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Edited Transcript of 1925.T earnings conference call or presentation 8-Nov-19 10:59am GMT

Q2 2020 Daiwa House Industry Co Ltd Earnings Presentation

Osaka Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Daiwa House Industry Co Ltd earnings conference call or presentation Friday, November 8, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Presentation

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Unidentified Company Representative, [1]

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We would like to present our financial results using the presentation material titled Financial Highlights for Fiscal Year 2019 Second Quarter.

Net sales stood at JPY 2,179.3 billion, increased by 9.9% year-on-year; operating income, JPY 209.3 billion, up by 10.4%; ordinary income, JPY 207.9 billion, up by 8.4%; and net income attributable to owners of the parents, JPY 147.3 billion, up by 12.1%.

In the fiscal 2019 second quarter, the Commercial Facilities business and Logistics business and Corporate Facilities business have performed steadily, and sale of development properties increased. As a result, net sales, operating income, ordinary income and net income marked record numbers.

Net sales grew for the 10th consecutive year. Operating income, order income and net income grew for 11th consecutive year.

As capital procurement that will contribute to improving capital efficiency and maintaining financial stability, in September 2019, we conducted a public offering for hybrid bonds in amount of JPY 150 billion. As a result, the equity ratio at the end of September 2019 was 0.58, and after accounting for a key rating capitalization of 50%, the DE ratio stood at 0.52.

In light of the first half results, we have revised upward earnings plan for the year ending March 2020. Net sales was revised up by JPY 100 billion to JPY 4,350 billion from initial plan of JPY 4,250 billion. Operating income was revised up by JPY 5 billion to JPY 383 billion. Ordinary income up by JPY 2 billion to JPY 378 billion. And net income up by JPY 1 billion to JPY 253 billion.

The Daiwa House Global REIT, which is sponsored by Daiwa House, started operation at the end of September 2019.

Please turn to Page 1. I have already explained earnings figures shown in the top area. Earnings per share were JPY 222.02, up by 12.3% year-on-year. The bottom table is the overview of group companies.

Page 2 illustrates our analysis of major factors for changes in net sales and operating income. The top half shows analysis of factors contributing to the increase in net sales, which grew JPY 196 billion year-on-year. Logistics business and Corporate Facilities business increased JPY 53.4 billion. Condominiums business increased JPY 35.8 billion. Sale of development properties increased JPY 32.2 billion. Commercial Facilities business increased JPY 22.7 billion. Existing Homes business increased JPY 15.3 billion.

A major breakdown for impact on other businesses and others is revenues of JPY 3.5 billion in the Single-Family Houses business and JPY 4.6 billion in the Rental Housing business and JPY 18.1 billion in Environment Energy business.

The bottom half shows factors contributing to the increase in operating income, which grew JPY 19.7 billion year-on-year. Top line growth brought JPY 31.9 billion increase. Increased income from sale of development properties contributed JPY 3.9 billion. Cost-of-sales ratio, excluding the sale of development properties, deteriorated 0.5 percentage points and resulting in decreased income of JPY 8.5 billion. Selling, general and administrative expenses increased JPY 7.6 billion.

Page 3 indicates segment-specific results for sale of development properties.

Pages 4 and 5 show the profit and loss summary. Numbers are reported earlier. Operating income margin, excluding the sale of development properties, has improved by 0.2 percentage points from 7.6% to 7.8%. Major companies contributing to sales increase are: Daiwa House on a nonconsolidated basis by JPY 35.9 billion year-on-year; Daiwa Living Group by JPY 17.4 billion; and Stanley-Martin Group by JPY 6.5 billion. Major companies contributing to operating income increase are: Daiwa Living Group by JPY 3.4 billion year-on-year.

Next, let me present the balance sheet. Please look at the top table on Page 6. Total assets increased JPY 120.5 billion since the end of March 2019 to JPY 4,454.5 billion. Current assets increased JPY 33.7 billion to JPY 1,954.7 billion, mainly due to increases in inventory. Noncurrent assets increased JPY 86.7 billion to JPY 2,499.7 billion. Total inventory shown in the bottom left stood at JPY 981.4 billion, up by JPY 25.8 billion. Total property, plant and equipment in the bottom right increased JPY 83 billion on the back of steady progress investments in real estate development and so on.

Page 7 shows liabilities and net assets. Liabilities stood at JPY 2,716.7 billion, increased by JPY 26.4 billion since the end of March 2019. Net assets were JPY 1,737.7 billion, up by JPY 94 billion. Interest-bearing liabilities shown in the bottom table increased JPY 210.4 billion to JPY 988.9 billion at the end of September 2019.

Page 8 states the breakdown of investment real estate. The book value of investment real estate was JPY 1,077.9 billion at the end of March 2019 and JPY 1,123 billion at the end of September 2019, increased by JPY 45.1 billion in 6 months. The book value of real estate available for sale was JPY 763.5 billion, of which properties being rented were JPY 269.1 billion and not being rented, JPY 494.3 billion.

The breakdown of real estate available for sale by type is indicated in the top right. Logistics facilities were worth JPY 548.6 billion and continue to be our core investment. The bottom tables show the breakdown of rented real estate available for sale, rented profit-earning real estate and NOI yield. NOI yield of real estate available for sale was 5.7%, remaining same level at the end of March 2019. NOI yield of profit-earning real estate was 12.3%, deteriorated by 0.5 percentage points compared to the end of March 2019.

Page 9 shows earnings forecast for fiscal year ending March 2020. As we highlighted at outset, we have revised upward earnings plans for year ending March 2020. The bottom part shows projected earnings per share of JPY 381.05.

Page 10 shows the plan for sale of development properties.

Page 11 illustrates sales and operating income by segments for fiscal year 2019 second quarter. The top half shows sales. Sales increased in all segments, except in the Rental Housing business. The bottom half shows operating income. Operating income increased in all segments, except in the Single-Family Houses business and Rental Housing business.

Page 12 and 13 show forecast of earnings by segments. Based on the first half earnings progress and recent orders received trends, we revised our plans for each segment.

Regarding sales shown in top table, we revised downward in the Rental Housing business and revised upward in Existing Homes business, the Commercial Facilities business, Logistics business and Corporate Facilities business and the Other businesses.

Regarding operating income, we revised upwards in all segments, except in the Rental Housing business.

From Page 14, we will explain the status of each segment. First, we will explain the Single-Family houses business. Although Daiwa House on a nonconsolidated basis revenues decreased in Japan, sales of houses by Stanley-Martin in the U.S.A. were favorable as net sales increased by JPY 3.5 billion. Declining cost-of-sales ratio for local group in Australia resulted in operating income declining by JPY 2.6 billion. Based on first half results, we revised our full year plan for operating income upward by JPY 4 billion.

Page 15 states Rental Housing business. Net sales from rental management increased by JPY 16.7 billion, thanks to the increased number of managed units. However, the decrease in contracted construction and the sale of development properties resulting in segment revenues decreasing by JPY 22.5 billion. Due to the ongoing sluggish order environment, we revised full year plans downward by JPY 65 billion for net sales and by JPY 11 billion for operating income. The middle shows the average sales per building for Daiwa House on a nonconsolidated basis. The per building price is increasing, thanks to continued shift from 2-story products to 3-story products.

The bottom table shows the management of units and occupancy rates of the Rental Housing business. Management of units were 586,000, including 544,000 lump-sum contracted units. Occupancy rate at the end of September 2019 was 95.8%, remaining the same level as previous fiscal year.

Page 16 states Condominiums business. Mainly thanks to the higher sales of properties in Japan compared to the previous fiscal year, sales increased JPY 35.8 billion and operating income increased JPY 2.6 billion. Based on first half results, we revised our full year plan for operating income upward by JPY 4 billion. The middle (sic) [bottom] part shows the stock of completed condominiums, which stood at 743 units, including 34 units with orders recognized at the end of September 2019.

Page 17 states Commercial Facilities business. Due to the firm transition in the contracted construction business and the sale of development properties, as a result, sales increased by JPY 30.2 billion and operating income increased by JPY 2.2 billion. First half orders received were favorable, particularly for hotels and multifunction commercial facilities. As a result, we revised full year plans upward by JPY 20 billion for net sales and by JPY 1 billion for operating income.

Page 18 states Logistics business and Corporate Facilities business. Daiwa House on a nonconsolidated basis recorded orders received for logistics facilities, [trends] and facilities related to Olympics and Paralympics and sale of development properties increased. As a result, sales increased by JPY 105.4 billion, and operating income increased JPY 11.2 billion. Due to the possibility of declining profitability for certain large-scale construction project overseas, we have recorded losses currently being consumable as cost of sales. We revised full year plans upward by JPY 90 billion for net sales and by JPY 11 billion for operating income.

Pages 19 and 20 show Daiwa House's results and forecast of orders received and sales by segment on a nonconsolidated basis for this fiscal year. In light of the first half results, we have revised our forecast of orders received and sales for the full year.

Page 21 illustrates the progress of the investment plan in the top table and our cash flow stands as shown in the consolidated statement of cash flows in the bottom table.

Page 22 shows capital investments and depreciation expenses.

Page 23 illustrates the progress of overseas business. The top table shows a summary of earnings by area.

This completes the presentation.