JALUX | 2729
Sessa Investment Research

2021.8.12

1Q FY3/2022 Results Follow‐up
Structural Reforms During Pandemic to Establish Post‐
COVID‐19 Springboard
SUMMARY▷ For FY3/21 and 1Q FY3/22, JALUX Inc., whose core business is its aviation and airport
fields, recorded tough results. Even so, the number of passengers passing throughairports are clearly expected to recover when the COVID‐19 pandemic is brought undercontrol, and the Company’s stock price has regained 50% of its decline. During thepandemic, JALUX is moving forward with various business initiatives and working tocreate a more muscular business structure.

JALUX Consolidated Earnings Trend¥ mnNet Sales Oper. ProfitOrd. Profit Profit ATOPEPS (¥)

DPS (¥)

FY3/17143,217

4,056

4,222

FY3/18

153,404

4,709

5,166

2,572

203.5

50

2,693

213

55

FY3/19185,726

4,628

5,094

2,962

234.3

65

FY3/20144,688

3,969

4,738

3,081

243.7

50

FY3/2180,346‐2,915‐2,426‐2,366‐187.2‐

Q1 FY3/22

22,383*‐456‐263‐203‐‐* Gross sales are given as Accounting Standard for Revenue Recognition was adopted.
Source: compiled by SESSA Partners from company IR material

FY3/2021 earnings trends
Nets sales fell 44.5%, and JALUX recorded an operating loss and loss attributable to ownersof parent of ¥2,915 mn and ¥2,366 mn, respectively. The Company made strong efforts toreduce SG&A expenses, cutting them ¥6,436 mn to ¥15,433 mn, which included a ¥2,486
mn reduction (‐54.8% YoY) in rent and ¥1,861 mn decrease (‐23.4% YoY) in labor costs (forthe current fiscal year, the Company has recorded fixed expenses for airport stores forced
to suspend operation as an extraordinary loss). Despite this being in line with the guidance
released in October of last year, JALUX posted a loss attributable to owners of parent of¥2,366 mn, which was ¥266 mn greater than forecast as a result of writing down aircraft
engine parts held overseas and posting an impairment loss on engines.
FY3/2022 guidance
Although it is hard to expect how the pandemic will develop, JALUX announced that it
expects to record net sales of ¥110,000 mn, an increase of 36.7%, and profit attributable toowners of parent of ¥100 mn assuming the number of domestic passengers starts torecover in 2Q. There is, however, a lot of uncertainty regarding the number of international
passengers. As the Company newly adopted Accounting Standard for Revenue Recognition
this year, figures based on JGAAP are provided for reference to avoid confusion incomparisons with the previous years.

1Q trends
JALUX announced 1Q results on July 30. Gross sales* totaled ¥22,383 mn, around 20% of
the reference figure for the full fiscal year, but this is not surprising considering the spreadof Covid‐19 in Japan. For JALUX, which expects a recovery in the number of passengers
starting in 2Q, an extension of the state of emergency and increase in the number ofregions covered by the declaration would be major setbacks.

Quick Look

Key Indicators
Share price (8/11)
YH (6/10)
YL (1/4)
10YH (18/3/14)
10YL (12/1/4)
Shrs. out. (mn, shrs.)
Mkt. cap (¥bn)
EV (¥bn)
Shr. eqty ratio (6/30)
22/3 PER (CE)21/3 PBR (act)20/6 ROE (act)21/6 DY (CE)1,669
1,9901,302
3,365
725
12.77521.3
27.31845.7%–0.89X‐0.0%

Share Price Chart 52 Weeks

Source: SPEEDASESSA Research Team
research@sessapartners.co.jp

This report was written to explain thecurrent state of the Company, andthere are no plans for continued
follow‐ups.

* Term used in Accounting Standard for Revenue Recognition and equivalent to traditional net sales.

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JALUX | 2729
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Source: from company IR materials (¥ mn)

Aviation & Airport
The aviation and airport segment includes not only the sales of aircraft, aircraft parts, special
vehicles used at airports, maintenance products but also the operation of airports in Laos andMyanmar. In the U.S. and Europe, flights on domestic routes are trending upward as thenumber of people who have been vaccinated has risen, and JALUX recorded gross sales of¥10,679 mn (+6.8% YoY) and ordinary profit of ¥69 mn. However, demand for large aircraft
parts, such as engines, will remain weak until the number of flights on international routes
increases.

Source: from company IR materials (¥ mn)

Life Service
In the life service segment, gross sales totaled ¥3,099 mn (+6.3% YoY) but ordinary profit was¥174 mn (‐34.3 YoY). Of the Company’s various segments, this segment was least impacted
by the pandemic, and real estate development and facility management earnings were about
the same as for 1Q FY3/21. The day‐care services for seniors business appears to haverebounded because facilities were temporarily closed due to the COVID‐19 pandemic. Bothinsurance sales and related operations posted stable earnings. The decline in profit was theresult of transitory factors that boosted FY3/21 earnings.

Source: from company IR materials (¥ mn)

Source: from company IR materials (¥ mn)

RetailIn the retail segment, gross sales totaled ¥4,156 mn (+14.4% YoY), but JALUX posted an
ordinary loss of ¥585 mn. The loss was ¥250 mn less than that recorded in 1Q FY3/21. This
segment, which includes the operation of retail stores at airports, was impacted the most by
the COVID‐19 pandemic, but net sales rose as the number of passengers on domestic routes
increased. Duty‐free shops rely on visitors to Japan, and although focus has been on cutting
fixed expenses, it will be difficult for them to generate a profit as the number of passengers
on international routes has not recovered. IATA had forecast that the number of global
passengers would return to pre‐pandemic levels in 2024 but revised that forecast to 2023 in
May of this year. When developing an outlook for the business, it is necessary to focus on thenumber of passengers on both domestic and international routes.
However, the EC business, a non‐airport business, benefited from demand related to people
spending more time at home. The Company plans to reinforce its EC business using thestrength of the JAL brand. Furthermore, the JAL Furusato Nozei (hometown tax donationprogram) was launched in the previous fiscal year. Even though the Company is entering themarket late, this business is expected to make certain contributions to earnings due to thestrong JAL brand.
Food & Beverage
In the food and beverage segment, gross sales were ¥4,563 mn (+15.8% YoY), but JALUX
posted an ordinary loss of ¥45 mn, which was ¥241 mn less than the loss in 1Q FY3/21. The
business primarily involves wholesaling food products, wine, and processed foods. Although
the commercial wholesale business has struggled due to a lackluster restaurant demand,gross sales rose as a result of the focus on retail stores and EC.
Future focus
For many of the Company’s business, the business model is not viable unless people goplaces. It will be necessary for the pandemic to be brought under control throughout theworld for its business to see a full recovery, but the Company is switching and introducing
various services. Although each of these individual challenges are small, the combined
impact within the Company’s various business models will result in an improvement inearnings. There are growing concerns about the delta variant, but in Europe and the U.S.,
where greater progress has been made in vaccinating people, there has been a marked
increase in travel demand as people are no longer asked to voluntarily refrain from doing
certain activities.

2JALUX | 2729
カイオム・バイオサイエンス

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JALUX plans to make a medium‐term management plan for FY3/23 and beyond. Setting thecurrent fiscal year as a year to create the foundation for that, the Company is focusing on(1) creating a system to ensure that it captures the post‐pandemic recovery in demand and(2) expanding its non‐aviation & airport business fields.
Share price insights
JALUX’s share price hit a record high of ¥3,365 in 2018, with shares trading at a premium as
its PBR of 1.79x surpassed that of the TOPIX’s 1.3x. Its ROE rose to an historic high of
13.56% in FY3/17 while its operating profit margin peaked at 3.6% the following year. Its
market capitalization increased about 40% to approx. ¥40 bn over two years. However, inFY3/19, the year before the pandemic hit, the Company’s profit fell slightly even though net
sales were at an all‐time high. In its summary of financial statements at that time, theCompany noted an increase in SG&A expenses and percentage rent even though there
were no major changes in the environment. After that, the Company’s share price softened
and then rapidly fell as the COVID‐19 pandemic spread in 2020. Its share price may havepeaked out due to not only the pandemic, but also complacency by management when itwas enjoying record profit during the inbound boom.
FY3/15

FY3/16

FY3/17

FY3/18

FY3/19FY3/20FY3/21

Mkt. cap. ( JPY mn)

27,14827,413

33,93639,322

31,887

19,066

EBITDA margin (%)

2.6

3.0

3.2

3.6

3.0

3.4

20,659‐2.4

Oper. profit margin (%)

2.2

2.7

2.8

3.1

2.5

2.7

‐3.6

Ord. profit margin (%)

2.4

2.8

2.9

3.4

2.7

3.3

‐3.0

ROE (%)

7.27

11.68

13.56

12.83

12.86

12.21

‐9.50

ROA (%)

3.20

4.92

5.89

5.79

5.60

5.23‐4.18

PER (X)

23.6

13.6

13.2

14.6

10.8

6.2

PBR (X)

1.64

1.53

1.69

1.79

1.32

0.72

0.88

JALUX Share Price

2018.3.14¥3,365COVID‐19
pandemic

2021.3.31¥1,634

Source: SPEEDA
It is obvious that bringing the pandemic under control is necessary for JALUX to see a fullrecover in earnings, but over a mere three years, its share price reached its zenith during
the inbound boom and then hit rock bottom during the pandemic. The Company has madesubstantial progress in reducing fixed expenses over the past year. The Company isexpected to be a more muscular organization if it makes steady progress in streamlining its
aviation & airport business, the business of greatest focus, and implementing measures toexpand its non‐aviation & airport businesses and may be able to post record profits after
the pandemic.
3Sessa Investment Research

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For this reason, the forecasts and information contained in this report may lack objectivity.
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SESSA Partners In
5 chome 3-18 Hiroo, Shibuya-ku, Tokyo, Japan

info@sessapartners.co.jp

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