Kevin Smith, of Delft Partners and portfolio manager of the TAMIM Asia Small Companies Fund, highlights one of the stocks in the Asia Small Companies portfolio, Open House (3288.TYO). Open House is a Japanese real estate company that trades on a single digit P/E ratio yet delivers a revenue growth rate of 30% and profit growth of 16%. Open House has both a strong brand and strong market share of single-family housing in key Japanese cities. It is taking advantage of the growing trend of smaller Japanese households and is a stock that is worthy of consideration in your international equity portfolio.
Open House Co., Ltd. is principally engaged in the real estate development business, the Company operates in the following segments: real estate brokerage business, construction of detached houses, construction contracts, development of new apartments and property management. Open House was founded in September 1997 as a franchisee of Century 21 and is headquartered in Tokyo. The franchise agreement with Century 21 was dissolved in 2012 and the business then operated with its own brand name. Masaaki Arai is the major shareholder and President/CEO of the Company. Open House was one of only five Japanese companies included in the Asia Fab 50 list compiled by Forbes in 2018. The Company has 1,522 employees.
Accounting, Strategy and Governance Comments
Value, Momentum and Quality Comments
Open House is a consistently strong in our assessment of quality, the variation occurs in the scores for value and especially momentum. The momentum scores were hit by a wave of downgrades in the period of August 2018 to February 2019 which saw the average target share price decline from ¥8,500 to ¥6,100. In recent months there have been no net downgrades to earnings or target share price, so the momentum score has ceased to be a drag on the overall VMQ analysis.
Open House delivered better than expected results in the first half of fiscal 2019, revenue increased by 42.9% year on year and net profits increased by 15.1%. A significant part of the revenue increase was derived from consolidation of Hawk One Corporation for the first time. The forecast full fiscal 2019 year are revenue growth of 30.5% and net profits growth of 16.3%.
Open House is a great success story in the Japanese real estate business, starting in 1997 as a franchise of Century 21, the business has developed a distinctive brand and strong market share in the field of single family housing. Open House was one of only five Japanese companies to be included in the 2018 Forbes Asia Fab 50 list. The Company is expected to maintain a compound growth rate of revenue in the mid-20s and trades on a single figure p/e ratio. The recent addition of activist group TPP on the shareholder register is a major positive for maintaining focus on shareholder returns, we expect continuing positive engagement between TPP and the senior management of Open House.
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TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.