STARTS CORPORATION INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥118.58B
• Operating Income: ¥16.02B
• Net Income: ¥12.39B
• EPS: ¥224.96

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

Starts Corporation Inc. (TSE: 8850) reported FY2026 Q2 consolidated results under JGAAP with solid top-line growth and resilient operating performance, while bottom-line contracted due to non-operating and tax effects. Revenue rose 8.9% year on year to ¥118.6bn, reflecting steady demand across real estate–related services and solutions. Gross profit reached ¥36.6bn, implying a gross margin of 30.9%, indicative of disciplined pricing and cost control despite input cost pressures in construction- and service-related lines. Operating income increased 6.3% YoY to ¥16.0bn, translating to an operating margin of about 13.5%, a strong level for a diversified real estate services model. Ordinary income was ¥16.5bn, only modestly above operating income, implying limited contribution from non-operating items. Net income declined 9.9% YoY to ¥10.8bn as higher tax burden and/or below-the-line items compressed the bottom line despite better operations. Based on the provided tax expense of ¥5.4bn, the effective tax rate is roughly in the low 30s, which likely rose versus the prior year given the net income decline. The DuPont profile shows net margin at 9.14%, asset turnover at 0.353x, and financial leverage at 1.81x, yielding ROE of 5.83%, consistent with the reported DuPont calculation. Liquidity is robust with a current ratio of 165% and working capital of approximately ¥61.9bn, supporting project execution and cyclical resilience. Capital structure appears conservative; with equity of ¥185.9bn and total assets of ¥335.9bn, the implied equity ratio is about 55% (the reported 0.0% is an undisclosed placeholder), and interest coverage is a strong 92.6x, indicating minimal refinancing stress. Operating cash flow of ¥12.7bn exceeds net income (OCF/NI = 1.17), suggesting healthy earnings quality and good working capital discipline in the period. EBITDA of ¥19.3bn (16.3% margin) underscores low financial risk given modest interest expense of ¥0.17bn. Dividend information (DPS, payout) is not disclosed for the period; therefore, dividend sustainability cannot be assessed from the dataset. Several items are undisclosed in the XBRL (e.g., cash and equivalents, investing cash flows, inventories, share count), constraining per-share and free cash flow analysis. Overall, Starts is executing well operationally with strong balance sheet metrics and good cash conversion, though ROE remains mid-single digit and bottom-line volatility from taxes/non-operating items bears monitoring.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 9.14%
• asset_turnover: 0.353x
• financial_leverage: 1.81x
• calculated_ROE: 5.83%
• commentary: ROE is primarily constrained by moderate asset turnover and a conservative leverage profile. Margin quality is solid, but not enough to lift ROE into high single digits without higher turnover or more leverage. margin_quality:
• gross_margin: 30.9%
• operating_margin: ≈13.5%
• EBITDA_margin: 16.3%
• net_margin: 9.14%
• insights: Gross and operating margins indicate disciplined cost control and pricing power. The modest gap between operating and ordinary income suggests limited reliance on non-operating gains, which is positive for quality. operating_leverage: Revenue growth of 8.9% versus operating income growth of 6.3% implies slight negative operating leverage in the half, likely reflecting mix or higher SG&A; however, absolute margin levels remain strong.

Growth Assessment

revenue_sustainability: Top-line growth of 8.9% YoY appears broad-based, consistent with stable demand in real estate services and development support. Sustainability will hinge on order backlog, occupancy/vacancy trends, fee-based management revenues, and construction pipeline. profit_quality: Operating profit growth lagged revenue, but margins remain robust, indicating healthy underlying operations. Net income decline despite operating growth points to below-the-line and tax dynamics rather than core deterioration. outlook: Assuming steady macro and real estate activity, mid- to high-single-digit revenue growth is plausible, with operating margins in the low to mid-teens. Key swing factors are tax rate normalization, construction/material cost trends, and non-operating items.

Financial Health

liquidity:

• current_ratio: 164.8%
• quick_ratio: 164.8% (inventories undisclosed)
• working_capital: ¥61.9bn
• commentary: Short-term liquidity is strong, providing ample buffer for project working capital and seasonality. solvency_capital_structure:
• total_assets: ¥335.9bn
• total_equity: ¥185.9bn
• total_liabilities: ¥155.4bn
• implied_equity_ratio: ≈55% (calculated from disclosed assets/equity)
• debt_to_equity: 0.84x (provided)
• interest_coverage: 92.6x
• commentary: Balance sheet is conservatively capitalized with low financial risk; coverage metrics are very strong.

Cash Flow Quality

earnings_quality: OCF/Net income of 1.17 indicates good conversion and low accrual risk in the half. FCF_analysis: Free cash flow cannot be reliably computed due to undisclosed investing cash flows and capex; the reported FCF of 0 reflects missing data, not economic zero. working_capital: Positive OCF suggests favorable working capital management; however, detailed drivers (inventories/receivables/payables) are undisclosed.

Dividend Sustainability

payout_ratio_assessment: Payout and DPS are undisclosed in the dataset (0.00 placeholders). With EPS of ¥224.96 and solid liquidity, the company appears capable of distributions, but actual policy cannot be inferred here. FCF_coverage: Not assessable due to missing investing cash flow and capex data; the 0.00x shown is an artifact of undisclosed items. policy_outlook: No update available from provided data. Future assessment should reference management guidance, historical payout policy, and confirmed FCF.

Risk Assessment

Business Risks:

• Real estate cycle sensitivity affecting transactions, development activity, and occupancy.
• Construction/material cost inflation pressuring gross margins.
• Labor availability and subcontractor capacity constraints in construction/services.
• Regulatory changes in property, leasing, brokerage, and tax regimes.
• Project execution and timing risk impacting quarterly revenue recognition.
• Tenant/occupancy risk in property management and leasing-related services.
• Natural disaster exposure impacting properties and project schedules.

Financial Risks:

• Potential variability in tax rate and below-the-line items compressing net income.
• Exposure to interest rate changes, though current interest burden is low.
• Working capital swings tied to project timing could affect OCF intra-year.
• Valuation risk on real estate-related assets amid market volatility.

Key Concerns:

• Net income down 9.9% YoY despite operating profit growth, implying non-operating/tax headwinds.
• ROE at 5.83% remains modest relative to sector norms despite strong margins.
• Data gaps (cash/bank balance, investing CF, inventories, share count) limit depth of FCF and per-share analysis.

Investment Implications

Key Takeaways:

• Top-line up 8.9% YoY with resilient double-digit operating margin (~13.5%).
• Net income declined 9.9% YoY due to tax/non-operating effects, not core weakness.
• ROE of 5.83% constrained by moderate asset turnover and conservative leverage.
• Liquidity strong: current ratio 165% and working capital ~¥61.9bn.
• Low financial risk: interest coverage 92.6x; implied equity ratio ~55%.
• Healthy earnings quality: OCF/NI at 1.17.
• Dividend metrics not disclosed; cannot assess payout or FCF coverage.
• Monitoring tax rate normalization and non-operating items is key for bottom-line trajectory.

Metrics to Watch:

• Order backlog and pipeline in construction/services
• Occupancy/vacancy and fee income trends in property management
• SG&A ratio and gross margin by segment to gauge operating leverage
• Effective tax rate and minority interests
• Capex and investing cash flows to assess FCF
• Leverage (net D/E) and liquidity buffers
• Interest rate sensitivity and funding mix
• OCF conversion and working capital turns

Relative Positioning: Within Japanese real estate services/development peers, Starts exhibits strong operating margins and conservative balance sheet, but delivers mid-single-digit ROE, likely below peers that combine higher asset turnover and/or higher leverage.

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