Morningstar | Sumitomo Realty’s Low 3Q ROE Reflects Seasonality and Asset Write-Downs, Not Business Weakness
Sumitomo Realty reported a relatively weak bottom line for the October-December quarter, with annualized ROE of 6.5%, versus its 10-year average ROE of 10.5%. However, after strong performance in the fiscal first and second quarters, the firm remains well on track to achieving its guidance of JPY 213 billion in operating profit and JPY 130 billion in net profit for the year ending March 2019. The guidance achievement rate is 82% at the operating-profit level and 76% at the bottom line with one quarter to go. In reflection of management’s confidence in its ability to meet full-year guidance, Sumitomo Realty booked an extraordinary loss of JPY 13.3 billion to write down the value of some assets and improve its balance-sheet quality, instead of waiting until the final quarter to do so.As was the case for Mitsui Fudosan last week, performance in Sumitomo Realty’s core office-leasing business continued to be quite good in the third quarter, with the vacancy rate declining to 4.2% at the end of December from 4.3% three months earlier, but overall operating profit was limited by seasonally low revenue recognition in the condo sales business. Sumitomo Realty still posted an operating profit in its Sales segment for the quarter, unlike Mitsui Fudosan, and the Sales segment’s achievement rate of full-year operating-profit guidance stands at 99%. Sumitomo Realty’s Housing Construction segment was also strong, turning in a quarterly operating profit margin of 12.6% as revenue per unit in the Shinchiku Sokkurisan remodeling business and custom homes rose about 4% year on year.
We maintain our no-moat rating on Sumitomo Realty and raise our fair value estimate from JPY 3,800 to JPY 4,120 as we transfer coverage to a new analyst. We continue to use a cost of equity of 8% for Sumitomo Realty, while our new forecasts are somewhat higher than the previous ones, reflecting the firm’s strong results in recent quarters and our updated assumptions for operating metrics.
Sumitomo Realty & Development is mainly engaged in the real estate business. Co.'s principal business segments are real estate leasing, real estate sale, construction, brokerage, and others. It is engaged in the development, direct leasing and management of office buildings and condominiums, the sublease of properties leased from special purpose companies, the provision of hotel business and the operation of event halls and conference rooms; the development and sale of condominiums, buildings, detached houses, housing land and other properties; the construction and remodeling of houses; the brokerage and sale of real estate; and the operation of fitness clubs and restaurants.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.