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Samty Co., Ltd. (JP-3244) Tokyo Stock Exchange First Section ( II )

2019-03-08  提供機構:FISCO  作者:FISCO  點閱次數:1

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Both net sales and profit increased significantly in FY11/18, exceeding the initial forecasts

2. Overview of FY11/18 results

In FY11/18, the Company realized major increases in both sales and profits, with net sales rising 39.3% YoY to ¥84,274mn, operating income growing 38.5% to ¥14,033mn, ordinary income climbing 37.5% to ¥11,635mn, and profit attributable to owners of parent increasing 49.9% to ¥8,489mn. These results exceeded the upwardly revised forecasts announced on August 29, 2018. The Company set new record highs for both net sales and for all profit lines, and achieved the profit target set in the medium-term management plan two years ahead of schedule.

Aided by the favorable conditions in the real estate market, results grew significantly in the Real Estate Business. In particular, centered on properties in the metropolitan Tokyo region, development mobilization (sales of S-RESIDENCE developments under the Company’s own brand), for which investment demand, including from overseas funds, continues to be strong, contributed to the increase in net sales due to the increase in the number of sales as well as the upswing in sales prices. In revitalization real estate (revitalization and sales, including of existing income properties), results were strong due to the supply of properties to SRR and other factors. Meanwhile, the decline in net sales in the Property Leasing Business was due the steady sales of income properties in the revitalization real estate area, and had been expected. In addition, the significant increase in net sales in Other Business was due to the increase in income in the hotel business.

In terms of profits, operating income increased due to the increase in sales, despite the aforementioned one-time costs associated with the sale of PIERI Moriyama, costs associated with the hotel business (expenses related to hotel openings, renovations, and development, etc.), as well as higher SG&A expenses due to the increases in various expenses, such as advertising expenses and personnel expenses. The operating income margin remained a high 16.7%.

The Company is steadily making purchases which will lead to future growth. The Company acquired 30 development sites (estimated net sales of around ¥38.5bn, acquisition price of approximately ¥12.5bn) and 31 income properties (acquisition price of around ¥22.5bn). In addition, 16 development sites (acquisition price of approximately ¥12.8bn) are in the settlement process as of November 30, 2018.

In terms of financial condition, due to the steady progress made in the sales of income properties, real estate for sale (current assets) and property and equipment (non-current assets) decreased, and total assets were down 2.4% versus the end of the previous fiscal year to ¥162,500mn. Also, shareholders’ equity soared 57.7% YoY to ¥61,533mn due to the accumulation of internal reserves as well as the issuance of new shares (approximately ¥15.0bn procured). As a result, the equity ratio improved significantly to 37.9% (versus 23.4% at the end of the previous fiscal year). The Company also has ample liquidity on hand (cash and deposits). In addition, interest-bearing debt declined to under ¥90,000mn (versus ¥114,700mn at the end of the previous fiscal year) due to repayments in conjunction with sales of income properties. The net D/E ratio is 0.73x, a significant improvement compared to 2.28x at the end of the previous fiscal year.

The results according to each business are as follows.

(1) Real Estate Business

Net sales increased 45.8% YoY to ¥75,143mn and segment income rose significantly by 46.7% to ¥15,547mn. Within these amounts, net sales in development mobilization grew significantly by 152.9% to ¥38,948mn, due to the sales of 17 S-RESIDENCE properties (compared to 8 properties in the previous fiscal year) and 2 hotel properties*1. In particular, investment demand continues to be strong from overseas funds, and the upward trend in sales prices also contributed to the growth in the results. Moreover, the Company sold 53 revitalization mobilization properties*2 (29 properties in the previous fiscal year), including supplying properties to SRR. On the other hand, the decline in sales in condominiums for investment was due to the decline in units sold to 383 units (versus 690 units in FY11/17), and this was within expectations. With respect to development properties, there was strong demand for purchases of entire buildings, and the Company sold these as development mobilization properties with high sales efficiency and high profitability. Also, the high level of growth in asset management sales was due to the supply of properties to SRR*3 (acquisition fees) and the growth in SRR’s asset balance (management and administration fees).

*1 S-PERIA Hotel Hakata and S-PERIA INN Nihombashihakozaki were sold, but the Company continues to manage S-PERIA INN Nihombashihakozaki.

*2 Among the 53 properties sold, sales from real estate for sale (current assets) for which net sales are recorded were from 25 properties, and sales from property and equipment (non-current assets) for which a gain (loss) on the sale (extraordinary profit or loss) only is recorded was from 28 properties.

*3 A total of 33 properties were supplied to SRR. Of the 17 S-RESIDENCE (development mobilization) properties sold, 2 were supplied to SRR, while 13 of the 53 revitalization mobilization properties sold were supplied to SRR. In addition, of the non-current assets above, 18 properties were supplied to SRR.

In terms of profits, despite the transient expenses in conjunction with the sale of PIERI Moriyama and other factors, the Company achieved a significant increase in profits due to the jump in net sales, and the segment income margin was a high 20.7% (compared to 20.6% in the previous fiscal year).

(2) Property Leasing Business

Net sales declined 7.8% YoY to ¥6,807mn, while the segment income declined 8.9% to ¥1,907mn. Rental income declined due to the steady sales of income properties owned, but this was within expectations. Meanwhile, acquisitions of income real estate generally progressed as planned. As a result, at the end of FY11/18 the Company owned 84 properties* (non-current assets), versus 88 properties at the end of FY11/17.

* The 84 non-current assets included 73 rental condominiums, 2 office buildings, and 9 commercial/logistics facilities, etc.

(3) Other Business

Net sales increased 32.2% YoY to ¥2,491mn, while the segment income declined 65.7% ¥83mn. The growth in the hotel business contributed to the increase in net sales. In particular, the fact that GOZAN HOTEL (Kyoto) acquired during the previous fiscal year contributed to results from the beginning of the fiscal year led to the increase in net sales, as did the newly acquired SMART HOTEL kutchan (Hokkaido) and S-PERIA INN Nihombashihakozaki (Chuo-ku, Tokyo), the second hotel development project, among other factors. In addition, occupancy rates generally remained at a high level of above 90%.

Conversely, in profits, aside from the costs to opening new hotels, upfront costs such as those related to remod­eling Center Hotel Tokyo and hotels under development grew, which resulted in lower profit.

3. The development plan (pipeline) situation

Regarding the status of development of the S-RESIDENCE series, one building (95 units) was completed in 2018 and 16 buildings (1,019 units) will be completed in 2019, while 25 buildings (1,534 units) will be completed in 2020. With respect to buildings that will be completed in 2021, which the Company is currently making purchases for, 3 buildings (309 units) have already been secured, bringing the grand total to 45 buildings (2,957 units). On the other hand, concerning the status of development projects for condominiums for investment, one building (85 units) was completed in 2018, 3 buildings (256 units) will be completed in 2020, for a total of 4 buildings (341 units).

◆Topics

Achievements in supplying properties to SRR, hotel development, etc.

The Company’s key strategies are: 1) Developing a business model centered on SRR; 2) Strategically investing in regional metropolitan areas; and 3) Expanding the hotel development and office building development businesses. Some of the Company’s achievements in FY11/18 are as follows.

1. Developments in the J-REIT business (SRR)

With respect to SRR, in addition to executing a third party allotment of investment units* (approximately ¥15.0bn) in January 2018, the Company carried out a capital increase via public offering (approximately ¥4.1bn) in August 2018. With this, SRR’s asset portfolio increased significantly from 49 properties (approximately ¥51.5bn) as of January 30, 2018, to 93 properties (roughly ¥89.6bn). The Company supplied 9 properties, thereby contributing to SRR’s external growth. As a result, the Company was able to grow its asset management business (acquisition fees and management and administration fees). Going forward, the Company plans to proactively supply properties as it works towards its goal of ¥240bn in assets (2021).

* Of the 173,600 new investment units issued by SRR, the Daiwa Securities Group <8601> received 161,700 units (investor ratio of 35.4% after the capital increase), while the Company received 11,900 units (5.3%). In conjunction with the capital increases, out of the 4,200 shares of SAM (a wholly-owned subsidiary of the Company), which is the asset management company for SRR, 1,386 shares (33% of voting rights) were transferred from the Company to the Daiwa Securities Group, and the Daiwa Securities group became a sub-sponsor of SRR.

2. Investments made

During FY11/18, the Company purchased 30 development sites and 31 income properties located throughout Japan, and invested in regional metropolitan areas. Of the 30 development sites, two are in Hokkaido, 12 are in the Tokyo metropolitan area, 10 are in Chubu, and 6 are in Kansai. Meanwhile, of the 31 income properties, three are in Hokkaido, eight are in the Tokyo metropolitan area, three are in Chubu, 10 are in Kansai, one is in Chugoku, and 6 are in Kyushu.

3. Expansion of the hotel business

In terms of expansion of the hotel business, the Company opened S-PERIA Hotel Hakata, its first hotel development project, in March 2018, and followed this by opening S-PERIA INN Nihombashihakozaki, its second hotel devel­opment project, in November 2018. Besides these, the Company is currently developing 4 buildings (two of which are scheduled to open during FY11/19). It also seems that the Company has purchased multiple plots of land for other projects. In addition to hotels, the Company has plans to develop office buildings, centered on major cities throughout Japan, and is already developing one such office building. The Company has positioned the hotel and office building development businesses (which are expected to be highly profitable as the Company is involved from the development stage) as new engines for future growth.

Earnings outlook

The Company expects earnings to remain at a high level in FY11/19.

For FY11/19, the Company forecasts continued increases in sales and profit, with net sales of ¥86,000mn, up 2.0% YoY, operating income of ¥15,000mn, up 6.9%, ordinary income of ¥13,000mn, up 11.7%, and profit attributable to owners of parent of ¥9,000mn, up 6.0%. Due to the recoil decline in the number of properties sold and other factors, the revenue growth rate will be more modest than in FY11/18, when the Company recorded large increases in earnings, but the outlook for a continued high level of earnings is reasonable.

Net sales in both the Real Estate Business and the Property Leasing Business are expected to be roughly flat YoY, while Other Business is expected to contribute to the increase in net sales due to the expansion of the hotel business. As occupancy rates remain high, the hotels that opened in FY11/18 will contribute to net sales from the start of FY11/19, while hotels scheduled to open during FY11/19* are expected to further boost earnings. In the Real Estate Business, the Company expects to sell 14 development mobilization properties, 41 revitalization mobilization properties and 93 units of condominiums for investment (2 buildings).

* As discussed above, two properties which the Company has been developing (one in Nishi-ku, Osaka and one in Shimogyo-ku, Kyoto) are scheduled to open.

The Company expects an increase in profit due to an overall increase in the profitability of transactions, including the dissolution of factors responsible for the temporary costs in FY11/18 (costs associated with the sale of PIERI Moriyama, hotel renovation work, etc.), and the Company is also aiming to further improve the operating profit margin to 17.4% (compared to 16.7% in FY11/18).

Considering the favorable external environment (real estate market conditions) and internal factors (status of the development pipeline and smooth launch of the hotel business, etc.), we feel that there is a strong likelihood that the Company will achieve its earnings forecasts. In addition, as in FY11/18, it will be necessary to keep an eye on effects caused by higher sales prices, as the Company’s sales price assumptions may be conservative vis-à-vis actual market conditions.

◆Growth strategy

Under the new management regime, the Company will promote its new medium-term management plan, the “Samty Toughening Plan,” and will focus more on the balance sheet

1. Medium-term management plan

The Company had been advancing its medium-term management plan covering the five-year period from FY11/16 through FY11/20. However, due to the fact that the Company achieved the profit target in FY11/18 two years ahead of schedule, it announced a new medium-term management plan, the “Samty Toughening Plan,” which will run through FY11/21. There have been no major changes to the overall aims of the plan, as the priority measures include: 1) Developing a business model centered on SRR (bolstering the fee income business); 2) Strategically investing in regional metropolitan areas (expanding the business area); and 3) Expanding the hotel development and office building development businesses. One key aspect of the new medium-term management plan is to place more of a focus on managing the balance sheet in order to prepare for a future correction in the market. As a part of this, the Company is putting significant emphasis on strengthening its financial base, centered on rental cash flow. The Company wants to achieve continuous growth, while maintaining an equity ratio of at least 30%. Specifically, the Company will aim to achieve operating income around the ¥20.0bn level, ROE around the 15.0% level, and ROA around the 7.0% level by emphasizing productivity and capital efficiency, while purposely not setting a net sales target.

2. New management regime

Aiming to make the senior management team younger as well as to achieve further growth and increase corporate value, the Company established a new management regime, including a change in president. Yasuhiro Ogawa, who has been Managing Director, is scheduled to become Representative Director and President on February 27, 2019. Also, with the aim of securing diverse personnel and both strengthening and speeding up the collection and dissemination of information, along with other objectives, the Company adopted a dual headquarters system by opening a Tokyo headquarters. In addition, the Company started to make organizational changes in order to make management decisions and give commands more quickly. Such moves included creating a President’s Office and placing the Business Planning Department under the direct control of the president.

3. Key strategies and direction

(1) Development of a business model centered on SRR (bolstering the fee income business)

The Company will continue to proactively supply properties, thereby promoting the accumulation assets by SRR. In addition to adding hotels and office buildings to the lineup of real estate for development and sale, the Company will consider launching new management funds in addition to SRR, and will thereby increase acquisition fees. Furthermore, in addition to creating a mechanism to acquire MC fees by bringing hotel management operations in-house*, the Company will bolster the fee income business by growing rental income, acquiring overseas income, along with other initiatives.

* The Company will bring hotel management (which the Company has been outsourcing to external management companies) in-house, and create a mechanism to have Samty Group be commissioned to handle hotel management operations (MC) even after the sale of a hotel, thereby acquiring fee income, enjoying the upside, and accumulating management know-how.

(2) Strategic investment in regional metropolitan areas (expanding the business area)

The Company plans to invest approximately ¥300bn over three years. In particular, the Company will pursue hotel and office building development as new growth engines, as well as invest ¥135bn to acquire income properties and accumulate assets in order to acquire stable rental income. The Company will also open a new Hiroshima Branch and a Shinjuku/Yokohama Sales Office as it works to further expand its business area, and will purchase income properties and develop residential buildings, office buildings, and hotels in the Tokyo metropolitan area and other key regional cities throughout Japan.

(3) Expand the hotel development and office building development businesses

In addition to hotels, the Company has positioned the office building development business as a new growth engine, and plans to invest approximately ¥85bn (land + construction expenses) over three years. In the hotel development business, the Company is currently advancing four development projects, and will continue using the “S-PERIA” brand. On the office building development side, the Company plans to supply newly-built grade-B/C* office buildings, for which new supply and competition is low. These projects will be undertaken primarily in key regional cities where demand for offices is tight, with areas and sites carefully selected.

* In general, grade-B office buildings have between 2,000 tsubo and 10,000 tsubo of total floor space (and at least 200 tsubo of floor space on a typical floor), while grade-C office buildings have less than 2,000 tsubo of total floor space (and less than 200 tsubo of floor space on a typical floor).

◆Returns to shareholders

The Company plans to significantly raise the FY11/19 year-end dividend, based on profit growth as well as increasing the dividend payout ratio

The Company is aware that returning profits to shareholders is one of its most important management issues. Its policy is to pay dividends that reflect its business results and also based on a comprehensive consideration of its future business plans and financial condition.

For the FY11/18 year-end dividend, the Company decided to pay a dividend of ¥68 per share (dividend payout ratio = 24.0%), which is a ¥21 YoY increase, and is significantly higher than the initial forecast (¥52 per share). For the FY11/19 year-end dividend, the Company plans to pay a dividend of ¥75 per share (dividend payout ratio = 31.7%), which will be an increase of ¥7 YoY.

The Company is targeting a dividend payout ratio of 30%, and we think there is still considerable room for the Company to increase dividends based on profit growth.

 

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