Hulic Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

Although substantial revenue growth was secured through the expansion of the Real Estate Business, the widening losses in Other Businesses and increased interest expenses restrained profit growth, resulting in lower profit margins at each stage compared with the previous year. Revenue increased to ¥416.60B (+38.8% YoY), Operating Income to ¥80.31B (+7.0%), Ordinary Income to ¥70.86B (+6.4%), and interim Net Income attributable to owners of the parent to ¥49.98B (+11.3%), representing increases in both revenue and profit across all measures. The primary drivers of revenue growth were expanded property sales and rental income in the Real Estate Business. A key characteristic of these results is that the rate of profit growth fell significantly short of the revenue growth rate.

Factors Affecting Performance

【Revenue】Led by the Real Estate Business, Revenue increased substantially by 38.8% YoY to ¥416.60B. Revenue from the Real Estate Business was ¥346.12B, accounting for 83.1% of consolidated revenue, and increased 36.9%, making it the central driver of growth. Other Businesses not included in the reportable segments expanded sharply by 110.6% to ¥37.05B, although profitability deteriorated as described below. The Hotel and Ryokan Business secured revenue growth of 13.0% to ¥31.37B, while the Insurance Agency Business increased 4.7% to ¥2.06B.

【Profit and Loss】Operating Income increased 7.0% to ¥80.31B, Ordinary Income increased 6.4% to ¥70.86B, and Net Income attributable to owners of the parent increased 11.3% to ¥49.98B. However, all profit growth rates were significantly below the revenue growth rate of +38.8%. Consequently, the Operating Profit Margin declined to 19.3% from 25.0% in the previous year, a decrease of 5.7pt, while the Ordinary Income Margin declined to 17.0% from 22.2%, a decrease of 5.2pt. The primary factors were the expansion of the operating loss in Other Businesses from ¥0.05B in the previous year to ¥2.46B, an increase in SG&A expenses of 34.6% to ¥60.67B, and an increase in interest expenses to ¥14.25B, up 50.8% from ¥9.45B in the previous year. The ¥9.45B reduction from Operating Income to Ordinary Income was primarily attributable to the increase in interest expenses. Extraordinary income of ¥5.55B, including a ¥4.67B gain on the sale of investment securities, was offset by extraordinary losses of ¥4.48B, including ¥1.80B in impairment losses, resulting in only a temporary net uplift of ¥1.07B. In conclusion, although the Company achieved increases in both revenue and profit, profit growth has failed to keep pace with revenue growth and margins are contracting.

Segment Analysis

The Real Estate Business is the core business, generating Operating Income of ¥87.25B (+9.5%) at a margin of 25.2%, exceeding consolidated Operating Income of ¥80.31B. However, profit growth was limited to +9.5% compared with revenue growth of +36.9%, and the segment’s standalone margin declined from approximately the 31% range in the previous year to 25.2%. Other Businesses outside the reportable segments—including construction contracting, children’s education, bowling equipment-related operations, and food businesses for senior care facilities—expanded sharply, with revenue increasing 110.6% to ¥37.05B. However, the operating loss widened from ¥0.05B in the previous year to ¥2.46B, making start-up costs for new businesses a factor diluting the consolidated profit margin. The Hotel and Ryokan Business recorded revenue of ¥31.37B (+13.0%), Operating Income of ¥2.70B (+1.8%), and a profit margin of 8.6%, a slight decline from 9.5% in the previous year. The Insurance Agency Business generated revenue of ¥2.06B (+4.7%) and Operating Income of ¥0.66B (+18.9%), with a high profit margin of 32.2%; however, its scale is small and its impact on the Company as a whole is limited. Against total segment profit of ¥90.62B, compared with ¥82.92B in the previous year, adjustments for corporate expenses and other items were nearly flat at negative ¥7.84B, compared with negative ¥7.82B in the previous year. Accordingly, the primary causes of the decline in the consolidated profit margin were lower profitability in the Real Estate Business and increased losses in Other Businesses.

Key Financial Indicators

【Profitability】The Operating Profit Margin was 19.3%, down 5.7pt from 25.0% in the previous year, while the Net Profit Margin attributable to owners of the parent also declined to 12.0% from 15.0%. Profit margins are contracting relative to revenue growth, indicating increasing dilution in terms of the quality of revenue growth.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥155.75B, approximately 3.1 times Net Income attributable to owners of the parent of ¥49.98B, indicating sound cash-generation capacity underpinning earnings.【Investment Efficiency】ROE was 5.2% on an interim-period basis. Total asset turnover was approximately 11.7% for the six-month period, a level consistent with the asset-intensive real estate rental model.【Financial Soundness】The Equity Ratio was 27.3%, broadly unchanged from 26.8% in the previous year (¥939.18B/¥3,506.07B). Total assets increased to ¥3,592.51B and net assets to ¥980.35B, while the Equity Ratio was maintained relative to the pace of asset expansion.

Cash Flow Analysis

Operating Cash Flow was ¥155.75B, up 230.0% from ¥47.195B in the previous year, with the decrease in inventories contributing ¥56.91B as an upward factor. Investing Cash Flow was negative ¥200.17B, reflecting continued investment in development projects, primarily capital expenditures of ¥137.14B. Financing Cash Flow was positive ¥69.51B, with long-term financing complementing investment activities. As a result, Free Cash Flow (Operating Cash Flow + Investing Cash Flow) was negative ¥44.41B. The Company’s investment activities are being funded through a combination of robust Operating Cash Flow and financing via long-term liabilities. Cash and deposits increased to ¥156.20B from ¥131.08B in the previous year.

Quality of Earnings

Non-operating income was ¥7.44B, including ¥2.55B in dividend income, and was modest at 1.8% of Revenue. Meanwhile, non-operating expenses were ¥16.89B, primarily comprising ¥14.25B in interest expenses, which compressed earnings as a recurring interest burden. Extraordinary income of ¥5.55B, including a ¥4.67B gain on the sale of investment securities, was offset by extraordinary losses of ¥4.48B, including ¥1.80B in impairment losses, resulting in a net gain of ¥1.07B. This was a temporary factor with limited impact on recurring earning power. Comprehensive income was ¥60.66B, including ¥59.93B attributable to owners of the parent. The ¥9.95B difference from Net Income attributable to owners of the parent of ¥49.98B was attributable to balance-sheet valuation factors, including a ¥5.13B increase in valuation difference on securities and a ¥4.58B increase in foreign currency translation adjustments, and should be distinguished from recurring income reflecting the underlying business. Given that Operating Cash Flow was 3.1 times net income, the divergence between accrual and cash accounting (accruals) was limited, and earnings quality can be assessed as sound.

Earnings Forecast and Guidance

Progress toward the full-year Operating Income forecast of ¥210.00B was 38.2%, while progress toward the Ordinary Income forecast of ¥185.00B was 38.3%; both were below the 50% benchmark typically expected at the interim period. Against the EPS forecast of ¥159.34, interim actual EPS was ¥65.82, equivalent to a progress rate of 41.3%. No revisions were made to the earnings or dividend forecasts. The plan appears to assume a concentration of real estate handovers and sales recognition, as well as peak-season earnings in the hotel business, during the second half. The progress rate below 50% must be interpreted in light of the seasonality specific to real estate developers, whose earnings recognition cycle is weighted toward the second half.

Shareholder Returns

The interim dividend was ¥33.5 per share, an increase of 17.5% from ¥28.5 in the same period of the previous year. The Payout Ratio is approximately 51%, calculated by dividing the total interim dividend (¥33.5 × average number of shares outstanding during the period) by Net Income attributable to owners of the parent of ¥49.98B. Share repurchases were modest at ¥0.70B, and the Total Return Ratio, including dividends, remained approximately at the same level as the Payout Ratio. Although Free Cash Flow for the period was negative due to front-loaded development investment, the level of Operating Cash Flow indicates that securing funds for dividends remains feasible.

Risk Factors

1. Business concentration risk: The Real Estate Business accounts for 83.1% of Revenue (¥346.12B/¥416.60B), and the majority of Operating Income also depends on this business. The Company has a high level of dependence on a single segment, and changes in the supply-demand environment for this business could have a significant impact on consolidated performance.

2. Risk of increased interest burden: Interest expenses were ¥14.25B, up 50.8% from ¥9.45B in the previous year, and were a factor compressing the reduction from Operating Income to Ordinary Income. The Company has substantial interest-bearing debt, including long-term borrowings of ¥1,485.99B and bonds of ¥479.19B, resulting in a reasonably high sensitivity to changes in interest rate levels.

3. Deterioration in the profitability of Other Businesses and second-half concentration of progress: Other Businesses outside the reportable segments recorded revenue growth of +110.6%, while the operating loss expanded to negative ¥2.46B from negative ¥0.05B in the previous year. In addition, progress toward the full-year forecasts was 38.2% for Operating Income and 38.3% for Ordinary Income, both below the 50% interim benchmark. Achievement of the results depends on the execution of property handovers and sales recognition in the second half.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (real_estate)

Profitability and Returns

Relative assessment of the Operating Profit Margin of 19.3% is withheld because industry median data is not sufficiently available.

Growth and Capital Efficiency

Relative assessment of the Revenue Growth Rate of +38.8% is withheld because industry median data is not sufficiently available.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The Operating Profit Margin declined by 5.7pt from 25.0% in the previous year to 19.3%, despite revenue growth of +38.8%. The key focus in evaluating the results is therefore the quality and profitability of the revenue growth. The primary factors were increased losses in new Other Businesses and higher interest expenses.

2. Full-year progress was 38.2% for Operating Income and 38.3% for Ordinary Income, below the 50% interim benchmark. However, no revisions were made to the earnings forecast, and the second-half-weighted plan remains unchanged. The execution of property handovers and sales in the second half will determine progress.

3. Operating Cash Flow of ¥155.75B, approximately 3.1 times Net Income attributable to owners of the parent, provided solid support for earnings. On the other hand, Free Cash Flow was negative ¥44.41B, primarily due to capital expenditures of ¥137.14B, indicating that the development investment phase is continuing.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,448–¥1,537 at ±1% for the Cost of Equity, and ¥1,485–¥1,501 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥24.0 per share is added back to profit (to account for a non-cash expense and comparability with IFRS companies).
• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model / Interest rate reference month: 2026-06 / This value does not forecast or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with professionals as necessary.

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