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Omega Investment Co., Ltd.

Itoki (Company note – 2Q update)

Coverage
Share price (8/26) ￥1,345 Dividend Yield (24/12 CE) 4.09 %
52weeks high/low ￥1,062/2,200 ROE(23/12 act) 11.28 %
Avg Vol (3 month)  349 thou shrs Operating margin (23/12 act) 6.4 %
Market Cap ￥71.8 bn Beta (5Y Monthly) 0.67
Enterprise Value ￥79.98 bn Shares Outstanding 53.38 mn shrs
PER (24/12 CE) 9.32 X Listed market TSE Prime
PBR (23/12 act) 1.41 X    
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2Q operating profit and ordinary profit in line with company expectations. Good visibility towards consecutive highest profits.

◇ FY12/2024 2Q financial highlights: operating profit and ordinary profit down slightly but in line with expectations

Itoki’s financial results for Q2 FY12/2024, announced on 5 August 2024, showed a slight YoY decline in operating profit and ordinary profit, although net sales and interim net profit attributable to owner of parent reached an all-time high. On a cumulative basis, sales were 72.51 billion yen (+6% YoY), operating profit was 6.86 billion yen (-2% YoY), ordinary profit was 6.83 billion yen (-3% YoY), and net profit attributable to owners of parent was 5.08 billion yen (+8% YoY). The company states that these are in line with its expectations.

Compared to the extremely strong first quarter, the current results appear weaker. However, there are many positive aspects to evaluate. The company is steadily increasing revenues in response to rising demand from customers for office renovations and relocations; it is expanding strategic expenditure to raise wages, recruit specialist personnel and strengthen its IT infrastructure, and is planting the seeds for future growth; operating profit and recurring profit are only slightly down YoY; the decline in gross profit margin is not due to a fall in profitability in each business, but to a change in the composition of sales. There is no need to regard these results as dampening the growth strategy.

Note that in PL, there was an extraordinary gain from the sale of non-business real estate and an extraordinary loss from the provision for related losses, while in BS, there are many points of interest, such as increasing short-term borrowings to acquire treasury shares and shorten the site for payables, and acquiring shares in a logistics subsidiary.

Another factor compensating for the slight decline in operating profit and ordinary profit is the increase in the dividend. It was announced that the dividend per share will be 55 yen, compared to 42 yen in the previous year and 52 yen in the initial forecast for the current year. The dividend payout ratio will be 38.4% for the current financial year, compared to 32.2% in the previous year, bringing the payout ratio close to the target of 40%. The dividend increase is a favorable decision for the company, which aims to pay a sustainable and stable dividend and shows its growing confidence in its business. The dividend yield is now approximately 4.3%, making the company more appealing to investors looking for a high dividend yield and stable growth.

◇ Full-year forecasts: company forecasts unchanged, with consecutive record profits.

The company’s full-year forecasts remain unchanged and call for sales of 137.5 billion yen (+3% YoY), operating profit of 10.0 billion yen (+17% YoY), ordinary profit of 10.0 billion yen (+16% YoY) and net profit attributable to owner of parent of 7.0 billion yen (+18% YoY) – in other words, the highest earnings in consecutive years.

Compared with the second half of the previous year, an increase of approximately 300 million yen in sales and 1.6 billion yen in operating profit would be required, but in terms of sales, demand for office renewals has strengthened nationwide, and the amount of business held is 4.8 percentage points higher than initially expected. In terms of profit, in addition to efforts to improve the gross margin, the effect of the price revision implemented in July is also expected, and the build-up of strategic expenditure that began in the second half of the previous year is also likely to run its course. At present, visibility for the full-year forecast is good.

◇ Additional points of interest presented at the results briefing

The names of 20 individual companies that have introduced Data Trekking, which embodies Office 3.0, were introduced. Next, it was explained that, as part of the supply chain reform, Itoki Engineering Service was integrated on 1 July, that the creation of a system to create projects from the upstream would progress, and that, concerning this, the company had won its first major project, which was expected to start contributing to earnings in 4Q. Finally, as examples of new market entries, the release of a dispensing picking system and special doors for disaster prevention shelters is scheduled for the next fiscal year.

◇ Share price trends and future points of interest

The company’s share price has been on an upward trend since President Minato took over but entered an adjustment phase during the year under review.

However, the enthusiasm for investment in human capital due to the shortage of working people in Japan is qualitatively changing the way offices are being used, and the company’s efforts to respond to this by providing enhanced customer value remain firm in the company’s approach. The share price will likely return to an uptrend as it becomes more confident that the company will meet its forecasts for the current fiscal year and that its growth strategy for the next fiscal year and beyond will take shape.

Company profile

Itoki Corporation (Itoki) is an office furniture manufacturer that designs tomorrow’s “workstyles”. It was founded in 1890. In addition to office furniture manufacturing, the company is also involved in construction and interior decoration. In 2022, Koji Minato was appointed president, and the company’s corporate structure has been transformed under his leadership. The company has advocated Office DX and Office 3.0 and is working to add high value. Under its three-year medium-term management plan, RISE TO GROWTH 2026, which ends in FY2026, the company is promoting the priority strategy ‘7 Flags’ and ESG strategies under the theme of ‘enhancing sustainable growth’. The plan aims to achieve sales of 150 billion yen, operating profit of 14 billion yen and ROE of 15% in FY2026.

Key financial data

Unit: million yen 2019/12 2020/12 2021/12 2022/12 2023/12 2024/12
CE
Sales 122,174 116,210 115,905 123,324 132,985 　137,500
EBIT (Operating Income) 686 1,585 2,561 4,582 8,524 　10,000
Pretax Income 938 1,277 1,523 8,372 8,378  
Net Profit Attributable to Owner of Parent -550 -235 1,166 5,294 5,905 　7,000
Cash & Short-Term Investments 17,030 18,246 17,451 26,976 24,795  
Total assets 108,778 105,096 103,898 115,288 117,437  
Total Debt 17,308 17,308 17,308 17,308 17,308  
Net Debt -7,487 -7,487 -7,487 -7,487 -7,487  
Total liabilities 62,940 60,901 58,818 65,374 62,434  
Total Sharehjolders’ Equity 54,960 54,960 54,960 54,960 54,960  
Net Operating Cash Flow 3,586 4,561 2,774 5,804 6,321  
Capital Expenditure 3,316 3,316 3,316 3,316 3,316  
Net Investing Cash Flow -3,221 -1,152 -1,170 4,923 -4,012  
Net Financing Cash Flow 0 -2,267 -2,658 -1,426 -4,148  
Free Cash Flow 3,005 3,005 3,005 3,005 3,005  
ROA (%) -0.51 -0.22 1.12 4.83 5.08  
ROE (%) -1.19 -0.53 2.63 11.17 11.27  
EPS (Yen) -12.1 -5.2 25.8 117.0 130.3  
BPS (Yen) 995.8 970.4 993.9 1,101.3 1,212.0  
Dividend per Share (Yen) 13.00 13.00 15.00 37.00 42.00  
Shares Outstanding (Milion shrs) 53.38 53.38 53.38 53.38 53.38  

Source: Omega Investment from company data, rounded to the nearest whole number.

Share price

Quarterly topics

【Analysis of factors contributing to changes in operating profit in the first half of the year】

Source: Omega Investment from company materials

【Status of business negotiations in FY2024】

Source: Omega Investment from company materials

【Analysis of factors behind the increase/decrease in operating profit forecast for the second half of the year】

Source: Omega Investment from company materials

【Progress of the 7 Flags, the key strategies of the medium-term management plan】

Source: Omega Investment from company materials

Financial data (quarterly basis)

Unit: million yen 2022/12 2023/12 2024/12
  2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
(Income Statement)                  
Sales 28,411 26,205 33,363 36,965 31,225 28,667 36,128 40,918 31,592
Year-on-year -3.6% 16.9% 4.7% 4.6% 9.9% 9.4% 8.3% 10.7% 1.2%
Cost of Goods Sold (COGS) 18,030 16,679 21,384 22,216 18,955 17,483 22,090 24,545 19,888
Gross Income 10,381 9,526 11,979 14,749 12,270 11,184 14,038 16,373 11,704
Gross Income Margin 36.5% 36.4% 35.9% 39.9% 39.3% 39.0% 38.9% 40.0% 37.0%
SG&A Expense 9,973 9,812 11,484 9,970 10,047 11,006 12,694 10,333 10,878
EBIT (Operating Income) 408 -286 495 4,779 2,223 178 1,344 6,040 826
Year-on-year -68.0% -77.0% -40.3% 20.5% 444.9% -162.2% 171.5% 26.4% -62.8%
Operating Income Margin 1.4% -1.1% 1.5% 12.9% 7.1% 0.6% 3.7% 14.8% 2.6%
EBITDA 1,189 556 1,342 5,522 2,906 910 2,079 6,753 1,582
Pretax Income 516 -211 3,351 4,804 2,275 363 936 6,006 1,328
Consolidated Net Income 269 -190 1,767 3,297 1,411 202 997 4,104 985
Minority Interest -18 -32 -10 1 0 0 0 2 1
Net Income ATOP 288 -159 1,777 3,296 1,411 202 996 4,101 985
Year-on-year -17.2% -89.0% 462.3% -2.7% 389.9% -227.0% -44.0% 24.4% -30.2%
Net Income Margin 1.0% -0.6% 5.3% 8.9% 4.5% 0.7% 2.8% 10.0% 3.1%
                   
(Balance Sheet)                  
Cash & Short-Term Investments 20,173 17,238 26,976 20,908 24,788 23,292 24,795 24,751 28,513
Total assets 111,492 108,000 115,288 115,841 111,693 111,573 117,437 127,459 120,701
Total Debt 19,150 19,004 19,487 18,387 17,361 17,342 17,308 38,662 41,566
Net Debt -1,023 1,766 -7,489 -2,521 -7,427 -5,950 -7,487 13,911 13,053
Total liabilities 63,154 59,831 65,374 64,090 58,270 57,730 62,434 81,595 73,584
Total Sharehjolders’ Equity 48,254 48,117 49,871 51,709 53,379 53,800 54,960 45,818 47,068
                   
(Profitability %)                  
ROA 2.37 3.66 4.83 4.49 5.67 6.09 5.08 5.52 5.41
ROE 5.48 8.28 11.17 10.45 12.45 13.12 11.27 13.76 12.51
(Per-share) Unit: JPY                  
EPS 6.4 -3.5 39.2 72.8 31.1 4.5 22.0 85.7 19.1
BPS 1,067.4 1,062.6 1,101.3 1,141.9 1,177.1 1,186.4 1,212.0 933.1 956.6
Dividend per Share 15.00 15.00 37.00 37.00 37.00 37.00 42.00 42.00 42.00
Shares Outstanding (milion shrs) 45.66 45.66 45.66 45.66 45.66 45.66 45.66 53.38 53.38

Source: Omega Investment from company materials

Financial data (full-year basis)

Unit: million yen 2013/12 2014/12 2015/12 2016/12 2017/12 2018/12 2019/12 2020/12 2021/12 2022/12 2023/12
(Income Statement)                      
Sales 103,461 102,993 106,516 101,684 108,684 118,700 122,174 116,210 115,905 123,324 132,985
Year-on-year -1.9% -0.5% 3.4% -4.5% 6.9% 9.2% 2.9% -4.9% -0.3% 6.4% 7.8%
Cost of Goods Sold 67,182 66,858 68,424 65,071 70,012 77,479 80,712 74,536 74,186 77,575 80,744
Gross Income 36,279 36,135 38,092 36,613 38,672 41,221 41,462 41,674 41,719 45,749 52,241
Gross Income Margin 35.1% 35.1% 35.8% 36.0% 35.6% 34.7% 33.9% 35.9% 36.0% 37.1% 39.3%
SG&A Expense 32,204 33,711 33,949 33,862 35,761 39,336 40,776 40,089 39,158 41,167 43,717
EBIT (Operating Income) 4,075 2,424 4,143 2,751 2,911 1,885 686 1,585 2,561 4,582 8,524
Year-on-year 20.7% -40.5% 70.9% -33.6% 5.8% -35.2% -63.6% 131.0% 61.6% 78.9% 86.0%
Operating Income Margin 3.9% 2.4% 3.9% 2.7% 2.7% 1.6% 0.6% 1.4% 2.2% 3.7% 6.4%
EBITDA 6,735 5,055 6,551 5,316 5,551 4,615 4,436 5,603 6,148 7,821 11,417
Pretax Income 4,872 3,171 4,246 2,918 3,401 3,083 938 1,277 1,523 8,372 8,378
Consolidated Net Income 3,995 2,355 4,631 1,850 2,442 1,744 -579 -355 933 5,181 5,907
Minority Interest 85 195 101 -56 40 19 -28 -119 -233 -113 1
Net Income ATOP 3,910 2,160 4,530 1,907 2,402 1,725 -550 -235 1,166 5,294 5,905
Year-on-year 44.7% -44.8% 109.7% -57.9% 26.0% -28.2% -131.9% -57.3% -596.2% 354.0% 11.5%
Net Income Margin 3.8% 2.1% 4.3% 1.9% 2.2% 1.5% -0.5% -0.2% 1.0% 4.3% 4.4%
                       
(Balance Sheet)                      
Cash & Short-Term Investments 19,630 22,132 21,533 19,839 19,977 16,529 17,030 18,246 17,451 26,976 24,795
Total assets 95,261 96,721 98,175 95,681 102,451 108,710 108,778 105,096 103,898 115,288 117,437
Total Debt 19,285 18,916 18,927 19,931 17,892 16,834 22,166 21,742 20,091 19,487 17,308
Net Debt -345 -3,216 -2,606 92 -2,085 305 5,136 3,496 2,640 -7,489 -7,487
Total liabilities 52,235 53,532 50,864 50,275 54,997 61,200 62,940 60,901 58,818 65,374 62,434
Total Shareholders’ Equity 41,079 41,632 45,677 44,949 46,863 46,857 45,370 43,812 44,931 49,871 54,960
                       
(Cash Flow)                      
Net Operating Cash Flow 3,162 5,715 4,522 5,073 3,565 1,384 3,586 4,561 2,774 5,804 6,321
Capital Expenditure 2,800 1,400 1,114 1,641 1,333 3,477 3,226 1,729 2,110 4,145 3,316
Net Investing Cash Flow -1,978 -1,742 -803 -4,044 -2,971 -3,094 -3,221 -1,152 -1,170 4,923 -4,012
Net Financing Cash Flow 51 -2,179 -3,807 -2,571 -706 -2,463 0 -2,267 -2,658 -1,426 -4,148
Free Cash Flow 362 4,315 3,408 3,664 2,342 -1,924 635 2,832 664 1,659 3,005
                       
(Profitability %)                      
ROA 4.24 2.25 4.65 1.97 2.42 1.63 -0.51 -0.22 1.12 4.83 5.08
ROE 10.15 5.22 10.38 4.21 5.23 3.68 -1.19 -0.53 2.63 11.17 11.27
(Per-share) Unit: JPY                      
EPS 78.2 42.8 91.6 40.1 52.7 37.8 -12.1 -5.2 25.8 117.0 130.3
BPS 814.8 825.8 953.5 986.8 1,028.9 1,027.4 995.8 970.4 993.9 1,101.3 1,212.0
Dividend per Share 13.00 13.00 13.00 13.00 13.00 13.00 13.00 13.00 15.00 37.00 42.00
Shares Outstanding (milion shrs) 52.14 52.14 52.14 52.14 52.14 45.61 45.66 45.66 45.66 45.66 45.66

Source: Omega Investment from company materials

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