KI-STAR REAL ESTATE CO.,LTD FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥181.19B
• Operating Income: ¥11.25B
• Net Income: ¥6.95B
• EPS: ¥409.28

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: A strong FY2026 Q2 with robust profit growth and margin expansion, but earnings quality is weak due to heavy operating cash outflows and elevated leverage. Revenue rose 20.0% YoY to 1,811.9, while operating income climbed 60.8% YoY to 112.5, demonstrating solid operating leverage. Ordinary income increased 71.6% YoY to 103.8, and net income jumped 73.9% YoY to 63.4. Gross profit was 249.9, implying a gross margin of 13.8%. Using growth rates to infer prior period, operating margin improved from about 4.6% to 6.2% (approximately +158 bps). Net margin improved from roughly 2.4% to 3.5% (about +109 bps), helped by scale and controlled SG&A. SG&A was 137.5, with salaries and allowances at 27.8; SG&A growth appears contained relative to revenue, aiding margin gains. Interest expense was 16.4, and interest coverage improved to 6.84x, above the 5x robustness threshold. However, operating cash flow was -253.7 versus net income of 63.4 (OCF/NI -4.0x), flagging a material earnings quality concern typical of inventory and land acquisition build in housing cycles. Financing inflow of 141.7 signals reliance on debt funding to support working capital. The balance sheet shows total assets of 3,137.4 and equity of 741.2, with D/E at 3.23x—high for benchmarks and a key watchpoint. Liquidity metrics (current ratio 172.6%) look adequate, but short-term loans are large at 1,119.0, underscoring refinancing and rate risks. Forward-looking, margin momentum is positive if selling prices and mix hold, but the combination of high leverage, negative OCF, and potential housing cycle headwinds tempers visibility. For the full year, cash flow should improve with deliveries, yet execution on inventory turnover and debt mix will determine sustainability. Overall, profitability is trending favorably, but cash flow quality and leverage remain the central constraints on risk appetite.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.6% = Net Profit Margin 3.5% × Asset Turnover 0.578 × Financial Leverage 4.23x. The biggest change vs. last year is most likely margin expansion, given revenue grew 20% while operating income grew 61% and net income 74%. Business driver: improved operating efficiency (SG&A discipline) and better unit economics/mix likely lifted operating margin to 6.2% from an inferred ~4.6%, and net margin to 3.5% from ~2.4%. Asset turnover at 0.578 suggests moderate utilization for a homebuilder with a heavy inventory base; given the strong revenue growth alongside a still-large asset base, AT likely improved only modestly. Financial leverage at 4.23x remains high, contributing materially to ROE, but also elevating risk. Sustainability: part of the margin gain appears cyclical/scale-driven and could be sustainable if construction costs remain contained and pricing holds; however, higher rates or slower sell-through could compress margins. Watch for SG&A growth exceeding revenue—currently, operating leverage looks favorable, but if salaried headcount growth or marketing costs accelerate, it could reverse.

Growth Assessment

Top-line growth of 20.0% YoY indicates robust demand and/or faster handovers. Profit growth substantially outpaced sales (OP +60.8%, NI +73.9%), reflecting positive operating leverage and improved mix. Non-operating line showed net expense (non-op income 12.8 vs expenses 21.5), with interest income 3.6 offset by higher interest costs, so core growth was primarily operational. Revenue sustainability depends on backlog, land bank quality, and absorption rates; absent backlog disclosure, we assume H2 deliveries remain solid but sensitive to mortgage affordability. Profit quality is mixed: accounting earnings are strong, but OCF is deeply negative due to working capital build common in the cycle. Near-term outlook: margins could hold near current levels if input costs remain stable and cancellations low; however, higher funding costs and potential demand softening are key constraints.

Financial Health

Liquidity: Current ratio 172.6% (>1.5 benchmark) signals adequate near-term coverage, though current asset composition is only partially disclosed (cash 600.0; other current asset details unreported). Solvency/leverage: D/E at 3.23x is high (warning threshold >2.0), and total loans are 1,757.5 (short-term 1,119.0; long-term 638.4). Interest coverage at 6.84x is acceptable. Maturity profile: Short-term loans are large relative to cash (1,119.0 vs 600.0), implying refinancing risk and sensitivity to rate hikes; current assets (2,958.4) broadly cover current liabilities (1,713.5), reducing immediate mismatch risk. No off-balance sheet obligations are reported in the data provided. Equity base is 741.2, providing a buffer, but leverage magnifies downside in a downturn.

Cash Flow Quality

OCF/Net Income is -4.00x (<0.8 flag), indicating poor earnings-to-cash conversion this half, likely driven by inventory/land acquisition and working capital outflows typical for developers. Free cash flow cannot be fully calculated from disclosures, but OCF (-253.7) less capex (-2.84) implies negative FCF in the period, necessitating financing CF of +141.7 to bridge. Sustainability: Dividend and growth capex are not covered by internally generated cash this half; normalization hinges on conversion of inventory to settlements in H2. Working capital signs: While detailed components are unreported, the pattern suggests front-loaded land procurement and build-out; monitor inventory turnover and contract-to-closing cycle time for potential manipulation or timing effects.

Dividend Sustainability

The calculated payout ratio is 37.8%, within the <60% benchmark for earnings-based sustainability. However, given negative OCF and implied negative FCF in the period, cash-based coverage is weak near-term. Without disclosed dividends paid and policy guidance, we assume the company targets stable-to-progressive dividends; actual sustainability will depend on H2 cash inflows from deliveries and maintaining interest coverage. If working capital normalizes in H2, coverage should improve; if demand slows or cancellations rise, dividend flexibility may be needed to preserve balance sheet resilience.

Risk Assessment

Business Risks:

• Housing demand cyclicality and sensitivity to mortgage affordability
• Land acquisition and inventory timing risk affecting cash flows
• Construction cost inflation and subcontractor capacity constraints
• Sales mix and pricing risk affecting margins
• Project execution risk affecting delivery timing and revenue recognition

Financial Risks:

• High leverage (D/E 3.23x) and reliance on short-term borrowings (1,119.0)
• Negative operating cash flow requiring external financing
• Interest rate risk on floating-rate debt impacting interest expense
• Refinancing risk if credit conditions tighten
• Potential covenant headroom erosion if profitability moderates

Key Concerns:

• OCF/NI at -4.0x highlights weak cash conversion
• Short-term loans sizable versus cash, elevating liquidity management risk
• ROIC at 4.0% below 5% warning threshold, implying pressured capital efficiency
• Non-operating expenses (notably interest) remain a drag on ordinary income
• Data gaps (inventory, AR, dividends) limit granular assessment of working capital dynamics

Investment Implications

Key Takeaways:

• Strong profit growth with clear operating margin expansion (~+158 bps YoY)
• Net margin improved ~+109 bps to 3.5%, lifting ROE to 8.6%
• Earnings quality is weak this half due to deep negative OCF
• Leverage is elevated (D/E 3.23x); funding reliance persists
• Interest coverage is acceptable at 6.84x but sensitive to rates

Metrics to Watch:

• Backlog/contracted sales and cancellation rates
• Inventory turnover and land bank duration
• OCF/Net Income and quarterly OCF normalization
• Debt mix (short- vs long-term) and weighted average interest rate
• Gross margin per unit and SG&A growth vs revenue
• Ordinary income sensitivity to interest expense

Relative Positioning: Within Japanese homebuilders, the company exhibits above-peer growth and improving operating margins but sits on the higher end of leverage with weaker near-term cash conversion; execution on inventory monetization and debt tenor optimization will be pivotal to closing the gap on ROIC.

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