Leading Independent Investment Research, Morningstar, Inc.

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Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

Sumitomo Realty & Developmen / Equity Bottom-Up

We raise our fair value estimate for Sumitomo Realty &amp; Development, or SRD, to JPY 3,800 per share, from JPY 3,000 per share previously, representing price/forward earnings at 14.6 times from 14.3 times previously. Our key assumption changes are: (1) better-than-expected margin expansion supported by lower acquisition cost than its peers; and (2) better-than-expected market share gain while Tokyo’s condominium market supply remains tight. We think the share has near-term upside to our fair value estimate as the developer is set to release more condominium units for sale while Tokyo’s condominium market remains undersupplied at least for the next 12 months. Our uncertainty rating has been reduced to medium from high to account for the company's respectable track record on premium pricing for uniquely branded wide product offering with proprietary development methodology. Our no-moat rating with stable outlook remains unchanged given the industry-wide oversupply concerns beyond 2020.Analyst: Mari Kumagai

We raise our fair value estimate for Sumitomo Realty &amp; Development, or SRD, to JPY 3,800 per share, from JPY 3,000 per share previously, representing price/forward earnings at 14.6 times from 14.3 times previously. Our key assumption changes are: (1) better-than-expected margin expansion supported by lower acquisition cost than its peers; and (2) better-than-expected market share gain while Tokyo’s condominium market supply remains tight. We think the share has near-term upside to our fair value estimate as the developer is set to release more condominium units for sale while Tokyo’s condominium market remains undersupplied at least for the next 12 months. Our uncertainty rating has been reduced to medium from high to account for the company's respectable track record on premium pricing for uniquely branded wide product offering with proprietary development methodology. Our no-moat rating with stable outlook remains unchanged given the industry-wide oversupply concerns beyond 2020.Analyst: Mari Kumagai

Higher Margin on Incoming Supplies for the Next Five Years, Lifting Sumitomo R&D's FVE to JPY 3,800