Itoki (Company note – 1Q update)

2024-05-31 Coverage

Share price (5/30)	￥1,560	Dividend Yield (24/12 CE)	3.33 %
52weeks high/low	￥2,200/817	ROE(23/12 act)	11.3 %
Avg Vol (3 month)	616 thou shrs	Operating margin (23/12 act)	6.4 %
Market Cap	￥83.2 bn	Beta (5Y Monthly)	1.56
Enterprise Value	￥92.5 bn	Shares Outstanding	49.100 mn shrs
PER (24/12 CE)	11.9 X	Listed market	TSE Prime
PBR (23/12 act)	1.28 X

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Excellent start to the year

◇Summary of FY12/2024 1Q Financial Results: Excellent start of the first quarter to the new medium-term management plan

Itoki announced its FY12/2024 1Q results after the close of trading on May 13, 2024, with sales of 40.9 billion yen (+11% YoY), operating profit of 6 billion yen (+26% YoY), and quarterly net profit attributable to owner of parent of 4.1 billion yen (+24% YoY), a significant increase in sales and profit.

In the mainstay Workplace business, the office renewals and relocations market has been buoyant, reflecting the growing enthusiasm for human capital investment. The company steadily captures office renewal and relocation projects while enhancing customer value and profit margins. The Equipment and Public Works-Related business has also made progress in improving its profit margins, and in general, it is a good start to the new medium-term management plan, with perfect quality and performance.

In addition, there have been changes to the balance sheet. Advantage Advisors has exercised its share warrants. In response, the company increased its short-term borrowings repurchased, and canceled its shares. Compared to the end of the previous year, total assets increased by approximately 9%, liabilities increased by approximately 31%, and net assets decreased by approximately 17%. As a result, the equity ratio stood at 35.9% (down 10.9 percentage points YoY). However, with current profitability, net debt does not seem excessive and is expected to lead to a lower cost of capital.

It should also be noted that the number of shares outstanding (excluding treasury shares) stood at 49.1 million at the end of March (+8.3% YoY).

◇FY12/2024 company forecast: Initial company forecasts are unchanged. Price revision from July

The full-year company forecasts remain unchanged (no 2Q forecast disclosed). The company will absorb the cost increase by raising office furniture prices in its catalog by 5-8% from July. This price increase has not been factored into the company’s forecasts. Against solid demand, increased sales increase and improvement of profit margins are expected.

◇ Share Price Trend and Highlights:

The share price fell following the announcement of the results, naturally reflecting a sell-off by some shareholders who thought the company had “run out of immediate good news,” as there was no upward revision to the full-year forecast, despite the company’s strong 1Q results and good progress against the full-year forecast.

The share price immediately before the announcement of the full-year results and new medium-term plan for FY12/2023 was 1,467 yen. The recent share price adjustment is considered attractive to investors, considering the following. Continued earnings growth with improved management structure, no overheating in the forecast PER, new information expected to be disclosed in the Q2 results, such as progress with ‘7Flags’, shareholder benefits for shareholders at the end of June, and expected effects of price increases not incorporated in the company forecast.

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	132,985	7.8	8,523	86.0	8,555	104.8	5,905	11.5	130.29	42.00
2024/12 (CE)	137,500	3.4	10,000	17.3	10,000	16.9	7,000	18.5	144.12	52.00
2023/12 1Q	36,965	4.6	4,777	20.5	4,824	21.4	3,296	-2.7	72.80	0
2024/12 1Q	40,918	10.7	6,039	26.4	6,015	24.7	4,101	24.4	85.71	0

◇Summary of FY12/2024 1Q Financial Results: The first quarter of the new medium-term management plan is off to a good start

Itoki announced its 1Q results for FY12/2024 after the close of trading on May 13, 2024. Sales were 40.9 billion yen (+11% YoY), operating profit was 6 billion yen (+26% YoY), and quarterly net profit attributable to owner of parent was 4.1 billion yen (+24% YoY), a significant increase in sales and profit. The results are presumed to be in line with the company’s initial assumptions.

Source: Omega Investment from company materials

In the mainstay Workplace business, there was evidence of a steady uptake of office renewal and relocation projects. The market has been buoyed by the growing enthusiasm for human capital investment while enhancing customer value and improving profit margins.

Sales remained flat in the Equipment and Public Works-Related business, but profit margins improved.

Overall, the quarterly results are perfect in quality and quantity and are an excellent start to the new medium-term management plan.

Source: Omega Investment from company materials

◇Summary of FY12/2024 1Q Financial Results: The first quarter of the new medium-term management plan is off to a good start

In addition, there have been changes to the balance sheet.

Advantage Advisors exercised its share warrants. In response, the company increased its short-term borrowings, carried out a share buyback, and canceled its shares. Compared to the end of the previous year, total assets increased by approximately 9%, liabilities increased by approximately 31%, and net assets decreased by approximately 17%. As a result, the equity ratio stood at 35.9% (down 10.9 percentage points YoY).

Source: Omega Investment from company materials

However, this decline in the equity ratio should not be considered a cause for concern at present. The net debt at the end of March was around 13.9 billion yen, but this is seen as more than one times the EBITDA for the year, so it is unlikely to be excessive. Instead, it is expected to lead to a reduction in the cost of capital.

It should also be noted that the number of shares outstanding (excluding treasury shares) was 49.1 million at the end of March (up 8.3% YoY). For the full year, the company expects net profit attributable to owner of parent to increase by 19% YoY. Therefore, even considering the actual increase in the number of shares, earnings per share will increase by approximately 10%, and there is little risk of dilution.

◇FY12/2024 company forecast: Initial earnings guidance is unchanged. Price revision from July

Full-year company forecast figures remain unchanged (no 2Q forecast disclosed).

The company will absorb the cost increase by raising office furniture prices in its catalog by 5-8% from July. This move is also being seen at other companies and is based on the assumption that there will be strong demand for office renewals. Therefore, the company expects an increase in sales and profitability. According to the company, the price increase has not been factored into the company’s forecasts and could lead to an upward swing in earnings.

◇ Share Price Trend and Highlights:

The company’s share price fell following the announcement of these results. Rather than being disappointed by the 1Q results, it is more natural to consider this as follows: After giving high marks to the 1Q results, the lack of upward revisions despite steady progress against the company’s full-year forecast led some shareholders to sell, believing that the company had run out of good news for the time being.

The share price was 1,467 yen just before the announcement of the full-year results and the new medium-term management plan for FY12/2023, and the share price is currently hovering around this level.

However, considering the following, the recent share price approaching JPY 1,467 is considered attractive to many investors. The company’s performance continues to expand with an improved management structure, and the forecast PER is not overheated; new information is expected to be disclosed in the Q2 results, such as the progress of ‘7Flags’, the company is being managed with an awareness of the cost of capital, aiming for an optimal capital structure through the use of debt, shareholder benefits for shareholders at the end of June will be implemented, and the effect of a price increase, which is not incorporated in the company’s forecast, is expected to kick in.

Financial data (quarterly basis)

FY (¥mn)	2021/12				2022/12				2023/12				2024/12
	1Q	2Q	3Q	4Q	1Q	2Q	3Q	4Q	1Q	2Q	3Q	4Q	1Q	2Q	3Q	4Q
[Statements of income]
Net sales	32,167	29,468	22,412	31,858	35,345	28,411	26,205	33,363	36,965	31,225	28,667	36,128	40,918
Year-on-year basis (%)	-14.7	9.2	4.3	6.1	9.9	-3.6	16.9	4.7	4.6	9.9	9.4	8.3	10.7
Cost of sales	20,101	18,729	14,443	20,872	21,483	18,030	16,678	21,384	22,216	18,954	17,483	22,091	24,545
Gross profit	12,020	10,722	7,953	10,999	13,862	10,381	9,527	11,979	14,748	12,271	11,184	14,037	16,372
SG&A expenses	10,352	9,453	9,203	10,150	9,898	9,973	9,812	11,484	9,970	10,047	11,006	12,694	10,333
Operating income	1,698	1,275	-1,242	829	3,964	407	-285	496	4,777	2,225	177	1,344	6,039
Year-on-year basis (%)	-43.4	–	–	-23.2	133.4	-68.7	–	-40.2	20.5	446.7	–	171.0	26.4
Operating profit ratio (%)	5.3	4.3	-5.5	2.6	11.2	1.4	-1.1	1.5	12.9	7.1	0.8	3.7	14.8
Non-operating income	240	161	171	122	125	164	171	96	125	114	141	101	78
Non-operating expenses	250	257	101	185	115	130	177	539	79	68	52	249	102
Ordinary income	1,657	1,173	-1,179	786	3,974	442	-291	52	4,824	2,271	265	1,195	6,015
Extraordinary income	1,255	78	133	88	786	139	118	6,762	1	15	120	50	0
Extraordinary expenses	20	456	518	1,474	44	64	38	3,465	21	10	24	308	10
Income before income taxes	2,893	795	-1,565	-600	4,716	516	-211	3,351	4,804	2,275	363	936	6,006
Total income taxes	1,028	490	-132	-796	1,381	246	-21	1,585	1,506	864	161	-60	1,901
Net income	1,942	348	-1,440	316	3,388	288	-159	1,777	3,296	1,411	202	996	4,101
Year-on-year basis (%)	10	–	–	496.2	74.4	-17.2	–	462.3	-2.7	389.9	–	-44.0	24.4
Net income ratio (%)	6.0	1.2	-6.4	1.0	9.6	1.0	-0.6	5.3	8.9	4.5	0.7	2.8	10.0

[Balance Sheets]
Current assets	65,543	62,170	55,249	57,753	69,458	64,096	59,873	71,027	72,230	68,755	68,040	73,304	81,922
Cash and deposits	19,503	22,112	18,213	17,351	19,196	20,073	17,138	26,876	20,898	24,688	23,192	24,795	24,751
Notes and accounts receivable 　- trade	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	26,948	31,158	37,599
Non-current assets	46,925	46,369	46,046	46,144	46,647	47,395	48,126	44,260	43,611	42,918	43,533	44,132	45,537
Property, plant and equipment	25,184	24,779	24,887	24,417	25,105	26,042	26,932	24,978	24,689	24,952	24,730	24,792	24,735
Intangible assets	5,504	5,419	4,885	4,114	4,128	4,168	4,145	1,819	1,837	1,884	2,161	2,292	3,355
Goodwill	2,018	2,016	1,407	1,317	1,214	1,222	1,200	517	446	391	346	341	983
Investments and other assets	16,236	16,170	16,273	17,612	17,413	17,184	17,048	17,462	17,084	16,080	16,641	17,048	17,446
Total assets	112,469	108,540	101,295	103,898	116,105	111,492	108,000	115,288	115,841	111,693	111,573	117,437	127,459
Current liabilities	49,245	45,266	40,307	42,544	51,837	47,138	43,655	49,099	47,854	42,547	42,010	47,340	69,174
Short-term borrowings	13,458	12,061	12,409	12,500	15,014	11,976	11,738	11,239	10,874	10,299	10,383	10,276	34,899
Non-current liabilities	17,506	17,088	16,257	16,277	16,334	16,020	16,178	16,278	16,238	15,727	15,724	15,096	12,424
Long-term borrowings	8,711	8,193	7,435	7,591	7,427	7,174	7,266	7,530	7,453	7,062	6,959	6,577	3,763
Total liabilities	66,751	62,354	56,565	58,822	68,172	63,158	59,833	65,377	64,092	58,275	57,734	62,437	81,598
Total net assets	45,717	46,186	44,730	45,076	47,933	48,333	48,166	49,910	51,748	53,418	53,839	54,999	45,860
Shareholders’ equity	45,047	45,419	43,979	44,301	47,249	47,567	47,408	49,185	50,806	52,267	52,469	54,960	45,818
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	7,351
Capital surplus	9,628	9,632	9,632	9,638	9,638	9,638	9,638	9,638	9,638	9,665	9,665	9,665	11,692
Retained earnings	30,306	30,654	29,213	29,530	32,477	32,769	32,610	34,387	36,008	37,419	37,621	38,617	33,111
Treasury shares	-182	-161	-161	-161	-161	-134	-134	-134	-314	-111	-111	-111	-8,278
Share acquisition rights	45	45	45	45	45	45	45	45	45	45	45	45	0
Total liabilities and net assets	112,469	108,540	101,295	103,898	116,105	111,492	108,000	115,288	115,841	111,693	111,573	117,437	127,459

[Statements of cash flows]
Cash flow from operating activities		4,577		-1,803		4,581		1,223		4,078		2,243
Cash flow from investing activities		503		-1,673		-1,410		6,333		-3,265		-747
Cash flow from financing activities		-1,418		-1,240		-661		-765		-3,266		-882
Free cash flow		5,080		-3,476		3,171		7,556		813		1,496
Net increase in cash and cash equiv.		3,787		-4,687		2,630		6,911		-2,466		711
Cash and cash equiv. at beginning of period		16,697		20,485		15,797		18,509		25,420		22,953
Cash and cash equiv. at end of period		20,485		15,797		18,509		25,420		22,953		23,664

Source: Omega Investment from company materials

Financial data (full-year basis)

FY (¥mn)	2013/12	2014/12	2015/12	2016/12	2017/12	2018/12	2019/12	2020/12	2021/12	2022/12	2023/12
[Statements of income]
Net sales	103,461	102,993	106,516	101,684	108,684	118,700	122,174	116,210	115,839	123,324	132,985
Year-on-year basis (%)	-1.9	-0.5	3.4	-4.5	6.9	9.2	2.9	-4.9	-0.3	6.4	7.8
Cost of sales	67,118	66,797	68,374	65,021	69,966	77,436	80,495	74,322	74,145	77,575	80,744
Gross profit	36,343	36,196	38,142	36,663	38,718	41,264	41,679	41,888	41,694	45,749	52,240
Gross profit ratio (%)	35.1	35.1	35.8	36.1	35.6	34.8	34.1	36.0	36.0	37.1	39.3
SG&A expenses	32,203	33,723	33,836	33,862	35,761	39,339	40,776	40,089	39,158	41,167	43,717
Operating income	4,140	2,472	4,306	2,800	2,956	1,925	903	1,798	2,536	4,582	8,523
Operating profit ratio (%)	4.0	2.4	4.0	2.8	2.7	1.6	0.7	1.5	2.2	3.7	6.4
Non-operating income	813	841	898	771	750	889	677	804	694	556	481
Non-operating expenses	528	495	605	483	412	448	634	720	793	961	448
Ordinary income	4,425	2,818	4,599	3,087	3,295	2,365	945	1,881	2,437	4,177	8,555
Extraordinary income	685	615	171	97	228	919	27	1,111	1,554	7,805	186
Extraordinary expenses	238	262	524	267	121	204	35	1,716	2,468	3,611	363
Income before income taxes	4,872	3,171	4,246	2,918	3,401	3,081	938	1,277	1,523	8,372	8,378
Total income taxes	876	813	-385	1,068	959	1,339	1,517	1,632	590	3,191	2,471
Net income	3,910	2,160	4,530	1,907	2,402	1,722	-550	-235	1,166	5,294	5,905
Net income ratio (%)	3.8	2.1	4.3	1.9	2.2	1.5	-0.5	-0.2	1.0	4.3	4.4
ROE（%）	10.2	5.2	10.4	4.2	5.2	3.7	-1.2	-0.5	2.6	11.1	11.3

[Balance Sheets]
Current assets	52,925	55,714	56,342	52,410	58,147	62,143	58,109	57,183	57,753	71,027	73,304
Cash and deposits	19,553	21,211	21,456	19,839	19,977	16,229	17,030	18,246	17,351	26,876	24,795
Notes and accounts receivable 　- trade	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	31,158
Non-current assets	42,335	41,007	41,832	43,271	44,073	46,559	49,955	47,912	46,144	44,260	44,132
Property, plant and equipment	28,193	27,041	26,395	25,322	24,426	26,362	27,781	26,206	24,417	24,978	24,792
Intangible assets	1,230	1,109	1,313	1,142	3,651	4,437	4,945	5,590	4,114	1,819	2,292
Goodwill	34	26	240	208	2,793	3,005	2,413	2,093	1,317	517	341
Investments and other assets	12,911	12,857	14,123	16,806	15,995	15,760	17,229	16,116	17,612	17,462	17,048
Total assets	95,261	96,721	98,175	95,681	102,221	108,703	108,778	105,096	103,898	115,288	117,437
Current liabilities	35,359	36,677	36,106	35,390	39,683	45,133	47,559	43,646	42,544	49,099	47,340
Short-term borrowings	11,473	11,087	10,940	11,760	12,564	11,721	15,533	13,234	12,500	11,239	10,276
Non-current liabilities	16,874	16,854	14,756	14,888	15,211	16,076	15,385	17,259	16,277	16,278	15,096
Long-term borrowings	5,124	5,089	5,171	5,296	5,328	5,113	6,633	8,508	7,591	7,530	6,577
Total liabilities	52,234	53,532	50,863	50,278	54,894	61,210	62,944	60,906	58,822	65,377	62,437
Total net assets	43,026	43,189	47,311	45,402	47,326	47,492	45,834	44,189	45,076	49,910	54,999
Shareholders’ equity	41,079	41,632	45,677	44,949	46,863	46,854	45,370	43,812	44,931	49,871	54,960
Share capital	5,277	5,277	5,277	5,277	5,277	5,277	5,294	5,294	5,294	5,294	5,294
Capital surplus	13,061	13,061	13,222	13,140	12,404	9,786	9,201	9,628	9,638	9,638	9,665
Retained earnings	22,073	23,556	29,223	30,504	32,315	31,104	29,862	28,950	29,530	34,387	38,617
Treasury shares	-833	-834	-3,000	-4,700	-4,701	0	-46	-182	-161	-134	-111
Share acquisition rights								45	45	45	45
Total liabilities and net assets	95,261	96,721	98,175	95,681	102,221	108,703	108,778	105,096	103,898	115,288	117,437

[Statements of cash flows]
Cash flow from operating activities	3,162	5,715	4,522	5,072	3,565	1,384	3,586	4,561	2,774	5,804	6,321
Cash flow from investing activities	-1,978	-1,742	-803	-4,044	-2,971	-3,094	-3,221	-1,152	-1,170	4,923	-4,012
Cash flow from financing activities	51	-2,179	-3,807	-2,571	-706	-2,463	0	-2,267	-2,658	-1,426	-4,148
Free cash flow	1,184	3,973	3,719	1,028	594	-1,710	365	3,409	1,604	10,727	2,309
Net increase in cash and cash equiv.	1,944	1,814	184	-1,619	88	-4,031	952	1,203	-900	9,622	-1,755
Cash and cash equiv. at beginning of period	16,156	18,102	19,918	20,103	18,483	18,571	14,540	15,494	16,697	15,797	25,420
Cash and cash equiv. at end of period	18,102	19,918	20,103	18,483	18,571	14,540	15,494	16,697	15,797	25,420	23,664

Source: Omega Investment from company materials

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