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Omega Investment Co., Ltd.

Itoki (Company note – 2Q update)

Coverage
Share price (8/21) ￥1,311 Dividend Yield (23/12 CE) 2.44 %
52weeks high/low ￥1,399/395 ROE(TTM) 13.35 %
Avg Vol (3 month)  354.6 thou shrs Operating margin (TTM) 5.64 %
Market Cap ￥59.86 bn Beta (5Y Monthly) 1.00
Enterprise Value ￥52.06 bn Shares Outstanding 45.664 mn shrs
PER (23/12 CE) 12.37 X Listed market TSE Prime
PBR (22/12 act) 1.11 X    
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Record first-half sales and operating profit on the back of solid demand. The company revised up full-year profits and dividends.

◇ Summary of 2Q results for FY12/2023: Sales up 7% and operating profit up 60% on the back of solid office furniture demand

Itoki’s (hereinafter ‘the company’) FY12/2023 2Q results (cumulative) showed a 7% YoY increase in sales and a 60% increase in operating profit, with both reaching record highs. Sales were strong, mainly due to renewal projects and office relocations. In addition to the effect of increased sales, profit margins improved due to enhanced customer value and came in higher than forecast.

By segment, the mainstay Workplace business recorded sales of 49.0 billion yen (+9.5% YoY) and an operating profit of 5.2 billion yen (+95.3%), while Equipment / Public business recorded sales of 18.2 billion yen (+0.5%) and operating profit of 1.5 billion yen (+3.3%). Both segments achieved increases in sales and profit.

As per 2Q alone, the company posted sales of 31.2 billion yen (+9.9% YoY), an operating profit of 2.2 billion yen (+446.7% YoY) and net profit attributable to owner of parent of 1.4 billion yen (+389.9% YoY), demonstrating outstanding performance.

Given the strong performance so far achieved, the company revised up its full-year earnings forecasts and dividend forecasts at the time of the result announcement. While the sales estimate remains unchanged at 130 billion yen, the company has raised forecasts for operating profit (from 6.5 billion yen to 7.5 billion yen), recurring profit (from 6.5 billion yen to 7.5 billion yen) and net profit attributable to owners of the parent (from 3.7 billion yen to 4.8 billion yen). The dividend forecast has also been revised upwards from 25 yen a share to 32 yen (37 yen last year, which included a special dividend of 20 yen).

As of the end of 2Q, against the revised full-year forecasts, the company has achieved 52% of the sales, 93% of operating profit and 98% of net profit attributable to owner of parent. As is known, the company’s results are biased towards 1Q. Nonetheless, further upward revisions look likely, given the current situation.

◇ Stock price: Up 124% since the beginning of the year; PBR has recovered to 1x.

The company’s share price has risen 124% YTD. Over the same period, the share prices of its peers rose between 22% and 53%, highlighting the company’s stellar performance. Over one year, the share price boosted 3.3 times, sending PBR, which had been a concern, to 1x. This results from investors rating the improvement in profitability favourably, which reflects the strong demand for Workplace business, including renewal projects to accommodate new ways of working, and the company’s focus on increasing the customer value of its offerings.

 As mentioned, there is further upside to the earnings, so the share price may rise further.

  JPY, mn, %
Net sales 
YoY
%
Oper.
profit
YoY
%
Ord.
profit
YoY
%
Profit
ATOP
YoY
%
EPS
(¥)
DPS
(¥)
2020/12
116,210
-4.9
1,798
99.1
1,881
99.0
-235
–
-5.18
13.00
2021/12
115,839
-0.3
2,536
41.0
2,437
29.5
1,166
–
25.82
15.00
2022/12
123,324
6.4
4,582
79.0
4,177
71.4
5,294
353.9
116.99
37.00
2023/12（Prev. CE）
130,000
5.4
6,500
41.8
6,500
55.6
3,700
-30.1
81.70
25.00
2023/12（New CE）
130,000
5.4
7,500
63.7
7,500
79.5
4,800
-9.3
105.84
32.00
2022/12 2Q
63,756
3.4
4,371
47.0
4,416
56.0
3,676
60.5
81.27
–
2023/12 2Q
68,190
7.0
7,002
60.2
7,095
60.7
4,707
28.1
103.90
–

Sales/operating profit (Quarterly)

Note: Figures for IT/sharing projects are not shown in the figure as they are small.
Source: Omega Investment from company materials

◇ Results for 2Q FY12/2023: 7% increase in sales, record highs in both sales and operating profit

The company’s 2Q results for FY12/2023 (cumulative total) show sales of 68,190 million yen (+7.0% YoY), operating profit of 7,002 million yen (+60.2%) and net profit attributable to owner of parent 4,707 million yen (+28.1%). Both sales and operating profit reached record highs on a 1H basis.

In 2Q, the COGS ratio improved by 1.6 percentage points to 60.4% from 62.0% QoQ. The SGAE ratio fell by 1.8 percentage points from 31.2% to 29.4% QoQ, resulting in an operating margin of 10.3%, an improvement of 3.4 percentage points YoY.

See the chart below for the factors behind the change in operating profit. The increase in profits due to higher sales (1.6 billion), improved gross margins thanks to restructuring projects (1.1 billion ), and lower logistics costs (0.3 billion) absorbed the increase in strategic expenditure (0.2 billion) , resulting in a significant profit increase.

Looking at 2Q alone, sales increased by 9.9% to 31,225 million yen and operating profit by 446.7% to 2,225 million yen. Sales and profit reached record highs for 2Q. The company’s results are biased towards the 1Q, and 2Q earnings usually fall significantly over those of 1Q. However, this time the company has maintained a high operating profit margin in 2Q, delivering 7.1% which compares to 12.9% in 1Q (operating profit margin in 2Q FY12/2022 alone was 1.4%).

Factor analysis of changes in operating profit

Source: The company materials for the 2Q results for FY12/2023 (published on 7 August, 2023)

Workplace business (quarterly)

Source: Omega Investment from company materials

◇ Segment trends

1)Workplace business: Sales: 49,012 million yen, +9.5% YoY; operating profit: 5,217 million, +95.3%.

Renewal projects increased in line with new hybrid ways of working after the onset of COVID-19 .(52.7% of sales; 42.8% for new construction and relocation projects). With labour shortages becoming a serious problem, there is a persistent need for office environments that can improve the quality of work to retain talented people. Sales of office furniture were also strong, mainly due to office relocations. On the other hand, the rise in raw material prices was absorbed by various cost-cutting efforts and price revisions commensurate with the increased customer value of the product offerings. Profit margins improved significantly (from 6.0% in 2Q FY12/2022 to 10.6% in 2Q FY12/2023), resulting in a significant profit increase.　

In 2Q alone, sales were 21,293 million yen (+19.2%), operating profit was 1,158 million yen (vs. a loss of 880 million yen in 2Q FY12/2022), and the operating profit margin was 5.4%, showing a marked improvement in profit thanks to the top-line sales growth.

Equipment / Public business (quarterly)

Source: Omega Investment from company materials

2) Equipment / Public business: Sales: 18,267 million yen, +0.5%; operating profit: 1,515 million yen, +3.3%.

Demand for equipment for public facilities, such as display cases for museums and art galleries and digital signage, remained strong. However, sales were largely flat in the absence of last year’s large orders for science parks and other large projects of research facility equipment. Profis increased thanks to top-line sales growth and improved profit margin due to enhanced customer value.

On a non-consolidated basis, 2Q sales were 9,478 million yen (-6.7%), and operating profit was 962 million yen (-18.0%). The declines are due to the absence of last year’s large projects mentioned above, but the level of sales and profit remained high. The operating profit margin registered 10.1%, 1.4 percentage points lower YoY.

◇ Full-year forecasts for FY12/2023: Sales forecast unchanged, but profit estimates revised upwards. The dividend forecast was also raised.

The company revised its full-year forecasts in conjunction with announcing the 2Q results. Sales estimate was unchanged at 130 billion yen, but operating profit forecast was raised from 6.5 billion yen to 7.5 billion yen (63.7% YoY), recurring profit from 6.5 billion yen to 7.5 billion yen (79.5% YoY) and net profit attributable to owner of parent company from 3.7 billion yen to 7.5 billion yen (-9.3%) (The decrease in net profit is due to the absence of an extraordinary profit on the sale of land recorded in FY12/2022).

The dividend forecast has been revised up from 25 yen a share to 32 (previous year: 37 yen, including a special dividend of 20 yen). The dividend payout ratio is maintained at 30%.

As of the end of 2Q, progress ratios against the revised full-year forecasts are 52% for net sales, 93% for operating profit and 98% for net profit attributable to owner of parent. Customer enquiries for Workplace business remains strong. In addition, in the Office Equipment / Public business, projects for logistics facilities are biased towards the second half of the financial year, and demand for equipment for public facilities, such as display cases for museums and art galleries and digital signage, will likely increase. Such that, the company is expected to achieve its full-year forecasts comfortably. Given the current situation, further upward revisions look likely.

◇Topics

◆Integrated Report 2023 published

On 29 June, the company published Integrated Report 2023. The report comprehensively describes the corporate value of the group and its medium- and long-term goals from both financial and non-financial perspectives. It describes the DNA inherited since the company’s founding as ‘Tech X Design’ and reports on the achievements towards the final year of the medium-term management plan ‘RISE ITOKI 2023’ from various perspectives.

https://www.itoki.jp/ir/assets/accounts_anual_2023_00.pdf?v2023

◆Winner of international design awards

The company’s products are highly regarded for their design quality, and in FY2023, a number of its products won global design awards.

◇ Stock price:Went up 3.3 times over one year on the back of strong earnings, with PBR recovering to 1x.

The company’s share price has risen 123.6% since the beginning of the year. The performance of the company’s share price stands out amongst its peers, whose share prices rose between 21.7% and 52.6% over the same period, while TOPIX rose 21.7%. Over the past year, the company’s share price has increased 3.3 times, and PBR, which had been a concern, has recovered to 1x. This results from investors rating the improvement in profitability favourably, which reflects the strong demand for the Workplace business, including renewal projects to accommodate new ways of working, and the company’s focus on increasing the customer value of its offerings.

As we have seen, upward earnings revision looks likely, and the share price is expected to rise further.

7972：5-year stock price move

Four office furniture companies, TOPIX  (past three years)

7972: Itoki PBR (LTM, past three years)

Financial data (quarterly basis)

FY (¥mn) 2020/12     2021/12     2022/12     2023/12
  1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
[Statements of income]                            
Net sales 37,707 26,997 21,489 30,017 32,167 29,468 22,412 31,858 35,345 28,411 26,205 33,363 36,965 31,225
　Year-on-year basis (%) 11.2 -9.3 -24.5 -0.1 -14.7 9.2 4.3 6.1 9.9 -3.6 16.9 4.7 4.6 9.9
Cost of sales 23,710 17,765 13,811 19,036 20,101 18,729 14,443 20,872 21,483 18,030 16,678 21,384 22,216 18,954
Gross profit 13,997 9,232 7,678 10,981 12,020 10,722 7,953 10,999 13,862 10,381 9,527 11,979 14,748 12,271
SG&A expenses 10,996 9,602 9,590 9,901 10,352 9,453 9,203 10,150 9,898 9,973 9,812 11,484 9,970 10,047
Operating income 3,001 -370 -1,912 1,079 1,698 1,275 -1,242 829 3,964 407 -285 496 4,777 2,225
　Year-on-year basis (%) 43.5 – – – -43.4 – – -23.2 133.4 -68.7 – -40.2 20.5 446.7
　Operating profit ratio (%) 8.0 -1.4 -8.9 3.6 5.3 4.3 -5.5 2.6 11.2 1.4 -1.1 1.5 12.9 7.1
Non-operating income 154 162 251 237 240 161 171 122 125 164 171 96 125 114
Non-operating expenses 273 168 107 172 250 257 101 185 115 130 177 539 79 68
Ordinary income 2,882 -376 -1,768 1,143 1,657 1,173 -1,179 786 3,974 442 -291 52 4,824 2,271
Extraordinary income 0 6 125 980 1,255 78 133 88 786 139 118 6,762 1 15
Extraordinary expenses 116 42 55 1,503 20 456 518 1,474 44 64 38 3,465 21 10
Income before income taxes 2,766 -412 -1,697 620 2,893 795 -1,565 -600 4,716 516 -211 3,351 4,804 2,275
Total income taxes 1,039 134 -195 654 1,028 490 -132 -796 1,381 246 -21 1,585 1,506 864
Net income 1,760 -557 -1,491 53 1,942 348 -1,440 316 3,388 288 -159 1,777 3,296 1,411
　Year-on-year basis (%) 43.6 – – – 10. – – 496.2 74.4 -17.2 – 462.3 -2.7 389.9
　Net income ratio (%) 4.7 -2.1 -6.9 0.2 6.0 1.2 -6.4 1.0 9.6 1.0 -0.6 5.3 8.9 4.5
                             
[Balance Sheets]                            
Current assets 69,811 60,382 52,463 57,183 65,543 62,170 55,249 57,753 69,458 64,096 59,873 71,027 72,230 68,755
　Cash and deposits 18,186 21,312 18,956 18,246 19,503 22,112 18,213 17,351 19,196 20,073 17,138 26,876 20,898 24,688
　Notes and accounts receivable
　- trade		 37,611 27,230 20,298 26,599 32,061 26,596 21,385 26,783 – – – – – –
　Notes and accounts receivable
　- trade, and contract assets		 – – – – – – – – 35,205 28,234 24,111 29,316 34,519 28,377
Non-current assets 49,872 49,933 50,410 47,912 46,925 46,369 46,046 46,144 46,647 47,395 48,126 44,260 43,611 42,918
　Property, plant and equipment 27,612 27,350 27,329 26,206 25,184 24,779 24,887 24,417 25,105 26,042 26,932 24,978 24,689 24,952
　Intangible assets 5,113 5,623 5,853 5,590 5,504 5,419 4,885 4,114 4,128 4,168 4,145 1,819 1,837 1,884
　　Goodwill 2,391 2,207 2,189 2,093 2,018 2,016 1,407 1,317 1,214 1,222 1,200 517 446 391
　Investments and other assets 17,146 16,959 17,227 16,116 16,236 16,170 16,273 17,612 17,413 17,184 17,048 17,462 17,084 16,080
Total assets 120,352 110,940 103,453 105,096 112,469 108,540 101,295 103,898 116,105 111,492 108,000 115,288 115,841 111,693
Current liabilities 55,449 46,097 40,198 43,646 49,245 45,266 40,307 42,544 51,837 47,138 43,655 49,099 47,854 42,547
　Short-term borrowings 15,616 13,289 14,239 13,234 13,458 12,061 12,409 12,500 15,014 11,976 11,738 11,239 10,874 10,299
Non-current liabilities 18,327 18,220 18,079 17,259 17,506 17,088 16,257 16,277 16,334 16,020 16,178 16,278 16,238 15,727
　Long-term borrowings 9,475 9,574 9,453 8,508 8,711 8,193 7,435 7,591 7,427 7,174 7,266 7,530 7,453 7,062
Total liabilities 73,777 64,318 58,277 60,906 66,751 62,354 56,565 58,822 68,172 63,158 59,833 65,377 64,092 58,275
Total net assets 46,575 46,621 45,175 44,189 45,717 46,186 44,730 45,076 47,933 48,333 48,166 49,910 51,748 53,418
Shareholders’ equity 45,479 45,390 43,786 43,691 45,047 45,419 43,979 44,301 47,249 47,567 47,408 49,185 50,806 52,267
　Share capital 5,294 5,294 5,294 5,294 5,294 5,294 5,294 5,294 5,294 5,294 5,294 5,294 5,294 5,294
　Capital surplus 9,201 9,642 9,641 9,628 9,628 9,632 9,632 9,638 9,638 9,638 9,638 9,638 9,638 9,665
　Retained earnings 31,030 30,461 28,884 28,950 30,306 30,654 29,213 29,530 32,477 32,769 32,610 34,387 36,008 37,419
　Treasury shares -46 -6 -33 -182 -182 -161 -161 -161 -161 -134 -134 -134 -314 -111
　Share acquisition rights     45 45 45 45 45 45 45 45 45 45 45 45
Total liabilities and net assets 120,352 110,940 103,453 105,096 112,469 108,540 101,295 103,898 116,105 111,492 108,000 115,288 115,841 111,693
                             
[Statements of cash flows]                            
Cash flow from operating activities   5,404   -843   4,577   -1,803   4,581   1,223   4,078
Cash flow from investing  activities   -1,442   290   503   -1,673   -1,410   6,333   -3,265
Cash flow from financing activities   293   -2,560   -1,418   -1,240   -661   -765   -3,266
Free cash flow   3,962   -553   5,080   -3,476   3,171   7,556   813
Net increase in cash and cash equiv.   4,240   -3,037   3,787   -4,687   2,630   6,911   -2,466
Cash and cash equiv. at
beginning of period		   15,494   19,735   16,697   20,485   15,797   18,509   25,420
Cash and cash equiv. at end of period   19,735   16,697   20,485   15,797   18,509   25,420   22,953

Source: Omega Investment from company materials

Financial data (full-year basis)

FY (¥mn) FY2012/12 FY2013/12 FY2014/12 FY2015/12 FY2016/12 FY2017/12 FY2018/12 FY2019/12 FY2020/12 FY2021/12 FY2022/12
[Statements of income]                      
Net sales 105,508 103,461 102,993 106,516 101,684 108,684 118,700 122,174 116,210 115,839 123,324
　Year-on-year basis (%) 14.6 -1.9 -0.5 3.4 -4.5 6.9 9.2 2.9 -4.9 -0.3 6.4
Cost of sales 70,027 67,118 66,797 68,374 65,021 69,966 77,436 80,495 74,322 74,145 77,575
Gross profit 35,481 36,343 36,196 38,142 36,663 38,718 41,264 41,679 41,888 41,694 45,749
　Gross profit ratio (%) 33.6 35.1 35.1 35.8 36.1 35.6 34.8 34.1 36.0 36.0 37.1
SG&A expenses 32,040 32,203 33,723 33,836 33,862 35,761 39,339 40,776 40,089 39,158 41,167
Operating income 3,441 4,140 2,472 4,306 2,800 2,956 1,925 903 1,798 2,536 4,582
　Operating profit ratio (%) 3.3 4.0 2.4 4.0 2.8 2.7 1.6 0.7 1.5 2.2 3.7
Non-operating income 813 813 841 898 771 750 889 677 804 694 556
Non-operating expenses 518 528 495 605 483 412 448 634 720 793 961
Ordinary income 3,735 4,425 2,818 4,599 3,087 3,295 2,365 945 1,881 2,437 4,177
Extraordinary income 269 685 615 171 97 228 919 27 1,111 1,554 7,805
Extraordinary expenses 352 238 262 524 267 121 204 35 1,716 2,468 3,611
Income before income taxes 3,653 4,872 3,171 4,246 2,918 3,401 3,081 938 1,277 1,523 8,372
Total income taxes 689 876 813 -385 1,068 959 1,339 1,517 1,632 590 3,191
Net income 2,702 3,910 2,160 4,530 1,907 2,402 1,722 -550 -235 1,166 5,294
　Net income ratio (%) 2.6 3.8 2.1 4.3 1.9 2.2 1.5 -0.5 -0.2 1.0 4.3
                       
[Balance Sheets]                      
Current assets 49,294 52,925 55,714 56,342 52,410 58,147 62,143 58,109 57,183 57,753 71,027
　Cash and deposits 17,441 19,553 21,211 21,456 19,839 19,977 16,229 17,030 18,246 17,351 26,876
　Notes and accounts receivable
　- trade		 24,935 26,243 25,965 26,138 23,241 26,869 33,160 28,244 26,599 26,783  
　Notes and accounts receivable
　- trade, and contract assets		                     29,316
Non-current assets 39,961 42,335 41,007 41,832 43,271 44,073 46,559 49,955 47,912 46,144 44,260
　Property, plant and equipment 27,928 28,193 27,041 26,395 25,322 24,426 26,362 27,781 26,206 24,417 24,978
　Intangible assets 705 1,230 1,109 1,313 1,142 3,651 4,437 4,945 5,590 4,114 1,819
　　Goodwill 6 34 26 240 208 2,793 3,005 2,413 2,093 1,317 517
　Investments and other assets 11,327 12,911 12,857 14,123 16,806 15,995 15,760 17,229 16,116 17,612 17,462
Total assets 89,256 95,261 96,721 98,175 95,681 102,221 108,703 108,778 105,096 103,898 115,288
Current liabilities 36,455 35,359 36,677 36,106 35,390 39,683 45,133 47,559 43,646 42,544 49,099
　Short-term borrowings 11,222 11,473 11,087 10,940 11,760 12,564 11,721 15,533 13,234 12,500 11,239
Non-current liabilities 14,560 16,874 16,854 14,756 14,888 15,211 16,076 15,385 17,259 16,277 16,278
　Long-term borrowings 4,122 5,124 5,089 5,171 5,296 5,328 5,113 6,633 8,508 7,591 7,530
Total liabilities 51,016 52,234 53,532 50,863 50,278 54,894 61,210 62,944 60,906 58,822 65,377
Total net assets 38,240 43,026 43,189 47,311 45,402 47,326 47,492 45,834 44,189 45,076 49,910
Shareholders’ equity 35,960 41,079 41,632 45,677 44,949 46,863 46,854 45,370 43,812 44,931 49,871
　Share capital 5,277 5,277 5,277 5,277 5,277 5,277 5,277 5,294 5,294 5,294 5,294
　Capital surplus 13,020 13,061 13,061 13,222 13,140 12,404 9,786 9,201 9,628 9,638 9,638
　Retained earnings 18,520 22,073 23,556 29,223 30,504 32,315 31,104 29,862 28,950 29,530 34,387
　Treasury shares -1,178 -833 -834 -3,000 -4,700 -4,701 0 -46 -182 -161 -134
　Share acquisition rights                 45 45 45
Total liabilities and net assets 89,256 95,261 96,721 98,175 95,681 102,221 108,703 108,778 105,096 103,898 115,288
                       
[Statements of cash flows]                      
Cash flow from operating activities 8,259 3,162 5,715 4,522 5,072 3,565 1,384 3,586 4,561 2,774 5,804
Cash flow from investing  activities -14 -1,978 -1,742 -803 -4,044 -2,971 -3,094 -3,221 -1,152 -1,170 4,923
Cash flow from financing activities -1,652 51 -2,179 -3,807 -2,571 -706 -2,463 0 -2,267 -2,658 -1,426
Free cash flow 8,245 1,184 3,973 3,719 1,028 594 -1,710 365 3,409 1,604 10,727
Net increase in cash and cash equiv. 6,601 1,944 1,814 184 -1,619 88 -4,031 952 1,203 -900 9,622
Cash and cash equiv. at beginning
of period		 9,555 16,156 18,102 19,918 20,103 18,483 18,571 14,540 15,494 16,697 15,797
Cash and cash equiv. at end of period 16,156 18,102 19,918 20,103 18,483 18,571 14,540 15,494 16,697 15,797 25,420

Source: Omega Investment from company materials

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