Keikyu Corporation (9006) Earnings Call Transcript & Summary

I am Kaneko, Senior Managing Executive Officer of Keikyu Corporation. I'll explain the financial results for the second quarter of fiscal year 2025 and the full year forecast. Now please refer to executive summary on Page 4. In the first half of fiscal year 2025, revenues increased and profit decreased year-on-year. While the Transportation and Leisure Services segment performed well, profit decreased due to the absence of the sale of business sites in the Real Estate segment in the same period of the previous year. Interim net profit increased due to a JPY 5.3 billion gain on sales of noncurrent assets with the transfer of National Highway land in connection with the Shinagawa Station West Exit Area Development project of the Ministry of Land, Infrastructure, Transport and Tourism. With these first half results, we have revised the full year forecast. The details are provided in the middle of this page. Operating profit was higher than the initial forecast by approximately JPY 2 billion in the first half, including deferral of expenses of JPY 1 billion. However, factoring in the expense recognition and downward revision of the Real Estate segment forecast for the second half, the full year forecast has been revised upward only by JPY 1 billion to JPY 31 billion. The forecast for profit attributable to owners of parent was revised upward by JPY 7.7 billion to JPY 31 billion with the gain on sales of noncurrent assets associated with the transfer of the National Highway land in front of Shinagawa Station mentioned earlier, which will be incorporated into extraordinary income. Based on this upward revision and the policy to secure a dividend payout ratio of 40%, the annual dividend forecast has been revised upward by JPY 12 to JPY 46, JPY 23 each for interim and year-end dividends. Now please turn to Page 6 for the second quarter results. This page shows consolidated statements of income. Revenue from operations was JPY 142.5 billion, up JPY 1.6 billion year-on-year. Operating profit was JPY 18.5 billion, down JPY 400 million. Ordinary profit was JPY 16.8 billion, down JPY 1.4 billion and profit attributable to owners of parent was JPY 15.2 billion, up JPY 1.5 billion due to a gain on sales of noncurrent assets by the transfer of the National Highway land in front of Shinagawa Station. Capital investment shown on the lower right, was JPY 32.6 billion. Next, please turn to Page 9 for results by segment. In the Transportation segment, revenue from operations was JPY 60.9 billion, up JPY 1.5 billion year-on-year, and operating profit was JPY 11.8 billion, up JPY 100 million, of which railway operations increased by JPY 30 million and bus operations increased by JPY 100 million. In the railway operations, transportation demand, mainly on the airport line, remained strong. In the bus operations, the fare revision effectively increased its revenue. Page 10 shows the breakdown of the number of passengers carried and revenue from the railway operations. The total number of passengers carried shown in the upper part increased 2.6% year-on-year. In the revenue from railway transportation shown in the middle, revenue from commuters increased by JPY 200 million year-on-year, and revenue from non-commuters increased by JPY 900 million. Please refer to the major operating expenses in the lower right of the page. Personnel expenses increased by JPY 500 million due to base pay increase and electric power expenses increased by JPY 90 million. The next page, Page 11, shows the number of passengers carried at the 2 Haneda Airport stations. The total number for the 2 stations increased by 7% year-on-year to show continuously strong performance. It exceeded the progress rate forecasted for the first half by 1.5 percentage points. Please turn to Page 12. Revenue from operations in the Real Estate segment was JPY 19.2 billion for the total of real estate sales and leasing operations, down JPY 4.4 billion year-on-year, and operating profit was JPY 1.5 billion, a decrease of JPY 1.8 billion. In the real estate sales operations, both revenue and profit decreased due to the reactionary decline following the sales of business sites in the previous fiscal year. In the real estate leasing operations, revenue increased due to the higher occupancy rate of YOKOHAMA SYMPHOSTAGE, which opened in the same period of the previous year and new rental apartments, but profit decreased due to increased expenses due to recognizing the lease payments for redevelopment sites prior to its opening and depreciation of new rental apartments. Please turn to Page 13. The progress of the real estate turnover business will be explained in detail later by our President, Mr. Kawamata in the management plan part. The middle of this page shows major properties to be delivered in FY 2025. While PRIME Yokosuka Chuo performed well with the delivery of all units, Prime Park's Yokohama Namikita Residence located in Kanazawa Ward, Yokohama City is behind its sales schedule. Compared to properties in Central Tokyo, it has many spacious units with exclusive areas exceeding 70 square meters, and that is its selling point. We are strengthening our sales efforts by differentiating it from properties in other areas. Next, please turn to Page 14. Revenue from operations in the Leisure Services segment was JPY 17.3 billion, up JPY 2.2 billion year-on-year, and operating profit was JPY 3.5 billion, up JPY 1.3 billion. In the business hotel operations, as shown on the right, the occupancy rate improved by 3 percentage points year-on-year to 90%, which also exceeded the latest forecast. The unit price per guest room also increased 8.5% year-on-year, resulting in an increase in both revenue and profit. In the leisure-related facilities business, both revenue and profit increased in the boat racing business, mainly due to higher facility rental rates. Please turn to Page 15. In the Retailing segment, revenue from operations was JPY 41.7 billion, up JPY 2.5 billion year-on-year, and operating profit was JPY 1.1 billion, up approximately JPY 200 million. In the Department Store and SC operations, revenue declined due to the absence of the out-of-store sales of the department store operations in the same period of the previous fiscal year. But in the store business, revenue increased due to sales recorded by F-Climbing, which became a subsidiary in April 2024 and full year operations of supermarkets and convenience stores opened in the previous fiscal year, resulting in higher revenue and profit for the entire segment. Please turn to Page 16. In the Other segment, our revenue was up JPY 1.3 billion year-on-year, mainly due to increase in completed construction projects, profit decreased by JPY 40 million due to the transfer of Keikyu Driving School in the previous fiscal year. That is all for the status of each segment. Next, please turn to Page 18. Nonoperating and extraordinary income and losses. In nonoperating expenses, interest expense increased. Extraordinary income increased due to the gain on sales of noncurrent assets from the transfer of the National Highway land in Shinagawa, as explained in the summary. For extraordinary losses, we posted loss on retirement of noncurrent assets for the demolition of the Heiwajima Boat Race track stand, and this item decreased due to the absence of the loss on transfer of business by the transfer of the Nagano Keikyu Country Club business in the previous fiscal year. Please turn to Page 19. This page shows the consolidated balance sheet. I'll explain only the items with major changes. Cash and deposits increased due to bond issuance. Construction in progress increased due to the progress in the project for truck elevation and the pass establishment near Shinagawa Station. Investment securities rose due to increase in valuation of shares held. Net interest-bearing debt at the bottom increased JPY 6.1 billion to JPY 406 billion, mainly due to bond issuance and equity-to-asset ratio was 36%. Next, I will explain the business forecast. Please turn to Page 22. Revenue from operations is projected to be JPY 300 billion, a decrease of JPY 5 billion from the initial forecast. Operating profit is projected to be JPY 31 billion, an increase of JPY 1 billion from the initial forecast. Even though it exceeded the initial forecast by JPY 2 billion in the first half, we have factored in the deferral of expense from the first half. Ordinary profit is expected to grow JPY 1.5 billion to JPY 26 billion, and profit attributable to owners of parent is expected to increase JPY 7.7 billion to JPY 31 billion, reflecting the planned sale of the National Highway land in front of Shinagawa Station. Capital investment is expected to be JPY 127.1 billion, a decrease of JPY 14.9 billion from the initial forecast as shown in the lower part of the page. ROE is expected to be 8.1%, 1.9 percentage points higher than the initial forecast of 6.2%. Next, I will explain the forecast for each segment. Please turn to Page 24. In the Transportation segment, we have revised the forecast for revenue from operations upward by JPY 500 million, reflecting the strong performance of the railway operations and the effect of fare revisions for Keihin Keikyu bus and operating profit has been revised upward by JPY 1.1 billion, reflecting lower administrative costs. Page 26 shows the forecast for the number of passengers carried in the railway operations. Regarding the year-on-year growth rate, we have revised the forecast for all lines to 2.5%, up 0.6 points from the initial forecast and the forecast for the 2 Haneda Airport stations to 7.1%, up 1.1 points from the initial forecast. Please turn to Page 27. In the Real Estate segment, revenue from operations and operating profit in the real estate sales operations have been revised downward by JPY 6.3 billion and JPY 1.1 billion, respectively. This is to reflect the postponement of the sale of rental offices in Tokyo to the next fiscal year or later and the revised sales plan based on the sales progress of some condominiums in the first half. Please turn to Page 28. In the Leisure Services segment, revenue from operations and operating profit have been revised upward by JPY 500 million and JPY 800 million, respectively, reflecting the strong performance of business hotel operations. We have increased ADR by 5% from the initial forecast and the full year occupancy rate by 1.9 points to 90.6%. Please turn to Page 29. In the Retailing segment, revenue from operations has been revised downward by JPY 600 million to reflect the partial closure of supermarket stores in the second half, but operating profit has been revised upward by JPY 200 million due to strong sales of new tenants in shopping centers. Please turn to Page 30. As I explained in the summary at the beginning, with the upward revision of the full year forecast for net profit, we plan to increase the annual dividend forecast by JPY 12 from the original forecast to JPY 46 per share, in line with our policy for the dividend payout ratio of around 40% as indicated in the management plan. That concludes my presentation.

I am Kawamata, President of the Keikyu Corporation. I'll explain the progress of the 20th integrated management plan, which was updated in May this year. Please refer to the screen or your presentation document. First, please refer to Page 32 for strengthening the real estate business strategy. Keikyu SMTB Asset Management was launched in October with an equity investment from Sumitomo Mitsui Trust Bank and Sumitomo Mitsui Trust Real Estate Investment Management in Keikyu Asset Management, which was established last year. By strengthening cooperation among the companies, we will make steady progress in acquiring permits and licenses to start managing privately placed REITs in the second half of FY 2026. Next is about structure improvement. The corporate real estate strategy department, which is responsible for real estate strategy was launched in April, and the number of staff has been increased to strengthen the formulation, promotion and overall coordination functions of the real estate strategy. As shown in the lower right of the page, we have integrated the functions of information, procurement and development of sites and centralized all functions necessary for the real estate turnover business. This will allow us to centrally manage asset information of the entire group, study and promote the best utilization measures to maximize returns and aim for sustained improvement in capital profitability. Page 33 is also about strengthening real estate business strategy, specifically about the acquisition of shares in GLIP, a local company in Yokohama, which is engaged in the investment condominium business by acquiring shares of GLIP, which has functions and purchasing capabilities that we did not have in the real estate field, and excels in condominium development in size ranges where we have previously been less competitive. We aim to expand the scope of our housing-related business and further strengthen our real estate business strategy. First, our subsidiary, Keikyu Real Estate, will acquire GLIP's shares and make it a wholly owned subsidiary. Then Keikyu Real Estate and GLIP will share know-how through personnel exchange, integrate operations and unify purchasing information to raise the group's skills in the real estate field, ability to address issues and ability to make proposals to customers. The chart below illustrates an image of the growth in the number of condominiums for sale and investment condominiums after the consolidation. We will undertake property management of investment condominiums after delivery to increase the total number of rental units managed by the group and increase related fee income. Next, please turn to Page 34. In October, we announced the agreement with Keisei Electric Railway with which we operate through services via the Toei Asakusa for collaboration to realize a sustainable railway operation and enhance the value of the areas along our railway lines. We are going to collaborate on the following 3 points. First, in railway operations, we will study next-generation operating systems based on technological development, including shared ground equipment and trains. In order to ensure the sustainability of railway business, we will jointly promote initiatives to enable efficient railway transport in the future through consideration of sharing infrastructure and know-how. As part of these efforts, we will also explore the possibility of sharing new fair charging limited express chains, which Keisei plans to launch operations in FY 2028. Second point is about the enhancement of the value of the areas along our railway lines. The 2 companies will strengthen mutual passenger transportation and attraction to and from key tourist destinations and commercial facilities along our railway lines. We expect this will increase the opportunities for passengers to use both railways and encourage them to rediscover the appeal of the areas along the lines. We aim to boost interaction among visitors and ultimately increase the population to reside there. Through these initiatives, we seek to enhance the value of the railway areas across the broader network from Keikyu to Keisei. The third point is about shareholder benefits. By enabling reciprocal use of the shareholder benefits, we aim to create incentives for using both companies' railway and commercial facilities. Through this initiative, we seek to expand our shareholder base beyond the areas along our railway lines. Please turn to Page 35. This table shows the progress of development projects in each area along the railway line. The projects shown in red will be explained in detail later. New projects added to the list are #5, Kamata Ku-chome project in Ota Ward,, which includes a business hotel and #11, Oma Keikyu Aburatsubo Marine Park site redevelopment projects. Let me move on to Page 36 for the Takanawa 3-chome development, which started construction in May this year. Construction is progressing smoothly toward its opening in FY 2029. The total project cost has not changed from the amount announced in May. In October, we concluded a syndicated loan agreement for approximately JPY 150 billion, and this has already been incorporated in the cash allocation of the management plan announced in May. Other than that, we plan to secure the development fund through securitization and sale of assets in line with the real estate strategy as well as the gain on transfer of the land interest to Toyota Motor Corporation. Also, we have established a new company, KQTG Energy Connect in July as a joint venture with Tokyo Gas to supply heat to the development areas, including Takanawa 3-chome. Please turn to Page 37 for B Gate Yokohama Kannai, which will open next March in the former Yokohama City Hall District in front of JR Kannai station. It will be connected to the adjacent Yokohama Stadium and will have large-scale entertainment functions such as dive viewing of sports events, commercial and hotel functions, offices, university and a new industry creation center to create a city was the source of new excitement for innovation. The company will also be involved in the proof of concept of the green slow mobility as a transportation operator. We intend to contribute to enhancing circulation in the surrounding area through creating a flow of people by the development and providing mobility. The bottom of the page describes the redevelopment of the former Keikyu Aburatsubo Marine Park site. In October, we announced an agreement with Mitsui Fudosan to promote the study of a business plan for a new resort area to enhance the attractiveness of the Miura Peninsula. We are planning a resort hotel that will maximize the attractiveness of the local area by combining Mitsui Fudosan's expertise in hotel and resort development with our expertise in area management activities. In addition, in the Miura Peninsula, we leased hotel and the former hotel site we operated and external operators are developing and managing resort hotels on these sites. We will continue to promote co-creation of the value of local areas with external operators. Please turn to Page 38 for the strategy for business hotels. We are currently reorganizing our guest room portfolio in response to the growing domestic and inbound demand for accommodation. As shown in the pie chart, we are shifting from a business-oriented portfolio to increasing rooms for inbound and domestic leisure demand, aiming to bring it in line with the business use segment through renovations and new openings. As part of this strategy, construction of a mixed-use facility began in October in the Kamata area near Haneda Airport, featuring a new hotel with 237 rooms. It is scheduled to open in FY 2027. Next, please turn to Page 39 for the progress of sustainability initiatives. We have switched the electricity used in the operations for all railway lines to renewable energy sources in FY 2024, and this has significantly reduced the greenhouse gas emissions in the group to achieve the interim target toward carbon neutrality early. In order to further accelerate efforts to realize a decarbonized society, the interim target was revised upward to a 70% reduction by FY 2035 compared with FY 2019. That is all about the progress of the management plan. With the first half completed, we have reached the midpoint of the 3-year medium-term management plan covering FY 2024 to FY 2026. We will continue to drive business structure reforms without easing our efforts, aiming to achieve our management targets. We will continue constructive dialogue with you to incorporate feedback into our management and to further strengthen each of our initiatives. Thank you.