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Tokyo 2020 Olympics

How to spend it: Taisei juggles $1bn in stashed cash

Olympics bonanza brings in the yen, but company undecided on expenditures

Taisei was the lead contractor for Japan's new National Stadium, the main venue for the 2020 Summer Olympics and Paralympics, which was completed in November.

TOKYO -- The 2020 Tokyo Olympics have been nothing short of a windfall for Japan's top four construction companies: Obayashi, Taisei, Shimizu and Kajima.

But of the quartet, only Taisei has emerged from the party with plenty of cash in its coffers.

Earnings-wise, there is not much visible difference. Net profit at each of the four contractors is expected to land more or less in the 100 billion yen ($915 million) range for this fiscal year ending March 2020.

In the six and a half years since fiscal 2013, when the games were announced, operating cash flow -- which measures cash generated by normal business operations -- has grown the most at Obayashi. It generated 620.7 billion yen, followed by Taisei's 522.4 billion yen, Kajima's 470.5 billion yen and Shimizu's 462.8 billion yen.

However, Taisei stands in contrast against its three rivals when it comes to investment cash flow. Taisei's negative cash flow from investing activities, which measures the flow of expenditures related to investment in or purchases of businesses or assets, came to 78.9 billion yen, while Obayashi, Kajima and Shimizu had negative 273.8 billion yen, negative 178.3 billion yen and negative 229.7 billion yen.

Compared with competitors that have been busy buying up overseas real estate, hunting for global mergers and acquisitions, and venturing into such new fields as offshore wind power generation, Taisei has not opened its purse.

What it has been doing is buying back its own stock, returning 109.1 billion yen to shareholders.

But even after that, Taisei had net cash of 119.7 billion yen, or roughly $1 billion, as of September 2019, as opposed to Obayashi's minus 58.4 billion yen, Kajima's minus 68.9 billion yen and Shimizu's minus 36.5 billion yen.

Naturally, some analysts fear that the lack of investment may come back to bite Taisei four or five years down the road, when the rivals reap the fruits of those expenditures.

So what will Taisei do with its cash stash?

"Our overseas business will drive our growth," CEO Yoshiyuki Murata told reporters in early December.

True, the company has readied a 150 billion yen investment quota for its focus areas, including overseas real estate development and M&A, to be used up by March 2021. The goal is to raise overseas revenue to 190 billion yen by then, to roughly 10% of the group's total sales.

But as of this fiscal year, Taisei's overseas construction revenue comes to just 46.4 billion yen.

"Investment didn't progress as expected," Murata admitted. "But we don't want to simply focus on expansion and want to be patient and think of returns as well."

Murata's cautious approach may fit what the market is looking for. None of the rivals' seed-planting ventures into fields unrelated to their core business have yet to be cheered by the stock market.

"Construction giants have been burned by overseas endeavors in the past," said Ryo Yagi, an analyst at Mitsubishi UFJ Morgan Stanley Securities. "Many investors are suspicious of their growth investments."

High-risk investments and overpriced real estate purchases are generally scoffed at in the market.

Luckily for Taisei, the lead contractor for the National Stadium, the main venue of the 2020 Summer Olympics and Paralympics, fears of a post-Olympics drought in construction are easing. The Tokyo metropolitan area looks to continue to have redevelopment projects and infrastructure repair needs. In 2025, Osaka will host the World Expo.

"If it can invest effectively, that is fine. If not, the market wants the company to use the money in valid ways such as offering shareholder returns," Nomura Securities analyst Kentaro Maekawa said.

Will Taisei go for growth or pursue credit for being a steady hand? The market is watching.

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