Summary: RIZAP Group<2928>The comprehensive enterprise, which is committed to proving that "people can change" as its unique management philosophy, develops a variety of businesses in the three areas of health creation, health care / beauty, lifestyle, and investment. Under the vision of "Global No.1 in the self-investment industry", it has achieved remarkable growth by actively utilizing M&A under the holding company structure and has grown to include 68 group companies, including 5 listed subsidiaries, and 4,606 consolidated employees. Listed on the Sapporo Stock Exchange's Ambitious Market in 2006, it formulated a medium-term management plan in September 2022, but revised it in February 2024 to achieve an operating profit of ¥400 million (fiscal year ending March 2027) by aggressively expanding the new business "chocoZAP". The fiscal 2024 performance was sales revenue of ¥16,629.8 million (+7.6% YoY), operating loss of ¥594 million (compared to a loss of ¥4948 million in the same period of the previous year), pre-tax loss of ¥4524 million (compared to a loss of ¥7,031 million in the same period of the previous year), and net loss attributable to the owners of the parent of ¥4,300 million (compared to a loss of ¥12,673 million in the same period of the previous year). Due to the black ink conversion of the chocoZAP business, it achieved a black ink of ¥417.5 million on an operating profit basis in the fourth quarter alone. As for sales revenue, the RIZAP-related business (including the chocoZAP business) significantly increased its revenue (+¥201 million) by focusing on expanding the convenience gym "chocoZAP". In existing businesses, there was an increase in revenue, including Antiroza Co., Ltd. (+¥419.8 million), while there was a decrease in revenue due to store structure reform in REXT Co., Ltd., etc. (-¥599.8 million) and the impact of selling the Sikata business under the subsidiary BRUNO<3140>at the end of the previous year (-¥511.1 million). As for operating loss, the group as a whole improved due to the transition of the chocoZAP business to the investment recovery period and the success of business portfolio reform such as REXT.

1. Company Overview

Urbanet Corporation <3242> is a developer and wholesaler (BtoB) of urban rental apartment buildings that are focused on locations within a 10-minute walk from train stations in the 23 wards of Tokyo. The company handles everything from land acquisition to plan and architectural design, and specializes in single-building sales to apartment sales companies, funds, and affluent individuals. The company's distinctive feature is its focus on "product creation". As a developer that started as a design firm, it is known for its monochrome exterior design, functional and stylish units, and focus on development locations, which have earned high praise from residents and boast high occupancy rates. The environment for real estate development in urban areas, such as the difficulty of land acquisition, high development costs, and long construction periods, poses challenges. However, there is strong investment interest in stable cash flow from urban rental apartments, supported by demand from domestic and international real estate investors, young individuals aiming to build future assets, wealthy individuals looking for inheritance tax solutions, and funds and REITs with ample funds. The company's performance is steadily improving. The company is also working to strengthen its stock business and has entered the hotel business in addition to acquiring rental income properties. In August 2023, the company resolved to issue new subscription rights with the goal of securing growth capital. Since then, it has been actively pursuing strategic business alliances and M&A activities, and its movements toward sustainable growth have been energized. In July 2024, in anticipation of further expansion of its workforce, the company relocated its headquarters office to the Kasumigaseki Building.

*Traditionally, the main focus was on one-room apartments of about 25m2, but the company now also caters to the increasing demand for compact apartments of about 30-40m2. Therefore, the company uses the term "urban rental apartment" instead of "investment one-room apartment".

2. Summary of Performance for the Fiscal Year Ending June 2024

The consolidated performance for the fiscal year ending in June 2024 achieved record-high results, with net sales increasing by 38.0% compared to the previous year to 27,965 million yen and operating profit increasing by 12.2% to 2,726 million yen. The number of units sold for the company's main "real estate business", urban rental apartments, expanded to 712 units in 11 buildings (compared to 584 units in 11 buildings in the previous year). Additionally, the results were contributed to by the inclusion of Kein Co., Ltd., which was consolidated at the end of February 2024, with the sale of detached houses and terrace houses (23 units). The "hotel business" also achieved profitability due to the recovery in domestic travel demand and increasing inbound tourism, with both room rates and occupancy rates performing well. Despite the increase in costs such as land prices, construction material prices, and labor costs for construction-related work, the significant increase in sales and profitability of the "hotel business" resulted in substantial profit growth. In terms of business activities, the company has entered into business partnerships with Storage King <2997>, which operates storage room businesses, and fully acquired Kein Company, which is involved in the sale of detached houses and terrace houses in the southwest Tokyo metropolitan area, Kawasaki City, and Yokohama City, as well as clarified specific plans (such as expanding development areas and business domains and strengthening land information capabilities) for sustainable growth.

3. Outlook for the Fiscal Year Ending June 2025

The consolidated performance for the fiscal year ending in June 2025 is expected to achieve an increase in net sales by 14.4% compared to the previous year to 32,000 million yen and an increase in operating profit by 2.7% to 2,800 million yen. The year-round contributions of Kein Co., Ltd. are expected to contribute to the increase in net sales. The company plans to sell a total of 588 units of urban rental apartments and detached houses, all of which have already been contracted (as of August 31, 2024). The "hotel business" is also expected to continue to perform well due to strong domestic travel demand and the expansion of inbound tourism. In terms of profitability, although there will be an increase in costs related to human investment, the company expects to secure profit growth through higher revenue.

4. Future Direction

The company's growth strategy focuses on expanding existing businesses, as well as expanding stock businesses (rental income properties owned by the company), M&A, and BtoC businesses by subsidiaries (including detached houses, terrace house development, condominium management, and rental business), aiming to expand the business portfolio and stabilize the financial foundation. In particular, for existing businesses, while considering future risks and the soaring land prices in urban areas, the company will actively engage in selective land acquisition and strive for sustainable growth while flexibly adapting to business environment and economic fluctuations. Currently, strategic business alliances, M&A, and strengthening of human capital investment are becoming more active, taking into account the recent responses to "management focusing on capital cost and stock prices" by the Tokyo Stock Exchange (hereinafter referred to as TSE). This indicates a specific direction towards a new stage. In line with the "Sustainability Basic Policy", the company clearly demonstrates its commitment to contributing to the realization of a sustainable society and enhancing corporate value, and is enthusiastic about various value co-creation with partners.

■Key Points

- For the fiscal year ending June 2024, it is expected to achieve significant growth in revenue and profit through the expansion of sales units, the positive effect of Keinoin consolidation (4 months), and the profitability of the hotel business.

- On the operational front, there is a growing movement towards sustainable growth, including strategic business alliances, M&A, and strengthening of human capital investment.

- The fiscal year ending June 2025 is also expected to achieve increased revenue and profit through the annual contribution of Keinoin.

- The company will continue to aim for sustainable growth by expanding existing businesses and expanding the business portfolio through M&A.

(Written by Fisco Guest Analyst Ikuo Shibata)