COSMOS INITIA Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥64.88B
• Operating Income: ¥6.59B
• Net Income: ¥4.05B
• EPS: ¥121.40

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: Strong Q2 with healthy topline growth and margin expansion, but cash flow quality weakened and leverage remains elevated. Revenue rose 3.6% YoY to 648.8, while operating income grew faster at 11.2% YoY to 65.9, demonstrating positive operating leverage. Ordinary income increased 14.8% YoY to 60.6 and net income advanced 17.4% YoY to 41.1, reflecting improved profitability and a benign non-operating line despite higher interest expenses. The operating margin reached 10.2% (65.9/648.8), up roughly 69 bps from an estimated 9.5% a year ago. Ordinary income margin improved to 9.3% from 8.4% (about +91 bps), and net margin rose to 6.3% from 5.6% (about +74 bps). Gross profit margin stood at 24.6%, underpinning the stronger operating performance, though YoY gross margin comparison is not disclosed. ROE printed at 7.7%, in line with the calculated DuPont result, supported by higher net margins and sizable financial leverage (3.44x). ROIC, however, is 4.3%, below the 5% warning threshold and indicates capital efficiency remains a key improvement area. Operating cash flow was negative at -49.7 versus positive net income of 41.1, driving an OCF/NI ratio of -1.21x (a quality flag), likely due to real estate working capital build (project inventory and land acquisition timing). Liquidity is ample with a current ratio of 249%, but solvency pressure is visible with D/E at 2.44x and Debt/EBITDA at 11.4x. Interest coverage remains comfortable at 9.7x, but sensitivity to interest rates and refinancing persists. Non-operating income (6.27) was largely dividend income (5.16), cushioning ordinary income, though the overall non-operating balance was a net expense due to interest costs. EPS (basic) was 121.4 JPY; book value per share is 1,576 JPY, implying moderate valuation support from tangible equity. The quarter’s achievements indicate resilient core demand and disciplined SG&A, but the negative OCF raises near-term cash discipline questions. Looking ahead, sustaining the improved margin profile while normalizing cash conversion and lifting ROIC above 5% will be the key to rerating.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.7% = Net Profit Margin 6.3% × Asset Turnover 0.353 × Financial Leverage 3.44x. The biggest identifiable change YoY is margin expansion: operating income grew 11.2% vs revenue 3.6%, lifting operating margin to 10.2% from an estimated 9.5% (+~69 bps). Ordinary income margin also expanded by ~91 bps to 9.3%, and net margin rose ~74 bps to 6.3%, implying improved cost discipline and mix. Asset turnover is low at 0.353, typical for a real estate developer with large inventories/land banks; we lack prior-period balance data to quantify YoY movement, but the negative OCF suggests asset intensity likely increased, weighing on turnover. Financial leverage is high at 3.44x and remains a material contributor to ROE; with Debt/EBITDA at 11.4x, leverage is amplifying returns but adds risk. Business drivers: better operating leverage (SG&A 93.5 vs gross profit 159.4) and stable gross spread supported OPM expansion, while dividend income (5.16) offset some financing costs within non-operating results. Sustainability: margin gains appear operationally driven and could persist if pricing and cost control continue; however, real estate cycles and construction cost inflation could compress margins. Watch for SG&A growth vs revenue—current data do not show SG&A YoY, but given OPM expansion with modest revenue growth, SG&A likely grew slower than revenue this quarter.

Growth Assessment

Revenue growth of 3.6% YoY to 648.8 indicates steady demand, likely driven by project deliveries within the period. Profit growth outpaced sales, with operating income +11.2% and net income +17.4%, pointing to mix/pricing and cost execution. Operating margin improved to 10.2%, indicating positive operating leverage; ordinary and net margins also improved. Non-operating income was supportive via dividends (5.16), but higher interest expense (6.77) constrained ordinary profit; nonetheless, ordinary income rose faster than operating income. Growth quality is mixed: earnings expansion is solid, but cash conversion was weak (OCF -49.7) likely due to working capital build common in real estate (land acquisitions/project WIP). Sustainability will depend on project pipeline delivery cadence and sales velocity in H2; if inventory turns normalize, cash generation should improve. Outlook: with ROIC at 4.3%, additional portfolio pruning or improved capital turnover is needed to underpin mid-term profit growth; emphasis should be on disciplined land buying and faster sell-through.

Financial Health

Liquidity is strong: current assets 1,711.2 vs current liabilities 687.6 yield a current ratio of 249% (well above the 1.5x healthy threshold). Quick ratio is also 249% per provided metric (note: inventory not disclosed), supported by cash and deposits of 283.3. Solvency: D/E at 2.44x is high (warning >2.0), and Debt/EBITDA at 11.4x suggests elevated leverage relative to earnings. Interest coverage is solid at 9.7x (EBIT/interest), mitigating near-term servicing risk. Maturity profile: short-term loans of 213.4 are comfortably covered by current assets; however, the business model relies on refinancing and project cash cycles, implying some maturity-mismatch risk if market liquidity tightens. Noncurrent liabilities are sizable at 614.2 with long-term loans of 554.6, anchoring leverage at the structural level. Equity totals 534.2, with retained earnings 416.8, providing a moderate capital buffer. No off-balance sheet obligations are disclosed in the data; contingent liabilities or commitments (common in development) are not reported here.

Cash Flow Quality

OCF of -49.7 vs net income of 41.1 yields OCF/NI of -1.21x, flagging weak earnings quality this quarter (likely working capital build from land acquisition and development spend). Capex was modest at -2.0, indicating the cash drain is primarily operating/inventory-related rather than fixed asset investment. While Free Cash Flow is not reported, a proxy of OCF minus capex implies around -51.7, which would not cover dividends or debt reduction if sustained. Working capital behavior is consistent with project build-up in real estate; no signs of revenue recognition pull-forward can be confirmed from the data, but the divergence warrants monitoring in subsequent quarters. Financing CF of +60.0 suggests reliance on external funding to bridge operating cash needs, typical but increases sensitivity to credit conditions. Sustainability: normalization is expected as projects complete and cash is collected; failure to reverse OCF into positive territory in H2 would be a concern.

Dividend Sustainability

Dividend amounts are unreported, but a calculated payout ratio of 24.7% indicates conservative coverage on an earnings basis. Given negative operating cash flow this quarter, near-term cash coverage is uncertain; however, the modest capex burden and availability of financing provide flexibility. With ROE at 7.7% and leverage high, management has room to maintain dividends if cash conversion improves in H2; otherwise, priority may shift to balance sheet resilience. Policy outlook cannot be inferred from the data; absent DPS disclosures, we assume a stable-to-cautious stance linked to project cash timing.

Risk Assessment

Business Risks:

• Real estate cycle risk impacting sales velocity and pricing
• Construction cost inflation compressing margins
• Project concentration and timing risk affecting quarterly earnings/OCF
• Inventory (land/WIP) valuation risk amid market shifts

Financial Risks:

• High leverage: D/E 2.44x and Debt/EBITDA 11.4x increase refinancing and rate sensitivity
• Negative OCF (-49.7) vs NI (+41.1) heightens liquidity reliance on financing
• Interest rate increases could erode interest coverage (currently 9.7x)
• Potential maturity mismatch if project cash inflows are delayed

Key Concerns:

• ROIC at 4.3% below 5% warning threshold indicates subpar capital efficiency
• OCF/NI at -1.21x flags earnings quality and cash conversion risk
• Non-operating reliance on dividend income (5.16) may be volatile
• Lack of disclosure on inventories and detailed SG&A limits transparency

Investment Implications

Key Takeaways:

• Margin expansion drove double-digit operating and net profit growth despite modest sales growth
• Cash flow quality deteriorated due to working capital build; watch for H2 reversal
• Leverage is structurally high; interest coverage is adequate but sensitive to rates
• ROIC below 5% underscores need for better capital turnover or portfolio optimization
• Liquidity cushion is strong, mitigating near-term funding stress

Metrics to Watch:

• Operating cash flow trajectory and inventory/land bank movements
• Debt/EBITDA and net debt trends vs project deliveries
• Operating and net margin sustainability amid cost inflation
• ROIC progression toward/above 5–7%
• Interest coverage sensitivity to rising funding costs
• Sales bookings/pre-sales and cancellation rates (if disclosed) in H2

Relative Positioning: Within Japan real estate developers, the company exhibits above-average margin momentum and solid liquidity, but stands on the higher end of leverage with below-peer ROIC, making execution on cash conversion and capital efficiency the key differentiators for the next quarters.

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