Mitsubishi Estate Maintains Full-Year Profit Guidance Despite Some 1H Weakness; Shares Undervalued

We maintain our fair value estimate of JPY 2,100 for Mitsubishi Estate, which we calculate as equivalent to 0.61 times net asset value and 22% above the current share price. Mitsubishi Estate shares have underperformed those of its rivals since the start of this fiscal year in April and we think the company has less room to beat its March 2022 guidance than some of its peers. Halfway through the year, Mitsubishi Estate has achieved 46% of its full-year guidance for operating profit and 39% of its bottom-line guidance even though it has already realized 56% of its planned amount of capital gains for the year, in part reflecting a more-prolonged-than-expected impact from the pandemic on retail leasing and hotels. However, we expect operating profit to catch up in the second half of the year owing to seasonal dispersion in the residential segment. Mitsubishi Estate has already contracted 97% of its planned condo sales for the year as of Sept. 30 and this segment’s operating profit, which has only achieved 24% of full-year guidance in the first two quarters, could well top 100% for the full year.