This is a deep dive for me to look into one of the larger spawning areas of Shinoken's new Trust DX platform, which was released last week. I'm not here to sell you on Shinoken, if you look at the business itself, it's an amazing business, with a great capital allocator, lots of downside protection, and a good outlook for the next decade. Knowing this, this article will be specific to analyze the Trust DX platform and take a look at the kind of revenue and income that could be earned from the platform (if possible).
The platform is clearly in its infancy, and Shinoken is at the forefront of technological development with its alliance with Scala. If you do a simple Google search of REaaS, you will be bombarded with articles on how physical real estate can be used in a variety of ways to improve people's lives. I think this is great, but it doesn't exactly give us information especially on what Shinoken's software is looking to do.
They are trying to simplify the transaction of purchasing real estate. They want to make it faster, easier and safer. Even though, they don't outright say it, if something goes from analog to digital, and is faster and easier to use, there would hopefully be a large decrease in price for both the seller and buyer. The seller doesn't have to go through multiple steps, which adds time to complete a transaction. And the buyer doesn't have to fill out redundant forms and identify themselves multiple times to ensure there is no fuckery about.
Here is what has been released so far. "Trust DX, which not only improves convenience but also realizes safety and fraud prevention, the most important aspects of real estate transactions, will first be applied to "contract" procedures, and as soon as discussions with financial institutions are completed, even "loan applications" will be able to be completed within Trust DX. In the future, we also plan to link Trust DX with related institutions for "payment" and "registration”."
What will this do? It will help Shinoken sell its property to its clients quicker and safer. I think this will help reduce transaction fees for the buyer (less paper/stamps/time), and hopefully improve sales and margins for Shinoken as they will be able to process transactions much more efficiently. In their 2020 FY presentation, here is what they said will be the eventual effects of their Trust DX Platform.
I think at this point, it's pretty hard to predict how much this will hit their top and bottom line, but clearly, it's is a huge bonus. When you factor in that they can begin scaling this up to use in other countries, you can see how big of a boost this can be to future revenues and income. To put the numbers above into context their latest 2Q21 revenues were ~40T JPY. So if this business segment works out as planned, it will generate huge, high margin sales for Shinoken.
What those margins will be is anyone's guess, but I'd say the margins will be higher than their current management business. In the first 2 quarters of 2021, their management segment is making a 16%-17% net margin. I would guess the REaaS segment will have significantly higher margins than this, but who knows what marketing and continuing R&D will be? Probably not insignificant, but if their previous track record has shown us, they are really good at developing and growing spawners over the long haul.
As you can see above, they have only finished working on the part of the platform that deals specifically with Shinoken. They are now working with Government and Financial Institutions to help get the Platform working in Loan Applications, Payment, and Registration.
I've been reading Bank 4.0 lately and thinking about a lot of the concepts brought up in the book. A few very interesting points directly correlate with what Shinoken is doing for the future:
By moving towards digital ID, they are removing friction from the buying experience. They mention that their ID will be saved on your mobile. This means you won't have to go through the trouble of going to your bank, only to realize you forgot one piece of relevant information and have to go home to retrieve it. It also means filling out less paperwork and less time at the bank. Hopefully, it will eventually be able to be finished without even having to go to your bank, but we shall see!
They will collect important data on users. There is a multitude of things they can do with this data. I won't pretend to be a regulatory professional in Japan, so I won't pontificate much on what that could mean. Just realize that the data they collect could be used to partner with other businesses and improve the customer experience.
Lastly, Brett King had a really interesting table in his book
You can see the scores with the largest weighting are things like:
- Digital Onboarding/Account Opening
- Pre-approved Car Loans
- Personal Financial Mangament
- Home Buying Assistant
- Personal Financial Management
Trust DX isn't explicitly involved in all these highly weighted activities, but you can see that the direction they are heading in is in the areas that customer's journeys are heading. As of now, the completed phase is taking care of digital onboarding and home-buying assistance. The "sequentially expanded" portion of Trust DX will tackle the remaining areas of what their future clients will be looking for.
To end this post, it looks like Shinoken is doing a great job of improving both their users' experience and are improving their own outlook as their business grows. Aside from their sales and development segments, the property management business and energy segment will keep increasing their recurring revenues (and upping their margins) combined with the eventual impact of their REaaS segment their revenues and margins should only improve from here.
Does Shinoken exhibit scale economies shared?
Maybe.