Tokyu Construction is a second-tier general contractor. A member of the Tokyu Group, Tokyu Construction focuses on areas along Tokyu train lines, from the southwestern part of Tokyo’s 23 wards to northern Yokohama.
Tokyu Construction is a second-tier general contractor (see paragraph below). A member of the Tokyu Group, Tokyu Construction is an equity-method affiliate of Tokyu Corporation (TSE1: 9005), which owns a 15.3% stake in the company (including indirect holdings). Most revenue comes from private-sector construction projects. In FY03/21, the Building Construction segment accounted for 66.2% of consolidated revenue. The Civil Engineering segment, which includes railway construction, accounted for 32.7%, and the Real Estate segment provided 1.1%. Nearly 20% of construction orders come from other companies in the Tokyu Group. Tokyu Construction focuses on areas along Tokyu train lines, from the southwestern part of Tokyo’s 23 wards to northern Yokohama.
A general contractor is a construction company that accepts all-in contracts for building construction and civil engineering work. After receiving such contracts from companies or government/municipal bodies, general contractors subcontract work to specialized construction companies (subcontractors), managing the overall process. The scale of business is large; revenues from individual projects may run from billions to tens of billions of JPY. Construction periods on office building, railway, or roadway projects typically last from one to three years. Private-sector construction tends to be vulnerable to fluctuations in the operating environment. Public-sector projects tend to be more stable, with government entities continuing to place orders even in economically difficult times. The Japanese construction industry has been growing in recent years, benefiting from increased investment in construction, notably for business related to the Tokyo Olympics. Once this private-sector demand slows down, the company expects general contractors to prioritize relatively solid demand involving public-sector and overseas projects, and expansion of non-building construction business.
The Building Construction segment accounted for 66.2% of consolidated revenue (FY03/21). In this segment, the company constructs buildings throughout Japan, including office buildings, government offices, and schools. Operating in a buoyant construction market, recently the company has constructed a number of major office buildings near Shibuya Station. Notable projects include Shibuya Hikarie (completed in 2012), Shibuya Scramble Square (completed in 2019), Shibuya Stream (completed in 2018), and other high-rise office buildings that are part of a Shibuya Station redevelopment project. The company has a sales team that concentrates specifically on the Shibuya area. This team has been instrumental in such projects as Qfront (1999), which is a landmark near Shibuya’s Hachiko crossing, and Shibuya 109 (1979). The company has also handled projects for educational institutions, such as Tokyu-affiliated Asia and Tokyo City universities, as well as Nippon Sport Science University.
The Civil Engineering segment generated 32.7% of consolidated revenue (FY03/21). In this segment, the company focuses on businesses characterized by stable demand and good profitability, such as railway and road construction. Tokyu Construction says it has industry-leading technological expertise in these areas. Recent railway construction projects include continuous elevated railway work near Keikyu Kamata Station (completed in 2016) and subway construction on the Tokyu Toyoko Line between Shibuya and Daikanyama (2014). The company explains that its railway construction technologies allow it to build complex multilevel crossings, and that it has earned a strong reputation for sophisticated technologies that enable new routes to be built at night without interfering in the operation of existing routes. Road construction projects include the Atsugi Minami Interchange on the Shin-Tomei Expressway (2018) and the Ohashi Junction on the Shinjuku Line of the Metropolitan Expressway Central Circular Route (2010).
Key overseas projects include the Jakarta Mass Rapid Transit Project (completed in 2019, Indonesia), the Bangkok MRT Purple Line (completed in 2014, Thailand), the Vo Nguyen Giap Road (2014, Vietnam), and the Causeway Point Shopping Center (2012, Singapore). Civil engineering work tends to be concentrated on ODA projects. In recent years, the company has focused on obtaining orders for high-rise buildings.
In March 2021, the company formulated its corporate vision for 2030, “Vision 2030,” and in May 2021, it announced its 10-year long-term management plan, “To zero, from zero,” aimed at achieving Vision 2030. The company plans to invest JPY170bn in core and strategic businesses over the next ten years, aiming to achieve an operating profit of at least JPY22.0bn and ROE of 10% or higher in FY03/30. It also revised its shareholder returns policy. The company plans to pay dividends based on a dividend on equity (DOE) of at least 4.0%, which strikes a balance between the medium-term target of a minimum 10% ROE and consolidated dividend payout ratio of at least 40%. This is aimed at stabilizing the dividend amount and improving shareholder returns, taking into consideration capital efficiency. The company also plans to buy back shares flexibly, also taking into account capital efficiency.
Earnings trends
For FY03/22, the company reported consolidated revenue of JPY258.1bn (+11.5% YoY), operating loss of JPY6.1bn (versus profit of JPY3.6bn in FY03/21), recurring loss of JPY5.1bn (versus profit of JPY4.9bn in FY03/21), and net loss of JPY7.5bn (versus profit of JPY2.6bn in FY03/21). The company booked expected losses in connection with the cost of repairing defective work at a job in progress and the cost of repairs to work completed and delivered in past years, and in connection with margin deterioration on overseas projects and revisions to income projections for development projects in the real estate business.
The company’s forecast for FY03/23 calls for consolidated revenue of JPY289.0bn (+12.0% YoY), operating profit of JPY4.0bn (versus loss of JPY6.1bn in FY03/22), recurring profit of JPY4.5bn (versus loss of JPY5.1bn in FY03/22), and net income of JPY3.5bn (versus loss of JPY7.5bn in FY03/22).
Strengths and weaknesses
Shared Research identifies three strengths at Tokyu Construction: 1) nearly 20% of revenue due to business opportunities via the Tokyu Group, 2) a strong track record of projects completed in Shibuya and along the Tokyu lines, and 3) abundant experience with railway construction, which helps ensure stable earnings during economic doldrums. We also see three weaknesses: 1) outdone by super general contractors in its record for high-value-added construction work (such as large sports facilities, art museums, and long bridges), 2) a low percentage of revenue from public-sector civil engineering projects, which tend to be more profitable than private-sector construction and feature stable demand, and 3) despite a maturing domestic market, slow to build overseas and real estate businesses.
Key financial data
Income statement
FY03/13
FY03/14
FY03/15
FY03/16
FY03/17
FY03/18
FY03/19
FY03/20
FY03/21
FY03/22
FY03/23
(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Est.
Revenue
228,570
226,164
262,815
296,393
243,618
320,711
331,437
322,170
231,483
258,083
289,000
YoY
0.3%
-1.1%
16.2%
12.8%
-17.8%
31.6%
3.3%
-2.8%
-28.1%
11.5%
12.0%
Revenue from completed construction
226,784
223,969
260,454
294,063
237,749
318,707
329,548
320,083
229,016
255,547
-
Revenue from real estate sales
1,786
2,195
2,360
2,329
5,869
2,003
1,888
2,086
2,467
2,536
-
Gross profit
12,002
13,241
16,968
31,088
30,344
35,720
36,073
36,173
18,170
9,716
-
YoY
-2.2%
10.3%
28.1%
83.2%
-2.4%
17.7%
1.0%
0.3%
-49.8%
-46.5%
-
Gross profit margin
5.3%
5.9%
6.5%
10.5%
12.5%
11.1%
10.9%
11.2%
7.8%
3.8%
-
Gross profit from completed construction
11,406
12,480
17,049
30,511
28,648
35,126
35,900
35,885
19,343
11,071
-
Gross profit from real estate business
595
760
-80
577
1,695
593
172
288
-1,172
-1,354
-
Operating profit
1,154
2,630
6,009
18,178
17,211
21,416
21,987
20,315
3,549
-6,078
4,000
YoY
-26.6%
127.9%
128.5%
202.5%
-5.3%
24.4%
2.7%
-7.6%
-82.5%
-
-
Operating profit margin
0.5%
1.2%
2.3%
6.1%
7.1%
6.7%
6.6%
6.3%
1.5%
-
1.4%
Recurring profit
2,301
3,559
8,024
19,768
18,839
22,128
22,932
21,969
4,891
-5,132
4,500
YoY
22.1%
54.7%
125.5%
146.4%
-4.7%
17.5%
3.6%
-4.2%
-77.7%
-
-
Recurring profit margin
1.0%
1.6%
3.1%
6.7%
7.7%
6.9%
6.9%
6.8%
2.1%
-
1.6%
Net income
-566
2,685
5,805
13,340
13,691
16,118
15,504
14,903
2,647
-7,459
3,500
YoY
-
-
116.2%
129.8%
2.6%
17.7%
-3.8%
-3.9%
-82.2%
-
-
Net margin
-
1.2%
2.2%
4.5%
5.6%
5.0%
4.7%
4.6%
1.1%
-
1.2%
Per-share data (split-adjusted; JPY)
No. of shares outstanding at end of period ('000 shares )
106,761
106,761
106,761
106,761
106,761
106,761
106,761
106,761
106,761
106,761
-
EPS (JPY)
-5.3
25.2
54.4
125.0
128.3
151.1
145.4
139.8
25.0
-71.3
33.4
EPS (fully diluted; JPY)
-
-
-
-
-
-
-
-
-
-
-
Dividend per share (JPY)
-
5.0
13.0
25.0
26.0
31.0
30.0
30.0
10.0
25.0
36.0
Book value per share (JPY)
304
329
419
506
620
740
869
949
984
883
-
Balance sheet (JPYmn)
Cash and cash equivalents
23,097
18,215
18,318
50,674
22,582
28,865
49,145
29,549
34,173
38,648
Total current assets
118,854
131,556
146,079
171,041
155,983
197,473
204,971
171,125
158,454
173,963
Tangible fixed assets
14,174
17,145
18,228
17,756
19,204
21,634
26,163
32,033
34,342
29,675
Investments and other assets
20,849
20,670
27,558
25,311
28,933
29,790
33,017
31,760
32,568
32,782
Intangible assets
316
313
359
416
692
858
844
976
1,202
1,390
Total assets
154,195
169,685
192,226
214,526
204,813
249,756
264,996
235,897
226,568
237,811
Short-term debt
232
7,182
4,131
115
3,130
170
178
25,179
5,264
189
Total current liabilities
114,100
127,784
136,838
150,799
130,624
165,688
165,955
127,578
95,046
115,004
Long-term debt
2,513
2,068
4,937
4,843
1,859
1,879
1,752
1,590
21,654
22,468
Total fixed liabilities
7,607
6,643
10,526
9,488
7,808
4,893
6,059
6,614
28,012
29,742
Total liabilities
121,707
134,427
147,364
160,288
138,433
170,581
172,014
134,193
123,058
144,747
Shareholders' equity
32,410
35,153
44,673
54,003
66,152
78,950
92,634
101,215
102,964
92,490
Total net assets
32,487
35,258
44,861
54,238
66,380
79,175
92,981
101,703
103,509
93,064
Total interest-bearing debt
2,745
9,250
9,068
4,958
4,989
2,049
1,930
26,769
26,918
22,657
Cash flow statement(JPYmn)
Cash flows from operating activities
14,264
-9,302
2,111
39,003
-23,545
16,226
29,694
-33,439
11,629
12,499
Cash flows from investing activities
-619
-2,072
-1,525
-334
-1,717
-3,383
-5,786
-7,488
-3,753
-773
Cash flows from financing activities
-8,569
6,476
-675
-6,035
-2,788
-6,457
-3,575
21,604
-3,308
-7,531
Financial ratios
ROA (RP-based)
1.5%
2.2%
4.4%
9.7%
9.0%
9.7%
8.9%
8.8%
2.1%
-2.2%
ROE
-1.8%
7.9%
14.5%
27.0%
22.8%
22.2%
18.1%
15.4%
2.6%
-7.6%
Equity ratio
21.0%
20.7%
23.2%
25.2%
32.3%
31.6%
35.0%
42.9%
45.4%
38.9%
Total asset turnover
148.1%
139.7%
145.2%
145.7%
116.2%
141.1%
128.8%
128.6%
100.1%
111.2%
Net margin
-0.2%
1.2%
2.2%
4.5%
5.6%
5.0%
4.7%
4.6%
1.1%
-2.9%
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Recent updates
Rolling of its long-term management plan “To zero, from zero”
2022-05-12
On May 12, 2022, Tokyu Construction Co., Ltd. made an announcement concerning the rolling of its long-term management plan “To zero, from zero.”
The company revised its KPI and investment targets for three years hence, to reflect lower-than-expected FY03/22 earnings and the effects of both COVID-19 and the Ukraine crisis.
KPIs in long-term management plan (revised on May 12, 2022)
Management indicator
FY2021 Act.
FY2022
FY2024
FY2030
Profitability
Operating profit
-JPY6.0bn
JPY4.0bn
JPY9.0bn or higher
JPY22.0bn or higher
Operating profit margin
-2.4%
1.4%
2.6% or higher
5.0% or higher
Efficiency
ROIC
-
-
-
7.0% or higher
ROE
-
3.8%
7.3% or higher
10.0% or higher
Soundness
Debt-to-equity ratio
0.24倍
0.5 or lower
Equity ratio
38.9%
Approx. 40–45%
Approx. 45%
Non-financial
Employee engagement
BB
BBB
A
AAA
GHG emission
-
Reduce by 10.0%
Reduce by 15.0%
Reduce by 30.0%
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: ROIC " data-candidates="[{"type":2,"companyId":null,"_id":"62622f4dff7cb5c862e6be1a","en":"ROIC "}]" class="translated-term">ROIC = (NOPAT + non-operating income) / (shareholders’ equity + interest-bearing liabilities) Note: Employee engagement rating by Link and Motivation Inc.'s “Motivation Cloud.” The rating is for all group employees, including subsidiaries. There are 11 ratings, and the current BBB rating is the fourth highest, after AAA, AA, and A.
Investment plans (revised on May 12, 2022)
Investments
Amount
Key investments
10-year total
JPY107.0bn
Business strategy investment based on delivering three values
Core Business
JPY95.0bn
Investments in domestic, civil engineering, construction, and construction RN businesses
■Investments for technology development
■Investments in production systems innovation and DX
■M&A investments
Strategic Business
Investments in international, real estate, and new businesses
■M&A investments for international business expansion
■Acquisition of real estate emphasizing synergy with core businesses
■Investments in new business incubation
■Investments in concessions/PPP business
■Investments in venture businesses and venture funds
Investment in source of competitive advantage (human resources x DX)
JPY12.0bn
Investments in HR system reform and human resources cultivation
Environment construction and systems infrastructure pertaining to companywide DX
Source: Shared Research based on company data
Revisions to full-year FY03/22 earnings and dividend forecasts
2022-04-25
On April 22, 2022, Tokyu Construction Co., Ltd. announced revisions to its full-year FY03/22 earnings forecast and its dividend forecast.
Downward revision to full-year earnings forecast
The company revised down the full-year earnings forecast mainly because, at the parent company level, orders for domestic civil engineering work came in later than expected and slow progress on construction work has led to some JPY7.0bn drop in forecast of revenue from completed construction. Cost increases stemming from construction delays has left several overseas construction projects in the red, and expected construction cost increases on real estate development projects has left its real estate business in the red as well. At the consolidated level, the company said the shortfall at the parent was further compounded by shortfalls at domestic subsidiaries, where delays in construction likewise left revenue below plan. Lower revenue pushed down profit.
Cons.
FY03/21
FY03/22
As of Apr 22, 2022
As of Feb 8, 2022
(JPYmn)
1H Act.
2H Act.
FY Act.
1H Act.
2H Est.
Revised full-year forecast A
Revised full-year forecast B
FY Est.
YoY
Compared to the previous forecast (A-B)
Revenue
95,423
136,060
231,483
111,614
146,386
258,000
267,000
285,000
11.5%
-9,000
Gross profit
8,323
9,847
18,170
411
13,100
23,700
Gross profit margin
8.7%
7.2%
7.8%
0.4%
4.9%
8.3%
SG&A expenses
7,130
7,490
14,620
7,563
16,700
16,700
SG&A ratio
7.5%
5.5%
6.3%
6.8%
6.3%
5.9%
Operating profit
1,192
2,357
3,549
-7,152
1,052
-6,100
-3,600
7,000
-271.9%
-2,500
Operating profit margin
1.2%
1.7%
1.5%
-6.4%
0.7%
-
-
2.5%
Recurring profit
1,680
3,211
4,891
-7,151
2,151
-5,000
-3,300
7,300
-202.2%
-1,700
Recurring profit margin
1.8%
2.4%
2.1%
-6.4%
1.5%
-
-
2.6%
Net income
759
1,888
2,647
-7,668
168
-7,500
-4,800
4,800
-383.3%
-2,700
Net margin
0.8%
1.4%
1.1%
-6.9%
0.1%
-
-
1.7%
Source: Shared Research based on company data
Downward revision to the dividend forecast
With the company expecting to report net loss in FY03/22, it also revised down its year-end dividend forecast.
The company reduced its year-end divided forecast to JPY5.0 per share versus previous forecast of JPY20.0 per share. The company is now expects to pay total dividends of JPY25.0 per share (an interim dividend of JPY20.0 per share and an year-end divided of JPY5 per share) for FY03/22.
Planned changes to executive management
2022-02-25
On February 24, 2022, Tokyu Construction Co., Ltd. announced planned changes to executive management.
Scheduled retirements of company directors
Current Position
Name
Remarks
Director, Chairman
Tsuneo Izuka
After retiring from position as chairman, will become company advisor
Director, Managing Executive Officer, General Manager of Civil Engineering Division
Yushi Tsukui
Scheduled to retire from position as Managing Executive Officer on March 31, 2022
Effective date: in late-June, 2022
Trends and outlook
Quarterly trends and results
Cumulative
FY03/20
FY03/21
FY03/22
FY03/22
(JPYmn)
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
% of Est.
Revised full-year Est.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Revenue
78,722
183,415
248,190
322,170
42,684
95,423
154,667
231,483
56,333
111,614
181,296
258,083
100.0%
258,000
YoY
28.8%
18.6%
8.0%
-2.8%
-45.8%
-48.0%
-37.7%
-28.1%
32.0%
17.0%
17.2%
11.5%
11.5%
Revenue from completed construction
78,172
182,382
246,689
320,083
42,053
94,255
152,959
229,016
55,721
110,452
179,582
255,547
Revenue from real estate sales
549
1,033
1,500
2,086
630
1,168
1,708
2,467
612
1,162
1,714
2,536
Cost of revenue
68,422
159,487
218,768
285,997
39,121
87,100
141,788
213,313
52,598
111,203
174,872
248,367
YoY
25.7%
16.3%
7.5%
-3.2%
-42.8%
-45.4%
-35.2%
-25.4%
34.4%
27.7%
23.3%
16.4%
Cost of revenue from completed construction
68,137
158,900
217,527
284,198
38,788
86,438
140,586
209,673
52,229
110,507
173,809
244,476
Cost of real estate business
284
586
1,240
1,797
332
661
1,200
3,639
368
695
1,062
3,891
Gross profit
10,300
23,928
29,422
36,173
3,563
8,323
12,879
18,170
3,735
411
6,424
9,716
YoY
53.6%
36.2%
11.7%
0.3%
-65.4%
-65.2%
-56.2%
-49.8%
4.8%
-95.1%
-50.1%
-46.5%
Gross profit margin
13.1%
13.0%
11.9%
11.2%
8.3%
8.7%
8.3%
7.8%
6.6%
0.4%
3.5%
3.8%
Gross profit from completed construction
10,034
23,481
29,162
35,885
3,265
7,817
12,372
19,343
3,492
-55
5,772
11,071
Gross profit from real estate business
265
446
260
288
297
506
507
-1,172
243
466
652
-1,354
SG&A expenses
3,664
7,608
11,577
15,858
3,529
7,130
10,763
14,620
3,802
7,563
11,407
15,794
YoY
20.0%
14.0%
15.1%
12.6%
-3.7%
-6.3%
-7.0%
-7.8%
7.7%
6.1%
6.0%
8.0%
SG&A ratio
4.7%
4.1%
4.7%
4.9%
8.3%
7.5%
7.0%
6.3%
6.7%
6.8%
6.3%
6.1%
Operating profit
6,636
16,320
17,845
20,315
34
1,192
2,116
3,549
-67
-7,152
-4,982
-6,078
-
-6,100
YoY
81.7%
49.8%
9.7%
-7.6%
-99.5%
-92.7%
-88.1%
-82.5%
-
-
-
-
-271.9%
Operating profit margin
8.4%
8.9%
7.2%
6.3%
0.1%
1.2%
1.4%
1.5%
-
-
-
-
-
Recurring profit
7,001
16,972
18,947
21,969
258
1,680
2,739
4,891
-116
-7,151
-4,538
-5,132
-
-5,000
YoY
80.7%
49.3%
11.5%
-4.2%
-96.3%
-90.1%
-85.5%
-77.7%
-
-
-
-
-202.2%
Recurring profit margin
8.9%
9.3%
7.6%
6.8%
0.6%
1.8%
1.8%
2.1%
-
-
-
-
-
Net income
4,838
11,516
12,662
14,903
60
759
1,546
2,647
-267
-7,668
-5,452
-7,459
-
-7,500
YoY
94.3%
50.4%
9.9%
-3.9%
-98.8%
-93.4%
-87.8%
-82.2%
-
-
-
-
-383.3%
Net margin
6.1%
6.3%
5.1%
4.6%
0.1%
0.8%
1.0%
1.1%
-
-
-
-
-
Quarterly
FY03/20
FY03/21
FY03/22
(JPYmn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Revenue
78,722
104,693
64,775
73,980
42,684
52,739
59,244
76,816
56,333
55,281
69,682
76,787
YoY
28.8%
11.9%
-13.8%
-27.2%
-45.8%
-49.6%
-8.5%
3.8%
32.0%
4.8%
17.6%
0.0%
Revenue from completed construction
78,172
104,210
64,307
73,394
42,053
52,202
58,704
76,057
55,721
54,731
69,130
75,965
Revenue from real estate sales
549
484
467
586
630
538
540
759
612
550
552
822
Cost of revenue
68,422
91,065
59,281
67,229
39,121
47,979
54,688
71,525
52,598
58,605
63,669
73,495
YoY
25.7%
10.1%
-10.7%
-26.8%
-42.8%
-47.3%
-7.7%
6.4%
34.4%
22.1%
16.4%
2.8%
Cost of revenue from completed construction
68,137
90,763
58,627
66,671
38,788
47,650
54,148
69,087
52,229
58,278
63,302
70,667
Cost of real estate business
284
302
654
557
332
329
539
2,439
368
327
367
2,829
Gross profit
10,300
13,628
5,494
6,751
3,563
4,760
4,556
5,291
3,735
-3,324
6,013
3,292
YoY
53.6%
25.5%
-37.3%
-30.7%
-65.4%
-65.1%
-17.1%
-21.6%
4.8%
-169.8%
32.0%
-37.8%
Gross profit margin
13.1%
13.0%
8.5%
9.1%
8.3%
9.0%
7.7%
6.9%
6.6%
-6.0%
8.6%
4.3%
SG&A expenses
3,664
3,944
3,969
4,281
3,529
3,601
3,633
3,857
3,802
3,761
3,844
4,387
YoY
20.0%
9.0%
17.2%
6.3%
-3.7%
-8.7%
-8.5%
-9.9%
7.7%
4.4%
5.8%
13.7%
SG&A ratio
4.7%
3.8%
6.1%
5.8%
8.3%
6.8%
6.1%
5.0%
6.7%
6.8%
5.5%
5.7%
Operating profit
6,636
9,684
1,525
2,470
34
1,158
924
1,433
-67
-7,085
2,170
-1,096
YoY
81.7%
33.7%
-71.6%
-56.8%
-99.5%
-88.0%
-39.4%
-42.0%
-
-
134.8%
-
Operating profit margin
8.4%
9.2%
2.4%
3.3%
0.1%
2.2%
1.6%
1.9%
-
-
3.1%
-
Recurring profit
7,001
9,971
1,975
3,022
258
1,422
1,059
2,152
-116
-7,035
2,613
-594
YoY
80.7%
33.1%
-64.9%
-49.1%
-96.3%
-85.7%
-46.4%
-28.8%
-
-
146.7%
-
Recurring profit margin
8.9%
9.5%
3.0%
4.1%
0.6%
2.7%
1.8%
2.8%
-
-
3.7%
-
Net income
4,838
6,678
1,146
2,241
60
699
787
1,101
-267
-7,401
2,216
-2,007
YoY
94.3%
29.2%
-70.3%
-43.8%
-98.8%
-89.5%
-31.3%
-50.9%
-
-
181.6%
-
Net margin
6.1%
6.4%
1.8%
3.0%
0.1%
1.3%
1.3%
1.4%
-
-
3.2%
-
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Revenue (parent)
Revenue
FY03/20
FY03/21
FY03/22
(JPYmn)
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Total revenue
74,382
170,452
230,015
296,426
39,542
87,677
144,004
216,245
52,674
104,720
171,271
243,025
YoY
25.7%
15.3%
6.3%
-4.4%
-46.8%
-48.6%
-37.4%
-27.0%
33.2%
19.4%
18.9%
12.4%
Revenue from completed construction(Construction)
74,057
169,777
228,997
295,034
39,150
86,899
142,836
214,560
52,265
103,901
170,037
241,294
YoY
25.8%
15.3%
6.4%
-4.4%
-47.1%
-48.8%
-37.6%
-27.3%
33.5%
19.6%
19.0%
12.5%
Domestic public
14,025
36,775
51,509
72,393
10,483
25,596
40,532
57,430
8,730
17,988
28,296
40,364
Domestic private
55,928
126,738
168,292
210,798
26,055
56,334
95,142
148,373
41,542
83,583
137,622
196,020
General private
41,499
92,389
124,815
159,227
21,606
46,771
78,167
118,874
34,191
70,815
117,746
165,467
Tokyu Group
14,428
34,349
43,476
51,571
4,448
9,562
16,974
29,499
7,351
12,767
19,875
30,553
Overseas
4,103
6,263
9,195
11,840
2,611
4,968
7,162
8,757
1,993
2,328
4,118
4,908
Building Construction
56,587
126,551
167,577
206,956
26,010
56,360
91,391
138,991
39,610
79,426
131,097
184,407
YoY
23.5%
6.2%
-2.0%
-13.1%
-54.0%
-55.5%
-45.5%
-32.8%
52.3%
40.9%
43.4%
32.7%
Domestic public
3,610
7,209
11,431
15,904
3,315
6,731
10,896
13,411
1,336
3,017
4,511
6,542
Domestic private
52,651
118,619
155,303
190,174
22,694
49,629
80,464
125,430
38,233
76,348
126,309
177,306
General private
40,318
89,690
120,404
151,695
19,721
43,448
68,932
104,328
31,500
65,354
109,161
151,271
Tokyu Group
12,332
28,929
34,899
38,479
2,973
6,180
11,532
21,101
6,732
10,993
17,148
26,035
Overseas
325
722
842
876
0
0
30
150
40
60
276
558
Civil Engineering
17,470
43,226
61,420
88,078
13,139
30,538
51,444
75,568
12,654
24,475
38,939
56,886
YoY
33.9%
53.8%
38.9%
25.1%
-24.8%
-29.4%
-16.2%
-14.2%
-3.7%
-19.9%
-24.3%
-24.7%
Domestic public
10,415
29,565
40,078
56,489
7,167
18,864
29,635
44,019
7,393
14,971
23,784
33,822
Domestic private
3,277
8,118
12,989
20,624
3,360
6,704
14,677
22,943
3,308
7,235
11,312
18,714
General private
1,181
2,699
4,411
7,532
1,885
3,323
9,235
14,545
2,690
5,461
8,585
14,196
Tokyu Group
2,096
5,419
8,577
13,092
1,475
3,381
5,441
8,397
618
1,773
2,727
4,517
Overseas
3,777
5,541
8,353
10,964
2,611
4,968
7,131
8,606
1,952
2,268
3,842
4,349
Revenue from real estate sales
324
674
1,017
1,391
392
777
1,167
1,684
409
818
1,233
1,731
YoY
11.7%
20.8%
3.1%
5.1%
21.0%
15.3%
14.7%
21.1%
4.3%
5.3%
5.7%
2.8%
Revenue
FY03/20
FY03/21
FY03/22
(JPYmn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Total revenue
74,382
96,070
59,563
66,411
39,542
48,135
56,327
72,241
52,674
52,046
66,551
71,754
YoY
25.7%
8.4%
-13.0%
-29.1%
-46.8%
-49.9%
-5.4%
8.8%
33.2%
8.1%
18.2%
-0.7%
Revenue from completed construction(Construction)
74,057
95,720
59,220
66,037
39,150
47,749
55,937
71,724
52,265
51,636
66,136
71,257
YoY
25.8%
8.3%
-13.0%
-29.2%
-47.1%
-50.1%
-5.5%
8.6%
33.5%
8.1%
18.2%
-0.7%
Domestic public
14,025
22,750
14,734
20,884
10,483
15,113
14,936
16,898
8,730
9,258
10,308
12,068
Domestic private
55,928
70,810
41,554
42,506
26,055
30,279
38,808
53,231
41,542
42,041
54,039
58,398
General private
41,499
50,890
32,426
34,412
21,606
25,165
31,396
40,707
34,191
36,624
46,931
47,721
Tokyu Group
14,428
19,921
9,127
8,095
4,448
5,114
7,412
12,525
7,351
5,416
7,108
10,678
Overseas
4,103
2,160
2,932
2,645
2,611
2,357
2,194
1,595
1,993
335
1,790
790
Building Construction
56,587
69,964
41,026
39,379
26,010
30,350
35,031
47,600
39,610
39,816
51,671
53,310
YoY
23.5%
-4.6%
-21.0%
-41.4%
-54.0%
-56.6%
-14.6%
20.9%
52.3%
31.2%
47.5%
12.0%
Domestic public
3,610
3,599
4,222
4,473
3,315
3,416
4,165
2,515
1,336
1,681
1,494
2,031
Domestic private
52,651
65,968
36,684
34,871
22,694
26,935
30,835
44,966
38,233
38,115
49,961
50,997
General private
40,318
49,372
30,714
31,291
19,721
23,727
25,484
35,396
31,500
33,854
43,807
42,110
Tokyu Group
12,332
16,597
5,970
3,580
2,973
3,207
5,352
9,569
6,732
4,261
6,155
8,887
Overseas
325
397
120
34
-
-
30
120
40
20
216
282
Civil Engineering
17,470
25,756
18,194
26,658
13,139
17,399
20,906
24,124
12,654
11,821
14,464
17,947
YoY
33.9%
71.0%
12.8%
1.9%
-24.8%
-32.4%
14.9%
-9.5%
-3.7%
-32.1%
-30.8%
-25.6%
Domestic public
10,415
19,150
10,513
16,411
7,167
11,697
10,771
14,384
7,393
7,578
8,813
10,038
Domestic private
3,277
4,841
4,871
7,635
3,360
3,344
7,973
8,266
3,308
3,927
4,077
7,402
General private
1,181
1,518
1,712
3,121
1,885
1,438
5,912
5,310
2,690
2,771
3,124
5,611
Tokyu Group
2,096
3,323
3,158
4,515
1,475
1,906
2,060
2,956
618
1,155
954
1,790
Overseas
3,777
1,764
2,812
2,611
2,611
2,357
2,163
1,475
1,952
316
1,574
507
Revenue from real estate sales
324
350
343
374
392
385
390
517
409
409
415
498
YoY
11.7%
30.6%
-19.9%
11.0%
21.0%
10.0%
13.7%
38.2%
4.3%
6.2%
6.4%
-3.7%
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Orders (parent)
Orders
FY03/20
FY03/21
FY03/22
(JPYmn)
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Construction
26,679
71,738
115,295
193,315
27,741
122,357
186,066
306,633
61,860
119,771
173,068
274,663
YoY
-39.7%
-25.9%
-22.7%
-26.5%
4.0%
70.6%
61.4%
58.6%
123.0%
-2.1%
-7.0%
-10.4%
Domestic public
3,892
9,741
19,652
40,818
2,004
20,356
32,758
42,831
7,819
20,096
35,532
43,532
Domestic private
21,285
60,477
93,024
144,924
25,135
100,939
151,747
260,309
53,718
98,052
135,629
235,073
General private
15,228
48,030
76,304
120,968
18,236
88,717
131,599
230,389
32,407
67,689
101,124
186,396
Tokyu Group
6,056
12,447
16,720
23,956
6,899
12,222
20,147
29,920
21,311
30,362
34,504
48,676
Overseas
1,501
1,518
2,618
7,571
601
1,061
1,560
3,492
323
1,621
1,906
-3,942
Building Construction
17,281
43,188
76,914
128,709
24,101
97,608
146,740
242,920
55,133
94,047
133,555
221,382
YoY
-48.8%
-25.5%
-22.6%
-30.5%
39.5%
126.0%
90.8%
88.7%
128.8%
-3.6%
-9.0%
-8.9%
Domestic public
373
4,203
8,968
9,994
1,065
3,203
5,320
5,731
3,961
6,471
10,187
10,224
Domestic private
16,928
39,013
67,972
113,772
22,338
93,968
140,797
235,125
50,912
86,870
122,461
216,085
General private
14,584
31,680
57,181
98,966
16,744
83,802
123,869
209,636
31,113
62,470
94,285
176,417
Tokyu Group
2,344
7,332
10,790
14,805
5,594
10,166
16,927
25,488
19,799
24,399
28,176
39,667
Overseas
-19
-28
-26
4,942
697
436
623
2,063
259
705
906
-4,927
Civil Engineering
9,397
28,550
38,381
64,605
3,640
24,748
39,325
63,713
6,727
25,723
39,513
53,281
YoY
-10.6%
-26.6%
-23.1%
-16.9%
-61.3%
-13.3%
2.5%
-1.4%
84.8%
3.9%
0.5%
-16.4%
Domestic public
3,518
5,538
10,683
30,824
938
17,153
27,438
37,099
3,858
13,625
25,345
33,308
Domestic private
4,357
21,464
25,052
31,151
2,797
6,970
10,949
25,184
2,805
11,182
13,167
18,987
General private
644
16,349
19,122
22,001
1,492
4,915
7,729
20,752
1,294
5,219
6,839
9,978
Tokyu Group
3,712
5,114
5,929
9,150
1,305
2,055
3,220
4,432
1,511
5,962
6,328
9,009
Overseas
1,521
1,546
2,645
2,629
-95
624
937
1,429
63
916
1,000
985
Orders
FY03/20
FY03/21
FY03/22
(JPYmn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Construction
26,679
45,059
43,557
78,020
27,741
94,616
63,709
120,567
61,860
57,911
53,297
101,595
YoY
-39.7%
-14.3%
-16.9%
-31.5%
4.0%
110.0%
46.3%
54.5%
123.0%
-38.8%
-16.3%
-15.7%
Domestic public
3,892
5,849
9,911
21,166
2,004
18,352
12,402
10,073
7,819
12,277
15,436
8,000
Domestic private
21,285
39,192
32,547
51,900
25,135
75,804
50,808
108,562
53,718
44,334
37,577
99,444
General private
15,228
32,802
28,274
44,664
18,236
70,481
42,882
98,790
32,407
35,282
33,435
85,272
Tokyu Group
6,056
6,391
4,273
7,236
6,899
5,323
7,925
9,773
21,311
9,051
4,142
14,172
Overseas
1,501
17
1,100
4,953
601
460
499
1,932
323
1,298
285
-5,848
Building Construction
17,281
25,907
33,726
51,795
24,101
73,507
49,132
96,180
55,133
38,914
39,508
87,827
YoY
-48.8%
7.2%
-18.5%
-39.8%
39.5%
183.7%
45.7%
85.7%
128.8%
-47.1%
-19.6%
-8.7%
Domestic public
373
3,830
4,765
1,026
1,065
2,138
2,117
411
3,961
2,510
3,716
37
Domestic private
16,928
22,085
28,959
45,800
22,338
71,630
46,829
94,328
50,912
35,958
35,591
93,624
General private
14,584
17,096
25,501
41,785
16,744
67,058
40,067
85,767
31,113
31,357
31,815
82,132
Tokyu Group
2,344
4,988
3,458
4,015
5,594
4,572
6,761
8,561
19,799
4,600
3,777
11,491
Overseas
-19
-9
2
4,968
697
-261
187
1,440
259
446
201
-5,833
Civil Engineering
9,397
19,153
9,831
26,224
3,640
21,108
14,577
24,388
6,727
18,996
13,790
13,768
YoY
-10.6%
-32.5%
-10.8%
-5.8%
-61.3%
10.2%
48.3%
-7.0%
84.8%
-10.0%
-5.4%
-43.5%
Domestic public
3,518
2,020
5,145
20,141
938
16,215
10,285
9,661
3,858
9,767
11,720
7,963
Domestic private
4,357
17,107
3,588
6,099
2,797
4,173
3,979
14,235
2,805
8,377
1,985
5,820
General private
644
15,705
2,773
2,879
1,492
3,423
2,814
13,023
1,294
3,925
1,620
3,139
Tokyu Group
3,712
1,402
815
3,221
1,305
750
1,165
1,212
1,511
4,451
366
2,681
Overseas
1,521
25
1,099
-16
-95
719
313
492
63
853
84
-15
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Full-year FY03/22 results
Summary
Revenue: JPY258.1bn (+11.5% YoY; 100.0% of revised full-year estimate)
Operating loss: JPY6.1bn (versus profit of JPY3.5bn in FY03/21)
Recurring loss: JPY5.1bn (versus profit of JPY4.9bn in FY03/21)
Net loss*: JPY7.5bn (versus net income of JPY2.6bn in FY03/21)
* Net loss attributable to owners of the parent
Key takeaways
In full-year FY03/22, the company received total orders of JPY274.7bn (-JPY32.0bn YoY) in the construction business. The company reported a JPY25.2bn YoY decline in domestic private-sector orders, a JPY701mn rise in domestic public works orders, and a JPY7.4bn decrease in overseas orders. By segment, the company reported a JPY21.5bn decline in orders at its Building Construction segment and a JPY10.4bn decrease in orders in the Civil Engineering segment.
Parent company revenue of JPY243.0bn was up JPY26.8bn YoY, with revenue in the Building Construction segment finishing up JPY45.4bn YoY and revenue in the Civil Engineering segment finishing down JPY18.7bn YoY. The strong revenue growth in the Building Construction segment reflected a JPY81.9bn increase in revenue from domestic private sector projects, with Tokyu group companies accounting for JPY4.9bn of this and other domestic companies accounting for JPY46.9bn.
The consolidated operating loss was JPY6.1bn. The company booked expected losses in connection with the cost of repairing defective work at a job in progress and the cost of repairs to work completed and delivered in past years, and in connection with margin deterioration on overseas projects and revisions to income projections for development projects in the real estate business.
As of end-FY03/22, the total value of construction carried forward at the parent was JPY362.8bn, up JPY19.2bn YoY. This comprised JPY272.4bn (+JPY35.5bn YoY) for the Building Construction segment and JPY90.4bn (-JPY16.3bn YoY) for the Civil Engineering segment.
Rolling of long-term management plan “To zero, from zero:” The company revised its long-term KPI and investment targets to reflect lower-than-expected FY03/22 earnings (see section on long-term management plan).
Company forecast for FY03/23 forecast
Company estimates
Cons.
FY03/21
FY03/22
FY03/23
(JPYmn)
1H Act.
2H Act.
FY Act.
1H Act.
2H Act.
FY Act.
FY Est.
Revenue
95,423
136,060
231,483
111,614
146,469
258,083
289,000
Gross profit
8,323
9,847
18,170
411
9,305
9,716
Gross profit margin
8.7%
7.2%
7.8%
0.4%
6.4%
3.8%
SG&A expenses
7,130
7,490
14,620
7,563
8,231
15,794
SG&A ratio
7.5%
5.5%
6.3%
6.8%
5.6%
6.1%
Operating profit
1,192
2,357
3,549
-7,152
1,074
-6,078
4,000
Operating profit margin
1.2%
1.7%
1.5%
-6.4%
0.7%
-2.4%
1.4%
Recurring profit
1,680
3,211
4,891
-7,151
2,019
-5,132
4,500
Recurring profit margin
1.8%
2.4%
2.1%
-6.4%
1.4%
-2.0%
1.6%
Net income
759
1,888
2,647
-7,668
209
-7,459
3,500
Net margin
0.8%
1.4%
1.1%
-6.9%
0.1%
-2.9%
1.2%
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
The company’s forecast for full-year FY03/23 calls for consolidated revenue of JPY289.0bn (+12.0% YoY), operating profit of JPY4.0bn (versus loss of JPY6.1bn in FY03/22), recurring profit of JPY4.5bn (versus loss of JPY5.1bn in FY03/22), and net income of JPY3.5bn (versus net loss of JPY7.5bn in FY03/22).
Shared Research plans to update its view on the above FY03/23 forecast following interviews with the company.
Long-term management plan
Vision 2030 and Long-term management plan “To zero, from zero”
Formulation of Vision 2030
The company has formulated a vision every 10 years since 2000 with the aim of realizing its corporate philosophy. The company’s Vision 2020 of being “a general contractor that continues to embody ‘shinka’” (which translates roughly as “deepening and evolving in the pursuit of genuine value”) ended in FY03/21, so the company formulated “Vision 2030,” its new vision looking toward 2030.
Tokyu Construction formulated Vision 2030 with a keen awareness of the company’s purpose, derived from its founding spirit, the shared values (corporate philosophy and principles of conduct) in the organization and its behavior, achievements and challenges of Vision 2020, and solving of social issues, which is the company’s identity. The company set forth the Vision 2030 theme as “To zero, from zero, The environment and the excitement of the future.”
“To zero” means striving for zero carbon and waste emissions, and “from zero” expresses the company’s ambition to enter new fields. “To zero” encompasses the concept of a safe and comfortable environment, and “from zero” expresses the company’s desire to offer excitement and contribute to a sustainable society and to continue to strive to improve corporate value.
Long-term management plan “To zero, from zero”
In May 2021, the company disclosed its long-term management plan “To zero, from zero” which it will use to achieve goals in its Vision 2030.
Fundamental policies
The company positions its domestic civil engineering, building construction, and building renovation businesses as core businesses, and its international, real estate, and new businesses as strategic businesses.
Through the practice of “deepening knowledge” and “searching for knowledge,” and with human resources and digital technologies as sources of competitive advantage, the company aims to implement five key strategies centered on delivering three values (decarbonization, zero waste, and disaster prevention and mitigation).
The company aims to sustainably improve both financial and nonfinancial corporate value.
Five key strategies
Promote and establish the Tokyu Construction brand: Visualize initiatives and achievements, and promote them internally and externally with a new brand message.
Deepen core businesses: Strengthen capabilities by enhancing problem-solving skills, innovating construction production systems, and forming strategic alliances.
Grow strategic businesses: Create new growth opportunities through initiatives and investments with a strong focus on producing synergies with core businesses.
Human resources and organizational strategy: Achieve results and accelerate innovation through organizational and cultural reforms that are closely tied to the human resource strategy.
Financial and capital strategy: Shift from a focus on enhancing financial foundations to a focus on improving capital efficiency (pursuing an optimal capital structure).
Numerical targets
KPIs in long-term management plan (revised on May 12, 2022)
Management indicator
FY2021 Act.
FY2022
FY2024
FY2030
Profitability
Operating profit
-JPY6.0bn
JPY4.0bn
JPY9.0bn or higher
JPY22.0bn or higher
Operating profit margin
-2.4%
1.4%
2.6% or higher
5.0% or higher
Efficiency
ROIC
-
-
-
7.0% or higher
ROE
-
3.8%
7.3% or higher
10.0% or higher
Soundness
Debt-to-equity ratio
0.24倍
0.5 or lower
Equity ratio
38.9%
Approx. 40–45%
Approx. 45%
Non-financial
Employee engagement
BB
BBB
A
AAA
GHG emission
-
Reduce by 10.0%
Reduce by 15.0%
Reduce by 30.0%
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: ROIC = (NOPAT + non-operating income) / (shareholders’ equity + interest-bearing liabilities) Note: Employee engagement rating by Link and Motivation Inc.'s “Motivation Cloud.” The rating is for all group employees, including subsidiaries. There are 11 ratings, and the current BBB rating is the fourth highest, after AAA, AA, and A.
Shareholder return policy
The company recognizes the importance of having ample retained earnings to invest with a view to improving corporate value and further improvements in its financial position so it can withstand medium- to long-term risks. Meanwhile, as an important measure to provide shareholders with stable, ongoing returns of profits, the company’s previous dividend policy targeted a consolidated dividend payout ratio of at least 20% and a flexible shareholder returns element including share buybacks that took into account earnings performance. However, the company said that dividends based on past earnings led to instability in the dividend amount which was influenced by individual fiscal year earnings.
In its long-term plan, the company revised its previous shareholder return policy and disclosed a new one. It will target a dividend on equity ratio (DOE) of at least 4.0%, while striking a balance between its medium- to long-term performance target of ROE of 10% or more and consolidated dividend payout ratio of at least 40%. This is aimed at stabilizing the dividend amount and improving shareholder returns, taking into consideration capital efficiency. The company also plans to buy back shares flexibly, also taking into account capital efficiency.
Shareholder return policy
Up to FY03/21
Long-term plan "To zero, from zero." (from FY03/22)
Shareholder return policy
Cons. payout ratio 20% or higher
DOE 4.0% or higher
Flexible acquisition of treasury shares
Source: Shared Research based on company data
Investment plans
The company plans to spend JPY170bn over 10 years on VISION 2030.
Investment plans (revised on May 12, 2022)
Investments
Amount
Key investments
10-year total
JPY107.0bn
Business strategy investment based on delivering three values
Core Business
JPY950bn
Investments in domestic, civil engineering, construction, and construction RN businesses
■Investments for technology development
■Investments in production systems innovation and DX
■M&A investments
Strategic Business
Investments in international, real estate, and new businesses
■M&A investments for international business expansion
■Acquisition of real estate emphasizing synergy with core businesses
■Investments in new business incubation
■Investments in concessions/PPP business
■Investments in venture businesses and venture funds
Investment in source of competitive advantage (human resources x DX)
JPY12.0bn
Investments in HR system reform and human resources cultivation
Environment construction and systems infrastructure pertaining to companywide DX
Source: Shared Research based on company data
Delivering three values
With a primary focus on mitigating climate change risk, the company has set forth the delivery of three values: decarbonization, zero waste, and disaster prevention and mitigation, in the context of the UN’s SDGs as a starting point for solving social issues. The company aims to achieve decarbonization not just in the construction process itself but in the entire construction value chain and new business areas. It aims to contribute to a circular economy by curtailing CO2 emissions generated from waste incineration. The company also intends to contribute to the provision of infrastructure in addition to suppressing CO2 emissions which are a factor in major natural disasters.
KPIs pertinent to delivering three values
Provision of values
Key measures
2030 levels to be achieved
Decarbonization
■Promotion of ZEB
■GHG reduction target: Scope 1, 2, and 3: 30% cut
■Switch to renewables for all electricity used
in business activities
■Enter renewal energy businesses
■Use non-fossil fuels for heavy machinery and dump trucks
■Decarbonization of construction materials
Zero waste
■Develop timber construction business
■Shift to renewables for all electricity used in business (first for Japanese general contractor)
■Development and operation of decarbonization technologies
■Reduce final disposal volume of waste plastic, etc.
■Promote use of recycled materials
■Develop and operate waste recycling technology
Disaster prevention and mitigation
■Contribute to longer service life with infrastructure asset management
■Financial impact: Aim to reduce risk and capture opportunities worth JPY12–16bn
■Extend building life using building health diagnosis technology and torrential rain damage prediction technology
■Build disaster simulation tools based on digital twins
Source: Shared Research based on company dataInvestment plansInvestment plans
As part of its decarbonization efforts, the company has been working to reduce emissions generated from electricity use in order to meet the greenhouse gas emission reduction targets certified by the Science Based Targets initiative (SBTi). In March 2021, the company joined the RE100 initiative, and targets a switch to renewable energy sources for all of the electricity used in its business activities, including construction sites and offices, by 2030. Since April 2021, the company resolved to use 100% renewable energy derived electricity in all of its new construction projects in principle. It also plans to accelerate the switch to renewable energy in its existing projects. Two large logistics warehouses the company started building in March 2021 (ESR Higashi Ogishima Distribution Center and ESR Kawasaki Ukishima Distribution Center) received electricity from renewable energy resources in April 2021, and all of the electricity used in construction work and offices comes from clean, CO2 emissions free sources.
Science based targets (SBTs): SBTs are greenhouse gas emissions reductions targets for 5–15 years in the future set by companies. They are considered science-based if they are in line with what climate science deems necessary to meet the goals the Paris Agreement (to limit the global temperature rise to well below 2°C and targets limiting the rise to 1.5° C from pre-Industrial Revolution levels). The SBT governing bodies are the United Nations Global Compact, CDP, World Resources Institute (WRI) and Worldwide Fund for Nature (WWF). RE100: An initiative involving globally influential companies that have adopted a goal of using electricity derived 100% from renewable energy sources in their business activities. The Tokyu Construction group has set a target of shifting to 100% renewable energy sources in all of the electricity used in its business activities by 2030, and is accelerating its efforts to bring about a decarbonized society as soon as possible.
Business strategy
Vision 2030, the company’s long-term management plan: What it may look like in practice
Tokyu Construction plans to review its earnings structure based on Vision 2030 and its long-term management plan. From FY03/22 onward it has positioned the domestic civil engineering, building construction, and building renovation businesses as core businesses, and its international, real estate, and new businesses as strategic businesses. The company wants to revamp its earnings structure from a core/strategic business split of 94:6 in FY03/20 to 75:25 in FY03/31.
In its core businesses, it plans to use building information modeling (BIM) and construction information modeling (CIM) as platforms and create a variety of added value through the value chain with personnel and digital technologies, and transform the building construction business model. It plans to transform its business portfolio through innovation in its international, real estate, and construction businesses and growth in new businesses that help solve social issues.
Deepening core businesses
The company said it aimed to strengthen its capabilities by strengthening problem-solving skills, construction and production system innovation, and strategic alliances.
FY2021–FY2023
FY2024–FY2026
FY2027–FY2030
Core business strategies
Proactive development of businesses that provide three values and creation of success stories
Shift to proposal-based sales based on provision of three values to distinguish company
Spearhead new construction schemes (e.g. IPD* ) based on accumulated data and
results, and aim to break away from customer-led contracting industry
Maximize use of digital platforms based on BIM and CIM
Leverage BIM and CIM data to grow business in value chain and maximize synergies between businesses
Source: Shared Research based on company data IPD (integrated product delivery): A project where various related parties including the client, designer, construction companies, and specialist construction companies work under a single contract.
Deepening domestic civil engineering business
Securing construction capacity and strengthening problem-solving skills
Strengthening overall evaluations, expansion in maintenance and repair, and participation in early contractor involvement (ECI): An ordering method that reflects the technical capabilities of constructors in design content from the design stage and aims to achieve cost reductions and shortening of the construction period
Strengthening sales to other railways, including private railways and subways in Tokyo metropolitan area
Environment-related initiatives and the commercialization of infrastructure asset management
Promotion of front-end loading based on CIM
Information sharing, visualization, and training of engineers
Cooperation with external parties to complement the company’s weaknesses
Deepening domestic building construction and building renovation businesses
Strengthening relationships with customers through proposal-based sales
Acquisition and strengthening of design proposal capabilities to meet customer needs
Productivity enhancement to cut costs and reduce construction periods
Promotion of front-end loading based on BIM
Acquisition of maintenance and management expertise and strengthening of renovation handling capabilities
Strengthening of ZEB and other environment-related equipment and technology
Strengthening of cooperation with Tokyu Group companies
Cultivate the core area around Shibuya
The company plans to further cultivate demand around Shibuya* and along the Tokyu lines**.
Shibuya Station redevelopment work specifically includes Shibuya Scramble Square Central Tower and West Tower (scheduled for completion in FY03/28). Taken in the broader sense (the communities around Shibuya Station), the company expects redevelopment demand to persist over the medium to long term because the area has a large stock of aging small and medium-sized buildings. Major building redevelopments are opportunities to attract tenants, and the company thinks the Shibuya area has a growing need to add value to existing buildings. Tokyu Construction has created an extensive track record of building construction in the Shibuya area over the past 60 years. The company explains that this history, plus a dedicated sales team that communicates closely with people in this area, have enabled it to build solid relationships with town councils and commercial organizations in the area. By leveraging these strengths, the company is playing a central role in urban development in Shibuya in the broader sense. Further in the future, the company expects to extend its redevelopment business to areas around other major stations on the Tokyu lines, such as Sangenjaya and Mizonokuchi.
*Shibuya: Shibuya is one of Tokyo’s three major sub-centers, along with Shinjuku and Ikebukuro, and is one of the busiest areas in Tokyo. Shibuya Station is also one of the Tokyo’s largest railway stations, allowing passengers to transfer among Tokyu’s Den-en-toshi and Toyoko lines, Tokyo Metro’s Fukutoshin and Ginza lines, JR East’s Yamanote Line, and Keio railway lines. Average daily traffic through JR Shibuya Station is around 366,000 passengers (FY03/20: JR East survey).
The Shibuya district is one of several popular areas for young people. Major shopping facilities include Tokyu Department Store, Shibuya 109, and Shibuya Parco. **Along the Tokyu lines: Tokyu Den-en-toshi Line (Shibuya, Ikejiri-Ohashi, Sangenjaya, Futako-Tamagawa, Mizonokuchi, Tama Plaza, Nagatsuta, Minami Machida Grandberry MallーChuorinkan) Tokyu Toyoko Line (Shibuya, Daikanyama, Nakameguro, Jiyugaoka, Tamagawa, Musashi Kosugi, Hiyoshi, Tsunashima, Yokohama) Tokyu Meguro Line (Meguro, Fudo-mae, Musashi-Koyama, Ookayama, Den-en-chofu) Tokyu Oimachi Line (Futako-Tamagawa, Jiyugaoka, Ookayama, Hatanodai, Oimachi) Tokyu Ikegami Line (Gotanda, Hatanodai, Kamata) Tokyu Tamagawa Line (Tamagawa, Musashi-Nitta, Kamata)
Shibuya Scramble Square Central and West Towers and the former Shibuya Station(Left) Many small, older buildings around Shibuya Station(Right)
The company expects demand for renovation to rise as the number of aging buildings grows. Seismic reinforcement and environmental considerations are driving demand for renovation. The company believes this trend will persist, centered on non-residential buildings. Tokyu Construction plans to cultivate this market through Tokyu Renewal Co., Ltd., a subsidiary that handles this business. Tokyu Construction intends to build a new customer base for commercial facilities and hotels by highlighting its construction technology capable of handling projects that are large in scale and difficult, as well as by leveraging its capabilities in interior construction planning and design. As it expects the construction market to shrink and demand for renovation to expand, the company considers it will need to make a functional change in the way it receives orders to accommodate more recurring-revenue business.
Building maintenance and renovation work
Source: Shared Research, based on MLIT’s “Statistics Survey on Execution of Construction Works”
Percentage of infrastructure 50-plus years old
March 2013
March 2023
March 2033
Road bridges
18%
43%
67%
Tunnels
20%
34%
50%
River management facilities
25%
43%
64%
Sewer pipes
2%
9%
24%
Quay walls
8%
32%
58%
Source: Company data
Urban Solutions business
In addition to enhancing cooperation with other companies in the Tokyu Group, the company says it plans to reinforce earnings by strengthening necessary solutions and building a comprehensive value chain through active personnel hiring, alliances, and M&A. In this area of business, the company collects information about the challenges and needs of local companies and landowners and proposes design, construction, and ways to utilize property, including leasing. Tokyu Construction works with partners on small-scale projects that are difficult for it to handle itself and forms alliances with top-tier general contractors in these areas. Tokyu Construction works with other companies in the Tokyu Group in such areas as tenant leasing and maintenance and management. By handling all aspects of the business, including renovation, the company aims to remain in contact with clients over the long term.
Infrastructure asset management
In this business, the company supports the maintenance, management, and renewal of infrastructure such as railways and roads from a long-term perspective, promoting the social value of efficient maintenance and management technologies. The company uses iTOREL*, a system for inspecting and examining entire cross sections of tunnels using leading-edge robotics and AI technologies.
*iTOREL (a system for inspecting and examining full cross sections of tunnels): This new technology uses testing robots that straddle the roadway inside a tunnel to conduct tests without interfering with vehicle traffic. Autodetection units that check for cracks or bubbles in concrete linings, and hammer testing units can be used to check for quantitative changes over time. Testing results are examined using the company’s expert system. The company uses this information to suggest repair methods that are cost-optimized, taking the tunnel’s life cycle cost into account.
Net zero-energy building (ZEB)
A net zero-energy building (ZEB) reduces energy consumption to nearly zero. The company carried out ZEB renovation on its Institute of Technology, which was completed 25 years ago, and whose energy efficiency was lower than for the most modern buildings. ZEB renovations carried out starting in 2016 were aimed at reducing building CO2 emissions during use. The company lowered the external heat load by employing a double-skin curtain wall, exterior thermal insulation, multilayered glass, and other measures. It also used energy sources other than fossil fuels (solar, geothermal, hydrogen) that it also used to generate power. In the process, Tokyu Construction became the first private-sector company in Japan to install a hydrogen production, storage, and power generation system. The company intends to push forward further to improve technologies, aiming for a truly net zero (100%) energy reduction. In FY03/20, it achieved 78% energy reduction, the highest level in Japan.
Reflecting growing calls to move to a carbon-free society, the company plans to market itself as a ZEB planner.
Tokyo City University Building A
The company has designed a new building that will be one of the largest university buildings in Japan, with total floor area of more than 100,000sqm, using multiple elemental technologies it has developed. Construction began in June 2020.
Seikitokyu Kogyo head office
The company is working on a ZEB design for this urban office building, even though it is supposed a ZEB format will be difficult due to the limited space available. Construction is scheduled to begin in spring 2021.
iTOREL system for inspecting the full cross sections of tunnels Institute of Technology following ZEB renovations
Source: Company website
Application of environmentally friendly concrete (CELBIC)
Tokyu Construction is one of 13 companies jointly developing environmentally friendly concrete. CELBIC stands for “Consideration for Environmental Load using Blast furnace slag In Concrete.” The low-carbon concrete uses powdered slag from steel manufacturers to reduce carbon dioxide emissions, and this is expected to reduce the amount of CO2 generated by concrete production by 40% in the case of the Ginza 5-chome Project (tentative name) where it will be used.
Digital shift
Tokyu Construction aims to accelerate business reforms through a greater uptake of IT, responding to the ongoing digitization of markets and customer needs. To do so, the company is forging alliances with the Tokyu Group and other partner companies, investing in startups, and actively pursuing M&A. A concrete example is innovation of construction and production systems originating with building information modeling (BIM) and construction information modeling (CIM). To that end, the company made Singapore-based BIM equipment design company Indochine Engineering a wholly owned subsidiary in October 2020 and acquired shares in Kawamura Sekisan, an estimating company, and made it a subsidiary. The company established Iwase Precast, a joint venture, to manufacture and sell precast concrete, which improves construction efficiency, and is working on end-to-end digital transformation in construction. In order to promote the use of BIM in construction across the entire company, the company is deploying the BIM first model, a BIM version of design documents, to worksites in Japan before construction begins.
Use of BIM and CIM systems
In January 2019, Tokyu Construction started developing the “BIM first model” and adopting BIM with the aim of innovation in construction and production systems. The BIM first model is data obtained by converting design documents into BIM, and can be used in day-to-day management starting with examination of a construction plan before work begins, evolving to construction plans actually used on-site. Initially, the system only handled structural BIM models, but from FY03/22 the company plans to roll out models for BIM data covering greater data volume, encompassing exteriors and some interiors, external structures, and facilities to all sites above a certain size. By deploying BIM throughout the entire value chain, the company plans to revamp its construction and production systems, and aims at improvements in construction productivity of 30% or more.
BIM: Building information modeling (BIM) is a solution for utilizing information in a building database produced by adding data regarding attributes, such as cost, finishing details, and management information, to a three-dimensional digital model of a building constructed on a computer during various types of construction processes, including design, construction, maintenance, and management. To front-load construction work and streamline on-site operations, Tokyu Construction has started distributing a structural model that supports BIM as a “first model” at the start of construction. The distributed model is utilized at the site as a construction BIM, and applied to an examination of the construction plan. Visualizing work procedures and sharing BIM information with employees and on-site skilled construction workers makes it possible to select the best procedures, and helps to improve the efficiency and safety of the operations. BIM can also help ensure consistency among multiple drawings, such as architectural design, structural, and equipment plans, and prevent losses due to operational rework. Furthermore, it is possible to check work in detail and build a consensus with the client and designers in three dimensions, improving the speed of decision-making. The company says it plans to utilize the information provided by BIM to reduce the burden of on-site quantitative calculations. (Source: Tokyu Corporation’s Integrated Report 2019) CIM: Construction information modeling (CIM) refers to applying the concept of BIM, which is taking hold in the construction field, in civil engineering.
Moving from individual VR to shared VR
Using virtual reality (VR), the company is conducting a proof-of-concept experiment to speed up information sharing and consensus-building at construction sites by using a virtual space where several people can gather at the same time. This is facilitated by the Ricoh Virtual Workplace solution from Ricoh Co., Ltd. (TSE1: 7752), which uses a range of features to enable natural, free communication between people separated by physical distance. Tokyu Construction will verify the effectiveness of the solution for possible commercialization in the future.
Using MR in building confirmation
The company is conducting simulated screening in a joint trial with a confirmation inspection institution using a mixed reality (MR) device from Microsoft and BIM. It aims to boost inspection efficiency and accuracy by centrally comparing and confirming the actual structure against blueprint data.
Wooden construction business
The company is focusing on the business of building structures that give preference to the use of wood or that are of mixed wooden construction. In recent years, technologies mixing wooden and non-wooden methods (reinforced concrete and steel frame construction) have advanced, making the medium-sized wooden construction business more tenable. Amid regulatory reforms and increasing environmental demands, the company expects demand to increase for medium- to high-rise offices, residences, and commercial structures that mix reinforced concrete and wood. The company plans to pursue technological developments in this area from a medium- to long-term perspective, gradually addressing technical issues.
Daito Trust Construction Co., Ltd.’s (TSE1: 1878) “ROOFLAG Rental Housing Future Exhibition Hall” (in Tokyo’s Koto Ward) was completed in March 2020. This major wooden construction project features a lattice work roof with a span of up to 60 meters, one of the largest in Japan. The roof is made up of 128 pieces of cross laminated timber (CLT)* material and uses no stanchions, resulting in an unprecedentedly spacious interior. Digital technologies including building information modeling (BIM) are used for the construction.
*Cross laminated timber (CLT) is a type of wooden construction material. Whereas in standard laminated timber, the layers are laminated together with the grain running in the same direction, in CLT, each layer is oriented perpendicular to the adjacent layers, resulting in panels with superior structural strength.
Left: Rebuilding the roof over Togoshi Ginza Station on the Tokyu Ikegami Line (2016). Right: ROOFLAG Rental Housing Future Exhibition Hall (2020)
Source: Company website
Strategic business growth
International business
The company plans to step up its efforts in railway and transportation infrastructure and transit oriented development (TOD) under official development assistance (ODA) programs primarily in Southeast and South Asia, leveraging the strengths it has cultivated in Japan in railway construction and urban development along the Tokyu railway lines
In private-sector construction, it aims to establish a high-margin business model tailored to individual countries’ market environment through partnerships with local companies and local human resources
Overseas projects
The company is pursuing the construction business overseas, in South and Southeast Asia (Thailand, Singapore, Indonesia, Myanmar, Vietnam, and Bangladesh). Overseas development assistance (ODA) projects and private-sector building construction projects are its focus. For ODA projects centering on railways and roads, the company has expanded its region of business concentration from Thailand, Indonesia, and Myanmar to other South Asian countries including Bangladesh. As for private-sector building construction projects, Tokyu Construction has participated in high-rise building projects of strong local developers and factory construction for Japanese companies operating overseas, as well as hotel construction projects. The company strives to enhance governance for the expansion of business, seeking to make the processes of business and risk management visible.
Jakarta Mass Rapid Transit Project (Indonesia, 2019)(Left) Takasago factory (Singapore, completed in 2013)(Right)
Source: Company website
Real estate business
The company plans to grow the real estate business to exploit synergies with the construction business and ensure stable earnings
Based on the three values it provides (decarbonization, zero waste, and disaster prevention and mitigation), the company aims to target eco-conscious customers and develop real estate development/value adding businesses by leveraging synergies with the construction business.
In this business, the company acquires real estate to ensure stable future earnings. Taking on a certain degree of exposure, Tokyu Construction is reinforcing the real estate leasing business. Specifically, the company is focusing its leasing investments on office buildings and stores. The Tokyu Group is extensive, including such companies as Tokyu Corporation and Tokyu Land Corporation. By leveraging this groupwide information network, the company plans to concentrate on buying income properties that offer synergies with its small and medium-sized building construction in central Tokyo and along the Tokyu lines. The company intends to add value to the properties it purchases, renovating them to boost investment yields. To expand this business, the company is setting new investment standards and monitoring processes in the interest of managing risk. It plans to hire outside personnel to build up processes in terms of expertise, as well as on the organizational front.
Public–private partnerships
In the PPP/concession business, Tokyu Construction intends to concentrate on the water and sewerage business (an area of strength) and on developing the airport concession business. The company sees water and sewerage as a field with growth potential and one that has strong ties to the civil engineering business. It participates in the airport concession business through cooperation with other members of the Tokyu Group. In 2018, Tokyu Construction and four others set up a special-purpose company to operate a sewage treatment plant for the Seien area of Hamamatsu for the next 20 years. This project represents the first sewerage system privatization in Japan. The company plans to participate actively in new bidding projects, collaborating with the SPC and the project operating company (Hamamatsu Water Symphony K.K.), acquiring expertise, and training employees.
In December 2021, Mizumusubi Management Miyagi, of which ten companies including the company are shareholders, concluded an implementation contract with Miyagi Prefecture for the Miyagi Prefecture Integrated Water Supply, Industrial Waterworks, and Sewerage Public-Private Partnership Management Project. The project entrusts the operation of Miyagi Prefecture's water supply business, industrial waterworks business, as well as its sewerage business facilities to the private sector for a period of 20 years. The projects is set to commence in April 2022.
Miyagi Prefecture Integrated Water Supply, Industrial Waterworks, and Sewerage Public-Private Partnership Management Project (Miyagi-style management & operation method): This is a public-private partnership model that uses concessions for the three businesses operated by Miyagi Prefecture: the water supply business, the industrial water supply business, and the sewerage business. Under this model, amendments in the Water Supply Act allow Miyagi Prefecture to delegate some water-related operations to private businesses while maintaining ultimate responsibility, with local governments permitted to create a mechanism in which private businesses are granted the rights to operate water-related facilities without the status of those water-related businesses changing.
Seien sewage treatment plant
Source: City of Hamamatsu data
New businesses
The company plans to establish a “new business continuity creation function” and aggressively develop a succession of new business in areas that can contribute to growth in the three values the company provides, including renewable energy, and areas that use digital technologies
To that end, it plans to invest up to JPY5.0bn in venture businesses in Japan and overseas
The company plans to step up its efforts (through group collaboration) on concession projects for sewerage systems, airports, etc., and PPP initiatives such as smart cities
In 2012, the company entered a new area of business: bell pepper cultivation. Plantaardig farm Co., Ltd., a subsidiary, grows the bell peppers at a greenhouse in Miho-mura, Inashiki, Ibaraki Prefecture (one of the largest bell pepper nutriculture facilities in Japan) and sells it. The company aims to expand this business. It also intends to concentrate on searching for and developing other new businesses.
Executive summary
Business overview
Tokyu Construction is a second-tier general contractor (see paragraph below). A member of the Tokyu Group, Tokyu Construction is an equity-method affiliate of Tokyu Corporation (TSE1: 9005), which owns a 15.3% stake in the company (including indirect holdings). Most revenue comes from private-sector construction projects. In FY03/21, the Building Construction segment accounted for 66.2% of consolidated revenue. The Civil Engineering segment, which includes railway construction, accounted for 32.7%, and the Real Estate segment provided 1.1%. Nearly 20% of construction orders come from other companies in the Tokyu Group. Tokyu Construction focuses on areas along Tokyu train lines, from the southwestern part of Tokyo’s 23 wards to northern Yokohama.
A general contractor is a construction company that accepts all-in contracts for building construction and civil engineering work. After receiving such contracts from companies or government/municipal bodies, general contractors subcontract work to specialized construction companies (subcontractors), managing the overall process. The scale of business is large; revenues from individual projects may run from billions to tens of billions of JPY. Construction periods on office building, railway, or roadway projects typically last from one to three years. Private-sector construction tends to be vulnerable to fluctuations in the operating environment. Public-sector projects tend to be more stable, with government entities continuing to place orders even in economically difficult times. The Japanese construction industry has been growing in recent years, benefiting from increased investment in construction, notably for business related to the Tokyo Olympics. Once this private-sector demand slows down, the company expects general contractors to prioritize relatively solid demand involving public-sector and overseas projects, and expansion of non-building construction business.
The Building Construction segment accounted for 66.2% of consolidated revenue (FY03/21). In this segment, the company constructs buildings throughout Japan, including office buildings, government offices, and schools. Operating in a buoyant construction market, recently the company has constructed a number of major office buildings near Shibuya Station. Notable projects include Shibuya Hikarie (completed in 2012), Shibuya Scramble Square (completed in 2019), Shibuya Stream (completed in 2018), and other high-rise office buildings that are part of a Shibuya Station redevelopment project. The company has a sales team that concentrates specifically on the Shibuya area. This team has been instrumental in such projects as Qfront (1999), which is a landmark near Shibuya’s Hachiko crossing, and Shibuya 109 (1979). The company has also handled projects for educational institutions, such as Tokyu-affiliated Asia and Tokyo City universities, as well as Nippon Sport Science University.
The Civil Engineering segment generated 32.7% of consolidated revenue (FY03/21). In this segment, the company focuses on businesses characterized by stable demand and good profitability, such as railway and road construction. Tokyu Construction says it has industry-leading technological expertise in these areas. Recent railway construction projects include continuous elevated railway work near Keikyu Kamata Station (completed in 2016) and subway construction on the Tokyu Toyoko Line between Shibuya and Daikanyama (2014). The company explains that its railway construction technologies allow it to build complex multilevel crossings, and that it has earned a strong reputation for sophisticated technologies that enable new routes to be built at night without interfering in the operation of existing routes. Road construction projects include the Atsugi Minami Interchange on the Shin-Tomei Expressway (2018) and the Ohashi Junction on the Shinjuku Line of the Metropolitan Expressway Central Circular Route (2010).
Key overseas projects include the Jakarta Mass Rapid Transit Project (completed in 2019, Indonesia), the Bangkok MRT Purple Line (completed in 2014, Thailand), the Vo Nguyen Giap Road (2014, Vietnam), and the Causeway Point Shopping Center (2012, Singapore). Civil engineering work tends to be concentrated on ODA projects. In recent years, the company has focused on obtaining orders for high-rise buildings.
In March 2021, the company formulated its corporate vision for 2030, “Vision 2030,” and in May 2021, it announced its 10-year long-term management plan, “To zero, from zero,” aimed at achieving Vision 2030. The company plans to invest JPY170bn in core and strategic businesses over the next ten years, aiming to achieve an operating profit of at least JPY22.0bn and ROE of 10% or higher in FY03/30. It also revised its shareholder returns policy. The company plans to pay dividends based on a dividend on equity (DOE) of at least 4.0%, which strikes a balance between the medium-term target of a minimum 10% ROE and consolidated dividend payout ratio of at least 40%. This is aimed at stabilizing the dividend amount and improving shareholder returns, taking into consideration capital efficiency. The company also plans to buy back shares flexibly, also taking into account capital efficiency.
Earnings trends
For FY03/22, the company reported consolidated revenue of JPY258.1bn (+11.5% YoY), operating loss of JPY6.1bn (versus profit of JPY3.6bn in FY03/21), recurring loss of JPY5.1bn (versus profit of JPY4.9bn in FY03/21), and net loss of JPY7.5bn (versus profit of JPY2.6bn in FY03/21). The company booked expected losses in connection with the cost of repairing defective work at a job in progress and the cost of repairs to work completed and delivered in past years, and in connection with margin deterioration on overseas projects and revisions to income projections for development projects in the real estate business.
The company’s forecast for FY03/23 calls for consolidated revenue of JPY289.0bn (+12.0% YoY), operating profit of JPY4.0bn (versus loss of JPY6.1bn in FY03/22), recurring profit of JPY4.5bn (versus loss of JPY5.1bn in FY03/22), and net income of JPY3.5bn (versus loss of JPY7.5bn in FY03/22).
Strengths and weaknesses
Shared Research identifies three strengths at Tokyu Construction: 1) nearly 20% of revenue due to business opportunities via the Tokyu Group, 2) a strong track record of projects completed in Shibuya and along the Tokyu lines, and 3) abundant experience with railway construction, which helps ensure stable earnings during economic doldrums. We also see three weaknesses: 1) outdone by super general contractors in its record for high-value-added construction work (such as large sports facilities, art museums, and long bridges), 2) a low percentage of revenue from public-sector civil engineering projects, which tend to be more profitable than private-sector construction and feature stable demand, and 3) despite a maturing domestic market, slow to build overseas and real estate businesses.
Key financial data
Note: Figures may differ from company materials due to differences in rounding methods.
Recent updates
Rolling of its long-term management plan “To zero, from zero”
On May 12, 2022, Tokyu Construction Co., Ltd. made an announcement concerning the rolling of its long-term management plan “To zero, from zero.”
The company revised its KPI and investment targets for three years hence, to reflect lower-than-expected FY03/22 earnings and the effects of both COVID-19 and the Ukraine crisis.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: ROIC " data-candidates="[{"type":2,"companyId":null,"_id":"62622f4dff7cb5c862e6be1a","en":"ROIC "}]" class="translated-term">ROIC = (NOPAT + non-operating income) / (shareholders’ equity + interest-bearing liabilities)
Note: Employee engagement rating by Link and Motivation Inc.'s “Motivation Cloud.” The rating is for all group employees, including subsidiaries. There are 11 ratings, and the current BBB rating is the fourth highest, after AAA, AA, and A.
Revisions to full-year FY03/22 earnings and dividend forecasts
On April 22, 2022, Tokyu Construction Co., Ltd. announced revisions to its full-year FY03/22 earnings forecast and its dividend forecast.
Downward revision to full-year earnings forecast
The company revised down the full-year earnings forecast mainly because, at the parent company level, orders for domestic civil engineering work came in later than expected and slow progress on construction work has led to some JPY7.0bn drop in forecast of revenue from completed construction. Cost increases stemming from construction delays has left several overseas construction projects in the red, and expected construction cost increases on real estate development projects has left its real estate business in the red as well. At the consolidated level, the company said the shortfall at the parent was further compounded by shortfalls at domestic subsidiaries, where delays in construction likewise left revenue below plan. Lower revenue pushed down profit.
Downward revision to the dividend forecast
With the company expecting to report net loss in FY03/22, it also revised down its year-end dividend forecast.
The company reduced its year-end divided forecast to JPY5.0 per share versus previous forecast of JPY20.0 per share. The company is now expects to pay total dividends of JPY25.0 per share (an interim dividend of JPY20.0 per share and an year-end divided of JPY5 per share) for FY03/22.
Planned changes to executive management
On February 24, 2022, Tokyu Construction Co., Ltd. announced planned changes to executive management.
Scheduled retirements of company directors
Effective date: in late-June, 2022
Trends and outlook
Quarterly trends and results
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Full-year FY03/22 results
Summary
* Net loss attributable to owners of the parent
Key takeaways
In full-year FY03/22, the company received total orders of JPY274.7bn (-JPY32.0bn YoY) in the construction business. The company reported a JPY25.2bn YoY decline in domestic private-sector orders, a JPY701mn rise in domestic public works orders, and a JPY7.4bn decrease in overseas orders. By segment, the company reported a JPY21.5bn decline in orders at its Building Construction segment and a JPY10.4bn decrease in orders in the Civil Engineering segment.
Parent company revenue of JPY243.0bn was up JPY26.8bn YoY, with revenue in the Building Construction segment finishing up JPY45.4bn YoY and revenue in the Civil Engineering segment finishing down JPY18.7bn YoY. The strong revenue growth in the Building Construction segment reflected a JPY81.9bn increase in revenue from domestic private sector projects, with Tokyu group companies accounting for JPY4.9bn of this and other domestic companies accounting for JPY46.9bn.
The consolidated operating loss was JPY6.1bn. The company booked expected losses in connection with the cost of repairing defective work at a job in progress and the cost of repairs to work completed and delivered in past years, and in connection with margin deterioration on overseas projects and revisions to income projections for development projects in the real estate business.
As of end-FY03/22, the total value of construction carried forward at the parent was JPY362.8bn, up JPY19.2bn YoY. This comprised JPY272.4bn (+JPY35.5bn YoY) for the Building Construction segment and JPY90.4bn (-JPY16.3bn YoY) for the Civil Engineering segment.
Rolling of long-term management plan “To zero, from zero:” The company revised its long-term KPI and investment targets to reflect lower-than-expected FY03/22 earnings (see section on long-term management plan).
Company forecast for FY03/23 forecast
Company estimates
Note: Figures may differ from company materials due to differences in rounding methods.
The company’s forecast for full-year FY03/23 calls for consolidated revenue of JPY289.0bn (+12.0% YoY), operating profit of JPY4.0bn (versus loss of JPY6.1bn in FY03/22), recurring profit of JPY4.5bn (versus loss of JPY5.1bn in FY03/22), and net income of JPY3.5bn (versus net loss of JPY7.5bn in FY03/22).
Shared Research plans to update its view on the above FY03/23 forecast following interviews with the company.
Long-term management plan
Vision 2030 and Long-term management plan “To zero, from zero”
Formulation of Vision 2030
The company has formulated a vision every 10 years since 2000 with the aim of realizing its corporate philosophy. The company’s Vision 2020 of being “a general contractor that continues to embody ‘shinka’” (which translates roughly as “deepening and evolving in the pursuit of genuine value”) ended in FY03/21, so the company formulated “Vision 2030,” its new vision looking toward 2030.
Tokyu Construction formulated Vision 2030 with a keen awareness of the company’s purpose, derived from its founding spirit, the shared values (corporate philosophy and principles of conduct) in the organization and its behavior, achievements and challenges of Vision 2020, and solving of social issues, which is the company’s identity. The company set forth the Vision 2030 theme as “To zero, from zero, The environment and the excitement of the future.”
“To zero” means striving for zero carbon and waste emissions, and “from zero” expresses the company’s ambition to enter new fields. “To zero” encompasses the concept of a safe and comfortable environment, and “from zero” expresses the company’s desire to offer excitement and contribute to a sustainable society and to continue to strive to improve corporate value.
Long-term management plan “To zero, from zero”
In May 2021, the company disclosed its long-term management plan “To zero, from zero” which it will use to achieve goals in its Vision 2030.
Fundamental policies
The company positions its domestic civil engineering, building construction, and building renovation businesses as core businesses, and its international, real estate, and new businesses as strategic businesses.
Through the practice of “deepening knowledge” and “searching for knowledge,” and with human resources and digital technologies as sources of competitive advantage, the company aims to implement five key strategies centered on delivering three values (decarbonization, zero waste, and disaster prevention and mitigation).
The company aims to sustainably improve both financial and nonfinancial corporate value.
Five key strategies
Numerical targets
Note: Figures may differ from company materials due to differences in rounding methods.
Note: ROIC = (NOPAT + non-operating income) / (shareholders’ equity + interest-bearing liabilities)
Note: Employee engagement rating by Link and Motivation Inc.'s “Motivation Cloud.” The rating is for all group employees, including subsidiaries. There are 11 ratings, and the current BBB rating is the fourth highest, after AAA, AA, and A.
Shareholder return policy
The company recognizes the importance of having ample retained earnings to invest with a view to improving corporate value and further improvements in its financial position so it can withstand medium- to long-term risks. Meanwhile, as an important measure to provide shareholders with stable, ongoing returns of profits, the company’s previous dividend policy targeted a consolidated dividend payout ratio of at least 20% and a flexible shareholder returns element including share buybacks that took into account earnings performance. However, the company said that dividends based on past earnings led to instability in the dividend amount which was influenced by individual fiscal year earnings.
In its long-term plan, the company revised its previous shareholder return policy and disclosed a new one. It will target a dividend on equity ratio (DOE) of at least 4.0%, while striking a balance between its medium- to long-term performance target of ROE of 10% or more and consolidated dividend payout ratio of at least 40%. This is aimed at stabilizing the dividend amount and improving shareholder returns, taking into consideration capital efficiency. The company also plans to buy back shares flexibly, also taking into account capital efficiency.
Investment plans
The company plans to spend JPY170bn over 10 years on VISION 2030.
Delivering three values
With a primary focus on mitigating climate change risk, the company has set forth the delivery of three values: decarbonization, zero waste, and disaster prevention and mitigation, in the context of the UN’s SDGs as a starting point for solving social issues. The company aims to achieve decarbonization not just in the construction process itself but in the entire construction value chain and new business areas. It aims to contribute to a circular economy by curtailing CO2 emissions generated from waste incineration. The company also intends to contribute to the provision of infrastructure in addition to suppressing CO2 emissions which are a factor in major natural disasters.
As part of its decarbonization efforts, the company has been working to reduce emissions generated from electricity use in order to meet the greenhouse gas emission reduction targets certified by the Science Based Targets initiative (SBTi). In March 2021, the company joined the RE100 initiative, and targets a switch to renewable energy sources for all of the electricity used in its business activities, including construction sites and offices, by 2030. Since April 2021, the company resolved to use 100% renewable energy derived electricity in all of its new construction projects in principle. It also plans to accelerate the switch to renewable energy in its existing projects. Two large logistics warehouses the company started building in March 2021 (ESR Higashi Ogishima Distribution Center and ESR Kawasaki Ukishima Distribution Center) received electricity from renewable energy resources in April 2021, and all of the electricity used in construction work and offices comes from clean, CO2 emissions free sources.
Business strategy
Vision 2030, the company’s long-term management plan: What it may look like in practice
Tokyu Construction plans to review its earnings structure based on Vision 2030 and its long-term management plan. From FY03/22 onward it has positioned the domestic civil engineering, building construction, and building renovation businesses as core businesses, and its international, real estate, and new businesses as strategic businesses. The company wants to revamp its earnings structure from a core/strategic business split of 94:6 in FY03/20 to 75:25 in FY03/31.
In its core businesses, it plans to use building information modeling (BIM) and construction information modeling (CIM) as platforms and create a variety of added value through the value chain with personnel and digital technologies, and transform the building construction business model. It plans to transform its business portfolio through innovation in its international, real estate, and construction businesses and growth in new businesses that help solve social issues.
Deepening core businesses
The company said it aimed to strengthen its capabilities by strengthening problem-solving skills, construction and production system innovation, and strategic alliances.
IPD (integrated product delivery): A project where various related parties including the client, designer, construction companies, and specialist construction companies work under a single contract.
Deepening domestic civil engineering business
Deepening domestic building construction and building renovation businesses
Cultivate the core area around Shibuya
The company plans to further cultivate demand around Shibuya* and along the Tokyu lines**.
Shibuya Station redevelopment work specifically includes Shibuya Scramble Square Central Tower and West Tower (scheduled for completion in FY03/28). Taken in the broader sense (the communities around Shibuya Station), the company expects redevelopment demand to persist over the medium to long term because the area has a large stock of aging small and medium-sized buildings. Major building redevelopments are opportunities to attract tenants, and the company thinks the Shibuya area has a growing need to add value to existing buildings. Tokyu Construction has created an extensive track record of building construction in the Shibuya area over the past 60 years. The company explains that this history, plus a dedicated sales team that communicates closely with people in this area, have enabled it to build solid relationships with town councils and commercial organizations in the area. By leveraging these strengths, the company is playing a central role in urban development in Shibuya in the broader sense. Further in the future, the company expects to extend its redevelopment business to areas around other major stations on the Tokyu lines, such as Sangenjaya and Mizonokuchi.
*Shibuya: Shibuya is one of Tokyo’s three major sub-centers, along with Shinjuku and Ikebukuro, and is one of the busiest areas in Tokyo. Shibuya Station is also one of the Tokyo’s largest railway stations, allowing passengers to transfer among Tokyu’s Den-en-toshi and Toyoko lines, Tokyo Metro’s Fukutoshin and Ginza lines, JR East’s Yamanote Line, and Keio railway lines. Average daily traffic through JR Shibuya Station is around 366,000 passengers (FY03/20: JR East survey).
Many small, older buildings around Shibuya Station(Right)
Source: Nippon.com website (photo courtesy of Tokyu Corporation)
Growing demand for renovation
The company expects demand for renovation to rise as the number of aging buildings grows. Seismic reinforcement and environmental considerations are driving demand for renovation. The company believes this trend will persist, centered on non-residential buildings. Tokyu Construction plans to cultivate this market through Tokyu Renewal Co., Ltd., a subsidiary that handles this business. Tokyu Construction intends to build a new customer base for commercial facilities and hotels by highlighting its construction technology capable of handling projects that are large in scale and difficult, as well as by leveraging its capabilities in interior construction planning and design. As it expects the construction market to shrink and demand for renovation to expand, the company considers it will need to make a functional change in the way it receives orders to accommodate more recurring-revenue business.
Urban Solutions business
In addition to enhancing cooperation with other companies in the Tokyu Group, the company says it plans to reinforce earnings by strengthening necessary solutions and building a comprehensive value chain through active personnel hiring, alliances, and M&A. In this area of business, the company collects information about the challenges and needs of local companies and landowners and proposes design, construction, and ways to utilize property, including leasing. Tokyu Construction works with partners on small-scale projects that are difficult for it to handle itself and forms alliances with top-tier general contractors in these areas. Tokyu Construction works with other companies in the Tokyu Group in such areas as tenant leasing and maintenance and management. By handling all aspects of the business, including renovation, the company aims to remain in contact with clients over the long term.
Infrastructure asset management
In this business, the company supports the maintenance, management, and renewal of infrastructure such as railways and roads from a long-term perspective, promoting the social value of efficient maintenance and management technologies. The company uses iTOREL*, a system for inspecting and examining entire cross sections of tunnels using leading-edge robotics and AI technologies.
Net zero-energy building (ZEB)
A net zero-energy building (ZEB) reduces energy consumption to nearly zero. The company carried out ZEB renovation on its Institute of Technology, which was completed 25 years ago, and whose energy efficiency was lower than for the most modern buildings. ZEB renovations carried out starting in 2016 were aimed at reducing building CO2 emissions during use. The company lowered the external heat load by employing a double-skin curtain wall, exterior thermal insulation, multilayered glass, and other measures. It also used energy sources other than fossil fuels (solar, geothermal, hydrogen) that it also used to generate power. In the process, Tokyu Construction became the first private-sector company in Japan to install a hydrogen production, storage, and power generation system. The company intends to push forward further to improve technologies, aiming for a truly net zero (100%) energy reduction. In FY03/20, it achieved 78% energy reduction, the highest level in Japan.
Reflecting growing calls to move to a carbon-free society, the company plans to market itself as a ZEB planner.
Tokyo City University Building A
The company has designed a new building that will be one of the largest university buildings in Japan, with total floor area of more than 100,000sqm, using multiple elemental technologies it has developed. Construction began in June 2020.
Seikitokyu Kogyo head office
The company is working on a ZEB design for this urban office building, even though it is supposed a ZEB format will be difficult due to the limited space available. Construction is scheduled to begin in spring 2021.
Application of environmentally friendly concrete (CELBIC)
Tokyu Construction is one of 13 companies jointly developing environmentally friendly concrete. CELBIC stands for “Consideration for Environmental Load using Blast furnace slag In Concrete.” The low-carbon concrete uses powdered slag from steel manufacturers to reduce carbon dioxide emissions, and this is expected to reduce the amount of CO2 generated by concrete production by 40% in the case of the Ginza 5-chome Project (tentative name) where it will be used.
Digital shift
Tokyu Construction aims to accelerate business reforms through a greater uptake of IT, responding to the ongoing digitization of markets and customer needs. To do so, the company is forging alliances with the Tokyu Group and other partner companies, investing in startups, and actively pursuing M&A. A concrete example is innovation of construction and production systems originating with building information modeling (BIM) and construction information modeling (CIM). To that end, the company made Singapore-based BIM equipment design company Indochine Engineering a wholly owned subsidiary in October 2020 and acquired shares in Kawamura Sekisan, an estimating company, and made it a subsidiary. The company established Iwase Precast, a joint venture, to manufacture and sell precast concrete, which improves construction efficiency, and is working on end-to-end digital transformation in construction. In order to promote the use of BIM in construction across the entire company, the company is deploying the BIM first model, a BIM version of design documents, to worksites in Japan before construction begins.
Use of BIM and CIM systems
In January 2019, Tokyu Construction started developing the “BIM first model” and adopting BIM with the aim of innovation in construction and production systems. The BIM first model is data obtained by converting design documents into BIM, and can be used in day-to-day management starting with examination of a construction plan before work begins, evolving to construction plans actually used on-site. Initially, the system only handled structural BIM models, but from FY03/22 the company plans to roll out models for BIM data covering greater data volume, encompassing exteriors and some interiors, external structures, and facilities to all sites above a certain size. By deploying BIM throughout the entire value chain, the company plans to revamp its construction and production systems, and aims at improvements in construction productivity of 30% or more.
Moving from individual VR to shared VR
Using virtual reality (VR), the company is conducting a proof-of-concept experiment to speed up information sharing and consensus-building at construction sites by using a virtual space where several people can gather at the same time. This is facilitated by the Ricoh Virtual Workplace solution from Ricoh Co., Ltd. (TSE1: 7752), which uses a range of features to enable natural, free communication between people separated by physical distance. Tokyu Construction will verify the effectiveness of the solution for possible commercialization in the future.
Using MR in building confirmation
The company is conducting simulated screening in a joint trial with a confirmation inspection institution using a mixed reality (MR) device from Microsoft and BIM. It aims to boost inspection efficiency and accuracy by centrally comparing and confirming the actual structure against blueprint data.
Wooden construction business
The company is focusing on the business of building structures that give preference to the use of wood or that are of mixed wooden construction. In recent years, technologies mixing wooden and non-wooden methods (reinforced concrete and steel frame construction) have advanced, making the medium-sized wooden construction business more tenable. Amid regulatory reforms and increasing environmental demands, the company expects demand to increase for medium- to high-rise offices, residences, and commercial structures that mix reinforced concrete and wood. The company plans to pursue technological developments in this area from a medium- to long-term perspective, gradually addressing technical issues.
Daito Trust Construction Co., Ltd.’s (TSE1: 1878) “ROOFLAG Rental Housing Future Exhibition Hall” (in Tokyo’s Koto Ward) was completed in March 2020. This major wooden construction project features a lattice work roof with a span of up to 60 meters, one of the largest in Japan. The roof is made up of 128 pieces of cross laminated timber (CLT)* material and uses no stanchions, resulting in an unprecedentedly spacious interior. Digital technologies including building information modeling (BIM) are used for the construction.
Right: ROOFLAG Rental Housing Future Exhibition Hall (2020)
Strategic business growth
International business
The company plans to step up its efforts in railway and transportation infrastructure and transit oriented development (TOD) under official development assistance (ODA) programs primarily in Southeast and South Asia, leveraging the strengths it has cultivated in Japan in railway construction and urban development along the Tokyu railway lines
In private-sector construction, it aims to establish a high-margin business model tailored to individual countries’ market environment through partnerships with local companies and local human resources
Overseas projects
The company is pursuing the construction business overseas, in South and Southeast Asia (Thailand, Singapore, Indonesia, Myanmar, Vietnam, and Bangladesh). Overseas development assistance (ODA) projects and private-sector building construction projects are its focus. For ODA projects centering on railways and roads, the company has expanded its region of business concentration from Thailand, Indonesia, and Myanmar to other South Asian countries including Bangladesh. As for private-sector building construction projects, Tokyu Construction has participated in high-rise building projects of strong local developers and factory construction for Japanese companies operating overseas, as well as hotel construction projects. The company strives to enhance governance for the expansion of business, seeking to make the processes of business and risk management visible.
Takasago factory (Singapore, completed in 2013)(Right)
Real estate business
The company plans to grow the real estate business to exploit synergies with the construction business and ensure stable earnings
Based on the three values it provides (decarbonization, zero waste, and disaster prevention and mitigation), the company aims to target eco-conscious customers and develop real estate development/value adding businesses by leveraging synergies with the construction business.
In this business, the company acquires real estate to ensure stable future earnings. Taking on a certain degree of exposure, Tokyu Construction is reinforcing the real estate leasing business. Specifically, the company is focusing its leasing investments on office buildings and stores. The Tokyu Group is extensive, including such companies as Tokyu Corporation and Tokyu Land Corporation. By leveraging this groupwide information network, the company plans to concentrate on buying income properties that offer synergies with its small and medium-sized building construction in central Tokyo and along the Tokyu lines. The company intends to add value to the properties it purchases, renovating them to boost investment yields. To expand this business, the company is setting new investment standards and monitoring processes in the interest of managing risk. It plans to hire outside personnel to build up processes in terms of expertise, as well as on the organizational front.
Public–private partnerships
In the PPP/concession business, Tokyu Construction intends to concentrate on the water and sewerage business (an area of strength) and on developing the airport concession business. The company sees water and sewerage as a field with growth potential and one that has strong ties to the civil engineering business. It participates in the airport concession business through cooperation with other members of the Tokyu Group. In 2018, Tokyu Construction and four others set up a special-purpose company to operate a sewage treatment plant for the Seien area of Hamamatsu for the next 20 years. This project represents the first sewerage system privatization in Japan. The company plans to participate actively in new bidding projects, collaborating with the SPC and the project operating company (Hamamatsu Water Symphony K.K.), acquiring expertise, and training employees.
In December 2021, Mizumusubi Management Miyagi, of which ten companies including the company are shareholders, concluded an implementation contract with Miyagi Prefecture for the Miyagi Prefecture Integrated Water Supply, Industrial Waterworks, and Sewerage Public-Private Partnership Management Project. The project entrusts the operation of Miyagi Prefecture's water supply business, industrial waterworks business, as well as its sewerage business facilities to the private sector for a period of 20 years. The projects is set to commence in April 2022.
New businesses
The company plans to establish a “new business continuity creation function” and aggressively develop a succession of new business in areas that can contribute to growth in the three values the company provides, including renewable energy, and areas that use digital technologies
To that end, it plans to invest up to JPY5.0bn in venture businesses in Japan and overseas
The company plans to step up its efforts (through group collaboration) on concession projects for sewerage systems, airports, etc., and PPP initiatives such as smart cities
In 2012, the company entered a new area of business: bell pepper cultivation. Plantaardig farm Co., Ltd., a subsidiary, grows the bell peppers at a greenhouse in Miho-mura, Inashiki, Ibaraki Prefecture (one of the largest bell pepper nutriculture facilities in Japan) and sells it. The company aims to expand this business. It also intends to concentrate on searching for and developing other new businesses.