Hanwa Homes Co., Ltd. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥1.78B
• Operating Income: ¥106M
• Net Income: ¥65M
• EPS: ¥32.68

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Solid top-line growth with sharp margin recovery, but balance sheet leverage and short-term refinancing exposure temper the quality of the print. Revenue rose 19.6% YoY to 17.77 (100M JPY), demonstrating healthy demand momentum. Gross profit reached 6.30 with a gross margin of 35.5%, indicating decent pricing/portfolio mix. Operating income surged 228.7% YoY to 1.06, lifting operating margin to about 6.0%. Ordinary income increased 189.1% YoY to 0.98, and net income rose 179.9% YoY to 0.65, bringing net margin to 3.7%. Operating margin expanded by roughly 382 bps YoY (from ~2.2% to ~6.0%). Net margin expanded by roughly 211 bps YoY (from ~1.6% to ~3.7%). DuPont deconstruction shows ROE at 30.5%, driven primarily by high financial leverage (6.12x) rather than robust net margins. Asset turnover at 1.36x is efficient for a small balance sheet, but the equity base is thin (equity 2.13 vs assets 13.04), magnifying ROE and risk. Interest coverage is strong at 18.6x, suggesting current earnings can comfortably service interest despite leverage. Liquidity is adequate with a current ratio of 1.41x and quick ratio of 1.12x, but short-term debt reliance is high (short-term loans 3.50; short-term debt ratio 49%). Cash-to-short-term debt is 0.68x, highlighting refinancing sensitivity if credit tightens. Earnings quality cannot be fully assessed due to unreported cash flows; OCF/NI and accruals are unavailable, which is a key limitation. No dividends were declared in Q2 or year-end, preserving cash amidst a leveraged structure. Forward-looking, sustaining the improved margin while de-risking the balance sheet (lengthening debt maturities and building equity) will be crucial to defend ROE quality.

Profitability Analysis

ROE (30.5%) = Net Profit Margin (3.7%) × Asset Turnover (1.363) × Financial Leverage (6.12x). The largest change driver YoY is margin improvement: operating margin rose from ~2.2% to ~6.0%, and net margin from ~1.6% to ~3.7%. Business drivers likely include better project mix, improved cost control (SG&A discipline relative to gross profit), and operating leverage from higher revenue. Sustainability: part of the improvement can persist if demand holds and pricing remains firm, but the low absolute margin level versus benchmarks (6% EBIT vs 8–15% ‘good’) suggests limited buffer against cost or demand shocks. Financial leverage is structurally elevating ROE; this is not a quality driver and adds risk. Watch for any quarter where SG&A growth exceeds revenue growth; with SG&A at 5.24 against gross profit of 6.30, the cost base still absorbs most of gross profit, leaving a thin operating cushion.

Growth Assessment

Revenue grew 19.6% YoY to 17.77, a robust acceleration indicative of firm order intake or project progress. Operating profit expansion (+228.7% YoY) outpaced sales, reflecting operating leverage and/or mix. Net income increased 179.9% YoY, but the net margin at 3.7% remains below the 5–10% ‘good’ benchmark, implying further room for efficiency gains. With no breakdown of recurring vs one-time items and no cash flow disclosure, the persistence of growth cannot be fully verified. Near-term outlook depends on maintaining gross margin near 35% and controlling SG&A intensity. Key swing factors: housing/real estate market conditions, input cost inflation, and interest rate trends affecting demand and financing.

Financial Health

Liquidity: Current ratio 1.41x (adequate but below the 1.5x ‘healthy’ benchmark), quick ratio 1.12x (healthy). Solvency: D/E at 5.12x is aggressive; Debt/Capital at 77% is a concern. Interest coverage is solid at 18.57x, mitigating near-term service risk. Maturity profile: short-term loans 3.50 versus cash 2.38 and current assets 10.05; while current assets cover current liabilities (7.15), reliance on short-term debt (49% of debt) introduces rollover risk. No off-balance sheet obligations are reported; data may be incomplete. Explicit warnings: D/E > 2.0 (5.12x) and short-term debt ratio near 49% elevate refinancing and interest rate sensitivity.

Cash Flow Quality

OCF/Net Income is not available, so we cannot validate earnings conversion to cash. Without OCF and CapEx, FCF sustainability relative to potential dividends and capex is not assessable. Working capital signs: current assets exceed current liabilities, but with inventories at 2.02 and receivables at 1.01, cash conversion speed is a key unknown; no manipulation signals can be evaluated due to missing CF and WC detail. Until OCF is disclosed, we treat earnings quality as unverified despite strong interest coverage.

Dividend Sustainability

Dividends for Q2 and year-end are reported as ¥0; payout ratio is not calculable. Given high leverage (D/E 5.12x) and a short-term debt ratio of 49%, retaining earnings to bolster equity appears prudent. Without OCF/FCF and CapEx data, we cannot assess FCF coverage of dividends. Policy outlook: near-term distributions likely remain conservative until leverage normalizes and cash flow disclosure supports sustainability.

Risk Assessment

Business Risks:

• Margin sensitivity: low absolute operating margin (~6%) leaves limited buffer against cost inflation or pricing pressure.
• Demand cyclicality in housing/real estate-related activity, which can affect order intake and inventory turnover.
• Execution risk on projects and SG&A discipline, given SG&A consumes most of gross profit.

Financial Risks:

• High leverage (D/E 5.12x) and Debt/Capital 77%, increasing sensitivity to earnings volatility.
• Refinancing risk: short-term debt ratio 49% and cash/short-term debt 0.68x.
• Interest rate risk: higher rates could compress demand and raise interest expense.
• Thin equity base (equity 2.13 vs assets 13.04) amplifies ROE and downside.

Key Concerns:

• Lack of operating, investing, and financing cash flow disclosure impedes earnings quality assessment.
• Potential maturity mismatch if credit conditions tighten before earnings and cash accumulate.
• Tax burden (0.655) below the 0.70 benchmark indicates a relatively heavy effective tax drag.

Investment Implications

Key Takeaways:

• Strong YoY growth with significant margin recovery elevated ROE to 30.5%.
• ROE quality is leverage-driven; core margins are still modest versus benchmarks.
• Liquidity is adequate, but leverage and short-term debt reliance are elevated risks.
• Interest coverage is currently robust, cushioning near-term serviceability.
• Cash flow opacity is a key limitation; cannot confirm earnings-to-cash conversion.

Metrics to Watch:

• Operating cash flow and OCF/NI conversion ratio once disclosed.
• Debt maturity schedule and the mix of short-term vs long-term debt.
• Gross margin stability and SG&A-to-sales ratio trajectory.
• Net debt and D/E trend; target deleveraging pace.
• Order backlog/sales pipeline and inventory turnover.

Relative Positioning: Versus CFA/industry benchmarks, profitability has improved but remains below ‘good’ operating margin thresholds; balance sheet leverage and short-term debt reliance place the company toward the higher-risk end of peers despite solid interest coverage.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis