A.D.Works Group Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥52.28B
• Operating Income: ¥4.16B
• Net Income: ¥1.10B
• EPS: ¥47.92

Income Statement

Balance Sheet

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

AD Works Group (29820) reported strong FY2025 Q3 consolidated results under JGAAP, with revenue of ¥52.278 billion, up 54.7% year over year, demonstrating robust top-line momentum. Operating income increased 81.5% YoY to ¥4.161 billion, implying meaningful operating leverage as fixed costs were spread over a larger revenue base. The operating margin was approximately 8.0% (¥4.161b / ¥52.278b), up significantly versus the prior year, reflecting improved project mix, scale benefits, and/or disciplined cost control. Gross profit was ¥6.177 billion, yielding a gross margin of 11.8%, which, given the company’s real estate-related profile, is consistent with a trading/asset turnover-driven model rather than a high-margin one. Ordinary income was ¥1.775 billion, notably below operating income due to sizable non-operating burdens, including ¥430 million of interest expense and other non-operating items. Net income reached ¥2.316 billion (+109.4% YoY), exceeding ordinary income, suggesting the presence of net extraordinary gains and/or equity-method gains that more than offset non-operating headwinds. Based on net income of ¥2.316 billion and reported EPS of ¥47.92, the implied share count is roughly 48.3 million shares (derived), as share data were not disclosed in the provided extract. The DuPont decomposition shows net margin of 4.43%, asset turnover of 0.802x, and financial leverage of 3.22x, leading to an ROE of 11.42%, consistent with the reported figure. Liquidity appears strong with a current ratio of 4.81x and working capital of ¥38.566 billion, supported by substantial current assets of ¥48.702 billion. Balance sheet leverage by book is moderate for a real estate operator: total liabilities of ¥41.049 billion versus total equity of ¥20.277 billion imply assets/equity of 3.22x and a book equity ratio near 31.1% (recalculated from disclosed totals). Interest coverage is healthy at 9.7x (operating income / interest expense), suggesting manageable debt service capacity under current earnings. The effective tax rate based on disclosed numbers is approximately 22.7% (¥681.7m taxes on ~¥2.998b pretax), though a 0.0% effective tax rate shown in the calculated metrics appears to reflect data limitations rather than economics. Cash flow statements (operating, investing, financing) were not disclosed in this dataset; as a result, OCF/NI and FCF figures appear as zero and should not be interpreted as actual cash outcomes. Dividend per share is reported as zero with a 0% payout ratio, indicating earnings retention amid growth and leverage considerations. Overall, profitability and ROE improved meaningfully on the back of revenue scale-up and cost discipline, while non-operating items, particularly interest costs, continue to be the main drag from operating to ordinary profit. The outlook depends on sustaining transaction velocity, managing financing costs, and preserving margin quality as the company scales.

Profitability Analysis

ROE_decomposition: ROE 11.42% = Net margin 4.43% × Asset turnover 0.802 × Financial leverage 3.22. The improvement in operating income vs. revenue indicates margin expansion, which is the key driver of ROE alongside moderate leverage. margin_quality: Gross margin is 11.8% (¥6.177b on ¥52.278b sales), typical for a real estate trading/solutions model. Operating margin is ~8.0% (¥4.161b), significantly higher YoY given operating income growth of +81.5% on +54.7% revenue, suggesting better mix and cost control. Net margin at 4.43% is compressed by non-operating costs, mainly ¥430m interest expense and other items, partially offset by extraordinary gains that lifted net income above ordinary income. operating_leverage: Revenue +54.7% YoY versus operating income +81.5% YoY implies positive operating leverage. Fixed cost absorption improved, and incremental margins on additional revenue appeared healthy. Monitoring whether this leverage persists as volumes normalize will be important.

Growth Assessment

revenue_sustainability: Top-line growth of +54.7% YoY to ¥52.278b indicates strong deal execution and/or favorable market conditions. Given the transaction-driven nature of the business, sustainability hinges on pipeline health, inventory (real estate for sale) turnover, and market liquidity. profit_quality: Operating profit outpaced sales growth, signaling improved efficiency. However, ordinary income lagged operating income due to non-operating expenses; sustaining net profit growth will require stable financing costs and controlled non-operating volatility. The effective tax burden appears around 23%, consistent with normalized taxation. outlook: With ROE at 11.42% and interest coverage of 9.7x, the company is positioned to continue scaling if market conditions remain supportive. Key dependencies include real estate transaction volumes, funding availability and cost, and maintaining gross margin in the low-teens. Extraordinary gains that inflated net income this period may not be recurring.

Financial Health

liquidity: Current assets of ¥48.702b versus current liabilities of ¥10.136b yield a current ratio of 4.81x and working capital of ¥38.566b, indicating strong short-term liquidity. Quick ratio is the same due to undisclosed inventories in this extract. solvency: Total assets ¥65.218b and total equity ¥20.277b imply an equity ratio of approximately 31.1% (derived) and financial leverage of 3.22x. Interest coverage of 9.7x suggests comfortable serviceability at current earnings levels. capital_structure: Debt-to-equity is 2.02x (provided), consistent with a leveraged but typical balance sheet for an asset-driven, real-estate-oriented model. The ¥430m interest expense highlights sensitivity to borrowing costs; continued rate stability is important.

Cash Flow Quality

earnings_quality: Given the absence of disclosed cash flow statements in this dataset, we cannot reconcile earnings to operating cash flow. Net income (¥2.316b) exceeds ordinary income (¥1.775b), implying reliance on non-recurring or non-operating items this period; underlying cash conversion requires verification. FCF_analysis: Free cash flow is not disclosed; the 0 figure in the dataset reflects missing data, not actual zero. For a transaction-led real estate model, working capital swings (acquisition and sale of properties) can drive volatile FCF even when earnings are strong. working_capital: Working capital stands at ¥38.566b, supporting deal execution. Inventory balances are not disclosed in this extract; monitoring real estate for sale and receivables turnover will be critical to assess cash conversion.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is reported as ¥0.00 with a 0% payout ratio. Given net income of ¥2.316b and a growth-focused model with leverage, retaining earnings appears consistent with balance sheet and growth priorities. FCF_coverage: FCF coverage cannot be assessed from this dataset. The displayed 0.00x is a placeholder due to missing cash flow disclosure. policy_outlook: With ROE at 11.42% and solid growth, the company may prioritize reinvestment and balance sheet resilience over near-term cash returns. Future distributions will likely depend on sustained profitability, visibility on cash generation, and leverage targets.

Risk Assessment

Business Risks:

• Transaction timing risk affecting revenue recognition and quarterly volatility
• Real estate market cyclicality impacting valuations, turnover, and margins
• Concentration risk in specific asset types or geographies (not disclosed here)
• Execution risk in sourcing, value-add, and disposition strategies
• Dependence on continued pipeline replenishment for sustained growth

Financial Risks:

• Interest rate and refinancing risk given ¥430m interest expense and 2.02x D/E
• Liquidity risk from potential working capital spikes tied to property acquisitions
• Non-operating income/loss volatility impacting ordinary and net income
• Potential covenant constraints as leverage scales with growth
• Tax rate variability vs. modeled ~23% effective rate

Key Concerns:

• Ordinary income materially below operating income due to non-operating burdens
• Lack of disclosed cash flow data prevents assessment of cash conversion and FCF
• Extraordinary items likely influenced net income, raising earnings quality questions
• Inventory (real estate for sale) not itemized in this extract, obscuring turnover analysis

Investment Implications

Key Takeaways:

• Strong revenue growth (+54.7% YoY) with outsized operating profit growth (+81.5% YoY) indicates positive operating leverage
• Operating margin ~8.0% on an 11.8% gross margin shows improved efficiency and mix
• ROE at 11.42% is supported by moderate leverage (3.22x assets/equity) and rising margins
• Ordinary income dragged by interest and other non-operating items; interest coverage remains healthy at 9.7x
• Balance sheet liquidity is robust (current ratio 4.81x; working capital ¥38.6b), supporting execution
• Cash flow data are not disclosed here; true OCF/FCF and earnings quality need validation
• Dividend remains suspended (DPS ¥0), aligning with reinvestment and leverage management

Metrics to Watch:

• Gross and operating margins (targeting sustainability of ~12% and ~8% respectively)
• Interest expense run-rate and average borrowing cost
• Real estate for sale/inventory levels and turnover (days held)
• Operating cash flow and free cash flow consistency through the cycle
• Ordinary income vs. operating income gap (size and drivers)
• Leverage metrics (D/E, equity ratio) and interest coverage
• ROE trajectory and asset turnover stability (~0.8x)

Relative Positioning: Within Japan’s real estate trading/solution peers, AD Works Group exhibits above-peer top-line growth and improved operating efficiency, with leverage and liquidity within a typical range; sustainability will hinge on maintaining pipeline velocity and managing financing costs amid a potentially shifting rate environment.

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