Quicky #17 on Shinoken (8909)

This is part #17 about a Japanese company active in the real estate business.

This is not investment advice. Please read the disclaimer.
I might currently or at a later point in time own shares (economic interest) in mentioned or related companies.

Shinoken Group Co. Ltd. (Shinoken, the company) looks interesting to me. The $420m market cap company is active brokering apartments as well as building condimoniums, selling them or renting them out later. Now they open up a new exit channel: They establish a real estate investment trust or REIT. Selling new-built units to this REIT will be the 3rd exit option /channel in the future. The have a bunch of other related business activities and interesting overseas businesses. Their recently communicated strategy looks very interesting to me …

  • The write-up Mansions vs. Apartments in Japan helps understanding the terms
    • Mansion refers to a unit within a concrete or steel structure
    • Apartment is a unit in a wooden structure
    • Condominium means that each individual unit (mansions or apartments of an entire building) is owned and rented out by a separate owner. Condominiums are almost exclusively mansions (longer asset life)
      • If the entire building is owned by a single owner who rents out individual units it is called a rental-unit, but this is less desired (often owned by large corporations and operated by low-level employees w/o authority for decision making)

The stock (8909 JP) was mentioned in this tweet where I stumbled about it. It trades back at levels from February at about JPY 1200, after trading as low as JPY 680 in March, a level also seen in early 2019 after plunging from a high of JPY 2000 in 2018 during severe issues within the industry (Tateru implosion, frauds). Indications are for a 8x P/E and a 3% dividend yield which looks rather cheap – even taking into account potential risks with regard to Shinoken’s real estate development /construction business. They just reached the net cash milestone.

  • Book value and earnings per share show an impressive uptrend stretching back more than the last ten years.

This is another part of my series of Quickies on new companies.

Operating segments

The Real Estate Sales business segment handles apartment and condominium sales and marketing.

The Real Estate Service segment manages property and rental management, rent guarantee, and short-term insurance. Various insurances are offered. Stalker expense insurance is sold which could actually be a thing in Japan – foreigners propably do not believe this to be a viable business.

The General Contractor segment plans, designs, and handles contract services for buildings, condominiums, and individual houses. A high share of sales (80%) is taking place outside of the Shinoken Group to third parties. This high share should be more volatile ouside and should

Smaller segments: The Energy segment retails liquefied petroleum (LP) gas and electricity. The Life Care segment runs a serviced housing for the elderly and also offers day services – demand should easily show long-term structural growth. The Others segment includes overseas business. (nikkei)

extract(s) from FY2020 2Q (Jan – Jun) presentation

Energy, Life Care and Oversea business is rather small compared to the three bigger segments, but they provide rather stable profits and fit nicely with Shinokens business.

extract(s) from FY 2020 Q3 presentation

Strategy and vision

Shinoken released its Mid-long-term Vision 2020 in November and its strategy looks interesting to me and should result in a better business with de-risked operations over time. Reassuringly, insider shareholders have skin in the game. (news)

Its real estate sales business took a hit during the pandemic, partially due to mortgage approval processes stopped (temporary halt in bank operation). The process of selling real estate will be digitized (REaaS platform), becoming more smooth, cheaper and safer and could potentially result in Shinoken being ever more entrenched within the real estate economy.

Setting up a REIT should result in steady management fees and establishes a third exit channel for developed buildings, besides keeping them on the balance sheet and renting them out or selling them. The company wants to raise an additional JPY 20bn, which would result in an AUM base of JPY 30bn or $300m next year for generating management fees within the services segment. An exchange listing is planned as a furhter step down the road. (news)

Shinoken entered into a second alliance securing edjucated workers for its Life care business – this shows a needed long-term approach. The German situation is comparable: qualified foreign workers (often from Poland) provide a high share of health-care / nurturing services. Japan became more open to foreign workers.

I hope you enjoyed my quicky on Shinoken. What’s your take?


Further reads

Shareholders

  • Treasury shares: 7.5% of outstanding shares
  • Chairman, President, Founder Hideaki Shinohara owns 18%
  • Senior Managing Executive Officer: Junichi Tsurukawa 0.6%
  • Managing Executive Officer: Yoshiaki Miura 0.45%
  • Executive Officer: Takashi Tamaki 0.21%

10 thoughts on “Quicky #17 on Shinoken (8909)

  1. I am not aware of any risks besides those you already highlight. Obviously it is many moving pieces but the underlying earning capacity of the whole business is quite good although not spectacular. It would be good if they published the annual reports in English. A few investors have asked that and the company is open to this possibility. I am long.

    Liked by 2 people

  2. Thanks for the nice write-up!

    I am a shareholder and share your enthusiasm about the company. There are some dark clouds however. What happens with good governance and ownership structure with the proposed gift to foundation. Unfortunately, I haven’t fully understood whats going on so I can just guestimate the impact of it.

    Overall, I am not aware what I should think of it:
    1. CEO/founder providing free shares to his foundation to increase his voting power in the company.
    2. CEO/founder providing free shares to his foundation to increase his voting power in the company as he believes that the real value is about to compound and that becomes more visible in the near future.
    3. CEO/founder wants to support positive initiatives and the company builds goodwill with this action. Culturally this could be very much positively seen in egalitarian, conservative Japanese business culture.

    And: Is it a one of action or are more gifts/donations in the near future likely? And: Will a confrontation about this issue harm the CEO, the company’s reputation and the outlook even more than the action itself?

    Whats your perspective?
    Cheers,
    Philipp

    Liked by 1 person

  3. Hi Philipp,
    thanks four your comment.
    I am currently working on some of my remaining open questions (the above issue one of them) and will publish a second write up shortly … Currently, I see the issue as far from merely negative, but more negative than positive, and an area to watch!
    Best, s4v
    (with this sunny weather: cheers^2)

    Like

  4. Greetings from germany. It is a cultural thing that japanese companies give society something back. Thats the reason the CEO wanted to give free shares to the foundation. Mostly foreign shareholders were pissed about this, because they are not used to it and it dilutes ( just minor) existing shareholders.

    But this has been stopped ( at least for now) after the voting at the last conference.
    If i would go for a number you posted, it would be probably 2). It would made no sense to give shares to a foundation if you not believe in the company behind it 🙂

    Liked by 1 person

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