Grandy House Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥26.04B
• Operating Income: ¥717M
• Net Income: ¥318M
• EPS: ¥11.03

Income Statement

Balance Sheet

Cash Flow Statement

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 profit recovery on tighter cost control and improved operating efficiency, but cash conversion remains weak and capital efficiency is low. Revenue declined 3.5% YoY to 260.43, yet operating income rose 65.3% YoY to 7.17, indicating meaningful margin recovery. Gross profit was 37.75, translating to a 14.5% gross margin; operating margin improved to 2.75%. Ordinary income doubled to 5.33 (+108.6% YoY), and net income surged to 3.17 (+308.9% YoY), aided by a low base and disciplined SG&A. Operating margin expanded by roughly 114 bps YoY (from about 1.61% to 2.75%), despite a soft top line. Non-operating balance remained a drag: non-operating expenses of 2.43 (including interest expense of 2.05) outweighed non-operating income of 0.59. EBITDA was 9.08 (3.5% margin), and interest coverage was 3.5x—adequate but below the strong >5x benchmark. Earnings quality is a concern: operating cash flow was 0.75 versus net income of 3.17 (OCF/NI = 0.24x), suggesting heavy working capital needs or timing effects typical for developers. Liquidity is healthy (current ratio 238%), but leverage is meaningful (reported D/E 1.79x) with sizable short- and long-term loans nearly evenly split. ROE was 1.3% per DuPont, reflecting thin net margins (1.2%) and low asset turnover (0.382) despite moderate leverage (2.79x). ROIC at 1.2% is well below the 5% warning threshold, underscoring capital efficiency challenges in the current environment. The effective tax rate was elevated at 39.6%, which dampened net profitability. EPS (basic) was 11.03 JPY; a lower diluted EPS of 2.73 JPY hints at potentially dilutive securities. The calculated payout ratio is 311.1%, pointing to a probable mismatch between dividends and near-term earnings/cash generation, though detailed dividend data were not disclosed. Forward-looking, maintaining margin gains while restoring cash conversion and lifting ROIC will be key, amid housing demand softness, elevated funding costs, and construction cost pressures.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.3% = Net Profit Margin (1.2%) × Asset Turnover (0.382) × Financial Leverage (2.79x). The most material driver of change YoY appears to be net profit margin expansion, given operating income +65.3% on revenue -3.5% and net income +308.9%. Business rationale: tighter SG&A (11.7% of sales) and improved gross-to-operating conversion lifted operating margin to 2.75%, though higher interest costs (2.05) compressed ordinary income relative to operating income. Sustainability: operating margin gains may be partially sustainable if cost discipline and project mix persist; however, sensitivity to selling prices, construction costs, and interest expense could cap further expansion. Asset turnover at 0.382 remains low for a developer with a large asset base, reflecting inventory-heavy operations and slower revenue velocity; improvement requires faster project cycles and stronger sales. Financial leverage (2.79x) is material but not extreme; rising interest costs threaten to erode ordinary income if leverage is not reduced. Watch for any sign of SG&A growth outpacing revenue; current data show SG&A at 30.58 (11.7% of sales), and with revenue down, strict cost containment was crucial to the margin recovery.

Growth Assessment

Revenue fell 3.5% YoY to 260.43, likely reflecting softer housing demand or project timing. Profit growth was strong: operating income +65.3% to 7.17 and ordinary income +108.6% to 5.33, demonstrating operating leverage from cost control. Net income rose 308.9% to 3.17, off a low base; sustainability will depend on maintaining margins as volume recovers. Operating margin expanded to 2.75% (+~114 bps YoY), underpinned by SG&A efficiency (11.7% of sales). Non-operating expenses remain a headwind: interest expense of 2.05 consumed a significant share of operating profit. With ROIC at 1.2%, capital efficiency is weak; improving project turnover and disciplined land acquisition are needed to lift returns. Near-term outlook hinges on housing demand resilience, pricing power versus construction cost inflation, and interest rate dynamics. Given OCF lagging NI (0.24x), growth investment must be carefully sequenced to avoid liquidity strain. Absent segment disclosures, growth appears driven more by margin actions than by volume.

Financial Health

Liquidity is strong: current ratio 238.3% and quick ratio 236.8%, with current assets of 532.71 comfortably exceeding current liabilities of 223.55. No warning on current ratio (<1.0) or D/E (>2.0): reported D/E at 1.79x is below the 2.0 warning threshold but indicates meaningful leverage. Short-term loans total 111.33 versus cash and deposits of 101.14; refinancing and rollover risk exists but is mitigated by ample current assets, though inventory composition details are limited. Long-term loans are 111.96, producing a balanced maturity profile, yet interest costs are already pressuring ordinary income. Equity stands at 244.53, with retained earnings of 203.67, supporting solvency. Off-balance sheet obligations were not disclosed; no guarantees or commitments surfaced in the provided data. Maturity mismatch risk: moderate, given sizeable short-term borrowings relative to immediately liquid assets; clarity on inventory liquidity (real estate for sale) would refine the assessment.

Cash Flow Quality

OCF/Net Income is 0.24x (0.75/3.17), below the 0.8 threshold—an earnings quality flag typical for developers due to working capital swings (land acquisition and WIP). Free cash flow can be approximated despite incomplete investing CF data: OCF (0.75) minus capex (8.87) ≈ -8.12, indicating negative FCF in the period. This suggests that internal cash generation was insufficient to fund investment, requiring financing (financing CF +0.70). Potential working capital signals: revenue declined while OCF lagged NI, which may indicate inventory build or slower collections; however, detailed components (e.g., real estate for sale, advances received) are not disclosed, limiting precise diagnosis. Sustainability: without improvement in cash conversion from project deliveries, dividend and debt service rely on external funding or cash balance drawdowns.

Dividend Sustainability

The calculated payout ratio is 311.1%, which appears unsustainably high relative to current earnings and negative estimated FCF (-8.12). However, detailed dividend data (DPS, total dividends) were not disclosed, and the payout ratio basis may reflect timing or TTM effects. With OCF/NI at 0.24x and interest costs rising, sustained high cash dividends would strain liquidity unless cash conversion improves or earnings recover meaningfully in H2. Policy outlook: absent explicit guidance, expect management to balance dividends against inventory funding needs and leverage metrics; any increase would likely depend on stronger cash generation.

Risk Assessment

Business Risks:

• Housing demand softness impacting unit sales and pricing
• Construction cost inflation compressing gross margins
• Project timing risk affecting quarterly revenue recognition and cash conversion
• Land acquisition and inventory risk (valuation and turnover)

Financial Risks:

• Interest rate and refinancing risk given short-term loans of 111.33 and interest expense of 2.05
• Earnings quality risk with OCF/NI at 0.24x
• Leverage risk with reported D/E at 1.79x and moderate interest coverage (3.5x)

Key Concerns:

• Low capital efficiency: ROIC 1.2% and ROE 1.3%
• Non-operating expense drag (net -1.84) limiting ordinary income
• Elevated effective tax rate (39.6%) further reducing net profit
• Potential dilution indicated by low diluted EPS (2.73) versus basic (11.03)

Investment Implications

Key Takeaways:

• Operating margin recovery to 2.75% despite a 3.5% revenue decline demonstrates disciplined SG&A control
• Cash conversion is weak (OCF/NI 0.24x) and estimated FCF is negative (-8.12), implying reliance on financing
• Leverage is meaningful (D/E 1.79x) with rising interest burden (interest expense 2.05; coverage 3.5x)
• Capital efficiency remains a core challenge (ROIC 1.2%, ROE 1.3%)
• Dividend sustainability is questionable given a calculated payout ratio of 311.1% and negative FCF, though disclosures are limited

Metrics to Watch:

• OCF and working capital movements (inventory turnover, advances received)
• Operating margin trajectory and SG&A as a percentage of sales
• Interest coverage and loan tenor mix (short vs. long)
• ROIC and ROE improvements from project turnover
• Order intake and backlog as leading indicators of H2 revenue

Relative Positioning: Within Japanese homebuilders/developers, profitability has improved on cost control, but the company lags peers on capital efficiency (ROIC) and cash conversion, while maintaining adequate liquidity and moderate-to-high leverage.

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