Acquisitions Of Lilycolor And Novarese Will Strengthen Operations Amid Tourism Growth

Key Takeaways

• Strategic acquisitions and facility expansions are expected to drive operational efficiencies and boost revenue through increased service offerings and occupancy rates.
  
• Focus on capital efficiency and shareholder returns, through share buybacks, aims to enhance earnings per share and support growth initiatives.
  
• TKP faces challenges from subsidiary underperformance, shrinking cash reserves, and costly expansions, impacting revenue growth, liquidity, and long-term earnings prospects.

Catalysts

Provides meeting rooms rental services in Japan and internationally.

• The company plans to leverage the consolidation of acquired businesses like Lilycolor and Novarese to boost operational efficiencies and expand service offerings, which should help increase revenue and enhance net margins.
  
• There is a significant increase in the opening of new facilities and expansion of existing ones, indicating proactive growth strategies aimed at increasing occupancy rates and boosting rental income, likely impacting revenue positively.
  
• The return to pre-COVID levels of sales in several segments, along with investments in new products and service lines, is likely to drive further growth in earnings and overall financial performance.
  
• The company's strategic investments in the hotel and leisure segment aim to capture strong inbound tourism demand, which is expected to drive significant revenue growth by utilizing previously acquired hotels and renovating existing properties.
  
• The emphasis on improving capital efficiency and shareholder returns through a share buyback program suggests a focus on increasing earnings per share and maintaining a healthy balance sheet, which can support future growth initiatives.

TKP Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TKP's revenue will grow by 28.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.4% today to 5.4% in 3 years time.
• Analysts expect earnings to reach ¥5.7 billion (and earnings per share of ¥142.47) by about March 2028, up from ¥4.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.6x on those 2028 earnings, down from 16.1x today. This future PE is greater than the current PE for the JP Real Estate industry at 10.5x.
• Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.91%, as per the Simply Wall St company report.

TKP Future Earnings Per Share Growth

Risks

• The downtrend in Lilycolor's performance post-consolidation poses a risk to TKP's revenue projections, as underperformance in subsidiaries can undermine expected consolidated net sales growth.
  
• Despite proactive investments, TKP's cash has decreased significantly due to increased fixed assets, impacting liquidity and potentially restricting future capital investments necessary for growth.
  
• The revenue from food and beverage has been slower to recover, indicating potential capacity constraints or inefficiencies that could negatively affect operational margins and net profit.
  
• Persistent delays and underperformance in investment initiatives such as the integration of Lilycolor and Novarese can lead to missed opportunities and under-optimized investment returns, impacting long-term earnings growth.
  
• The high costs associated with constructing new facilities and reliance on renovation for growth due to tighter budgets could limit the pacing of expansion, potentially affecting future revenue streams.

Valuation

• The analysts have a consensus price target of ¥1750.0 for TKP 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 ¥2000.0, and the most bearish reporting a price target of just ¥1500.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥105.2 billion, earnings will come to ¥5.7 billion, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 7.9%.
• Given the current share price of ¥1641.0, the analyst price target of ¥1750.0 is 6.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.