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Omega Investment Co., Ltd.

Itoki (Company note – 1Q update)

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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