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Omega Investment Co., Ltd.

Sansei Landic (Company note – 3Q update)

Coverage
Share price (1/4) ￥1,003Dividend Yield (23/12 CE)3.29 %
52weeks high/low￥1,098/800ROE(TTM)12.78 %
Avg Vol (3 month) 21.7 thou shrsOperating margin (TTM)10.96 %
Market Cap ￥8.61 bnBeta (5Y Monthly)0.44
Enterprise Value ￥19.14 bnShares Outstanding 8.584 mn shrs
PER (23/12 CE)6.99 XListed market TSE Standard
PBR (22/12 act)0.68 X
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Sales and profits are rising significantly higher following 2Q. Old unutilized properties are performing well; profit has already exceeded the company’s full-year forecast.

◇Summary of 3Q results for FY12/2023: Significant increase in sales and profit following 2Q

Sansei Landic announced its financial results for 3Q FY12/2023 on 14 November 2023, delivering a significant increase in the Real Estate Sales business; the overall sales rose by approximately 70% YoY. In particular, sales of Old unutilized properties doubled. As a result, operating income increased by 90%, continuing the significant increase recorded in 2Q. Sales by the end of 3Q had achieved 83% of the management’s full-year forecast. The operating income already achieved the full-year estimate. The purchases of Leasehold land were strong, and 95% of the full-year purchase plan had been achieved by the end of 3Q. Properties for sale at the end of 3Q remained at a high level of 23.4 billion yen.

The company’s 4Q sales plan was originally small, so the full-year financial forecasts were left unchanged.

◇ Share price: The share price looks set to rise again on the back of good results

The company’s share price turned upwards from the 800 yen level a year ago to reach a milestone of 1,000 yen by the end of July 2023. There was a moderate adjustment afterwards but on September 4th, the yearly high of 1,098 yen was recorded. On 20 November, following the announcement of 3Q results, the share price temporarily hit 1,090 yen. In addition to the two upward revisions to earnings, coupled with abundant inventories, we would expect the share price to rise further amid a strong property market.

◇ Financial results for 3Q FY12/2023: Sales up 70% and operating income up 90%. Financial performance remains robust.

The company’s 3Q results for FY12/2023 were sales up 72.8% YoY to 19,464 million yen, operating income rising  94.3% to 2,332 million yen, and quarterly net income attributable to owner of parent increasing 45.9% YoY to 1,326 million yen, demonstrating significant growth in sales and profits following 2Q. The construction business was sold in 1Q of the previous year, so a comparison of the Real Estate Sales business alone on an apple-to-apple basis, excluding the construction business, shows a 76.3% YoY increase in sales.

The management’s forecasts for the cumulative 3Q results were sales of 20,395 million yen, operating income of 2,450 million yen, and quarterly net income attributable to owner of parent of 1,413 million yen. The results were 95.4%, 95.2%, and 93.9% vis-a-vis these estimates. However, as mentioned above, the results are significantly higher YoY, and the company should comfortably achieve its full-year forecasts.

The gross profit margin in the cumulative 3Q fell by 5.3 percentage points to 28.8% from 34.1% YoY. This was due to a significant increase in the proportion of Old unutilized properties in sales from 47.4% to 58.1% YoY, while the proportion of high-margin Leasehold land sales fell from 44.1% to 34.1% YoY. The SG&A ratio fell from 23.4% to 16.8%, in line with the rapid increase in sales. As a result, the operating income margin improved by 1.3 percentage points from 10.7% to 12.0%.

In the BS, real estate for sale remained at a high level of 23,490 million yen.

 JPY, mn  Net sales  YoY
%		 Oper.
profit		 YoY
%		 Ord.
profit		 YoY
%		 Profit
ATOP		 YoY
%		 EPS
(¥)		 DPS
(¥)
2019/12 18,020 7.1 1,860 5.4 1,758 7.0 1,158 15.1 137.08 23.00
2020/12 17,774 -1.4 847 -54.5 709 -59.7 357 -69.1 42.34 25.00
2021/12 16,836 -5.3 1,117 31.9 999 40.9 609 70.5 73.56 26.00
2022/12 15,513 -7.7 1,469 31.5 1,283 28.4 1,060 73.9 129.61 28.00
2023/12 (CE) 23,500 51.3 2,150 46.3 1,800 40.2 1,180 11.3 143.44 33.00
2022/12 3Q 11,261 -14.7 1,200 16.8 1,071 13.7 909 65.9 110.94 –
2023/12 3Q 19,464 72.8 2,332 94.3 2,019 88.4 1,326 45.9 161.33 –

　

Quarterly sales and operating profit

Source: Omega Investment from company materials

Reflecting strong purchases from 2Q FY12/2022 onwards, the company has secured sufficient inventory for sales going forward. As a result of good progress in sales, cash and deposits increased by 1,550 million yen to 5,387 million yen. Interest-bearing debt decreased by 137 million yen YoY to 16,261 million yen, reflecting fine sales activities. Total assets amounted to 30,632 million yen, an increase of 1,655 million yen from the end of FY2022. The equity ratio at the end of 3Q stood at 39.9%, an improvement of 1.8 percentage points over the end of FY2022.

Real Estate Sales business trends

Leasehold land: Sales were 6,640 million yen (+36.3%). Sales of Leasehold land purchased last year have progressed, with sales increasing by approximately 40% YoY. The number of projects with relatively high unit prices resulted in a moderate decrease to 236 projects, or 3.3%. Although slightly short of the forecast of 6,851 million yen, sales continued to be strong, particularly in the Tokyo metropolitan area.

Old unutilized properties: Sales recorded 11,317 million yen (+116.4%). In recent years, the company has been strengthening its sales structure outside the metropolitan area, and the results are starting to kick in. There were 74 projects, a significant increase of 111.4%. In the 3Q alone, sales tripled YoY to 5,113 million yen.

Freehold: Sales were 1,213 million yen (+92.4%). Although coming in slightly below the forecast of 1,307 million yen, sales doubled YoY. The number of projects was 17, increasing by 21.4%.

Purchase of real estate for sales: Registered 13,679 million yen, showing the high purchase. Purchases of Leasehold land increased by approximately 50%.

Purchases in the Real Estate Sales business were 13,679 million yen, a decrease of 6.9%, but the level remains high, running above 4 billion on a quarterly basis since 2Q FY12/2022.

Source: company materials

In the same period of the previous year, the purchase of Old unutilized properties accounted for nearly 60% of the total purchase volume. In 3Q, the purchase volume of Leasehold land accounted for more than 50% of the total volume. The 3Q cumulative purchase results by business segment were as follows: Leasehold land saw a growth of 47.5% with 8,410 million yen, mainly due to strong purchase in the Kanto region. Old unutilized properties decreased by 45.3% to 4,546 million yen due to the high-level previous year. Freehold, on the other hand, grew by 6.5% to 722 million yen. The company sets its annual purchasing plan at 14.4 billion yen. As of the end of 3Q, it was already 95% complete, and the current purchase appears to be progressing well.

The above right-hand chart shows the trend of purchases and sales in the company’s Real Estate Sales business: purchases remained low from 3Q FY12/2020 due to a slowdown in sales activities caused by COVID-19 but have been recovering since the start of FY12/2022. In particular, the company recorded a high level of purchases in 3Q and 4Q FY12/2022, and the results of these purchases should contribute to the company’s strong financial performance from this year onwards. Large projects take time to sell, so sales are expected to be recorded from the next financial year onwards.

◇ Forecasts for FY12/2023: No change in the forecasts revised on 10 August

When the company announced its 2Q results, it revised its financial forecasts for the second time this year (see table below), predicting a 51.3% YoY increase in sales and a 46.3% increase in operating income. As of the end of 3Q, the actual progress against the full-year forecast was 82.8% for sales, 108.5% for operating income margin and 112.4% for quarterly income attributable to owner of parent, meaning that profits have already met the full-year forecast. At the time of the second upward revision, the company expected fewer properties to be sold in 4Q, leaving its full-year financial forecasts unchanged.

Upward revisions to FY12/2023 consolidated forecasts

 JPY, mn  Net sales  Oper.
profit		 Ord.
profit		 Profit
ATOP		 EPS
(¥)
Initial forecast at FY12/2022 result call (A)
(14 February 2023)		 17,119 1,594 1,305 836 102.68
Revised forecast at the time of
1Q result announcement (B)
(announced 15 May 2023)		 20,500 1,700 1,400 900 109.55
Revised forecast at the time of
2Q result announcement (C)
(announced 10 Aug. 2023)		 23,500 2,150 1,800 1,180 143.44
Change (C – B) 3,000 450 400 280 –
Percentage change  (C/B,%) +14.6 +26.5 +28.6 +31.1 –
Change (C – A) 6,381 556 495 344 –
Percentage change  (C/A,%) +37.3 +34.9 +37.9 +41.1 –
FY12/2022 actual 15,533 1,469 1,283 1,060 129.61
Revised forecast, YoY (%) 51.3 46.3 40.2 11.3 –
Progress ratio as at 3Q (%) 82.8 108.5 112.2 112.4 –

Source: Omega Investment from company materials

◇ Share price: The share price has recovered to above 1,000 yen level. Further upside is expected.

The company’s share price turned upwards from the 800 yen level a year ago and recovered to the milestone level of 1,000 yen at the end of July 2023. Thereafter, there was a slight adjustment, but on 4 September, the share price reached 1,098 yen, the highest since the beginning of the year. The share price regained momentum following the good results, achieving full-year profits in 3Q. On 24 November, the share price closed at 1,067 yen, marking a YTD high on a closing price basis. YTD performance is +28.8%. This reflects the company’s good performance against the backdrop of a buoyant property market and abundant inventory, which is expected to contribute to the next financial year.

On the other hand, PBR below 1.0 is problematic for investors. PBR has recently risen above 0.7x following the rising share price. Given the company’s unique business model and earnings opportunities, the shares are cheap. The company has stated that it recognises the improvement of PBR as an important management issue and is considering concrete measures to address it. It plans to announce basic policies to make management conscious of the cost of capital and share price by the time it announces its full-year results. Hopefully, the shares should be reassessed by the roadmap for sustainable earnings growth to be announced.

6-year share price move

Historical PBR (last six years)

Financial data (quarterly)

FY (¥mn)
2020/12
    
2021/12
    
2022/12
    
2023/12
  
 
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
[Sales by segment]
                              
Net sales
4,807
3,546
2,481
6,938
5,365
3,744
4,089
3,637
4,444
3,721
3,094
4,272
6,486
5,494
7,484
　Year-on-year basis
149.7%
-38.6%
-11.7%
-7.6%
11.6%
5.6%
64.8%
-47.6%
-17.2%
-0.6%
-24.3%
17.4%
45.9%
47.6%
141.8
　Real estate sales business
4,339
3,092
2,137
6,543
5,171
3,434
3,679
3,244
4,222
3,721
3,094
4,272
6,486
5,493
7,484
　　Year-on-year basis
175.3%
-42.7%
-9.2%
-5.7%
19.2%
11.1%
72.1%
-50.4%
-18.3%
8.3%
-15.9%
31.7%
53.6%
47.6%
141.8%
　　Sales composition ratio
90.3%
87.2%
86.2%
94.3%
96.4%
91.7%
90.0%
89.2%
95.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
　  Leasehold land
719
1,613
1,044
2,950
3,464
1,267
2,003
1,474
1,793
1,794
1,284
832
2,707
2,259
1,674
　　  Year-on-year basis
-33.8%
4.3%
17.4%
-7.1%
381.4%
-21.5%
91.9%
-50.0%
-48.2%
41.6%
-35.9%
-43.6%
51.0%
25.9%
30.4%
　　  Sales composition ratio
15.0%
45.5%
42.1%
42.5%
64.6%
33.8%
49.0%
40.5%
40.3%
48.2%
41.5%
19.5%
41.7%
41.1%
22.4%
　  Old unutilised properties
2,180
897
872
3,101
1,419
2,025
1,488
1,151
2,024
1,556
1,649
3,170
3,571
2,633
5,113
　　  Year-on-year basis
520.6%
-75.5%
-32.0%
-47.1%
-34.9%
125.8%
70.6%
-62.9%
42.6%
-23.2%
10.8%
175.4%
76.4%
69.2%
210.1%
　　  Sales composition ratio
45.4%
25.3%
35.1%
44.7%
26.4%
54.1%
36.4%
31.6%
45.5%
41.8%
53.3%
74.2%
55.1%
47.9%
68.3%
　  Freehold
1,305
465
106
395
191
46
101
526
315
266
49
157
101
504
603
　　  Year-on-year basis
4560.7%
428.4%
92.7%
-74.2%
-85.3%
-90.1%
-4.7%
33.2%
64.9%
478.3%
-51.5%
-70.2%
-67.9%
89.5%
1140.8%
　　  Sales composition ratio
27.1%
13.1%
4.3%
5.7%
3.6%
1.2%
2.5%
14.5%
7.1%
7.1%
1.6%
3.7%
1.6%
9.2%
8.1%
　  Others
133
117
116
97
96
95
88
94
89
105
112
114
105
97
90
　　  Year-on-year basis
21.5%
12.5%
-7.9%
-23.0%
-28.3%
-18.8%
-24.1%
-3.1%
-7.3%
10.5%
27.3%
21.3%
19.1%
-8.6%
-19.6%
　　  Sales composition ratio
2.8%
3.3%
4.7%
1.4%
1.8%
2.5%
2.2%
2.6%
2.0%
2.8%
3.6%
2.7%
1.6%
1.7%
1.2%
　Construction business
468
455
343
395
194
309
409
392
222
–
–
–
–
–
–
　　Year-on-year basis
34.1%
19.8%
-24.9%
-30.1%
-58.4%
-32.1%
19.3%
-0.8%
14.0%
–
–
–
–
–
–
　　Sales composition ratio
9.7%
12.8%
13.8%
5.7%
3.6%
8.3%
10.0%
10.8%
5.0%
–
–
–
–
–
–
                               
[Statements of income]
                              
Net sales
4,807
3,546
2,481
6,938
5,365
3,744
4,089
3,637
4,444
3,721
3,096
4,272
6,486
5,494
7,484
Cost of sales
3,865
2,557
1,934
5,431
4,020
2,756
2,945
2,745
3,146
2,310
1,963
3,066
4,320
3,859
5,681
Gross profit
942
989
548
1,507
1,344
986
1,143
892
1,297
1,411
1,132
1,206
2,166
1,636
1,803
SG&A expenses
792
744
678
925
816
826
805
802
850
946
845
937
1,084
1,097
1,127
Operating profit
150
245
-131
382
528
160
338
90
447
466
287
269
1,118
538
675
Non-operating profit
9
5
51
5
12
8
8
6
7
7
6
7
8
6
20
Non-operating expenses
55
63
60
10
37
40
34
39
39
55
54
64
80
165
88
Ordinary income
103
188
-140
298
502
128
311
56
415
417
239
212
1,045
378
595
Extraordinary income
0
0
0
 
3
0
0
0
19
0
0
1
–
–
–
Extraordinary expenses
0
0
0
 
  
0
0
      
8
7
–
–
8
Loss before income taxes
103
188
-140
298
506
128
311
56
435
399
231
205
1,045
378
586
Total income taxes
36
72
-49
295
183
48
166
-4
59
60
36
54
361
122
199
Net income
67
114
-90
176
323
79
145
61
375
338
196
151
683
255
387
                               
[Balance Sheets]
                              
Current assets
18,816
20,798
20,577
19,040
17,554
17,371
18,769
18,968
19.018
21,579
26,379
27,929
28,392
29,382
29,233
  Property for sale
14,655
16,923
17,312
14,424
13,493
12,586
13,134
13,301
13,304
15,152
20,775
23,657
24,404
24,623
23,490
Non-current assets
1,188
1,164
1,197
1,030
951
1,054
1,081
1,082
1,124
1,099
1,129
1,047
1,233
1,394
1,399
   Tangible assets
451
449
443
306
291
290
293
301
317
313
314
299
312
529
520
   Investments and other assets
668
653
691
655
595
703
732
730
761
743
769
701
873
817
836
Total assets
20,004
21,962
21,774
20,071
18,505
18,425
19,849
20,051
20,134
22,678
27,508
28,976
29,626
30,777
30,632
Current liabilities
9,883
7,767
7,699
5,772
5,517
7,540
8,633
8,731
8,153
8,871
11,168
12,606
13,658
16,133
16,375
   Short-term borrowings
7,729
6,352
6,676
4,463
4,272
6,105
7,171
7,367
5,025
5,057
6,960
10,192
11,151
12,198
14,470
Non-current liabilities
345
4,303
4,274
4,232
2,919
792
976
1,017
1,525
3,114
5,453
5,314
4,405
2,810
2,035
    Long-Term Borrowings
　–
3,958
3,929
3,879
2,570
483
683
740
1,260
2,827
5,153
5,033
4,093
2,545
1,791
Total liabilities
10,228
12,071
11,973
10,004
8,436
8,332
9,609
9,749
9.679
11,968
16,622
17,920
18,064
18,943
18,411
Total net assets
9,776
9,891
9,801
10,067
10,070
10,093
10,240
10,301
10,463
10,692
10,886
11,056
11,561
11,833
12,220
Total shareholders’ equity
9,776
9,891
9,801
10,067
10,070
10,093
10,240
10,297
10,459
10,688
10,882
11,052
11,562
11,833
12,220
  Capital stock
818
818
818
818
818
820
820
820
821
822
824
833
860
860
860
  Legal capital reserve
779
779
779
779
779
781
781
781
782
785
786
796
823
824
824
  Retained earnings
8,174
8,289
8,200
8,465
8,577
8,656
8,802
8,863
9,023
9,362
9,557
9,708
10,164
10,419
10,807
  Stock acquisition right
4
4
4
4
4
4
4
4
4
3
3
3
–
–
–
Total liabilities and net assets
20,004
21,962
21,774
20,071
18,505
18,425
19,849
20,051
20,134
22,678
27,508
28,976
29,626
30,777
30,632
                               
[Statements of cash flows]
                              
Cash flow from operating activities
  
-3,683
  
-916
  
2,110
  
1,704
  
1,184
  
-9,267
  
911
  
  Loss before income taxes
  
291
  
712
  
635
  
1,003
  
833
  
1,269
  
1,423
  
Cash flow from investing  activities
  
-9
  
-287
  
-26
  
-51
  
-205
  
-266
  
-655
  
Cash flow from financing activities
 
3,021
 
952
 
-2,129
  
-608
  
-559
  
7,971
  
-56
  
Net increase in cash and cash equiv.
  
-671
  
-251
  
-46
  
1,045
  
420
  
-1,563
  
200
  
Cash and cash equiv. at beginning of period
  
3,958
  
3,958
  
3,707
  
3,707
  
4,752
  
4,752
  
3,188
  
Cash and cash equiv. at end of period
  
3,287
  
3,707
  
3,661
  
4,752
  
5,173
  
3,188
  
3,839
  

Source: Omega Investment from company materials

Financial data

FY (¥mn)
2012/12
2013/12
2014/12
2015/12
2016/12
2017/12
2018/12
2019/12
2020/12
2021/12
2022/12
2023/12
(forecast)
[Statements of income]
                        
Net sales
9,475
9,187
10,443
11,567
12,300
13,098
16,833
18,020
17,774
16,836
15,533
23,500
　YoY change (%)
17.8
-3.0
13.7
10.8
6.3
6.5
28.5
7.1
-1.4
-5.3
-7.7
51.3
Cost of sales
7,061
6,254
7,055
7,798
8,344
8,566
12,028
12,902
13,788
12,467
10,485
–
Gross profit
2,415
2,934
3,389
3,769
3,957
4,532
4,805
5,119
3,986
4,368
5,047
–
SG&A expenses
1,898
2,014
2,184
2,470
2,510
2,770
3,039
3,258
3,139
3,250
3,578
–
Operating profit
517
920
1,205
1,300
1,446
1,762
1,766
1,861
847
1,117
1,469
2,150
　YoY change (%)
31.0
77.9
30.9
7.9
11.3
21.9
0.2
5.4
-54.5
31.9
31.5
46.3
　Operating income margin (%)
5.5
10.0
11.5
11.2
11.8
13.5
10.5
10.3
4.8
6.6
9.5
9.1
Non-operating profit
5
12
14
15
15
12
28
42
88
34
26
–
Non-operating expenses
85
122
174
118
133
106
150
144
226
152
212
–
Ordinary income
437
810
1,044
1,196
1,329
1,669
1,643
1,759
709
999
1,283
1,800
Extraordinary income
23
 
 
 
 
97
 
 
32
3
20
–
Extraordinary expenses
17
 
 
 
 
94
104
 
29
  
33
–
Loss before income taxes
443
810
1,044
1,196
1,329
1,672
1,539
1,759
712
1,003
1,269
–
Total income taxes
209
354
418
472
475
561
533
600
355
394
209
–
Net income attributable to owner of parent
233
456
626
724
854
1,111
1,007
1,159
358
609
1,060
1,180
　YoY change (%)
47.5
95.4
37.5
15.6
17.9
30.2
-9.4
15.1
-69.1
70.5
73.9
11.3
　Net income margin (%)
2.5
5.0
6.0
6.3
6.9
8.5
6.0
6.4
2.0
3.6
6.8
5.0
                         
[Balance Sheets]
                        
Current assets
6,257
8,023
7,836
10,366
9,749
15,874
15,745
18,094
19,040
18,968
27,929
–
  Property for sale
4,834
6,346
5,166
7,699
6,877
11,863
11,678
13,493
14,424
13,301
23,657
–
Non-current assets
836
895
957
1,031
1,083
1,042
1,032
1,199
1,030
1,082
1,047
–
   Tangible assets
135
569
603
572
591
467
458
456
306
301
299
–
   Investments and other assets
622
226
258
383
405
494
505
669
655
730
701
–
Total assets
7,093
8,919
8,793
11,398
10,833
16,916
16,777
19,294
20,071
20,050
28,976
–
Current liabilities
3,098
4,587
3,165
4,910
3,751
8,430
6,160
9,047
5,772
8,731
12,606
–
   Short-term borrowings
2,095
3,362
2,094
3,778
2,624
7,076
4,728
7,203
4,462
5,544
10,192
–
Non-current liabilities
562
465
367
453
226
479
1,710
351
4,232
1,017
5,314
–
    Long-Term Borrowings
526
419
320
180
88
364
1,320
 
3,879
740
5,033
–
Total liabilities
3,660
5,051
3,531
5,363
3,977
8,909
7,869
9,399
10,004
9,748
17,920
–
Total net assets
3,433
3,868
5,262
6,034
6,856
8,006
8,908
9,894
10,066
10,301
11,056
–
Total shareholders’ equity
3,433
3,868
5,262
6,034
6,852
8,002
8,904
9,890
10,062
10,297
11,052
–
  Capital stock
257
257
661
710
720
788
811
814
818
820
833
–
  Legal capital reserve
218
218
622
671
681
749
772
775
779
781
796
–
  Retained earnings
2,958
3,393
3,978
4,654
5,451
6,464
7,320
8,302
8,465
8,863
9,708
–
  Stock acquisition right
 
 
 
 
4
4
4
4
4
4
3
–
Total liabilities and net assets
7,093
8,919
8,793
11,398
10,833
16,916
16,777
19,294
20,071
20,050
28,976
–
Equity ratio (%)
48.4
43.4
59.8
52.9
63.3
47.3
53.1
51.3
50.1
51.4
38.1
–
                         
[Statements of cash flows]
                        
Cash flow from operating activities
-953
-664
1,761
-1,451
1,611
-3,666
1,617
-420
-917
1,704
-9,267
–
  Loss before income taxes
443
810
1,044
1,196
1,329
1,672
1,539
1,759
712
1,003
1,269
–
Cash flow from investing  activities
-15
-175
-111
-116
-184
107
-64
-71
-288
-51
-266
–
Cash flow from financing activities
692
1,136
-612
1,588
-1,278
4,667
-1,495
984
953
-608
7,971
–
　Issuance of shares
 
 
800
97
21
37
45
6
9
    
–
Net increase in cash and cash equiv.
-276
296
1,039
22
150
1,108
58
493
-251
1,045
-1,563
–
Cash and cash equiv. at beginning of period
1,069
793
1,089
2,128
2,150
2,299
3,407
3,465
3,959
3,707
4,752
–
Cash and cash equiv. at end of period
793
1,089
2,128
2,150
2,299
3,407
3,465
3,959
3,707
4,752
3,188
–
Free cash flow
-968
-839
1,650
-1,567
1,427
-3,559
1,553
-491
-1,205
1,653
-9,533
–

Source: Omega Investment from company materials

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