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COMPANY RESEARCH AND ANALYSIS REPORT:DEAR LIFE CO., LTD.- 3245- Tokyo Stock Exchange First Section( I )

2019-01-25  提供機構:FISCO  作者:FISCO  點閱次數:5

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◆Summary

Sales and profits were record highs in FY9/18, driven by results in the Real Estate Business Announced Go For The Future 2021, the new medium-term management plan, aiming for ordinary profit of ¥5bn

DEAR LIFE CO., LTD., <3245> (hereafter, also “the Company”) is a corporate group centered on its Real Estate Business, which includes an urban apartment development business and an income-producing properties invest­ment business, but which also conducts a staffing business and other businesses. Since its establishment in 2004, it has achieved rapid growth, mainly from apartment development (Real Estate Business), primarily for single people and DINKS (double income, no kids), specializing in the Tokyo area. Its strengths include the real estate assessment skills of its human resources who possess high levels of expertise, including its President and Representative Director Yukihiro Abe. It was listed on the Tokyo Stock Exchange (TSE) Mothers Market in August 2007, a little less than three years from its establishment. Its listed was upgraded to the TSE 1st Section in August 2015, and subsequently also it has continued to show remarkable growth.

1. Business description

The Company’s mainstay business is the Real Estate Business, and it is the main business pillar earning 94.3% (in FY9/18) of Company-wide net sales and 95.9% (same) of Company-wide operating profit. The features of its business model include that 1) it specializes in the Tokyo area, 2) it has expertise in developing apartments for single people and DINKS of a size of around 30 to 50 apartments per building, 3) it sells to real estate sales companies, business corporations, and various investor groups on the unit of an entire building, and it does not conduct lot sales for customers. With a small number of talented human resources, it has achieved annual net sales of ¥19,587mn (FY9/18) and its asset efficiency and productivity are high.

2. Results trends

In the FY9/18 full year results, sales and profits increased and achieved new record highs, with net sales rising 26.0% year-on-year (YoY) to ¥20,763mn, operating profit growing 38.1% to ¥2,859mn, ordinary profit climbing 46.9% to ¥2,932mn, and profit attributable to owners of parent increasing 89.3% to ¥2,518mn. The gross profit margin was 19.6% (20.1% in the previous fiscal year) and is being maintained at around 20%. The SG&A expenses ratio declined to 5.8% (7.5%) from the expansion of the sales scale and the removal of Palma Co., Ltd. from the scope of consolidation. In the mainstay Real Estate Business, the Company sold a total of 28 properties to a wide range of customers, including business companies, funds, and domestic investors, and as a result, segment profit increased significantly. In the Sales Promotion Business, in the situation of the increase in the supply of lot-sale and rental apartment properties in the city center, demand for sales staff continued to trend steadily. But profits declined due the strengthening of investment, including in staff recruitment and training costs.

The targets for the FY9/19 full year results are ordinary profit of ¥3,000mn (up 2.3% YoY) and profit attributable to owners of parent of ¥2,000mn (down 20.6%). In a typical year, the Company does not disclose results targets for net sales and operating profit. It does not disclose a net sales target because in the Real Estate Business, there are many uncertain elements as the methods of selling properties are diverse, and also for the same reason, the target indicator in the medium-term management plan is not sales, but ordinary profit. In the Real Estate Business, in accordance with the strategy up to the present time, it will continue to expand business scale, centered on urban apartments. Also, the new medium-term management plan describes the “strengthening of base for sustainable, stable income assets.” Up to the present time, the Company has partially invested in income-producing properties, but it is forecast that it will utilize its sound financial base to increase the investment ratio in this asset. It is thought that this will mainly be for residential properties, but it seems that the investment targets will also include other fields, such as the senior and lodging fields. In the Sales Promotion Business, it is widening the scope of occupations it provides staff for, which is leading to an expansion of consignments. The Outsourcing Services Business (conducted by Palma <3461>, an affiliate) has been removed from the scope of consolidation, so it will aim to achieve its targets from the above-described two segments. In the current fiscal period, Palma <3461> began a capital alliance with the Japan Post Group, and the plan is to utilize its brand strength, network, and management resources to accelerate the growth of the self-storage business.

3. Growth strategy

The name of the new medium-term management plan is Go For The Future 2021. The aim is to lay the groundwork toward business development in the 2020s, while maintaining continuous growth. In terms of the key theme in the mainstay Real Estate Business, the plan reconfirms that, the same as in the past, the Company will specialize in the Tokyo area with the aim of expanding the volume of the development and investment business. Also, as a new axis, it incorporates the “strengthening of base for sustainable, stable income assets,” and in the future, it will conduct business management while maintaining a balance between flow and stock. In addition, the plan is to strengthen investment in growth, and the fields it can target for investment include the lodging-related industry, the construction-related industry, services for seniors, lifestyle services, real estate x IT, and services for foreigners. The Company has also invested in Palma in the past and has a track record of successes for it, including developing it and having it listed, and it is currently searching for the second Palma in surrounding fields. It is also proactive about raising funds. Continuing on from 2017, it exercised equity finance (MSWT) from March 2018, and by September had completed fund raising of approximately ¥2.4bn. As a result, the equity ratio improved to 53.3% (end of FY9/18, compared to 42.3% at end of previous fiscal year), which is contributing to the maintenance of a sound financial structure.

4. Shareholder return policy

For FY9/18, the initial forecast for the dividend per share was ¥19. But profits increased due to the gain on the sale of Palma shares and the strong results, mainly in the Real Estate Business. Therefore, the dividend was significantly increased, to ¥28, for a dividend payout ratio of 39.8%. The forecasts for FY9/19 are a dividend of ¥20 per share and a dividend payout ratio of 40%. There was a special factor in FY9/18, of the gain on the sale of Palma shares, but there has been no change to the medium- to long-term upward trend in the dividend. The shareholder benefits program, which the Company has implemented since the past, has been renewed from FY9/19 as the DEAR LIFE Premium Benefits Club. The aim of this renewal is to have shareholders hold a large number of shares over the long term. Previously, shareholders holding 100 or more shares were eligible for benefits, but this have been raised to 500 or more shares, and in addition, the rate of return has also been significantly increased. In the new system, points can be exchanged for foods, electrical products, gifts, travel, and experiences at the specially created Internet website.

◆Company profile

Developing urban apartment in Tokyo area The Real Estate Business is the core business

1. Company profile

The Company is a corporate group centered on the Real Estate Business, which includes an urban apartment development business and an income-producing properties investment business, but it has also a staffing business and other businesses. Since its establishment in 2004, it has achieved rapid growth, mainly from apartment devel­opment (Real Estate Business), primarily for single people and DINKS, specializing in the Tokyo area. Its strengths are the real estate assessment skills of its human resources who possess high levels of expertise, including its President Yukihiro Abe. In the human resources staffing business for the real estate industry (which it calls the Sales Promotion Business), which was started at around the same time as the Company was established, it has earned high levels of trust from both client and staff because of the detailed support it provides that utilizes its strength of being highly knowledgeable about the real estate industry. Palma, which was a consolidated subsidiary up to FY9/18 2Q, conducts a BPO business (Outsourcing Services Business) for the self-storage business (it is currently an affiliate), and in May 2018, it began a capital alliance with the Japan Post Group. Following a series of capital measures, the Japan Post Group now holds 20.86% of Palma’s shares, and the Company holding has changed from 61.12% (consolidated subsidiary) to 43.32% (affiliate). For Palma, in addition to strengthening its creditworthiness and financial base, this alliance can be expected to create major opportunities for growth, such as through the supply of self-storage facilities as part of the effective utilization of the assets owned by the Japan Post Group. For the Japan Post Group also, it may improve the profitability and efficiency of the assets it holds, starting with its nationwide network of 24,009 post offices (as of the end of September 2018).

The Company was listed on the TSE Mothers Market in August 2007, a little less than three years from its estab­lishment. Its listed was upgraded to the TSE 1st Section in August 2015.

2. Business description

The mainstay Real Estate Business includes the development of urban apartments and sales of income-producing properties, mainly in the Tokyo area. Its expertise is in developing apartments for single people and DINKS of a size of 30 to 50 apartments per building. After the development, it conducts sales on the unit of the entire building to customers such as real estate companies, investor groups, and business corporations. It is the main business pillar, earning 94.3% of Company-wide net sales (FY9/18) and 95.9% of Company-wide operating profit (same). The Sales Promotion Business consists of the dispatch of sales and administrative staff to the real estate industry and the provision of sales and business support. A high percentage of these staff is women, and there is considerable demand for apartment sales support staff. The Sales Promotion Business provides 1.6% of Company-wide net sales (same) and 1.8% of Company-wide operating profit (same). Outsourcing Service Business consists of BPO services for the self-storage business, IT solutions, and turnkey solutions services (development, sales and business start-up support services of self-storage facilities) provided by Palma. A feature of BPO services and IT solutions is that they are recurring-type businesses that are growing stably. They provided 4.1% (same) of Company-wide net sales and 2.3% (same) of Company-wide operating profit. The results of this business up to the 1H of FY9/18 were recorded in the Company’s results.

◆Business overview

Investment apartment market in the Tokyo area is steady. An efficient business model that specializes in sales of entire urban apartment buildings

1. Real Estate Business

(1) Honing its competitiveness from specializing in urban apartments in the Tokyo area

a) Strong demand is expected in the Tokyo area

Since its establishment, the Company has been conducting a real estate development business centered on urban apartments for single people and DINKS in the Tokyo area. Even in Japan, which has entered a period of population decline, the trend of the population inflow into the Tokyo area is continuing. Furthermore, ways of working and lifestyles are changing, which means that demand for city center apartments in the best locations is increasing more and more. The difficulty of securing sites for buildings in the Tokyo metropolitan area is rising and the number of newly built apartments supplied continues to decline, but conversely, apartment prices continue to rise. There are some voices saying the market has overheated, but the balance of demand and supply for newly built apartments has not collapsed, and for the time being it would seem that there will be no major market adjustments. The number of investment apartments supplied in the Tokyo metropolitan area trended steadily in the five years from 2013 to 2017, while average prices also trended moderately upward. In the 1H of 2018 (January to June), the number of supplied apartments reached 76% of the number in the previous full year, and the market is forecast to grow in this fiscal period.

In 2018, scandals involving financial institutions and some real estate companies came to light. These scandals have a point in common, in that financial institutions (mainly regional banks) and real estate companies tried to illegally pass on unreasonable loans to individual investors (“salaryman investors”) who conduct apartment man­agement (including of shared housing) in regional and suburban areas. The Company has a completely different business model on the point that it sells entire apartment buildings specializing in city center locations where occupancy rates are expected to be high, to business companies and the wealthy. This completely distinguishes it from the composition of this series of scandals.

b) Strengths include area specialization for site acquisition and construction orders

In this sort of environment, the fact that the Company specializes in the Tokyo area, which has strong demand, as its business area, works to its advantage not only for sales, but also for the acquisition of sites and construction orders. In the real estate industry, which relies to a great extent on the asymmetry of information, the more that there is beneficial information on land and properties, the more important it is to conduct face-to-face negotiations. By limiting its area, the Company has been able to build a network of industry contacts, such as of more efficient and densely concentrated intermediaries, and its ability to acquire this information is high. In addition, by limiting the area, it is able to continuously order construction work, which has enabled it to build good relationships with general contractors and other construction companies and realize high quality building construction work.

c) Another strength is its highly specialized in-house human resources

In addition to the advantage of operating in a limited area, another of the Company’s major advantages is that it has in-house, highly specialized human resources, including first-class architects. For the acquisition of sites, the ability to acquire information quickly at the same time as accurately and rapidly calculating a site’s development potential, and also the ability to quickly present a competitive price, are indispensable. In addition, if there are human resources who understand construction techniques and other such matters, then it becomes easier to implement creative ideas as cost-control measures, and the ability to negotiate with general contractors.

d) Has not entered-into the lot-sales business and is prioritizing asset efficiency and productivity

The Company has not entered-into the lot-sales business and is able to recover its investments quickly and increase asset efficiency through sales of entire buildings. The buyers are a wide range of investors, including business companies such as for a dormitory or company housing; real estate companies targeting lot-sales and rental management; real estate investment funds; and individual wealthy investors. For the development aspect, the Company is increasing efficiency and competitiveness through specializing in the Tokyo area, but conversely for the sales aspect, it is widely exploring the possibility of not having its own sales staff. In FY9/18, it sold 28 properties, mainly urban apartments in the Tokyo area (in-Company developments). The aim in the Real Estate Business is to achieve and maintain ordinary profit per capita of approximately ¥100mn, which is a value worthy of attention in terms of expressing the height of the Company’s productivity.

(2) Focusing on purchases and sales of income-producing properties

a) Utilizing its high-level assessment skills to invest in income-producing properties

The Company has expanded the scope of its business, which is mainly from the development through to the handling of urban apartments. But moreover, in order to expand its business base and diversify earnings, it is also actively investing in excellent, medium- to small-sized income-producing properties that are already operational. The aim for income-producing properties is to maximize earnings by ascertaining the real estate cycle toward acquiring rental income during the holding period, while targeting the best sales timing. There is also considerable room for creative ideas by the Company, which has expertise and real estate management capabilities, such as to inexpensively purchase older properties and properties with temporarily high vacancy rates, and then to sell them after improving their asset value through conducting renovations and acquiring tenants during the period in which it holds them.

b) Avoiding risk and improving asset efficiency

The Company has continued to achieve excellent results and growth for the development of urban apartments and its creditworthiness is high. In 2015, its listing was upgraded to the First Section of the Tokyo Stock Exchange and it is highly financially sound, so its relations with financial institutions are good and it has significant borrowing capacity. In general, compared to the apartment development business that involves building new properties, the ability of the existing income-producing properties business to create added value is low, but it is able to acquire earnings at an early stage and its properties have fluidity, in that it is possible to choose between rental income and sales, so these businesses have different characteristics. By handling income-producing properties, the Company is aiming to establish both stable profitability and to avoid risk, and thereby to further improve asset efficiency.

2. Sales Promotion Business

(1) Dispatches female staff to perform various real estate operations.

Since its establishment, the Company has conducted a business to dispatch human resources to the real estate industry. This business is performing steadily, including due to the current boom in the real estate market in the Tokyo area. It is utilizing its experience in conducting a real estate business to train and dispatch human resources who can be useful at real estate worksites. Regardless of whether for lot-sale or rental apartments, the Company dispatches staff to various fields of work, including for sales support to provide property explanations and guidance; reception work, such as general reception work and reception room management; marketing, sales support monitoring, surveys, and posting work; and concierge services at rental properties. Both the dispatched staff and employees engaged in this work are women, so there is also the aspect of supporting the advance of women in society.

(2) Earns the trust of both customers and dispatched staff through providing detailed guidance

Staffs are only dispatched to worksites after undergoing basic training in accordance with the actual work they will perform, and even after they are dispatched, the Company conducts detailed follow-ups for them based on the feedback of customers, of major real estate companies. This sort of thorough and courteous approach to work leads to a virtual circle in this business, of earning the trust of both customers, of real estate companies, and the dispatched staff. The Company has many excellent dispatch staff, and strong results are expected in this business in the future from the continuing demand from major real estate companies.

(3) Establishment of DEAR LIFE AGENCY Co., Ltd.

In July 2018, the Company established DEAR LIFE AGENCY Co., Ltd., as a human resources-related services company. Although the rate of women participating in the labor force is steadily rising, it is said that there is still more than 3 million women who are unable to work despite being willing to do so, because of the restrictions on the places and times that they can work. Conversely, due to the intensification of competition to acquire human resources alongside the economic recovery and the improved employment environment, the shortage of human resources in various industrial fields is accelerating. So the Company has positioned resolving this inconsistency in the work-related situation as a business opportunity, and it is strengthening measures that aim to achieve the fully-fledged expansion of its human resources-related business. Also, by making it an independent organization, the aims are to speed-up decision making in the relevant business department and to increase the independence and expertise of this organization.

3. Outsourcing Services Business

(1) The self-storage market has high growth potential

The self-storage market has high growth potential. Palma, which is the Company’s equity-method affiliate that was listed on the TSE Mothers Market in 2015, provides multifaceted services for the self-storage business for which high growth is expected, and it is the leading service provider in this industry. Palma’s name awareness and creditworthiness were further improved by its listing, and going forward also, there are great expectations for it as it continues to be the market leader supporting the self-storage business, which still has considerable room for growth.

* The capital alliance between Palma and the Japan Post Group is described in the section on the medium- to long-term growth strategy.

“Self-storage” is the general name for rental-storage space, and the use of it by individuals is expected to greatly increase in the future. Its use by individuals is mainly for the storage of household goods and daily goods that are infrequently used. Demand for the storage of inherited items and for storage space to supplement narrow living spaces in cities is increasing, and there is also significant need for the temporary storage of belongings when moving, relocating, or divorcing. In this way, the potential demand from individuals is considered to be large, so the market is forecast to rapidly expand alongside the provision of properties and the spread of services. The self-storage market has grown by approximately 10% a year in the last few years, and in FY2016, the market scale was estimated to be ¥65.26bn (source: Survey of the Rental Storage, Container Storage, and Trunk Room Market (2016) by the Yano Research Institute). If the above-described growth rate continues, it is expected to have reached a scale of ¥80bn by FY2020.

(2) Highly competitive services for the self-storage business operators

The three business pillars are business solutions services, IT solutions services, and turnkey solutions services

As a provider of business solutions services, Palma first accepts inquiries, applications and contract cancellations from the self-storage end users on behalf of the business operators. In addition to regular duties such as daily fee collection, provision of payment methods, and management of deposits, the business also undertakes patrols and cleaning at the properties. The business operators are able to collectively outsource their individual responses to the many end users and the fund management of the large number of small-amount payments that they make and receive. The company, which already has a considerable outsourcing share for its business solutions services, is able to provide efficient operations, and it services are extremely highly competitive and results in this business have been steadily expanding. It had provided 70,925 outsourcing BPO units (as of the end of FY9/18), and this number is steadily increasing.

IT solutions services consists of the management of Kurarisu, which is a reservation, payment, and inventory management system, and also the administration and management of the Kuragime customer-acquisition website, and its supports the efficient business management of business operators. Both services are increasing their presence as the leading domestic IT infrastructure, and the company’s presence in the self-storage market is also growing more and more.

The Company’s turnkey solutions services provide a full range of services, from business planning through to property development and management. There are many potential investors that are interested in investing in Japan’s self-storage market, including major real estate business operators that require new products, real estate investors who are aiming to diversify their portfolios, and overseas investors who are familiar with precedent investment cases in overseas locations. Potential demand is extremely high for the services provided by the company, of “turnkey solutions services (services provided for facilities that can be operational simply by turning the key) provided as a package for the services necessary for the launch of a new business.”

(3) Effectively utilizing the Japan Post Group’s management resources to enter a new development stage

In May 2018, Palma conducted a capital increase through a third party allocation of shares to Japan Post Capital Co., Ltd., which is the wholly owned subsidiary of the Japan Post Holdings Co., Ltd. <6178> Group. Moreover, to further strengthen the partnership with Japan Post Capital and to minimize the impact of the dilution of shares on Palma’s existing shareholders, the Company sold some of the Palma shares it held to Japan Post Capital. Following this series of capital measures, the Japan Post Group now holds 20% of Palma’s shares, and the Company holding has changed from 61.12% (consolidated) to 43.32% (non-consolidated).

For Palma, in addition to strengthening its creditworthiness and financial base, this alliance can be expected to create major opportunities for growth, such as through the supply of self-storage facilities as part of the effective utilization of the assets owned by the Japan Post Group. For the Japan Post Group also, it may improve the profitability and efficiency of the assets it holds, starting with its nationwide network of 24,009 post offices (as of the end of April 2018).

 

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