KI-STAR REAL ESTATE CO.,LTD FY2027 Q1 Earnings Report

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Executive Summary

In addition to higher revenue and earnings, the most notable feature of the current period was a significant improvement in profit margins, representing progress in both growth and quality. Revenue was ¥1027.2B (+21.5% YoY), Operating Income was ¥83.7B (+85.7%), Ordinary Income was ¥76.0B (+93.2%), and Net Income attributable to owners of the parent was ¥48.1B (+100.5%). The earnings growth rate substantially exceeded the revenue growth rate, indicating qualitative improvement in the earnings structure, primarily driven by an improved gross profit margin.

Factors Affecting Results

【Revenue】Revenue was ¥1027.2B (+21.5% YoY). While the subdivided housing business maintained its position as the core business, accounting for 91.1% of the revenue mix (¥935.2B, +17.0%), the apartment and income-producing real estate business expanded sharply to ¥59.6B (+262.9%), advancing portfolio diversification. Other businesses increased modestly by 4.6% to ¥32.7B.

【Profit and Loss】Operating Income was ¥83.7B (+85.7%), while Ordinary Income was ¥76.0B (+93.2%). The gross profit margin improved to 16.1% from 13.2% in the previous year, with improved cost control and a more favorable product mix being the primary drivers of the increase in Operating Income. SG&A expenses rose modestly to ¥82.0B, with the SG&A ratio increasing slightly to 8.0% from 7.9%; this was absorbed by the improvement in the gross profit margin. At the Ordinary Income level, non-operating expenses of ¥15.6B, primarily consisting of ¥12.0B in interest expenses, weighed heavily against non-operating income comprising ¥2.3B in interest income and ¥1.7B in foreign exchange gains, resulting in a deduction from Operating Income. Although a ¥1.2B gain on negative goodwill arising from the conversion of a subsidiary into a consolidated subsidiary was recorded as extraordinary income, its scale was limited, and the expansion of the core business was the primary driver of earnings growth. Accordingly, the results are classified as higher revenue and higher earnings.

Segment Analysis

The subdivided housing business generated revenue of ¥935.2B (+17.0%) and Operating Income of ¥88.9B (+65.9%), with a profit margin of 9.5%, and drove overall performance as the core business. The apartment and income-producing real estate business expanded rapidly, generating revenue of ¥59.6B (+262.9%) and Operating Income of ¥5.6B (+830.0%), while securing profitability close to that of the subdivided housing business, with a profit margin of 9.4%. Other businesses generated revenue of ¥32.7B (+4.6%) but saw Operating Income decline to ¥2.1B (-29.5%), with a relatively low profit margin of 6.4%. Subdivided housing accounts for 91% of the revenue mix, indicating a high degree of business concentration, while the expansion of the apartment and income-producing real estate business is notable for advancing the diversification of earnings sources.

Key Financial Indicators

【Profitability】The Operating Income margin improved significantly to 8.1% from 5.3% in the previous year, while the Net Income margin improved to 4.7% from 3.1%. The gross profit margin expanded by approximately +2.9pt to 16.1% from 13.2%, serving as the primary driver of earnings growth. 【Cash Quality】ROE was 6.1%. Although Net Income growth was accompanied by improved asset efficiency, ROE remained in the low single-digit range. 【Investment Efficiency】Total assets increased by 3.3% YoY to ¥3675.6B, while revenue grew by +21.5%, indicating an improvement in asset efficiency. 【Financial Soundness】The Equity Ratio improved to 23.0% from 20.6% in the previous year. Cash and deposits declined substantially from the previous year to ¥433.7B, reflecting increased working capital requirements associated with the accumulation of real estate held for sale.

Cash Flow Analysis

Although the cash flow statement was not disclosed, analysis of funding trends based on changes in the balance sheet indicates that cash and deposits declined substantially from the previous year to ¥433.7B, primarily due to the accumulation of real estate held for sale, including properties under development. Inventory assets, particularly properties under development, increased significantly and are being accumulated as resources for future recognition upon delivery. At the same time, short-term borrowings account for a high proportion of total assets, reinforcing a structure in which inventory investment is supported by short-term funding. Contract liabilities (advances received) increased modestly by +9.9% YoY to ¥32.3B, indicating limited growth in funding through customer advances. Going forward, management of inventory turnover and delivery progress will be key determinants of cash generation capacity.

Quality of Earnings

The core source of recurring earnings was Operating Income of ¥83.7B. The ¥1.2B gain on negative goodwill recorded as extraordinary income was a temporary factor associated with the conversion of a subsidiary into a consolidated subsidiary, and its limited scale does not materially distort earnings quality. Non-operating income was ¥8.0B, primarily comprising ¥2.3B in interest income and ¥1.7B in foreign exchange gains. However, non-operating expenses of ¥15.6B, mainly consisting of ¥12.0B in interest expenses, exceeded this amount, resulting in a structure in which Ordinary Income declined from Operating Income. Against Profit Before Tax of ¥76.6B, income taxes of ¥24.8B were deducted, representing an effective tax rate of approximately 32.4%. After deducting ¥3.6B attributable to non-controlling interests, Net Income attributable to owners of the parent was ¥48.1B. The difference from Ordinary Income is explainable by the tax burden and amounts attributable to non-controlling interests. Meanwhile, as real estate held for sale continues to accumulate, there is likely to be a time lag before earnings are converted into cash; from an accrual perspective, future trends in inventory turnover will also affect earnings quality.

Earnings Forecasts and Guidance

Progress rates against the full-year plan were 22.3% for revenue, 24.3% for Operating Income, 24.1% for Ordinary Income, and 24.9% for Net Income. Compared with the standard quarterly progress rate of 25%, revenue was slightly behind, while earnings progress was broadly in line with the standard level. Margin improvement is offsetting the delay in revenue progress, and the likelihood of achieving the full-year plan—revenue of ¥4600B, Operating Income of ¥345.0B, and Ordinary Income of ¥315.0B—appears favorable at this point. During the current quarter, revisions were made to the earnings forecast and dividend forecast, enhancing the precision of the full-year outlook.

Shareholder Returns

The full-year dividend forecast is ¥150 per share, an increase from the previous year's ¥100 on a pre-stock-split basis. Based on the full-year Net Income plan of ¥193.0B and approximately 31.05 million shares outstanding, excluding treasury shares, the estimated total dividend amount is approximately ¥4.66B, resulting in a Payout Ratio of approximately 24.2%, a conservative level relative to earnings. Note that the Company conducted a 1-for-2 stock split effective April 1, 2026, and the previous year's dividend is stated at the actual pre-split amount. No disclosure has been made regarding treasury share repurchases, and shareholder returns currently center on dividends.

Risk Factors

1. Liquidity and Maturity Structure Risk: Cash and deposits have declined to ¥433.7B, leaving a thin liquidity cushion relative to current liabilities of ¥2107.4B, including short-term borrowings of ¥125.3B. Debt maturing in the near term has accumulated, including ¥399.4B in long-term borrowings due within one year and ¥24.6B in bonds due within one year, requiring monitoring of refinancing conditions.

2. Leverage and Interest Rate Sensitivity: Interest-bearing debt is substantial, including ¥651.3B in long-term borrowings and ¥55.1B in bonds, relative to an Equity Ratio of 23.0%. Interest expenses increased to ¥12.0B from ¥7.8B in the previous year. In a rising interest rate environment, there is potential for Ordinary Income to come under pressure through an increase in non-operating expenses.

3. Market Sensitivity Associated with Inventory Accumulation: Real estate held for sale, including properties under development, has increased substantially. If housing market conditions fluctuate or sales velocity slows, this could lead to delays in inventory turnover and the risk of valuation losses. The concentration of revenue in the subdivided housing business, at 91% of the mix, should also be noted as a business concentration risk.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company's profitability exceeds the industry median for both indicators, placing it among the higher-ranking companies in the industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median, placing the Company among the high-growth group within the industry.

Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. As indicated by the earnings growth rate of +85.7%, which exceeded the revenue growth rate of +21.5%, structural improvement in profit margins, originating from the improvement in the gross profit margin to 16.1% (+2.9pt YoY), was the central feature of the current period's earnings results.

2. In addition to the subdivided housing business, the apartment and income-producing real estate business expanded rapidly, with revenue increasing by +262.9% and profit by +830.0%. This progress in business portfolio diversification is notable as a change in the earnings base.

3. Despite the expansion in earnings, cash and deposits declined substantially from the previous year, while the accumulation of real estate held for sale and reliance on short-term liabilities increased. The simultaneous changes in inventory and funding structure behind the earnings growth represent a structural point of caution identifiable from the earnings data.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,891–¥4,129 at ±1% for the cost of equity, and ¥3,973–¥4,060 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).
• As 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 available 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. 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 a professional adviser as necessary.

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