■Future outlook
1. Earnings forecast for the fiscal year ending March 31, 2025
The earnings forecast for the fiscal year ending 2025/3 for Sun Frontier Real Estate ＜8934＞ is sales of 100,000 million yen (up 25.2% from the previous fiscal year), operating income of 20,870 million yen (up 18.6% from the same period), ordinary income of 20,000 million yen (up 15.1% from the same period), and net income attributable to parent company shareholders of 14,000 million yen (up 17.5% from the same period). As the final year of the medium-term management plan, we aim to achieve quantitative targets while maintaining high profitability with an ordinary profit margin of 20% and capital efficiency with an ROE of 10% or more. The company group's achievement rate for earnings forecasts (operating income/ordinary profit/net income attributable to parent company shareholders) has exceeded 100% for 13 consecutive terms until the 2024/3 fiscal year, and it is responding flexibly to rapid changes in the business environment such as the COVID-19 pandemic. Since the earnings forecast for the fiscal year ending 2025/3 was set at the same amount as the target value of the current medium-term management plan, a strong sense of achieving commitment to the market can be seen. In addition to steady growth in the real estate service business, the performance of the hotel management business, which is a stock business, is expanding, and we believe that medium- to long-term sustainable growth can be expected, not only will the full-year plan be achieved.
Also, in the operation of the company's business, emphasis is placed on profit margins in the flow-type business, and high growth rates are being pursued in the stock type business. Businesses related to property sales in replanning businesses, hotel development businesses, and overseas development businesses fall under the flow-type business. Businesses other than property sales, such as real estate service businesses and hotel management businesses, fall under the stock type business.
2. Priority measures
The priority measures for the fiscal year ending 2025/3 are as follows.
(1) Real estate rehabilitation business
In the real estate rehabilitation business, it is expected that profitability with a gross profit margin of 30% or more will continue, and in addition to the existing replanning business, it is anticipated that apartment replanning in New York and the sale of small-scale real estate ownership products will be sold. Continuing from the previous fiscal year, we will continue to procure and develop good properties in a planned manner, and provide properties with high profitability and high operation. For the fiscal year ending 2025/3, we are planning to increase sales profits that exceed the previous fiscal year, and we are also actively investing in year-end inventory assets. In addition to focusing on company-wide procurement activities by utilizing internal and external networks, decision-making with a sense of speed is realized by expanding the discretion of those in charge of purchasing. The year-end inventory balance is expected to be 120 billion yen to 125 billion yen, estimated sales are expected to be 160 billion yen to 178.5 billion yen, and a gross profit margin of 25% to 30%. Thus, it can be read that unrealized gains on year-end inventory assets will be around 40 billion yen to 53.5 billion yen. The average business period is 705 days (52 days increase from the previous fiscal year) for the fiscal year ending 2024/3, and the average business period excluding newly built properties and long-term owned properties is 625 days (28 days decrease from the same period), and investment recovery and growth is achieved while maintaining turnover. The composition of inventory assets at the end of the 2024/3 fiscal year of the replanning business was over 40% for short-term properties, over 30% for medium- to long-term properties, and about 20% for newly built properties and New York properties in total. The Group's ideal average business period for short-term properties is 1 to 1 year and a half. Since we operate our business with an appropriate inventory structure that is conscious of turnover and balance, we believe that sustainable profit growth can be expected.
(2) Real estate service business
In the real estate service business, each business continues to grow steadily, and profit growth is expected due to new stores in the leasing management business, new locations for rental conference rooms, and an increase in the number of management contract buildings in the property management business. In the leasing management business, community-based branch development is being accelerated, and by subdividing the jurisdiction area as the number of branches increases, it is possible to “solve problems” rooted in the region more than ever before. As the number of managed properties outside of the 5 wards of the city center increases, more information can now be obtained than ever before, and we believe that contributions to purchasing activities, which are the cornerstone of real estate rehabilitation business, can also be expected. In the conference room rental business, repeat demand from corporate customers is increasing, and needs for training, academic conferences, and certification tests of large enterprises and industry groups are steadily being incorporated. Currently, the “Vision Center Shinjuku Mines Tower,” which opened in November 2023, carried out a floor expansion of 500 tsubo as early as 2024/4. Also, the “Vision Center Tamachi” also carried out a 200-tsubo floor expansion in the same month. Additionally, the “Vision Center Ichigaya” is also scheduled to expand the floor by 200 tsubo in 2024/6. Since rental conference rooms operated by Sun Frontier Space Management Co., Ltd., which is a group company of the company, are concentrated in areas where there is demand, such as in front of train stations, etc., the order acceptance situation has been strong. This business has the characteristic that there are many repeat customers from large companies, so stable profit accumulation can be expected in the future. Currently, more than 80% of reservations for April to June have been filled due to training demand for new employees, and we expect that opening and expansion of floors will progress even after the 2025/3 fiscal year. In the property management business, the number of managed contract buildings has been rising steadily, to 493 at the end of the 2024/3 fiscal year. Profit growth is expected to continue due to an increase in the number of managed contract buildings, and the target is 540 cases by the end of the 2025/3 fiscal year. We will support high-occupancy and high-profit building management by attracting tenants through collaboration with the rental brokerage department and working on revising conditions for appropriate rents. In the building maintenance business, customer needs continue to be strong, and the management system will be strengthened by strengthening human resource recruitment, including new graduates and mid-career workers. Appropriate price transfers have already been implemented for rising costs, starting with outsourcing costs (mainly labor costs), and profitability is expected to improve. Also, in the delinquent rent guarantee business, the number of contracts has been rising steadily, to 3,856 at the end of the 2024/3 fiscal year. Regarding new contracts, the five central wards of the city (Chiyoda Ward, Chuo Ward, Minato Ward, Shibuya Ward, Shinjuku Ward) account for 79%, and the number of acquisitions is steadily accumulating, and they are aiming to reach 4,200 cases by the end of the 2025/3 fiscal year.
(3) Hotel and tourism business
In the hotel management business, performance growth is expected due to a recovery in demand and high-quality services. In addition to improvements in occupancy rates and guest room unit prices, profit contributions from hotels that carried out M&A in the previous fiscal year are anticipated, and business growth will be accelerated by increasing the number of operating rooms and improving service capabilities. Regarding the hotel development business, we are considering selling the property. We are planning to actively invest in hotel development from the 2025/3 fiscal year, and it is our policy to promote contributions to regional revitalization while responding to business and tourism needs. While population decline has become an issue in some regions other than the metropolitan area, demand for renewable energy-related businesses is increasing. Since maintenance is essential for renewable energy-related equipment, long-term business demand that does not end in a transient manner can be expected. Also, if it is an attraction project from a local government, etc., it is possible to advance under more favorable conditions, and we believe that further growth can be expected by incorporating business demand in addition to domestic travel/inbound demand.
(4) Retail and administrative expenses
In addition to system investments at hotel sites, we are planning to increase costs by investing in human capital. Regarding investment in human capital, it is anticipated that the base will be raised and recruitment activities strengthened for human resource growth. Investments in human resources and business are essential for medium- to long-term growth of the company's group business, and we believe that there are no particular concerns about procuring and recovering invested capital when taking into account abundant equity capital and business profitability.
(Written by FISCO Guest Analyst Ryoji Mogi)