HouseFreedom Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥10.45B
• Operating Income: ¥334M
• Net Income: ¥83M
• EPS: ¥33.86

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: Solid top-line and operating profit growth with modest margin expansion, but profitability remains thin and leverage is high, keeping the risk profile elevated. Revenue increased 8.5% YoY to 104.48, with operating income up 22.1% to 3.34, showing clear operating leverage. Net income rose 56.6% YoY to 1.29, aided by stronger operations despite heavier non-operating expenses (notably interest). Operating margin improved to 3.2% from roughly 2.8% last year, an estimated +36 bps expansion. Net margin also widened to about 1.23% from ~0.86%, up roughly +37 bps. Gross margin was 27.7%, indicating stable pricing/spread management in brokerage/development activities despite cost pressures. Ordinary income was 2.26 (+20.3% YoY), with non-operating expenses of 1.07 largely driven by interest expense of 0.97, capping bottom-line conversion. Interest coverage is 3.43x—adequate but below the 5x comfort threshold—highlighting sensitivity to funding costs. Financial leverage is high (D/E 4.40x; equity ratio ~18.5%), though liquidity is ample (current ratio 198%), supported by 39.88 in cash. ROE is modest at 3.9% due to a slim 1.2% net margin despite high financial leverage, while ROIC of 1.6% is well below a 5% warning threshold. Earnings quality cannot be confirmed because operating cash flow was unreported; this is a key limitation. The calculated payout ratio of 143.4% suggests dividend pressure unless cash generation is robust; however, dividend data is otherwise unreported. Forward-looking, sustaining margin gains while lowering funding costs will be critical, with a focus on inventory discipline and interest-rate exposure. Overall, the quarter shows improving core profitability but leaves open questions on cash conversion and the sustainability of dividends under a high-leverage structure.

Profitability Analysis

ROE (3.9%) = Net Profit Margin (1.2%) × Asset Turnover (0.582) × Financial Leverage (5.40x). The most notable contributor to change YoY appears to be net margin, which improved from ~0.86% to 1.23% alongside operating margin expansion (+36 bps), while asset turnover likely improved modestly with revenue growth. Business drivers include better operating leverage (SG&A held below revenue growth; SG&A was 26.16 against gross profit of 28.90) and stable gross margin, partly offset by higher interest costs (0.97). The improvement seems partially sustainable if volume growth continues and cost discipline holds, but sensitivity to interest expense limits further net margin gains without de-leveraging. Watch for red flags: non-operating expenses rose to 1.07, and interest coverage at 3.43x is below the 5x comfort threshold. No explicit SG&A growth data YoY is disclosed, but operating profit growth outpacing revenue indicates positive operating leverage this quarter.

Growth Assessment

Top-line growth of 8.5% to 104.48 appears demand-driven with stable gross margin (27.7%), suggesting underlying business momentum rather than one-offs. Operating income growth of 22.1% outpaced revenue, indicating improved cost absorption and operating leverage. Non-operating headwinds (interest expense 0.97) constrained ordinary income to 2.26, but net income still rose 56.6% thanks to stronger operations. With ROIC at 1.6%, returns remain below cost of capital, highlighting the need for asset efficiency and capital discipline. Outlook hinges on maintaining margin discipline, turning inventory efficiently (not disclosed), and managing financing costs; absent OCF data, sustainability of growth cannot be verified. Near-term growth is plausible if housing transaction volumes and pricing remain resilient and construction costs stable, but interest-rate sensitivity is a key drag on profit scalability.

Financial Health

Liquidity is strong: current assets 138.35 vs current liabilities 69.82 implies a current ratio of 198% and sizable working capital of 68.53. Quick ratio equals current ratio due to unreported inventories; cash of 39.88 alone covers 57% of current liabilities. Solvency is a concern: D/E at 4.40x (warning threshold >2.0), and the equity ratio is low at ~18.5% (33.27/179.54). Total interest-bearing debt implied by loans is 108.09 (ST 33.04, LT 75.05); net debt is approximately 68.21 after cash. Interest coverage is 3.43x, below the strong >5x benchmark, elevating rate and refinancing risk. Maturity mismatch risk appears manageable near-term as current assets comfortably exceed short-term loans and current liabilities; however, reliance on long-term debt is significant (76.45 in noncurrent liabilities). No off-balance sheet obligations are disclosed in the provided data. Explicit warning: D/E > 2.0 indicates high leverage; current ratio > 1.0 is healthy.

Cash Flow Quality

OCF is unreported, so OCF/Net Income and FCF trends cannot be assessed; this is a key limitation in evaluating earnings quality. Given interest expense of 0.97 vs operating income of 3.34, cash interest burden is material and would compress OCF if working capital expands. Without inventory and receivables turnover data, working capital dynamics are unclear, though real estate businesses typically exhibit lumpy OCF tied to project completions and closings. Dividend and capex coverage by FCF cannot be evaluated; hence, sustainability of distributions remains uncertain pending cash flow disclosure. No explicit signs of working capital manipulation can be inferred from the limited data.

Dividend Sustainability

The calculated payout ratio stands at 143.4%, implying dividends exceed earnings and are likely unsustainable absent strong positive OCF or reserve utilization; however, DPS and total dividends are unreported, so this ratio may reflect period-specific factors or assumptions. With ROIC at 1.6% and leverage high, internally funded growth and dividends compete for cash. Visibility on FCF is absent; thus, we cannot confirm coverage of dividends after interest and maintenance capex. Policy outlook should prioritize deleveraging and ROIC improvement over elevated payouts until cash conversion is demonstrated.

Risk Assessment

Business Risks:

• Housing market cyclicality affecting transaction volumes and pricing
• Construction cost inflation compressing gross margins
• Project timing risk causing lumpy revenue recognition and cash flows
• Regional exposure concentration (unspecified) increasing local market risk

Financial Risks:

• High leverage (D/E 4.40x) with low equity buffer (~18.5% equity ratio)
• Interest rate/refinancing risk with interest coverage at 3.43x
• Thin net margin (1.23%) limiting shock absorption
• Potentially high effective tax rate (52.9%) depressing net profitability

Key Concerns:

• OCF unreported—earnings quality and cash conversion cannot be verified
• Dividend sustainability questionable with calculated payout ratio at 143.4%
• ROIC at 1.6% below cost of capital, implying value dilution unless improved
• Inventory levels/turnover unreported, key for real estate working capital management

Investment Implications

Key Takeaways:

• Revenue +8.5% and operating income +22.1% indicate improving core performance
• Operating and net margin expansion (~+36–37 bps) achieved despite higher interest costs
• Leverage remains elevated (D/E 4.40x) with moderate interest coverage (3.43x)
• ROE 3.9% constrained by thin net margin; ROIC 1.6% is below acceptable thresholds
• Liquidity is ample (current ratio 198%) but solvency risk persists due to low equity ratio

Metrics to Watch:

• Operating cash flow and FCF to confirm earnings quality
• Interest coverage and average borrowing rates amid rate volatility
• Gross margin trajectory and SG&A efficiency
• Inventory levels and turnover (if disclosed) to assess capital efficiency
• Debt maturity profile and progress on deleveraging
• Tax rate normalization vs. one-off effects

Relative Positioning: Within Japanese small-cap real estate operators, the company shows improving operating leverage but lags on capital efficiency (ROIC 1.6%) and maintains higher-than-ideal leverage, leaving it more sensitive to funding costs and market cycles despite solid liquidity.

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