CENTRAL GENERAL DEVELOPMENT CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.03B
• Operating Income: ¥-895M
• Net Income: ¥-872M
• EPS: ¥-90.82

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: FY2026 Q2 shows a sharp top-line rebound but continued losses and heavy cash burn, with leverage and interest burden remaining the principal constraints. Revenue doubled to 110.29 (＋96.3% YoY), lifting gross profit to 16.50 and a gross margin of 15.0%. Despite the revenue surge, SG&A of 25.45 exceeded gross profit, keeping operating income in the red at -8.95 (loss narrowed 20.4% YoY). Ordinary income remained negative at -12.30 (loss narrowed 4.5% YoY), weighed by non-operating expenses of 3.48 including interest expense of 3.10. Net income was -8.71 (loss narrowed 0.5% YoY), translating to EPS of -90.82 yen. Operating margin stands at -8.1%, and EBITDA margin at -7.3%, underscoring insufficient operating leverage from the sales recovery. Margin trend data is limited; gross margin is 15.0% this quarter, but YoY bp changes are not disclosed, though the operating loss narrowed versus last year. Earnings quality is weak in cash terms: operating CF of -37.22 is far worse than net loss (-8.71), indicating significant working capital outflows typical of development-cycle inventory builds. Financial leverage is high: assets 488.94 against equity 92.94 implies 5.26x leverage and a D/E of 4.26x, with short-term loans of 199.84 creating refinancing exposure. Liquidity appears adequate on a current ratio basis (153.5%), but cash on hand is only 12.22, and liquidity relies on loan rollovers and timely deliveries. Interest coverage is deeply negative (-2.89x), highlighting sensitivity to borrowing costs and project timing. ROE is -9.4%, driven by a -7.9% net margin and low asset turnover of 0.226, despite high financial leverage amplifying losses. ROIC is -1.5%, well below a 5% warning threshold, suggesting capital inefficiency at mid-year. Forward-looking, H2 handovers will be decisive for margin normalization, cash conversion, and leverage reduction; absent strong completions and sales, pressure on covenants and funding costs could rise. Data gaps (notably inventories and investing CF) limit full diagnostics, but the signals point to a mid-cycle build phase with execution risk and elevated financing dependency.

Profitability Analysis

ROE decomposition: ROE (-9.4%) = Net Profit Margin (-7.9%) × Asset Turnover (0.226) × Financial Leverage (5.26x). The largest deterioration driver is the negative net margin, as gross profit (16.50) could not cover SG&A (25.45) and interest burden (3.10). Asset turnover is low for a developer mid-cycle due to high assets (488.94) relative to recognized revenue (110.29) at Q2. Financial leverage is high (5.26x), magnifying losses rather than enhancing returns. Business drivers: (1) Project-timing mismatch—revenue recognition lags development spend, depressing margins and turnover at mid-year; (2) Cost pressure—SG&A scale (likely staffing and selling costs) exceeds current gross profit; (3) Interest burden—non-operating expenses absorb operating improvements. Sustainability: Margin headwinds could reverse if H2 sees scheduled handovers at targeted gross margins; however, interest expense is recurring and will persist unless debt is reduced. Flags: SG&A exceeds gross profit (25.45 vs 16.50), indicating inadequate operating leverage at current volume; ordinary loss widened by non-op costs despite operating loss narrowing. Overall, profitability hinges on conversion of development pipeline into deliveries and price discipline amid construction cost inflation.

Growth Assessment

Top-line growth is strong (+96.3% YoY to 110.29), suggesting an active delivery schedule versus a light base period. Profit growth is not yet realized at the operating line (operating loss -8.95, but improved YoY), indicating growth is volume-led rather than margin-led. Gross margin is 15.0%; without YoY margin data, sustainability is uncertain and sensitive to mix, land cost, and build costs. Non-operating drag (3.48) offsets operating improvements; interest expense (3.10) will continue to dilute any modest operating gains. With asset turnover at 0.226 and ROIC at -1.5%, current growth is capital-intensive. Outlook depends on H2 closings: if major projects are scheduled, revenue and operating leverage can improve; otherwise, losses could persist. Key growth constraints are funding costs and execution timing.

Financial Health

Liquidity: Current ratio is 153.5% (healthy by benchmark), supported by current assets of 354.76 vs current liabilities of 231.11, but cash on hand is only 12.22, indicating reliance on inventory liquidation or refinancing. Solvency: D/E is 4.26x (warning >2.0), and equity ratio approximates 19% (assets 488.94; equity 92.94). Interest-bearing debt concentration: short-term loans 199.84 vs long-term loans 151.84; maturity profile leans short-term, increasing rollover risk. Maturity mismatch risk: While current assets exceed current liabilities, the low cash balance and unreported inventory details mean near-term liquidity depends on loan renewals and sales proceeds. Interest coverage is -2.89x (warning), underscoring vulnerability to rate hikes. Off-balance sheet obligations: Not disclosed; no data on guarantees or JV commitments. Overall, financial risk is elevated due to leverage and short-term funding reliance.

Cash Flow Quality

OCF is -37.22 versus net income -8.71, yielding OCF/NI of 4.27x; despite the ratio exceeding 1.0, both figures are negative, pointing to weak cash earnings and substantial working-capital outflows typical of development build-up. Free cash flow proxy (OCF - Capex) is approximately -40.26, indicating external financing dependency. Financing CF is +43.36, consistent with debt-funded operations during project accumulation. Potential working capital dynamics: higher land payments, construction advances, or lower collections; inventories are unreported, limiting granularity. No signs of deliberate WC manipulation can be asserted from available data, but the scale of OCF outflow relative to loss highlights timing risk. Sustainability: Without H2 monetization (deliveries/collections), negative FCF would persist and increase leverage.

Dividend Sustainability

Dividend data are unreported; payout ratio shown as -15.6% is not meaningful given negative earnings and undisclosed DPS. With FCF approximately -40.26 in H1 and high leverage, distributable capacity appears constrained near term absent substantial H2 cash inflow. Retained earnings of 60.70 provide balance sheet buffer, but current policy visibility is low. If a dividend exists, coverage would rely on financing or asset sales, which is unsustainable. Expect management to prioritize deleveraging and project execution over distributions until cash flow normalizes.

Risk Assessment

Business Risks:

• Project timing risk: lumpy revenue recognition; delays in handovers would prolong losses and cash burn.
• Margin risk: gross margin at 15.0% may compress with construction cost inflation or pricing pressure.
• Sales risk: slower contract uptake could raise inventory days and working capital needs.
• Execution risk: multi-site development management and cost overruns.
• Real estate cycle sensitivity: residential demand, mortgage rate shifts, and policy changes.

Financial Risks:

• High leverage: D/E 4.26x and equity ratio ~19% increase solvency risk.
• Refinancing risk: short-term loans 199.84 vs cash 12.22 elevate rollover dependence.
• Interest rate risk: interest coverage -2.89x; higher rates would worsen losses.
• Liquidity concentration: quick ratio equals current ratio due to unreported inventories; true liquid asset coverage may be weaker.
• Covenant/credit tightening risk if losses persist and OCF remains negative.

Key Concerns:

• Operating loss (-8.95) despite near-doubling of revenue, indicating weak operating leverage.
• OCF -37.22 in H1, implying significant working capital build and funding needs.
• Non-operating drag 3.48 (interest expense 3.10) offsets operating improvements.
• ROIC -1.5% and ROE -9.4% signal poor capital efficiency mid-year.
• High loan-to-asset profile (LTV proxy ~72%) implies limited balance sheet flexibility.

Investment Implications

Key Takeaways:

• Revenue rebounded strongly (+96.3% YoY), but profitability remains negative across operating and net lines.
• Cash generation is materially worse than accounting earnings (OCF -37.22 vs NI -8.71), pointing to timing and WC stress.
• Leverage is high (D/E 4.26x) with short-term debt concentration, making execution and refinancing pivotal in H2.
• Interest burden (3.10) meaningfully erodes earnings; interest coverage is negative.
• H2 handover schedule and gross margin realization are the swing factors for FY profitability and deleveraging.

Metrics to Watch:

• Backlog/contracted sales and scheduled H2 deliveries
• Inventories and land bank (level and turnover), once disclosed
• Gross margin by project and construction cost trends
• Operating cash flow and working capital movements (receivables, payables, advances)
• Debt maturity ladder, average interest rate, and covenant headroom

Relative Positioning: Versus domestic mid-cap developers, leverage appears higher and cash flow conversion weaker at mid-year; profitability and ROIC trail peers pending H2 deliveries, leaving the company more sensitive to funding conditions and project execution.

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
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