Japan Research Pack:A Summary of Select Global Markets Research

Investment stance: we forecast strong earnings on back of plentiful order book,reiterate Buy ratingDaito Trust Construction published KPIs for March on 4 April. Construction orders fell14% y-y to ￥97.0bn, bringing full-year 17/3 orders to ￥655.1bn (down 6%), but this waswithin the bounds of expectations given the weak state of orders. Even so, the end-17/3 order backlog was up 3% at ￥921.7bn, which works out at 17-18 months of salesassuming our full-year 17/3 construction sales forecast of ￥624.5bn. Although monthlyorders were down y-y for a sixth straight month, given the lead time of at least 10months from order taking to completion for general apartment construction, we thinkthe plentiful order book means that earnings are likely to remain strong in 18/3. Weretain our forecasts. With a dividend yield of 4.0% on our 18/3 forecast, factoring in thecompany’s shareholder return pledge of 80% (50% dividend payout ratio, 30% in sharebuybacks in the subsequent fiscal year), we reiterate our Buy rating.

    March orders down y-y but still second highest level everAlthough March 2017 orders were down 14% y-y they were still the second highestever for March at the company. That said, the comparison base is likely to remaintough for another couple of months, given that April 2016 sales rose 10% to an all-timehigh for the month and May 2016 orders were also up 23%. The company’s strategy offocusing on new customer acquisitions, which it has been pursuing aggressively,should become more apparent from June, when the y-y hurdles will be lower.

    End-March vacancy rate of 2.92%At end-March, Daito Trust Construction had 1,015,000 apartments under management,with a vacancy rate of 2.92% (43bp improvement y-y). This was the first time ever thatthe vacancy rate has fallen below 3%. While there have been reports and concernsabout rising apartment vacancy rates across the market as a whole, the company iscompetitive in new apartments built in prime locations, helping to deliver a strongperformance.