Sun Frontier Fudousan Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥58.23B
• Operating Income: ¥14.13B
• Net Income: ¥9.26B
• EPS: ¥185.31

Income Statement

Balance Sheet

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: A strong FY2026 Q2 with substantial top-line growth and outsized operating leverage, driving a doubling of profits and healthier margins. Revenue rose 58.3% YoY to 582.3, supported by a sharp increase in operating income of 110.8% YoY to 141.3. Gross profit reached 200.8 with a gross margin of 34.5%, indicating solid spread over cost of sales in the period. Operating margin expanded to 24.3%, reflecting disciplined SG&A (59.5) relative to revenue growth and likely favorable mix and/or strong project deliveries. Ordinary income increased 114.4% to 136.1, with limited drag from non-operating items (non-op income 1.6; non-op expenses 6.8). Net income doubled (+103.3% YoY) to 89.9, translating to a net margin of 15.4% and EPS (basic) of 185.31 yen. Using growth back-solve, operating margin expanded by approximately 602 bps YoY (from ~18.2% to 24.3%), while net margin widened by roughly 341 bps (from ~12.0% to 15.4%). Interest coverage is robust at 22.1x (141.3 operating income vs 6.39 interest expense), highlighting manageable financing costs. Balance sheet strength is evident with a very high current ratio of 696.6% and cash of 457.8 against modest short-term loans of 22.3. Leverage is moderate for a real estate company with D/E at 1.17x and long-term loans of 858.8; equity totals 1,094.3. ROE stands at 8.2% (NPM 15.4% × AT 0.245 × leverage 2.17x), reflecting high profitability offset by inherently low asset turnover in real estate. ROIC is 6.3%, below a typical 7–8% target range, suggesting room for capital efficiency improvement. Cash flow details (OCF/FCF) are unreported, preventing confirmation that earnings are backed by cash, which is a key watchpoint for a sales-driven real estate model. The payout ratio is a conservative 35.8%, implying headroom for dividends contingent on cash generation. Forward-looking, delivery timing and market conditions (asset sale pace, occupancy/pricing, and rates) remain critical; current momentum and liquidity provide cushion, but sustainability hinges on repeatable project margins and cash conversion.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.2% = Net Profit Margin 15.4% × Asset Turnover 0.245 × Financial Leverage 2.17x. The largest YoY change driver appears to be margin expansion, as operating income grew 110.8% vs revenue +58.3%, implying improved operating margin. Business explanation: higher-margin project deliveries and/or favorable sales mix, effective cost control with SG&A growth likely below revenue, and low financing drag contributed to the outperformance. Sustainability: some uplift may be cyclical or tied to transaction timing common in real estate; absent OCF data and segment mix detail, we treat the step-up as partly one-off until repeatability is evidenced in future quarters. Operating margin expanded by ~602 bps YoY (estimated from derived prior-period figures), and net margin expanded by ~341 bps YoY, confirming operating leverage. Asset turnover (0.245) remains structurally low given inventory/asset-heavy model; absent a sustained acceleration of sales relative to assets, AT may not materially improve. Financial leverage at 2.17x is moderate and did not appear to be the main ROE driver this quarter. Flag: SG&A absolute increased to 59.5, but grew at a much slower rate than revenue (implied operating leverage), which is a positive; we will monitor for catch-up in fixed costs in subsequent quarters.

Growth Assessment

Revenue growth of 58.3% YoY to 582.3 was strong and likely driven by accelerated property sales/hotel-asset turnover and favorable pricing. Profit growth outpaced sales: operating income +110.8% and net income +103.3%, indicating positive mix and scale benefits. The non-operating result was a small net expense (1.6 income vs 6.8 expense), so the earnings beat was fundamentally operational. Sustainability hinges on pipeline visibility and delivery schedule; real estate profits can be lumpy, and the degree of margin expansion may not recur every quarter. With asset turnover at 0.245, future revenue growth requires continued asset recycling or expansion in managed assets; otherwise growth moderates. ROIC at 6.3% trails the 7–8% benchmark, so incremental growth should focus on higher-return projects to lift capital efficiency. Outlook: Near-term trajectory is favorable given momentum and liquidity, but normalization of margins is possible if input costs rise or if mix shifts away from high-margin deals.

Financial Health

Liquidity is very strong: current ratio 696.6% and quick ratio 696.6% (no reported inventories), with cash and deposits of 457.8 vs short-term loans of 22.3. No warning flags for current ratio (<1.0) or D/E (>2.0); D/E is 1.17x, within conservative bounds for the sector. Maturity profile is skewed long: noncurrent liabilities 998.2 vs current liabilities 285.2, reducing near-term refinancing pressure; long-term loans total 858.8. Working capital is ample at 1,701.5, suggesting strong capacity to absorb timing volatility. While interest-bearing debt aggregate is unreported, long-term loans are the dominant debt component; interest coverage of 22.1x indicates healthy headroom. No off-balance sheet obligations are disclosed in the dataset; absence of disclosure does not eliminate potential guarantees or SPC exposures typical in real estate.

Cash Flow Quality

Operating cash flow is unreported, so we cannot compute OCF/Net Income or FCF; thus, we cannot verify cash conversion. Given the project-driven model, we watch for working capital swings (land/building acquisition and sales) that can decouple OCF from NI in specific periods. The lack of inventory detail limits assessment of inventory turnover or potential pull-forward of sales. With a 35.8% payout ratio and large cash balance, near-term dividend coverage appears comfortable, but sustainability ultimately depends on recurring OCF and disciplined capex/land banking. No signs of working capital manipulation can be inferred from the provided figures, but the absence of OCF and inventory disclosure is a key limitation.

Dividend Sustainability

Calculated payout ratio is 35.8%, comfortably below the <60% benchmark and consistent with a sustainable policy in normal conditions. Cash and deposits of 457.8 and strong interest coverage provide additional buffer. However, FCF coverage is unreported, and real estate cash flows can be lumpy; sustainability depends on continued asset recycling and positive OCF over the full year. Retained earnings of 901.1 indicate accumulated capacity to support dividends through cycles, provided leverage remains moderate. Policy outlook: Room for stable or gradual increases exists if cash conversion remains solid and ROIC improves; absent OCF data, a conservative stance is prudent.

Risk Assessment

Business Risks:

• Transaction timing risk: dependence on closing/sale timing for revenue and profit recognition.
• Real estate market cycle risk: pricing and demand for office/hotel/asset sales may weaken with macro slowdown.
• Cost inflation risk: construction and renovation costs may compress margins.
• Occupancy/ADR risk in hospitality assets if tourism or business travel softens.
• Project concentration risk: large deals can create earnings lumpiness.

Financial Risks:

• Refinancing and interest rate risk on 858.8 of long-term loans; rising rates could reduce coverage.
• Liquidity reliance on asset sales; OCF unreported, creating uncertainty around cash generation.
• Potential covenant risk if market conditions deteriorate (not disclosed).
• Exposure to valuation risk on held real estate assets during downturns.

Key Concerns:

• ROIC at 6.3% below 7–8% benchmark indicates room to improve capital efficiency.
• Margin expansion may be partly one-time due to mix and deal timing.
• Limited disclosure on inventories and OCF obscures cash conversion quality.

Investment Implications

Key Takeaways:

• Strong 1H performance with revenue +58% YoY and operating income +111% YoY.
• Operating margin expanded ~602 bps to 24.3%; net margin up ~341 bps to 15.4%.
• Balance sheet is liquid (current ratio ~697%) with moderate leverage (D/E 1.17x) and high interest coverage (22x).
• ROE 8.2% is driven predominantly by elevated margins; asset turnover remains structurally low.
• ROIC 6.3% suggests focus needed on higher-return projects or improved capital recycling.
• Cash flow disclosure is insufficient; verification of earnings quality awaits OCF/FCF data.

Metrics to Watch:

• Operating cash flow/Net income ratio (target >1.0 over the full year).
• Inventory and project pipeline disclosures (turnover, margins, completion schedule).
• Debt maturity ladder and share of floating-rate debt; interest cost trajectory.
• Gross and operating margins by business (property sales vs rental/hospitality).
• ROIC progression and asset recycling proceeds.
• SG&A growth vs revenue to monitor operating leverage durability.

Relative Positioning: Within Japan mid-cap real estate operators, the company shows above-peer near-term profitability and exceptional liquidity with moderate leverage; however, capital efficiency (ROIC) trails best-in-class and cash conversion remains to be evidenced due to missing OCF data.

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