■Performance Trends of Selecorporation <5078>

1. Summary of performance for the interim period of the fiscal year ending February 2025

For the interim period of the fiscal year ending February 2025, the consolidated financial results were as follows: revenue of 11,585 million yen (a decrease of 4.8% year-on-year), operating profit of 1,108 million yen (an increase of 16.0%), ordinary profit of 1,128 million yen (an increase of 15.8%), and interim net profit attributable to the parent company's shareholders of 786 million yen (an increase of 19.9%). Efficient cost management of cost of sales contributed to the improvement in gross profit margin, leading to a significant 15.8% increase in ordinary profit compared to the previous year. Property handovers in the rental development business were concentrated in the second half of the current period as planned, resulting in an expected decrease in revenue compared to the previous year. The share of segment revenue in total revenue shows that the rental housing business accounts for 42.1%, the rental development business for 18.6%, and the rental management business for 39.3%. Sales and general administrative expenses increased by 171 million yen due to human capital investments. The results exceeded initial expectations at each stage of profit, indicating a favorable progress towards the full-year performance. The cumulative construction record reached 2,820 buildings (an increase of 42 buildings from the previous period end), and the number of managed units rose to 12,514 units (an increase of 200 units). The occupancy rate is maintained at a high level of 98.0% (a decrease of 0.5 points), further enhancing revenue stability. Operating profit significantly increased by 152 million yen year-on-year, benefiting largely from the segment profit increase in the rental housing business. Despite the current rising interest rate environment, the company's customers are mainly affluent individuals focusing on asset inheritance, often purchasing in cash rather than relying on bank loans, thus limiting the impact of interest rate hikes. The decrease in revenue is attributed to the schedule of property handovers within the period in the rental development business, with expectations of minimal impact on full-year plans due to the concentration in the second half. The company sees that thorough cost management and efficiency improvements have further strengthened the business foundation.

2. Performance Overview by Segment

(1) Rental Housing Business

Revenue amounted to 5,268 million yen (an increase of 31.2% year-on-year), with segment profit reaching 635 million yen (an increase of 271.4%). Increased orders from existing clients, strengthened customer attraction through the company's website, and effective measures against cost increases contributed to the significant profit growth. Strengthening of sales for the flagship brand 'My Style vintage' and efforts towards expanding the customer base resulted in successful collaboration with the asset management department, leading to an increase in managed properties. The introduction of environmentally friendly 'Tokyo Zero Emission Housing' specifications progressed, actively promoting proposals to property owners. In terms of production activities, efforts to compress costs and shorten construction periods were made in response to rising labor and transportation costs associated with the '2024 Problem'. The Company focused on upgrading quality and efficiency at the Chiba factory responsible for in-house material production, continuing the cost reduction initiatives through the introduction of a new operating model from the previous period, collaboration between the headquarters and the Chiba factory, and enhanced coordination with the rental management business for appropriate pricing transfer to rental fees. The new model successfully reduced the base width of steel beams from the previous limit of 50cm to 30cm, resulting in less reinforcing and concrete materials used, leading to cost savings. Research and development efforts included joint research with universities on apartment developments for young people and enhancing energy-efficient apartment developments. The strong sales foundation of the rental housing business and environmentally conscious product developments are expected to support future growth. The progress in introducing 'Tokyo Zero Emission Housing (High Energy Saving Performance, Photovoltaic Technology)' contributes to long-term profitability. Efficient improvement initiatives against cost increases have proven successful against external factors, indicating proper risk management by the company.

(2) Rental Development Business

Revenue decreased to 2,331 million yen (a decrease of 37.4% year-on-year), with segment profit at 328 million yen (a decrease of 45.5%). The previous period experienced a concentration of property handovers in the first half, resulting in a decrease in revenue and profit compared to the previous year due to the recoil effect. However, property handovers in the current period are planned for the second half, making progress towards the full-year plan smooth. Sales activities focused on improving product awareness through on-site viewing events, encouraging visits by potential buyers and referral companies, leading to new sales contracts from visitors and referrals. The company continued acquiring strategically located land for high-value assets targeted at affluent clients. Additionally, meeting certain conditions allows achieving the highest seismic grade of 3 in the 'Housing Performance Indication System,' fulfilling the needs of property owners for increased asset value and guest safety. Adopting the Tokyo Zero Emission Housing specifications across all properties contributes to achieving a decarbonized society. While the rental development business is susceptible to the timing effects of property handovers, the planned concentration in the second half of the current period is expected to contribute positively to full-year performance. Efforts in environmental-conscious housing development and asset value enhancement are seen as factors that will strengthen the future business foundation, leading to sustainable growth.

(3) Rental Management Business

Revenue was 4,922 million yen (an increase of 4.6% compared to the same period last year), and segment profit was 582 million yen (an increase of 1.6% over the same period). Continuing from the previous period, the company has successfully increased the number of managed properties by collaborating in the rental residence and rental development businesses. By the middle of the term, the number of managed units reached 12,514, achieving steady revenue growth and profit increase compared to the same period last year. Efforts were made to improve asset value through proposals utilizing an external rental AI assessment system, and focus was placed on increasing the number of managed units through repeat orders from existing customers. In addition, collaboration was strengthened with the organization "Sele Leasing Partners" (16 companies as of the end of August 2024) and "Sele Maintenance Partners" (10 companies as of the end of August 2024), comprising dedicated rental brokerage cooperating businesses, to maintain and improve services. Furthermore, a new remodeling company was established on June 1, 2024, advancing a strategic deployment aimed at long-term asset preservation. The rental management business continues to maintain solid growth, supported by the increase in the number of managed properties and a high occupancy rate, ensuring the stability of the business. Additionally, the collaborative efforts with maintenance providers have enabled swift and efficient service delivery, receiving high praise from both owners and guests. The establishment of the remodeling company has also laid the foundation for a long-term asset preservation system, which we believe will be a factor supporting future business expansion.

(Author: FISCO Guest Analyst Ryoji Mogi)