FaithNetwork Co.,Ltd FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.62B
• Operating Income: ¥757M
• Net Income: ¥-31M
• EPS: ¥12.11

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

Face Network (3489) reported FY2026 Q2 (cumulative) results showing solid top-line growth with sharp operating leverage, but cash flow remained deeply negative due to working-capital build consistent with a development-cycle business. Revenue rose 6.5% YoY to ¥8.62bn, while operating income surged 250.4% YoY to ¥0.76bn, indicating meaningful margin recovery from a weak prior-year base. Gross profit was ¥1.53bn, implying a gross margin of 17.7%, and operating margin expanded to 8.8%, supported by selling price/mix and cost control. Ordinary income of ¥0.54bn reflects a notable interest burden (¥0.14bn), which compressed the gap between operating and ordinary profit. Net income was ¥0.36bn (+22.8% YoY), with EPS of ¥12.11; the smaller growth in net versus operating profit underscores financing costs and non-operating items. Depreciation was modest at ¥31.9m, consistent with a relatively low fixed-asset intensity model typical of a developer focused on project inventory rather than heavy plant. ROE stands at 3.91% via DuPont (NPM 4.15%, ATO 0.245x, leverage 3.84x), indicating that leverage, rather than margin or turnover, is the primary driver of returns. The reported current ratio appears very high at 388%, but several working-capital line items (e.g., inventories, cash) are undisclosed in the dataset; therefore, the apparent liquidity strength may not fully reflect actual cash on hand. Total assets were ¥35.19bn and total liabilities ¥20.27bn, with total equity of ¥9.16bn; by calculation the equity ratio is approximately 26% (equity/assets), despite the disclosed field showing 0% (unreported). Operating cash flow was a significant outflow at -¥6.59bn, likely driven by land acquisition and project build-up; financing inflow of ¥4.09bn partly funded this expansion. Interest coverage is 5.4x (EBITDA basis), adequate but sensitive to rate conditions and progress on completions. Effective tax rate appears near 0% this period due to a small negative tax line (timing/deferred items), not a structural rate. Dividend per share is currently nil, consistent with reinvestment needs and cash flow seasonality in the first half. Given the developer business model, earnings are lumpy and heavily weighted to project deliveries; the H2 delivery schedule will be crucial for margins, cash conversion, and leverage trajectory. Data limitations (notably zero-reported inventories, cash, equity ratio, and share counts) constrain precision; analysis herein relies on available non-zero items and calculated relationships. Overall, profitability momentum has improved, but near-term investment and working-capital absorption elevate funding needs and execution risk into the second half.

Profitability Analysis

ROE decomposes to 3.91% = 4.15% net margin × 0.245x asset turnover × 3.84x financial leverage. The net margin of 4.15% reflects improved operating performance (operating margin ~8.8%) offset by a meaningful interest burden (¥139.5m) and other non-operating items that narrow the gap to ordinary profit. Gross margin at 17.7% indicates healthy project-level economics; the step-up in operating income (+250% YoY) points to operating leverage from a higher mix of completed/delivered units and disciplined SG&A. EBITDA of ¥788.9m (margin 9.2%) vs operating income of ¥757.0m shows low D&A, so operating cash generation relies more on project turnover than on non-cash charges. The spread between operating and ordinary profit highlights financing costs as a key profit limiter; maintaining interest coverage above 4–5x will be important. Asset turnover of 0.245x is low and typical for developers carrying substantial work-in-process; acceleration of deliveries is required to enhance turnover and ROE. Overall margin quality appears to have improved YoY, but sustainability depends on pricing discipline, construction cost control, and timely closings.

Growth Assessment

Revenue grew 6.5% YoY to ¥8.62bn, driven by higher delivery volume/mix rather than broad-based price inflation. Operating income growth of +250.4% YoY (to ¥757m) indicates strong operating leverage from better absorption of fixed costs and improved project mix. Net income growth of +22.8% YoY to ¥358m lagged operating profit due to higher interest and non-operating items. Given the developer model, revenue recognition is inherently lumpy; H2 tends to carry more completions, suggesting scope for further growth if the delivery pipeline remains on track. Profit quality is acceptable at the operating level, but the negative OCF suggests growth is being funded by balance sheet expansion, not yet by internal cash generation. Outlook hinges on land bank monetization, sales pace, and construction schedules; any delays or cost overruns could defer revenue and pressure margins. Absent detailed backlog/pre-sale data in this dataset, we assume moderate revenue growth continuity with potential volatility around completion timing.

Financial Health

Total assets: ¥35.19bn; total liabilities: ¥20.27bn; total equity: ¥9.16bn. Calculated equity ratio is roughly 26% (9.161/35.193), noting the disclosed 0% figure is an unreported placeholder. Debt-to-equity (using total liabilities) is 2.21x, indicating a leveraged but not atypical capital structure for a small-cap developer. Current assets reported at ¥26.39bn vs current liabilities of ¥6.80bn yield a current ratio of 388%; however, cash and inventories are unreported in the dataset, so true liquidity cannot be precisely assessed. Working capital of ¥19.60bn suggests capacity to fund near-term projects, but actual drawdown ability depends on the composition of current assets (not disclosed). Interest expense of ¥139.5m vs EBITDA of ¥788.9m gives 5.4x coverage, adequate but sensitive to rate increases or EBITDA volatility. Overall solvency appears manageable with mid-20s equity ratio by calculation, but refinancing and rollover risk remains given the development cycle reliance on short-duration borrowings.

Cash Flow Quality

Operating cash flow was -¥6.59bn, a large outflow consistent with project inventory build (land acquisition and construction in progress) typical for the first half in development businesses. Investing cash flow is unreported (0), and cash/equivalents are unreported (0), limiting a full reconciliation. The OCF/Net Income ratio of -18.4x indicates that accounting earnings have not converted to cash this period, mainly due to working-capital absorption rather than accrual-quality issues; D&A is small, so non-cash earnings adjustments are limited. Free cash flow is shown as 0 (unreported); based on the sizable OCF outflow and the usual low investing CF for developers, underlying FCF is likely negative in H1 absent significant asset sales. Working-capital dynamics (especially inventories/real estate for sale) are the main swing factor; detailed inventory and advances data are not available here. Cash flow quality will improve only as projects are completed and units transferred, releasing cash and reducing debt.

Dividend Sustainability

Annual DPS is currently ¥0.00 with a 0.0% payout ratio, consistent with prioritizing reinvestment and balance-sheet funding needs. Given significant negative OCF in H1 and the capital intensity of the model, near-term dividend capacity depends on H2 cash generation from deliveries. FCF coverage is shown as 0.00x (unreported), but underlying coverage is likely insufficient in the interim. Without visibility into year-end cash flows and retained earnings policy, sustained dividends appear secondary to growth funding and deleveraging. We assume the company will emphasize reinvestment and maintaining adequate liquidity until cash conversion improves.

Risk Assessment

Business Risks:

• Project timing risk leading to lumpy revenue recognition and cash flows
• Construction cost inflation and subcontractor availability impacting margins
• Land acquisition and entitlement risks in core Tokyo submarkets
• Sales/lease-up risk and price elasticity amid macro uncertainty
• Concentration risk if projects are geographically clustered
• Supply chain and permitting delays affecting delivery schedules

Financial Risks:

• Interest rate and refinancing risk given reliance on debt funding
• Cash flow volatility with large negative OCF during build phases
• Potential covenant pressure if EBITDA weakens or projects are delayed
• Asset valuation risk on real estate for sale/work-in-process
• Liquidity opacity due to limited disclosure of cash and inventory details in the dataset

Key Concerns:

• Negative operating cash flow of -¥6.59bn requiring continued external financing
• Interest expense of ¥139.5m materially reducing ordinary income
• Low asset turnover (0.245x) constraining ROE despite leverage
• Data gaps (cash, inventories, shares) limiting precision of liquidity and per-share analysis

Investment Implications

Key Takeaways:

• Strong rebound in operating profit (+250% YoY) with operating margin ~8.8%
• Gross margin at 17.7% suggests healthy project-level economics
• ROE of 3.91% is leverage-driven; turnover remains weak at 0.245x
• OCF deeply negative (-¥6.59bn), reflecting inventory build and development cycle
• Interest coverage at 5.4x is adequate but sensitive to rate moves and delivery timing
• Calculated equity ratio around 26% (despite unreported figure), implying manageable solvency

Metrics to Watch:

• H2 delivery schedule and contracted backlog/pre-sales ratio
• Operating cash flow trajectory and inventory turnover
• Interest-bearing debt levels, average borrowing cost, and maturities
• Gross margin by project and construction cost trends
• Ordinary income vs operating income gap (interest burden)
• Equity ratio and net debt/EBITDA as year-end approaches

Relative Positioning: Within Japan small/mid-cap real estate developers, Face Network shows improving operating margins and adequate interest coverage but weaker cash conversion in H1; leverage is typical for the model, while returns are constrained by low asset turnover pending accelerated deliveries.

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