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

House Freedom (TSE: 8996) delivered solid topline growth in FY2025 Q3 (cumulative) with revenue of ¥10,448 million, up 8.5% YoY, indicating healthy demand in its core housing/real estate-related activities. Gross profit reached ¥2,890 million, translating to a gross margin of 27.7%, which is respectable for a mix of brokerage and housing-related businesses and suggests stable pricing and cost control. Operating income rose 22.1% YoY to ¥334 million, outpacing revenue growth and pointing to positive operating leverage through improved SG&A efficiency and/or better product mix. Operating margin improved to roughly 3.2% (¥334m/¥10,448m), validating that margin initiatives are gaining traction. Ordinary income was ¥226 million, reflecting ¥97 million of interest expense and modest net non-operating items; this indicates financing costs are a meaningful drag but manageable at current earnings levels. Net income of ¥129 million was up 56.6% YoY, with net margin at 1.23%, underscoring a significant improvement at the bottom line despite the inherently low-margin nature of the business. The implied effective tax rate is approximately 41% (¥93m tax on roughly ¥226m pre-tax), which is elevated and dampens after-tax profitability. DuPont analysis shows ROE of 3.88% driven by a low net margin (1.23%), moderate asset turnover (0.582x), and high financial leverage (5.40x), highlighting that current ROE is primarily leverage-assisted rather than margin-led. The balance sheet shows total assets of ¥17,954 million and total equity of ¥3,327 million, implying an equity ratio near 18.5% and liabilities/equity of 3.83x, a leverage level typical for asset-heavy, inventory-carrying real estate models. Liquidity appears strong on paper with a current ratio of 209% and working capital of roughly ¥6,254 million; however, inventories are not disclosed in this dataset, so the quick ratio is not reliable and liquidity may be overstated for a business that usually holds sizable inventories. Interest coverage is about 3.4x (operating income to interest), acceptable but leaving limited cushion in a downturn or rising-rate environment. The earnings mix shows that cost of sales discipline and SG&A containment have driven operating leverage, but interest costs and taxes absorb a sizable portion of operating profits. Cash flow data are not disclosed here, so we cannot verify earnings-to-cash conversion, a key issue for developers and brokers given working capital swings tied to project cycles. Dividend data are also not disclosed (DPS and payout both showing as zero), limiting assessment of capital return policy; the EPS of ¥33.86 implies an approximate share count of about 3.8–3.9 million, but share data are not reported. Overall, the company demonstrates improving profitability and controlled operating expenses, but sustained progress will hinge on maintaining gross margins, converting earnings to operating cash flow, and managing leverage and interest costs. Data limitations, notably the absence of cash flow and inventory disclosures in this extract, constrain the depth of assessment; conclusions are therefore provisional and focused on the non-zero reported items.

Profitability Analysis

ROE is 3.88% via DuPont: net margin 1.23% × asset turnover 0.582 × financial leverage 5.40. Operating margin is about 3.2% (¥334m/¥10,448m), up YoY given operating income growth (+22.1%) exceeding revenue growth (+8.5%), indicating positive operating leverage. Gross margin is 27.7% (¥2,890m/¥10,448m), consistent with adequate pricing discipline and cost control in a low-margin sector. The step-down from operating income to ordinary income reflects ¥97.5m of interest expense; interest burden is material and reduces financial flexibility. Net margin of 1.23% remains thin, and the effective tax rate implied by reported figures is high (~41%), further compressing after-tax returns. The improvement in operating income relative to revenue suggests SG&A efficiency or favorable mix; sustaining this will be key given cyclical exposure. Overall profitability is improving but still constrained by financing costs and taxes, with ROE primarily leverage-assisted rather than margin-driven.

Growth Assessment

Revenue grew 8.5% YoY to ¥10,448m, signaling steady demand and/or improved transaction volumes/pricing. Operating income rose 22.1% YoY to ¥334m, evidencing operating leverage and cost discipline. Net income increased 56.6% YoY to ¥129m as operating gains flowed through and non-operating headwinds remained contained. The growth quality looks reasonable given gross margin stability at 27.7% and expanding operating margin to ~3.2%. Ordinary income at ¥226m indicates financing costs continue to moderate growth at the pre-tax level; interest coverage of ~3.4x is adequate but limits upside in weaker markets. Without cash flow data, sustainability of growth cannot be validated via cash conversion; working capital intensity and project timing could introduce volatility. Outlook hinges on maintaining gross margins, managing interest costs, and preserving SG&A discipline; a continued mid-single-digit to high-single-digit revenue trajectory with incremental margin expansion appears plausible if market conditions remain stable.

Financial Health

Total assets are ¥17,954m and total equity ¥3,327m, implying an equity ratio of roughly 18.5% and financial leverage (assets/equity) of 5.40x. Total liabilities are ¥12,739m, equating to liabilities/equity of 3.83x, a relatively high but not unusual level for real estate-related businesses. Current assets are ¥11,975m versus current liabilities of ¥5,721m, yielding a current ratio of 209% and working capital of approximately ¥6,254m. Inventories are not disclosed in this dataset; as such, the quick ratio provided is not reliable for assessment and true liquidity could be lower given typical inventory-heavy balance sheets. Interest expense of ¥97.5m versus operating income of ¥334m produces interest coverage of ~3.4x, which is serviceable but leaves modest headroom if earnings soften or rates rise. The implied effective tax rate (~41%) reduces internally generated equity accretion. Overall solvency is adequate but reliant on maintaining earnings and asset turnover; leverage requires ongoing prudence in capital allocation and financing.

Cash Flow Quality

Operating, investing, and financing cash flows are not disclosed in this extract (values shown as zero indicate non-disclosure rather than actual zeros), so we cannot assess cash conversion or free cash flow. Consequently, the OCF/Net Income ratio and FCF metrics reported as zero are not decision-useful. Given the business model likely involves significant inventories and working capital swings, cash flow quality is a key risk factor that remains unverified here. Earnings quality at the income statement level appears supported by gross margin stability and operating leverage, but without OCF and working capital details (inventory, receivables, payables), the degree of cash realization from profits is unknown. Monitoring period-end working capital composition, inventory turnover, and contract/take-rate data will be essential to validate earnings quality.

Dividend Sustainability

Dividend per share and payout ratio are shown as zero in this dataset, indicating non-disclosure rather than confirmed absence of dividends. Without cash flow data and with FCF not reported, we cannot evaluate dividend coverage by free cash flow. EPS is ¥33.86 for the period; if a dividend exists, payout capacity would be benchmarked against full-year earnings and cash generation, which are not provided here. Balance sheet leverage (liabilities/equity 3.83x) suggests management may prioritize balance sheet resiliency over high payout in a cyclical sector, but policy is not disclosed. Conclusion: insufficient data to assess dividend sustainability; need actual DPS, historical payout policy, and OCF/FCF trends.

Risk Assessment

Business Risks:

• Cyclical housing/real estate demand leading to volume and pricing volatility
• Cost inflation for land, materials, and subcontracting compressing gross margins
• Project execution and timing risk affecting revenue recognition and earnings volatility
• Regional concentration risk if exposures are focused within specific prefectures/areas
• Competitive pressure in brokerage and housing segments impacting fees and spreads
• Regulatory and tax changes affecting real estate transactions and profitability

Financial Risks:

• High leverage (assets/equity 5.40x; liabilities/equity 3.83x)
• Interest rate and refinancing risk with interest coverage of ~3.4x
• Working capital intensity and potential inventory liquidity risk
• Elevated effective tax rate (~41%) reducing retained earnings capacity
• Limited visibility on cash flows due to non-disclosure in this extract

Key Concerns:

• Thin net margin of 1.23% leaves limited buffer against shocks
• Profitability improvement depends on sustaining SG&A discipline and gross margins
• Dependence on leverage to support ROE (3.88%)
• Absence of disclosed cash flow and inventory data constrains assessment of liquidity and cash conversion

Investment Implications

Key Takeaways:

• Topline growth (+8.5% YoY) and operating leverage (+22.1% YoY OI) indicate improving core performance
• Gross margin at 27.7% supports earnings resilience if maintained
• Net margin remains low at 1.23% and tax rate is high (~41%), tempering bottom-line scalability
• Leverage is elevated (liabilities/equity 3.83x), making interest coverage (~3.4x) a key constraint
• Liquidity looks strong by current ratio, but lack of inventory disclosure may overstate true liquidity
• Cash flow data are missing; earnings-to-cash conversion is a critical unknown

Metrics to Watch:

• Inventory levels and turnover days
• Operating cash flow and OCF/Net income conversion
• SG&A ratio and operating margin trajectory
• Interest coverage and effective interest rate on debt
• Equity ratio and net debt trends
• Order backlog/contracted sales and cancellation rates
• Gross margin by segment (brokerage vs. development/renovation)

Relative Positioning: Within Japan’s small-cap residential real estate and brokerage peer set, House Freedom shows decent topline momentum and improving operating leverage, but maintains thin net margins and relatively high leverage; sustained margin discipline and verified cash conversion will be essential to close any performance gap with more cash-generative or less leveraged peers.

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