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

Financial Highlights

• Net Sales: ¥181.19B
• Operating Income: ¥11.25B
• Net Income: ¥4.26B
• 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

KeiAi Star Real Estate Co., Ltd. (TSE: 3465) delivered solid topline and earnings momentum in FY2026 Q2 under JGAAP, with revenue up 20.0% YoY to ¥181.2bn and operating income up 60.8% YoY to ¥11.25bn, indicating strong operating leverage. Net income rose 73.9% YoY to ¥6.34bn, translating to an ROE of 8.55% per the provided DuPont metrics. Net profit margin is 3.50%, asset turnover 0.578x, and financial leverage 4.23x, collectively driving the reported ROE. The margin profile improved notably, with operating margin at approximately 6.2%, reflecting better cost discipline, mix, or cycle tailwinds in the for-sale housing/land segment. Gross margin is stated at 10.5%, which aligns with the provided gross profit figure but conflicts with the reported cost of sales; we proceed using the provided margin metric given data inconsistencies. Interest coverage is healthy at 10.3x (operating income vs. interest expense), suggesting manageable near-term financial risk despite meaningful leverage. On the balance sheet, assets total ¥313.7bn and equity ¥74.1bn, implying 4.23x leverage and a debt-to-equity ratio of 3.05x; the current ratio stands at 1.77x with ample reported working capital of ¥120.1bn. Operating cash flow was negative ¥22.4bn, typical for a developer during periods of active land procurement and inventory build, and was partially funded by ¥14.5bn of financing inflows. Free cash flow could not be assessed due to unreported investing cash flows; hence FCF-related coverage ratios are not meaningful this quarter. The dividend is reported as zero with a 0% payout ratio; this appears to be a data gap rather than a confirmed policy shift, so we refrain from drawing conclusions on distributions. The firm’s cash conversion remains weak in the quarter (OCF/NI of -3.53x), highlighting reliance on external funding during growth phases, which is common for the sector. The solvency profile is acceptable but sensitive to market conditions given leverage and the working capital-intensive model. Overall, strong earnings growth and improved margins are offset by negative operating cash flow and data limitations (notably zero-reported line items and conflicting gross profit/cost of sales), which temper interpretability. We focus on sustainability of margins, inventory turn, and funding conditions to gauge outlook quality. Given the cycle exposure to mortgage rates and buyer sentiment, monitoring sales velocity and land bank discipline is critical. Our analysis uses only available non-zero figures while acknowledging unreported items may affect these conclusions.

Profitability Analysis

ROE decomposition indicates 8.55% driven by Net Profit Margin 3.50% x Asset Turnover 0.578x x Financial Leverage 4.23x. Operating margin is approximately 6.2% (¥11.246bn / ¥181.190bn), a strong improvement versus revenue growth (+60.8% OI vs. +20.0% revenue), evidencing positive operating leverage. Gross margin is provided as 10.5%; we rely on this figure due to inconsistencies between reported gross profit and cost of sales. EBITDA is ¥11.454bn with an EBITDA margin of 6.3%, only slightly above operating margin due to low depreciation (¥0.208bn), indicating an asset-light fixed-asset base typical for developers. Interest expense is ¥1.092bn; interest coverage of 10.3x (OI/interest) is comfortable and reflects the current margin headroom. Ordinary income of ¥10.379bn versus operating income suggests limited non-operating drag, consistent with contained financial costs after interest. Net margin of 3.50% is reasonable for a for-sale housing player, but durability will hinge on pricing power and construction cost control. Effective tax rate is listed as 0.0%, which conflicts with reported income tax expense of ¥1.957bn; using ordinary income as a proxy for pre-tax suggests an implied tax rate near the high teens, indicating the 0.0% is not decision-useful. The mix and cycle likely contributed to margin expansion; sustaining this will depend on sales velocity and input cost stability. Overall, profitability trends are positive, with improved margins and leverage, but vulnerable to cyclical normalization.

Growth Assessment

Revenue grew 20.0% YoY to ¥181.2bn, signaling robust demand and successful project deliveries in H1. Operating income grew 60.8% YoY to ¥11.25bn, outpacing revenue and indicating meaningful efficiency gains or favorable mix. Net income increased 73.9% YoY to ¥6.34bn, benefiting from operating leverage and manageable non-operating charges. Asset turnover of 0.578x is consistent with a working capital-heavy model; sustaining growth will require continuous inventory replenishment. The negative OCF suggests growth is being supported by land acquisition and WIP buildup; timely conversion to cash via settlements is essential for sustainability. Revenue quality appears supported by scale and delivery pace, but the cash conversion lag indicates heightened execution risk if market conditions soften. Outlook hinges on sales absorption, mortgage rate environment, and construction cost trends. Given strong H1, full-year momentum appears constructive if sales velocity remains steady; however, a slower back half could compress margins and elevate inventory risk. Limited visibility into backlog and inventories (unreported) constrains assessment of forward revenue sustainability. Absent investing cash flow detail, capex intensity and land bank additions cannot be precisely quantified. Overall, growth is solid but reliant on continued market depth and disciplined inventory turnover.

Financial Health

Liquidity: Current assets ¥276.4bn vs. current liabilities ¥156.3bn yields a current ratio of 1.77x and reported quick ratio equal to current ratio due to unreported inventories. Working capital stands at ¥120.1bn, offering a cushion for near-term obligations. Solvency: Total liabilities ¥225.8bn vs. equity ¥74.1bn gives D/E of 3.05x and financial leverage (A/E) of 4.23x, typical for developers but indicative of balance-sheet sensitivity to market shocks. Interest coverage at 10.3x is solid, indicating adequate buffer against rising interest costs in the near term. Equity ratio is shown as 0.0% but is clearly not zero based on reported equity; we disregard the 0% figure as not representative. Cash and cash equivalents are unreported; liquidity assessment is therefore incomplete. The company relied on ¥14.5bn of financing inflows to support operations, underscoring dependence on external funding during growth phases. Overall financial health is adequate but leveraged; maintenance of covenant headroom and access to funding are key.

Cash Flow Quality

Earnings quality is mixed: strong accrual earnings growth contrasts with negative operating cash flow (¥-22.389bn), producing an OCF/Net Income ratio of -3.53x. This pattern is common in real estate developers where cash outflows for land and construction precede revenue recognition and cash inflows; however, it increases reliance on financing and elevates liquidity risk if sales slow. Free cash flow cannot be assessed due to unreported investing cash flow; the displayed FCF of 0 should not be interpreted as actual. Working capital appears to be the primary driver of OCF negativity, likely from inventory build and receivables timing (inventories are unreported, limiting granularity). Depreciation is modest (¥0.208bn), indicating limited non-cash add-backs; earnings are not significantly inflated by non-cash items. Financing cash inflow of ¥14.509bn partially funded the OCF deficit, consistent with the sector’s funding model. Key watchpoints: inventory days and turnover (not disclosed), preorder/backlog conversion to cash, and interest paid vs. accrued.

Dividend Sustainability

Reported DPS is ¥0.00 with a payout ratio of 0.0%; given sector norms and the company’s historical propensity to distribute, this likely reflects missing disclosures rather than a definitive suspension. With net income of ¥6.34bn in H1, earnings capacity exists to fund dividends, but negative OCF in the period implies poor near-term FCF coverage for cash distributions absent additional financing or a H2 cash conversion. FCF coverage cannot be computed due to unreported investing cash flows; the shown 0.00x is not decision-useful. Dividend sustainability thus depends on the cadence of settlements in H2, inventory monetization, and funding availability. Policy outlook is indeterminate from the provided data; we assume a pragmatic approach tied to full-year earnings and cash realization.

Risk Assessment

Business Risks:

• Cyclical demand for for-sale housing sensitive to mortgage rates and consumer confidence
• Sales velocity/absorption risk leading to inventory overhang and price discounting
• Construction cost inflation and subcontractor capacity constraints compressing margins
• Land acquisition timing risk impacting cash flow and project IRRs
• Regulatory/zoning changes affecting development timelines and costs
• Supply chain disruptions causing delivery delays

Financial Risks:

• High working capital intensity driving negative OCF and reliance on external financing
• Leverage (D/E 3.05x; A/E 4.23x) amplifying earnings volatility and covenant risk
• Interest rate increases raising funding costs and dampening demand
• Refinancing risk if credit conditions tighten
• Cash balance and liquidity buffers not disclosed, reducing visibility

Key Concerns:

• Negative OCF of ¥22.4bn despite strong earnings growth
• Inconsistencies between reported cost of sales and gross profit; reliance on provided margin metric
• Unreported key items (inventories, cash, investing CF, share data) limiting analytical depth
• Sustainability of margin expansion amid potential cost pressures

Investment Implications

Key Takeaways:

• Strong H1 earnings with operating leverage: OI +60.8% on revenue +20.0%
• Net margin 3.50% and ROE 8.55% supported by 0.578x asset turnover and 4.23x leverage
• Comfortable interest coverage at 10.3x despite leverage
• Negative OCF (¥-22.4bn) underscores dependency on financing and execution on cash conversion
• Balance sheet adequate but geared (D/E 3.05x; working capital ¥120.1bn)
• Data gaps (inventories, cash, investing CF) and a COGS/GP inconsistency temper confidence

Metrics to Watch:

• Sales velocity/contracted sales and cancellation rates
• Inventory days and land bank turnover (once disclosed)
• OCF/NI ratio trajectory and H2 cash conversion
• Gross and operating margins vs. construction cost trends
• Net debt to equity and interest coverage vs. rate environment
• Pre-tax to tax expense alignment (effective tax rate normalization)

Relative Positioning: Within Japan’s for-sale housing developers, KeiAi exhibits above-peer revenue growth and solid operating leverage, with leverage and negative OCF broadly in line with sector norms; near-term positioning hinges on maintaining sales velocity and funding flexibility amid potential rate and cost headwinds.

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