ESLEAD (8877) FY2026 FY Earnings Report

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Executive Summary

The Company achieved higher revenue and profit due to growth in the real estate sales business; however, the most important point in this financial period was that Operating Cash Flow was substantially negative due to increased development and inventory for sale. Revenue was ¥1169.2B (+23.4% YoY), Operating Income was ¥185.0B (+27.2%), Ordinary Income was ¥163.9B (+19.2%), and Net Income attributable to owners of the parent was ¥111.7B (+19.7%). The Operating Income growth rate exceeded the revenue growth rate, indicating operating leverage from a decline in the SG&A ratio, while increased interest expenses constrained profit growth at the ordinary income level.

Factors Affecting Business Performance

【Revenue】Revenue increased 23.4% YoY to ¥1169.2B. The core real estate sales business grew significantly to ¥865.9B (+31.8%), accounting for 74.1% of consolidated revenue, while other businesses remained solid at ¥303.3B (+4.4%). The expansion of deliveries of condominium properties was the primary driver of the revenue increase.

【Profitability】Operating Income was ¥185.0B (+27.2%), and the Operating Income margin improved from 15.35% to 15.82%. The gross profit margin also improved slightly from 25.13% to 25.17%, while the SG&A ratio declined from 9.77% to 9.35%, indicating dilution of fixed costs relative to the expansion in revenue. Meanwhile, Ordinary Income was limited to ¥163.9B (+19.2%), as interest expenses increased from ¥9.96B to ¥23.45B, constraining profit growth as a financial cost. Net Income was ¥111.7B (+19.7%). The results reflect both higher revenue and profit, as well as improved operating-level profitability alongside increased financial costs.

Segment Analysis

The real estate sales business generated revenue of ¥865.9B (+31.8% YoY) and segment profit, on an Ordinary Income basis, of ¥132.8B (+16.0%), with its profit margin declining by approximately 2.1pt from 17.4% to 15.3%. Other businesses generated revenue of ¥303.3B (+4.4%) and segment profit of ¥59.4B (+10.8%), with the profit margin declining from 20.4% to 19.6%. Although profit margins declined in both segments, the expansion in revenue scale increased absolute profit. The decline in the real estate sales business’s profit margin suggests that increases in costs such as land acquisition and construction expenses may not have been fully reflected in selling prices.

Key Financial Indicators

【Profitability】The Operating Income margin of 15.8% improved from 15.4% in the previous period, while the gross profit margin also improved slightly to 25.2%. The Net Income margin was 9.6%, down from 9.9% in the previous period, due to increased interest expenses.【Cash Quality】Operating CF was negative ¥395.3B, representing a substantial divergence from Net Income of ¥111.7B. The primary factor was a ¥540.8B increase in inventories, indicating that current-period profit was not supported by cash.【Investment Efficiency】ROE was 13.7%, and EPS was ¥724.06 (+19.7% YoY). The low total asset turnover reflects a business structure that holds substantial real estate inventory.【Financial Soundness】The Equity Ratio was 30.4%, down from 32.4% in the previous period. Long-term borrowings increased to ¥1314.8B, indicating greater reliance on interest-bearing debt. Cash and deposits were ¥174.0B, representing a substantial decrease YoY.

Cash Flow Analysis

Operating CF was negative ¥395.3B, with the deficit expanding from negative ¥354.4B in the previous period. The primary factor was a ¥540.8B increase in inventories, which substantially exceeded the cash-generation effects of an ¥11.1B decrease in trade receivables and a ¥20.0B increase in trade payables. Investing CF was negative ¥10.9B, while capital expenditures were limited to ¥3.1B, indicating that cash outflows from investing activities were limited. Free Cash Flow was negative ¥406.3B, meaning that the period’s operating and investing activities were not funded solely by internal cash resources. Financing CF was positive ¥264.0B, as ¥810.3B in proceeds from long-term borrowings exceeded ¥495.5B in repayments, thereby offsetting the Operating CF deficit. Consequently, cash and deposits declined from ¥312.4B to ¥174.0B, indicating a structure in which cash circulation depends on the progress of inventory sales and property deliveries.

Earnings Quality

The current period’s profit growth was driven by the core business and accompanied by improved SG&A efficiency at the operating level. Extraordinary losses were minimal at ¥0.0B, indicating virtually no impact from one-time factors. Non-operating expenses were ¥27.0B, primarily consisting of ¥23.5B in interest expenses. The increase in financial costs associated with expanded borrowings created the gap between Ordinary Income and Operating Income (¥163.9B versus ¥185.0B). Non-operating income was limited to ¥5.9B and consisted mainly of recurring items such as dividend income. Meanwhile, the fact that Operating CF was negative ¥395.3B created a substantial divergence from Net Income of ¥111.7B, indicating an expansion in accruals due to increased inventories. Comprehensive income was ¥112.5B, approximately at the same level as Net Income. The impact of valuation differences on other securities was limited, and the divergence between Comprehensive Income and Net Income itself is small when assessing earnings quality.

Earnings Forecasts and Guidance

The full-year Company forecast is revenue of ¥1300.0B (+11.2% YoY), Operating Income of ¥205.0B (+10.8%), Ordinary Income of ¥176.0B (+7.3%), and Net Income of ¥86.0B (+1.7%). The current-period results represent progress rates of 89.9% for revenue, 90.3% for Operating Income, and 93.2% for Ordinary Income, indicating steady progress toward the full-year plan. Notably, forecast Net Income of ¥86.0B is below current-period Net Income attributable to owners of the parent of ¥111.7B, suggesting a possible difference in the definition or scope of calculation of forecast Net Income. While the first-half profit growth rate was high, the full-year forecast assumes only single-digit YoY profit growth, apparently incorporating increased financial expenses and changes in the sales mix during the second half.

Shareholder Returns

The annual dividend was ¥240 per share (interim dividend of ¥105 and year-end dividend of ¥135), a substantial increase from ¥85 in the previous period. The Payout Ratio was 33.1%, which does not represent an excessive burden based on Net Income attributable to owners of the parent of ¥111.7B as the numerator. Share repurchases were virtually zero in cash flow terms, and the Total Return Ratio remained approximately at the same level as the Payout Ratio. However, Free Cash Flow for the current period was negative ¥406.3B, and the dividend source was not supported by cash generated from operating activities; instead, it depended on borrowings and cash on hand. The full-year dividend forecast remains unchanged at ¥240, implying a forecast Payout Ratio of approximately 32.2% against forecast EPS of ¥745.33.

Risk Factors

1. Risk of funds being tied up due to inventory accumulation: The combined balance of real estate for sale and real estate under development reached ¥2281.3B, accounting for 85.0% of total assets. An inventory valuation loss of ¥2.1B was also recorded, creating risks of funds being tied up and valuation losses in the event of delays in sales or declines in prices.

2. Increasing reliance on interest-bearing debt: Long-term borrowings increased 29.5% YoY to ¥1314.8B, and interest-bearing debt reached 1.64 times net assets of ¥815.5B. Interest expenses increased 135.4% YoY to ¥23.5B, raising concerns over a greater burden if interest rates rise.

3. Cash flow quality: Operating CF was negative ¥395.3B, representing a substantial divergence from Net Income of ¥111.7B. The conversion of current-period profit into cash was weak, making progress in recovering inventory the key to future cash flow improvement.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (real_estate)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin both exceed the industry median, indicating profitability positioned in the upper tier of the industry.

Growth and Capital Efficiency

The revenue growth rate is substantially above the industry median but has not reached the upper limit of the industry IQR (29.7%), placing it within the range of high-growth companies.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Operating Income margin of 15.8% and revenue growth rate of +23.4% both exceed the industry median, indicating that the profitability and growth of the core business are favorably positioned within the industry. Progress rates toward the full-year forecast are also high at 90.3% for Operating Income and 93.2% for Ordinary Income, indicating solid progress toward achieving the plan.

2. Meanwhile, primarily due to the ¥540.8B increase in inventories, Operating CF was negative ¥395.3B, and the divergence between Net Income and cash flow has widened. The fact that current-period profit growth has not translated into cash creation is an important observation when assessing the quality of the financial results.

3. Due to increases in long-term borrowings (+29.5%) and interest expenses (+135.4%), the Equity Ratio declined from 32.4% to 30.4%. The progress of inventory sales and property deliveries will be a key structural observation affecting future funding and the stability of the financial structure.

Theoretical Share Price (Reference Value)

Sensitivity: ¥5,936–¥6,286 at Cost of Equity ±1%, and ¥6,087–¥6,137 at ω±0.1.

Note:

• Amortization of goodwill of ¥2.3/share is added back to profit (due to its non-cash nature and for comparability with IFRS companies).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly available data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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