Daiwa House Industry (1925 JP) (Buy) September orders up 13%, Apr-Sep orders up 4%

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Large mixed-use development begun in Vietnam

Daiwa House Industry released monthly order receipt data for September on 13 October. Orders rose 13% y-y as those for condominiums fell 21% y-y, and those for rental housing fell 5%, but orders for single-family houses, including houses in subdivisions, rose 3%, and those for commercial buildings rose 24%. Orders for rental housing rose 2% y-y if the effect of orders for large scale properties (¥2bn and higher) received the same month a year earlier are excluded, which we view as solid. Apr-Sep orders were up 4% y-y, 3% if the effect of sales of development properties for logistics facilities and commercial buildings is excluded. We forecast orders will grow 2% y-y in 17/3, in line with the company's forecast, and data thus far has more or less trended in line with our forecast. We thus make no change to our earnings forecasts. Share price performance has been weak, including for rival companies, on concerns that vacancy rates will deteriorate as the rental housing construction market overheats. We think the concern is small that vacancy rates for rental housing will deteriorate at major housing companies, including Daiwa House Industry, but given that housing-related companies under our coverage are trading at only 13x our 17/3 EPS estimates, we lower our target price for Daiwa House Industry to ¥3,730. We think Daiwa House Industry should trade at a P/E that is 15% higher than the average for the companies under our coverage as we expect solid earnings at Daiwa House Industry backed by diversified operations. We see 15x as a fair 17/3 P/E valuation.