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

Financial Highlights

• Net Sales: ¥11.03B
• Operating Income: ¥-895M
• Net Income: ¥-919M
• 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

Central General Development Co., Ltd. (3238) reported FY2026 Q2 consolidated results under JGAAP featuring a sharp top-line expansion but continued losses and heavy cash outflows consistent with a development-cycle investment phase. Revenue surged 96.3% YoY to ¥11.03bn, yet gross profit was ¥0.97bn, implying a low gross margin of 8.8%. Operating income remained negative at ¥-0.90bn, although the YoY change (+20.4%) suggests the operating loss narrowed. Ordinary income deteriorated to ¥-1.23bn, reflecting heavier non-operating burdens, notably interest expense of ¥0.22bn. Net income was ¥-0.87bn (EPS ¥-90.82), essentially flat YoY at a slightly smaller loss. DuPont metrics point to a negative ROE of -9.37%, driven by a negative net margin (-7.90%), modest asset turnover (0.226x), and high financial leverage (5.26x). Liquidity appears adequate on a current ratio basis (210.9%), supported by sizeable working capital of ¥17.16bn, but cash and equivalents were not disclosed, limiting visibility into near-term cash coverage. Operating cash flow was deeply negative at ¥-8.47bn, characteristic of land acquisition and project build in real estate development; this was largely funded by financing inflows of ¥8.59bn. Interest coverage is negative (-4.0x on EBIT basis), underscoring near-term pressure from financing costs until projects convert to recognized sales and cash. The balance sheet shows total assets of ¥48.89bn and total equity of ¥9.29bn, implying substantial leverage (debt-to-equity 3.78x from provided metrics), typical but risk-elevating for developers. Reported equity ratio of 0.0% appears to be an unreported metric placeholder given equity is disclosed; therefore solvency analysis relies on other available indicators. Dividend payments remain suspended (DPS ¥0; payout 0%), which is consistent with negative earnings and cash outflows. Revenue growth suggests a strong pipeline or favorable handovers in the period, but the low gross margin and losses indicate margin pressure and/or timing mismatches between cost recognition and revenue. Overall, the company is in an investment-heavy phase with leverage-supported funding, and near-term performance hinges on converting the development pipeline to higher-margin sales and improving operating cash flow. Data gaps (e.g., cash balance, inventories, investing CF details, shares outstanding) require cautious interpretation of liquidity and per-share metrics.

Profitability Analysis

ROE decomposes to -9.37% via net margin of -7.90%, asset turnover of 0.226x, and financial leverage of 5.26x, highlighting that weak profitability is the dominant driver. Gross margin stands at 8.8% on ¥11.03bn revenue and ¥0.97bn gross profit, indicating tight spreads in recognized projects or conservative profit recognition. EBITDA is negative (¥-0.82bn), and operating income is ¥-0.90bn, pointing to insufficient scale to absorb fixed costs; this is typical of development businesses between major completions. Interest expense of ¥0.22bn drove ordinary income below operating income, reflecting financing intensity; interest coverage on EBIT is -4.0x, signaling earnings do not currently cover financing costs. The YoY improvement in operating loss (+20.4%) despite heavy growth suggests some operating leverage exists; however, the low gross margin constrained flow-through to operating profit. The tax line shows a net tax benefit (¥-0.38bn) consistent with losses and deferred tax effects; effective tax rate metrics are not meaningful in loss-making periods. Margin quality appears pressured, with low gross margins and negative EBITDA indicating either competitive pricing, cost inflation, or timing effects (e.g., cost recognition preceding higher-margin deliveries). Until the mix shifts to higher-margin projects or scale increases further, structural profitability remains constrained.

Growth Assessment

Top-line growth was strong, with revenue up 96.3% YoY to ¥11.03bn, indicating robust project deliveries or milestone recognition. However, gross margin of 8.8% and negative operating income imply the incremental revenue carried limited profitability, suggesting unfavorable mix or timing. Ordinary loss (¥-1.23bn) underscores that financing costs scale with growth absent adequate gross margin expansion. Profit quality is affected by reliance on non-operating items (interest) and negative EBITDA, indicating that core operations have not yet turned the corner despite higher sales. Sustainability of revenue growth will depend on the pace of unit handovers/recognitions in the pipeline, presales conversion, and the land bank; these were not disclosed. The large negative operating CF suggests active investment in projects likely preceding revenue recognition, potentially supporting near-term revenue but weighing on cash. Income tax benefit implies lower cash taxes near-term, but does not improve operational economics. Outlook hinges on delivery cadence and margin recovery; if higher-margin projects are recognized in 2H or next fiscal year, operating leverage could improve materially. Absent margin uplift, additional scale alone may not achieve break-even given current cost and financing structure.

Financial Health

Total assets are ¥48.89bn and total equity is ¥9.29bn, implying high leverage (assets/equity 5.26x). Debt-to-equity is indicated at 3.78x, consistent with a borrowing-heavy model. Liquidity as measured by the current ratio is 210.9% (current assets ¥32.62bn vs current liabilities ¥15.47bn), with working capital of ¥17.16bn, suggesting capacity to meet near-term obligations in aggregate. Quick ratio is shown as 210.9%, but inventory data were not disclosed; hence quick liquidity should be interpreted cautiously. Cash and equivalents are not reported, limiting visibility on immediate liquidity. Interest coverage is negative, reflecting near-term strain from financing costs relative to earnings. Equity ratio was reported as 0.0%, which conflicts with disclosed equity and appears to be an unreported placeholder; thus we do not rely on it. Overall solvency depends on continued access to financing, timely project monetization, and maintenance of collateral values.

Cash Flow Quality

Operating cash flow was ¥-8.47bn, substantially larger in magnitude than the net loss (¥-0.87bn), yielding an OCF/NI ratio of 9.72 in absolute terms; this indicates heavy working capital outflows, likely land acquisition and construction advances typical for developers. Investing cash flow was not disclosed, so free cash flow cannot be reliably determined from the available data. Financing cash inflows of ¥8.59bn largely offset the operating outflows, consistent with project financing drawdowns. Earnings quality is weak in the period as accrual-based losses coincide with large cash outlays; however, this pattern can be normal in development cycles before delivery. Working capital appears to be the primary driver of OCF volatility; specific components (inventories/real estate for sale, advances received) were not disclosed, limiting granular analysis. Sustained negative OCF would require ongoing external funding until project cash inflows materialize.

Dividend Sustainability

The company paid no dividends (DPS ¥0; payout 0%) in the period, consistent with negative earnings and substantial operating cash outflows. With free cash flow not determinable from disclosed investing cash flows and OCF significantly negative, distributions would not be supported near-term. Given leverage and interest coverage constraints, internal capital is likely prioritized for project execution and balance sheet support. Future dividends would depend on a return to positive earnings, improved operating cash generation via project completions, and deleveraging; current data suggest a conservative stance remains appropriate.

Risk Assessment

Business Risks:

• Project timing risk: revenue and profit recognition dependent on completion/handovers
• Margin pressure from construction cost inflation and pricing competition
• Sales velocity risk in a soft real estate market affecting inventory turn and cash receipts
• Concentration risk in specific projects or geographies (not disclosed but typical for developers)
• Regulatory and permitting risks affecting development timelines

Financial Risks:

• High leverage (assets/equity 5.26x; D/E ~3.78x) and negative interest coverage (-4.0x)
• Refinancing and covenant risk given reliance on financing cash inflows
• Liquidity visibility limited due to undisclosed cash balance and inventory details
• Working capital volatility driving large negative OCF during build phases
• Exposure to interest rate increases impacting interest expense and project IRRs

Key Concerns:

• Low gross margin (8.8%) despite nearly doubling revenue
• Persistent operating and ordinary losses
• Large negative operating cash flow (¥-8.47bn) funded by financing
• Undisclosed key items (cash, inventories, investing CF) limiting analytical precision

Investment Implications

Key Takeaways:

• Revenue growth is strong (+96.3% YoY) but profitability remains negative at all levels
• Gross margin is thin (8.8%), constraining operating leverage benefits
• Earnings are not covering interest (interest coverage -4.0x), highlighting near-term pressure
• Cash burn from operations (¥-8.47bn) is being financed externally (+¥8.59bn)
• Leverage is elevated (financial leverage 5.26x; D/E ~3.78x), typical but risk-enhancing for developers
• Liquidity looks adequate by current ratio, but cash-on-hand is undisclosed

Metrics to Watch:

• Contracted sales, backlog, and delivery schedule for 2H and next fiscal year
• Gross margin trajectory and cost inflation in construction inputs
• Operating cash flow normalization as projects complete
• Net debt and interest coverage trends
• Land bank size/quality and acquisition discipline
• SG&A as a percentage of sales to gauge operating leverage
• Presales/absorption rates and price realizations

Relative Positioning: Within TSE-listed real estate developers, the company appears to be in an investment-heavy phase with higher leverage and weaker near-term profitability versus more mature, cash-generative peers; execution on deliveries and margin recovery will be key to converging toward 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