May 12, 2017 3:20 am JST

Seibu shares picking up steam on recovery hopes

Improving hotel segment catches investors' attention, despite lower profits

KYOHEI SUGA, Nikkei staff writer

TOKYO -- Japanese railway and hotel operator Seibu Holdings' stock is attracting investors impressed by the company's plan to raise profitability in the hotel business.

Seibu's consolidated net profit declined 17% to 47.5 billion yen ($418 million) for the year ended March, the company announced Thursday. Investments in hotel renovations contributed to the company's first profit decline in six years, but the strategy is starting to pay off as room prices rise.

"Our hotel business is steadily growing," emphasized Tomoyuki Nishii, a senior managing officer, at a press conference on Thursday. Seibu's new strategy of targeting per-guest spending by foreign visitors rather than the overall number of guests is starting to get results. The company is refurbishing existing hotels on the decline, remaking them into luxury ones, such as The Prince Gallery Tokyo Kioicho, an ultra-luxury hotel built on the site of the former Akasaka Prince Hotel.

The average price per room rose 5% in Seibu's urban hotels. Occupancy rates fell slightly, but higher prices made up the difference. Hotel profitability, measured by multiplying room price by occupancy rate, climbed 4% at Seibu, higher than the industry average of 2.3%.

"Seibu Holdings should be lauded for raising profitability even as excess supply lowers room prices across the industry," said Ryota Himeno, an analyst at Citigroup Global Markets Japan. Seibu is expected to post a slight increase in consolidated operating profit to 63.2 billion yen in fiscal 2017, but the real fruits of its investment are likely to show up as early as next fiscal year.

Seibu's stock is also expected to get a boost from major shareholder Cerberus Capital Management's continued sell-off of its stake in the company. Cerberus first invested in Seibu in 2006, and owned 35.45% of the company as of September 2013. Since Seibu's relisting on the Tokyo Stock Exchange in April 2014, however, the U.S investment fund has divested itself of the stock over several rounds, such as in May 2015 when it sold 9.86% of the stock issued.

Recently, Cerberus decreased its ownership from 9.66% to 2.35%. The response to Cerberus' sell-off has been positive, with both trading in the shares and the price increasing since late April. Daily trading volume had previously been around 1 million shares but has ballooned as high as 6.4 million, and the share price has shot up 13% since the end of March, approaching a year-to-date high of 2,152 yen. The stock edged down 0.48% to 2,059 yen on Thursday in Tokyo.

It is unclear whether Seibu's stock will be able to recover to the 3,000 yen mark achieved in 2015. "Demand tied to inbound tourists was strong at that time so it's hard to see it hitting 3,000 yen again," said Nomura Securities analyst Masaharu Hirokane, echoing market sentiment. One area of focus is likely to be whether Seibu can continue to lure guests while maintaining high room prices.

Seibu Holdings, Inc.

Japan

Market(Ticker): TKS(9024)
Sector:
Industry:
Consumer Services
Other Consumer Services
Market cap(USD): 6,439.92M
Shares: 342.12M

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