock itself has become more costly. It trades at more than 100 times estimated 12-month forward earnings. That compares to an average of about 37 times for a basket of its peers, according to data compiled by Bloomberg.

For Katsuyoshi Sakase, general manager of the equity research department at Aizawa Securities Co., a lot will depend on whether RareJob’s plans to boost revenue succeed.

It looks “relatively expensive,” he said. “But what’s important for companies like these is sales growth. If it tops 10 billion yen and 20 billion yen in revenue without taking too much time, market expectations will be upheld.”

To contact the reporters on this story: Min Jeong Lee in Tokyo at mlee754@bloomberg.net;Shingo Kawamoto in Tokyo at skawamoto2@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Tom Redmond, Michael Patterson

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