Keikyu Corporation (9006) Earnings Call Transcript & Summary

I am Ochiai from the Management Strategy Department. Thank you very much for your continued support to our company. I will now explain the financial results for the third quarter of the fiscal year ending March 31, 2023, and the full year forecast. Please turn to Page 3. This page shows the executive summary. The financial results for the third quarter of FY '22 made a year-on-year recovery as described at the top by 13.8% in revenue from railway operations, 12.6% in revenue from bus operations and 28.3 percentage points and the occupancy rate of business hotels, respectively. On the other hand, compared to pre-COVID period, although the impact of COVID-19 has diminished, it still affected our business significantly with decreases of 21.3% for revenue from railway operations, 23.9% for revenue from bus operations and 21.1 percentage point for the business hotel occupancy rate. In the third quarter, both revenue from operations and operating profit exceeded the initial forecast due to better-than-expected revenue from railway operations and the business hotel occupancy rate, as described in progress against business forecast. In addition, due to the progress in the sale of cross-holding shares and increased gain on sale of investment securities, we have revised upward our full year forecast for ordinary profit to JPY 8 billion. On the other hand, operating profit and net profit remain unchanged. While operating profit for the third quarter was JPY 9.4 billion and already exceeded the initial forecast of JPY 8 billion, its forecast remains unchanged. This is because we have factored in repair work expenses and the increase in power expenses in the Transportation segment, and as we plan to record a part of next fiscal year personnel expenses in the current fiscal year, recognition of expenses is expected to concentrate in the fourth quarter. While ordinary profit was revised upward, net profit remains unchanged as we have rescheduled the sale of properties for securitization to the next fiscal year or later. Please turn to Page 5. Page 5 is a summary of consolidated statement of income. Despite the continuing impact of COVID and rising prices, the economy has been gradually recovering, and recovery trends were observed mainly in the Transportation and the Leisure Services segment. As a result, revenue from operations grew JPY 14.5 billion year-on-year to JPY 186.1 billion. Operating profit was up JPY 9.6 billion to JPY 9.4 billion. Ordinary profit grew JPY 9.2 billion to JPY 9.7 billion, and profit attributable to owners of parent increased JPY 6.3 billion to JPY 15.6 billion. Next, I'll explain the status by segment. Please turn to Page 8. Page 8 is about the Transportation segment. Its total revenue from operations was JPY 73.7 billion, and total operating profit was JPY 1.3 billion, in which railway operations recorded a profit of JPY 2.1 billion and bus operations recorded a loss of JPY 700 million. Both railway and bus operations continue to be affected by COVID, but impact is diminishing. Revenue from operations increased by JPY 8.7 billion year-on-year due to an increase in noncommuter revenue in the railway operations and increased revenue from airport and medium-distance routes in the bus operations. In terms of profit, in addition to increased revenue, the railway operations returned to profitability due to cost reduction in addition to decreased repair and construction expenses resulting from delayed delivery of materials and other factors. The bus operations reduced its loss due to increased revenue from airport and medium-distance routes as well as a decrease in depreciation expenses as a result of temporary suspension of the purchase of new vehicles, resulting in an operating profit increase of JPY 7.5 billion for the Transportation segment as a whole. Due to the effect of soaring crude oil prices, power expenses for railways and fuel costs for buses and cabs increased year-on-year by approximately JPY 1.4 billion in total. Next page, Page 9, shows a breakdown of the number of passengers carried and revenue from railway operations. The number of passengers carried, shown in the left side of the upper table, increased by 11.7% year-on-year, but it is still 16.9% lower compared to the pre-COVID FY 2018, although that is not shown here. In addition, commuter revenue and the revenue from railway operations on the right [ rose ] JPY 500 million year-on-year and noncommuter revenue increased by JPY 5.3 billion. It is not shown here, but while general commuter pass revenue has not yet recovered to the pre-COVID level with a decrease of 24.8% compared to the pre-COVID result, student commuter pass revenue is 10.7% lower than the pre-COVID level, showing a better sign of recovery compared to general commuter pass revenue. Furthermore, the number of passengers carried at the 2 Haneda Airport stations, shown by the table below, also increased significantly year-on-year, but it is still lower by 17% than the pre-COVID level. However, although not shown here, it has improved by 10.8 points since the end of the previous quarter, indicating a further recovery in airport demand due to the easing of restrictions on movement and immigration as well as the national travel support campaign. Next, please turn to Page 10. This page is about the Real Estate segment. The total revenue from real estate sales and leasing operations was JPY 35.8 billion, up JPY 3.7 billion year-on-year, and operating profit was JPY 5 billion, an increase of JPY 400 million. The real estate sales operations posted a slight decrease in profit, despite the revenue growth due to increased sales of condominiums. In the real estate leasing operations, both revenue and profit increased due to higher dividend income from real estate funds as a result of reinvestment in real asset funds in the previous quarter with the funds obtained from securitization. Next, please turn to Page 11 for the Leisure and Services segment. Revenue from operations in the Leisure Services segment was JPY 20.2 billion, and operating profit was JPY 1.5 billion. The business hotel operations improved the occupancy rate by 28.3 percentage point from the previous fiscal year to 73%, as shown at the bottom. In addition to the revenue growth due to the recovery in demand for accommodation, progress in low-cost operation initiatives led to a decrease of loss by JPY 800 million year-on-year. However, still a loss of JPY 800 million was recognized. On the other hand, the leisure-related facilities increased both revenue and profit, owing to the strong performance of Heiwajima leisure facilities, resulting in an increase in both revenue and profit for the segment as a whole. Next, please turn to Page 12 for the Retailing segment. In the Retailing segment, the supermarket business decreased both revenue and profit due to decline in special demand for eating at home observed in the same period of the previous fiscal year and a decrease in the number of items purchased following price hikes, but the department store and shopping center operations recorded increased revenue and profit with diminished impact of COVID, resulting in an overall increase in both revenue and profit in this segment. Next, Page 13, is about other segment. This segment decreased both revenue and profit mainly due to a decrease in completed construction at companies like Keikyu Fine-tec. That is all for the status of each segment. Next, please turn to Page 14. This page is about nonoperating and extraordinary income and losses. Nonoperating profit includes items like gain on sale of investment securities. Coverage subsidy income decreased from the same period over the previous year. Extraordinary income includes JPY 13 billion from the gain on sale of noncurrent assets such as Keihin Kyuko bus office and 3 business hotels for temporary downsizing. This item decreased year-on-year as we posted gain on sale of noncurrent assets by securitization of real estate in the previous fiscal year. Next, please turn to Page 15. This slide shows the summary of consolidated balance sheet. The decrease in property, plant and equipment is due to the sale of 3 business hotels explained earlier. That is all for my explanation about the financial results. Financial results in the previous fiscal year are provided in the following pages for your reference. Next, I'll explain the business forecast. Please refer to Page 19. This page shows assumptions for the business forecast. These assumptions remain unchanged from the ones used for the forecast revised in November at the second quarter announcement. As I explained in the summary at the beginning, only ordinary profit forecast has been revised. Next, please turn to Page 20. This slide shows progress and the preliminary report for the railway operations. The graph shows the change in revenue from railway operations and the red line indicates the figures in the November forecast. As you can tell from the blue line, actual revenue has been exceeding the November forecast. The preliminary report for January is provided at the bottom, and the number of passengers passing through automatic ticket gate on all lines was down 12% from the pre-COVID period and up 12% from the previous fiscal year. At the 2 Haneda Airport stations, it was down 5% from the pre-COVID period and up 54% from the previous fiscal year. As such, the impact of COVID is diminishing and the number of passengers carried is expected to be generally in line with the forecast. Next page, Page 21, is about the bus operations. The graph shows the change in revenue from bus operations, which is almost at the same level as the November forecast. The preliminary report for January is provided at the bottom, and the revenue from operations was down 23% from pre-COVID period and up 17% from the previous fiscal year, which is generally in line with the forecast. Next, Page 22, is about the business hotel operations. The graph shows the change in occupancy rates of the business hotel operations. In the third quarter, it exceeded the November forecast, but the preliminary report for January indicates the rate as approximately 70%, which is generally in line with the forecast. Next, Page 23 shows the forecast for consolidated statement of income. As explained in the summary at the beginning, there is no change in revenue from operations and operating profit while ordinary profit has been revised upward to JPY 8 billion due to increased gain on sale of investment securities as a result of the progress in sale of cross-holding shares. Profit attributable to owners of parent remains unchanged due to the reasons provided on the slide. Capital investment, depreciation and net income per share shown in the lower table also remain unchanged from the November forecast. That is all from me. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]