SBS is a pure holding company. Its group companies are involved in logistics and ancillary support. The Logistics business primarily offers B2B general logistics, food logistics, and specialty logistics services. The main logistics support service is in property management—SBS develops and sells logistics facilities, and manages rental properties.
Air Freight & Logistics
Executive summary
Business: pure holding company involved in logistics and ancillary support
SBS is a pure holding company with group companies involved in logistics and ancillary support businesses. Under its Logistics business, the company offers B2B general logistics, food logistics, and specialty logistics services. Its main logistics support service is Property Management, where SBS develops and sells logistics facilities, and manages rental properties. In FY12/21, the Logistics segment accounted for 93.8% of sales and 69.7% of operating profit (before deducting adjustments), and the Property Management segment accounted for 4.2% of sales and 28.4% of operating profit (before deducting adjustments).
The Logistics segment offers B2B transportation of materials, products, and merchandise, as well as storage, cargo handling, packaging, distribution processing and information management. In recent years, home deliveries for online retailers (over the last mile) and same-day deliveries (small deliveries for companies) have been increasing. Separately, the 3PL business, where the company proposes logistics solutions to customer companies, accounts for around 50% of sales in the segment and is the chief driver of growth. The low-temperature distribution business is resistant to market fluctuations, providing a stable earnings source.
The Property Management segment includes the group’s leasing business and its development business. Under the leasing business (12.8% of segment sales and 20.1% of operating profit in FY12/21) the company leases its warehouses, offices, and residences. Under the development business (87.2% of segment sales, 79.9% of operating profit), the company develops logistics facilities and sells them to funds and institutional investors.
The development business also plans and develops logistics facilities for the company’s own use, aiming for average annual yields of 6.0–7.0% (rent/total investment). Immediately after the completion of the logistics facility, the company will operate a 3PL business contracted by itself at the facility. After the post-development sale of the logistics facility, the company will continue to lease the facility as a long-term tenant and continue the 3PL business. This enables the company to liquidate logistics facilities as properties with high utilization rates, thereby securing earnings, recovering capital, and acquiring assets necessary for expansion while preventing asset buildup.
Trends
In FY12/21, the company reported full-year consolidated sales of JPY403.5bn (+56.9% YoY), operating profit of JPY20.7bn (+88.9% YoY), recurring profit of JPY20.5bn (+88.3% YoY), and net income attributable to owners of the parent of JPY10.8bn (+58.1% YoY). The company posted double-digit sales and profit growth in all segments. The increases in sales and profits were driven by the consolidation of SBS Toshiba Logistics, increased cargo volume, the operation of new logistics facilities, and price revisions.
For FY12/22, the company forecasts sales of JPY430.0bn (+6.6% YoY), operating profit of JPY21.5bn (+3.8% YoY), recurring profit of JPY20.6bn (+0.5% YoY), and net income attributable to owners of the parent of JPY11.7bn (+8.4% YoY). The consolidation of SBS Furukawa Logistics is expected to be a factor in the increase in sales. In terms of profit, the company expects an increase in gains on sales in the Property Management segment, but forecasts operating profit to remain essentially unchanged YoY due to an increase in one-time expenses related to HQ relocation, uniform renewal, and post-merger integration (PMI).
SBS Holdings has not released a medium-term business plan, but has indicated that it is looking to become the largest domestic logistics service provider and, towards that end, is working to enhance its logistics infrastructure and further implement logistics and information technology. Shared Research sees its 3PL business, development business, and acquisitions driving growth over the medium term. In August 2018, the company made Ricoh Logistics System Co., Ltd. (now SBS Ricoh Logistics System Co., Ltd.) a subsidiary, and in November 2020, it made Toshiba Logistics (now SBS Toshiba Logistics) a subsidiary, which enabled it to bolster its nationwide and international networks.
Strengths and weaknesses
Shared Research believes the strengths of the company to be ambitious management hungry for growth, a solid track record in developing logistics facilities, and a history of successful M&A deals and post-merger integration. Weaknesses of the company are an inherent difficulty in lifting profitability, a need for financial fortification, and limited opportunities for growth due to insufficient personnel. (See Strengths and weaknesses)
Key financial data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: In June 2014, the company conducted a 3-for-1 stock split.
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.
Q1 FY12/22 results
Sales and profits rose YoY in Q1 FY12/22. The Logistics segment continued to perform well. SBS Furukawa Logistics, in which the company acquired a 66.6% stake in December 2021, began to contribute to the group, allowing the company to expand its service lineup to support the logistics supply chain.
Sales exceeded JPY100bn. This was the first time that Q1 sales reached this level. Net income attributable to owners of the parent rose JPY949mn (+42.7% YoY) to JPY3.2bn as the company posted extraordinary gains from the sale of fixed assets.
The market environment was such that, despite the prolonged economic impact of COVID-19 and a recent surge in fuel prices, e-commerce continued to grow as online shopping and demand for daily necessities expanded, and the company gained new business opportunities in its mainstay 3PL and 4PL operations.
Logistics
In the Logistics segment, the company made efforts to acquire new customers in need of advanced logistics capabilities, in addition to expanding transactions with existing customers. The segment posted an increase in sales and profit because B2B logistics, which suffered the impact of the pandemic, began to recover in Japan and overseas. The company also captured the e-commerce demand with same-day delivery services.
Property Management
The Property Management segment posted a decline in sales and profit.
The development business promotes the group’s 3PL and 4PL operations by building large warehouses that meet the customers’ logistics needs. It handles the entire building process from land acquisition to construction. In the leasing business, the company earns rental revenue from warehouses, office buildings, residential properties, etc. owned by the group. The company securitizes its logistics properties to recover funds for future investments. The earnings from securitization belong to the Property Management segment.
Other
The major operations in this segment are the personnel, marketing, solar power generation, and environmental businesses.
Full-year company forecast
Note: Figures may differ from company materials due to differences in rounding methods.
For FY12/22, the company forecasts sales of JPY430.0bn (+6.6% YoY), operating profit of JPY21.5bn (+3.8% YoY), recurring profit of JPY20.6bn (+0.5% YoY), and net income attributable to owners of the parent of JPY11.7bn (+8.4% YoY).
Note: Figures may differ from company materials due to differences in rounding methods.
Logistics business
The company forecasts sales of JPY403.6bn (+6.7% YoY), operating profit of JPY13.9bn (-10.6% YoY), and OPM of 3.4% (-0.7pp YoY).
The consolidation of SBS Furukawa Logistics is expected to be a factor in the increase in sales. In December 2021, SBS Holdings acquired 66.6% of the shares of Furukawa Logistics Corporation, making it a subsidiary; the company will begin consolidation from FY12/22. Furukawa Logistics had sales of JPY16.2bn and operating profit of JPY62mn (FY03/20). In addition, the operation of new logistics centers will help drive higher sales. Specifically, the company expects sales contributions from the Logistics Center Yokohama-Kanazawa (operational from October 2021), Ami No. 2 Logistics Center (Ibaraki Prefecture; scheduled to begin operations in June 2022; floor area of 17,521sqm [5,300 tsubo]), and Logistics Center Atsugi Mori no Sato (Kanagawa Prefecture; scheduled to begin operations in May 2022; 57,521sqm [17,400 tsubo]).
On the other hand, SBS Toshiba Logistics forecasts lower sales and profits. The company assumes that the Tokyo Olympics and the spread of COVID-19 created special demand for handling home appliances in FY12/21, and expects a reactionary decline in FY12/22. In addition, food product volume is also expected to decline in reaction to the special demand for the spread of COVID-19 in FY12/21.
Operating profit is expected to decline. In FY12/21, the company recorded expenses that should have been recorded in the Logistics segment (totaling JPY938mn, including head office relocation expenses and advertising expenses) as adjustments. Excluding this effect, the company expects a decrease of approximately JPY700mn from FY12/21. The main factors of the decrease are one-time costs, including JPY700mn for head office relocation costs, JPY550mn for uniform renewal costs, PMI costs for SBS Toshiba Logistics (system integration costs of approximately JPY800mn), and the company is forecasting an increase in profit in real terms.
Property Management business
The company forecasts sales of JPY17.1bn (+0.3% YoY), operating profit of JPY7.5bn (+18.4% YoY), and OPM of 43.9% (+6.7pp YoY). In the development business, the company plans to open a logistics center Yokohama Kanazawa (Kanagawa Prefecture; operational from October 2021; total floor area of 52,893sqm [16,000 tsubo]), and expects increases in sales and profits.
In FY12/21, the development business transferred 100% of the trust beneficiary rights to the Osaka Nanko Logistics Center (Osaka, 62,810sqm [19,000 tsubo]), resulting in sales of JPY14.9bn (+107.2% from FY12/20) and operating profit of JPY5.1bn (+53.0% from FY12/20).
Other business
The company forecasts sales of JPY9.3bn (+14.7% YoY), operating profit of JPY400mn (-8.0% YoY), and OPM of 4.3% (-1.1pp YoY).
Adjustments
The adjustment is expected to be -JPY300mn (-JPY1.6bn in FY12/21). One-time HQ relocation expenses and advertising expenses, which were incurred in FY12/21, will decrease (most of which will be recorded as expenses in the Logistics segments).
Outlook
Growth strategy for SBS Group
The company has not announced a medium-term business plan since completing its “SBS Growth 2017” plan in FY12/17. The SBS Group growth strategy is as follows.
Mergers and acquisitions: The company has successfully grown sales and earnings with the help of M&A in the past. From FY12/21 onward, it plans to proceed with post-merger integration (PMI) for SBS Toshiba Logistics, a subsidiary since November 2020. It also plans to enhance its logistics infrastructure with small acquisitions.
Adoption of logistics technology and information technology: The company plans to streamline operations by introducing logistics technology and IT into its logistics facilities.
Expansion of delivery network: SBS plans to strengthen its delivery network with group synergies and collaborations with its partners.
Launch of e-commerce logistics services: The company will launch e-commerce logistics services, a service in which it has unique strengths, during FY12/22. It aims for e-commerce logistics sales of JPY100.0bn by FY12/30 (e-commerce logistics sales in FY12/21 were JPY35.0-40.0bn).
Growth in 3PL business: The consolidation of SBS Toshiba Logistics puts the company in the top five Japanese 3PL operators. It aims for ongoing growth in the3PL business.
Development and securitization of logistics centers: Develop logistics centers, aiming to increase the total floor area of logistics facilities to 3,305,875sqm [1,000,000 tsubo] over the medium term (2,529,587sqm [765,200 tsubo] as of end-December 2021). The company will continue to develop and securitize logistics facilities.
M&A still driving growth
M&A has been a major growth driver for SBS Holdings. Since its establishment, the company has invested JPY83.0bn to acquire 29 companies as of February 2021. Its approach to M&A is to avoid easy turnaround situations and grow earnings through structural reform from a long-term perspective, including reallocating personnel and other resources. Furthermore, after acquisitions the company consolidates offices and promotes exchange among existing staff and staff from the new subsidiary company, acting to complement the businesses of both companies, use facilities, and develop synergies.
In particular, it has acquired the subsidiaries of multiple major listed companies, such as Yukijirushi Butsuryu in 2004 (now SBS Flec), Tokyu Logistic in 2005 (now SBS Logicom), Ricoh Logistics System (now SBS Ricoh Logistics System) in 2018, and Toshiba Logistics (currently SBS Toshiba Logistics) in 2020, and has often made companies more profitable after acquisition. Shared Research understands that the company’s attitude and track record in previous acquisitions flow through to success in subsequent deals.
Furthermore, the company has expanded the areas in which is conducts business through M&A, enabling a range of activities connected to logistics. Specifically, it is capable of the following activities in relation to transport, 3PL and 4PL, logistics facilities, and logistics DX (digital transformation).
Transport: Last mile delivery, B2B same day delivery, deliveries within three temperature ranges, super heavy goods transportation, line haul, and modal shift.
3PL and 4PL: International multimodal transportation, logistics center operations, and warehouse management systems (WMS).
Logistics facilities: Logistics facility development and securitization, real estate leasing, and solar power.
Logistics DX: Consulting on the introduction and development of logistics technology (LT), planning, development, and operation of vehicle allocation matching system iGOQ, and fulfillment services (logistics agency for e-commerce businesses).
From FY12/21 onward, it plans to proceed with PMI for SBS Toshiba Logistics, a subsidiary since November 2020. It also plans to enhance its logistics infrastructure with small acquisitions.
Progress on post-merger integration at SBS Toshiba Logistics
In November 2020, SBS Holdings acquired 66.6% of the common shares of Toshiba Logistics Corporation (now SBS Toshiba Logistics) from Toshiba Corporation for JPY20.0bn, making it a consolidated subsidiary.
SBS Toshiba Logistics transports heavy items such as electrical power equipment, medical equipment, and semiconductors and provides packaging and import-export services. Overseas it has 14 local subsidiaries in nine countries. In addition to its 3PL business, providing customer companies with comprehensive logistics services and optimal logistics management and operations, SBS Toshiba Logistics provides 4PL services involving the planning and execution of logistics strategies for customers seeking outsourcing solutions. It provides a wide range of companies including members of the Toshiba Group with comprehensive logistics solutions not limited to warehouse operation and cargo handling and transport.
SBS Holdings seeks to gain Toshiba Logistics’ expertise in the 4PL business, expand its service lineup, and strengthen its overseas network. Even after the share acquisition, all of Toshiba Logistics’ full-time executives have retained their positions to ensure continuity of management. SBS Holdings is also dispatching part-time executives to assist in integrating Toshiba Logistics into the SBS group and expanding synergies.
In December 2021, SBS Toshiba Logistics had sales of JPY111.4bn and operating profit of JPY6.6bn. Profits increased due to a higher volume of goods handled during the COVID-19 pandemic, including home appliances, medical equipment, and semiconductors, as well as price revisions.
From FY12/21 onward, the company will carry on with PMI at SBS Toshiba Logistics to extract synergy benefits including mutual use of logistics warehouses, exploitation of logistics technology (further use of robotics), optimal allocation of overseas facilities, and integration of core systems. SBS Toshiba Logistics will move into the company's new HQ in February 2022, and the mutual interaction is expected to lead to synergy creation and new projects.
Progress on PMI with SBS Ricoh Logistics System
The company made SBS Ricoh Logistics System a subsidiary in August 2018, and its results through FY12/21 were as follows.
After joining the company group, SBS Ricoh Logistics System saw an increase in sales outside its former parent company Ricoh due to synergy creation and new customer acquisition. From FY12/18 to FY12/21, SBS Ricoh Logistics System's sales rose 23%. Of these, the share of sales to non-Ricoh customers was up from 38% in FY12/18 to 49% in FY12/21.
SBS Ricoh Logistics System is the last-mile logistics provider between Ricoh and e-commerce businesses. Utilizing this nationwide delivery network of office automation equipment and supplies, the company is taking orders for delivery services for major e-commerce companies.
The Logistics Technology (LT) Planning Department, which combines the IT and LT departments of SBS Ricoh Logistics System and the company's 3PL analysis team, has been established to promote analysis, mechanization, and robotization of the SBS Group's 3PL operations.
A logistics warehouse was built on SBS Logicom's land in Yokohama-Kanazawa (Kanagawa Prefecture), and in October 2021, SBS Ricoh Logistics System started operation of Logistics Center Yokohama-Kanazawa, a 3PL business exclusively for e-commerce businesses.
Strengthening logistics infrastructure with small acquisitions
Since the end of 2020, starting with SBS Toshiba Logistics, Toyo Warehouse & Transportation, K.U.K Line, Hinomaru Kyuso, Jass, and Furukawa Logistics were made subsidiaries.
Hinomaru Kyuso: In August 2020, the company acquired 49% of the shares in Hinomaru Kyuso. It has a delivery network covering Shikoku primarily focused on food logistics in three temperature zones. It is highly complementary to the company’s services, so SBS decided it would help strengthen its delivery network, reinforce its ability to support supply chain management, and have potential synergy benefits. In January 2021, the company acquired the remaining shares and made Hinomaru Kyuso a subsidiary.
Toyo Warehouse & Transportation: In January 2021, the company acquired ordinary shares of Toyo Warehouse & Transportation, a group company of SMC, and made it a consolidated subsidiary. The company noted that Toyo Warehouse & Transportation has two large warehouses with waterfront locations in the Tokyo area—one in Higashiogishima in Kawasaki (Kanagawa Prefecture) and the other in Wakasu (Koto-ku, Tokyo)—and that both locations have warehouse development potential over the long term through collaborations with the company’s existing warehouses in these areas.
K.U.K Line: Became a subsidiary by SBS Holdings acquiring all shares in April 2021. A logistics and warehousing company in Osaka Prefecture, K.U.K Line was made a subsidiary by the company to complement its trucking operations in Osaka.
Jass: Became a subsidiary by SBS Holdings acquiring all shares in May 2021. The company provides small-lot delivery services in Fukushima Prefecture, and the acquisition was for the purpose of strengthening its delivery network in preparation for e-commerce logistics.
SBS Furukawa Logistics: SBS Holdings acquired 66.6% of Furukawa Logistics' shares in December 2021; prior to its acquisition by the company, it was a logistics subsidiary of the Furukawa Electric Group. The company is engaged in the logistics business for electric wires and other telecommunications equipment.
Adoption of IT and logistics technology
Project to bring IT and logistics technology on-site launched
In April 2020, the company decided to reorganize the information systems departments of SBS Holdings and SBS Ricoh Logistics System to facilitate the strategic introduction of IT technologies.
The company plans to leverage IT to reform its logistics sites by bringing together all of the skills and expertise regarding logistics belonging to group companies, share knowledge, and develop next-generation logistics facilities. In its on-site IT and logistics technology project, it plans to streamline existing business and services using IT, and introduce robots to operating logistics facilities step-by-step. It has also started joint development through investment in and support for IT venture companies.
The company’s efforts to introduce and roll out IT and logistics technology will not contribute to earnings in the short term, but Shared Research thinks that they should improve workflow efficiency in the medium to long term, and streamline costs, potentially flowing through to sales growth and higher margins.
Project to bring IT and logistics technology on-site: Step-by-step introduction of robots at existing facilities
As of February 2022, the company is testing robots at its logistics facilities. The following are examples of IT x LT installations in FY12/21. and plans to introduce them step-by-step at the 3PL logistics centers of consolidated subsidiary SBS Logicom starting in autumn 2021. SBS plans to have robots carry out tasks in logistics facilities as much as possible, and reallocate staff freed up to perform other duties.
A shelf transport robot system and a batch image inspection system were introduced at SBS Toshiba Logistics.
At SBS Ricoh Logistics System, a loading navigation system for trunk line delivery was installed and a sorting center with a sorting robot began operation.
A cooperative Autonomous Mobile Robot (AMR) was introduced at SBS Logicom.
SBS Holdings introduced the Sais (SBS automobile information system), a vehicle database system to centrally manage group vehicle information.
Project to bring IT and logistics technology on-site: Introduction of logistics technology at new centers
The company's Logistics Center Yokohama-Kanazawa, which began operations in October 2021, provides 3PL services for e-commerce businesses. The facility has introduced a large-scale auto-store (entailing an automated warehouse picking system featuring densely packed specialized containers with storage and retrieval performed by robots). AutoStore aims to improve processing capacity using barcode inspection, a digital picking system (DPS), conveyors, and automatic packaging equipment. The facility has also installed state-of-the-art LT equipment, material handling, and AI tools.
Expanding delivery network
The company plans to strengthen its delivery network through group synergies and collaboration with partners.
Expanding delivery network through collaboration with partners: YC Delivery
In June 2019, the company joined forces with the publisher of the Yomiuri Shimbun newspaper to form YC Delivery, a package delivery service providing deliveries to private homes using the delivery personnel of Yomiuri Center (or YC, the exclusive sales company for the Yomiuri Shimbun). As of February 2021, YC Delivery was operating in the 23 Tokyo wards, and was preparing to expand into the Tama area.
YC Delivery collects packages from customer companies, sorts them by destination, and brings them to the Yomiuri Shimbun’s publishing center. From there the packages are redirected to the Yomiuri sales center nearest to the final destination, from where they are finally delivered by that locale’s delivery personnel to the designated household. The company says it can on receiving a certain level of package volume from major mail order/ecommerce companies.
Expanding delivery network through collaboration with partners: Japan Logistics Future Investment Fund
In March 2020, SBS Holdings and the Development Bank of Japan (DBJ) launched an investment fund to help facilitate the business succession of operators in the logistics industry and help resolve financing issues related to the maintenance of SBS’s regional distribution and delivery networks. The fund, the Japan Logistics Future Investment Fund, was capitalized at JPY4.0bn with SBS Holdings and the Development Bank of Japan each putting in JPY2.0bn.
With the establishment of the Japan Logistics Future Investment Fund, SBS is looking to assure the business succession and continuity of its regional distribution and delivery networks, most of which are second-tier or small/medium-sized companies that operate mainly within the regions in which they are headquartered, and are facing a multitude of challenges ranging from labor shortages to business succession issues. In the case of logistics business operators facing business succession issues, the Fund will be able to provide investment capital while SBS Holdings and the Development Bank of Japan provide their management expertise to help logistics business operators in which the Fund invests become more competitive with assistance from various value-added initiatives (including initiatives aimed at expanding business networks; raising income and lowering expenses while upgrading financial positions; and improving compliance mechanisms). The basic thinking is that, after carrying out these initiatives and bringing individual companies to the point where they are competitive, the Fund will be able exit its investment, with the buyer in most cases most being SBS Holdings or a member of the SBS group.
In November 2020, Japan Future Logistics Fund made its first investment, in Ai&Ai Chiba Chuo Co., Ltd. Ai&Ai, which has annual sales of JPY1.5bn, operates a light freight and general freight truck transport business providing light freight transportation services such as online supermarket deliveries, route deliveries, and dedicated corporate deliveries in Chiba Prefecture and eastern Tokyo. Ai&Ai will seek to strengthen its competitiveness by expanding its sales network, improving its earnings and financial performance, and developing a compliance system. In addition, after a certain period of time, SBS Holdings expects that Ai&Ai will exit the fund and join the SBS group.
New Business Development: Launch of e-commerce logistics service
The company will launch an e-commerce logistics service during FY12/22, a service in which the company has unique strengths. Specifically, SBS Holdings will differentiate itself in terms of service prices and target demographics. Service prices are lower than those of industry competitors by developing and renting their own logistics centers and using them at rents lower than the market rate. The company will also reduce costs through the introduction of robots. The company expects to target start-up e-commerce companies with sales of approximately JPY1.0bn. The company provides fulfillment services at its own logistics centers by grouping together smaller customers.
According to the company, its e-commerce logistics sales in FY12/21 were between JPY35.0bn and JPY40.0bn. With the launch of the new e-commerce logistics service, the company aims to achieve JPY100.0bn in e-commerce logistics sales by FY12/30.
Growth of 3PL business
3PL (third-party logistics) is the contracting of a third party that is neither manufacturer, wholesaler, nor retailer, to manage all logistics functions from transportation to distribution. This third party proposes ways to optimize efficiency and reduce costs. The domestic 3PL market has been expanding, and an average annual growth rate between 2009 and 2019 was 9.5%, with the market reaching JPY3.2tn in 2019 (+4.4% YoY).
SBS thinks its strength is providing 3PL services (logistics facility planning and development) that reflect the needs of customer companies, and improving warehouse efficiency. The company’s 3PL business accounts for about 50% of the sales of its domestic logistics business. SBS fully launched its 3PL business from 2006. In FY12/19, the 3PL business reported JPY123.3bn (+38.7% YoY) in sales. Sales at the company’s domestic logistics business grew by about JPY134.0bn between FY12/12 and FY12/19 (CAGR: +14.9%). The 3PL business was the main driver of growth, increasing by about JPY88.0bn (CAGR: +14.9%) during the same period.
For the medium term, the domestic logistics market is unlikely to expand given stagnant freight volume growth, demand from freight owners for reduced costs, and fierce competition. Still, Shared Research thinks that the 3PL market will grow in response to freight owners’ need for cost reduction. SBS plans to keep expanding its 3PL business through leveraging its ability to develop logistics facilities in-house and then actively use these facilities to contract 3PL projects.
In addition, as discussed, the company acquired common shares (66.6% share) of Toshiba Logistics Corporation from Toshiba Corporation in November 2020 and made it a consolidated subsidiary. SBS expects the consolidation of Toshiba Logistics Corporation to cause FY12/21 sales in the 3PL business to exceed JPY200bn, growing to account for 60–70% of logistics business sales, and vaulting it from the 10th largest position in the domestic 3PL market from fifth previously.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: FY12/18 results onward include impact from the consolidation of SBS Ricoh Logistics System.
Logistics facilities expansion plans
Growth in the 3PL business requires expanding floor space. At its Q2 FY12/21 results briefing, SBS flagged its intentions to increase its logistics facilities by 3,305,785sqm (1,000,000 tsubo) in the medium term. At end-December 2021, the company had a floor space of 2,529,587sqm (765,200 tsubo) at its logistics facilities. As shown in the following figure, properties scheduled for completion from 2022 through 2024, and development plans for sites already purchased will bring aggregate floor space to 3,196,033sqm (966,800 tsubo).
Development and securitization of logistics facilities
In the development business in the Property Management segment, SBS leverages its logistics experience and understanding of the leasing market prices as a lessee. It acquires land at low prices taking advantage of the Act on Advancement of Integration and Streamlining of Distribution Business and other laws, and develops logistics facilities targeting yields of around 6.0–7.0%.
For the medium term, SBS plans to invest in and develop logistics facilities. The company also plans to conduct reinvestment while promoting capital recovery by selling logistics facilities without expanding assets.
The company can lease the facilities it develops and operate 3PL services there, thus contributing to earnings in the Logistics segment. However, the greatest contribution to earnings comes from the sale of these facilities.
Targeting 30–50% gain on sale of facilities
SBS targets yields of around 6.0–7.0% per year of the amount invested from the development of logistics facilities. In contrast, it aims for gain on the sale of facilities of 30–50% when it securitizes facilities by selling at the capitalization rate of about 5.0%.
In FY12/13, SBS began booking sales and profits of the development business under the Property Management segment. The development business’ OPM has fluctuated in the 30–50% range.
Facilities to be securitized, facilities under construction
SBS thinks it can securitize facilities it has developed since 2004. The logistics facilities obtained prior to 2004 through acquisition have low book values and it might face tax liabilities upon transfer, so the company has no plans to securitize them.
By FY12/21, the company had developed 23 logistics facilities with a total floor area of approximately 628,099sqm (190,000 tsubo). Of this total, 12 properties with a total floor area of approximately 198,347sqm (60,000 tsubo) were under ownership, and 11 properties with a total floor area of approximately 429,752sqm (130,000 tsubo) were liquidated. Eight of the liquidated properties—with a total floor area of 347,107sqm (105,000 tsubo)—were leased back (leased continuously after sale).
As of February 2022, the main liquidatable facilities in operation and those under development are listed in the table below. The total investment in liquidation-ready facilities in operation amounts to JPY23.4bn. If these facilities were to be sold in the future at a profit margin of 30–50%, the company would already have an array of operational, saleable facilities that would generate JPY7.0bn–JPY12.0bn in gains on sale. According to the company, the development business in the Property Management segment has a pipeline that can generate stable and continuous gains on sales for 14 to 15 years.
Facilities under development (total investment of JPY35.0bn) are as shown in the table below, including the Noda Seto Logistics Center. The company has also purchased land in Ichinomiya (Aichi) and Tomisato (Chiba), and is planning to develop logistics facilities there.
The Noda Seto Logistics Center will be the largest logistics facility development for the company with an investment of roughly JPY35.0bn. It is located about seven minutes from the Joban Expressway Kashiwa exit and has two buildings (total floor area of 251,000 sqm), Building A (total floor area: 168,000 sqm) and Building B (total floor area: 106,000 sqm). The company expects e-commerce operators’ 3PL business to be a main tenant, and it is considering introduction of automation and robots on experimental basis at this facility.
According to "Logistics Rental Market Survey” released by Ichigo Real Estate Service, the asking rent for logistics facilities in the Tokyo area (Ibaraki, Saitama, Chiba, Tokyo, and Kanagawa) in January 2022 was JPY4,620 per tsubo (JPY1,397 per sqm). According to ”October 2021 Japanese Real Estate Investor Survey" published by Japan Real Estate Institute, the expected yield (expected cap rate) for multi-tenant warehouses in the inland areas surrounding Tokyo (Narita area in Chiba Prefecture) was 4.9%.
Business
Business overview
SBS operates a Logistics business, a Property Management business, and Other businesses. The Logistics and the Property Management segments contribute most of sales and profits. In FY12/21, Logistics accounted for 93.8% of overall sales and 69.7% of total operating profit, while Property Management contributed 4.2% and 28.4%, respectively. As the Property Management business includes profit (gain on sale of logistics facilities) from the relatively profitable development business, its contribution as a proportion of overall operating profit tends to be high.
Main business segments
SBS has three reporting segments: Logistics, Property Management, and Other. The parent company is a pure holding company. The companies in the group are involved in logistics and ancillary support businesses.
Logistics: This segment comprises truck and rail transport, low-temperature and international logistics, logistics facility operation, distribution processing, corporate express deliveries, and home deliveries. The company also offers all of these activities under third-party logistics (3PL) contracts. This segment also covers logistics consulting and ancillary businesses.
Property Management: This segment rents company-owned property for office, residential and warehouse use, and also undertakes logistics facility development for sale to funds, REITs and businesses.
Other: Personnel, environmental, marketing, and solar power generation businesses.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures have been retroactively restated in line with a change in accounting methods for retirement benefit liabilities and service costs from Q1 FY12/15 to enable year-on-year comparisons.
Logistics: 93.8% of sales, 69.7% of operating profit (FY12/21)
The Logistics business accounts for more than 90% of sales and roughly 60% of operating profit. In this core segment the company offers business-to-business transportation of materials, products and merchandise, as well as storage, cargo handling, packaging, distribution processing and information management. While SBS does not disclose the exact breakdown of these services, Shared Research understands that truck transportation accounts for roughly half of segment sales. The main services in the Logistics segment are listed below.
Note: Figures may differ from company materials due to differences in rounding methods.
3PL business drives growth, low-temperature distribution business secures stable revenue
SBS is focusing on 3PL, where it offers customers a comprehensive service to overhaul and improve their logistics activities. The low-temperature distribution business transports food across the three temperature zones—frozen (below -25° C), chilled (5° to 8° C), and room temperature (above 15° C). As food logistics are resistant to economic swings, this business provides a stable source of revenue.
3PL business trends
The 3PL business accounts for around 50% of SBS’s logistics business revenue, of which about 80% is from comprehensive contracts where SBS performs all of the five major logistics functions: transport and delivery, storage, handling, packaging, and distribution processing. SBS entered the 3PL market in 2006, and booked FY12/20 sales of JPY120.6bn (-2.2% YoY). More of its 3PL customers are new customers rather than existing customers who renew their contracts.
Note: Figures may differ from company materials due to differences in rounding methods.
3PL business: competitive edge
SBS maintains that it can raise productivity and quality by improving the workflow in logistics centers, holding down inventory space, and effectively allocating personnel. The company has a track record of winning multiple awards at the All-Japan Logistics Improvement Case Study Convention by the Japan Institute of Logistics Systems, including the Logistics Rationalization Award and the Rationalization Endeavor Award. In FY12/21, subsidiary SBS Toshiba Logistics won Packaging Technology and Packaging Category Awards at the Japan Packaging Contest sponsored by the Japan Packaging Institute, and SBS Ricoh Logistics won a Packaging Category Award at the same contest.
The key listed customers in this segment are Ricoh Co., Ltd. (TSE1: 7752), Otsuka Corporation (TSE1: 4768), Megmilk Snow Brand Co., Ltd. (TSE1: 2270), Seiko Optical Products Co., Ltd. (a subsidiary of Seiko Holdings Corporation [TSE1: 8050], developing and selling eyeglass lenses and products relating to eyeglasses), Kasumi Co., Ltd., subsidiary of United Super Market Holdings Inc., (TSE1: 3222), supermarket operating primarily in Ibaraki, and Tokyu Store Corporation, subsidiary of Tokyu Corporation (TSE1: 9005), operates supermarkets along Tokyu railway lines. Unlisted customers include Ken Depot Corporation (manages members-only construction materials wholesale stores), Tombow Pencil Company (manufacturer of writing instruments and stationery), and various convenience store, supermarket, and drug store chains and co-ops.
Low-temperature distribution business
SBS does not disclose sales of low-temperature distribution business, but it appears to account for over 60% of sales of the distribution business overall. As demand for food is relatively resistant to economic swings, food logistics tend to remain stable. The low-temperature distribution business is driven by consolidated subsidiaries SBS Flec and SBS Zentsu (see Main group companies for details).
Food logistics is divided into frozen food, chilled food, and room-temperature food. Customer companies include food manufacturers, food wholesalers, food retailers, and co-ops, for which the company provides temperature-controlled warehouse storage, logistics processing, and delivery services. Frozen food (below -25° C) encompasses instant rice and noodles dishes, ice cream, cakes and other confectionery, and frozen meat and fish. Chilled food (5° to 8° C) is primarily composed of cheese, butter, and other dairy products; beverages; soy-based products; ham and sausages; and other foods typically consumed on a regular basis.
Fee structure in logistics
SBS charges fees in three different ways:
In the 3PL business, value-based fees are the norm. This is because it is easy for the shippers to understand and because different industries have different logistics patterns (large one-off deliveries, small frequent deliveries, store route deliveries and so on). Also, the lot quantities vary, so it is possible to display common prices across the shipping customer base with value-based fees.
Since the shippers (customers) dislike having distribution costs (including transport) becoming fixed costs, it is easy to get their agreement for charges that rise with sales. However, in the 3PL business, some customers employ a mix of per-load and per-truck fees for deliveries and value-based fees in the warehouse. Outside the 3PL business, the company says that there are slightly more contracts on a per-truck basis than a per-load basis.
Major customers
SBS has approximately 8,000 logistics customers. Food and beverage manufacturers and wholesalers accounted for around 34% of sales in the Logistics segment for food-related logisitics as of FY12/20.
Overseas subsidiaries
Entered Indian market in early 2000s before withdrawing in 2015
SBS made inroads into the Indian market by acquiring Atlas Logistics and making it a subsidiary in 2011. The company went on to acquire 66% of Transpole Logistics, likewise making it a subsidiary. However, in FY12/15, SBS concluded that Transpole was unable to recover debt claims related to large-scale transactions and booked the claims as an extraordinary loss for the year. SBS dissolved its capital alliance with Transpole and withdraw from the company’s management. From FY12/16, Transpole and Atlas Logistics were excluded from consolidated accounting.
Consolidation of Ricoh Logistics System and SBS Toshiba Logistics boosts number of international logistics centers
Overseas sales in FY12/20 amounted to JPY7.4bn (versus JPY10.4bn in FY12/19) due to the August 2018 consolidation of Ricoh Logistics System (now SBS Ricoh Logistics System Co., Ltd.). The company believes it can supplement its overseas network through collaboration with SBS Ricoh Logistics System, which has five logistics centers overseas.
Toshiba Logistics (now SBS Toshiba Logistics) was consolidated in November 2020. It has international logistics operations with 14 overseas subsidiaries including China/Hong Kong, other Asia (Thailand, Philippines, Singapore, Vietnam, India, Malaysia), Europe, and North America.
Property Management: 4.2% of sales, 28.4% of operating profit (FY12/21)
The Property Management segment comprises the leasing and the development business. In the leasing business (12.8% of segment sales and 20.1% of operating profit in FY12/21) the company leases its facilities for use as warehouses, offices, and residences.
In the development business (87.2% of sales and 79.9% of operating profit in FY12/21) it develops logistics facilities and sells them to funds and institutional investors.
Note: Leasing income and loss refers to income or loss related to land and facilities.
Leasing business (12.8% of Property Management sales and 20.1% of operating profit in FY12/21)
The leasing business (under the Property Management segment) involves the rental of assets acquired by the company through M&A, and rental of logistics facilities. Group companies that own real estate mainly in the Tokyo Metro Area, such as SBS Logicom, rent these properties to third parties. The rental buildings are mainly used for logistics, although there are also office buildings, residences and open land among them as well. The business currently leases around 40 properties.
Leasing business sales affected by utilization rate and facility sales, not vacancy rate and rent fluctuation
Leasing business sales are rent x utilization rate
Rents are value of rental properties owned x rental yield. According to SBS, the yield on rental properties (relative to market values) is about 10% for offices, about 9% for residential property, and 6.0–7.0% for logistics facilities. As of end-FY12/21, the balance sheet value of rental and other properties was JPY24.8bn and their term-end market price was JPY32.0bn, putting unrealized gains on these properties (the difference between the two figures) at about JPY7.3bn. Book value of real estate held by subsidiaries acquired through M&A were evaluated at market value prior to the consolidation of those subsidiaries.
Warehouse rents vary by region, but SBS said that they average around JPY3,000–4,000/tsubo. (Note: tsubo is a unit of area equating to about 3.3sqm.) Most of the residential property is rented by companies for worker accommodation, so vacancy rates are low there as well. For logistics facilities, only those customers that pay rent on warehouses are accounted for in the Property Management segment; warehouse storage undertaken as part of 3PL activities is accounted for under the Logistics segment.
Utilization rate is 1 - vacancy rate. According to SBS, the vacancy rates for offices and residential were both trending under 5%. Because the offices are in prime urban locations (such as Tokyo’s Shibuya Ward or Shinjuku Ward), the vacancy rate risk is low.
Also, since the majority of the residences are leased en bloc to companies for employee housing, the risk of rent fluctuation due to changes in vacancy rates is low.
Leasing business sales tend to be affected by utilization rates and facility sales, and not as much by vacancy rates and rent fluctuations. In past years, the leasing business has generated around JPY2.5bn in gross revenues and JP1.3bn in operating profit per annum.
Development business (87.2% of Property Management sales and 79.9% of operating profit in FY12/21)
In the development business of the Property Management segment, the company recovers investment funds and earns profits by selling logistics facilities it has developed and is operating as a leasing business and 3PL center to real estate funds and other investors. During the period from the acquisition and construction of the land for the logistics facility and other facilities to the operation of the facility after its completion, the assets are booked as tangible fixed assets on its balance sheet. However, once the company decides to sell such facilities and they become properties for sale, they are removed from fixed assets and booked as inventory items. Extraordinary gains are not recorded when a property is sold; Instead, the company records sales and operating profit in the development business.
Development of logistics facilities
In 2004, SBS established A-Max Inc., now SBS Asset Management Co., Ltd. (“SBS Asset Management”), a real estate securitizer and developer, and made it a subsidiary. SBS Asset Management and its subsidiaries are primarily responsible for planning and developing low-cost logistics facilities for corporate customers, mainly in Greater Tokyo. The company aims for average annual returns of 6.0–7.0%.
Logistics knowledge key to forecasting earnings from logistic facilities, acquiring land at low prices
SBS conducts the logistics development process in reverse; after determining the market price for rents of logistic facilities in a given area, SBS then decides how much to pay for land acquisition and construction costs so that it can secure the expected investment yield. When considering the development of logistics facilities, the company plans rents based on the assumption that it will be in the position of the lessee after the future sale of the facility (i.e., rents will be lower than the market rents in the surrounding area). This makes it possible to develop facilities that are profitable even during a real estate recession.
The company also uses the legislative system such as the Act on Advancement of Integration and Streamlining of Distribution Business for developing facilities in urbanization control areas (with restrictions on new building construction and building extensions. Some warehouse construction is permitted under certain conditions depending on the municipal’s ordinances), which have relatively low land prices, and acquiring permission for distribution facility developments in locations near expressway interchanges. SBS can also acquire land at lower prices due to its ability to participate in auctions that are limited to participants with port operator licenses or warehousing registration. As such, SBS has experience developing facilities under conditions that are inaccessible to ordinary real estate developers.
This segment shows synergy with the Logistics segment, which gives the company the ability to comprehensively develop logistics facilities–a strength when seeking new customers in the 3PL business. In the 3PL business, project proposals to customers are differentiated from those of competitors through a multi-faceted approach, outlining ideal locations and specifications at rental rates that are lower than market prices.
Even after SBS sells a company-developed logistics facility to an external company or fund, it forms a long-term lease agreement with the buyer and continues 3PL operations. This process allows rental rates to be kept relatively low. SBS believes that the competitiveness of logistics facilities is the main factor in determining the total cost of 3PL.
High utilization rate owing to strategy of finding tenants and locking in 3PL contracts before facility development
SBS finds tenants or arranges use of the facility under a 3PL contract before starting facility development work. This strategy sets it apart from other logistics facilities developers such as Prologis and Mitsui Fudosan, which develop logistics facilities first and then seek customers. In principle, the company decides to move forward with facility development when it has determined that about 50% of the facility’s floor space will filled due to 3PL contracts or tenant acquisition. The remaining floor space is used for new customers, or for customers currently renting in a separate SBS facility to consolidate operations. In this way, facilities will be fully operational and rented immediately after development is complete. As a result, the company’s logistics facilities have a lower vacancy risk than logistics facilities developed by real estate developers. The quality and credit of tenants are also desirable, and such tenants can be expected to provide the company with stable cash flows over the medium to long term.
6.0–7.0% yield on initial investment from rental revenue
Contract periods on logistics facilities are generally 10 years or longer. Leasing rates are fixed during that time, but may be increased if interest rates rise. The company earns stable rental revenue, aiming to yield 6.0–7.0% on average per year on initial investment for land acquisition and construction (Property Management segment income). Also, the company counts operational revenue as a source of income by undertaking operations at such logistics facilities such as shipping and receiving, storage, distribution processing, and other 3PL contract services(Logistics segment income).
Properties under development and planned for development
The company was planning development for the following facilities as of March 2022. Related investment is projected to be JPY35.0bn in total.
Development of logistics facilities in Asia
SBS finished construction of a Thai logistics facility, the company’s first outside Japan, in June 2014. In addition, the company will complete construction of all three Thai warehouses by August 2015. SBS stated that it completed building the first and second warehouses in June and August 2014, respectively, and that a Japanese customer has been using the first warehouse. The second warehouse is being used by a Japanese-owned forwarder.