Choei Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.25B
• Operating Income: ¥910M
• Net Income: ¥473M
• EPS: ¥107.32

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

For FY2026 Q2 (単体, JGAAP), 株式会社長栄 delivered 7.8% year-on-year revenue growth to ¥5,255 million, but operating income declined 13.4% to ¥910 million, indicating negative operating leverage and/or mix and cost pressures. Gross profit of ¥1,708 million implies a solid gross margin of 32.5%, yet the operating margin fell to 17.3%, down from the prior year period (exact prior margin not disclosed). Ordinary income of ¥696 million was notably below operating income, reflecting a sizeable non-operating burden driven largely by interest expense of ¥273 million. Net income fell 24.1% YoY to ¥473 million, with a net margin of 9.0%, highlighting compression as financing costs and taxes weighed on the bottom line. Depreciation and amortization were substantial at ¥747 million (14.2% of sales), consistent with an asset-heavy, leasing/real-estate-oriented model. EBITDA of ¥1,657 million (31.5% margin) shows healthy pre-interest cash earnings capacity, but leverage and depreciation temper earnings translation to net income. DuPont analysis shows a low asset turnover of 0.076 and high financial leverage of 5.85x driving a modest ROE of 4.02%, underscoring the capital-intensive nature of the business. ROA is approximately 0.7%, which is typical for heavily depreciated asset bases with low turnover. Liquidity appears strong with a current ratio of about 3.0x and working capital of ¥8,247 million, though the quick ratio equals the current ratio because inventories are unreported (0). The balance sheet exhibits high leverage, with total liabilities of ¥54,753 million versus equity of ¥11,754 million (D/E 4.66x) and an estimated equity ratio around 17.1% despite a reported 0.0% placeholder. Interest coverage is moderate at 3.3x on an EBIT basis, leaving limited buffer if rates rise or profits soften further. Operating cash flow of ¥411 million equates to 0.87x of net income, a reasonable but sub-1.0x conversion that suggests some working capital drag; however, incomplete disclosure of investing cash flows and cash balance constrains free cash flow analysis. Dividend payout is zero this period (DPS 0, payout 0%), implying earnings retention for balance sheet resilience and reinvestment given the leverage profile. Overall, the company demonstrates resilient revenue growth and solid gross/EBITDA margins, but profitability is pressured by financing costs and depreciation, leading to subdued ROE and ROA. Data gaps (investing CF, cash and equivalents, reported equity ratio 0%, and per-share book value) limit precision, but available metrics point to a stable yet leveraged profile where cost of debt and capital intensity are the key earnings governors.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 9.0% (NI ¥473m / Revenue ¥5,255m)
• asset_turnover: 0.076x (Revenue ¥5,255m / Assets ¥68,717m)
• financial_leverage: 5.85x (Assets ¥68,717m / Equity ¥11,754m)
• calculated_ROE: 4.02% (matches reported 4.02%)
• ROA_estimate: 0.69% (NI ¥473m / Assets ¥68,717m) margin_quality:
• gross_margin: 32.5% (¥1,708m GP / ¥5,255m sales)
• operating_margin: 17.3% (¥910m / ¥5,255m) down YoY (OI -13.4% YoY vs revenue +7.8%)
• ordinary_income_margin: 13.3% (¥696m / ¥5,255m)
• net_margin: 9.0%
• EBITDA_margin: 31.5% (¥1,657m EBITDA / ¥5,255m)
• SG&A_intensity: Approx. 15.2% of sales (¥798m = GP - OI), indicating elevated overhead or increased expense investment operating_leverage: Negative in this half: revenue +7.8% YoY while operating income -13.4% YoY suggests cost escalation, mix shift to lower margin revenue, or higher fixed costs (including repair/maintenance) diluting incremental margins.

Growth Assessment

revenue_sustainability: Top-line grew 7.8% YoY to ¥5.26bn, a solid pace for an asset-heavy rental/real estate operator; sustainability hinges on occupancy rates, rent revisions, and pipeline of managed/leased units. profit_quality: EBITDA margin is robust (31.5%), but depreciation (¥747m, 14.2% of sales) and interest (¥273m) materially erode net income, indicating heavy capital intensity and leverage-driven profit dilution. outlook: Assuming stable occupancy and controlled repairs/SG&A, margins could stabilize; however, elevated interest burden and low asset turnover limit bottom-line growth conversion. Focus on rent growth, cost discipline, and refinancing terms will be key to restoring operating leverage.

Financial Health

liquidity:

• current_ratio: 299.8% (CA ¥12,375m / CL ¥4,128m)
• quick_ratio: 299.8% (inventories unreported)
• working_capital: ¥8,247m
• commentary: Short-term liquidity appears strong with ample cushion over near-term obligations. solvency:
• debt_to_equity: 4.66x (Liabilities ¥54,753m / Equity ¥11,754m)
• equity_ratio_est: ≈17.1% (Equity / Assets), reported 0.0% likely placeholder
• interest_coverage: 3.3x (EBIT ¥910m / Interest ¥273m); EBITDA/Interest ≈6.1x provides additional buffer pre-depreciation.
• commentary: High leverage constrains financial flexibility; maintaining interest coverage >3x is crucial amid rate risk. capital_structure: Liabilities comprise ~79.7% of assets; equity ~17.1%. Balance sheet is typical for asset-heavy leasing but leaves limited room for shock absorption without earnings retention.

Cash Flow Quality

earnings_quality: OCF/NI at 0.87 indicates decent but sub-1.0x conversion, implying some working capital consumption or timing effects. FCF_analysis: Investing CF not disclosed (0 placeholder). Without capex/acquisition/disposal data, true FCF cannot be determined; reported FCF of 0 should be treated as unavailable rather than zero. working_capital: Positive WC of ¥8,247m supports liquidity; the OCF shortfall versus NI hints at receivables or other current asset build during the period.

Dividend Sustainability

payout_ratio_assessment: DPS 0 and payout 0% imply full earnings retention; no strain on cash flows from dividends this period. FCF_coverage: Not assessable due to missing investing CF; the reported 0.00x is a placeholder, not an economic measure. policy_outlook: Given high leverage and moderate interest coverage, retaining earnings to strengthen the balance sheet and fund maintenance capex is prudent; any future dividend resumption would depend on sustained OCF > NI and stable refinancing conditions.

Risk Assessment

Business Risks:

• Occupancy and rent level volatility affecting rental income
• Property repair and maintenance cost inflation impacting margins
• Asset concentration and geographic concentration risks
• Regulatory changes in real estate and tenancy laws
• Natural disaster risk to properties (earthquake/typhoon) requiring capex and insurance considerations
• Project pipeline and lease-up risk for new properties or units under management

Financial Risks:

• High leverage (D/E 4.66x) and dependency on debt funding
• Interest rate increases reducing interest coverage (currently 3.3x EBIT-based)
• Refinancing risk on maturing borrowings
• Potential covenant constraints limiting operational flexibility
• Cash flow volatility from working capital movements

Key Concerns:

• Negative operating leverage despite revenue growth
• Large non-operating expense burden from interest costs
• Low asset turnover structurally capping ROE/ROA
• Data gaps on investing cash flows and cash balance limiting FCF visibility

Investment Implications

Key Takeaways:

• Revenue growth (+7.8% YoY) did not translate to profit growth; operating income -13.4% YoY.
• Healthy gross (32.5%) and EBITDA (31.5%) margins, but high depreciation and interest compress net margin to 9.0%.
• Leverage is elevated (D/E 4.66x; equity ratio ~17%), with moderate interest coverage (3.3x EBIT).
• OCF is positive (¥411m) but below NI (0.87x), suggesting working capital drag.
• Dividend suspended (DPS 0), consistent with earnings retention amid leverage.
• ROE modest at 4.02% due to low asset turnover (0.076x) and capital intensity.

Metrics to Watch:

• Occupancy rate and average rent growth
• Same-asset NOI and repair/maintenance expense trends
• Interest coverage (EBIT and EBITDA basis) and average borrowing rate
• Equity ratio and net debt metrics (when cash disclosed)
• OCF/NI conversion and working capital days
• Capex and investing CF to gauge true FCF and sustainability
• SG&A ratio and operating margin trajectory

Relative Positioning: Within Japanese real estate/leasing operators, the company exhibits typical capital intensity and low asset turnover, with higher leverage and moderate interest coverage; profitability at the EBITDA level is solid, but bottom-line returns (ROE/ROA) are restrained by depreciation and financing costs.

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