Fast Inventory Overview
Ticker: 9024.T
Supply: Yahoo Finance
Key Information
| Business | Lodge / Railroad / Actual Property |
| Market Capitalization ($M) | 3,530 |
| Value to gross sales | 1.12 |
| Value to Free Money Circulation | – |
| Dividend yield | 2.81% |
| Gross sales ($M) | 3,130 |
| Free money move/share | – |
| P/E | 4.87 |
1. Govt Abstract
Seibu Holdings is a Japanese lodge, railway, leisure actions, and actual property conglomerate. It operates 167km of railway and 83 inns, most of that are in Japan. It additionally owns a complete of 474 km2 of land, most of which is underutilized and undervalued.
The group suffered throughout the COVID pandemic, reaching an all-time low in January 2021. It additionally needed to promote a few of its inns in early 2022 to stave off a liquidity disaster. Consequently, the group is buying and selling at a low valuation, assuming little to no progress.
This valuation ignores the truth that Japan is now reopening and coming again to regular. Even the inbound vacationer numbers of January 2023, up x83 year-to-year, are nonetheless a lot beneath the 2019 ranges. So Seibu’s outcomes needs to be coming again to a extra regular stage, in step with its historic performances.
As well as, the Japanese tourism sector is boosted by the short-term development of the weak yen and the long-term development of Japanese tradition’s rising reputation with youthful (and even not-so-young anymore) generations.
Seibu’s steadiness sheet is sufficient, even when the group would possibly must roll over some short-term debt to remain liquid sufficient in 2023.
In the long term, Seibu’s giant land holdings are in all probability the place a lot of the group’s whole worth is locked. Even very conservative estimates point out these lands might be value as a lot as the complete present market cap and possibly a number of instances extra.
Seibu might be most becoming for buyers with a really long-term focus, keen to commerce off liquidity for greater long-term returns.
2. Prolonged Abstract: Why Seibu Holdings?
The Nice Reopening of Japan
Japan is reopening after 2 years of harsh covid insurance policies, and the yen is weakening quickly. It’s its tourism sector that’s the probably to learn from these adjustments. In the long run, tourism is prone to be a progress business for Japan, carried by its rising cultural attain and affect.
Seibu Holdings
Seibu is energetic in inns, leisure, railroad, and actual property. It provides diversified publicity to the tourism and leisure business in Japan, together with sports activities venues, inns, golf, snowboarding, and others.
Seibu’s Technique
The Seibu lodge phase is just not the middle of revenue for the group however the entry level within the gross sales funnel for its leisure, retail, and transport companies. Prospects are then incentivized to come back again by way of premium membership and some extent system. Additionally it is sitting on a whole lot of sq. kilometers of useful land, which it’s promoting or growing very slowly to maximise its income.
Financials
Seibu has a comparatively weak steadiness sheet, even when not alarming. It’d must roll over some short-term debt, whereas the group is getting again within the inexperienced all through 2023. Its valuation is low in comparison with its friends, much more so when making an allowance for undervalued property like its undeveloped actual property property.
Conclusion
Seibu is greatest fitted for buyers who’re keen to attend for the group’s property to understand their worth totally, and for the tourism exercise to choose again as much as 2019 ranges. Within the meantime, it’ll additionally present a modest dividend yield.
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3. The Nice Reopening of Japan
A Lengthy-Awaited Return to Regular
Quite a lot of consideration has been given to Chinese language lockdowns, which had been particularly harsh, even by Asian requirements. However different international locations within the area had strict Covid-19 insurance policies as nicely, together with the world’s third largest economic system, Japan.
Japan relaxed its COVID restrictions a lot later than the US or Europe. It reopened for tourism solely final October, with restrictions and the scar of the pandemic slowing the reboot of the tourism business. As new titles coated it in October: “Japan reopens to vacationers with shuttered memento outlets, lodge workers scarcity“.
Masks-wearing remains to be very current, and you might want to present vaccination and a unfavorable take a look at to enter the nation. However that is lastly altering, with a brand new relaxed border protocol deliberate for Could 8, 2023, that ought to cancel most entry restrictions. Total, issues are shifting in a extra liberal route, even when it’ll seemingly slowly take all of 2023 to get again to a extra regular state of affairs.
This can be a relatively massive deal. Within the final 10 years, Japan has turn into a tourism powerhouse, greater than quadrupling its whole of worldwide vacationers.
The final numbers for January are very encouraging, with 1,5 million abroad guests, or an 8,327.9％ year-to-year enhance. This can nonetheless fall wanting 2019, with greater than 30 million for the yr, however that is the primary information level indicating that the business is out of the disaster section.
Foreign money’s Brutal Strikes Boosting Tourism
Japan’s economic system has enormously suffered from COVID, however there has additionally been a major influence from the battle in Ukraine. Japan is very depending on vitality imports; particularly gasoline and oil, because it shut down its nuclear powerplant post-Fukushima. So the brewing vitality disaster and exploding LNG costs severely affected the nation’s commerce steadiness.
The conjunction of the financial disaster, rising vitality import prices, and a robust greenback have all contributed to the weakening of the Japanese Yen. The height was when the nation was nonetheless locked away from the surface world, however the yen remains to be but to get better.
A declining foreign money has complicated results, however total, it favorises the tourism sector and most exporters. It’s because a lot of the prices are in native foreign money (actual property, meals suppliers, staff), whereas the vacationers understand the worth within the now extra useful overseas foreign money.
In order that journey to Japan that somebody needed to wait and postpone for 3 years? It simply acquired 30% cheaper in terms of meals, inns, parks, points of interest, spectacle, transport, providers, and so on.
Japan as a Cultural Superpower
I additionally suppose the attractiveness of Japan is at an all-time excessive and nonetheless rising. The nation has slowly advanced right into a mushy energy big, efficiently exporting its cultural merchandise and picture overseas.
That is one thing that may not translate into conventional mushy energy, like diplomatic affect or an elevated function in worldwide establishments. However it undoubtedly has a big impact on Japan’s picture and the nation’s attractiveness to vacationers.
Based on the Duolingo Language Report 2021, Japanese has turn into the fifth most chosen language on the earth, surpassing Italian, and is the fastest-growing language in the USA and the UK.
With Japanese it’s totally different. The curiosity within the language is just not a lot pushed by Japan’s financial enchantment as by its cultural capital.
Contemplating how laborious to study the Japanese language is, it’s extremely important to see it rating above one other world-class vacationer vacation spot, Italy.
Mushy energy and cultural affect is one thing a bit laborious to quantify, however I feel just a few landmarks have been achieved in the previous few years.
For instance:
- Since 2018, mangas are outselling superhero comics within the USA.
- The Tremendous Mario Bros. Film scored an astonished 96% constructive with the general public, making it the preferred online game adaption ever (and a low 56% from skilled critics…).
- Different IP from Japan have turn into much more mainstream, with Netflix on the forefront to show them into bigger franchises:
- Japanese tradition is well-liked method past manga and videogames, even when “otakus” (manga and anime diehard followers) are by far the loudest group:
- Japanese meals, from sushi, teriyaki, and miso soup to ramen, is beloved worldwide.
- Japan has an unequaled status for being an especially secure, cultured, and clear nation. And the picture of Japanese soccer followers cleansing the stadium after the World Cup matches can solely assist.
- The federal government is actively selling Japan overseas utilizing these strong bases, notably by way of the “Cool Japan” program.
- Japanese wealthy historical past and tradition are well-liked, from geothermal scorching baths, tea ceremonies, and Zen philosophy to the samurai esthetic.
This affect will solely develop with time, as new generations raised on Nintendo consoles, studying manga, and hanging out with associates consuming sushi might be extra prone to put Japan on their tourism guidelines.
This attractivity is just not restricted to Westerners. In 2019, Japan was probably the most visited vacation spot by Chinese language vacationers. With the remainder of Asia getting richer, Japan can capitalize on attracting extra vacationers, introduced by a status for high-quality infrastructure, providers, meals, and so on.
4. Seibu Holdings
A Lengthy Historical past
When potential beneficiaries of returning tourism to Japan, I had just a few standards:
- Massive asset base, lowering the chance of a particular area or exercise turning out to be much less well-liked than anticipated.
- Diversified, with a purpose to money in on a number of spending from the identical vacationers with a number of classes of the group property and to supply synergy between totally different actions, like having widespread HR, software program, centralized buying division for meals, furnishings, and so on…
- Low cost, as I needed the rebound of tourism to not be priced in but.
As there are usually not that many giant tourism teams with a slim concentrate on Japan, the selection was relatively easy. And as you will notice within the subsequent chapter, the corporate’s present worth doesn’t worth within the chance of a rebound in revenues and revenue.
Seibu began as a railroad firm in 1912. The corporate would begin its lodge exercise within the post-war interval by buying the Karuizawa summer time dwelling of the Asaka-no-miya household, members of the imperial household. It could then become involved in actual property improvement within the Seventies.
The corporate would undergo throughout the Japanese financial crash, culminating in a company scandal in 2004 and its delisting from the Tokyo Inventory Change.
The group would restructure, principally centered on hospitality and transport, and restore its status, and was re-listed in 2014.
A Multifaceted Hospitality Enterprise
The holding is managed with 6 totally different enterprise strains:
Transport: Practice strains and buses. There are 5.5 million residents within the neighborhood of Seibu strains and 1.4 million passengers every day on its 176 km of railways. It ought to generate 158 billion yen in 2022 ($1.2B), on the best way again to 2019 ranges (¥160B).
Keep & Journey: 50 inns in Japan, together with connected scorching springs, spas, golf programs, and ski slopes. It additionally consists of one other 33 inns abroad, in Hawaii, China, Taiwan, the UK, and Australia. This quantities to a complete of 24,366 lodge rooms. The long-term goal of Seibu Holdings is to extend this quantity to 250 over time. The phase was anticipated to return to a modest working revenue in 2022.
Store & Eat: This phase teams collectively lodge eating places, outlets in practice stations, a touring restaurant practice, and the Karuizawa Mall of 240 outlets.
Amusement: This phase consists of a number of amenities:
- A extremely aggressive baseball workforce (the Saitama Seibu Lions), the Belluna Dome stadium (31,552 seats), Yokohama Enviornment (10,560 seats), and a live performance corridor. And a pair of giant ice rings and ice exhibits.
- 5 aquariums, 2 amusement parks + aquarium, and three swimming pools, together with the most important within the Tokyo Metropolitan space.
- An amphibious bus, a tourism boat on Lake Biwa, and a pair of ropeways/gondola lifts.
The amusement class’s provides may also be mixed with lodge stays or be a part of marriage ceremony ceremonies or different occasions.
Sports activities: 28 golf programs, 10 ski resorts, in addition to tennis courts, bowling alleys, and health golf equipment.
“Comfy life“: A really various phase, principally centered on actual property: particular person properties, trip properties, and a pair of high-end apartment & city improvement. But in addition workplaces, insurance coverage, pet care, daycare, a faculty, housekeeping providers, and even cemeteries!
5. Seibu’s Technique
What Issues in These Property?
One of the simplest ways to get a greater understanding of such a fancy holding construction is to have a look at 2019 numbers.
Many of the ¥590B in revenues got here from development & actual property (37%), adopted by inns & leisure (35%) and transport (27%).
When working revenue, transport got here first (46%), adopted by development & actual property (42%) and inns & leisure (12%).
The actual property group consists of revenue from each developed and undeveloped properties.
It’s not very clear from the corporate’s displays if a few of the inns “beneath administration” by the true property phase don’t see a few of their revenue transferred to that division. It’s thus attainable that lodge profitability is barely underestimated.
The full land floor owned is 474 sq. kilometers (183 sq. miles). A small portion is frequently offered or developed. This represents a big untapped potential in Seibu’s valuation, but it surely’s tough to worth exactly. The typical land worth in Tokyo district was ¥1.1M/m2. That will convey the 474 km2 to an absurd worth of ¥520T.
After all, this was common, together with downtown Tokyo and I feel contemplating a a lot decrease worth for this land would make extra sense. Perhaps as little as 1-5 trillion yen. However this could nonetheless be a big margin above a market cap of ¥467B.
So land is certainly a hidden asset of Seibu, even when extremely illiquid and laborious to worth exactly.
The Position of Lodges in Seibu Holdings
So whereas inns symbolize a big a part of income, revenue is extra pushed by transport and actual property. I might not, nonetheless, see the lodge & leisure phase as essentially much less attention-grabbing, as a result of volatility of its income.
This performed negatively throughout the pandemic however can also be the one probably o profit from 3 years of pent-up demand.
Most notably, Chinese language households famously accrued collectively $2.6 trillion in extra financial savings in 2022. Up to now, they’re principally spending on eating places, film tickets, journey, and luxurious items. We will anticipate Japanese shoppers and Asian shoppers, generally, to be in the identical state of affairs of planning long-postponed holidays and making an attempt to take pleasure in life.
Whereas the lodge exercise will seemingly growth, I anticipate the leisure half will do even higher. This additional finances may be spent on higher lodge rooms or longer keep, however more likely might be spent on experiences. And this could enhance all of Seibu’s segments, not solely golf and aquaparks, but in addition eating places, malls, and practice tickets.
A Full Leisure and Tourism Ecosystem
Lodges are principally the entry level of the gross sales funnel, and as such, don’t have to be the revenue middle.
It’s then channeled into different spending by way of the Seibu membership, Prince Membership. The membership ensures the perfect charges, reductions on leisure actions, and cheaper railway day passes.
As well as, each yen spent within the Seibu ecosystem provides the shopper extra factors. This can be a nice function to have, with Asian shoppers being well-known for being fanatics about level gathering.
The factors are additionally legitimate for five years, a great timeframe for recurring shoppers to have a look at how you can use the factors from one keep to the following. It additionally helps assure a base variety of Japanese clients already gathering factors from the common commute, day leisure exercise, or buy at Seibu’s malls.
Dangers
The Seibu group has strong possibilities of rising revenues from Japan reopening. There are, nonetheless, just a few dangers that would endanger this restoration.
Business Actual Property
Working from dwelling might be not going away, no less than not totally. This can make workplace area much less in demand. Emptiness charges have surged within the residential and workplace areas, seemingly fully pushed by workplaces.
So we must always anticipate a few of the actual property revenue to say no barely within the subsequent few years, even when workplaces are only a small portion of an actual property portfolio dominated by residential and retail area.
It may additionally decelerate land improvement, and workplace mission may be canceled.
Geopolitics
The connection between China and Japan is just not all the time the perfect and will degrade rather a lot additional in case of rising tensions round Taiwan and the South China Sea. This might harm the move of Chinese language vacationers to Japan, neutralizing the post-covid growth results.
Liquidity
Liquidity is all the time a difficulty when coping with asset-heavy firms like actual property, inns, and railways. It doesn’t totally matter if property are method above liabilities if money to fund every day operations runs out. The choice is then to promote some illiquid property or elevate extra debt.
And that is precisely what occurred to Seibu Holdings with COVID. In early 2022, it offered $1.3B value of inns – a 3rd of its whole portfolio – to the Singapore sovereign wealth fund GIC. Or a 3rd of the overall portfolio. If measured in Yen, this deal turned out higher than anticipated, because it passed off simply earlier than the large devaluation of the yen.
Seibu is anticipated to maintain managing the inns, however will solely function them as a substitute of proudly owning the bodily construction. This could not harm the group’s synergy and cross-profit, whereas it offered it with a much-needed infusion of money to go over the COVID disaster and restart growth.
6. Financials
The Pandemic Impression
2021 was a tough yr for Seibu, though not as unhealthy as 2020 when Japan got here to a standstill. It barely managed to get again to constructive web revenue, principally out of land gross sales.
Equally, returns on fairness and property had been again to constructive territory in 2021, however a lot beneath their historic ranges of 10-12% ROE and 2-4% ROA.
Optimistic 2022 Forecasts
By every phase, we will have a extra detailed image of the restoration. Seibu Holdings supply wonderful high quality monetary reporting, one thing typically uncommon with a Japanese company.
Total, income are again, however nonetheless no less than half of what they had been pre-pandemic. This can be a truth to remember when discussing Seibu’s valuation in comparison with its present earnings and money flows.
Transport
Lodge & Leisure
Steadiness Sheet & Money Circulation
On the finish of 2022, Seibu had ¥89B in present property, versus ¥284B in present liabilities (of which ¥89B in present borrowing).
Complete property stand at ¥1.58T, versus whole liabilities of ¥1.1T.
This appears worrying at first look however is a priority provided that Seibu is unable to refinance its debt. This can principally rely on Seibu’s long-term credibility and skill to return to revenue.
Working actions offered a constructive web money move of ¥30.5B. Within the final quarter, reimbursement of debt did price ¥60B.
Total, Seibu’s monetary state of affairs might be described as relatively tense however not alarming. The corporate ought to be capable of safe extra short-term funding if the necessity arises, particularly with Japan’s reopening, enormously lowering the chance on such loans.
Valuation
The corporate is buying and selling at a P/E of 4.8 and a price-to-sales ratio of 1.12. Total, Seibu is reasonable, and its valuation doesn’t worth any enchancment from additional re-opening and tourism progress.
It may be mentioned that the not-so-perfect steadiness sheet justifies a reduction. However it is a far cry from worldwide inns group valuation, for instance, InterContinental Lodges Group PLC (IHG) buying and selling at a P/E of 32 and a price-to-sales ratio of 2.9.
It appears truthful to say that Seibu’s valuation is low for its property, model, or financials.
A doubling of those ratios would nonetheless preserve valuing Seibu at a typical Japanese low cost, and again to the decrease vary of its historic common of a P/E between 11.5 to 21.5.
The identical disaffection from buyers will be noticed in Seibu’s shareholder construction, with solely 16% of the shareholders being not Japanese.
A revaluation of Seibu is a definite risk however would possibly take on the very least just a few months, doubtlessly a number of years. So buyers on this inventory should be very affected person. And possibly be happy within the meantime with the present dividend of 2.8%.
7. Conclusion
Seibu is an easy investing concept counting on a particular occasion, the re-opening of Japan after the covid pandemic. Whereas that is considerably of a given, the dimensions and timing of this reopening, in addition to its penalties for the tourism sector, are laborious to foretell totally. One other occasion of unsure length, the weakening of the Yen, may additionally contribute to a Seibu Holdings turnaround.
What’s extra sure is that Seibu Holdings is prone to have handed the vital hazard zone of low liquidity in the course of the pandemic. Returning profitability and pent-up demand ought to convey the corporate again into constructive money move territory and overcome most short-term dangers.
From a long-term perspective, Japan’s tourism sector is poised for long-term progress, supported by the nation’s cultural clout and high-quality tourism business. With its diversified supply of tourism providers, leisure points of interest, infrastructure, and retail, Seibu is well-positioned to capitalize on this progress.
Its actual property property within the Tokyo area can also be seemingly to supply a gradual revenue within the subsequent decade, prone to the extent of the present whole market cap or possibly much more.
From that perspective, Seibu’s entire property are unlikely ever to be offered at a firesale valuation, as one other higher capitalized actual property group or fund would wish to purchase these property and outbid different events. As proven by the latest sale of a number of inns, the present valuation is as little as it will get for potential acquirers.
Ultimately, Seibu might be greatest for a really inactive kind of investor, keen to attend for anyplace between 3 to fifteen years for the group to develop and its asset’s full worth to come back into play and be accounted for accordingly by the markets.
Holdings Disclosure
Neither I nor anybody else related to this web site has a place in Seibu Holdings or plans to provoke any positions inside 72 hours of this publication.
I wrote this text myself, and it expresses my very own private views and opinions. I’m not receiving compensation from, nor do I’ve a enterprise relationship with any firm whose inventory is talked about on this article.
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