Mitsui Fudosan Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.35T
• Operating Income: ¥218.78B
• Net Income: ¥143.93B
• EPS: ¥54.88

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

Mitsui Fudosan delivered a solid FY2026 Q2, with double‑digit topline growth and stronger operating leverage translating into outsized profit growth. Revenue rose 16.4% YoY to 13,534.2, while operating income increased 29.1% YoY to 2,187.8 and ordinary income grew 33.7% to 1,835.9. Net income surged 72.3% YoY to 1,521.5, lifting the net margin to 11.2%. Operating margin improved to approximately 16.2%, implying expansion of about 158 bps versus the prior year’s implied ~14.6%. Net margin expanded by roughly 365 bps from an implied ~7.6% a year ago, aided by stronger operating performance despite higher non‑operating expenses. EBITDA reached 2,925.9, yielding a 21.6% EBITDA margin and interest coverage of 5.63x, a solid buffer in a rising rate environment. However, earnings quality is a notable concern as operating cash flow was -855.3, resulting in an OCF/net income ratio of -0.56x. The negative OCF likely reflects working capital outflows typical of development activity, but the scale points to timing risk into H2. Balance sheet liquidity appears sound with a current ratio of 196% and working capital of 15,404.1, though leverage remains elevated with D/E at 1.95x and Debt/EBITDA at 10.65x. ROE came in at 4.6%, driven by low asset turnover (0.138) and moderate leverage (2.95x), and ROIC at 2.1% is below the 5% warning threshold and likely below the company’s cost of capital. Non‑operating income was modest (96.9), including dividends (42.0) and interest income (17.9), overshadowed by non‑operating expenses (448.8), primarily interest expense (388.3). The effective tax rate stood high at 38.5%, curbing bottom‑line conversion. Dividend payout is calculated at 56.7%, within a sustainable band, but coverage by FCF cannot be assessed due to missing investing CF, and the negative OCF raises caution. Near‑term performance looks dependent on H2 project deliveries, asset recycling proceeds, and leasing momentum to convert accounting profits into cash. Overall, Q2 shows healthy operating momentum and margin expansion, but weak cash conversion and high leverage temper the quality and sustainability of earnings.

Profitability Analysis

ROE (4.6%) = Net Profit Margin (11.2%) × Asset Turnover (0.138) × Financial Leverage (2.95x). The largest delta YoY appears in net profit margin, given net income growth (+72.3%) far outpaced revenue growth (+16.4%). Operating margin expansion (≈+158 bps to ~16.2%) was the key driver, supported by operating leverage as operating profit grew faster than revenue. Asset turnover remains structurally low (0.138) for a developer with a large balance sheet of investment properties and development inventories (inventories not disclosed), limiting ROE. Financial leverage at 2.95x supports ROE but is near the firm’s balance‑sheet constraints given D/E of 1.95x and Debt/EBITDA of 10.65x. The margin improvement likely stems from a favorable sales mix and the timing of property sales/leasing contributions; this is partially sustainable if leasing spreads and occupancy hold, but sales timing effects are inherently one‑off and lumpy. Watch for SG&A discipline: SG&A totaled 1,322.1; without YoY SG&A, we cannot verify if SG&A growth outpaced revenue, but operating leverage suggests cost containment relative to revenue in the period.

Growth Assessment

Topline growth of 16.4% indicates solid demand across development and leasing businesses, with operating income growth of 29.1% confirming positive operating leverage. Net income growth of 72.3% benefited from margin expansion; non‑operating items were a net drag (non‑operating expenses 448.8 > income 96.9), so the quality of growth is primarily operating. Sustainability hinges on H2 deliveries and leasing trends; developers often exhibit back‑half weighted earnings and cash flows, so Q2’s accounting gains must translate into cash via settlements/closings. Given ROIC at 2.1%, incremental growth needs higher‑return projects or accelerated asset recycling to improve capital efficiency. Ordinary income strength (+33.7%) supports an improving run‑rate, but the high effective tax rate (38.5%) dampens incremental net profit flow‑through. Outlook: momentum is positive if sales backlogs convert and rent revisions/occupancy remain firm, but cash conversion must improve to underpin continued dividend capacity and de‑leveraging.

Financial Health

Liquidity is comfortable: current ratio 195.9% and working capital 15,404.1. Quick ratio equals current ratio (195.9%), reflecting limited inventory disclosure but ample current assets versus current liabilities. Short‑term loans of 6,766.3 are well covered by total current assets (31,467.6), though cash and deposits (1,598.3) alone are below near‑term debt, indicating reliance on ongoing cash inflow/rollover and committed lines. Solvency: D/E at 1.95x is elevated but below the 2.0 warning threshold; vigilance is warranted given Debt/EBITDA of 10.65x. Long‑term loans (24,380.8) dominate the debt stack, which helps mitigate immediate refinancing risk, but interest rate exposure matters as non‑operating interest expense is sizeable (388.3). No off‑balance sheet obligations were reported in the dataset; disclosures such as guarantees or JVs not captured here could add contingent risk.

Cash Flow Quality

OCF of -855.3 versus net income of 1,521.5 yields OCF/NI of -0.56x, a clear quality concern (threshold >0.8). The shortfall likely reflects working capital build and development spend timing rather than core profitability issues; nonetheless, negative OCF increases dependence on financing (financing CF +1,596.8 in the period). FCF cannot be computed due to missing investing CF and capex data. Dividend and buyback coverage from internal cash generation is uncertain this quarter; without asset disposal proceeds or a rebound in OCF, distributions would rely on balance sheet flexibility. No explicit signs of working capital manipulation can be concluded from the limited disclosure, but developers’ OCF volatility around project acquisition and delivery timing should be monitored.

Dividend Sustainability

The calculated payout ratio is 56.7%, within a generally sustainable band (<60%). However, OCF was negative, and investing CF is unreported, so FCF coverage cannot be assessed; near‑term dividend safety depends on H2 cash conversion and potential asset recycling. Balance sheet liquidity (current ratio 196%) provides some cushion, but leverage is already high (D/E 1.95x, Debt/EBITDA 10.65x), limiting room for debt‑funded payouts. Policy outlook likely prioritizes stable/increasing DPS, but sustaining increases would require either stronger OCF from project settlements or proceeds from asset sales to avoid further leverage creep.

Risk Assessment

Business Risks:

• Sales timing risk for development projects leading to earnings and OCF volatility
• Leasing market risk (occupancy and rent spreads) affecting recurring income
• Construction cost inflation compressing project margins
• Asset recycling execution risk (timing and valuation of disposals)

Financial Risks:

• High leverage: D/E 1.95x and Debt/EBITDA 10.65x
• Cash flow risk: OCF/NI -0.56x and reliance on financing CF
• Interest rate risk: interest expense 388.3 and potential refinancing at higher rates
• Maturity mismatch risk: short‑term loans 6,766.3 exceed cash 1,598.3, requiring rollover despite adequate current assets

Key Concerns:

• ROIC at 2.1% (<5% warning) indicates weak capital efficiency
• Earnings quality flagged by negative OCF despite strong NI
• Debt load heightens sensitivity to market and rate cycles
• High effective tax rate (38.5%) reduces net profit conversion

Investment Implications

Key Takeaways:

• Operating momentum strong: revenue +16.4%, operating income +29.1%, ordinary income +33.7%
• Margin expansion notable: operating margin up ~158 bps; net margin up ~365 bps YoY
• Earnings quality weak in Q2: OCF/NI -0.56x and financing CF +1,596.8 funded the gap
• Leverage elevated: D/E 1.95x; Debt/EBITDA 10.65x; interest coverage 5.63x adequate but sensitive to rates
• Capital efficiency low: ROE 4.6%, ROIC 2.1%, asset turnover 0.138
• Liquidity sound: current ratio 196% and working capital 15,404.1, but cash 1,598.3 below ST loans 6,766.3

Metrics to Watch:

• Contracted backlog conversion and H2 project delivery schedule
• Leasing occupancy and rent reversion in key assets
• Asset recycling proceeds and gains on sale
• Operating cash flow recovery and working capital movements
• Debt maturity ladder, average funding cost, and interest coverage
• ROIC trajectory versus hurdle rates and capital allocation discipline

Relative Positioning: Within Japan’s large developers, Mitsui Fudosan exhibits healthy operating growth and margin expansion but trails on capital efficiency (ROIC 2.1%) and carries higher leverage (Debt/EBITDA >10x). Its liquidity profile is stronger than peers with weaker current ratios, but cash conversion in H2 will be pivotal to improving balance sheet resilience and supporting dividends.

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