Agratio urban design Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥16.25B
• Operating Income: ¥1.48B
• Net Income: ¥875M
• EPS: ¥152.05

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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 solid top-line and operating profit beat in FY2026 Q2, but cash flow weakness and elevated leverage temper the quality of the quarter. Revenue rose 20.5% YoY to 162.5, supported by stronger deliveries, lifting operating income 36.7% YoY to 14.8. Gross profit reached 29.6 for an 18.2% gross margin. Operating margin improved to 9.1%, translating to roughly 108 bps of margin expansion versus an estimated 8.0% in the prior-year period. Ordinary income increased 40.0% YoY to 12.8 despite non-operating expenses of 2.23 largely driven by interest expense of 2.17. Net income climbed 40.1% YoY to 8.74, implying a 5.4% net margin. Interest coverage remained healthy at 6.8x (EBIT/interest), indicating near-term debt service capacity is intact. Balance sheet scale expanded to total assets of 343.0 with current assets of 335.7, and cash of 59.4. Liquidity ratios appear comfortable on a current basis (current ratio 171.6%), though structurally reliant on inventory monetization given the business model. Leverage is high: D/E is 3.54x and estimated equity ratio is about 22%, highlighting solvency risk if sales slow. Operating cash flow was -17.8, sharply diverging from net income (OCF/NI -2.04x), pointing to working capital build (likely land/housing inventory) and weaker earnings quality in the quarter. Capex was minimal at 0.03 and financing cash inflow of 5.55 suggests continued use of borrowings to fund working capital. ROE, calculated via DuPont, was 11.6% (net margin 5.4% × asset turnover 0.474 × leverage 4.54x), with margin expansion the key driver. ROIC was 6.2%, below the 7–8% target range, implying value creation depends on sustaining margins and improving asset turnover. Looking ahead, the outlook hinges on successful conversion of inventory to cash, cost control amid construction inflation, and interest rate dynamics; without OCF normalization, dividend flexibility and leverage metrics could tighten.

Profitability Analysis

ROE decomposition: Net profit margin 5.4% × Asset turnover 0.474 × Financial leverage 4.54x = ROE 11.6%. The biggest change driver appears to be margin expansion: operating margin rose to 9.1% from an estimated 8.0% in the prior-year period (~+108 bps), outpacing revenue growth. Business reason: better mix/price realization and operating leverage (OI +36.7% vs revenue +20.5%) and contained SG&A ratio (SG&A/revenue ~9.1%). Asset turnover at 0.474 reflects a balance sheet weighted to current assets typical for a developer; we do not have prior AT but it likely remained broadly stable given similar business scale dynamics. Leverage at 4.54x magnifies ROE but also raises risk; this is structural for the model, not a one-off. Sustainability: Margin gains may persist if pricing holds and cost inflation is managed, but are sensitive to housing demand and construction costs. Red flags: Non-operating expenses (interest) rose with debt usage; and although SG&A absolute value increased to 14.86, OI grew faster than sales, suggesting positive operating leverage this quarter. Watch for any reversal if sales growth slows while fixed costs remain elevated.

Growth Assessment

Revenue grew 20.5% YoY to 162.5, indicating solid demand and/or higher unit deliveries/pricing. Operating income rose 36.7% to 14.8, evidencing operating leverage and improved mix. Gross profit of 29.6 supports an 18.2% GPM, adequate for a mid-sized developer. Net income advanced 40.1% to 8.74, with the net margin at 5.4%. The spread between OI growth and sales growth points to efficiency gains, but the negative OCF implies the growth was funded by balance sheet expansion (likely land acquisition/unsold inventory). Interest expense of 2.17 partially offset gains; rising rates could pressure growth contribution from EBIT. Ordinary income of 12.8 (+40.0%) confirms broad-based improvement beyond operating performance. Near-term outlook depends on contract backlog conversion and handover schedule in H2; revenue recognition timing can cause lumpiness. With ROIC at 6.2% (below 7–8% targets), sustained growth needs better capital turnover or lower capital intensity. Absent data on inventories and backlog, we assume growth is supported by pipeline but remains sensitive to macro housing demand and construction costs. Overall, growth is positive but cash-intensive; focus should be on monetization pace and disciplined land purchases.

Financial Health

Liquidity: Current ratio 171.6% and quick ratio 171.6% (receivables minimal at 0.13) indicate ample current asset coverage of current liabilities. No warning on current ratio (<1.0) applies. Solvency: D/E 3.54x is high (explicit warning threshold >2.0). Estimated equity ratio ~22.0% (equity 75.5 / assets 343.0), indicating a leveraged balance sheet typical of developers. Interest coverage 6.8x is strong vs 5x benchmark, but susceptible to EBIT volatility. Maturity profile: Short-term loans 76.5 and current liabilities 195.7 are well covered by current assets 335.7 and cash 59.4; however, cash is slightly below short-term loans, implying reliance on inventory liquidation/refinancing. Noncurrent liabilities 71.8 include long-term loans 70.2, suggesting staggered maturities but sustained debt load. Off-balance sheet obligations: Not disclosed; potential commitments for land purchase and construction contracts may exist but are unreported.

Cash Flow Quality

OCF was -17.8 versus net income of 8.74 (OCF/NI -2.04x), a quality flag. Likely drivers are working capital outflows: land acquisition and build-up of work-in-process/finished inventory, which is typical but raises execution risk if sell-through slows. Capex was negligible at 0.03, so negative OCF effectively implies negative FCF in the quarter. Financing CF +5.55 indicates incremental borrowing to bridge working capital. Sustainability: Dividend and debt service rely on timely inventory monetization; absent a rebound in OCF, external funding needs persist. Working capital manipulation signs: None evident from available data; receivables are de minimis (0.13), reducing collection risk, but lack of disclosed inventory details limits assessment. Expect OCF to normalize in delivery-heavy quarters; monitor OCF/NI >1.0 over the next two quarters to validate earnings quality.

Dividend Sustainability

Calculated payout ratio is 63.2%, slightly above the <60% benchmark and tight for a cyclical, cash-intensive developer. With OCF negative in H1, dividends are not covered by FCF this period; coverage is contingent on H2 cash inflows from settlements. Retained earnings of 68.1 and equity of 75.5 provide some buffer, but leverage (D/E 3.54x) argues for conservative cash returns until OCF improves. DPS and total dividends paid are unreported; assessment is based on payout ratio and cash flow profile. Policy outlook: Stable-to-cautious, with potential adjustment if inventory turnover or margins weaken, or if interest costs rise.

Risk Assessment

Business Risks:

• Housing demand cyclicality affecting sales velocity and pricing
• Construction cost inflation compressing gross margins
• Project execution and delivery timing risk leading to revenue lumpiness
• Geographic concentration risk (not disclosed) potentially amplifying local market shifts

Financial Risks:

• High leverage (D/E 3.54x) increasing solvency and refinancing risk
• Negative operating cash flow (OCF/NI -2.04x) indicating funding reliance on debt
• Short-term debt exposure (76.5) exceeding cash (59.4), requiring inventory monetization or rollovers
• Interest rate risk as 2.17 in interest expense already weighs on profits

Key Concerns:

• ROIC at 6.2% below 7–8% target range, risking value creation if sustained
• Potential maturity mismatch if sales/collections lag against current liabilities
• Limited disclosure (inventories, investing CF, DPS) obscuring capital allocation and pipeline visibility

Investment Implications

Key Takeaways:

• Strong H1 top-line growth (+20.5%) with operating leverage (OI +36.7%) and ~+108 bps operating margin expansion
• Earnings quality weak near term with OCF -17.8 vs NI 8.74
• Leverage elevated (D/E 3.54x; equity ratio ~22%), though interest coverage remains 6.8x
• ROE 11.6% supported by margin gains and high leverage; ROIC 6.2% below target
• Liquidity adequate on a current basis (current ratio 171.6%) but dependent on inventory turnover

Metrics to Watch:

• Backlog/contracted sales and handover schedule for H2
• Inventory levels and turnover (currently not disclosed)
• OCF/NI ratio trending back above 1.0
• Debt maturity ladder, average interest rate, and interest coverage
• Gross margin per project and SG&A ratio stability

Relative Positioning: Among small/mid-cap Japanese residential developers, the company shows decent profitability and operating leverage but carries higher-than-desired financial leverage and weaker cash conversion this quarter; sustaining growth without overextending the balance sheet will be the differentiator.

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