FORLIFE Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.54B
• Operating Income: ¥301M
• Net Income: ¥160M
• EPS: ¥40.04

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: Solid topline and operating recovery in FY2026 Q2, but headline net profit declined YoY and cash flow quality was weak due to heavy working capital outflows. Revenue rose to 75.45 (億円), up 23.8% YoY, evidencing stronger project deliveries/closings. Gross profit reached 6.95 (億円), and operating income nearly doubled to 3.01 (億円) (+96.6% YoY), indicating improved operating leverage. Ordinary income climbed to 2.56 (億円) (+107.3% YoY), but net income fell 45.4% YoY to 1.60 (億円), pointing to below-the-line pressures not fully detailed. Gross margin stood at 9.2%, and operating margin calculated at 4.0%; absent prior margins, the magnitude of YoY expansion cannot be precisely quantified, though OI growth far outpaced sales. Interest expense was contained at 0.33 (億円), with interest coverage at 9.14x, showing adequate debt service capacity at current earnings. However, operating cash flow was -16.25 (億円), diverging sharply from net profit (OCF/NI -10.16x), flagging earnings quality concerns likely tied to real estate working capital (land acquisition, construction WIP, and timing of handovers). Financially, liquidity appears acceptable with a current ratio of 167.7%, but reliance on short-term borrowings is high (short-term loans 41.71 (億円), D/E 1.40x), requiring vigilant refinancing and project execution. ROE is 4.0% via DuPont (NPM 2.1% × AT 0.723 × leverage 2.59x), and ROIC at 4.1% trails the typical 7–8% target threshold, indicating capital efficiency improvement is needed. The tax rate was 31.1%, and the reported relationship between ordinary income, profit before tax (4.25 (億円)), and net income suggests material non-operating/extraordinary impacts and tax items. Capex was minimal (0.01 (億円)), implying cash use is dominated by working capital rather than fixed investment. Dividend parameters are largely undisclosed, but the calculated payout ratio is 68.8%, which looks high relative to negative OCF. Balance sheet shows cash and deposits of 32.23 (億円) against current liabilities of 55.33 (億円), reinforcing dependence on continuous project turnover and debt lines. Forward-looking, the key swing factor is H2 inventory conversion to cash; if closings normalize, OCF should mean-revert, but high short-term leverage keeps execution risk elevated. Overall, the quarter demonstrates improved core profitability but underwhelming cash conversion and lower bottom-line due to below-the-line factors, necessitating close monitoring of deliveries, working capital, and financing conditions.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 2.1% × Asset Turnover 0.723 × Financial Leverage 2.59x = ROE 4.0%. The most pronounced positive change vs revenue growth appears to be operating leverage, as operating income rose +96.6% on +23.8% sales, implying margin improvement; however, net income fell due to below-the-line items, pulling down NPM at the bottom line. Business drivers: higher handover volume and likely improved project mix supported gross-to-operating margin conversion, while non-operating expenses (interest) and potential extraordinary/tax items constrained net profit. Sustainability: Operating margin gains are conditionally sustainable if construction cost inflation remains manageable and sales pace continues; the net margin drag from below-the-line items may be one-off if driven by extraordinary factors, but interest burden will persist given leverage. Watchpoints: SG&A of 5.42 (億円) grew slower than revenue (not all components disclosed), indicating positive operating discipline; ensure SG&A growth does not outpace revenue in coming quarters. Margin quality: Operating margin around 4.0% in a real-estate centric model remains sensitive to pricing, land costs, and construction input prices. Conclusion: ROE is currently leverage-supported with modest NPM; elevating ROE requires improving net margin (via stable gross margins and limiting below-the-line drags) and maintaining asset turnover through timely project completions.

Growth Assessment

Revenue growth of +23.8% YoY to 75.45 (億円) signals robust demand and/or accelerated closings. Operating income growth of +96.6% outpaced sales, evidencing operating leverage and likely better mix or cost control. Ordinary income rose +107.3% YoY, but the net income decline (-45.4% YoY to 1.60 (億円)) indicates material below-the-line impacts (extraordinary/tax) that masked operating improvements. Non-operating structure shows interest expense of 0.33 (億円) largely driving non-operating expenses; non-operating income was minimal (0.04 (億円)). With capex negligible, growth is primarily balance-sheet driven via inventory/land bank, reflected in negative OCF. Outlook hinges on H2 delivery cadence; converting WIP to revenue and cash is critical to sustain growth without further leveraging. Risks to growth include construction cost inflation, sales pace moderation, and tighter credit conditions affecting buyers and the company. Absent backlog disclosure, revenue sustainability into H2 cannot be confirmed; however, current leverage and working capital deployment imply a pipeline exists that needs monetization.

Financial Health

Liquidity: Current ratio 167.7% and quick ratio 167.7% indicate adequate near-term coverage; no warning on Current Ratio < 1.0. Cash and deposits stand at 32.23 (億円) versus current liabilities 55.33 (億円); reliance on short-term loans (41.71 (億円)) is high, creating refinancing and maturity mismatch risk if inventory conversion slows. Solvency: D/E at 1.40x is within typical real estate developer ranges but elevated; no D/E > 2.0 warning. Interest coverage is strong at 9.14x on current earnings, but sensitive to rate increases or earnings volatility. Balance sheet composition: Total assets 104.42 (億円) with equity 40.24 (億円) implies leverage 2.59x. Maturity mismatch: Short-term debt materially exceeds cash; coverage depends on receivable/inventory liquidation (not disclosed). Off-balance sheet: No data on guarantees, JVs, or purchase commitments; potential land purchase commitments may exist but are unreported.

Cash Flow Quality

OCF was -16.25 (億円) against net income of 1.60 (億円), yielding OCF/NI of -10.16x, a clear quality flag. The negative OCF likely stems from working capital build (land acquisition, construction WIP) typical in real estate cycles, not from capex (capex only 0.01 (億円)). With investing CF unreported and financing CF at +9.50 (億円), cash needs were covered by additional borrowing/financing. Free cash flow is not computable given missing investing CF, but directionally negative given OCF. Dividend and buyback cash outflows are undisclosed; sustainability must be assessed conservatively given current cash burn. No obvious signs of deliberate working capital manipulation can be concluded from disclosed data; however, the scale of OCF outflow versus profit requires H2 reversals via deliveries to validate earnings quality.

Dividend Sustainability

Dividend details (DPS, total dividend) are unreported; calculated payout ratio stands at 68.8%, which is above the <60% benchmark for comfort. With negative OCF in H1, dividend coverage from internal cash generation appears weak near term; funding would rely on cash on hand or financing. Given minimal capex needs, sustainability hinges on H2 OCF recovery through project completions. Policy outlook is unclear due to missing disclosures; prudence suggests the payout trajectory should align with cash conversion rather than accounting profit. Until OCF normalizes, dividend headroom is constrained.

Risk Assessment

Business Risks:

• Project execution and delivery timing risk affecting recognition of revenue and cash inflows.
• Construction cost inflation compressing gross margins (current GM 9.2%).
• Demand sensitivity in housing/real estate markets impacting sales pacing.
• Land acquisition and pipeline replenishment risk leading to volatile working capital needs.

Financial Risks:

• High reliance on short-term loans (41.71 億円) creating refinancing and liquidity risk.
• Negative operating cash flow (-16.25 億円) versus positive earnings, raising earnings quality concerns.
• Interest rate risk on floating-rate short-term debt; interest expense currently 0.33 億円.
• Leverage at D/E 1.40x; ROIC at 4.1% below cost-of-capital benchmarks may pressure value creation.

Key Concerns:

• Net income declined 45.4% YoY despite strong operating recovery, implying material below-the-line impacts.
• OCF/NI at -10.16x indicates low cash conversion and dependence on financing.
• Maturity mismatch: cash 32.23 億円 vs current liabilities 55.33 億円.
• Limited disclosure on inventories/receivables and extraordinary items reduces transparency.

Investment Implications

Key Takeaways:

• Core operations improved (OI +96.6% YoY) on +23.8% revenue growth, demonstrating operating leverage.
• Bottom-line softness (-45.4% YoY NI) and negative OCF overshadow operational gains.
• Leverage and short-term funding reliance remain key sensitivities despite acceptable liquidity ratios.
• ROE at 4.0% and ROIC at 4.1% highlight need for better net margins and asset turnover.

Metrics to Watch:

• H2 deliveries/closings and contract backlog conversion to OCF.
• Gross margin trajectory by project and construction cost trends.
• Working capital (land/WIP) movements and OCF/NI ratio normalization toward >1.0.
• Short-term debt rollover, average interest rate, and interest coverage.
• Extraordinary items and tax effects bridging ordinary income to net income.

Relative Positioning: Within Japanese small-cap real estate developers, the company shows stronger H1 operating momentum but weaker cash conversion and lower capital efficiency, with higher-than-ideal payout relative to cash generation; resilience depends on H2 monetization of inventory and disciplined funding.

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