TOSEI (8923) FY2026 Q3 Earnings Report

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Executive Summary

Significant growth in the Real Estate Revitalization Business drove overall performance, resulting in higher revenue and profits. However, profit growth lagged revenue growth, and margins declined. For the nine months ended Q3, revenue was ¥99.6B (+18.6% YoY) and operating income was ¥23.45B (+12.7%). Net income attributable to owners of the parent was ¥14.82B (+5.4%). The main driver of revenue growth was the expansion of sales in the Revitalization Business to ¥60.68B (+60.0%), which offset the decline in the Development Business (△38.9%). Operating Cash Flow (OCF) doubled to ¥14.42B from ¥6.89B in the prior-year period, indicating improved cash conversion.

Factors Affecting Financial Results

【Revenue】Revenue was ¥99.6B, an increase of ¥15.64B (+18.6%) from ¥83.96B in the prior-year period. The Revitalization Business recorded revenue of ¥60.68B (60.9% of total), an increase of approximately ¥22.76B from the prior-year period. The Development Business declined to ¥13.36B (△38.9%). The Leasing Business was ¥7.41B (+12.3%), the Hotel Business was ¥5.73B (+9.1%), and the Property Management Business was ¥5.64B (+3.8%), all showing steady performance. The Fund and Consulting Business was ¥6.79B (△1.6%). Growth is heavily dependent on property sales in the Revitalization Business.

【Profit and Loss】Operating income was ¥23.45B (+12.7%), and the operating margin declined approximately 1.3pt to 23.5% from 24.8% in the prior-year period. The gross profit margin was 38.1%, down approximately 2.1pt from 40.2% in the prior-year period. This was due to the increased contribution from the relatively lower-margin Revitalization Business. SG&A expenses were ¥14.59B (+11.7%), below the rate of revenue growth. Finance costs increased to ¥2.3B from ¥1.76B in the prior-year period, limiting growth in profit before tax to +11.5% and net income to +5.4%. Overall, revenue and profits increased.

Segment Analysis

The Revitalization Business was the primary source of profit, with segment profit of ¥12.22B (+82.1% YoY; margin of 20.1%). The Leasing Business increased profit to ¥4.43B (+21.7%; margin of 59.8%). The Fund and Consulting Business declined to ¥4.17B (△5.9%; margin of 61.4%), while the Hotel Business declined to ¥1.87B (△9.3%; margin of 32.7%). The Development Business nearly halved to ¥3.02B (△49.9%; margin of 22.6%), while the Property Management Business was largely flat at ¥0.87B (+0.7%).

The margins of the Leasing and Fund businesses are approximately 60%, substantially higher than those of the sales-oriented Revitalization and Development businesses (approximately 20–23%). Consolidation adjustments included a deduction of ¥3.14B. Stable-revenue businesses generate relatively little profit, leaving overall profit dependent on sales-oriented businesses.

Key Financial Metrics

【Profitability】Annualized ROE was 17.6%, the operating margin was 23.5% (24.8% in the prior-year period), and the net margin was 14.9% (16.7%), with all margins declining. Basic EPS was ¥152.71 (+5.4%). 【Cash Quality】OCF was ¥14.42B, equivalent to approximately 0.97x net income attributable to owners of the parent of ¥14.82B. OCF divided by EBITDA (¥24.51B) was 0.59x, with an increase in inventories and a decrease in trade payables acting as headwinds. Income taxes paid were ¥6.51B. 【Investment Efficiency】Capital expenditures were ¥0.17B, below depreciation and amortization of ¥1.06B. For a real estate company, property acquisitions are recorded as inventories, making it difficult to assess investment levels based solely on investment in fixed assets. 【Financial Soundness】The equity ratio rose to 34.9% from 33.4% at the end of the previous fiscal year. Inventories were ¥172.42B, accounting for 53.6% of total assets. Interest-bearing debt was approximately ¥188.96B, equivalent to 58.7% of total assets, and cash and deposits were ¥44.2B.

Cash Flow Analysis

OCF improved significantly to ¥14.42B (¥6.89B in the prior-year period, +109.3%), primarily because the increase in inventories narrowed to ¥1.78B from ¥9.38B in the prior year. OCF before changes in working capital was ¥20.19B, from which the Company paid ¥6.51B in income taxes, among other items. Investing CF was △¥5.02B, mainly reflecting loan disbursements of ¥6.23B and collections of ¥3.71B. As a result, FCF was ¥9.4B, covering dividend payments of ¥4.85B by approximately 1.9x. Financing CF was △¥4.81B. The Company received ¥60.14B from long-term borrowings and made repayments of ¥56.27B, resulting in a net increase of only ¥3.87B. Financing CF had been a net inflow of +¥2.13B in the prior-year period, but turned to an outflow in the current period. Cash and cash equivalents increased to ¥44.2B from ¥39.6B at the end of the previous fiscal year.

Earnings Quality

The difference between operating income of ¥23.45B and profit before tax of ¥21.66B resulted from finance costs of ¥2.3B exceeding finance income of ¥0.52B. Other income was small at ¥0.12B, indicating that results were not boosted by one-off gains. Income taxes were ¥6.84B, representing an effective tax rate of approximately 31.6%. OCF was approximately 0.97x net income attributable to owners of the parent, indicating a limited gap between earnings and cash generation. However, OCF was only 0.59x EBITDA, making progress in cash recovery from inventory sales an important factor in assessing earnings quality. Comprehensive income was ¥14.1B, below net income due to other comprehensive income of △¥0.72B.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥113.61B (+20.0% YoY), operating income of ¥25.06B (+12.2%), and net income attributable to owners of the parent of ¥15.91B (+7.8%), with forecast EPS of ¥163.94. Progress against the full-year forecast for the nine months ended Q3 was 87.7% for revenue, 93.5% for operating income, and 93.2% for net income, all above the general benchmark of 75%. Operating income of ¥1.62B is required in Q4, implying a required operating margin of approximately 11.5%, below the cumulative margin of 23.5%. Quarterly results fluctuate significantly depending on the timing of property sales, so the progress rate alone is insufficient to determine full-year performance. The earnings and dividend forecasts were revised during the current quarter.

Shareholder Returns

Dividends paid for the current year to date totaled ¥4.85B, equivalent to approximately 32.7% of net income attributable to owners of the parent of ¥14.82B. The interim dividend (at the end of Q2) was ¥0, and the full-year dividend forecast is ¥58. The Company conducted a 2-for-1 stock split effective December 1, 2025; therefore, the dividend per share cannot be directly compared with that of the previous fiscal year. Cumulative FCF of ¥9.4B exceeded dividends already paid, and cash and deposits of ¥44.2B were also maintained. Dividends are covered by cash generation.

Risk Factors

1. Inventory concentration: Inventories were ¥172.42B, accounting for 53.6% of total assets and 74.7% of current assets. Prolonged sales cycles or a deteriorating market could directly affect cash recovery and result in valuation losses. Inventories increased only slightly from the end of the previous fiscal year, by +¥2.07B (+1.2%).

2. Interest-bearing debt and finance costs: Interest-bearing debt was approximately ¥188.96B, accounting for 58.7% of total assets. Finance costs rose approximately 30% to ¥2.296B from ¥1.76B in the prior-year period, exceeding operating income growth (+12.7%). Higher interest rates or changes in refinancing terms could put pressure on earnings.

3. Dependence on the Revitalization Business: The Revitalization Business accounts for 60.9% of revenue and approximately half of total segment profit before consolidation adjustments. With profit in the Development Business down 49.9%, the timing and pricing of property sales can have a significant impact on consolidated results.

Industry Benchmarks (Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net margin are substantially above the industry medians and exceed the upper bounds of their interquartile ranges.

Growth and Capital Efficiency

Revenue growth is approximately in line with the industry median.

※Source: Company compilation

Key Points to Note

1. Revenue and profits increased, driven by the Revitalization Business, while the gross profit margin (38.1%), operating margin (23.5%), and net margin (14.9%) all declined from the prior-year period. Earnings quality is affected by changes in the business mix.

2. Progress toward the full-year operating income forecast reached 93.5%. However, results fluctuate with the timing of real estate sales, and the mix of property handovers in Q4 will determine full-year performance.

3. OCF doubled, and FCF was sufficient to cover dividends. Meanwhile, inventories account for 53.6% of total assets and interest-bearing debt is substantial, making inventory turnover and trends in finance costs important points to monitor.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,310–¥1,386 for a ±1% change in the cost of equity, and ¥1,343–¥1,354 for a ±0.1 change in ω.

Notes:

• Because net income progress toward the full-year forecast (93%) exceeds the standard benchmark (75%), forecast EPS has been adjusted upward within a maximum range of +10% (as companies ahead of their progress targets tend to outperform forecasts. This adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the quarter-end are used (there is a timing mismatch with the full-year forecast).

(Valuation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-09 / Mechanically calculated using only publicly available data; this is not a prediction or guarantee of future share prices, nor a recommendation of any specific investment action.)

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This report is an earnings analysis document automatically generated by AI analysis of XBRL earnings release data. It does not recommend investing in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, consulting a professional where necessary.

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