BRIDGE REPORT
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 Habu-cho, Kishiwada-shi, Osaka
Business
Description
Fuji Corporation provides a diversified range of real estate related services, including residential property for sales, housing distribution, effective land utilization, property leasing and management and custom housing in Osaka and Kobe regions, and in northern Wakayama.
Year-end
March
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥686 36,100,184 shares ¥24.765 billion 10.9% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥26.00 3.8% ¥83.10 8.3x ¥729.26 0.9x
*Stock prices as of the close on May 13, 2015. Number of shares issued at the end of the most recent quarter excluding treasury shares.
 
Consolidated Earnings Trends
Fiscal Year Sales      Operating Income Ordinary Income Net Income EPS DPS (¥)
March 2012 71,594 4,928 4,903 2,767 78.29 20.00
March 2013 66,047 3,809 3,761 2,268 64.07 20.00
March 2014 86,363 5,806 5,660 3,261 91.13 26.00
March 2015 79,594 4,361 4,322 2,756 76.46 26.00
March 2016 Est. 88,000 4,800 4,600 3,000 83.10 26.00
* Estimates are those of the Company.
 
This Bridge Report provides details of Fuji Corporation Ltd. and its fiscal year March 2015 earnings results.
 
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 the entirety of Osaka Prefecture (where the Company is based), part of Hyogo Prefecture between Osaka and Kobe, and the northern part of Wakayama Prefecture. 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 system" 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 utilization of land, sales of rental apartments for sale to individual investors, property leasing and management services, and custom made homes.

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 Property for Sale (37.7% of Fiscal Year March 2015 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 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 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 on 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 (31.9% of Fiscal Year March 2015 Total Sales)
Sales of refurbished used residential properties 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. In addition, sales of small-scale newly constructed detached homes (spec new homes) allows the Company to satisfy a wide range of customer needs that cannot be completely met with customized homes or large-scale development projects. In the southern part of the Osaka Prefecture (Izumi Sano, Kumatori, Kaizuka, Kishiwada) small-scale development projects have been conducted with homes being sold at reasonable prices. This business is also able to provide spec new homes at the lower end of the price zone that cannot be offered in the residential properties for sale business.
 
Effective Land Utilization Business (16.3% of Fiscal Year March 2015 Total Sales)
Contract construction for leased properties and sales of rental apartments for sale to individual investors are conducted in this business. Contract constructionis 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 apartments 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 (13.4% of Fiscal Year March 2015 Total Sales)
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 (0.7% of Fiscal Year March 2015 Total Sales)
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
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 apartments for sale to individual investors, and property leasing and management, as well as to cultivate synergies among 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 Renovation Business of Used Residential Properties
The "Kaizo-kun", renovation business of used residential properties, 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 it to conduct the three main functions of the residential property sales process, namely "acquisition," "renovation," and "sales" of used residential properties. The Company boasts not only of its ability to gather information by local community-based management, but also of its ability to renovate used residential properties into extremely marketable ones by its manualized procedures for renovation. In addition, a service called "Fuji Home Bank" has been created where coordination with judicial scriveners is conducted to purchase properties in case the inheritance registration is yet to be completed. This service also offers the convenience of paying the inheritance registration fees from the sale proceeds of properties.
 
 
Ability to Increase Returns by Proposing Effective Land Utilization
Fuji does not only provide 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.
 
 
New Midterm Business Plan (From Fiscal Year March 2016 to 2019)
 
Fuji Corporation has created a new midterm business plan including earnings targets and covering the coming four years. As to the residential properties for sale business segment, the business plan calls for the turning of the large development of detached housing projects into earnings drivers, and the resuming of sales of condominiums, which had been curtailed due to weak supply and demand conditions. 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. Within this business plan, Fuji has established sales and ordinary income targets of ¥102.0 and ¥6.0 billion to be achieved by fiscal year March 2019.
 
 
Premises for Profit in the Midterm Business Plan
Fiscal Year March 2016 Plan
Fuji received strong orders for rental apartments for sale to individual investors (100 buildings) during fiscal year March 2015 and its effective land utilization business sales rose by a large margin. Also, the supply of custom homes increased as the impact of the consumption tax hike abated. Moreover, sales of the property leasing and management business rose on the back of higher sales of rental apartments for sale to individual investors and condominiums for sale. At the same time, there is a modest prospect that increases in used condominium prices are expected to contribute to restraint in the acquisition of properties.
 
Fiscal Year March 2017 Plan
In the residential properties for sale business, full-scale sales of high-end large-scale land for residential properties are expected to start from fiscal year March 2016 and benefit from a rush to purchase ahead of another impending hike in the consumption tax. Sales volumes of used homes are expected to grow on the back of an expansion in Fuji's sales area. Furthermore, delivery volumes of subleased rental apartment buildings sold to individual investors are expected to continue to increase in the property leasing and management business.
 
Fiscal Year March 2018 Plan
In addition to the arrival of delivery of detached homes for sale as part of large development projects in Osaka Prefecture and the area between the cities of Osaka and Kobe, the restart of sales of condominiums, which had been deliberately curtailed due to weak demand, in a prime location in front of Japan Railways Wakayama Station, is also expected in the residential properties for sale business. Moreover, sales and profits are expected to steadily grow on the back of deliveries of rental apartments for sale to individual investors in the property leasing and management business. At the same time, depressed demand in the wake of the rush to purchase ahead of a hike in the consumption tax is expected to contribute to a decline in sales of used residential properties from the previous term.
 
Fiscal Year March 2019 Plan
Deliveries of condominiums for sale in prime locations are expected to begin contributing to sales in the residential properties for sale. The expansion of the sales territory for used residential properties services to Hyogo and Nara Prefectures is expected to contribute to growth in sales. Moreover, sales are expected to grow also in property leasing and management services, due to an increase in profit-making properties in used residential property assets services, and due also to an increase in properties for management and subleases, as a result of deliveries of rental apartments for sale to individual investors.
 
 
 
Fiscal Year March 2015 Earnings Results
 
 
Sales, Ordinary Income Fall 7.8%, 23.6% Year-On-Year
Fuji's sales performance was basically in line with initial estimates and declined by 7.8% year-on-year to ¥79.594 billion. While the high levels of order backlogs at the end of the previous term contributed to increases in sales of the effective land utilization business segment, declines resulting from the rush to purchase ahead of the consumption tax hike in the previous term and from restraint in condominiums for sale caused the residential property for sale business to decline. On the other hand, order backlog, which reflects sales conditions, grew by 4.8% year-on-year on the back of favorable trends in the housing distribution business, due to increased orders for used residential property, and effective land utilization business, owing to favorable sales of rental apartments to individual investors, despite a decline in the residential property for sale accompanying the decreased number of new condominiums for sale resulting from restraint in supplies. In addition, order backlog at the end of March, which is a leading indicator of sales, rose by 16.4% year-on-year due to favorable sales of custom homes and rental apartments for sale to individual investors.

Ordinary income also remained in line with initial estimates and declined by 23.6% year-on-year to ¥4.322 billion. Ordinary income declined in the residential properties for sale business segment, due to decreased supply of new condominiums for sale, as well as in the housing distribution business segmented, caused by the decreased supply of high profit margin generating spec new homes. However, ordinary income grew in the effective land utilization business segment due to increased sales, and also in the property leasing and management business segment. Gross income margins declined by 0.2% points year-on-year. Due in part to the decline in sales, sales, general and administrative expenses rose by a small margin from the previous term and operating income declined by 24.9% year-on-year to ¥4.361 billion.
 
 
Sales and operating income of the residential property for sale business fell by 27.6% and 44.1% year-on-year to ¥30.024 and ¥2.442 billion respectively due to lower sales of custom designed homes and condominiums for sale. Furthermore, new orders declined by 4.8% year-on-year to ¥30.623 billion, due to the influence of a decline in condominiums for sale from 465 in the previous term to 264 in the current term and a slight increase in custom designed homes from 528 to 620 over the same period. Order backlog rose by 3.0% year-on-year to ¥20.560 billion.

Housing distribution business sales and operating income declined by 6.3% and 38.0% year-on-year to ¥25.423 and ¥0.677 billion respectively. This decline in sales and profits is attributed to the influence of lower sales of high profit margin new detached homes (spec new homes). Increases in orders for used homes rose from 1,372 in the previous term to 1,391 in the current term on the back of a recovery in purchases of used homes allowed sales of housing distribution to rise by 1.3% year-on-year to ¥26.695 billion. Order backlog rose by 52.1% year-on-year to ¥3.715 billion due to the contribution from a rise in used homes.

Sales and operating income of the effective land utilization business rose by 78.1% and 90.0% year-on-year to ¥12.951 and ¥1.280 billion respectively. These increases in sales and profits are attributed to successful deliveries from the high levels of order backlog. Sales of rental apartments for sale to individual investors trended strongly and allowed new orders to rise by 87.8% year-on-year to ¥11.014 billion. The increase in rental apartments for sale to individual investors allowed order backlog to rise by 34.2% year-on-year to ¥14.756 billion.

Aside from the above mentioned items, sales and operating income of the property leasing and management segment rose by 9.9% and 49.7% year-on-year to ¥10.674 and ¥0.927 billion respectively due to increases in used leasing properties linked to effective land utilization business segments, and in managed properties following the deliveries of condominiums for sale, as well as an increase in used rental properties under used residential property assets services. In addition, custom housing business, which is in the startup phase, saw a 32.1% year-on-year decline in sales to ¥520 million. This segment, however, saw a turn to profits from losses recorded in the previous term and recorded operating income of ¥50 million on the back of closure done in the previous term of model home exhibits, which are not expected to contribute to development of new clients.
 
 
 
 
New orders and order backlogs are both expanding.
 
 
Orders during the fourth quarter of fiscal year March 2015 fell slightly below Fuji's own plans, but they were able to rise over the previous quarter. Despite estimates for growth, weakness in the economy seems to have caused custom designed homes and used residential property orders to decline.
 
 
Total assets rose by ¥8.106 billion from the end of the previous term to ¥93.958 billion at the end of March 2015 due primarily to growth in inventories of ¥5.984 billion. The main components of inventories include real estate for sale, real estate for sale in progress, and real estate for development, which rose from ¥17.44, ¥13.24 and ¥35.38 billion at the end of the previous term to ¥19.27, ¥15.71 and ¥37.08 billion respectively at the end of the current term. Interest-bearing liabilities rose by ¥5.837 billion. Retained earnings also rose and allowed similar levels of equity ratio as the previous term end of 28.0% to be maintained.
 
 
Increases in tax payments contributed to an increase in the net outflow of operating cash flow. At the same time, increases in acquisition of noncurrent tangible assets contributed to an expansion in the net outflow of investing cash flow. Increases in long-term loans, on the other hand, contributed to a greater increase in the net inflow of financing cash flow.
 
 
Fiscal Year March 2016 Earnings Estimates
 
 
Estimates Call for Sales, Ordinary Income to Rise 10.6%, 6.4% Year-On-Year
Fuji Corporation's estimates call for sales and ordinary income to rise by 10.6% and 6.4% year-on-year to ¥88.0 and ¥4.6 billion respectively during fiscal year March 2016. Growth in sales is expected to be driven by an increase in the custom designed home supplies arising from the disappearance of the influence of the consumption tax hike, and an increase in rental apartments for sale to individual investors on the back of strong order backlog at the end of fiscal year March 2015, and continued growth in rental earnings. A conservative outlook has been adopted for purchases of used condominiums for sale due to increases in pricing. Profits are expected to grow against the backdrop of rising sales in the residential property for sale segment, effective land utilization segment, and property leasing and management business segment. Meanwhile, a decline in sales of high profitability condominiums for sale is expected to contribute to a rise in the sales composition of rental apartments for sale to individual investors, and thereby a slight decrease in profit margin. A full year dividend payment of ¥26 per share is expected (¥13 dividends at the ends of both the first half and full year).
 
 
Estimates call for sales and operating income of the residential property for sale business segment to rise by 8.5% and 1.1% year-on-year, based upon the outlook for custom designed homes and condominium for sales of 663 and 256 units (554 and 361 units in the term just ended) respectively. Housing distribution sales and operating income are expected to rise by 1.4% and 15.1% year-on-year respectively on the back of sales of used residential properties of 1,335 units (1,361 units in the term just ended). Sales and operating income of the effective land utilization business are expected to rise by 33.2% and 18.7% year-on-year respectively on the assumption of orders for 90 rental apartments for sale to individual investors (100 in the term just ended) and 41 units of contract construction orders (48 in the term just ended). Property leasing and management business segment sales and operating income are expected to rise by 10.8% and 5.7% year-on-year respectively based upon the outlook for the units under management to grow from 20,511in the fiscal year just ended to 22,900 in the coming erm.
 
 
Future Remarkable Points
 
New orders and order backlog (at end-March), which are a leading indicator for sales, rose by 4.8% and 16.4% respectively during fiscal year March 2015 due in part to strong order booking for custom designed homes and rental apartments for sale to individual investors. These increases suggest that earnings will expand strongly in fiscal year March 2016. However, slight uncertainties remain in play given that orders during the fourth quarter of fiscal year March 2015 fell below estimates, due in part to weakness in the economic recovery and in demand for new detached homes and used residential properties. Fuji Corporation will endeavor to expand sales of new detached homes and has focused its efforts to build up superior inventories since the latter half of fiscal year March 2014. A number of large-scale housing projects are scheduled to be implemented in the near future, making the superior inventories highly profitable and, therefore, an early recovery in demand for residential properties is expected. "Abenomics" (Economic stimulus measures adopted by the current Prime Minister Shinzo Abe) is expected to contribute to a recovery in corporate earnings and wages, which in turn are expected to lead to a recovery in demand and sales of new detached homes.

At the same time, the current dividend yield of about 4% ranks highly amongst companies listed on the Tokyo Stock Exchange First Section. Fuji is considering the potential to implement a comprehensive shareholder return policy that also includes incentives other than simple dividends. Close attention should be paid to the new midterm business plan and its ability to grow earnings and implement a more comprehensive shareholder return policy.
 
Disclaimer
This report is intended solely for informational purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or 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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