Quick View
| Metric | Current Period | Same Period Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥532.06B | ¥511.63B | +4.0% |
| Operating Income | ¥23.91B | ¥38.87B | −38.5% |
| Ordinary Income | ¥21.78B | ¥37.66B | −42.2% |
| Net Income | ¥23.03B | ¥28.43B | −19.0% |
| ROE | 2.0% | 2.5% | - |
Executive Summary
The Company reported higher revenue but lower earnings accompanied by deteriorating margins, making this a period in which attention should be paid to earnings quality. Revenue expanded to ¥532.06B (+4.0% year on year), while Operating Income declined significantly to ¥23.91B (△38.5%), Ordinary Income to ¥21.78B (△42.2%), and Net Income attributable to owners of the parent to ¥16.76B (△18.6%). The primary factor was margin compression caused by increases in the cost of sales and SG&A expenses, with deteriorating profitability in the core Overseas Housing Business, in particular, weighing on consolidated earnings. The smaller decline in Net Income than at the Operating Income and Ordinary Income levels was attributable to the recognition of ¥9.55B in extraordinary income, including gains on the sale of shares in subsidiaries, and should be evaluated separately from the underlying earnings power of the core business.
Factors Affecting Business Performance
【Revenue】Revenue was ¥532.06B (+4.0% year on year), with the Overseas Housing Business (52.7% of total revenue, +3.6%), Housing Business (+3.2%), and Real Estate Business (+14.8%) contributing to the increase. Meanwhile, the Timber and Building Materials Business recorded a 4.1% decline in revenue. Growth was centered on the expansion of the Overseas Housing and Real Estate businesses, while domestic timber and building materials continued to face weak demand and limited pricing pass-through.
【Profit and Loss】The gross profit margin declined to 22.1% from 23.9% in the previous year, while the SG&A ratio rose to 17.6%, causing the Operating Income margin to contract to 4.5% from 7.6% in the previous year. By segment, profit in the Overseas Housing Business declined 39.1% year on year (profit margin: 12.1%→7.1%), making it the largest factor behind the Company-wide decline in earnings. The Timber and Building Materials Business fell into a loss of ¥1.06B, while the Real Estate Business also recorded a loss of ¥3.16B. Ordinary Income deteriorated further, declining to ¥21.78B (△42.2%), but Net Income was supported by ¥9.55B in extraordinary income (gains on the sale of shares in subsidiaries and investment securities) and therefore declined only to ¥16.76B (△18.6%). In conclusion, the Company recorded higher revenue but lower earnings, and the underlying deterioration in the profitability of the core business is pronounced when extraordinary income is excluded.
Segment Analysis
The Overseas Housing Business posted revenue of ¥280.23B (+3.6%) and segment profit of ¥19.89B (△39.1% year on year), making it the core source of Company-wide earnings. However, its profit margin fell sharply from 12.1% to 7.1%, highlighting concentration risk. The Housing Business recorded revenue of ¥126.30B (+3.2%) and profit of ¥6.48B (△12.6% year on year; profit margin: 5.1%), indicating a moderate deterioration. The Real Estate Business posted higher revenue of ¥63.08B (+14.8%), but remained loss-making at △¥3.16B, an improvement from a loss of △¥4.21B in the previous year. The Timber and Building Materials Business recorded revenue of ¥51.40B (△4.1%), while profit fell from a ¥0.56B profit in the previous year to a ¥1.06B loss. The Resources and Environment Business was small in scale but recorded profit of ¥0.25B (△41.7% year on year). Overall, the Company has a high degree of dependence on the Overseas Housing Business, and the recovery of profitability in this business will determine the direction of overall performance.
Key Financial Indicators
【Profitability】The 4.5% Operating Income margin declined 3.1pt from 7.6% in the same period of the previous year, while the Ordinary Income margin also contracted to 4.1% from 7.4%. The gross profit margin was 22.1% (23.9% in the previous year), and the SG&A ratio rose to 17.6% (16.3% in the previous year), indicating that the increase in expenses exceeding revenue growth was the primary cause of margin deterioration.【Cash Quality】Extraordinary income of ¥9.55B accounted for approximately 30% of Profit Before Tax of ¥31.33B, and non-recurring income, including gains on the sale of shares in subsidiaries and investment securities, supported Net Income.【Investment Efficiency】ROE was low at 2.0%, indicating room to improve capital efficiency relative to the scale of the business.【Financial Soundness】The Equity Ratio was 45.2%, while total assets of ¥2,612.80B and net assets of ¥1,179.72B both increased from the previous year, indicating that the financial foundation remained stable.
Cash Flow Analysis
Although individual disclosures in the cash flow statement are limited, the movements in the balance sheet suggest that cash and deposits declined from the end of the previous year to ¥15.056B, while real estate for sale increased 6.4% to ¥804.98B, indicating that investment in real estate inventories may have put pressure on cash. Long-term borrowings increased to ¥545.58B, and interest-bearing debt, together with bonds, accounted for the core of the borrowing structure. Current assets of ¥1,719.53B substantially exceeded current liabilities of ¥717.62B, indicating sufficient capacity for short-term liquidity management. Contract liabilities (advances received) amounted to ¥11.381B and provided a certain degree of support for working capital.
Earnings Quality
The composition of earnings for the current period reflects both a decline in recurring earnings power and an uplift from non-recurring extraordinary income, warranting some caution regarding earnings quality. Operating Income and Ordinary Income deteriorated substantially, declining 38.5% and 42.2% year on year, respectively, while the decline in Net Income attributable to owners of the parent was limited to 18.6%. This was attributable to ¥9.55B in extraordinary income, including gains on the sale of shares in subsidiaries and investment securities. In non-operating income and expenses, interest expenses increased to ¥4.03B from the previous year, indicating a higher financial cost burden. Comprehensive Income was ¥64.75B, substantially exceeding Net Income of ¥23.03B, as increases in other comprehensive income, including foreign currency translation adjustments of ¥22.03B and deferred hedge gains and losses of ¥13.40B, pushed up net assets. However, these are valuation-related fluctuations that differ in nature from business earnings.
Earnings Forecast and Guidance
The full-year Company plan calls for Revenue of ¥2,590.0B (+14.2% year on year), Operating Income of ¥157.0B (△6.9%), and Ordinary Income of ¥160.0B (△8.5%). Progress in Q1 was 20.5% for Revenue and 15.2% for Operating Income, both below the standard quarterly progress rate of 25%, with the delay in Operating Income particularly notable. Achieving the full-year plan will require the accumulation of approximately ¥133.09B in Operating Income during the remaining period, and a recovery in profit margins centered on the Overseas Housing Business in the second half will be key to achievement. No revisions have been made to either the earnings forecast or the dividend forecast.
Shareholder Returns
The full-year dividend forecast is ¥50.00 per share, and the forecast Payout Ratio based on forecast full-year EPS of ¥155.09 is approximately 32.2%. The actual dividend for the previous year was ¥25 (after taking the stock split into account), indicating a planned dividend increase. However, as progress toward the full-year target for Net Income attributable to owners of the parent stood at only 17.6% as of Q1, the realizability of the dividend is highly dependent on an earnings recovery from the second half onward. No data regarding share buybacks has been disclosed.
Risk Factors
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Earnings concentration in the Overseas Housing Business: The Overseas Housing Business accounts for 52.7% of total revenue, while its segment profit declined 39.1% year on year and its profit margin fell from 12.1% to 7.1%. Housing demand, interest rates, and foreign exchange trends have a significant impact on consolidated earnings, highlighting the Company’s geographic concentration risk.
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Real estate inventory and development risk: Real estate for sale amounted to ¥804.98B, representing 30.8% of total assets, while the Real Estate Business recorded a loss of ¥3.16B despite revenue growth of +14.8%. Rising interest rates and longer sales periods could place pressure on capital efficiency.
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Deteriorating profitability in the Timber and Building Materials Business: This business shifted from a profit in the previous year to a loss of ¥1.06B, with raw material prices, logistics costs, domestic demand trends, and delays in passing through price increases affecting earnings fluctuations.
Industry Benchmark (For Reference; Compiled by the Company)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income Margin | 4.5% | – | – |
| Net Profit Margin | 4.3% | – | – |
Median data is currently insufficient to determine the Company’s relative position within the industry.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (Year on Year) | 4.0% | – | – |
Comparison data against the industry median is also insufficient for revenue growth, and assessment is therefore limited to the absolute figure.
※Source: Compiled by the Company
Key Points in the Earnings Report
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Despite higher revenue, the Operating Income margin declined 3.1pt, making the focus of this earnings report not revenue growth but a recovery in profitability.
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The smaller decline in Net Income than at the Operating Income and Ordinary Income levels was attributable to ¥9.55B in extraordinary income, including gains on the sale of shares in subsidiaries and investment securities, and should be viewed separately from the earnings power of the core business.
-
Operating Income progress against the full-year plan was only 15.2%, and achievement of the back-end-loaded plan requires profitability improvements in the Overseas Housing, Timber and Building Materials, and Real Estate businesses.
Theoretical Share Price (Reference Value)
| Scenario | Theoretical Share Price |
|---|---|
| bear (bearish) | ¥1,858 |
| base (base case) | ¥1,909 |
| bull (bullish) | ¥1,946 |
| Calculation Assumption | Value |
|---|---|
| Book Value Per Share (BPS) | ¥1,924 |
| Adjusted Forecast EPS | ¥173.2 |
| Cost of Equity r | 9.27% (10-year Japanese government bond 2.77% + equity risk premium 6.00% + size premium 0.50%) |
| Persistence Factor of Residual Income ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 32.2% |
| Forecast EPS Confidence Adjustment | ×1.117 (based on the track record of guidance achievement rates for peer companies) |
| Implied PBR / PER | 0.99x / 11.0x |
Sensitivity: ¥1,856–¥1,965 at ±1% for the cost of equity, and ¥1,909–¥1,909 at ±0.1 for ω.
Notes:
- Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
- Net assets as of the end of the quarter are used; there is a timing difference relative to the full-year forecast.
- Because net assets include non-controlling interests, the theoretical value may be calculated somewhat above the appropriate level.
(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)
This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and, where necessary, after consulting with a professional advisor.
---End of Report---
AI Financial Analysis
Executive Summary
Sumitomo Forestry delivered modest top-line growth but materially weaker underlying profitability in FY2026 Q1. Revenue increased 4.0% year on year to ¥532.1bn. Operating income fell 38.5% to ¥23.9bn, substantially underperforming revenue growth. Ordinary income declined 42.2% to ¥21.8bn. Profit attributable to owners of parent decreased by a smaller 18.6% to ¥16.8bn because profit before tax included ¥9.6bn of extraordinary income. The gross margin contracted to 22.1% from 23.9% a year earlier, a deterioration of 184bp. SG&A expenses rose 12.0% year on year to ¥93.7bn, materially faster than revenue, lifting the SG&A-to-sales ratio by 127bp to 17.6%. Consequently, the operating margin compressed by 311bp to 4.5%. The attributable net margin declined by 87bp to 3.1%. Overseas Housing remained the largest profit contributor, but its segment profit fell 39.1% year on year, which was the principal source of the consolidated earnings decline. The Timber and Building Materials business moved into a ¥1.1bn segment loss from a ¥0.6bn profit, while Resource and Environment profit also declined materially. Real Estate revenue expanded strongly and its segment loss narrowed, providing a partial offset but not yet a positive earnings contribution. The ¥9.6bn extraordinary-income contribution, including a ¥7.0bn gain on sales of subsidiaries' stock and a ¥2.6bn gain on investment securities, supported reported net income but does not offset the decline in recurring operating earnings. The reported annualized ROE of 5.7% remains below the 8% reference level, reflecting low profitability despite adequate asset turnover and moderate leverage. Management maintained its full-year forecast and dividend forecast, but Q1 operating-profit progress of 15.2% is below the standard 25% seasonal benchmark. The forward earnings case therefore depends on recovery in Overseas Housing margins, normalization in timber and building materials, and conversion of Real Estate revenue growth into segment profitability.
Profitability Analysis
The reported annualized DuPont ROE is 5.7%, decomposed into a 3.1% net profit margin, 0.815x asset turnover, and 2.21x financial leverage. The primary weakness is the low margin rather than balance-sheet leverage: the 4.5% EBIT margin is below the 5% concern threshold and fell from 7.6% in the prior-year quarter. Gross-margin contraction of 184bp indicates pressure at the project, housing, materials, or product-cost level, while the 127bp increase in the SG&A ratio indicates adverse operating leverage because overhead grew faster than revenue. The combined effect was a 311bp operating-margin decline, explaining the 38.5% fall in operating income despite 4.0% sales growth. The tax-burden alert requires careful interpretation. The supplied DuPont tax burden of 0.535 is based on profit attributable to owners of parent relative to profit before tax, and is below the normal 0.70 threshold; however, the consolidated income-tax expense of ¥8.3bn represents 26.5% of ¥31.3bn profit before tax. The difference is principally relevant to non-controlling interests and means that the alert should be viewed as a weak conversion of pre-tax profit into parent-attributable income rather than solely as a cash-tax-rate issue. The 1.310x interest burden is above 1.0x because profit before tax was lifted by extraordinary income; it should not be interpreted as an indicator that financing costs improved earnings. Interest expense increased 53.1% year on year to ¥4.0bn, although 5.93x interest coverage remains above the 5x strong-credit reference point. The supplied ROIC of 4.1% is also below the 5% warning threshold, indicating that operating returns are currently insufficient relative to the capital employed. This is especially relevant given the large real-estate inventory base and substantial debt funding. Under JGAAP, goodwill is amortized and can reduce operating profit relative to IFRS comparables, but goodwill represents only 3.0% of equity and 1.3% of assets, so acquisition-accounting distortion does not appear to be the principal explanation for the margin decline.
Growth Assessment
Revenue growth was broad but low quality from an earnings perspective because most major operating segments recorded lower profits. Overseas Housing, the core business by segment-profit contribution, increased external revenue 3.6% to ¥280.2bn but segment profit declined 39.1% to ¥19.9bn; its segment margin fell to 7.1% from 12.1%. Housing revenue increased 3.2% to ¥126.3bn, while segment profit declined 12.6% to ¥6.5bn and its margin eased to 5.1% from 6.1%. Real Estate posted the strongest revenue growth, up 14.8% to ¥63.1bn, and its segment loss narrowed to ¥3.2bn from ¥4.2bn; the improvement is constructive, but the business remains loss-making at the segment level. Timber and Building Materials revenue fell 4.1% to ¥51.4bn and changed to a ¥1.1bn segment loss from a ¥0.6bn profit. Resource and Environment revenue increased 7.1% to ¥6.7bn, but segment profit fell 41.7% to ¥0.3bn. Other businesses increased revenue 6.5% to ¥4.2bn, while segment profit decreased 42.1% to ¥1.2bn. The segment pattern indicates that volume or delivery growth has not translated into pricing and cost recovery. Against the full-year plan, Q1 revenue progress is 20.5%, 4.5 percentage points below the standard 25% benchmark. Operating-income progress is 15.2%, 9.8 percentage points below the benchmark, while ordinary-income progress is 13.6%, 11.4 percentage points below and therefore notably behind the normal Q1 run rate. Parent-attributable profit progress is 17.6%, 7.4 percentage points below the benchmark; the relative resilience versus operating profit reflects extraordinary gains rather than stronger recurring performance. The unchanged full-year forecast implies a meaningful acceleration in operating earnings over the remaining quarters.
Financial Health
Liquidity is strong, with a 239.6% current ratio, 236.0% quick ratio, and ¥1,001.9bn of working capital. Current assets of ¥1,719.5bn substantially exceed current liabilities of ¥717.6bn, limiting near-term maturity-mismatch risk. Cash and deposits of ¥150.6bn cover short-term loans of ¥133.3bn by 1.13x, consistent with the reported cash-to-short-term-debt ratio. Interest-bearing debt totals ¥678.9bn, comprising ¥133.3bn of short-term loans and ¥545.6bn of long-term loans. The 19.6% short-term-debt ratio indicates that most debt is termed out rather than concentrated in short-term refinancing. Debt-to-equity of 1.21x is above a conservative 1.0x level but remains below the 2.0x aggressive-financing warning threshold. Debt-to-capital of 36.5% is within the sub-40% investment-grade reference range. Long-term loans rose by ¥13.4bn year on year, while short-term loans fell by ¥7.5bn, indicating a modest extension of debt maturity. Total equity increased by ¥42.9bn year on year to ¥1,179.7bn, supported by ¥64.7bn of comprehensive income. Accumulated other comprehensive income increased by ¥36.0bn to ¥277.2bn, with foreign-currency translation adjustments of ¥192.7bn a significant component of equity; this creates sensitivity of reported equity to currency movements. Goodwill of ¥35.0bn and intangible assets of ¥76.4bn are modest relative to equity and total assets, reducing balance-sheet dependence on acquired intangible values. Contract liabilities of ¥113.8bn provide an advance-funding element for operations and projects. Warranty provisions of ¥15.7bn and bonus provisions of ¥27.9bn should be monitored as operating obligations, although they do not currently alter the strong short-term liquidity profile.
Notable B/S Changes
Real estate for sale: +¥48.3bn (+6.4%) year on year to ¥805.0bn, representing 30.8% of total assets; the inventory concentration increases the importance of sales velocity, property valuations, and capital turnover. Cash and deposits: -¥34.8bn (-18.8%) year on year to ¥150.6bn; liquidity remains strong, but lower cash coincides with a higher long-term debt balance. Long-term loans: +¥13.4bn (+2.5%) year on year to ¥545.6bn; debt funding has shifted modestly toward longer maturities, reducing near-term refinancing concentration. Accumulated other comprehensive income: +¥36.0bn (+14.9%) year on year to ¥277.2bn, mainly reflecting higher foreign-currency translation adjustments; reported equity is consequently sensitive to exchange-rate movements. Total equity: +¥42.9bn (+3.8%) year on year to ¥1,179.7bn; comprehensive income strengthened the capital base despite lower parent-attributable profit.
Cash Flow Quality
Dividend Sustainability
The full-year dividend forecast is ¥50 per share, unchanged following the stock-split adjustment described by the company. Against forecast EPS of ¥155.09, the implied dividend payout ratio is 32.2%, comfortably below the 60% sustainability reference level. The forecast distribution therefore has a sizeable earnings buffer even if the company does not achieve its full-year profit plan. Q1 basic EPS of ¥27.33 represents 17.6% of full-year forecast EPS, below a straight-line 25% pace but not inconsistent with a payout policy supported by a full-year earnings base. The balance sheet also provides support through ¥1,179.7bn of total equity and strong current liquidity. Sustainability nevertheless depends on restoration of recurring operating profit because Q1 parent-attributable income benefited from ¥9.6bn of extraordinary income. No share-buyback information is used in the assessment; accordingly, the analysis refers only to the dividend payout ratio rather than a total return ratio.
Risk Assessment
Business risks include Overseas Housing is the core earnings contributor, yet its Q1 segment profit fell 39.1% and margin declined by about 500bp to 7.1%; further deterioration in overseas housing-market demand, construction costs, financing affordability, or project execution would have a high earnings impact., Timber and Building Materials shifted to a ¥1.1bn segment loss despite only a 4.1% revenue decline, highlighting sensitivity to timber and building-material prices, competitive pricing, and inventory-cost recovery., Real Estate for sale totals ¥805.0bn, equal to 30.8% of total assets; property-market conditions, sales velocity, valuation risk, and carrying-cost pressure are material to future profitability and capital turnover., Construction and housing activities remain exposed to skilled-labor shortages, wage inflation, material-cost volatility, subcontractor availability, fixed-price project risk, weather disruptions, and changes in Japanese housing or building regulations., Foreign-currency translation adjustments of ¥192.7bn within accumulated OCI indicate meaningful exposure of equity and overseas asset values to exchange-rate movements..
Financial risks include Interest-bearing debt of ¥678.9bn and D/E of 1.21x are manageable but elevate sensitivity to interest-rate increases, particularly as Q1 interest expense rose to ¥4.0bn from ¥2.6bn., Interest coverage remains sound at 5.93x, but the reduction in operating income narrows the cushion should profits remain weak or funding costs rise further., ROIC of 4.1% is below the 5% warning threshold, suggesting that the return on the capital base is currently weak and increasing the importance of disciplined inventory and debt management., The tax-burden alert reflects low conversion of profit before tax into parent-attributable income on the supplied DuPont measure, which can constrain parent-level earnings growth even when consolidated pre-tax profit is supported by non-recurring items..
Key concerns include High likelihood/high impact: operating-margin compression to 4.5% and the 38.5% decline in operating income, driven by both lower gross margin and SG&A growth exceeding revenue growth., High likelihood/high impact: the full-year operating-income plan requires a substantial improvement from Q1, with progress at 15.2% versus a 25% standard quarterly pace., Medium likelihood/high impact: the large real-estate-for-sale balance creates exposure to slower monetization and lower capital efficiency., Medium likelihood/medium impact: reported Q1 net income is supported by gains on subsidiary-stock and investment-security sales, which are not recurring operating earnings..
Investment Implications
Key takeaways include Top-line growth did not translate into earnings growth: revenue rose 4.0%, while operating income fell 38.5%., Overseas Housing remains the principal earnings engine, but its ¥19.9bn segment profit was down ¥12.8bn year on year., The ¥9.6bn extraordinary-income contribution supported reported earnings, while underlying ordinary income declined 42.2%., Liquidity and debt maturity structure are sound, but low 4.1% ROIC and a 4.5% EBIT margin indicate weak current capital productivity., The ¥50 forecast DPS implies a moderate 32.2% forecast payout ratio..
Metrics to watch include Overseas Housing segment margin and profit recovery, Timber and Building Materials return to segment profitability, Real Estate segment loss reduction and turnover of ¥805.0bn real estate for sale, Consolidated gross margin, SG&A-to-sales ratio, and operating margin, Quarterly progress toward the ¥157.0bn full-year operating-income forecast, Interest expense and interest coverage as debt funding costs evolve, ROIC improvement from the current 4.1% level.
Regarding relative positioning, The company combines strong liquidity, moderate debt capitalization, and limited goodwill exposure with a currently weak operating-return profile. Relative positioning is therefore more dependent on margin recovery and asset monetization than on balance-sheet repair.