■Wada Kousan <8931> Performance Trends

3. Financial Condition and Management Indicators

Looking at the financial situation at the end of the interim period for February 2025, total assets increased by 4,205 million yen compared to the end of the previous period, amounting to 105,433 million yen. Current assets increased by 3,178 million yen to 75,559 million yen. The main factors were the increase in inventory assets (properties for sale) due to acquisition of land for business and construction progress of 4,558 million yen, along with a decrease in cash and deposits of 1,470 million yen. The properties for sale increased due to the progress in purchasing land for condominiums, but since it includes both undeveloped land and properties under construction, it is expected to contribute to profits in 2-3 periods ahead. Fixed assets increased by 1,026 million yen to 29,874 million yen. The main factor was the transfer of some income-generating properties to fixed assets for long-term holding, resulting in an increase of tangible fixed assets by 1,191 million yen.

Total liabilities increased by 3,537 million yen compared to the end of the previous period, amounting to 74,107 million yen. Current liabilities decreased by 1,029 million yen to 33,693 million yen. The main factors were the decrease in advances received of 3,311 million yen, a reduction in accounts payable of 156 million yen, and an increase in short-term borrowings etc. (including long-term borrowings scheduled for repayment within one year and corporate bonds) of 2,537 million yen. Fixed liabilities increased by 4,567 million yen to 40,413 million yen, primarily due to the increase in long-term borrowings (including corporate bonds) of 4,535 million yen due to progress in acquiring project land. Additionally, total net assets increased by 667 million yen to 31,326 million yen, mainly due to net income of 1,242 million yen against profit dividends of 377 million yen and treasury stock acquisition of 203 million yen.

As a result, interest-bearing debt (short and long-term borrowings, etc.) increased by 7,072 million yen compared to the end of the previous period, totaling 59,662 million yen. The safety indicator, equity ratio, stands at 29.7% (a decrease of 0.6 percentage points). The debt-to-equity ratio is 1.9 times (an increase of 0.2). The equity ratio is slightly below the real estate industry average of 33.3% in the prime standard growth market for the fiscal year ending March 2024. Additionally, in terms of profitability indicators, the ROA (return on assets) for the fiscal year ending February 2024 is 4.1% and ROE (return on equity) is 8.9%, which is generally in line with the real estate industry averages of 4.0% and 8.8% in the prime standard growth market for the fiscal year ending March 2024. Since the company is a condominium developer, it is natural for the balance sheet to expand along with growth, and having a low equity ratio and ROA/ROE is expectable; however, it is crucial to keep an eye on not diverging significantly from the industry average. The company relies on borrowings from financial institutions for land acquisition and condominium construction costs. Currently, there are dealings with 27 institutions including major banks, local banks, and credit unions, maintaining good relationships. There is also potential to increase the number of financial institutions involved, indicating no concerns regarding fundraising.

4. Cash Flow Status

At the end of the interim period for February 2025, cash and cash equivalents (hereinafter referred to as funds) totaled 13,626 million yen (an increase of 754 million yen compared to the previous year).

The reduced funds resulting from operating activities were 7,166 million yen (previous year’s reduction was 5,159 million yen). The main factors were an increase in funds due to the recording of pre-tax interim net income of 1,816 million yen, versus a decrease in funds due to an increase in inventory assets of 5,424 million yen and a reduction in advances received of 3,311 million yen due to progress in land acquisitions and construction.

The funds decreased as a result of investment activities to 670 million yen (a decrease of 184 million yen year-on-year). The main factor was a decrease in funds due to 954 million yen for the acquisition of tangible fixed assets.

The funds increased as a result of financing activities to 6493 million yen (compared to an increase of 9077 million yen in the same period last year). The main factor was an increase in funds due to long-term borrowings related to business financing of 6389 million yen.

From the above, the free cash flow, which means the cash available for free from the profits earned by the company, is negative, indicating that it is essential for the company to secure external financing to continue its growth by acquiring land.

(Written by FISCO guest analyst Nozomi Kokushige).