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

Daiei Sangyo (2974) delivered solid topline and strong profit leverage in FY2025 Q4 (JGAAP, consolidated), with revenue up 5.4% YoY to ¥39.1bn and operating income up 44.9% YoY to ¥1.305bn. Gross profit reached ¥6.369bn, implying a gross margin of 16.3%, while operating margin expanded to roughly 3.3%, evidencing effective cost control and operating leverage. Ordinary income was ¥0.901bn, reflecting sizable non-operating costs, notably interest expense of ¥0.407bn, which remains a material drag on bottom-line conversion. Net income increased 54.8% YoY to ¥0.639bn, lifting net margin to 1.63% despite higher financing costs. DuPont analysis indicates ROE of 7.24% driven by modest margin (1.63%), reasonable asset turnover (0.827x), and high financial leverage (assets/equity of 5.36x). Balance sheet scale is ¥47.3bn of assets and ¥33.4bn of liabilities, implying equity of ¥8.822bn and an implied equity ratio near the high teens (the reported 0% equity ratio is not disclosed; do not treat as zero). Liquidity appears adequate with a current ratio of 154%, supported by ¥39.3bn in current assets versus ¥25.5bn in current liabilities; however, quick ratio parity with current ratio reflects unreported inventories, which are typically significant for a real estate developer and would lower true quick liquidity. Cash flow quality is weak this period: operating cash flow was negative ¥4.649bn and free cash flow was negative ¥6.787bn, primarily due to working capital build consistent with project additions/land banking, typical in this industry. Financing cash inflow of ¥5.262bn indicates reliance on external funding to support expansion and inventory accumulation. Interest coverage of 3.2x is acceptable but leaves limited cushion against interest rate or volume shocks. Depreciation and amortization of ¥0.296bn and EBITDA of ¥1.601bn (4.1% margin) indicate relatively asset-light fixed assets versus large inventory assets. The effective tax rate shown as 0% is clearly an artifact; using income tax of ¥0.231bn and ordinary income proxy implies a mid-20s tax rate in practice. Dividend information appears undisclosed (DPS and payout presented as zero should not be interpreted as actual zero); with negative FCF, near-term cash returns likely depend on financing and the timing of closings. Overall, earnings momentum and ROE improved, but cash conversion was weak due to working capital, and leverage/interest burden remain key watchpoints. Data limitations exist (notably inventories, cash balance, share count, and equity ratio are undisclosed), so interpretations rely on standard sector dynamics.

Profitability Analysis

ROE decomposition: Net profit margin 1.63% × asset turnover 0.827 × financial leverage 5.36 = ROE 7.24%, consistent with the reported figure. Operating margin improved to about 3.3% (¥1.305bn/¥39.093bn), significantly outpacing revenue growth (+5.4% vs +44.9% in OP), indicating strong operating leverage from SG&A efficiency and/or better project mix. Gross margin at 16.3% suggests disciplined procurement/land sourcing and adequate pricing, though it remains sensitive to input costs and sales mix. EBITDA margin of 4.1% and interest expense of ¥0.407bn yield interest coverage of 3.2x, adequate but not robust; ordinary income was pulled down by financing costs. Margin quality: the step-up in operating profit versus revenue implies improved fixed-cost absorption; sustainability will hinge on maintaining sales velocity and controlling construction/land costs. Non-operating items remain a headwind through interest; with leverage high, incremental margin gains may not fully flow to net margin without refinancing benefits. Overall profitability improved YoY, but structural net margin remains thin, typical for regional residential developers.

Growth Assessment

Revenue grew 5.4% YoY to ¥39.1bn, consistent with steady demand and likely higher handovers/closings. Operating income grew 44.9% YoY to ¥1.305bn, reflecting operating leverage and possibly favorable project mix. Net income rose 54.8% YoY to ¥0.639bn despite higher interest costs, highlighting execution improvements. Sustainability: growth appears supported by inventory build (negative OCF), suggesting a pipeline for future deliveries; however, it increases exposure to market cycles and financing conditions. Profit quality: improvement is primarily operational (cost/mix), not one-off; however, thin net margins and interest burden temper durability. Outlook hinges on sales absorption, construction cost trends, mortgage affordability for buyers, and the cadence of project deliveries. With asset turnover at 0.827x, faster sell-through could lift both turnover and margin via lower holding costs; conversely, slower sales would pressure both.

Financial Health

Liquidity: current assets ¥39.258bn vs current liabilities ¥25.488bn yields a current ratio of 154%, but the quick ratio equal to current ratio reflects unreported inventories; in reality, the quick ratio is lower and liquidity relies on inventory monetization. Working capital is ¥13.77bn. Solvency: total liabilities ¥33.420bn vs equity ¥8.822bn implies a liabilities-to-equity ratio of 3.79x and an implied equity ratio around 18–19% (reported 0% is undisclosed). Financial leverage (assets/equity) is 5.36x, high but sector-typical. Interest expense of ¥0.407bn against EBITDA of ¥1.601bn produces 3.2x coverage, leaving moderate headroom. The capital structure is likely dominated by interest-bearing debt tied to project financing; refinancing/rollover risk and rate sensitivity are notable. Asset base is largely current (¥39.3bn), consistent with inventory-heavy model; solvency remains adequate provided turnover continues.

Cash Flow Quality

Earnings quality is mixed: accounting profits improved, but cash conversion was poor. Operating cash flow was -¥4.649bn versus net income of ¥0.639bn, an OCF/NI ratio of -7.28, indicating heavy working capital outflows (likely land acquisition and construction progress). Free cash flow was -¥6.787bn after -¥2.138bn investing CF, pointing to a growth/investment phase and/or timing of closings. Negative OCF in developers can normalize as projects complete; however, sustained negatives would elevate funding risk. Working capital: inventories (undisclosed) are the primary driver; receivables/payables dynamics are not provided. Financing CF of +¥5.262bn likely reflects increased borrowings to fund WIP/inventory; reliance on external funding is high until cash is realized through sales. Depreciation of ¥0.296bn is modest; EBITDA to OCF gap underscores working capital intensity rather than accrual issues.

Dividend Sustainability

Dividend data (DPS, payout) are shown as zero but should be treated as undisclosed. With EPS of ¥192.84 and ROE of 7.24%, capacity for dividends would depend on the timing of cash inflows, leverage covenants, and inventory cycle. Current period FCF is negative (¥-6.787bn), providing no coverage for cash dividends from internal cash generation. Any dividends would require balance sheet capacity and/or depend on future project cash releases. Policy outlook cannot be inferred from the provided data; many developers target stable or opportunistic payouts aligned with cash flow timing. Until OCF normalizes, sustaining a higher payout ratio would be challenging; monitoring presales/closings and net debt trajectory is key.

Risk Assessment

Business Risks:

• Housing market cyclicality affecting sales velocity, pricing, and cancellations
• Construction cost inflation and subcontractor availability impacting gross margins
• Land acquisition timing and competition for sites affecting future pipeline
• Project concentration and regional exposure (likely Kyushu) leading to localized demand risk
• Regulatory and zoning changes impacting development timelines

Financial Risks:

• High leverage (assets/equity 5.36x; liabilities/equity 3.79x) and material interest burden (¥0.407bn)
• Negative operating and free cash flow necessitating continued external financing
• Interest rate sensitivity with only moderate interest coverage (3.2x)
• Refinancing and liquidity risk if sales slow or credit tightens
• Working capital volatility due to inventory build and delivery timing

Key Concerns:

• Sustainability of margin gains amid input cost and pricing pressures
• Conversion of accounting profits to cash given large OCF shortfall
• Exposure to rate environment and borrowing costs on project loans

Investment Implications

Key Takeaways:

• Strong operating leverage: OP +44.9% on revenue +5.4%, operating margin ~3.3%
• ROE 7.24% supported by high leverage (assets/equity 5.36x) despite thin net margin (1.63%)
• Cash flow weak: OCF -¥4.649bn and FCF -¥6.787bn, driven by working capital/investment
• Adequate near-term liquidity (current ratio 154%), but true quick liquidity lower due to inventories
• Interest burden meaningful (¥0.407bn); interest coverage 3.2x warrants monitoring

Metrics to Watch:

• Presales/contracted backlog and cancellation rates
• Inventory (land bank and work-in-progress) levels and turnover
• Gross margin per project and SG&A ratio
• Net debt and average borrowing cost; interest coverage trend
• OCF to net income ratio and timing of major project completions
• Equity ratio (true) and refinancing schedule

Relative Positioning: Performance and balance sheet characteristics are consistent with a mid-sized Japanese residential developer: improving operating efficiency and ROE, but reliant on inventory monetization and debt funding, with profitability and leverage broadly in line with sector norms.

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