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Omega Investment Co., Ltd.

World Holdings (Price Discovery)

Price discovery
Securities Code
TYO：2429
Market Capitalization
42,759 million yen
Industry
Service

Profile

The company runs human resource services, real estate and telecommunications. Under HR services, it operates temp staff placement and training services for manufacturers, logistic companies, the tech industry and the medical industry. The Real Estate Business segment sells houses and residential lands and operates real estate brokerage, management, and consulting services.

　

Stock Hunter’s View

Continued growth in outsourced contracting and temporary staffing. To play an active role on the Silicon Island Kyushu.

The opening of a plant by Taiwanese semiconductor giant TSMC has triggered a wave of semiconductor-related investment in Kyushu island. With TSMC’s Kumamoto plant due to start operations in two years, the Sony Group, Kyocera, Rohm and others are also making capital investments in response. Local small and medium-sized enterprises have also started to strengthen their businesses. The Kyushu Bureau of Economy, Trade and Industry has targeted doubling the value of semiconductor-related shipments by 2030 to ¥3 trillion.

Moves to train and secure semiconductor personnel are also gaining momentum to revive ‘Silicon Island Kyushu’. World HDS, which operates a human resources education business (outsourced contracting and temporary staffing) in Kyushu, is also likely to benefit. The human resources education business is divided into the ‘manufacturing’ and ‘service’ sectors, with the former attracting many enquiries from the semiconductor and electronic components industries.

In the most recently announced results for the 3Q FY12/2022 (1 January to 30 September), the human resources education business led the overall increase, with sales up 30% and operating profit up 60%. With many human resources education and real estate projects in the 4Q, the company should meet its full-year forecasts of ¥180bn in sales (+16.4% YoY) and operating profit of ¥8.4bn (+12.3% YoY) with ease. The company is expected to be able to handle the increase in recruitment costs and sustain growth in the current financial year. The current share price adjustment phase is a good entry opportunity.

　

Investor’s View

Trading Buy

The company’s profits have been growing since bottoming out in FY2019. NTM ROE forecast is 14%, and the dividend yield is 3.3%. With a market capitalisation of ¥43 billion, it is a not-too-small human resources services stock, but why is it valued at a low PER of 9x and 1.3x the book? To answer this query is to answer on the investment decision of the shares.

Valuations will not easily expand

Firstly, although the company is classified as a service provider, it is, in reality, a semi-real estate company. Currently, 70% of profits come from human resources and 30% from real estate. In the past, when real estate revenues were in a strong stage, 50% of the profit was earned from real estate. Real estate shares fell markedly with the rise in market interest rates towards the end of CY2022 and on 20 December, when the BOJ effectively allowed interest rates to rise. In 2018 the share price fell by 40%, discounting the expected earnings plunge due to a sharp fall in property profits in the following year. Since then, the company’s shares have been valued at a low PBR, typical of real estate stocks. At the end of 3Q, 40% of total assets, or ¥47 billion, were properties for sale and in progress, the value of which cannot be estimated by investors. The share price premium is unlikely to expand due to concerns over rising domestic interest rates.

Dupont Model

Profit margins are stable in the HR business and cyclical in the real estate business

Secondly, there needs to be more potential for sustained growth in ROE. Relatively high ROE is due to high leverage from real estate business financing. ROA of 5.5% on average over five years could be more attractive. The human resources business is showing solid sales growth and could benefit from the increasing Silicon Islandisation of Kyushu, as noted by the Stock Hunter. However, operating margins appear to be saturated at around 7%. If the real estate business booms, a higher ROA will raise ROE. Still, investors who view the real estate business as cyclical in terms of profitability should do without upgrading the fair value of the shares on a long-term basis.

Any PER drivers?

The management targets to double its operating profit in five years to ¥15 billion in FY2026. PER, which is only 9x now, would expand if profit is to grow at a CAGR of 15%. They explain that the growth driver is human resource services, but so far, no convincing explanation has been given. The revival of manufacturing in Kyushu is highly likely and has an excellent thematic interest, which could move share price. However, we should be cautious about how much benefit it will bring to the company in a highly competitive market, even though Kyushu is its home turf.

(Source) Company material

Nevertheless, the shares look interesting in the near term

The technical indicators are reassuring for long investors, as the share price has fallen so much in the short term. It is also thought that the current stock market may have entered a bear market rally after a move to test the bottom in October last year. Volatility is likely to be high for the time being, with alternating stock investors’ concerns and relief about domestic interest rates moving the share price. It may therefore be possible to take money on any improvement in sentiment. Hence, an appropriate grading for the shares would be a Trading Buy.

Sales, OP, OP Margins

Sales (million yen)

　 DEC ’12 DEC ’13 DEC ’14 DEC ’15 DEC ’16 DEC ’17 DEC ’18 DEC ’19 DEC ’20 DEC ’21
Total 53,005 56,448 68,826 87,982 94,331 127,142 142,890 136,316 143,568 154,702
HR Services 27,074 28,855 40,099 45,184 51,632 66,039 75,036 77,772 83,140 104,486
　Factory 17,893 18,738 24,928 26,910 30,111 41,654 49,524 50,001 55,102 70,707
　Technology 6,197 6,424 8,430 9,547 10,334 12,155 15,200 16,902 17,003 18,474
　Research & Development 2,984 3,693 4,062 4,755 5,533 6,489 6,779 7,108 7,200 8,012
　Sales & Marketing – – 2,679 3,972 5,654 5,741 3,533 3,761 3,835 7,293
Real Estate 8,794 8,683 15,545 31,785 34,481 49,080 52,011 42,082 48,081 36,977
Information & Communication 11,658 13,092 12,608 10,522 7,742 9,167 12,376 12,344 9,133 9,367
Other 5,479 5,818 574 491 476 2,856 3,467 4,118 3,214 3,872

　

Operating Income (million yen)

　 DEC ’12 DEC ’13 DEC ’14 DEC ’15 DEC ’16 DEC ’17 DEC ’18 DEC ’19 DEC ’20 DEC ’21
Total 2,195 3,081 4,907 6,606 9,394 9,091 9,287 6,780 9,102 10,202
HR Services 1,114 1,848 2,848 3,526 3,962 4,703 4,965 5,178 5,512 7,101
　Factory 489 1,083 1,918 1,801 2,080 2,587 3,169 2,679 2,632 3,631
　Technology 356 571 699 989 1,015 1,263 1,337 1,761 2,019 2,233
　Research & Development 269 194 159 518 571 634 559 711 843 885
　Sales & Marketing     72 218 296 219 -100 27 18 352
Real Estate 462 511 1,869 3,061 5,171 4,635 4,589 1,460 3,550 2,977
Information & Communication 408 441 172 4 244 25 3 10 240 118
Other 211 281 18 15 17 -272 -270 132 -200 6

　

OP – Percent of Total (%)

　 DEC ’12 DEC ’13 DEC ’14 DEC ’15 DEC ’16 DEC ’17 DEC ’18 DEC ’19 DEC ’20 DEC ’21
Total 100 100 100 100 100 100 100 100 100 100
HR Services 51 60 58 53 42 52 53 76 61 70
　Factory 22 35 39 27 22 28 34 40 29 36
　Technology 16 19 14 15 11 14 14 26 22 22
　Research & Development 12 6 3 8 6 7 6 10 9 9
　Sales & Marketing     1 3 3 2 -1 0 0 3
Real Estate 21 17 38 46 55 51 49 22 39 29
Information & Communication 19 14 4 0 3 0 0 0 3 1
Other 10 9 0 0 0 -3 -3 2 -2 0

　

OP Growth (%)

　 DEC ’12 DEC ’13 DEC ’14 DEC ’15 DEC ’16 DEC ’17 DEC ’18 DEC ’19 DEC ’20 DEC ’21
Total 50 40 59 35 42 -3 2 -27 34 12
HR Services 　 66 54 24 12 19 6 4 6 29
　Factory -18 121 77 -6 15 24 22 -15 -2 38
　Technology 9 60 22 41 3 24 6 32 15 11
　Research & Development 12 -28 -18 226 10 11 -12 27 19 5
　Sales & Marketing       203 36 -26 -146   -33 1856
Real Estate 　 11 266 64 69 -10 -1 -68 143 -16
Information & Communication 92 8 -61 -98 6000 -90 -88 233 2300 -51
Other 34 33 -94 -17 13 -1700 1 　 -252 –

　

OP Margin (%)

　 DEC ’12 DEC ’13 DEC ’14 DEC ’15 DEC ’16 DEC ’17 DEC ’18 DEC ’19 DEC ’20 DEC ’21
Total 4.1 5.5 7.1 7.5 10.0 7.2 6.5 5.0 6.3 6.6
HR Services 4.1 6.4 7.1 7.8 7.7 7.1 6.6 6.7 6.6 6.8
　Factory 2.7 5.8 7.7 6.7 6.9 6.2 6.4 5.4 4.8 5.1
　Technology 5.7 8.9 8.3 10.4 9.8 10.4 8.8 10.4 11.9 12.1
　Research & Development 9.0 5.3 3.9 10.9 10.3 9.8 8.2 10.0 11.7 11.0
　Sales & Marketing – – 2.7 5.5 5.2 3.8 -2.8 0.7 0.5 4.8
Real Estate 5.3 5.9 12.0 9.6 15.0 9.4 8.8 3.5 7.4 8.1
Information & Communication 3.5 3.4 1.4 0.0 3.2 0.3 0.0 0.1 2.6 1.3
Other 3.9 4.8 3.1 3.1 3.6 -9.5 -7.8 3.2 -6.2 0.2

(Source) Omega Investment

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