Mobility Business And Technology Investments Will Improve Future Operational Efficiency

Key Takeaways

• Strategic international expansion and technology investments likely boost revenue and net margins while restructuring enhances profitability abroad.
  
• Financial stability efforts expected to support sustainable growth and improve earnings per share in the future.
  
• Ongoing restructuring and losses in the U.K. and Australia impact profitability, with high tax expenses and impaired assets further straining financial performance.

Catalysts

Operates and manages parking facilities in Japan and Internationally.

• The expansion of Times PARKING in international markets is accelerating, with plans to increase the number of parking spaces significantly. This growth in parking facilities is likely to drive an increase in revenue from international operations.
  
• The Mobility Business has been successful in increasing the usage fees per vehicle per month and expects continuous growth. This increase in usage fees will likely enhance net margins and overall earnings in the Mobility segment.
  
• PARK24 is investing in proprietary technology like Times Tower payment machines and camera-equipped parking facilities, reducing long-term costs and potentially increasing net margins as these innovations lead to operational efficiencies.
  
• Efforts to restructure and improve profitability in the U.K. and Australia, alongside the planned automatic cancellation of unprofitable sites, could contribute to improved earnings from international operations.
  
• Shareholder equity is steadily increasing, with the company achieving a shareholder equity ratio of 34.3% and planning to further improve financial stability. This financial strengthening is likely to support sustainable growth and potentially lead to improved earnings per share (EPS) in the future.

PARK24 Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming PARK24's revenue will grow by 8.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 6.3% in 3 years time.
• Analysts expect earnings to reach ¥29.6 billion (and earnings per share of ¥173.36) by about January 2028, up from ¥18.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.5x on those 2028 earnings, down from 19.1x today. This future PE is greater than the current PE for the JP Commercial Services industry at 12.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.82%, as per the Simply Wall St company report.

PARK24 Future Earnings Per Share Growth

Risks

• The impairment loss of ¥1.9 billion on assets related to contracts in the U.K. suggests underperformance and may continue to impact net income negatively.
  
• Tax expenses of ¥1.5 billion in Australia, combined with the country's underperformance compared to initial forecasts, could strain net margins and overall profitability.
  
• Decreased profits from vehicle sales in the Mobility Business, due to reduced procurement in 2020, highlights dependency on the secondhand market, potentially affecting revenue stability.
  
• Changes in business costs allocation, such as shifting parking costs to the Mobility Business, could mask true growth and complicate financial analysis, impacting perceived earnings performance.
  
• Ongoing losses and restructuring efforts in the U.K. and Australia, despite some improvement, pose risks to revenue and profitability projections for the overseas Parking Business.

Valuation

• The analysts have a consensus price target of ¥2708.33 for PARK24 based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥3300.0, and the most bearish reporting a price target of just ¥2150.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥467.3 billion, earnings will come to ¥29.6 billion, and it would be trading on a PE ratio of 18.5x, assuming you use a discount rate of 5.8%.
• Given the current share price of ¥2085.0, the analyst's price target of ¥2708.33 is 23.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.