Sekisui House Ltd., Japan’s second-biggest home builder, said it expects operating profit to increase almost 80 percent to a record in three years as business in China starts to generate earnings.
The Osaka-based company expects operating profit, or sales minus the cost of goods, to reach 125 billion yen ($1.5 billion) for the year ending January 2015, compared with 70.9 billion yen last fiscal year, said Chairman Isami Wada. Similar profit from its international businesses may grow to as much as 25 billion yen by the year ending January 2015, compared with the 3 billion yen estimate for the current year, he said.
Sekisui and its bigger competitor, Daiwa House Industry Co., are expanding abroad to counter falling demand at home as Japan’s population begins to decline. Sekisui, which develops and sells houses and apartments in China, Australia, Singapore and the U.S., expects its overseas business division that was created this year to account for as much as one fifth of the company’s total profit in three years.
“We are starting from zero,” said Wada in an interview in Tokyo yesterday. “We expect profits from overseas projects to be realized around the business year ending January 2015.”
The stock gained 1.5 percent to 758 yen, the highest in more than week, at the close in Tokyo trading after advancing as much as 1.9 percent earlier.
Sekisui started to buy sites for overseas projects in 2009 and doubled the acquisition of land in 2010 and tripled the purchase to 138.5 billion yen in 2011, according to the company.
First in China
Sekisui became the first Japanese home builder to open a factory in Shenyang, China this month. The factory makes building materials and interior goods including kitchen systems and bathroom products, which are supplied to Sekisui’s projects in the country.
With the opening of the factory, Sekisui expects gross margin for overseas business to reach 25 percent current fiscal year, compared with 18 percent for the entire company said.
“We would like to bring our expertise into China,” said Wada, who’s also chief executive officer. “Profit in China is far higher than that of Japan.”
Japanese home builders are turning overseas to seek growth as the nation’s housing starts fell below 1 million units since 2009, according to data by the land ministry. Daiwa, Japan’s biggest home builder, has focused on rental apartments in China since 1985 and began developing and selling homes in the country in 2007.
Sekisui plans to invest about 220 billion yen this fiscal year in overseas projects, more than triple the spending planned by Daiwa House for the same period, according to Yoji Otani, an analyst at Deutsche Bank AG in Tokyo.
“Such big investments in a short period is too risky,” said Otani. “It’s better to make a gradual investment.”
A quarter of Japan’s 125 million people will be older than 65 in 2014, compared with 14 percent in the U.S., according to data compiled by Bloomberg. Japan is the world’s oldest society, with a median age of 44, according to the United Nations’ World Population Ageing 2009 report.
“There is no such business that doesn’t involve some sort of risk,” said Wada. “There are more risks in just focusing on Japan.”