Park24 Co Ltd
TSE:4666
Earnings Call Analysis
Q2-2023 Analysis
Park24 Co Ltd
Park24's strong performance in the first half of FY 2023, led by the Mobility Business, included net sales of JPY 157 billion and net income of JPY 7.9 billion, surpassing initial projections. The post-pandemic climate, with relaxed COVID-19 restrictions fueling a rebound in activity, served as a boon for both corporate and individual customer segments. The Mobility Business has especially benefited from a 26.3% year-on-year increase in individual usage resulting from the lifting of two-year restrictions.
Despite the profitability of the Mobility Business being called into question by a newspaper article, Nishikawa clarified that most vehicles are parked in Times24 lots, an intragroup transaction eliminating parking facility expenses from accounting. With an operating profit of JPY 8 billion, and even after considering parking expenses, the business profit for Times Mobility is still substantial at JPY 5.6 billion, while the profit per vehicle remains positive at JPY 17,600.
The International Parking Business, despite a slower recovery compared to domestic operations, is progressing with a profit plan expecting JPY 0.3 billion for the first half of FY '23, slightly exceeding the target. With ongoing development and the establishment of localized Times PARKING sites, the international division is expected to contribute to future profits and overall business improvement.
The company's shareholders' equity has grown to JPY 60.7 billion, with a net equity ratio improved to 19.6%. Park24 revised their forecast upward, with net sales now expected to reach JPY 326 billion and profits attributable to owners of JPY 14.5 billion. Notably, the Mobility and Domestic Parking Businesses are set to outperform the initial projections by JPY 4.1 billion and JPY 1.1 billion, respectively.
A cornerstone of Park24's sustainability initiative is the transition to eco-friendly vehicles. Over 40% of the Times CAR fleet comprises electric or hybrid vehicles, leading to a notable decrease in CO2 emissions per kilometer. This commitment to reducing their environmental impact is part of Park24's broader goal of increasing corporate responsibility and sustainability.
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I am Nishikawa. Thank you very much for taking time out of your busy schedule today to attend the Financial Results Briefing Meeting of Park24 for the First Half of the Fiscal Year Ending October 2023. I will now explain the overview of the financial results following the presentation material. First, let me go over the figures. The net sales were JPY 157 billion. Gross profit was JPY 41.6 billion. Operating profit was JPY 15 billion. Recurring profit was JPY 11.4 billion, and net income was JPY 7.9 billion. All items exceeded the plan for this fiscal year announced last December, and we had a very strong half year. The main reason for this strong performance was the favorable external environment with the impact of COVID-19 limited than what we had expected. The plan for this fiscal year was based on the trends of the fourth quarter of the previous fiscal year, August, September and October of last year, and was with the expectation that the external environment will recover to some extent. However, the external environment in the first half was better than our expectations. The number of COVID-19 cases did increase slightly in January around the beginning of the year. However, there were no measures imposed to prevent the spread of the disease. No emergency declarations were made nor restrictions on activities issued. Therefore, the impact on our business was minor, and our business progressed very strongly. This is the background of the favorable results. This also made a positive contribution to the increase in profit. And I think we can say that overall, this 6-month period, the business progressed very favorably. That was on the overall figures. Next, I will explain the financial results for individual business segment. As shown on Page 5 of the presentation material, the net sales are JPY 79.1 billion for Parking Business Japan, JPY 45.5 billion for Mobility Business and JPY 32.7 billion for Parking Business International. As for the business profit and loss, JPY 15.2 billion for Parking Business Japan, JPY 8 billion for Mobility Business and Parking Business International was 0. All items here also exceeded the original plan. Overall, in the Parking and Mobility Business in Japan, the improvement in the external environment, as I mentioned earlier, is the most significant factor. On the other hand, the measures taken during the COVID-19 period, such as the cancellation of unprofitable parking facilities contributed. In the Mobility Business, we also made efforts to reduce costs. And as a result of the improved external environment and extremely large jump in profits were achieved and the business is performing very well. In the Parking Business International, the result was 0. The external environment has been improving to a certain extent, but the return to profitability has been slower than in Japan. And at this point, we have managed to reach breakeven. It will not be until the second half of the current fiscal year that we will be able to return to the track on a quarterly basis. Right now, it is in the process of gradual recovery. Next, I would like to explain the details of each business. This page is on the domestic parking business. Everything is going very well in this business. We are making good progress in terms of parking lot occupancy and net sales. The business profit ratio of the domestic parking business is 19.2%, a 2.6% improvement over the business profit ratio in the second quarter of the fiscal year ending October 2019, pre-COVID. The main reasons for this improvement in the business profit ratio include, as I mentioned earlier, the cancellation of unprofitable properties and the reduction of rents for some parking lots. These measures have been very effective, resulting in a very good profit margin. Compared to the first half of the fiscal year ending October 31, 2019, the net sales were lower by JPY 1.6 billion, but profit was higher by JPY 1.8 billion. As for the number of parking lots, until the previous fiscal year, we were very selective and limited the number of site developments to about 500. The plan was to deploy only 500 sites per year, focusing on properties with high profitability and quick turnaround. In this fiscal year, we will continue to be selective in developments, but the target number of sites to develop is doubled to 1,000. As of the second quarter of this fiscal year, we had developed 504 sites, so developments are progressing very smoothly according to plan. The business has been progressing very strongly. In the domestic parking business, we are currently increasing the number of parking lots with automatic number plate recognition cameras, which will also contribute to profitability improvement. Our conventional parking lots have tire stoppers and flaps or gates at the entrance and exit of large-sized sites. But recently, we have been increasing the number of sites without flaps nor gates and instead controlling with automatic number plate recognition cameras. One of the advantages of the use of camera is that it is easy for customers to park their cars because there are no tire stops and flaps. From our point of view, the advantage for us is that we can reduce the cost of capital investment. Going forward, we intend to increase the number of parking sites with cameras with priority and emphasis on partner service parking facilities. Next, I would like to explain the mobility business. The mobility business is currently performing even better than the parking business. In the previous fiscal year, we were suspending the deployment of new vehicles since there is a time lag in the contribution to profits from newly deployed vehicles, which causes the reduction of profit. Due to this reason, we did not increase the number of cars in the previous fiscal year in order not to dilute profits. However, in this fiscal year, we are increasing the number of cars, returning to the previous pace of increase. While increasing the number of vehicles, both net sales and profit have been steadily growing. Compared to the end of last October, the end of the previous fiscal year, the number of vehicles has increased by about 3,500 as of the end of the second quarter, and our business profit has also reached a record high. The overall business profit for this segment is JPY 8 billion. And the next chart shows the per vehicle breakdown. The net sales per vehicle per month in the second quarter was JPY 114,300, which is the highest sales per unit in the past. With regards to the background, as I have already mentioned, the improvement of the external environment is the most significant factor. Also, as was recently reported during the Golden Week holidays, the overall restrictions on activities were lifted and the classification of the COVID-19 was downgraded to common infectious disease. With such background, the current mindset of people is such that they are finally free from the 2-year restrictions and the usage by individuals is growing very strongly, and this is reflected in the figures. The corporate usage is also growing, but the usage by individuals have grown by 26.3% year-on-year. The monthly usage fee for individual users before COVID-19 was JPY 59,600, but now it is JPY 76,500. The corporate users are also growing. Before COVID-19, it was JPY 28,800, and it is now JPY 37,800. But the growth of the individual users is contributing greatly to the current favorable performance. Overall, both corporate and individual usages are growing. So the Mobility Business has been performing very well up to the second quarter. A few days ago, an article about our Mobility Business appeared in the newspaper, but there may have been an issue with our explanation, and there was a misunderstanding. So I would like to take this opportunity to make a correction. The article published said that the Mobility Business is making a profit. But if you look at the cost of parking the vehicles, the cost of parking is almost equal to the profit, and therefore, there is almost no profit generated. In reality, most of the vehicles are parked in Times24 parking lots. However, the parking facility expenses for our vehicles are basically eliminated as intragroup transactions for accounting purposes. So a large amount of profit is recognized, but even if the parking facility expenses are taken into consideration, the Mobility Business still makes a profit, as shown in the chart. The left-hand side chart shows the total business profit of the Mobility Business, which is JPY 8 billion. The parking facility expenses are not included in the accounting since they are eliminated through intragroup transactions. The car sharing business is operated by a company called Times Mobility. Parking Business is operated by Times24. Even if Times Mobility pays Times24, for the expenses of parking facilities, the Times Mobility still earns a business profit of JPY 5.6 billion. The chart on the right shows the operating profit per vehicle. On a consolidated basis, the operating profit per vehicle is JPY 25,900. But even if the parking facility expense is paid to Times24, there is a profit of JPY 17,600. In reality, the situation is quite different from what is reported in the newspapers, and the profit is still generated even after parking facility expenses have been paid. The next topic is the Mobility Business. You may have seen them somewhere, but we launched a very first full-scale mass promotion. Our ads for on signages at stations and above the doors and trains. We also set banners with Times CAR stations. We didn't go for TV commercial or mass promotion until now because it doesn't immediately push up the parking utilization rate. However, when it comes to car sharing business and helps awareness boost and can share particular use cases. And this time, the TV commercial attempted to acquire corporate customers. So we aired a story digitalizing the scene where a sales rep in charge of corporate business visit their customer and explain services. Frankly speaking, we haven't seen a significant effect since the commercial was aired only in Tokyo and surrounding 3 prefectures for less than a month, which totals to 500 to 600x. We honestly don't expect 1 single commercial generates massive corporate accounts at all. But the commercial replicates and envisualize what receivables rep used to explain to our customer. It shows the way how our service be come in handy and become more effective because customers can reduce time of their sales traveling. We specifically want to appeal to the decision makers of SMEs, showing them how much the work will become more effective and frictionless by using our service. And that should lead to increase of corporate customers, contributing to higher utilization rate on weekdays. Next is the Parking Business International. Since Parking Business Japan and Mobility Business are so robust. It is an unfavorable situation compared to them or it may even look a little sluggish. Actually, the Parking Business International laid out the profit plan and expect JPY 0.3 billion as of the end of first half of FY '23, which is on track or even slightly outperformed. So the results are good indeed, but they look less favorable with not much traction they should have otherwise when it compares to the extremely well-performing domestic parking and Mobility Business. But as I said, the international business is progressing despite rather moderate pace of recovery of the external environment. We expect both the profit and profitability in the international business will gradually improve. Page 13 covers U.K. business alone out of the international business because its scale is far larger than other regions. U.K. business uses pound, sterling or GBP as currency and converted to Japanese yen, which makes things convoluted, so I prepare the Chart 10 to show both yen and GBP. We had JPY 17.6 billion of net sales, business profit was JPY 0.4 billion and breakeven point is JPY 17.2 billion. The first half of FY '23 resulted in JPY 16.8 billion and business profit should have been minus 4% instead of minus 6. Using yen as currency makes calculation inconsistent, but if you switch to GBP, it helps you follow numbers easily. FY '19 was GBP 122 million with GBP 3 million of business profit, which means GBP 119 million as the breakeven point in GBP. Taking that into account, the first half of FY '23 was 103, which could have been minus 16%, but we see held up with minus 6%. Costs improved by GBP 10 million. So the business has been improving and becoming healthier. That said, due to the external environment affecting our business, sales grew rather slow, so is profit, where we expect both will pick up gradually. Regarding new site development. Chart 11 shows the status of localized TP or Times PARKING. Localized means the concept remain the same as Japan business, actively developing small outdoor flat sites. For the development itself, we are steadily adding more sites, and we'll continue to focus on expanding localized Times PARKING business to contribute to profit as well as its improvement. Regarding other regions, Australia and New Zealand are covered on Chart 12. Taiwan, Singapore and Malaysia are on Chart 13. There are a few differences, but they are all on track. Because the size of U.K. business is much larger relative to others, it may seem to hold us back a little bit, but other regions are performing favorably. That's the status of the international business. One of the topics in the international business that I wanted to highlight is our smartphone apps to deliver greater user experience as well as efficient services. We aim to boost utilization rate through IT leverage solution was focused on a better service on a continuous basis, and we will enhance this domain further. Now turning to Page 17. I'll explain the financials. The biggest highlight here is the shareholders' equity, which stands at JPY 60.7 billion, and the net equity ratio improved to 19.6%, thanks to the net profit recognized in the first half of FY '23. The other items are listed on the table of Page 17. We did achieve 19.6%, but our near-term goal is to achieve 30% for equity ratio, and we need just one more effort. On the back of the environment explained, we released an upward revision to consolidated financial results forecast. We revised our net sales to JPY 326 billion, operating profit to JPY 31.5 billion, recurring profit to JPY 25.5 billion and profit attributable to owners of parent to JPY 14.5 billion. A breakdown of the recurring profit is on Table 6 on Page 19. Parking Business Japan is JPY 31.7 billion. Mobility Business is JPY 16.3 billion. Parking Business International is JPY 0.7 billion. Domestic parking business is a robust upward by JPY 1.1 billion against the initial plan. Mobility business expect additional JPY 4.1 billion, while International Parking Business remained the same as the initial plan. Others, including head office expenses is JPY 23.2 billion. So all in all, the recurring profit stands at JPY 25.5 billion. These are the numbers that I announced yesterday. That was a quick overview of Park24's financial announcement for the first half of FY 2023. Last but not least, let me share our sustainability initiatives on Page 21. A key contributor in our business to sustainability is the area of reducing environmental impact. Specifically, increasing the ratio of hybrid and EV cars makes it positive and major contribution to CO2 emissions at the entire mobility business. As of the first half of FY '23, we achieved 41.5%, which means over 40% of total Times CAR vehicles are now EV or hybrid. In other words, we have been replacing vehicles with those that can slash CO2 emissions more. The Table 7 shows CO2 emissions per kilometer in Times CAR service. You can now find a historical trend starting from FY '20. We have been successfully reducing CO2 emissions per kilometer. We're continues to strive to reduce it further. We made the renewal of our corporate sustainability page yesterday. Please come and take a look at our new website. That concludes my quick report on sustainability.