Keikyu Corporation (9006) Earnings Call Transcript & Summary

I'm Ochiai from the Management Strategy Department. I'll talk about the financial results, which we announced on February 13, 2024. The results covered through the third quarter of the fiscal year ending on March 31, 2024. Please turn to Page 3. You can find the page number on the bottom right. This is an executive summary. During the April-December period, revenue from railway transportation increased by 12.5% from the same period of last year. Revenue from bus operations also increased by 10.7%. Business hotel occupancy rates improved by 11.4 percentage points. Strong transportation and leisure services operations led overall recovery of our businesses and brought about increases in revenue and profit. The box in the middle shows progress against our November forecast. In railway operations, revenue and expenses in October-December period were nearly in line with expectations. In bus operations, revenue grew in line with the forecast, thanks to a decrease in personnel and fuel expenses. In real estate sales operations, unit sales of condominiums were lower than expected. In business hotel operations, the occupancy rate and the daily rates were slightly higher than expected. Based on the latest earnings results, we have revised the full year forecast. Please note that expenses and income related to the transfer of Takanawa 3-chome to Toyota Motor Corporation scheduled for before March 31 have not been recorded as I speak. I will talk about it more in detail later. Revenue from operation has been revised downward to JPY 282.5 million, mainly because the sales of land has shifted to the next fiscal year. We kept operating profit unchanged from our November forecast at JPY 28 billion, as shown in the bottom row. That in line with the forecast for the fourth quarter, helped by slight deviations from the segment forecast. I will later detail our earnings forecast. Let's look at Page 5. This is a summary of consolidated results. Revenue from operations was JPY 200.5 billion, up JPY 14.3 billion year-on-year. Operating profit was JPY 23.3 billion, up JPY 13.8 billion. Ordinary profit was JPY 22.7 billion up JPY 13 billion. Profit attributable to owners of parent was JPY 15.4 billion, down JPY 200 million. This is because unlike the previous year, we do not have gain on sales of Keihin Kyuko bus operation office and 3 business hotels. ROE at the bottom decreased by 0.5 percentage points to 5.5% due to a decrease in net profit. We have made capital investment of JPY 36.5 billion, as shown in the bottom right, while we plan to make JPY 135.7 billion for this fiscal year. Next, I will go segment by segment. Please jump to Page 8. Starting with the Transportation segment. The business saw an increase in revenue from operations by JPY 8 billion to JPY 81.7 billion. Operating profit was JPY 10.2 billion. The Railway operation contributed JPY 9.1 billion, while the bus operation contributed JPY 1.1 billion. Meanwhile, the taxi operations sustained loss of about JPY 40 million. In both railway and bus operations, revenue grew due to a recovery in travel demand and fare revisions. Operating expenses for railway operations as shown in the bottom right table. Personnel expenses dropped by JPY 900 million. This is because of a decrease in allowances for retirement benefits. Another reason is part of the bonuses for this fiscal year was recorded in the fourth quarter of the previous fiscal year. Electric power expenses for railway operations decreased by JPY 300 billion from the previous year. Although it is not shown in the slide, fuel costs for buses and taxes increased by a total of JPY 40 million. Energy costs did not increase as much as we had anticipated. Page 9 shows the number of railway passengers and revenue. Look at the left half of the top table. The number of passengers carried increased by 7.8% year-on-year. Although this is not shown in the slide, it remains 10.4% lower than fiscal 2018 before the coronavirus pandemic. Revenue from railway operations for commuters increased by JPY 1.2 billion year-on-year, while that for non-committers increased by JPY 4.8 billion. Although this is not shown in the slide, the revenue is still 11.4% lower than the prepandemic year of fiscal 2018, but October-December period saw the gap to reduce to 5.9% below the pre-pandemic level. That suggests that the fare revision in October had been helping revenue recovery. The bottom table shows the number of passengers carried at the 2 Haneda Airport stations. The number also rose significantly, up 31.3% year-on-year. As shown in the bottom right chart, monthly passenger counts have significantly improved, thanks to a remarkable recovery in demand at the Haneda Airport stations after the removal of travel restrictions. As the blue line shows, the number of passengers in the current fiscal year has been steadily above the prepandemic year of fiscal 2018 shown in the red line. Page 10 shows Real Estate segment. Revenue from Real Estate operations totaled JPY 36.8 billion, an increase of JPY 1 billion from the same period last year. Operating profit was JPY 6.8 billion, up JPY 1.8 billion year-on-year. In the Real Estate sales operations, unit sales of condominiums remained lower than those for the same period previous year. But the sale of Keikyu Real Estate condominium for leasing and our land for sale more than offset the poor condo sales, resulting in higher revenue and profit. In Real Estate leasing operations, both revenue and profit increased due to rent revisions for some leased office buildings and an increase in dividend income from a special purpose company or SPC. In Leisure Services, revenue from operations was JPY 22.1 billion, up JPY 1.8 billion year-on-year. Operating profit was JPY 3.8 billion, up JPY 2.2 billion year-on-year. In business hotel operations, the occupancy rate shown on the bottom of the page, improved by 11.4 percentage points from the previous year to 84.4%, exceeding the expected level of 83%. In addition to an increase in revenue due to the recovery in demand for lodging, daily rates per guestroom was 44% to over the JPY 11,000 mark. As a result, we generated a profit of JPY 1.2 billion, up JPY 2.1 billion year-on-year. In Leisure-related facilities operations, revenues declined due to the closure of Kannonzaki Keikyu Hotel operations in September 2022. In other Leisure operations, revenue declined due to lower advertising revenue at Keikyu ad enterprise. However, overall revenue and profit increased due to the strong performance of business hotels. Now please turn to Page 12. In Retailing segment, department store and shopping center operations posted lower revenue due to temporary closures for renovation at some plots, but higher income was achieved through decreased utility expenses. In Supermarket operations, both revenue and profit increased due to the recovery of customer traffic, strong existing store sales and recovery in the number of customers at convenience stores. As a result, the business saw an overall increase in revenue and profits. Next, turn to Page 13. In Other segment, both revenue and profit increased, thanks to an increase in completed construction project. This wraps up a segment summary. Now let's jump to Page 15 for nonoperating and extraordinary income and losses. We recorded nonoperating profit, such as a gain on the sales of investment securities from the sales of cross-held shares and the subsidies were Keihin Kyuko Bus. As I explained earlier, extraordinary income decreased by JPY 14 billion, partly because unlike the same period last year, we did not have proceeds from the sale of bus operation office and 3 business hotels. The compensation is for helping rezoning of the Shinagawa Station commercial area. Extraordinary losses decreased by JPY 900 million. We booked impairment losses and losses on retiring noncurrent assets related to a condominium project in Shinagawa Ward. We recorded a smaller loss on tax purpose reduction entry of noncurrent assets compared with the same period last year. This is an extraordinary loss to be registered in the same amount as the contribution received for construction, which is an extraordinary profit, so much for financial results through the third quarter. Page 16 shows our balance sheet. Please take a look when you have time. Next, Page 18 shows assumptions for our business forecast. Based on the just announced results and the current business environment, we have changed assumptions for full year forecast for bus and business hotel operations. In bus operations, we raised our forecast revenue from operations by 1 percentage point to 15%, lower than the prepandemic levels. In business hotel operations, we raised the occupancy rate forecast by 1 point to 84%. As I explained earlier in the summary, we are anticipating a delay in the sale of Real Estate loss. Taken altogether, we downgraded our full year forecast for revenue from operations by JPY 21.2 billion to JPY 282.5 billion. Operating profit for the full year remains unchanged due to a delay in the sale of Real Estate loss and other factors. Even though assumptions for the bus and business hotel operations have been remaining upward, furthermore, as shown in the footnote headed by the Asterisk, the latest schedule still calls for the transfer of land in Takanawa 3-chome to Toyota Motor Corporation by the end of fiscal 2023. As I said earlier, we are yet to record expenses and income related to the transfer. We will do so and let you know when we know this will certainly happen. Please look at Page 24. Segment forecast. As I explained earlier, we've revised downward revenue from operations due to a delay in land sales. Taking into account the latest results and the prospects going forward, we expect an increase in operating profit in the transportation, leader service and retailing operations where we expect a decrease in the profit in the real estate operation. You can find more detail for each business from Page 21. Also take a look at Page 27 when you have time for the progress status of sales in the railway, bus and business hotels operations. This concludes my presentation. Thank you so much for your kind attention.