| WADAKOHSAN CORPORATION (8931) |
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Company |
WADAKOHSAN CORPORATION |
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Code No. |
8931 |
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Exchange |
JASDAQ |
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Chairperson |
Norimasa Wada |
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President |
Takero Takashima |
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Address |
4-2-13, Sakaemachidori, Chuo-ku, Kobe-shi, Hyogo |
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Year-end |
February |
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URL |
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* The share price is the closing price on October 25, 2017. The number of issued shares in parentheses is obtained by deducting the number of treasury stocks from the number of shares issued at the end of the latest quarter. ROE, BPS are actual results at the end of the previous term.
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* The forecasted values were provided by the company.
This Bridge Report presents WADAKOHSAN's earnings results for the first half of fiscal year ending Feb. 2018 and the forecast for fiscal year Feb. 2018. |
| Key Points |
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| Company Overview |
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[Business philosophy - symbiosis (living together) your way of living contributes to others' happiness]
The corporate philosophy is "symbiosis," where your way of living contributes to the happiness of others, values the connections between people and supports one another. Based on this idea, the company holds up "PREMIUM UNIQUE" as its product concept, and aims to create unique places to live in that fit each customer's own way of life, while responding to the feelings of each person who resides there.
[Corporate history]
The property leasing business was established in Kobe-shi, in January 1899. In December 1966, the business was incorporated under the name of WADAKOHSAN Ltd., and in September 1979 it was reorganized into WADAKOHSAN CO., Ltd. having achieved success in selling condominiums wholesale, in March 1991 through the company's own brand, "WAKOHRE," the company regularized its condominium business. Following the Great Hanshin Earthquake in January 1995, the company engaged in projects developing superior buildings for earthquake recovery, and contributed to local reconstruction. In September 2004, the company began trading stocks over-the-counter (becoming listed on the JASDAQ in December). In June 2007, the company reached a milestone, having constructed 10,000 residences with the "WAKOHRE" series as the foundation, and in March 2008 it established a detached house business promotion office, and regularized its wooden detached housing business.
[Business segments]
The business segments are divided into sales of condominiums developed for the "WAKOHRE" brand, sales of detached houses developed for the "WAKOHRE-Noie" brand (the sales for both businesses are entrusted to external enterprises), other real estate revenue from dealing in the sale and development of real estate for investment and residential land, property leasing revenue from the lease of condominiums (the rental condominium brand "WAKOHRE-Vita" and others), stores, parking lots etc., and "others," including things like insurance agency fees not included in the report segment. The sales composition for the term ended Feb. 2017 puts the condominium sales at 84.1%, sales of detached houses at 4.3%, other real estate sales revenue at 3.8%, property leasing revenue at 7.5%, and others at 0.3% (the segment profit composition puts condominium sales at 70.7%, sales of detached houses at ▲0.2%, other real estate sales at 3.1%, property leasing revenue at 24.8%, and others at 1.6%).
Condominium sales business
The main areas are the Kobe and Akashi areas (around Kobe-shi and Akashi-shi in Hyogo Prefecture), the Hanshin area (Ashiya-shi, Nishinomiya-shi, Amagasaki-shi, Itami-shi and Takarazuka-shi in Hyogo Prefecture), and the focus is on developing medium scale condominiums with 30-50 units whose market has low competition, under the "WAKOHRE" brand with leading condominium businesses. In addition to a sales strategy that focuses on highly popular areas and supplies different types of condominiums in the same area, thereby realizing diversified needs of consumers and achieving high sales efficiency. Strengths include establishing an efficient business model with unique local community strategy, such as condominium gallery strategy that suppresses selling costs by handling multiple properties at the same time in one permanent condominium gallery. In recent years, the company is pursuing new possibilities by responding to large-scale projects and expanding to Hokusetsu area in Osaka Prefecture and Himeji-shi in Hyogo Prefecture, which are adjacent to Kobe and Hanshin.
  Detached house sales business
Since 2007, the company has been developing around 10 houses with the "WAKOHRE-Noie" brand, in Kobe-shi and further west. From the large amount of site information the company is able to gather, there are many properties suitable for sale for detached house lots in terms of location, area, and site shape. In addition, where the business period for condominiums is just under two years, these projects can be as short as one year, meaning that with high capital turnover and they can be used to fill the gaps of the period completed the condominium construction. Utilizing design and planning abilities that take the surrounding environment into consideration, cultivated by the work in condominiums, the company aims to differentiate itself from traditional "power builders."
Other real estate sales business
The company handles planning, development and sales (of single buildings) of real estate for investment like rental condominiums, and the sale of residential land and land for industrial use. As well as shouldering the function of effective utilization of property information, revenue from selling off lease properties (inventory assets) that accompanies property handover is also included in this segment. In order to strengthen sales of single rental housing buildings aimed at investors, the company is carrying out a capital and business partnership with The Japan Living Service Co., Ltd., which is listed on the second section of the Tokyo Stock Exchange, and whose specialty is mediation when acquiring sites or selling off property.
Property leasing business
With its main focus on residential properties (about 75% share of the entire leasing assets), the company also manages stores and offices, parking lots, self-storage and others. As a business that can maintain a stable cash flow, in an industry that tends to be strongly influenced by condominium market conditions, since its founding the company has continued to contribute to the stability of revenue. Its basic strategies are to assure stable revenue by improving the occupancy rate (the rate of tenants moving in), and to maintain and improve the quality of its portfolio through movement of property. With the residences, keeping in mind the movement of property after a fixed period of time has expired, the asset composition is focused on 200-300 million yen properties, with many hopeful buyers amongst high net worth individuals. The company maintains an occupancy rate of 95%. In addition, by managing assets and liabilities appropriately, it also aims to reduce the risk of lengthening investment return periods, and the risks associated with assets becoming excessive. The yield of each property is high, at 9-10%, and it aims to cover the burden of indirect expenses with the stable revenue from the leasing operations.
 Strengths  Japan's foremost residential area as their region of business
They meet the high demand for housing by making Japan's foremost residential area, area among Kobe, Akashi and Hanshin, their main area of business while establishing a comparative advantage with their information capabilities; they even have a reputation for building a community entrenched in the region.
 Prevailing WAKOHRE brand in Kansai
Their WAKOHRE brand is prevailing in Kansai, and the power of the brand lets them hold their own against other major condominium developers. In the 18th (2015) Condominium Brand Questionnaire Survey, conducted by the Osaka headquarters of Nihon Keizai Shimbun Inc., they ranked 5th place in both the Individuality and Familiarity brand sections.
 Maintaining sound finances via thorough risk management
They are maintaining sound finances via thorough risk management, have well-balanced transactions with financial institutions and remain stable. As a result, in their corporate history spanning over 110 years in the real estate industry, where many companies have gone out of business, they have only reported a deficit during fiscal year ended Feb. 2010 after being affected by the global financial crisis. They continue to have stable dividends.
 Successful in differentiating themselves from major firms, and having room for growth due to expand their business areas
Small and medium condominium businesses were eliminated in the Kinki region due to the real-estate recession after the global financial crisis, and only major real estate companies and railway real estate companies survived. However, since these real estate companies specialize in large-scale properties and properties along the railroads, there are not many cases where they compete in site acquisitions with WADAKOHSAN, who develops medium-scale condominiums with around 30-50 units. Meanwhile, WADAKOHSAN has its sights on further expanding its operations, making efforts to develop large-scale properties in the existing business area and expanding into Himeji-shi in Hyogo Prefecture and Osaka Prefecture(Hokusetsu area), which are next to their existing business area.
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| First Half of Fiscal Year February 2018 Earnings Results |
 Sales and ordinary income dropped 2.0% and 10.9% YoY, respectively.
Sales were 20,539 million yen, down 2.0% YoY. As large-scale condominium was handed over in the same period of the previous year, the sales of condominium units decreased 13.0% YoY, while the sales of other real estate, including wooden apartments for investment and residential land for vocational schools, increased 6.7 times YoY. Property leasing revenue was healthy, and consolidated sales were nearly equal to the initial estimate.Operating income was 2,377 million yen, down 8.0% YoY. The gross profit from sale of other real estate contributed, but the gross profit margin of condominium units declined because land prices and construction costs remained high and highly profitable real estates were sold in the same period of the previous year. However, profit exceeded the initial estimate, as SG&A expenses were lower than the estimate.  Condominium sales
Sales were 16,190 million yen, down 13.0% YoY, and segment income was 1,751 million yen, down 28.6% YoY. The company delivered 384 condominium units (down 29.9% YoY), including "WAKOHRE Kobe-Nakayamate The Prime (in Chuo-ku, Kobe-shi; a total of 19 units)," "WAKOHRE The Rokko Premium (in Nada-ku, Kobe-shi; a total of 21 units)," and "WAKOHRE Ikeda The Residence (in Ikeda-shi, Osaka; a total of 49 units)," but the number of condominium units delivered was declined because there were deliveries of large-scale projects in the same period of the previous year such as "WAKOHRE City Kobe Sannomiya (147 units)," "WAKOHRE Fukae-Ekimae Gardens (88 units)." The number of contracted units was 264, down 26.1% YoY, while the number of contracted units to be delivered was 733, up 3.7% YoY. The complete unit inventory was 20 (6 as of the end of the same period of the previous year)."WAKOHRE Kobe-Nakayamate The Prime (8 min. on foot from the "Motomachi" station of JR-Kobe Line)" has an advantage of the location at the center of Kobe-shi, and its delivery was completed in March 2017. "WAKOHRE The Rokko Premium (4 min. on foot from the "Rokko" station of Hankyu-Kobe Line)" is an expensive property located in an upscale residential area near the station, with its unit being priced at nearly 70 million yen (3 million yen/tsubo). Its sales progressed smoothly, and the delivery was completed in May 2017. "WAKOHRE Ikeda The Residence (10 min. on foot from the "Ikeda" station of Hankyu-Takarazuka Line)" is part of a project based on the regional expansion strategy, and the second building sold by the company in Ikeda-shi, Osaka. Its delivery was completed in March 2017.   Detached housing unit sales
Sales were 668 million yen, down 13.8% YoY, while segment loss was 7 million yen (a profit of 25 million yen in the same period of the previous year). The number of delivered houses decreased 3 YoY to 19, while the number of contracted houses increased 4 YoY to 23, and the number of contracted houses to be delivered rose by 8 YoY to 13. In July 2017, the company started selling "WAKOHRE-Noie Kobe-Kanokodai (in Kita-ku, Kobe-shi)," a large-scale detached housing units constituted by 90 units. "WAKOHRE-Noie Kobe-Kanokodai" is in a good location, 5 min. on foot from the "Dojo-minamiguchi" station of Sanda Line of Kobe Electric Railway, and boasts a heat insulation property about 1.5 times higher than that of conventional products, which is realized by "all houses high insulation and high airtight structure," and enriched amenities, including a space for a homemaker, which is useful for studying and homemaking, and a shoes storage room, which can be used for storing a stroller. The company started selling 28 units in the first term, and has sold 24 units so far. This is expected to contribute to the revenue in the second half.
Other real estate sales
Sales were 2,377 million yen (351 million yen in the same period of the previous year), and segment income was 511 million yen (a loss of 2 million yen in the same period of the previous year). The company delivered 13 pieces of real estate, including wooden apartments for investment, such as "WAKOHRE-Viano Kobe Katayama-cho 1-chome (in Nagata-ku, Kobe-shi; a total of 9 units)," and land for vocational schools. In detail, the company sold 4 pieces of land for development, etc. at 1,833 million yen, 3 pieces of wooden apartments for investment (28 units) at 280 million yen, and 6 pieces of other property at 265 million yen. "WAKOHRE-Viano Kobe Katayama-cho 1-chome" is an apartment composed of one-room rental units with a private area of 26.00 m2 or more. Its location is as good as 6 min. on foot from the "Nagata" station of the Kobe Municipal Subway. The surrounding area is replete with convenient facilities, including large-scale supermarkets, shopping streets, a ward office, and a municipal hospital. Another attractive feature is that residents can reach Sannomiya from the nearest station in 8 min.
Property leasing revenue
The revenue from the lease of real estate was 1,190 million yen, up 2.2% YoY, and segment income was 494 million yen, up 2.3% YoY. The occupancy rate of residential real estate was high, and the performance of stores and offices was healthy, too. In order to develop an optimal lease portfolio, the company plans to build rental housing and acquire nursing houses.
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| Fiscal Year February 2018 Earnings Estimates |
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(1) Business environment
Thanks to low interest rates and fund surplus due to the continued monetary easing, investors' willingness to invest in real estate remains strong. In the condominium market, there are some effects on the rise in selling prices as land prices and construction costs remain high in the Tokyo metropolitan area, but in the Kinki region, the price increase of new condominiums is gradual, and there is less concern over sale.According to the reference material of the company, the number of units supplied in the Kinki region in the first half of 2017 was almost flat compared with the same quarter of the previous year at 8,815, down 1.4% YoY. The ratio of contracted units in recent times exceeds 70%, which is used as a reference value to determine whether performance is good or not, and the supply amount in the second half is expected to be nearly equal to that in the same period of the previous year (amounting to 10,000 units). Average price per unit (37.09 million yen, down 2.7% YoY) and price per square meters (622,000 yen, down 0.2% YoY) remained flat or declined slightly. As for the area between Kobe-shi and Hanshin, the company supplied 707 condominium units (down 9.6% YoY) in Kobe-shi and 680 units (down 22.8% YoY) in Hyogo Prefecture in the first half of 2017. Average price per unit was 36.44 million yen (down 13.1% YoY) in Kobe-shi and 46.67 million yen (down 0.8% YoY) in Hyogo Prefecture. Price per square meters was 584,000 yen (down 6.4% YoY) in Kobe-shi, and 614,000 yen (unchanged YoY) in Hyogo Prefecture.  There is no revision to the full-year earnings forecast, and sales and ordinary income are estimated to increase 10.0% and 0.3% YoY, respectively.
Sales are estimated to be 34.5 billion yen, up 10.0% YoY. As for the sale of condominium units, which is its mainstay, the company plans to complete 24 condominium buildings and deliver 700 units, achieving sales of 27.4 billion yen, up 3.8% YoY. The sales of other real estate are projected to be 3 billion yen, up 153.1% YoY, due to the sale of land for development, small-sized rental apartments, etc. The company also plans to deliver 55 detached houses, earning sales of 1,850 million yen, up 36.3% YoY. Property leasing revenue is forecasted conservatively to be 2.2 billion yen, down 6.2% YoY.As for profits, the ratio of cost is estimated to augment mainly for the sale of condominium units as land prices and construction costs remain high, and gross profit is forecasted to rise slightly. Operating income is projected to decline 2.1% YoY to 3 billion yen, due to the expansion of the business area, active promotion of large-scale condominium, and the augmentation of SG&A expenses because of increase of personnel for system improvement. As the fund procurement cost for obtaining land posted in the term ended Feb. 2017 will decrease this term, non-operating income/loss is expected to improve, and ordinary income is estimated to rise 0.3% YoY to 2.2 billion yen. The term-end dividend is to be 28 yen/share, up 1 yen/share, indicating the dividend increase for the 8th consecutive term (estimated payout ratio: 20.0%).  Condominium sales
The company plans to deliver 700 units of 24 condominium buildings, down 8.1% YoY, selling 250 units in the 1st quarter (244 units in results), 155 units in the 2nd quarter (140 units in results), 160 units in the 3rd quarter, and 135 units in the 4th quarter, that is, selling more in the first half. The number of units delivered in the first half is 384, implying that progress rate is 54.9%. In the second half, the company plans to deliver 295 units of 9 condominium buildings, out of which 238 units have been already contracted in the first half (contract rate: 80.7%). As of the end of the first half, the company had 20 completed condominium units in stock, including 14 units of "WAKOHRE Toyonaka Shoji The Residence" and 5 units of "WAKOHRE Nishiakashi Station Marks." This number was relatively large for the company but the number decreased and it is 11 as of Oct. 23. 9 units of "WAKOHRE Himeji Cross Square (in Shinobu-machi, Himeji-shi; a total of 32 units)," which had been in stock as of the end of the previous term, were sold off in the first half and delivered.The company plans to launch 740 units, up 32.4% YoY. Since the release date of "WAKOHRE The Kobe Tor-road (Chuo-ku, Kobe-shi; a total of 193 units)" was changed from the previous term to this term, the number of units launched will increase considerably this term. On the other hand, the number of contracted units is estimated to be 740, up 3.4% YoY. "WAKOHRE The Kobe Tor-road" is located 8 min. on foot from the "Sannomiya" station of JR Tokaido Main Line, and 7 min. on foot from the "Kobe-Sannomiya" station of Hankyu Kobe Line. It boasts the rare location that has an uptown living environment and accessibility to the commercial area around Tor Road. This is the collaborative project of two architects, and has 38 types of layouts with an area of 40+ to 150+ m2. Shared facilities and management services for residents are enriched. It was launched in early October of 2017, and to be delivered in late August of 2019. The company plans to procure 740 units, up 11.6% YoY. As land prices and construction costs remain high and the selling prices of condominium units are increasing although they are not so significant compared to the those in the Tokyo metropolitan area, the company plans to conduct procurement carefully, but the number of procured units is estimated to increase for the first time in 3 terms as the company will procure large-scale condominium in Osaka. In addition, the company will concentrate on the redevelopment of the "retail market" developed as a local commercial facility in the Kansai area after the WW II (Area Renovation). At present, the company is developing "WAKOHRE Okamoto The Residence (in Higashinada-ku, Kobe-shi; a total of 38 units)" as part of the project for redeveloping the "(old) Okamoto market." It is accessible to two separate stations on two separate lines without any slopes, 6 min. on foot from the "Okamoto" station of Hankyu-Kobe Line and 8 min. on foot from the "Settsumotoyama" station of JR-Kobe Line, and has an enriched education environment. A condominium building whose units all have a southern exposure and which is located within 6 min. on foot from the Hankyu "Okamoto" station will be released for the first time in about 13 years. Its private residential area ranges from 70+ to 100+ m2.   Detached housing unit sales
In the second half, the company will concentrate on selling and delivering "WAKOHRE-Noie Kobe-Kanokodai" and plans to deliver 55 units in the full year (38 units in the previous term).
Other real estate sales
In the second half, the company plans to deliver 27 units of 4 wooden apartments for investment, resulting 55 units of 7 buildings in the full year. In addition, the company has procured 105 units of 13 wooden apartments for investment and 309 units of 20 steel-framed apartments for investment. Accordingly, it is expected that the company will deliver a large number of units in the following terms.
Property leasing revenue
In the second half, the company will build 72 units of large-scale condominium for rental, and acquire a nursing home that is in operation.
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| Conclusions |
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We expect that the company will earn considerable profit in the next term, too, because in the field of condominium sale, which is their mainstay, property leasing revenue is stable and the development of real estate for investment is progressing healthily, although demand is weak in some areas and the effects of high land prices and construction costs are growing. In the first half, the company earned gross profit (1,208 million yen) from property leasing and sale of other real estate, covering 69% of SG&A expenses (1,754 million yen). The operating income rate of property leasing exceeds 41%, and the expansion of the business of sale of other real estate is driven by plentiful real estate information, which is obtained through local connections between Kobe-shi and Hanshin area, and the capabilities of selling land, developing real estate for investment, etc. As steel-framed real estate for investment is added to the product lineup (309 units of 20 buildings have been already procured), we can expect that it will increase revenue further in the following terms. |
| <Reference: Regarding corporate governance> |
 ◎ Corporate Governance Report Updated on May 26, 2017
The fundamental policy regarding the company's corporate governance is that establishing a highly transparent, sound and efficient business framework is believed to be an issue of utmost importance, and we are working to implement it. Although we are a small organization, we are building a simple and efficient organizational framework that also takes mutual checking and balancing, and independence into account. To further strengthen the speeding up of decision making and realizing a highly transparent management, we are striving to strongly maintain the following 5 principles of the governance system.
Fundamental way of thinking 1. The manifestation of supervisory functions based on substantial discussion at the board of directors' meeting.
2. Timely and adequate deliberation on important matters for managerial decision-making via the board of managing directors.
3. Implementation of highly effective auditing by the auditor.
4. Establishment of an internal control system via installing an internal auditing room, holding an internal integration committee, etc.
5. Collaboration with external agencies such as law firms to create a compliance structure.
<Reasons for Non-compliance with the Principles of the Corporate Governance Code>
WADAKOHSAN has implemented all the Basic Principles of the corporate governance code.
<Reference: Initiative for ESG>
WADAKOHSAN's initiatives for ESG are to invest efforts into contributing to the society by building a home that takes into account the resident's peace of mind, safety and health, as well as providing residential compensation in the event of a natural disaster and supporting the growth of youth. Furthermore, in terms of their governance, they are working to completely refurnish their governance framework with the mindset of establishing a management system that is efficient and highly sound and transparent being their top priority, as explained in the corporate governance report
<Environment>
WADAKOHSAN has adopted Kobe-shi's environmental performance rules into their condominiums and taken steps towards the smart condominium initiative. In addition, they have applied a vibration control mechanism for wooden homes as a standard feature as well as anti sick building syndrome measures to all of their housing units.
 <Society>
Hyogo Prefecture was the first to join the newly introduced national support system for rebuilding homes "Phoenix Mutual Aid System" (victims of a natural disaster will be paid a benefit when rebuilding or repairing their homes) in September 2005. WADAKOHSAN bears the cost of mutual aid funds for a year after delivery for all of the condominium units that they sell in Hyogo Prefecture. In addition, taking into account the escalation of the labor shortage in the construction industry, they provide condominium units in the progress of being built as learning materials for university classes so that students who were aiming to join the industry would be able to picture what the job entailed. Moreover, they are investing efforts into contributing to the society by nurturing youth, such as launching a painting competition for children under the name of "The House I Want to Live in," forming a partnership with the Vissel Kobe Soccer School and assisting in the Kobe Shimbun Children Support Project - Skip.
<Governance>
As for governance, the company is developing a management system that is sound, transparent, and efficient, and a governance system, which is intended for streamlining the decision-making process and actualizing transparent business administration, as indicated in the basic policy for corporate governance. The company selects independent outside directors and auditors, while considering the importance of the objective, neutral management monitoring function of the board of directors. In order to clarify the policy for disclosing information timely, fairly, and equally to stakeholders, the company has uploaded its disclosure policy, documents related to financial results, and financial indicators to its IR webpage, holds a session for briefing results to analysts and institutional investors (twice a year, in Tokyo and Kobe), and a session for describing the company for individual investors irregularly.
<Others>
The company is making efforts to create an easy working environment and striving to extend their benefits program, which includes paid leave and hourly paid leave system, with the intentions of making an easy working environment for their employees. Moreover, they have improved the working environment for women by setting up prior and post maternity/childcare leave and shorter working hours. They are also working to understand the condition of their employees' wellbeing by holding a health committee every month where they can connect with industrial physicians, as well as have physical and mental wellness checks to maintain the health of their employees.
Disclaimer
This report is intended solely for information purposes, and is not intended as a solicitation for investment. The information and opinions contained within this report are made by our company based on data made publicly available, and the information within this report comes from sources that we judge to be reliable. However we cannot wholly guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and 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.Copyright (C) 2018 Investment Bridge Co., Ltd. All Rights Reserved. |
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