Expanding Business Alliances With Novarese And ESCRIT Will Capture Market Opportunities

Key Takeaways

• Strategic consolidations and investments are set to drive growth in net sales and operating profits through diversification and expanded market opportunities.
  
• Expansion into rental, office spaces, and tourism sectors aims to increase revenue, while a share buyback program suggests strong confidence in financial stability.
  
• Consolidating Lilycolor inflated sales, but performance issues and downward forecasts highlight challenges in maintaining margins, growth, and strategic investment opportunities.

Catalysts

Provides meeting rooms rental services in Japan and internationally.

• The consolidation of Lilycolor and the anticipated consolidation of Novarese into TKP's financial statements are expected to drive growth in net sales and operating profits as these subsidiaries start contributing to the financials.
  
• The expansion of rental and flexible office spaces, particularly through the acquisition of Fabbit, is projected to support revenue growth and potentially improve net margins due to higher utilization and integration of services.
  
• Strategic investments and business alliances, including the bridal business with Novarese and ESCRIT, aim to capture market opportunities and expand service offerings. This diversification strategy is likely to enhance revenue streams and overall earnings potential.
  
• The company's focus on expanding hotel and leisure facilities aims to capture rising demand from inbound tourism, which is expected to boost revenue and operating profits in this segment.
  
• The implementation of a share buyback program is intended to enhance shareholder value and EPS, indicating confidence in the company's financial stability and growth trajectory, while also potentially increasing demand for shares and improving sentiment.

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 February 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 17.0x today. This future PE is greater than the current PE for the JP Real Estate industry at 10.7x.
• 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 7.16%, as per the Simply Wall St company report.

TKP Future Earnings Per Share Growth

Risks

• The consolidation of Lilycolor into TKP's financials led to apparent sales growth, but excluding Lilycolor, the growth seems less substantial, which could affect anticipated revenue and earnings growth.
  
• The downward revision of the business forecast indicates overly optimistic previous predictions, which may signal difficulty in maintaining expected margins and consistent profit growth.
  
• The performance of Lilycolor, a recent subsidiary, is on a downward trend, raising concerns about its impact on overall earnings contribution and the net profit margin.
  
• Despite strategic investments, the approach to in-sourcing the food and beverage segment is lagging, leading to a reliance on outsourcing that might pressure margins and impact overall profitability.
  
• The share buyback program, while aimed at shareholder returns, suggests alternative uses of capital are limited, potentially hindering future strategic investments and growth of net assets.

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 7.2%.
  
• Given the current share price of ¥1683.0, the analyst price target of ¥1750.0 is 3.8% 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.