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

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

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◆Results trends

Achieved record high sales and profits in FY9/18, driven by results in the Real Estate Business

1. The FY9/18 results

In the FY9/18 full year results, sales and profits increased and achieved new record highs, with net sales rising 26.0% 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%) due to the expansion of the sales scale and the removal of Palma from the scope of consolidation.

In the mainstay Real Estate Business, the Company sold a total of 28 properties to a wide range of customer, including business companies, funds, and domestic investors. Breaking down this number, 13 were the Company’s development properties, 9 were development projects (such as relating to the adjustment of rights relationships, the demolition of existing buildings, and the establishment of a soil contamination investigation) and 6 were income-producing properties (to increase the income return, including from improving operating efficiency and reviewing management costs). 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 to the strengthening of investment, including in staff recruitment and training costs. In the Outsourcing Services Business, results were strong for consignments of delinquent-payments guaranteed BPO services and property development and supply + BPO services.

Due to the strong results and active capital measures, cash and deposits are approximately ¥13bn and the equity ratio is over 50%

2. Financial conditions and management indicators

At the end of FY9/18, total assets were up ¥5,286mn on the end of the previous fiscal year to ¥23,095mn, and the asset scale had expanded greatly. The main factors included increases of current assets of ¥4,623mn and cash and deposits of ¥5,942mn. Sales activities were also strong, and as a result the Company has ample cash and deposits, of ¥13,062mn.

Total liabilities were up ¥840mn on the end of the previous fiscal year to ¥10,779mn. Within this amount, the main factors included increases of current liabilities of ¥419mn and income taxes payable of ¥533mn. Non-current liabilities also rose ¥421mn, which was mainly due to the rise in long-term loans payable of ¥402mn. Total net assets increased greatly, up ¥4,445mn on the end of the previous fiscal year to ¥12,316mn. This was mainly because of increases of ¥2,518mn from profit attributable to owners of parent and ¥2,831mn from the exercise of share acquisition rights.

For the management indicators, the current ratio is 809.9% and short term stability is extremely high. The equity ratio is 53.3% (42.3% at the end of the previous fiscal year), which greatly exceeds the industry level, so medium- to long-term stability is also excellent. One of the reasons why the equity ratio improved by 11 percentage points is the contribution of the new equity finance method (MSWT).

◆Outlook

Forecast is for an increase in ordinary profit even without incorporating the results of Palma, which has become an affiliate

1. FY9/19 targets

For the FY9/19 full year results, the Company is targeting ordinary profit of ¥3,000mn (up 2.3% YoY) and profit attributable to owners of parent of ¥2,000mn (down 20.6%). In terms of the special conditions, the FY9/19 targets incorporate the fact that Palma has been removed from the scope of consolidation, and that in the previous fiscal year, profit attributable to owners of parent included the gain on the sale of Palma shares. The same as in a typical year, the Company has not disclosed 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, the Company will continue to expand the scale of real estate development and investment business in the Tokyo area, 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, it has partially invested in income-producing properties, but it is expected to utilize its sound financial base to increase the investment ratio in this asset. It is thought this will mainly be for residential properties, but it also seems that the investment targets will include the senior and lodging fields. In the Sales Promotion Business, it is widening the scope occupations it dispatches staff for, which is leading to an expansion of consignments. The Outsourcing Services Business (conducted by Palma, an affiliate) has been removed from the scope of consolidation, so it will aim to achieve its targets from the above-described two segments.

Succeeded in purchasing 40 properties with a business scale of ¥26.5bn

2. Purchases and development projects

The Company has been actively purchasing development projects sites and income-producing properties. As a result, it has acquired real estate on a business scale of ¥26.5bn, which is approximately 65% above the amount in the previous fiscal year. On a number-of-properties basis, the 40 properties include development project sites and income-producing properties. The main properties are concentrated in Tokyo’s 23 wards, and in accordance with its commitment, it is purchasing properties with a focus on the Tokyo area.

◆Medium- to long-term growth strategy

Announced Go For The Future 2021 as the new medium-term management plan, aiming for ordinary profit of ¥5bn

1. Announced Go for The Future 2021 as the new medium-term management plan

The Company has cleared “Run” ~ For Growth 2018 ~, which was the former medium-term management plan with FY9/18 as its final fiscal year, and it has announced the new medium-term management plan in order to advance to the next stage. On looking back at the former medium-term management plan, we see that results greatly surpassed all of the targets for FY9/18, as the Company achieved ordinary profit of ¥2.93bn (target, ¥2.5bn), ROE of 25.4% (target, 20%), and shareholders’ equity of ¥12.3bn (target ¥4.85bn).

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, it 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. So it is investing in surrounding fields, like the human resources business being developed by DEAR LIFE AGENCY, or in industrial fields in which growth can be expected in the future, and it is searching for a new business line to follow on from Palma.

The numerical targets for FY9/21 are ordinary profit of ¥5bn, ROE of 15% or above, ROE of a 10% level, and an equity ratio of 30% or above.

2. Completed raising funds of approximately ¥2.4bn through the new equity finance method (MSWT)

The acquisition of properties is essential for the Company to execute its growth strategy, so its demand for funds for this is increasing. Several times in the past it raised funds by conducting a capital increase through a public offering, and it does not rely excessively on borrowing. The new fund raising method it introduced in March 2017, of a capital-increase scheme that utilizes share acquisition rights with an exercise price adjustment provision through a third-party allocation (MSWT), was completed in October 2017, and it raised funds of approximately ¥1.57bn (4 million shares). In order to meet its demand for further funds, the Company again conducted equity finance in 2018 using the same method (MSWT). The allocation was to SMBC Nikko Securities and the exercise period was from March 14 to September 20, 2018, and as a result, it raised funds of around ¥2.4bn (5 million shares). This capital strengthening measures contributed to the improvement in the equity ratio, which rose from 38.1% (end of FY9/16) to 42.3% (end of FY9/17), and then to 53.3% (end of FY9/18). Due to this skillful equity financing, the Company is maintaining a sound financial structure even compared to its industry peers.

The features of MSWT include the following: 1) it is possible to raise funds responsively and flexibly in accordance with share-price trends; 2) the Company can control the number and the timing of the shares to be exercised, so it can avoid a rapid dilution of shares, and 3) as there is no upper limit on the exercise price, it can be constantly revised, which means that the stable exercise of rights and maximization of the financing amount can be expected.

 

◆Shareholder return policy

In FY9/18, greatly increased the dividend (annual, ¥28) from the gain on sales of shares. Started the DEAR LIFE Premium Benefits Club as the new shareholder benefits program.

The Company returns profits to shareholders through paying dividends. In terms of its basic dividend policy, it aims to strengthen its financial structure and secured internal reserves, but it also positions returning profits to shareholders as an important management issue, so its pay dividends targeting a dividend payout ratio of 40%. Its policy is also to flexibly acquire treasury shares while considering factors such as the share-price trend and the financial situation.

The initial forecast for FY9/18 was a dividend per share of ¥19. But the Company greatly increased this to a dividend of ¥28 due to the rise in profits following the gain on the sale of Palma shares and the strong results, particularly in the Real Estate Business. The dividend payout ratio was 39.8%. For FY9/19, it is forecasting a dividend of ¥20 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 trend of an increasing 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. Supposing that a person holds 1,000 shares, in the previous system he would have received a QUO card worth ¥3,000. But in the new system, he will receive 8,000 points (worth ¥8,000, for shares held for six months or longer) or 8,800 points (worth ¥8,800, for shares held for one year or longer), which is close to three times the value of previously. In the new system, points can be exchanged for foods, electrical products, gifts, travel, and experiences at the specially created Internet website.

 

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