R Resorttrust / 4681 COVERAGE INITIATED ON: 2012.07.12 LAST UPDATE: 2018.02.14 Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg. Research Coverage Report by Shared Research Inc. Resorttrust / 4681 RCoverage LAST UPDATE: 2018.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp INDEX How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report. Executive summary ----------------------------------------------------------------------------------------------------------------------------------- 3 Key financial data ------------------------------------------------------------------------------------------------------------------------------------- 4 Recent updates ---------------------------------------------------------------------------------------------------------------------------------------- 5 Highlights ------------------------------------------------------------------------------------------------------------------------------------------------------------5 Trends and outlook ----------------------------------------------------------------------------------------------------------------------------------- 6 Business ------------------------------------------------------------------------------------------------------------------------------------------------ 24 Business description -------------------------------------------------------------------------------------------------------------------------------------------- 24 Strengths and weaknesses ------------------------------------------------------------------------------------------------------------------------------------ 40 Market and value chain ---------------------------------------------------------------------------------------------------------------------------------------- 41 Strategy ------------------------------------------------------------------------------------------------------------------------------------------------------------- 44 Historical earnings results------------------------------------------------------------------------------------------------------------------------------------- 47 Other information ---------------------------------------------------------------------------------------------------------------------------------- 59 Income statement ----------------------------------------------------------------------------------------------------------------------------------------------- 59 Balance sheet ----------------------------------------------------------------------------------------------------------------------------------------------------- 60 History -------------------------------------------------------------------------------------------------------------------------------------------------------------- 62 News and topics ------------------------------------------------------------------------------------------------------------------------------------------------- 63 Major shareholders --------------------------------------------------------------------------------------------------------------------------------------------- 65 Shareholder returns--------------------------------------------------------------------------------------------------------------------------------------------- 66 Top management ----------------------------------------------------------------------------------------------------------------------------------------------- 66 Employees --------------------------------------------------------------------------------------------------------------------------------------------------------- 66 By the way --------------------------------------------------------------------------------------------------------------------------------------------------------- 66 Company profile ------------------------------------------------------------------------------------------------------------------------------------------------- 67 02/68 Resorttrust / 4681 RCoverage LAST UPDATE: 2018.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Executive summary Business Resorttrust develops and operates membership hotels and operates a medical examination club, selling hotel and medical club memberships to affluent households. As of May 2017, it operated 48 hotels, of which 39 were members-only. As of end FY03/17, the company had more than170,000 members, giving it the top share in the domestic resort club industry. At the company's mainstay resort hotel series XIV, one type of membership (rights to 26 nights a year in a room jointly owned by 14 members) costs about JPY20mn. Members pay for hotel services and fractional property ownership. Most members are around 60 years old, and about 90% are owners of medium-sized companies or professionals such as doctors with a net worth of JPY100mn or more. According to the company, most customers buy memberships to use the resort facilities (not to resell for capital gains) and more than 80% of new members are referred by existing members. Resorttrust has increased the number of resort hotels, leading to membership growth of an average rate of 2.6% per annum over the ten years through FY03/17. Resorttrust aims for the members-only medical examination club to provide members with safe and reliable diagnostic testing using advanced medical equipment such as PET (positron emission tomography) and CT (computed tomography) scanners. Customers pay JPY2.3mn to join and annual dues of JPY500,000. Medical examination club membership has grown at an average rate of 13.4% per annum over the ten years through FY03/17. Segments: Membership (29.6% of sales and 51.7% of operating profit in FY03/17), Hotel and Restaurant (51.7% of sales and 22.3% of operating profit), and Medical (17.9% of sales and 22.3% of operating profit). Membership segment revenues come from registration fees, property fees, and other fees such as golf course charges. Revenue from registration fees and property fees are calculated by multiplying the number of memberships sold by the registration fee or property fee per membership. Registration fees are booked in full as sales at the signing of a contract, while property fees for unopened hotels are only booked under sales when the facility opens. Hotel and Restaurant segment revenues come from food and beverages sales, hotel room revenue, hotel shops and amenities sales, revenue from administrative fees, revenue from security deposit deduction, and other income. Food and beverage sales, hotel shops and amenities sales, and room revenue vary with the number of guests. In the Medical segment, Resorttrust sells memberships to HIMEDIC medical centers, manages the facilities, and provides members with visiting nursing care services. Segment sales comprise registration fees and annual dues from HIMEDIC members, deduction of security deposits, and revenues from the senior life business. Trends and outlook For FY03/17, Resorttrust booked sales of JPY143.5bn (+0.9% YoY), operating profit of JPY13.5bn (-27.5%), recurring profit of JPY14.8bn (-23.8%), and net income attributable to parent company shareholders of JPY11.0bn (-15.6%). FY03/18 full-year forecasts are sales of JPY171.0bn (+19.1% YoY), operating profit of JPY17.0bn (+25.8%), recurring profit of JPY18.2bn (+22.9%), and net income attributable to parent company shareholders of JPY11.8bn (+7.2%). Strengths and weaknesses Shared Research sees the company’s strengths as a solid membership base of high net-worth individuals, a short period to recoup investments, and predictable customer traffic and operating costs. Main weaknesses are the aging of existing members pushing down facility occupancy rates, Japan's declining population sapping growth, and volatile reported earnings due to the method of booking property fees (see Strengthens and weakness section). 03/68 Resorttrust / 4681 RCoverage LAST UPDATE: 2018.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Key financial data Income statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Total sales 104,708 87,254 103,645 108,976 99,894 105,311 116,824 120,401 142,249 143,541 171,000 YoY 7.9% -16.7% 18.8% 5.1% -8.3% 5.4% 10.9% 3.1% 18.1% 0.9% 19.1% Gross profit 78,903 70,362 75,010 80,729 80,672 85,316 95,440 102,350 117,783 117,662 YoY 6.8% -10.8% 6.6% 7.6% -0.1% 5.8% 11.9% 7.2% 15.1% -0.1% GPM 75.4% 80.6% 72.4% 74.1% 80.8% 81.0% 81.7% 85.0% 82.8% 82.0% Operating profit 14,241 5,408 11,192 13,173 9,891 12,054 15,119 16,041 18,640 13,514 17,000 YoY 3.2% -62.0% 107.0% 17.7% -24.9% 21.9% 25.4% 6.1% 16.2% -27.5% 25.8% OPM 13.6% 6.2% 10.8% 12.1% 9.9% 11.4% 12.9% 13.3% 13.1% 9.4% 9.9% Recurring profit 14,354 5,444 10,917 13,342 9,443 12,976 16,731 20,206 19,439 14,806 18,200 YoY 4.3%