BRIDGE REPORT
(8860)

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Fuji Corporation Ltd. (8860)
Nobutsuna Miyawaki, President
Nobutsuna Miyawaki, President
Corporate Profile
Company
Fuji Corporation Ltd.
Code No.
8860
Exchange
Tokyo Stock Exchange, 1st Section
Industry
Real Estate
President
Nobutsuna Miyawaki
HQ
1-4-23 Habucho, Kishiwada-shi, Osaka
Year End
March
Website
Stock Information
Share Price Shares Outstanding Market Cap ROE (Act.) Trading Unit
¥959 35,786,654 shares ¥34,319 million 12.5% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Act.) PBR (Act.)
¥27.00 2.82% ¥121.55 7.89x ¥972.56 0.99x
*Stock prices as of the close on June 22, 2018. Number of shares issued at the end of the most recent quarter excluding treasury shares.
ROE and BPS are based on FY 3/18 earnings results; EPS is based on FY 3/19 earnings estimates.
 
Consolidated Earnings Trends
Fiscal Year Sales Operating
Income
Ordinary
Income
Net
Income
EPS (¥) DPS (¥)
March 2015 79,594 4,361 4,322 2,756 76.46 26.00
March 2016 90,726 5,441 5,298 3,430 95.18 26.00
March 2017 99,359 5,969 5,721 3,945 110.06 26.00
March 2018 103,880 6,438 6,139 4,168 116.08 27.00
March 2019 Est. 108,000 6,700 6,500 4,350 121.55 27.00
* Estimates are those of the Company.
 
This Bridge Report provides information about the Fiscal Year March 2018 earnings results and other details of Fuji Corporation Ltd.
 
Key Points
 
 
 
Company Overview
Fuji Corporation Ltd. provides various real estate related services including sales of new and used condominiums and detached homes primarily in Osaka Prefecture (where the Company is based), between Osaka and Kobe, and within Wakayama City. Their main business is the sale of detached homes, albeit a built-for-sale type, that would maximize customer satisfaction by allowing for the "free-design home" regarding layout, specifications, etc. within the boundaries of Japan's Building Standards Act. Fuji also boasts of strengths in the development of properties where 50 to 200 homes are constructed in coordination with the surrounding environment and each other to provide uniformity in neighborhoods. The other main pillars of the Company's business include renovation and sale of used residential properties, collaboration with financial institutions for effective land utilization, sales of rental apartments for sale to individual investors, property leasing and management services, and custom housing. Fuji boasts of unique knowhow developed in various businesses realms derived from its sales agency and detached home services. Furthermore, the complementary and synergistic effects that occur between its various business divisions allow the Company as a Complete Home Provider to respond with solutions that match the needs of home owners and residents in various geographic regions and times. Another strength of Fuji is local community-based management to match the time and place of the markets, and to maintain high levels of customer satisfaction by upholding the principles of "never ignoring customers after the sale" and "never ignoring customers after the completion of construction." (1) Business Description Residential Properties for Sale (36.7% of the Fiscal Year March 2018 Total Sales) Sales of detached homes and condominiums are conducted in this business. A characteristic of this business is Fuji's ability to develop neighborhoods of new detached homes in 50 to 200 units that match the local neighborhoods, and to allow its customers to participate in the designing of the property. More specifically, these "free-design" homes respond to the needs of individual customers by allowing them to customize the layout and specification of the homes to suit their tastes and needs. Furthermore, new condominiums for sale are also included in the residential properties for sale business segment. Fuji halted the condominium for sale business in spring of 2005, based upon the outlook for a weakening in pricing due to declines in demand and increases in supplies. However, in the aftermath of the Lehman Shock, declines in land prices and improvements in supply and demand conditions in the condominiums for sale market led Fuji to restart the condominiums for sale business in February 2012. Another feature of Fuji is its focus upon condominiums and residential properties that are carefully selected (such as their convenient proximity to stations) and that are attractively priced for first-time buyers. Housing Distribution (28.3% of the Fiscal Year March 2018 Total Sale) Sales of refurbished used residential property called "Kaizo Kun" and the new detached homes (spec new homes) are conducted in this business segment. "Kaizo Kun" refurbished used residential properties are used residential properties purchased for renovation and sales. Fuji's unique knowhow is leveraged in local community-based management and manualized procedure for renovation. On the other hand, sales of small-scale newly constructed detached homes (spec new homes) has allowed the Company to satisfy a wide range of customer needs that could not be completely met with free-design homes and large-scale development projects. Yet, the Company will end that service henceforward and will switch to free-design homes. Effective Land Utilization (19.7% of the Fiscal Year March 2018 Total Sale) Contract construction for leased properties and sales of rental apartment for sale to individual investors are conducted in this business. Construction work is performed for construction of rental residential properties sold on a proposal basis and leverages Fuji's knowhow developed in its property leasing and management business. In addition, Fuji purchases lands and then constructs rental apartment buildings for sale to individual investor in this business. The highly price competitive wooden structure apartments called "Fuji Palace" were launched in November 2008, subsequently affordable rental apartments for seniors with nursing-care service, which are called "Fuji Palace Senior" as a means of differentiation. With regards to rental apartments for sales to individual investors, the price for apartments is roughly ¥100 million, and the demand for these types of rental properties remains strong as a fund management method. Property Leasing and Management (15.1% of the Fiscal Year March 2018 Total Sale) The fully owned subsidiary Fuji Amenity Services Co., Ltd. provides rental apartment structure management, tenant solicitation, rent collection and other management services, in addition to consigned management of condominiums. Superior rental and management related services not only act as stable source of earnings, but also provide opportunities to achieve high synergy with contract construction of rental income properties, sales of rental apartments for sale to individual investors, and sales of condominiums. Custom Housing (0.3% of the Fiscal Year March 2018 Total Sale) By leveraging the knowhow cultivated in the detached homes business, Fuji has successfully grown and marketed its services of reconstruction of existing detached homes and construction of new detached homes to land owning clients. This business has also grown to become the fifth cornerstone of its overall business. (2) Strengths of Fuji Corporation Strength as a Complete Home Provider Knowhow in the realms of acquisition of land and building permits, design, construction and sales cultivated in the detached home services has allowed Fuji to develop a wide range of businesses including its used residential property sales, effective land utilization, rental apartment buildings for sale to individual investors, and property leasing and management, as well as to cultivate synergies between these businesses. Furthermore, its local community-based management has also contributed to cultivate synergies among these wide ranging businesses and achieve high levels of customer satisfaction in its real estate and related services. Capabilities of the Refurbished Used Residential Property Business The "Kaizo-kun" refurbished used residential property business was born from the fusion of knowhow cultivated in the residential property agency sales and renovation businesses, which were launched along with the start of the Company. Fuji maintains a unique business model that enables them to conduct the three main functions of the residential property sales process including "acquisition," "renovation," and "sales" of used residential properties. The Company also boasts of the ability to create used residential properties that match the needs of customers because of its creation of manuals regarding how to renovate homes and information gathering of local markets based on its local community-based management style. In addition, a service called "Fuji Home Bank" has been created where coordination with judicial scriveners is conducted to purchase properties in cases of conclusion of inheritance registration. This service also offers the convenience of paying the inheritance registration fees from the fees derived from the sale of properties. Ability to Increase Returns by Proposing Effective Land Utilization Fuji does not only provides the ability to propose effective land utilization, but also offers market surveys, planning, design, construction, and rental property management services to maximize its capability as a comprehensive real estate developer. Land purchases and sales, apartment and condominium reconstruction, legal and tax related services, and other various expert opinions and services are available as precise solutions to suit the needs of customers. As to its rental property management business, strict selection of land from the vast amount of real estate information is based upon meticulous market surveys conducted by its full-time marketing staff, and planning is carried out only when long-term and stable management is feasible. In addition, Fuji only purchases properties that boast of highly superior locations and other conditions to be turned into high yielding used real estate products. Moreover, Fuji proposes a bundled leasing system to property owners as a means of providing them with full "security, safety, and stability" in the rental property management service. Business Portfolio Synergies The real estate industry is hugely influenced by external factors such as the economic environment and changes in interest rates. To establish a business model that can withstand these conditions, Fuji Corporation has endeavored to build a business portfolio that can generate stable profits by providing diversified products and services. Looking at the sales composition during the last 5 years, residential properties for sale has previously accounted for more than 40% of total sales in the past. However, Fuji Corporation has been able to achieve a more balanced business portfolio as the three business segments, 1) residential properties for sale, 2) housing distribution, and 3) effective land utilization and property leasing and management businesses, now account for over 30%.
 
 
Medium Term Business Plan (From Fiscal Year March 2016 to 2019)
With regards to the current medium term business plan, Fuji Corporation maintains targets for sales and ordinary income of ¥102.0 and ¥6.0 billion respectively to be achieved by Fiscal Year March 2019, the plan's final year. Furthermore, this plan calls for the turning of the large development of detached housing projects and the restarted sales of condominiums, which had been curtailed due to weak supply and demand conditions, into earnings drivers of the residential properties for sale business segment. Moreover, the plan also calls for growth in used residential properties through the expansion in the sales regions in the housing distribution business segment, and securing of stable profits through strengthening of property purchases in the effective land utilization business segment. In addition to these strategies, efforts to grow earnings through sustained increases in managed properties will be conducted in the property leasing and management business segment. Medium Term Business Plan Profit Assumptions Achievements during Fiscal Year March 2016 Strong sales and profits were recorded during Fiscal Year March 2016 and they far exceeded the assumptions of the current medium term business plan. Fuji Corporation expected both free-design homes sales and property leasing and management sales to expand by large margins, and anticipated large increase in sales of the effective land utilization business on the back of increases in rental apartments for sale to individual investors. All of these business segments exceeded the Company's estimates, and the used residential properties sales also posted much better than expected sales. Achievements during Fiscal Year March 2017 Both sales and profits exceeded the Medium Term Business Plan targets by large margins during Fiscal Year March 2017. Initially, increases in the number of deliveries of high quality and large scale residential properties for sale, in the number of units for sale due to an expansion in the sales region of used residential properties, and in the number of rental apartments for sale to individual investors allowed property leasing and management business to rise. In addition to these strong performances, higher sales pricing of used residential properties also contributed to the strong performance. Achievements during Fiscal Year March 2018 During fiscal year March 2018 both sales and profits exceeded the targets of the Medium Term Business Plan by a large margin. The start of deliveries of residential properties for sale of large projects in the Osaka and surrounding Hanshin regions, the restart of supplies of condominiums for sale, which had been halted, with the sale of units on a prime location in front of the Japan Railway Wakayama Station, and the delivery of rental apartments for sale to individual investors are expected to allow for growth in both sales and profits in the property leasing and management business. Sales of condominiums for sale located in front of Japan Railway Wakayama Station started a year earlier than expected in July 2016. Fuji Corporation has been able to record better than anticipated results in these businesses and achieve its medium term targets for sales and every level of profits. Plans for Fiscal Year March 2019 Sales of residential properties for sale are expected to be booked along with the restart of condominiums for sale deliveries in prime locations during fiscal year March 2018. Estimates call for higher sales due to a steady expansion of the sales territory for used residential properties into Hyogo and Nara Prefectures. In addition, as for property leasing and management business, expansion in the number of profitable projects in the used residential property asset businesses, and increases in the number of managed and sublet properties derived from the rental apartments for sale to individual investors business are expected. At the same time, sales and profits in fiscal year March 2018 exceeded the targets of medium term business plan and the estimates for fiscal year March 2019 are also exceeding the medium term business plan.
 
 
Fiscal Year March 2018 Earnings Results
Sales, Ordinary Income Rise 4.5%, 7.3% Year-On-Year During fiscal year March 2018, sales rose by 4.5% year-on-year to exceed the ¥100.0 billion for the first time and set a new record high of ¥103.880 billion. Sales of residential properties for sales segment rose on the contribution from the large condominium for sale project located in front of Japan Railway (JR) Wakayama Station, sales of the effective land utilization business benefitted from deliveries of rental apartments for sale to individual investors, and the property leasing and management segment sales also rose. However, declines in the number of used residential properties sold caused sales of the housing distribution segment to decline. Increases in new market entrants to the used residential properties for resale business caused a delay in acquisition of used residential properties and caused sales to fall slightly shy of plans. In addition, the number of order contracts, which is a reflection of the actual sales conditions, declined by 2.9% year-on-year due to a decline of orders for condominiums and property for sale. Ordinary income rose by 7.3% year-on-year to ¥6.139 billion. By business segment, sales of the residential properties for sales segment, effective land utilization segment, and property leasing and management rose, resulting in increased segment profits. At the same time, sales of the housing distribution business segment declined, resulting in decreased segment profit. Compared with the company's estimates, used residential properties for resale saw lower than expected profits due to difficulties in acquiring used residential properties. Gross margin rose by 0.4 points year-on-year on the back of deliveries of large condominium. At the same time, sales, general and administrative expense to sales margin also rose by 0.2 points year-on-year to 11.0% due to anticipatory spending upon advertising. However, operating income ratio increased 0.2 points year-on-year to 6.2%. Consequently, operating income rose by 7.9% year-on-year to ¥6.438 billion. Increases in interest payments rose within non-operating income caused growth in ordinary income to fall below that of operating income by a small margin. Also, a loss on sale of tangible noncurrent assets of ¥9 million (Compared with ¥1 million in the previous term) was booked as extraordinary loss. Sales and operating income of residential properties for sales rose by 14.8% and 43.5% year-on-year to ¥38.102 and ¥3.467 billion respectively due mainly to delivery of condominiums from a large condominium project. Order backlog for free-design homes rose from 733 in the previous term to 825 in the current term, and condominiums for sale fell from 272 to 132 over the same period, and total order backlog value fell by 7.5% year-on-year to ¥36.528 billion. Order backlog for condominiums for sale declined due to strong deliveries of condominiums from the large condominium project in front of JR Wakayama Station in fiscal year March 2017 (All 256 units sold since the start of sales in July 2017) and the subsequent weakness see in fiscal year March 2018. However, sales of a condominium project in front of JR Sakai Station in Osaka (91 units in total) started from December 2017 and have trended favorably. In addition, orders for land sales fell by a large margin due to the sale of two large parcels of land for use as large scale condominiums. Sales and operating income of the housing distribution business segment fell by 10.6% and 68.0% year-on-year to ¥29.352 billion and ¥439 million respectively. An increase in the number of new entrants to the used residential properties for resale business caused difficulties in acquiring properties and in turn led to declines in the number of properties sold and in the gross income recorded on each unit sold. The number of orders for used residential properties fell from 1,526 in the previous term to 1,322 in the current term, and orders of the housing distribution business segment fell by 8.9% year-on-year to ¥29.287 billion. Sales and operating income of the effective land utilization business segment rose by 7.6% and 13.6% year-on-year to ¥20.416 and ¥2.583 billion respectively due mainly to strong deliveries of rental apartments for sale to individual investors. Orders also rose by 15.9% year-on-year to ¥22.449 billion. Orders for contract construction of rental properties rose by 56.3% while orders for rental apartments for sale to individual investors rose by 4.4% year-on-year. Aside from the above-mentioned developments, sales and operating income of the property leasing and management business segment rose by 12.9% and 28.1% year-on-year to ¥15.660 and ¥1.512 billion respectively. This is due to increases in the number of managed properties derived from delivery of condominiums for sale and rental properties linked to the effective land utilization business, along with increases in used residential rental properties within the used residential property asset business. However, custom housing segment recorded declines in sales and operating income of 31.0% and 66.0% year-on-year to ¥347 and ¥12 million respectively. During the fourth quarter (January to March) of fiscal year March 2018, deliveries of condominiums for sale including those from the large project in Wakayama (256 units total) and others were concentrated in the fourth quarter and caused both sales and ordinary income to rise to high levels compared to the previous fourth quarters. Also, expansion in the free-design homes, rental apartments for sale to individual investors, and property leasing and management divisions contributed to increases in both sales and ordinary income during the fourth quarter. Total assets rose by ¥20.691 billion from the end of the previous fiscal year to ¥135.563 billion at the end of March 2018, due in part to increases in inventories and tangible assets for the assets, and short and long term debt for the liabilities and net assets. Within inventories, real estate for sale rose slightly from ¥23.28 billion at the end of the previous fiscal year to ¥23.99 billion in the current term, uncompleted real estate for sale decreased from ¥21.02 to ¥18.86 billion, and real estate for development grew from ¥38.47 to ¥55.28 billion. Interest-bearing liabilities rose by ¥17.854 billion, and capital adequacy ratio fell by 1.9 points from the end of the previous term to 25.7%. With regard to cash flow, increases in inventories contributed to an increase in the margin of net cash outflow from operating activities. Increases in acquisition of tangible assets also caused the margin of net outflow of investing cash flow to expand. Consequent to these changes, the margin of net outflow in free cash flow also expanded. At the same time, net increases in short term debt and an expansion in the margin of increase in long term debt contributed to an increase in the margin of net inflow of financing cash flow. Also, cash and equivalents decreased by 14.5% from the previous term.
 
 
Fiscal Year March 2019 Earnings Estimates
FY3/19 Estimates Call for Sales and Ordinary Income to Rise by 4.0%, 5.9% Year-On-Year Fuji Corporation's fiscal year March 2019 earnings estimates call for sales and ordinary income to rise by 4.0% and 5.9% year-on-year to ¥108.0 and ¥6.5 billion respectively, both new record highs. The termination of spec new home supplies is expected to cause a small decline in sales of the housing distribution segment, but increases in free-design homes in the residential properties for sales segment and rental apartments for sale to individual investors in the effective land utilization segment are expected along with steady growth expected in the stock type business of property leasing and management segment. In addition, used residential properties sales are expected to see only marginal growth due to difficulties in acquisition of properties resulting from higher prices. With regard to profit, sales of units from a large condominium project are expected to decline from the high levels recorded in the term just ended, but an increase in total sales is expected to allow all levels of profits to grow. Fuji Corporation assumes that the operating income to sales ratio will remain the same as the previous year's level at 6.2%. Moreover, the growth rates of consolidated earnings during the second half are expected to stagnate due to the deliveries of condominiums from a large project recorded during the second half of the term just ended. The Company expects to pay a full year dividend of ¥27 per share (¥14 and ¥13 dividends per share at the ends of the first half and full year). Within the residential properties for sale segment, sales of free-design homes are expected to increase from 728 in the previous term to 911 in the current term, and condominiums for sale to decrease from 255 to 102. Within the housing distribution segment, the number of used residential properties is anticipated to rise from 1,330 to 1,394 over the same period. In the effective land utilization segment, sales of rental apartments for sale to individual investors are expected to rise from 116 in the previous term to 144 in the current term, and contract construction of rental properties to decline from 44 to 42. * Supplies of spec new homes have been terminated and will be replaced by free-design homes. (2) Main Topics Future Expansion of the Full-Service Elderly Care Home Services The Fuji Corporation Group has already started operating over 100 elderly care homes with nursing services nationwide since the start of its effective land utilization business in 2008, and now ranks as the second largest service provider in Japan. The Fuji Corporation Group announced in 2015 that it would begin operating 15 elderly care homes with nursing services over the course of the following three years to 2018, and has already acquired properties in the central and southern regions of Osaka for 13 new facilities. The Company also has plans to begin operation of 50 facilities on a consigned basis and 50 facilities on a self-owned basis to bring its total facilities to 100 over the next five years totally, and maintains sales and operating income targets for this business of ¥5.5 and ¥2.0 billion within five years. This new business is part of Fuji's strategy of creating a stable long term earnings structure that includes its "stock" based business. For facilities which will be owned by the Group, the 100% owned consolidated subsidiary Fuji Amenity Services Co., Ltd. will newly acquire properties to be converted into elderly care homes with nursing facilities and conduct the leasing business for these facilities. Each facility entails a wooden structure containing between 30 and 50 rooms, on 200 to 400 tsubo (1 tsubo is equal to 3.3 square meters) of land. Property Acquired for Use as Large Detached Home Development in Kakogawa City, Operating Territory Expanded from Western Kobe to Akashi and Kakogawa Cities Fuji Corporation acquired a large 63,802 square meter parcel of land, conveniently located just a 12-minute walk from JR (Japan Railway) East Kakogawa Station in March 2018 to be used for development to become 349 detached homes for sale. This is the first time that real estate has been acquired for use as residential property development in Kakogawa City, and this project is the largest residential property development that Fuji Corporation has undertaken. Along with the acquisition of this real estate for detached home for sale, the Company launched a new business strategy of raising both its brand recognition and credibility in the new operating territory from Western Kobe to Akashi and Kakogawa Cities. Knowhow of developing townscape cultivated in the residential property for sale business will be leveraged to create highly attractive detached homes for sale (Free-design homes) in the region from Western Kobe to Akashi and Kakogawa Cities with a goal of providing between 150 to 200 homes per year in the region. Fuji Corporation Selected by Ministry of Economy, Trade and Industry, Tokyo Stock Exchange as "Health Management Company 2018" Award Recipient Fuji Corporation was selected, on February 20 2018, as a "Health Management Company 2018" award recipient by the Ministry of Economy, Trade and Industry and the Tokyo Stock Exchange, which jointly operate this award system. This marks the second time that Fuji Corporation has been selected as a recipient of this award since 2016. Recipients of this award are chosen from amongst companies listed on the Tokyo Stock Exchange that implement superior efforts to promote and manage the health of their employees. Furthermore, companies selected for this award tend to be attractive to investors who seek companies that endeavor to raise their corporate value over the long term through their activities to promote the health of their employees. A maximum of 1 company per 33 different industries for a total of 33 companies may be selected in this award, and 26 companies from 26 industries from all of the 3,500 listed companies were selected during 2018.
 
 
Conclusions
Reflecting upon Fuji Corporation's fiscal year March 2018 business results, the effective land utilization business segment saw favorable results on the back of continued strong demand for rental apartments for sale to individual investors, and strong expansion in property leasing and management business derived from strength in the rental properties and deliveries of condominiums for sale, which are linked with effective land utilization business. These developments are evidence of the success of Fuji's strategy of establishing stability in its business portfolio and securing growth in earnings over the intermediate term. These developments are also expected to contribute to the establishment of a reputation for the business of Fuji Corporation to be resilient to economic fluctuations. At the same time, declines in the number of deliveries of large condominiums for sale, which were recorded last term, are expected to weigh heavily against earnings during fiscal year March 2019. In addition to the expansion in effective land utilization and property leasing and management businesses, Fuji Corporation expects to be able to achieve another year of record high sales and profits by accelerating its free-design home business. The key to this expansion in free-design homes are a number of high profitability new detached homes for sale projects, which are expected to be implemented some between 2018 and 2020. Therefore, the free-design home business trends will be critical in ensuring that Fuji Corporation can offset a decline in sales derived from large condominium projects and in allowing earnings to grow. In addition, the Company expects to be able to grow both the number of units and sales value of each unit in its used residential properties for resale business, despite difficulties in acquiring properties arising from increases in new market participants. Consequently, close attention should be paid to Fuji Corporation's efforts to expand sales of used residential properties. Strong hopes are also being placed upon Fuji Corporation's efforts to increase its management stability over the long term through its efforts to strengthen its earnings structure by establishing a stock based business including an expansion in its affordable rental apartments for seniors with nursing-care services, which has been accelerated since fiscal year 2018. Consequently, Fuji's efforts to deploy its affordable rental apartments for seniors with nursing-care services should be watched closely. Fuji Corporation has been able to achieve the targets of its Medium Term Business Plan in its final year of fiscal year March 2019 one year early. Furthermore, attention should also be focused upon the details of the new Medium Term Business Plan, which is expected to be created shortly.
 
 
<Reference: Regarding Corporate Governance>
◎ Corporate Governance Report The company submitted its latest corporate governance report on June 22, 2018. <Other> In Basic Views regarding corporate governance, the company states that "it is crucial for the improvement of our business performance that the president himself demonstrates the management philosophy, business purposes, and code of conduct and the directors with excellent "capabilities," "enthusiasm," and "attitude" and great willingness to contribute to our company work in a complete solidarity toward the same aim in order to increase the shareholder investment value."
 
Disclaimer
This report is intended solely for information purposes, and is not intended as a solicitation for investment. The information and opinions contained within this report are made by our company based on data made publicly available, and the information within this report comes from sources that we judge to be reliable. However, we cannot wholly guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
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