Sumitomo Forestry’s share price has fallen to nearly half its peak, and its dividend yield is approximately 4%, but high interest rates and declining home sales in the US housing market are weighing on earnings.
Sumitomo Forestry’s share price peaked at approximately ¥2,430 in October 2024 and has since fallen to approximately ¥1,239, with a P/E ratio of approximately 12.7x and a dividend yield of approximately 4%. However, some point out that the share-price decline reflects deteriorating earnings and that the stock should not be judged on its low valuation alone.
The slowdown in the US housing business is cited as the main cause of the deterioration in earnings, and it will take time for orders to recover. The number of homes sold has declined year on year, while lower selling prices and the impact of interest-rate subsidies are squeezing profitability per home. High interest rates in the US market are directly undermining demand.
Some believe the US housing market has room for long-term growth. Population growth and a supply shortage have created a structural supply-demand gap, and lower interest rates could signal a recovery in demand. Sumitomo Forestry’s expansion of its US business through past M&A is attracting attention.
The approximately ¥650 billion acquisition is positioned as an investment aimed at expanding nationwide through Tri Pointe Homes. While the increase in goodwill and the financial burden associated with the acquisition present risks, synergies are expected from leveraging local financing and construction expertise.
Financially, the equity ratio has declined and interest-bearing debt has increased. Rising interest rates affect both borrowing costs and consumers’ willingness to buy, and may therefore weigh on profitability in the short term.