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TOSEI Corporation: Semi-Annual Financial Results May 2025 · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome, welcome to another Deep Dive. Good to be here.
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  Today, we're taking a magnifying glass to Tose Corporation, specifically their
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  recent financial results. That's right.
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  The consolidated financial results for the six months ended May 31st,
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  2025. We've got the report right here. Exactly.
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  And our mission, as always, is to really dig into these numbers.
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  We want to pull out the key insights,
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  you know. Understand not just what happened, but the why behind it.
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  And what it suggests for where Tose is heading next.
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  What's really interesting, I think, is how these financials kind of paint a
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  picture of the wider Japanese real estate scene.
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  Definitely. You hear a lot about global economic jitters, but Tose's story here
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  seems quite dynamic, quite active.
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  Yeah, it does. And it's compelling to see how their specific strategies,
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  their moves have actually played out against that, you know,
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  broader economic backdrop. So what are we looking at today?
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  Well, we'll hit the key financial figures first, then delve into the market
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  conditions that shape them.
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  And then we'll look at their revised forecast and a pretty interesting corporate
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  action they've announced, a share split. Ah, OK.
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  Good stuff. All right, let's dive into segment one, the actual performance.
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  What do the numbers say? Well, looking at the consolidated results for that
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  six-month period ending May 31st, the growth is pretty clear.
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  Yeah, I saw revenue hit $66,058 million.
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  That's up 14.6% year-on-year. Solid.
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  Very solid. But the profitability figures, they're even more,
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  let's say, striking. Right. Operating profit jumped 18.1%.
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  Yep, to $17,600 million. Profit before tax, up 16.9%. And the big one,
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  profit attributable to the owners of the parent.
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  That's over 21.6% to over $12 billion. Exactly.
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  $12,226 million. It's not just about the revenue growing, it's how effectively
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  that's translating to the bottom line. And that shows up in earnings for share
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  too, right? Absolutely.
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  Basic EPS went from 207.75 to 252.24, a significant jump.
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  And you mentioned financial health earlier. How does that connect?
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  Well, look at their balance sheet strength, the equity attributable to owners
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  as a ratio of total assets that improved.
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  It went from 32.7% up to 35.0%. So a stronger foundation.
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  Precisely. It signals a healthier, more resilient company, which is always good
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  news for investors, you know?
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  Okay, so strong numbers. But why?
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  What's happening in the market, and what did Tose do right? Well,
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  the report gives some context.
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  It talks about the Japanese economy. Maintaining a moderate recovery, was it?
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  Yeah, moderate recovery, driven by better employment, income, government policies.
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  The usual suspects. And the real estate sector itself seems quite buoyant. Very much so.
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  Domestic real estate investments were up 23% year on year. We're talking over $2 trillion.
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  Wow. And Tokyo, get this, ranked first globally for real estate investments by Citi.
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  First globally. That's a huge signal. It really is.
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  But, you know, it's not uniform across the board. There are nuances.
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  Like what? Well, take the Tokyo condo market. Newly built units actually decreased,
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  down 12.5%. Why was that? Mostly soaring construction costs hitting developers
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  hard. It's just more expensive to build right now. Ah, okay.
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  But what about existing condos? That's where the action was.
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  Pre-owned condo contracts jumped 24.5%. People were rushing to buy. Rush. Why?
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  Partly anticipating higher mortgage rates, maybe?
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  And just strong investment demand flowing in.
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  It pushed average prices to
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  a record high. So those construction costs are a really big factor then.
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  The report mentions steel, timber, cement, all going up. Huge factor.
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  So how did Tose navigate that? That's the key question. And the answer. They adapted.
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  They got strategic. In their development business, for instance,
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  they shifted focus. Away from reinforced concrete. Exactly.
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  Towards wooden structures, which can be, you know, more cost effective sometimes.
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  Makes sense. And they also sort of rebalanced their portfolio.
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  Less weight on development overall, more investment pumped into their revitalization business.
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  Revitalization? That's fixing up and reselling older properties?
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  That's the one. It shows they're nimble, right?
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  Responding to those market pressures, shifting capital where it works best.
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  So beyond just dodging costs, which parts of Tosi's business were the real winners this half?
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  Well, performance was pretty strong across the board, but yeah,
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  some segments definitely stood out.
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  The development business, even with those cost issues, saw revenue jump 41.5%,
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  profit up 14.7%. They sold logistics facilities, new rental apartments.
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  Okay. Then there's the fund and consulting business. That surged.
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  Revenue up 38.1% and profit up 53.6%.
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  53% profit growth. What fueled that? New asset management contracts,
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  mainly, including a pretty significant one for a large portfolio of sharehouses.
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  Interesting. And the hotels, with tourism bouncing back. Big time.
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  The hotel business benefited hugely from inbound demand.
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  Revenue climbed 22.0%, and profit shot up a remarkable 45.4%. Yeah.
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  Okay. So strong performance there. Definitely riding that tourism wave.
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  It's interesting, too, you mentioned the Bank of Japan changing its policy rate.
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  But the report says the impact on real estate confidence was, what, limited?
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  Surprisingly limited, yeah. It seems the underlying fundamentals,
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  the confidence in Japanese real estate as an asset class, just held firm.
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  People weren't spooked.
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  That suggests some real deep-seated belief in the market's stability.
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  I think so. Okay, let's shift gears slightly.
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  Beyond profit and loss, what about the balance sheet, financial health?
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  We touched on the equity ratio.
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  Anything else stand out? Yeah, a couple of things. Total assets increased by about $6.8 billion.
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  Driven by? Mostly more cash equivalents and also receivables money owed to them. Okay.
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  And liabilities? Debt. That's the other positive side. Total liabilities actually
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  decreased by nearly $1.9 billion.
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  How? Mainly by reducing what they owed suppliers' trade payables and paying
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  down some interest-bearing debt.
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  So managing their obligations more efficiently. Less debt overall. Exactly.
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  It paints a picture of better control over short-term payments and borrowing.
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  Stronger footing. And the actual cash flow. Money moving in and out because,
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  you know, cash is king. Always.
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  And here, the news is very good. Net cash from operating activities,
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  their core business, was $13,222 million.
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  And how does that compare? It's a massive increase. Up 119.1% compared to the
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  same period last year. Wow. Doubled.
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  That's a strong signal. It's a very strong signal about their ability to generate cash internally.
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  Now, they did use cash for investing, buying assets, presumably,
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  and for financing activities, like paying down that debt we mentioned,
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  maybe paying dividends.
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  But even after those uses, their overall cash and cash equivalents position
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  at the end of the period still went up by nearly $5.9 billion.
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  So more cash generated than spent overall.
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  Healthy. Very healthy sign. Okay. So strong half year, healthy cash flow, adapting well.
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  What about the road ahead, the outlook? Right. Wait, this is where it gets particularly interesting.
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  TOSE revised their full-year forecasts. And forecasts are always key to watch.
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  So what's the revision? Well, here's the twist.
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  They actually lowered their full-year revenue forecast. Lowered revenue after such a strong half.
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  Yeah, they cut it by about $4 billion down to $98,125 million. Huh.
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  Okay. But what about profit? That's the fascinating part.
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  They increased their forecasts for operating profit, profit before tax,
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  and E-profit attributable to owners. Wait, hang on.
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  Revenue down, profit up. How does that work? That sounds counterintuitive.
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  It does at first glance, doesn't it? But there's a strategic reason.
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  It's about timing and business mix.
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  Okay, explain. The report clarifies it. In their revitalization business,
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  they've deliberately decided to push the timing of some property sales.
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  Meaning, sell them later than plants? Exactly. Move them from this fiscal year into the next one.
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  So that revenue disappears from this year's forecast. Ah, OK.
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  So it's a timing shift, not lost revenue forever.
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  Precisely. But while that revenue gets deferred, there are other businesses,
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  particularly what they call their stock businesses.
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  The ones generating steady income.
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  Right. Like the fund and consulting business and the hotel business.
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  Those are expected to perform even better than they initially thought.
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  So those stronger recurring income streams are more than making up for the deferred
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  sales revenue in terms of profit. That's the projection.
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  It's a strategic play, optimize the timing of bigger, lumpier sales,
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  while relying on the strength of the steady earners to boost overall profitability
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  for the year. That's actually quite clever.
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  Sacrificing a bit of top line now for potentially better value later,
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  while the core keeps humming.
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  It shows confidence in those recurring income streams, doesn't it?
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  It really does. And speaking of confidence, what about shareholder returns?
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  Any news on dividends given the higher profit forecast? Yes, good news there, too.
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  Tied to that revised profit outlook, they've bumped up the year-end dividend
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  forecast. Oh, yeah. From what to what?
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  From 0.9 per share originally up to 98 per share. Nice increase.
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  Yeah, it represents a dividend payout ratio of 33.7 percent.
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  So sharing the improved profitability outlook directly with shareholders.
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  A clear signal of confidence, as you said. And finally, you mentioned one other
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  thing, a share split. That's right. A fairly significant corporate action.
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  Tosi's board decided on a two-for-one share split.
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  Okay. Two-for-one. When is that happening? It's effective December 1st,
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  2025. The record date is November 30th. And the reason?
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  Why do a split? Standard reason, really. To make the shares more accessible.
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  It reduces the price per share, or rather, the investment amount needed per trading unit.
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  Lowers the barrier to entry for smaller investors. Exactly.
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  Enhances liquidity, broadens the potential investor base. They hope it makes
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  it easier for more people to invest in the company.
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  Makes sense. Yeah. So just to clarify, the number of shares doubles.
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  Correct. But the overall value of the company's capital doesn't change.
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  No change to the amount of share capital. And importantly, that increased year-end
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  dividend of 98, that's paid based on the number of shares before the split happens.
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  Got it. So shareholders get the higher dividend on their pre-split holding. Correct. Okay.
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  Wow. That was quite a dive into Tose's results and plans. A lot to unpack there. Definitely.
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  So summing up, strong half-year growth, revenue up, profits up even more.
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  Driven by a pretty resilient Japanese
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  real estate market, especially in investments and rentals, it seems.
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  And we saw how they cleverly navigated those rising construction costs.
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  Yeah, shifting to timber, focusing more on revitalization.
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  And getting standout performance from development, funding consulting,
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  and especially the hotel business.
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  Absolutely. And looking forward, that interesting move, delaying some sales
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  revenue but forecasting higher profits anyway.
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  Banking on the strength of those recurring income businesses.
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  Yeah, which underpins the dividend
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  increase and that share split aimed at broadening the investor base.
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  So if you take a step back, what's the big takeaway here for you?
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  For me, it really highlights adaptability. How a company facing external challenges
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  like those construction costs can pivot strategically.
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  Like shifting business focus, changing materials. Exactly. And also the power
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  of strategic timing versus just chasing revenue.
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  Deferring those sales suggests a focus on long-term value, not just hitting this year's number.
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  Right. It shows the value of having those stable stock businesses providing
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  a solid base. It gives you flexibility.
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  It really does. It demonstrates how different layers of a business plan work
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  together, the opportunistic sales, the steady income to build resilience.
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  It certainly makes you think about what constitutes a really robust business
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  model, doesn't it? Yeah. Beyond just the headline numbers. Absolutely. Food for thought.
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  Music.