1. Healthcare

Morningstar Equity Research Report　2014.12.15
Diversified real estate operator, including value-add real estate and REIT management
Recommendation rating（12/12）
Ichigo Group Holdings Co., Ltd.（2337・JASDAQ）
Stock Price
Unit of Investment
271yen
（12/12）
100Shares
BUY
Market Cap
Year High
Year Low
PER
（E）
1,354.1Bil yen
390yen
（14/1/7）
212yen
（14/10/17）
（12/12）
（12/12）
22.3
Improving profitability from real estate sales; accelerating principal investments
■Ichigo marked higher profitability for real estate sales and
achieved a sharp rise in operating profit for 1H of FY2014
Ichigo Group Holdings Co., Ltd. reported its consolidated results
for 1H (March － August 2014) of FY2014 ending February 2015,
with revenues falling 52% from the same period last year to 9,879
million yen, but marking a sharp rise in operating profit at 3,124
million yen (up 39.3%). The gross profit margin for the period
soared to 45.4% (compared with 8.2% logged in the year ago period). This was due in large part to the improved overall profitability
of real estate sales, mainly on the back of a robust real estate market environment in Japan, coupled with the contribution from increased dividends from non-consolidated real estate SPCs (special
purpose companies). Gross profit remained at a low level relative
to last year despite a sharp rise in revenues from real estate sales.
This is attributable to the fact that some real estate assets were sold
to the REIT (real estate investment trust) managed by Ichigo (‘Ichigo
REIT’) and others were large-scale but low-profitability assets.
Regarding earnings for other business segments, the asset management (‘AM’) segment suffered sluggish revenue growth amidst
its policy to scale back on the management of private real estate
funds. However, it recorded higher rental income from its owned
real estate properties, while the clean energy segment reduced its
operating loss year-on-year thanks to increasing operations from its
solar power plants, helping to raise Ichigo’s overall operating profit.
■The majority of full-year revenues will be recognized in
4Q as real estate asset sales will be concentrated therein;
the share price is relatively undervalued
Ichigo expects that consolidated revenues and operating profit
for FY2014 will be 42,000 million yen (up 19.7% year-on-year)
and 7,700 million yen (up 96.8%), respectively. The achievement
rates against the targets at the end of 1H FY2014 were slightly
disappointing, with actual revenues achieved just 23.5% of the
target while operating profit reached 40.6% of its target. However,
Ichigo anticipates to record revenues and gross profit for 4Q (December 2014－February 2015) at roughly 21.1 billion yen and 2.1
billion yen respectively as it expects a number of real estate assets
to be acquired by Ichigo REIT during that quarter. We believe that
Ichigo will book further revenues from sales of other real estate assets, rental income, and AM fees. Consequently, its full-year results
are likely to be roughly in line with its forecasts.
For FY2015, the last year of its mid-term business plan, Ichigo
expects operating profit to stand at 11,400 million yen (2.9X
vs. FY2013). The revenue forecast for the year is not disclosed.
With its steadily profitable business and benefiting from positive
factors such as the current favorable market environment, Ichigo
is shifting its focus to speedier principal investment rather than
seeking funds from third parties. Ichigo has accelerated the
Revenue and Earnings Trend
2015-2
2016-2
26 Weeks Moving Avg.
400
300
13 Weeks Moving Avg.
394
200
1,000
Shares
212
100
Volume
Month 12
1
2
3
13 Weeks
Moving Average
￥272
13 Weeks Moving Avg.
4
5
6
7
26 Weeks
Moving Average
￥293
8
9
10
11
12
150
100
50
0
Volume
（13 Weeks Average）
24,413,262Shares
acquisition of real estate assets principally by deploying the funds
raised through its first-ever public offering of new shares, executed
in November 2013. Its investment plan for FY2014 of 80 billion
yen (including real estate acquisitions of 70 billion yen) is highly
likely to be achieved, thanks in large part to a substantial number
of acquisitions concluded during December 2014. It expects to
spend at least the same amount of funds to acquire further assets
in FY2015. In this environment, its value-add real estate business,
which adds value to acquired real estate assets before it sells them,
is expected to continue to see profit growth for some quarters
ahead. The AM segment has improved its profitability after it reduced the amount of less profitable private real estate funds that
it manages. This has helped raise its fee levels (on average) for
managing private real estate funds and Ichigo REIT.
The upward momentum of Ichigo’s share price has been
moderately held in check, after it sharply rose at the end of October
in response to the news that the Bank of Japan had decided to
expand its monetary easing program. We think, however, that
the market will make a fresh evaluation of its earnings growth
potential after this adjustment period has ran its course. Ichigo
presents higher rates of earnings growth than its competitors,
despite its forecast PER for FY2014 appearing to be undervalued
compared with industry peers, such as Kenedix, Inc. <4321> at
36X. We believe that Ichigo’s share price has the potential to
rise to the PER level of around 30X. In light of this opinion, we
commence valuation of Ichigo shares with a new
「BUY」
rating, with
an estimated share price range of 300 yen to 400 yen.
(Shigeru Matsuo)
（As of December 12）
Revenue
（Yen Mil）
2013-2
2014-2
￥300 ～￥400
Estimated Share Price Range
Yen
500
Past Results
Past Results
Company est.
MS est.
MS est.
16,397
35,101
42,000
42,000
55,500
YoY
（％）
▲13.5
2.1X
19.7
19.7
32.1
Operating Profit
（Yen Mil）
1,844
3,912
7,700
7,700
11,400
YoY
（％）
75.6
2.1X
96.8
96.8
48.1
Ordinary Profit
（Yen Mil）
1,734
3,597
6,500
6,500
9,600
YoY
（％）
77.1
2.1X
80.7
80.7
47.7
Net Profit
（Yen Mil）
1,637
4,526
6,055
6,055
9,050
YoY
EPS
（％） （Yen）
▲7.5
2.8X
33.8
33.8
49.5
3.7
9.8
12.2
12.2
18.3
On September 1, 2013 stock split (1:200)
This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding the
accuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.
（1/3）
Morningstar Equity Research Report　2014.12.15
Ichigo Group Holdings Co., Ltd. (2337・JASDAQ)
■Company Overview
Ichigo Group Holdings is a value-add real estate owner/
operator and real estate services provider, including managing
a J-REIT, Ichigo Real Estate Investment Corporation (Ichigo
REIT <8975>). In recent years, Ichigo entered the clean energy
business via solar power generation. Ichigo’s name derives from
a maxim in the art of the Japanese tea-ceremony, 'Ichigo Ichie’
, meaning “treasure every encounter as unique and special.” The
predecessor to Ichigo was established in 2000. Since then, it has
raised its profile as a pioneer in asset securitization, with major
projects including the arrangement of the securitization of assets
from the Ikebukuro store of Seibu Department Stores, Ltd., and
has diversified its business as it has grown
Ichigo’s reporting segments comprise Asset Management
(whose proportion of revenues to total consolidated revenues for
FY2013 was 11.7%), Real Estate (22.4%), Real Estate Value-Add
(63.5%), Clean Energy (0.4%), and Others (2.0%).
The Asset Management segment engages in asset managementrelated services for Ichigo REIT and private real estate funds. The
Real Estate segment generates rental income from real estate
assets that Ichigo intends to hold either for a long term or sell
to Ichigo REIT. The Real Estate Value-Add segment focuses on
increasing the value of acquired real estate assets and selling
them at a high-level of profitability.
The geographical distribution of Ichigo’s asset portfolio (for
assets outstanding as of August 2014) is Tokyo (52%), other
Kanto region (18%) and Fukuoka (13%). Ichigo’s portfolio by asset
type is offices (41%), retail (32%) and mixed (8%). Ichigo excels at
managing real estate assets valued at around 2 billion yen.
■Business Environment and Outlook
List of Real Estate Assets Acquired from Ichigo REIT (As of December 2014)
Real estate property
Forecity Roppongi
Forecity Asabu-Juban
￥1.57 BL
￥1.13 BL
Forecity Asabu-Juban Nibankan ￥1.22 BL
Forecity Siraganedai
￥0.75 BL
Forecity Akihabara
￥2.19 BL
Suite One Court
￥0.65 BL
￥0.95 BL
Forecity Sasazuka
Gran Presso Kawadacho ￥0.5 BL
Forecity Sakura Shinmaci ￥0.71 BL
￥0.99 BL
Forecity Sin-Kamata
￥0.33 BL
Forecity Nakaochiai
￥1.65 BL
Forecity Tomigaya
￥1.08 BL
Forecity Ryogoku
￥1.78 BL
Forecity Toyosu
￥0.98 BL
Forecity Nishihonmachi
Forecity Akihabara
Forecity Toyosu
Total acquisition cost ￥16.52 BL
（for 15 real estate properties）
Source: Morningstar, based upon Ichigo disclosed data
Change in Ichigo Group Holdings Consolidated Operating Profit
(millions of yen)
6,000
5,000
Asset management
Real estate value-add
Others
Real estate
Clean energy
4,000
3,000
2,000
1,000
0
-1,000
The real estate market in Japan has been gathering steam on
the back of the government’s aggressive economic policy known
as Abenomics, spearheaded by Prime Minister Shinzo Abe, and
large scale monetary easing programs promoted by the Bank of
Japan. Although there still remains a slight sense of uncertainty
about the outlook for the Japanese economy, the domestic real
estate market, particularly in Tokyo area, is expected to sustain
its steady performance over the medium-term, thanks in part to
projects in the run-up to the 2020 Tokyo Olympics.
Under these circumstances, Ichigo has announced a mid-term
business plan titled Shift Up 2016 with FY2015 as its final year.
Under the plan, it is pressing ahead with acquiring real estate
assets on a principal basis in a timely manner, while in the AM
business it is downsizing less profitable private real estate funds
to improve overall AM profitability. As the target for the final year
of its mid-term plan, Ichigo aims to achieve an operating profit of
11,400 million yen (2.9X vs. FY2013) and ROE (return on equity)
at 15% or higher (11.8% in FY2013). In addition to this, Ichigo has
set the dual goals of being listed on the first section of the Tokyo
Stock Exchange as well as being selected as a component of the
JPX Nikkei Index 400.
Acquisition
cost
FY2012
FY2013
FY2014
(Company forecast)
Source: Morningstar, based upon Ichigo disclosed data
Risk Factors
Ichigo’s operations and business performance are highly
likely to be dependent on the real estate market conditions.
Therefore, a rapid fluctuation in the market poses a risk
to Ichigo. If the real estate market liquidity lowers, Ichigo’
s plans to sell its own real estate assets may fail to progress
as scheduled. A large proportion of real estate assets held by
Ichigo is located in the Kanto region including Tokyo; this
means that it remains vulnerable to natural disasters such
as large scale earthquakes in the region. In a phase of higher
interest rates, its operations may suffer several challenging
conditions like rising capital costs, increasing investors’ cap
rates, or falling real estate prices. In addition to the risks
above, revisions to relevant laws and regulations, notably the
Financial Instruments and Exchange Act and the Building
Lots and Buildings Transaction Business Law, could affect its
operations.
Shareholder Return （As of December 12）
■ Dividends
■ Shareholder Special Benefits
Dividend Per Share
Midterm
Year-End
Annual
2013-2
Past Results
￥0
￥1.00
￥1.00
2014-2
Past Results
￥0
￥1.10
￥1.10
2015-2
Company est.
￥0
￥1.30
￥1.30
On September 1, 2013 stock split (1:200)
This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding the
accuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.
（2/3）
Morningstar Equity Research Report　2014.12.15
Ichigo Group Holdings Co., Ltd. (2337・JASDAQ)
（As of December 12）
Competitor Comparison（If the number is better than rivals, it's highlighted by red character）
Ichigo Group
Holdings Co., Ltd.
Kenedix, Inc.
(2337・JASDAQ)　Stock Price
Basic Point
Share Price
Indicator
Unit of Investment
Profitability
Financial
Health
(3003・TSE 1st)
￥271
￥551
￥1,108
100Shares
100Shares
100Shares
Minimum Investment Amount
￥27,100
￥55,100
￥110,800
Fiscal Year End
February
December
December
22.3
36.6
36.5
3.7
PER（E）
PBR
Dividend Yield（E）
Revenue Growth Rate（E）
Growth
Hulic Co., Ltd.
(4321・TSE 1st)　Operating Profit Growth Rate（E）
2.8
2.1
0.5%
0.5%
19.7%
11.3%
96.8%
0.7%
84.4%
7.0%
16.8%
81.7%
29.6%
12.4%
3.3%
9.8%
3.7%
3.6%
3.8%
42.2%
48.0%
92.6%
24.4%
262.5%
375.5%
82.7%
EPS Growth Rate（E）
23.7%
Operating Margin（E）
18.3%
11.8%
ROE
ROA（Ordinary income/Total
assets）
Equity ratio
Debt-Equity Ratio
113.1%
1130.2%
Current Ratio
17.0%
Our chosen industry peers are Kenedix, Inc. (4321), a leading real estate fund management firm and, although the market capitalization is different from
Ichigo, Hulic Co., Ltd. (3003), a developer of real estate properties mainly located in Tokyo.
Kenedix, Inc. manages two listed REITs, Kenedix Office Investment Corporation (8972) and Kenedix Residential Investment Corporation (3278), while Hulic Co.,
Ltd. has one, Hulic Reit, Inc. (3295).
■Growth
■Profitability
■ Financial Health
For the consolidated fiscal year
ending February 2015, Ichigo forecasts
operating profit to increase 96.8% from
the previous year. Ichigo’s earnings
growth stands out among industry peers.
Its high profit growth projection reflects
its confidence in robust profitability
and a favorable market environment,
as well as an acceleration of real estate
investments using its own funds, which
allows greater flexibility for Ichigo to
make investment decision at its own
discretion as it shifts its focus towards
the implementation of proactive
real estate acquisitions from the
accumulation of knowledge and skills
in the real estate revitalization business.
In addition to its main real estate
business, it is pursuing profitability
in mega solar and other businesses,
with an eye to securing stable revenue
flows from multiple business segments,
not just real estate operations. About
two competitors, Hulic shows notable
revenue growth, but this mainly
reflects its real estate asset sales to
own-managed REIT that went public
in February 2014. Kenedix needs to be
considered posting extraordinary gains
in view of its EPS growth. We believe
that Ichigo will expand its profit levels
in the medium-term as it places greater
emphasis on boosting its EPS growth in
its mid-term business plan.
Ichigo’s operating profit margins
are average among industry peers.
However, we think its profitability
will show an upward trend due to
factors including the expansion of
its value-add real estate business
and stable rental earnings, although
a certain level of sales of relatively
low profitable estate assets to REITs
managed by Ichigo is likely to be
continued. The AM segment has been
cutting down on unprofitable private
real estate funds. Consequently, while
its assets under its management
are on a downward trend, Ichigo is
improving its profitability. Ichigo
boasts the highest ROE (return on
equity) among industry peers at
11.8%. Its mid-term business plan aims
to achieve a greater than 15% ROE
in FY2015 and going forward. Ichigo
set this objective with an eye to being
selected as a component of the JPXNikkei Index 400, which consists of
high-ROE companies.
Thanks in part to Ichigo’s first-ever
capital increase through a public share
offering conducted in November 2013
(offering new and existing shares to
investors), it currently holds ample
funds. It has steadily increased the
amount of real estate assets held
for sale, running an extremely high
current ratio compared with industry
peers. Its capital adequacy ratio is
also at a robust level. The debt/equity
ratio at 113.1% is not at a particularly
alarming level, but its interest-bearing
debt ratio as at the end of 1H FY2014
has increased to 176.0%, so we need
to be mindful of its future direction.
Overall, Ichigo’s financial condition
appears to be sound and stable.
Morningstar Japan K.K.
Equity Research Group
Research & Analysis Department　Analyst　Shigeru Matsuo
03-6229-0810 [email protected]
This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding the
accuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.
（3/3）
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We determine upper and lower range of stock price based on
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Analysis Points
■ Analyst Comment
■ Company Overview
■ Growth
most recent earnings trend and business
company is engaged in and how revenue
the company’s forecasts of growth
environment. It shows the most important
sources are defined. Also on the basis of
rates for sales, operating profit and EPS
information for stock investment such
our research, it discusses what businesses
with competitors, and evaluate past
as evidence for investment decisions,
the company will focus on in years to
background and growth potential of the
perspectives on earnings forecasts and
come and how it carries out mid-term
main business.
business prospects. Also to make sure it
business plan.
Each analyst reports and evaluates the
is easy to comprehend, we write in 2-4
paragraphs and use bold to emphasize
important texts.
It explains in detail what businesses the
■ Business Environment and Outlook
For the current fiscal year, we compare
■ Profitability
We compare the company’s forecast of
It discusses current circumstances and
operating margin for the current fiscal
growth potential of the industry to which
year, and return on equity and return on
the company belongs. A comprehensive
asset based on the past year result with
It reports earnings in past two fiscal years,
report on the industry from different
competitors, and evaluate profitability
company forecasts and our forecasts for
perspectives is provided through research
trends over the past years.
the current and next fiscal year. We predict
interviews to competitors. Specific figures
earnings based on research as well as past
of the industry data are also introduced.
■ Revenue and Earnings Trend
quarterly earnings trend and analysis by
segments.
■ Risk factors
■ Financial Health
We compare the company’s equity ratio,
debt equity ratio (=interest-bearing debt/
It shows the company’s risk factors and
equity*100) and current ratio (=current
describes various aspects of risks such as
assets/current liabilities*100) for the past
business, earnings and financials. Typical
fiscal year with competitors, and evaluate
stock market risks are also taken into
financial stability based on the amount of
consideration.
cash and deposits and cash flow.
This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding the
accuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.