DAIWA HOUSE INDUSTRY (1925) FY2027 Q1 Earnings Report

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Executive Summary

Revenue and earnings both exceeded the same period of the previous year, resulting in higher revenue and higher profit, with profitability improvements progressing primarily in the Business Facilities and Rental Housing businesses. Revenue was ¥14083.9B (+9.0% YoY), Operating Income was ¥1306.4B (+10.6%), Ordinary Income was ¥1230.0B (+9.9%), and Net Income attributable to owners of the parent was ¥831.9B (+9.1%). As SG&A expenses grew at approximately the same rate as revenue, the Operating Income margin improved to 9.3% from 9.1% in the same period of the previous year, indicating that the increase in revenue contributed to profit growth.

Factors Affecting Performance

【Revenue】Revenue increased 9.0% YoY to ¥14083.9B. By segment, the core LogisticsBusinessAndCorporateFacilities (Business Facilities) segment increased 6.9% to ¥3688.7B, Rental Housing increased 10.7% to ¥3866.5B, and Commercial Facilities increased 9.1% to ¥3154.2B, with all major segments posting revenue growth. In contrast, Condominiums declined 13.6% to ¥560.7B due to the timing and composition of project deliveries.

【Profit and Loss】Operating Income increased 10.6% YoY to ¥1306.4B, exceeding the 9.0% revenue growth rate, with operating leverage having a positive effect. Business Facilities segment profit increased 13.5% to ¥544.0B, with a profit margin of 14.7%, while Rental Housing segment profit increased 12.6% to ¥428.7B, with a profit margin of 11.1%, both contributing to earnings growth. In contrast, Commercial Facilities segment profit increased only 0.5% to ¥356.6B despite revenue growth. Condominiums segment profit declined significantly by 46.5% to ¥18.8B. Ordinary Income increased 9.9% to ¥1230.0B, as non-operating expenses, including ¥132.3B in interest expense, partially offset the growth in Operating Income. Profit before tax benefited from ¥42.6B in extraordinary income, including a ¥33.7B gain on the sale of investment securities. After deducting ¥6.1B in extraordinary losses, net extraordinary income was positive ¥36.5B. Net Income was ¥831.9B (+9.1%), representing a higher-revenue, higher-profit result.

Segment Analysis

Business Facilities generated the largest contribution to company-wide profit, with revenue of ¥3688.7B (+6.9%) and segment profit of ¥544.0B (+13.5%, profit margin 14.7%). Rental Housing continued to post higher revenue and higher profit, with revenue of ¥3866.5B (+10.7%) and profit of ¥428.7B (+12.6%, profit margin 11.1%). Commercial Facilities recorded revenue of ¥3154.2B (+9.1%) and profit of ¥356.6B (+0.5%); profit growth was sluggish relative to revenue growth, and the profit margin was flat at 11.3%. Detached Houses posted revenue of ¥2692.6B (+14.3%) and profit of ¥92.5B (+29.2%), with the profit margin also improving to 3.4%. Condominiums recorded revenue of ¥560.7B (-13.6%) and profit of ¥18.8B (-46.5%), resulting in lower revenue and lower profit, with a low profit margin of 3.3%. Environmental Energy maintained the highest profitability among the reported segments, with revenue of ¥320.4B (+14.6%), profit of ¥49.4B (+12.9%), and a profit margin of 15.4%. After deducting adjustments for company-wide expenses and other items from total segment profit, consolidated Operating Income was ¥1306.4B. The slowdown in Condominiums and Commercial Facilities will be a key point of focus regarding the future segment mix.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 9.3% from 9.1% in the same period of the previous year, while the Net Income margin was approximately flat at 5.9%. The gross profit margin improved slightly to 21.3% from 21.2% in the same period of the previous year.【Cash Flow Quality】Comprehensive Income was ¥1058.3B, exceeding Net Income of ¥840.6B. Other comprehensive income increased net assets, primarily through foreign currency translation adjustments of ¥202.9B. Extraordinary income included a ¥33.7B gain on the sale of investment securities, indicating that a portion of profit before tax depended on non-recurring items.【Investment Efficiency】Annualized ROE was 11.2%, indicating a structure in which the use of financial leverage complements capital efficiency. The Equity Ratio was 34.8%, slightly down from 34.4% in the same period of the previous year.【Financial Soundness】Current assets of ¥48860.3B exceeded current liabilities of ¥28901.8B, providing substantial liquidity. However, short-term borrowings increased significantly to ¥10514.7B from ¥7579.0B in the previous year, confirming a higher dependence on short-term funding.

Cash Flow Analysis

As detailed data from the cash flow statement was not presented in this financial report, an assessment of funding trends based on balance sheet movements indicates that cash and deposits increased from the end of the previous year to ¥4596.6B. Meanwhile, short-term borrowings increased significantly from ¥7579.0B to ¥10514.7B, indicating greater dependence on short-term funding. Real estate for sale increased from the end of the previous year, suggesting that funds were invested in development and inventory. Accounts receivable for completed construction contracts declined, potentially indicating progress in the collection of construction proceeds. Total assets increased to ¥86163.7B from ¥84124.2B at the end of the previous year, reflecting increases in both assets and funding accompanying business expansion.

Quality of Earnings

From Operating Income through Ordinary Income and profit before tax, non-operating income of ¥96.6B, including ¥29.1B in dividend income, was recorded against non-operating expenses of ¥173.1B, including ¥132.3B in interest expense, indicating that financing costs are putting pressure on profit at the ordinary income stage. Extraordinary income of ¥42.6B included a ¥33.7B gain on the sale of investment securities and exceeded extraordinary losses of ¥6.1B. Accordingly, profit before tax of ¥1266.5B included a non-recurring positive factor of ¥36.5B. Comprehensive Income of ¥1058.3B exceeded Net Income of ¥840.6B by ¥217.7B, primarily due to foreign currency translation adjustments of ¥202.9B. This resulted in an increase in net assets attributable to factors separate from the earnings power of the core business. Overall, growth in Operating Income was the primary driver of earnings improvement, and the contribution of non-recurring items was limited. However, the increase in financing costs at the ordinary income stage should remain an ongoing area of monitoring when assessing future earnings quality.

Earnings Forecast and Guidance

The full-year company forecast is revenue of ¥59000B (+5.8% YoY), Operating Income of ¥4600B (-25.2%), and Ordinary Income of ¥4020B (-29.7%). Progress rates for Q1 were 23.9% for revenue, 28.4% for Operating Income, 30.6% for Ordinary Income, and 31.3% for Net Income, representing a pace above the standard progress rate of 25%. The Q1 Operating Income margin of 9.3% exceeded the assumed full-year Operating Income margin under the full-year plan (approximately 7.8%), suggesting that the full-year forecast may incorporate changes in the profitability mix toward the second half and conservative assumptions. Given that revisions to the earnings and dividend forecasts were made during the quarter, progress in subsequent quarters will determine the likelihood of achieving the plan.

Shareholder Returns

The dividend for FY2026 included the special factor of a ¥10 commemorative dividend for the 70th anniversary of the Company’s founding, in addition to the regular dividend of ¥165. For FY2027, a stock split (a 1-for-2 split) is scheduled, and the annual dividend on a pre-split basis is stated by the Company to be ¥178. Based on an estimate using the average number of shares outstanding during the period and the full-year Net Income forecast of ¥2660B, the Payout Ratio is expected to be in the low 40% range. When compared with the effective dividend level excluding the previous year’s commemorative dividend, it is necessary to distinguish between the regular dividend and the temporary commemorative dividend when evaluating the sustainability of future dividends. No data concerning share repurchases has been disclosed.

Risk Factors

1. Dependence on short-term funding: Short-term borrowings increased 38.7% YoY to ¥10514.7B, and cash/short-term liabilities remained at 0.44x compared with cash and deposits of ¥4596.6B. Although the current ratio was sound at 169%, the ability to cover short-term obligations immediately with cash was limited, increasing sensitivity to interest rate increases and changes in refinancing terms.

2. Real estate inventory and construction profitability risk: Real estate for sale increased 12.2% from the end of the previous year to ¥8532.4B, and costs on uncompleted construction contracts also increased to ¥781.2B. A provision for losses on construction contracts of ¥204.9B was recorded, and fluctuations in material and labor costs or an extension of the sales period could affect profitability.

3. Variability in segment performance: The Condominiums business posted significant declines in revenue and profit, with revenue down 13.6% and segment profit down 46.5%, reflecting substantial quarterly fluctuations attributable to the timing and composition of project deliveries. Commercial Facilities also recorded sluggish profit growth relative to revenue growth, and changes in the segment mix could affect the company-wide profit margin.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin both significantly exceeded the industry median, indicating a high level of profitability within the industry.

Growth and Capital Efficiency

Revenue growth also exceeded the industry median, but remained within the IQR upper bound of 10.1% and was not an exceptional growth rate within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Operating profit growth of 10.6% exceeded revenue growth of 9.0%, with profit expanding faster than the top line. The higher-profit trend centered on Business Facilities and Rental Housing contributed to an improvement in the company-wide profit margin (9.1%→9.3%).

2. Short-term borrowings increased significantly by 38.7% YoY, while cash/short-term liabilities remained at 0.44x, confirming a change in the funding structure based on the financial results data. The current ratio itself was sound at 169%, and the quality of both assets and liabilities should be considered together.

3. The decline in revenue and profit in the Condominiums business (revenue -13.6%, profit -46.5%) and the slowdown in profit growth at Commercial Facilities (profit +0.5%) are reflected in the financial results as changes in the segment composition. Meanwhile, the high profit margins of Business Facilities and Environmental Energy (14.7%, 15.4%) represent strengths in the earnings structure.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,225–¥4,475 at a ±1% change in the cost of equity; ¥4,330–¥4,359 at a ±0.1 change in ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets as of the quarter-end are used (there is a timing gap relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this 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.)

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This report is an earnings analysis document automatically generated by AI based on XBRL financial results briefing data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available financial results data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

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