Seibu Holdings Inc

TSE:9024

Earnings Call Analysis

Seibu Holdings Reports Strong Q3 Results

Seibu Holdings witnessed a revenue uptick driven by post-COVID activity resumption and price hikes, particularly in their Hotel business. Operating profit climbed, outshining revised forecasts despite higher personnel and other expenses. Net profit reached JPY 43.1 billion, albeit lower year-on-year due to the prior year's capital gains from asset sales. Full-year forecasts remain unchanged from September, with robust demand capture and price-raising efforts ongoing. The Hotel segment showed promising signs, with new openings like Grand Prince Hotel Osaka Bay and Prince Kitano New York, which after rebranding and opening in December, exceeded prior year metrics. Railway business is stabilizing, with commuter sales flat and noncommuter slightly down. Railway and hotel metrics outperform forecasts, with higher average daily rates (ADRs) boosting hotel revenue, and inbound hotel bookings expected to reach 150% of fiscal 2018's levels in the coming months.

Encouraging Performance Amid Recovery

Seibu Holdings, under the leadership of Kiyoto Kawakami, showcased a positive financial performance for the nine months ending December 31, 2023. The company has leveraged the relaxation of COVID-19 restrictions and subsequent resurgence of people’s activities to bolster its operating revenue, especially in the Hotels segment where price increases contributed significantly to profits. Despite the hike in expenses, including personnel costs, operating profit saw an upswing. However, the profit attributable to owners decreased due to the high base effect of the previous year’s capital gain from asset sales. The company’s performance surpassed the revised earnings forecast and they aim to capture more demand and maintain higher pricing in the final quarter, but have decided not to alter the full-year forecast.

Steady Progress Across Segments

Seibu Holdings has reported positive developments across different business segments. Notably, both the real estate development projects and the capital recycling business are advancing steadily without deviation from the plans set out in the second quarter. The company has also successfully introduced a new hotel in Osaka and rebranded an existing one in New York, which have both performed well, especially in terms of accommodation metrics and sales. The company further underlined its strategy to enhance global competitiveness through an integration of membership programs and marketing brands, slated to commence in April 2024.

Rail and Hotel Business Performance

A closer look at the railway business indicates a fluctuating but gradually recovering patronage when compared to pre-COVID levels. The commuter segment remains largely unchanged, whereas the noncommuter segment has faced slight declines. Despite this, noncommuter revenue has surpassed the company's expectations. The hotel business also showed promise with higher-than-expected Average Daily Rate (ADR) and Revenue Per Available Room (RevPAR) outperforming forecasts. The pricing strategy seems to be paying off, with projections for the ADR in the early months of the next fiscal year to exceed 2019 numbers by a significant margin. Inbound bookings are anticipated to reach approximately 150% of fiscal year 2018, signaling strong recovery in the domestic hotel operations.

Maintained Outlook Despite Strong Quarter

Despite a stronger than anticipated performance, Seibu Holdings is exercising caution and has chosen to maintain its full-year forecast. The company is preparing for the upcoming fiscal year, including booking expenses for delayed repair works, which could impact the overall financial outcomes. In summary, Seibu Holdings exhibits a resilient business model with a positive trajectory, yet remains prudent in its financial forecasting, which could be a mark of a conservative approach that seeks to manage investor expectations effectively.

Earnings Call Transcript 2024-Q3

[Kiyoto Kawakami, executive]

Hello, everyone. I am Kiyoto Kawakami, Head of IR at Seibu Holdings. I will explain the presentation titled overview of financial results for the 9 months ended December 31, 2023.

Please turn to Page 4. This slide explains the financial results for the 9 months ended December 31, 2023. Operating revenue increased due to factors such as the recovery in people's activities as a result of COVID-19 being downgraded to Class V and Seibu capturing the related demand as well as raising prices, mainly in the Hotel's business.

Operating profit increased due to top line growth despite the increase in expenses, including personnel expenses. Profit attributable to owners of parent was JPY 43.1 billion. Together with the income related to the transfer of leasehold interest in land in the first half, there was the partial transfer of the former Toshimaen land in this third quarter. However, due to the rebound of the capital gain from the sale of noncurrent assets following the transfer of assets, including the Prince Park Tower Tokyo booked in the previous year, profit attributable to owners of parent declined year-on-year. Both operating revenue and profit outperformed the revised earnings forecast announced on September 28.

We will continue working to capture the recovering demand as well as raise prices in the current fourth quarter. Meanwhile, we will make preparations for the next fiscal year and book expenses for items such as the repair work, which we had postponed due to COVID-19.

Therefore, although we are making progress that is stronger than the revised forecast, we do not expect the outperformance to be significant, and we are, therefore, not changing the full year forecast from what we announced in September. Pages 5 and 6 explain the factors for the increases and decreases by segment. Pages 13 to 15 explain the upcoming real estate development projects. Page 16 explains the capital recycling business. There are no changes from the material used in the second quarter results announcement, and we are making steady progress in the preparations.

On Page 17 is the progress made in hotel openings as well as the future pipeline. As for the current operational status of hotels opened in this fiscal year, at the Grand Prince Hotel Osaka Bay, we are steadily raising ADR and are now working on MICE and corporate-related initiatives, which is our strength to secure future volume.

For the Prince Kitano New York, which opened on December 1, 2023, following a rebranding, the hotel has been in operation for only 1 month but the accommodation metrics and sales in December were above the previous December.

Please turn to Page 18. This slide explains the progress in establishing a global development structure. This is what Seibu Prince Hotels worldwide disclosed on January 30. In order to establish our competitiveness as a global hotel chain, we believe it is necessary to broaden the customer base in Japan and overseas, and strengthen reciprocal customer transfer among group facilities. And in order to build the platform for doing so, we will be integrating the membership programs in Japan and overseas as well as integrating the marketing brands step-by-step from April 2024 onwards.

Next, please turn to Page 35. This is about the trends in our railway business. In the table at the bottom, we show a number of ticket gate passages. If we look at each month from October to January and compare it with fiscal year 2019, after excluding extraordinary factors such as the impact of typhoons and the New Year holidays, commuter was almost flat, while noncommuter was around minus 1% in October, minus 3% in November, minus 1% in December, and minus 2% in January. Although there are ups and downs depending on the month, the numbers are gradually recovering.

Please see the upper left graph, which shows the sales from railway transportation before and after COVID. Compared to the assumptions used in the forecast in the third quarter, commuter revenue was almost in line with expectations, while noncommuter outperformed expectations.

Please turn to Page 36. Here, we have one correction and apology. At the bottom of Page 36, we show the status of bookings as of February 6. In the section about March 2024, where we compare our assumptions for RevPAR, ADR and occupancy with 2019, it says February 2019, when it should be March 2019, apologies.

Let me now explain this page. In the upper left graph, we show the ADR and occupancy up to the third quarter as well as the assumptions used in the fourth quarter forecast. In the third quarter, occupancy was in line with our expectation but ADR was higher than expected, leading to outperformance in RevPAR. We expect pricing to remain high in the fourth quarter. Compared to pre-COVID, ADR in January was 125% of 2020 and will be around 130% of 2019 in February and March.

In terms of RevPAR, January was around the same as 2020, while February will be 104% and March 114% of 2019. In terms of inbound bookings, on a room revenue basis for the entire domestic hotel operations, we expect February and March to be around 150% of fiscal year 2018.

Thank you for your attention.