Daiei Sangyo Co., Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥39.09B
• Operating Income: ¥1.30B
• Net Income: ¥471M
• EPS: ¥192.84

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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 profit growth with pronounced operating leverage, but cash flow and leverage risks elevated. Revenue rose 5.4% YoY to 390.9, while operating income climbed 44.9% YoY to 13.05, evidencing strong cost discipline and mix. Ordinary income increased 39.2% to 9.01, and net income rose 54.8% to 6.39, with EPS at 192.84 yen. Operating margin improved to 3.34%, up about 91 bps YoY based on implied prior-year figures. Net margin reached 1.64%, expanding approximately 53 bps YoY. Ordinary margin improved to 2.30%, up roughly 56 bps YoY. Gross margin stands at 17.3% (prior-year gross not disclosed), and EBITDA margin is 4.1%. ROE is 7.2% via DuPont (NPM 1.6% × asset turnover 0.827 × leverage 5.36x), roughly at the cost-of-equity threshold for a small-cap real estate operator. Earnings quality is weak: operating cash flow was -46.49 against net income of 6.39 (OCF/NI = -7.28x), indicating heavy working capital outflows typical of property inventory build. Free cash flow was -67.87, pressured by capex of 22.56 and OCF deficit. Leverage remains high (D/E 4.36x; Debt/EBITDA ~14.1x), and interest burden is meaningful (interest expense 5.26; coverage 2.48x). Liquidity is adequate on paper (current ratio ~151%) but relies on inventory liquidations (inventories not disclosed) and loan rollovers (short-term loans 133.66). Effective tax rate was 35.6%, close to statutory. Forward-looking, margin gains appear driven by cost control and scale; sustainability hinges on housing demand, land pipeline turnover, and refinancing conditions. The weak ROIC at 3.9% highlights capital efficiency constraints; improving asset turns and margin mix will be critical. Overall, earnings momentum is positive, but cash conversion and balance sheet leverage are the key watch items into FY2026.

Profitability Analysis

DuPont decomposition: ROE 7.2% = Net profit margin 1.6% × Asset turnover 0.827 × Financial leverage 5.36x. The most significant driver YoY is net profit margin expansion: operating income +44.9% on revenue +5.4% pushed operating margin to 3.34% (from ~2.43%), and net margin to 1.64% (from ~1.11%). Business drivers likely include improved project mix, cost containment in SG&A, and better pricing/turn times on completed units; non-operating drag from interest remains material (non-op expenses 5.92 vs income 1.88). Asset turnover at 0.827 reflects a balance sheet heavy in development assets; without disclosed inventory details, turns appear stable to slightly subdued. Leverage at 5.36x is providing most of the ROE lift, not underlying operating returns. Sustainability: margin gains may persist near term if backlog/pricing holds and SG&A remains disciplined, but they are sensitive to demand and construction cost volatility; leverage-driven ROE is not a durable lever if rates rise. Flags: SG&A absolute level (54.71) grew slower than revenue (implied, given OI growth), indicating positive operating leverage; however, interest costs (5.26) constrain pass-through to net.

Growth Assessment

Top-line growth of 5.4% appears organic, likely driven by greater unit handovers/closings; no M&A effects indicated. Profit growth outpaced sales (OI +44.9%, NI +54.8%), signaling efficiency gains and favorable mix. Non-operating balance remains a headwind, with interest expense outweighing non-operating income, tempering ordinary income. The improvement in operating margin to 3.34% suggests better project-level profitability and SG&A control. However, cash conversion deteriorated, with OCF deeply negative, implying increased land acquisition or work-in-process buildup that will require timely sell-through. Outlook hinges on inventory monetization, cost inflation containment, and access to credit; given ROIC at 3.9%, incremental growth must be capital-disciplined to avoid value dilution. Near-term earnings trajectory is positive if pipeline conversion continues, but downside exists if sales velocity slows or financing costs rise.

Financial Health

Liquidity: Current ratio 150.8% and quick ratio 150.8% indicate adequate short-term coverage, though inventories were unreported; positive working capital of 145.05 supports near-term obligations. Solvency: Debt-to-equity 4.36x is high (warning threshold >2.0), and Debt/EBITDA ~14.1x underscores leverage intensity. Interest coverage at 2.48x is below a comfortable >5x benchmark, though above critical <2x; rising rates could pressure coverage. Maturity profile: Short-term loans of 133.66 are sizable relative to cash (99.33) and accounts receivable (0.82), implying rollover risk; that said, current assets of 430.46 provide cushion pending inventory turnover. No off-balance sheet obligations were disclosed in the data; absence of disclosure is not confirmation of absence. Equity base is 88.22, with retained earnings 82.40 supporting book value per share of ~2,660 yen.

Cash Flow Quality

OCF/Net income at -7.28x is a material quality concern (threshold <0.8 flagged), indicating earnings not yet realized in cash, likely due to land and WIP accumulation or slower collections. Free cash flow was -67.87, reflecting OCF -46.49 and capex -22.56; FCF does not cover dividends or debt service in this period. Working capital dynamics are the primary swing factor; the scale of negative OCF suggests aggressive growth investment that must convert to sales. No clear signs of earnings management are evident from the provided figures, but negative OCF concurrent with rising earnings elevates the need to monitor inventory aging/turns and advance receipts. Financing inflow of 52.62 largely backstopped cash burn, increasing reliance on external funding.

Dividend Sustainability

Annual DPS was unreported; the calculated payout ratio is 11.9%, while the reported DOE is 0.0% (zeros reflect unreported items). Given negative FCF (-67.87) and high leverage, dividend coverage from internal cash generation is insufficient this year (FCF coverage -88.98x). If dividends were modest versus earnings, they could be supported by operating cash in future periods contingent on inventory monetization; currently, payment would be reliant on financing or balance sheet cash. Policy outlook is uncertain from the data; with ROIC at 3.9% and elevated debt, priority may need to skew to deleveraging unless cash conversion improves.

Risk Assessment

Business Risks:

• Housing/real estate demand cyclicality affecting unit handover volume and pricing
• Construction cost inflation compressing project margins
• Land acquisition and pipeline risk leading to inventory aging
• Project concentration risk in specific regions/segments (not disclosed but typical for local developers)

Financial Risks:

• High leverage: D/E 4.36x and Debt/EBITDA ~14.1x
• Refinancing risk from short-term loans of 133.66 versus cash 99.33
• Interest rate risk pressuring interest coverage (2.48x) and net profit
• Negative operating cash flow requiring continued external financing

Key Concerns:

• OCF/Net income at -7.28x indicates poor cash conversion
• ROIC at 3.9% below 5% warning threshold, implying value dilution risk if growth is debt-financed
• Non-operating expenses (interest) exceeding non-operating income, capping ordinary income growth
• Limited disclosure on inventories and SG&A line items reduces transparency on cost and working capital drivers

Investment Implications

Key Takeaways:

• Strong earnings momentum: OI +44.9% YoY, NI +54.8% YoY on modest sales growth
• Operating margin expanded ~91 bps to 3.34%; net margin up ~53 bps to 1.64%
• Cash conversion weak with OCF -46.49 and FCF -67.87, financed by debt inflows
• Leverage elevated (D/E 4.36x; Debt/EBITDA ~14.1x) and interest burden meaningful (5.26)
• ROE at 7.2% supported largely by leverage; underlying ROIC 3.9% is low

Metrics to Watch:

• Inventory turnover and land bank metrics (ageing, turnover days) when disclosed
• Pre-sales/backlog and cancellation rates
• Interest coverage trend and average borrowing rate
• Operating cash flow trajectory versus net income
• Gross margin by project/segment and SG&A efficiency
• Debt maturity profile and short-term loan rollover

Relative Positioning: Within Japan’s small-cap residential developers, the company shows above-peer earnings growth and operating leverage, but below-peer capital efficiency and higher-than-average leverage, leaving it more sensitive to financing conditions and sales velocity.

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
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