3232.T

Mid-Term Management Plan (2023-2026) Progress

• The plan is built on 6 core basic principles with the overarching goal of expanding the group's revenue base. Management highlights three key growth pillars:
  • Strengthen real estate business: Develop stable-income rental buildings in Nagoya and Yokkaichi (three buildings have opened in the current plan period), and grow the new asset-rotating business of developing and selling sell-to-hold rental condominiums to improve profitability. The share of profit from stable stock real estate businesses (rental buildings, solar power) increased from 40% in FY2016 to 52% in FY2025, raising the Real Estate segment's share of group operating profit to 73% and creating a more stable profit structure less dependent on land acquisition and condominium sales cycles.
  • Grow business hotel business: Focus on new development, rebranding competitors' hotels under the Sanko Inn brand, differentiate through high-quality guest rooms, and optimize occupancy and pricing to maximize RevPAR.
  • Capture tourism demand: Leverage large-scale events (Osaka-Kansai Expo, 2026 Aichi-Nagoya Asian Games, Ise Jingu Annual Ceremony events) and growing inbound demand across the bus, hotel, ryokan, and cable car businesses to drive growth.
• All mid-term targets except operating revenue are on track to be achieved by FY2026. The final year numerical plan is unchanged pending further assessment of the impact of wage hikes, cost inflation, and rising interest rates, but the group is targeting full-year results above initial projections.

Capital and Shareholder Focus

• Target ROE of ~9% through improving profitability and optimizing financial leverage while maintaining an appropriate capital structure. Target lower shareholder equity cost (currently 5%-6%) through ESG disclosure, IR strengthening, and enhanced shareholder returns.
• Starting in FY2026, target a 30% consolidated payout ratio to improve shareholder returns. Full-year dividend is planned at 16 yen per share (8 yen interim, 8 yen final), a 2 yen year-over-year increase, with a projected payout ratio of 26.3% approaching the 30% target.

Segment Operational Initiatives

• Transportation: Route buses completed a December 2024 fare hike for wage hikes, safety, and service improvements, and are rolling out contactless payment across all Mie Prefecture routes by FY2027. Charter buses captured strong Expo demand (over 2,000 total vehicles deployed through the Expo period), and are participating in government fully cashless bus trials and supporting local public transportation policy.
• Real Estate: The Yokkaichi Sanko Building opened in August 2025 in a redeveloped central Yokkaichi location, with strong pre-leasing from semiconductor, IT, and communications firms. A new logistics warehouse will open for rent in December 2025 on the former Meihan Ueno Drive-in site, benefiting from excellent access to major Kansai and Chubu cities. Solar power generation generates ~5.1 billion yen in annual operating revenue with fixed FIT pricing, providing stable cash flow. The sell-type rental condominium pipeline is active: two projects completed in FY2026, one more coming in January 2026, and three new projects are in pre-construction preparation.
• Distribution: A new used car sales outlet will open in Kuwana, Mie in March 2026 to grow used car revenue, with used car sales already up 6% YoY in the interim. Petroleum retail is pushing forward with self-service conversion of gas stations, reaching a 60% self-service rate after the planned conversion of the Ise Interchange station in December 2025. Consumer goods retail returned to profitability in the interim after a prolonged downturn from e-commerce competition.
• Leisure & Service: Two new Sanko Inn Grande hotels are planned: Kumamoto (opening fall 2027, the first in Kyushu) and Yokkaichi (opening spring 2028). Dynamic pricing for event demand and targeted renovations lifted ADR at Sanko Inn Osaka Yodogawa (near the Expo) 34% YoY from April to September 2025, and two existing hotels are undergoing renovations in FY2026 to maintain pricing. Inbound related revenue increased 23% YoY to 0.916 billion yen in the interim, with full-year projected to hit a record 1.9 billion yen. Total Expo-related revenue across the group reached 0.75 billion yen, and the group is preparing to capture upcoming demand from the Ise Jingu events and 2026 Asian Games.

Capital Allocation

• Total FY2026 investment is planned at ~77 billion yen: 15 billion yen in H1 (Yokkaichi Sanko Building, logistics warehouse, bus fleet updates) and 62 billion yen in H2 (Yokkaichi Sanko Building Annex, hotel renovations, further fleet updates).

• Full-year FY2026 (March 2026) guidance was upwardly revised from the May 2025 initial projection: operating revenue lifted by 2 billion yen to 109 billion yen, operating profit lifted by 0.4 billion yen to 9.1 billion yen, ordinary profit lifted by 0.6 billion yen to 9.0 billion yen, and net income attributable to parent shareholders lifted by 0.2 billion yen to 6.1 billion yen.
• The upward revision reflects higher-than-expected interim revenue from charter buses and business hotels capturing Expo demand, plus stronger projected second-half revenue from automotive sales driven by pre-model-change rush demand.
• Full-year results are projected to deliver 5 consecutive years of revenue growth, 5 consecutive years of profit growth, and 3 consecutive years of record profit.
• By segment, full-year guidance is:
  1. Transportation: +6.8% YoY operating revenue to 25.9 billion yen, +71.9% YoY operating profit to 0.89 billion yen
  2. Real Estate: +5.7% YoY operating revenue to 38.5 billion yen, +5.3% YoY operating profit to 6.45 billion yen
  3. Distribution: +0.4% YoY operating revenue to 35.2 billion yen, +1.2% YoY operating profit to 0.61 billion yen
  4. Leisure & Service: +6.7% YoY operating revenue to 16.3 billion yen, +9.4% YoY operating profit to 1.25 billion yen
• Management expects profit growth to slow in the second half compared to the interim due to projected cost increases from employee wage improvements, inflation, facility repairs, and rising interest rates.

1. Transportation Segment: Operating revenue increased 9.4% year-over-year to 12.93 billion yen, with operating profit increasing 71% YoY to 0.888 billion yen. Growth was driven by December 2024 fare hikes for route buses and higher utilization and pricing for charter buses from Expo-related event demand.
2. Real Estate Segment: Operating revenue decreased 19.4% YoY to 15.45 billion yen, with operating profit decreasing 16.8% YoY to 3.302 billion yen. The decline stemmed from a YoY drop in condominium sales after the large-scale Praise Shiroko Ekimae development was sold in the prior year, partially offset by higher rental revenue from the improved occupancy of the 2nd Nagoya Sanko Building and full contributions from the newly opened Yokkaichi Sanko Building, plus higher solar power generation revenue from favorable weather.
3. Distribution Segment: Operating revenue increased 5.2% YoY to 17.016 billion yen, with operating profit increasing 78.2% YoY to 0.384 billion yen. Growth came from higher sales of new trucks and strong vehicle maintenance business at automotive dealerships, plus strong seasonal goods sales at consumer goods retail, partially offset by lower gasoline sales volume at petroleum retail.
4. Leisure & Service Segment: Operating revenue increased 11.1% YoY to 7.951 billion yen, with operating profit increasing 60% YoY to 0.651 billion yen. Growth was driven by higher occupancy and average daily rates (ADR) at business hotels from inbound and Expo-related demand, plus higher cable car ridership from favorable summer weather, partially offset by lower revenue at ryokan (Japanese inns) from decreased guest numbers even with higher spending per guest.

• Industry-wide driver shortage for charter buses continues to constrain capacity growth.
• Rising interest rates increase borrowing costs and weigh on net income.
• Persistent cost and price inflation raises operating expenses across all segments.
• If China's travel advisory for Japan continues through the February 2026 Spring Festival holiday, it could have a measurable negative impact on inbound hotel demand, though current impact is limited.
• Condominium revenue remains volatile based on land availability and sales cycles, though this risk has been reduced by the increased share of stable stock real estate profit.

Q: What is the breakdown of the 750 million yen in total Expo-related revenue by business segment? / A: Management provided the split: around 50% comes from the charter bus business transporting group visitors, 30% comes from the travel business that organized Expo-related tour packages, and 20% comes from the business hotel business. No further detailed breakdown was provided.

Q: After the Expo closed, has ADR at Sanko Inn Osaka Yodogawa dropped significantly, and is there a post-Expo demand reaction? / A: ADR at this property has declined slightly from the peak Expo period, but across the entire Sanko Inn chain, reservations for the October-November post-Expo period are tracking in line with prior year levels, and overall ADR remains above prior year levels supported by ongoing inbound and event demand. Management stated there is no material post-Expo demand reaction at this point.

Q: How are you addressing the driver shortage in the high-growth charter bus business, and are you planning to add more buses to meet upcoming large event demand? / A: Driver shortage is a national industry issue that also affects the group. Management is addressing it through ongoing active recruiting, extended retirement ages, a new job return program to rehire experienced retired drivers, and continued wage and benefits improvements to reduce turnover. For upcoming large events (the 2026 Ise Jingu events and Asian Games), management will prepare as much capacity as possible, taking driver hiring progress into account when expanding the bus fleet.

Q: What is the typical holding period for sell-type rental condominiums before sale? / A: All 6 units sold to date have been held as rental properties for approximately 2 years before being sold, which is the current standard operating model for this asset-rotating business.

Q: What is the outlook for future growth in business hotel ADR after the strong interim performance? / A: Interim ADR across all business hotels increased around 9% YoY driven by Expo and event demand. While the one-time Expo demand uplift will fade, management expects ADR to remain above prior year levels going forward, and will continue to monitor the impact of China's travel advisory on inbound demand closely.