KI-STAR REAL ESTATE (3465) FY2026 Q3 Earnings Report

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Executive Summary

The Company reported higher revenue and earnings, accompanied by a notable improvement in profitability, driven primarily by revenue growth centered on the built-for-sale housing business and an improved gross profit margin. Revenue was ¥2,768.7B (+18.9% year on year), Operating Income was ¥189.4B (+65.8%), Ordinary Income was ¥175.6B (+74.7%), and Net Income was ¥117.4B (+71.6%; of which ¥106.9B was attributable to owners of the parent, representing +82.4%). The primary reasons why the earnings growth rate significantly exceeded the revenue growth rate were the improvement in the gross profit margin from 12.7% to 14.3% and the emergence of operating leverage, as the increase in selling, general and administrative expenses (+14.0%) remained below the revenue growth rate.

Factors Affecting Performance

【Revenue】Revenue was ¥2,768.7B, representing an 18.9% year-on-year increase. The built-for-sale housing business was the main driver of revenue growth, contributing an increase of ¥259.5B and accounting for 93.7% of consolidated revenue. The custom-built housing business decreased by 16.2% year on year to ¥42.5B and remains small in scale. Other businesses, including used housing revitalization and income-producing real estate, also expanded to ¥130.7B and contributed to revenue growth.

【Profit and Loss】Operating Income was ¥189.4B (+65.8%), Ordinary Income was ¥175.6B (+74.7%), and the Operating Income margin improved to 6.8% from 4.9% in the same period of the previous year. Extraordinary items were immaterial (extraordinary gains of ¥0.0B and extraordinary losses of ¥0.4B), limiting the factors causing divergence between Ordinary Income and Net Income. The segment profit margin of the built-for-sale housing business improved to 7.7% from 6.0% in the previous year, making it the primary driver of consolidated profit. The custom-built housing business turned profitable, reporting a profit of ¥1.2B compared with a loss in the same period of the previous year. The Company is in a high-quality earnings growth phase, characterized by both revenue and earnings growth accompanied by improved profitability.

Segment Analysis

The built-for-sale housing business accounted for the core of consolidated earnings, with Revenue of ¥2,595.5B (93.7% of total) and Operating Income of ¥200.2B (7.7% margin). Even after absorbing an adjustment of △¥32.1B for corporate expenses and other items, it made a profit contribution exceeding consolidated Operating Income of ¥189.4B, with a contribution ratio of 105.7%, indicating a structure in which profit fluctuations in other segments have a significant impact on overall performance. The custom-built housing business reported Revenue of ¥42.5B (down 16.2% year on year) but turned profitable, generating Operating Income of ¥1.2B and improving from the loss recorded in the previous year. Other businesses, excluding the above segments, generated Revenue of ¥130.7B and profit of ¥20.1B, representing a 15.4% profit margin and demonstrating higher profitability than the built-for-sale housing business.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 6.8% from 4.9% in the previous year, the Ordinary Income margin improved to 6.3% from 4.3%, and the Net Income margin, based on income attributable to owners of the parent, improved to 3.9% from 2.5%. The gross profit margin improved to 14.3% from 12.7% in the previous year; however, cost of sales still accounted for 85.7% of revenue, indicating that sensitivity to price and cost fluctuations remains high.【Cash Flow Quality】Cash and deposits decreased to ¥547.7B from ¥706.4B in the previous year, as inventory investment associated with business expansion absorbed funds.【Investment Efficiency】Annualized ROE was high at 20.2%. In addition to the Net Income margin and total asset turnover, the high degree of financial leverage reflected by an Equity Ratio of 23.0% was a contributing factor.【Financial Soundness】The Equity Ratio was 23.0%, a slight improvement from 20.4% in the previous year. However, in addition to long-term borrowings of ¥682.3B and bonds of ¥74.4B, short-term borrowings were also substantial, indicating a high level of dependence on interest-bearing debt.

Cash Flow Analysis

Although disclosure of the statement of cash flows is limited, fund movements are analyzed based on changes in the balance sheet. Cash and deposits decreased by ¥158.7B to ¥547.7B from ¥706.4B in the previous year, while real estate for sale and real estate for sale under development increased substantially to a combined ¥2,465.7B, accounting for 73.2% of total assets. This inventory expansion was primarily financed by an increase in short-term borrowings (¥1,205.5B, up ¥221.8B year on year), indicating increased working capital requirements associated with business growth. Retained earnings increased by ¥77.6B to ¥589.5B, confirming the accumulation of internal reserves through higher earnings. At the same time, the simultaneous expansion of assets and liabilities remains an important point for monitoring the Company’s funding and liquidity.

Quality of Earnings

The improvement in earnings for the current period was primarily attributable to recurring business operations, with the impact of extraordinary items extremely limited (extraordinary gains of only ¥0.0B and extraordinary losses of ¥0.4B). Unlike the previous year, the current period did not include a one-time gain such as the ¥1.6B gain on the occurrence of negative goodwill recognized in the same period of the previous year. Non-operating income and expenses resulted in a net expense (non-operating income of ¥21.0B versus non-operating expenses of ¥34.8B), while interest expenses increased 46.5% to ¥25.4B from ¥17.3B in the previous year. The increase in financial expenses accompanying the expansion of interest-bearing debt slightly restrained the growth rate of Ordinary Income relative to that of Operating Income. Comprehensive Income was ¥120.5B, and the difference from Net Income of ¥117.4B was immaterial, primarily reflecting foreign currency translation adjustments of ¥3.0B and other items. From an accruals perspective, the quality of earnings is therefore assessed as generally sound.

Earnings Forecast and Guidance

The full-year forecasts are Revenue of ¥3,830.0B (+11.8%), Operating Income of ¥260.0B (+50.7%), and Ordinary Income of ¥240.0B (+58.7%). The progress rates through the cumulative Q3 were 72.3% for Revenue, 72.8% for Operating Income, and 73.2% for Ordinary Income, tracking near the standard level of approximately 75%. Revenue of approximately ¥1,061.3B and Operating Income of approximately ¥70.6B will be required in Q4. This Operating Income level exceeds the cumulative quarterly average profit of approximately ¥63.1B, making the realization of concentrated sales and deliveries at the end of the fiscal year the key focus for achieving the plan.

Shareholder Returns

The Q2 dividend was ¥100.00 per share, and the full-year dividend forecast is ¥230.00 (assuming a year-end dividend of ¥130.00). The Company plans to increase the dividend compared with the previous year’s actual dividend of ¥65. The forecast Payout Ratio, calculated using forecast Net Income attributable to owners of the parent of ¥143.0B and the average number of shares outstanding during the period of 15,501,549 shares, is approximately 24.9%, remaining below the generally cited sustainable level of approximately 60%. Retained earnings have accumulated to ¥589.5B, confirming the accumulation of resources for dividends.

Risk Factors

1. Real Estate Inventory Risk: Real estate for sale of ¥1,157.8B and real estate for sale under development of ¥1,307.9B totaled ¥2,465.7B, accounting for 73.2% of total assets. Inventory increased by 27.1% year on year, creating a structure in which declines in selling prices and longer sales periods directly affect the gross profit margin and inventory valuation.

2. Refinancing and Leverage Risk: Interest-bearing debt has expanded, primarily comprising short-term borrowings of ¥1,205.5B, while the Equity Ratio remains at 23.0%. Interest expenses increased 46.5% year on year to ¥25.4B, and the high dependence on short-term funding increases sensitivity to changes in refinancing conditions and funding costs.

3. Low Gross Margin Risk: Although the gross profit margin improved to 14.3%, the structure in which cost of sales accounts for 85.7% of revenue remains unchanged. Small fluctuations in land and construction costs or selling prices therefore continue to have a significant impact on profitability.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (real_estate)

Profitability and Returns

Both the Operating Income margin and Net Income margin are slightly below the industry median, but both remain within the IQR range.

Growth and Capital Efficiency

The Revenue growth rate is broadly in line with the industry median, indicating an average growth pace within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Operating Income increased 65.8% and Net Income attributable to owners of the parent increased 82.4%, exceeding the 18.9% increase in Revenue. This confirms the emergence of operating leverage resulting from the improvement in the gross profit margin (12.7%→14.3%).

2. Real estate for sale and real estate for sale under development account for 73.2% of total assets, and dependence on short-term borrowings is also high. Accordingly, the pace of inventory sales and collections and the funding structure are key financial areas to monitor.

3. Progress toward the full-year forecast was 72.3% for Revenue and 72.8% for Operating Income, representing standard levels. The realization of sales and deliveries in Q4 will be the inflection point for achieving the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥6,343–¥6,727 at ±1% for the cost of equity, and ¥6,492–¥6,591 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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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 responsibility, after consulting with a professional as necessary.

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