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WILLPLUS Holdings Corporation (JP-3538) Tokyo Stock Exchange First Section ( II )

2018-11-06  提供機構:FISCO  作者:FISCO  點閱次數:2

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Starting with entry into the Porsche business, we will closely watch future business development in the Tohoku area

5. Entry into the Porsche business

The Company established Willplus Eins in November 2017 as its fourth operating company. Willplus Eins is an authorized Porsche dealer, and it is currently preparing for the opening of Porsche Center (PC) Koriyama (provisional name) in Koriyama City, Fukushima Prefecture in January 2019.

Porsche has a very strong brand image in Japan, and we see it as one of the best choices in light of the Company’s multi-brand strategy as well being a new brand for the Company to carry. What is difficult to interpret is the decision for the location to be in Koriyama City, Fukushima Prefecture. For the Company, the dominant strategy is an extremely important factor, and it is difficult to believe that the Company, which has been managed extremely steadily and in a reasonable manner, went out of its range simply based on a desire to have the Porsche brand. If so, we should interpret the essential meaning the opening of PC Koriyama to be not in the Porsche brand but in being the Company’s first move in the Tohoku area. As such, we should expect the Company to open more dealerships the region after PC Koriyama gets up and going.

It is hard to imagine a situation in which the Company has authorized dealerships in all six prefectures in Tohoku. We conjecture that additional dealerships in the region will be for other brands, and it is possible that the M&A strategy will be used to open up multiple dealerships in quick succession. We will keep a close watch on future developments.

Starting from the fallout that occurred due to the Lehman Brothers bankruptcy later on in 2009 until 2017, the imported vehicle market has averaged annual growth of 8.4%

6. Imported car market trends

The domestic automobile market continues to move sideways or decline. In 2017, there were 4.386 million new­ly-registered passenger vehicles (the total of regular cars, compact cars, and kei mini vehicles, including imported cars), just a 4.5% increase from 1993 (average annual growth rate of 0.2% over 24 years, same below).

Given the reality of competition with imported cars, looking at the trend in the total number of registered cars (including imports) of regular cars and compact cars, the number of registered vehicles in 2017 was 2.943 million units, decreasing by 14.1% from 1993 (average annual decline of 0.6%). During this same period, the number of kei mini vehicles registered increased by 86.9% (average annual increase of 2.6%), which highlights the shift towards kei mini vehicles in the Japanese market.

Meanwhile, there were 306,000 new registrations of imported cars (imported cars of foreign manufacturers) in 2017, which is 94% of the peak of 324,000 units in 1996. Starting from the most recent bottoming out of 161,000 new vehicle registrations in 2009, the average annual growth rate over the past eight years has been 8.4%, which starkly contrasts with domestic automakers’ sales.

As the domestic automobile market continues to contract due to the declining birthrate and aging population, along with changes in consumption styles and preferences, we believe that imported cars have more appeal to “car lovers” than domestic cars, and that this accounts for the aforementioned difference. It is unlikely that such consumer values or the brand image of automakers will change in a short period of time, so we believe that the current trend will continue for the foreseeable future.

◆Performance trends

Top and bottom line growth was realized as the Company was able to offset the negative impact of some brand models nearing the end of their cycles

1. Overview of FY6/18 results

In FY6/18 the Company achieved both top and bottom line growth, as net sales totaled ¥25,770mn (+9.3% YoY), operating profit was ¥1,261mn (+4.3%), ordinary profit was ¥1,255mn (+4.8%), while profit attributable to owners of parent was ¥815mn (+9.6%). Operating performance was solid, as both net sales and profits exceeded the Company’s forecasts at the start of the fiscal year.

The increase in net sales was mainly attributable to solid new car sales for Alfa Romeo and FIAT, strong used car sales for JEEP, BMW and MINI, the full-year contribution to sales from VOLVO Cars Odawara (VC Odawara) which was taken over in May 2017, and the steady increase in sales from services and others (insurance agency sales commissions, etc.), which are recurring revenue-based businesses.

As discussed in detail below, BMW and VOLVO core models were nearing the end of their cycles, so these brands struggled in terms of the number of new cars sold as well as price. This was offset by new models of FIAT, Alfa Romeo and JEEP, leading to an overall increase in net sales. In this way, the Company’s multi-brand strategy worked as intended.

Operating profit grew by ¥51mn YoY, as the increase in gross profit (¥451mn) in conjunction with higher sales allowed the Company to cover the increase in personnel expenses (¥102mn) in association with the acquisition of VC Odawara, higher depreciation (¥134mn), and the increase in other expenses (¥162mn, specifically dealership renovation costs, expenses associated with the launch of the Jaguar/Land Rover business, etc.).

The increase in depreciation was mainly related to demonstration cars. The Company has around 10 demonstration cars at each dealership, which is more than before. This is based on the Company’s strategy of having customers purchase vehicles after test-driving them, as well as due to engines becoming increasingly diverse. With the excep­tion of a few brands, we do not expect the number of demonstration cars per dealership to increase above the current level, but the overall number may increase modestly due to the fact that the Company adds a fixed number of new demonstration cars each year in addition to the increase in the dealerships overall. Still, we feel that the Company has room to reduce costs by leveraging its dominant strategy.

The balance sheet is healthy. Total assets increased 20.9% (¥1,957mn) YoY to ¥11,312mn. The largest contributor to this growth was the 33.7% (¥1,186mn) increase in merchandise, owing to the April 2018 takeover of Jaguar/ Land Rover Shonan as well as the increase in inventory purchases based on importer strategies. On the liabilities side, long- and short-term loans increased by a total of ¥828mn, but the equity ratio stands at 42.4%, while the debt/equity ratio is a healthy 0.53x.

Net cash used in operating activities was ¥161mn, mainly due to the increase in inventories. As discussed above, Jaguar/Land Rover Shonan was purchased right before the end of the previous fiscal year, so there was an impact from not being able to completely reduce inventories through sales. This was a one-off increase in inventories, and we do not feel that it warrants any concern.

CHECKER MOTORS achieved top and bottom line growth, while the other two operating companies saw top line growth but a decline in profit

2. Operating performance by company

(1) CHECKER MOTORS

CHECKER MOTORS had top and bottom line growth, with net sales of ¥12,693mn (+11.3% YoY), and ordinary profit of ¥698mn (+28.9%). Although Jaguar/Land Rover Shonan was taken over near the end of the previous fiscal year, this was absorbed by the increase in sales of existing brands and led to the top line growth.

JEEP saw solid sales of new vehicles, centered on the new Compass model. For Alfa Romeo, the new Giulia model saw an increase in sales, while for FIAT the limited-edition 500 model sold well. Sales of used JEEP vehicles were also strong.

In FY6/19, Alfa Romeo launched its first-ever SUV (STELVIO) near the beginning of the fiscal year. We feel that with the increasing popularity of SUVs in Japan this new model will contribute to new car sales. JEEP is also expected to launch a new model of the Wrangler, and there are growing expectations that this will be a big seller. CHECKER MOTORS will also receive contributions from the two Jaguar/Land Rover dealerships (the Shonan dealership as well as a new dealership opening in Kitakyushu in October), so we expect continued top and bottom line growth in FY6/19.

(2) Willplus Motoren

Willplus Motoren had top line growth, with net sales of ¥9,257mn (+7.7% YoY), but ordinary profit fell to ¥358mn (-9.9%). Sales of new BMW and MINI vehicles remained on par with the previous fiscal year, but strong sales of used cars drove top line growth. Profits fell due to a decline in the gross profit margin on BMW vehicles resulting from increased discounts. Ordinary profit also declined due to higher personnel expenses reflecting an increase in headcount to bolster the operating structure as well as higher depreciation in conjunction with the increase in demonstration vehicles.

Driven by plans to introduce the new BMW 3 Series, in FY6/19 Willplus Motoren will look for both top and bottom line growth based on increased sales of both new and used cars.

(3) Teio Auto

Teio Auto had top line growth, with net sales of ¥3,995mn (+8.6% YoY), but ordinary profit fell to ¥148mn (-24.4%). Net sales increased YoY due to a full-year contribution from VC Odawara acquired in May 2017. However, sales at VC Odawara fell short of the initial forecast, while net sales at existing dealerships declined compared to the previous year, largely due to a mismatch between supply and demand. Being at the end of its model cycle, sales of the flagship V60 failed to grow, while on the other hand there were a lot of orders for the popular XC Series SUV, but delayed deliveries kept these orders from contributing to FY6/18 earnings.

For FY6/19, we expect a large increase in sales of new cars, thanks to deliveries of the XC Series as well as the scheduled launch of the new model of the flagship V60. With this, along with an increase in used cars sales, Teio Auto is looking to achieve both top and bottom line growth.

Outlook is for top and bottom line growth based on four new models for popular and flagship models in addition to contributions from four new dealerships

3. FY6/19 outlook

For FY6/19, the Company forecasts higher sales and profits, with net sales at ¥29,510mn (+14.5% YoY), operating profit at ¥1,344mn (+6.6%), ordinary profit at ¥1,331mn (+6.1%), and profit attributable to owners of parent at ¥850mn (+4.3%).

As discussed in the sections about each operating company, four new model launches are expected, including models based on the popularity of SUVs and flagship models, and these new model launches should help boost new car sales in FY6/19.

On a dealership basis, Jaguar/Land Rover Shonan and Alfa Romeo Ota will fully contribute to earnings, while Jaguar/ Land Rover Kitakyushu (provisional name) will effectively contribute to earnings for the full fiscal year. This dealership plans to officially open in October 2018, but it pre-opened this March and has been preparing for the official open, and this pre-opening has included sales activities. In addition, Porsche Center Koriyama (provisional name), the Company’s first dealership in Tohoku, is scheduled to open in January 2019, and although it will only contribute to earnings for approximately six months, this dealership should boost sales.

In terms of profits, the Company is expecting an increase in expenses related to new dealership openings (dealership costs, personnel expenses, etc.) as well as higher depreciation related to demonstration cars, but this should be offset by the increase in sales attributable to the launch of the aforementioned new models and an improvement in the gross profit margin due to a reduction in discounted sales. As a result, the Company is expected to post a YoY increase in profits.

For FY6/19, we are focusing in particular on: 1) Sales of the four new models; 2) Sales at the two Jaguar/Land Rover dealerships; and 3) Porsche Center Koriyama’s start and the launch of business in Tohoku. We will also be keeping an eye on the new M&A strategy which appears to be underway beneath the surface, the multi-brand strategy, and progress with new dealership openings.

◆Shareholder returns

Plans to increase dividend by ¥0.6 YoY to ¥13.8 in FY6/19

The Company has positioned shareholder returns as important management issue, and the basic policy is to maintain stable dividends while keeping a balance with internal reserves targeting increased corporate value. The Company has a target dividend payout ratio of around 15%.

For FY6/18, the Company paid an annual dividend of ¥13.2 per share (Interim dividend = ¥5.0; Year-end dividend = ¥8.2). The Company conducted a 2-for-1 stock split of common shares with an effective date of April 1, 2017. Adjusting for this stock split, the annual dividend for FY6/17 was ¥12 per share, and there was a ¥1.2 per share dividend increase for FY6/18. The dividend payout ratio was 15.0%.

The Company has announced that its forecast annual dividend for FY6/19 is ¥13.8 per share (Interim dividend = ¥5.0; Year-end dividend = ¥8.8), an increase of ¥0.6. This would result in a dividend payout ratio of 15.1%, based on net income of ¥91.64 per share. If operating performance changes materially due to M&A or other factors, the dividend amount may be adjusted in light of the Company’s target dividend payout ratio of 15%, so we will keep a close watch on any developments.

 

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