■Wada Kousan <8931> Performance Trends

1. Summary of performance for the interim period of the fiscal year ending February 2025

In the interim period for the fiscal year ending February 2025, signs of recovery are observed in economic activities in Japan due to the increase in inbound demand and improvements in the income environment leading to higher service consumption. However, the situation remains uncertain due to surging resource prices caused by unstable international conditions and rapid currency fluctuations resulting in higher prices. In the real estate industry, demand remains solid due to the continuation of government housing acquisition support measures and low levels of housing loan interest rates, but concerns exist regarding impacts on selling prices from high construction costs and trends in the Bank of Japan's interest rate policies.

Against this business environment, the company's performance for the interim period ending February 2025 saw a 3.1% decrease in revenue year-on-year to 20,149 million yen, a 13.0% decrease in operating profit to 2,176 million yen, a 14.8% decrease in ordinary profit to 1,824 million yen, and a 16.1% decrease in interim net profit to 1,242 million yen, resulting in reduced revenue and profits compared to the same period last year. However, revenue exceeded initial forecasts by over 6.1%, operating profit exceeded forecasts by over 14.5%, ordinary profit exceeded forecasts by over 30.3%, and interim net profit exceeded forecasts by over 24.2%. In the core condominium sales business, while the number of handovers fell by 40 units compared to the same period last year, and there was a decrease in revenue and profit, higher than expected sales prices resulted in revenue and profit exceeding plans. Additionally, in other real estate sales, the sale of income properties held for 2-3 years, which had significant depreciation, was favorable, along with the groundwork sales for condominium sites, leading to significantly increased revenue and profit, surpassing price expectations. Furthermore, as non-operating income, insurance cancellation refunds were accounted for due to the abolition of the company executives' retirement allowance system, resulting in ordinary profit and interim net profit significantly exceeding plans.

As a result, the operating margin decreased by 1.2 points year-on-year to 10.8%, the ordinary profit margin decreased by 1.2 points to 9.1%, and the interim net margin also decreased by 0.9 points to 6.2%. However, it should be noted that sales in the condominium sales business, which is the company's main business, are recognized when the completed condominiums are delivered to purchasers, so there may be fluctuations in performance depending on development timing and construction periods.

Condominium sales maintain a high level of profit margins. The profit margins for other real estate sales have significantly increased.

Segment trends by business:

(1) Condominium Sales

In the main condominium sales, although the land prices and construction costs that form the development foundation are rising, the market for condominiums is relatively steady due to the low levels of housing loan interest rates and the increasing demand for convenience in residences. The company has promoted sales activities and handover plans focused on newly launched properties to acquire contracts.

As a result, the number of units launched for the interim period ending February 2025 was 350 (an increase of 72.4% compared to the same period last year), with the number of contracts at 263 (a decrease of 23.5% compared to the same period last year) and the number of handovers at 326 (a decrease of 10.9% compared to the same period last year). The number of contracts not yet delivered stood at 627 (a decrease of 18.6% compared to the same period last year). Therefore, revenue was 14,815 million yen (a decrease of 9.0% compared to the same period last year), and gross profit was 2,884 million yen (a decrease of 11.9% compared to the same period last year), resulting in a profit margin of 19.5% (a decrease of 0.6 points compared to the same period last year). Although the profit margin fluctuates annually depending on the properties sold, it appears that the recent rise in construction costs has generally been passed on to the selling prices.

(2) Sales of Single-Family Homes

In the sales of single-family homes, efforts were concentrated on acquiring contracts focused on newly launched properties. As a result, during the interim period ending February 2025, single-family homes had 24 handovers, leading to revenue of 913 million yen (a decrease of 1.4% compared to the same period last year), gross profit of 146 million yen (an increase of 4.0% compared to the same period last year), and a profit margin of 16.1% (an increase of 0.8 points compared to the same period last year).

(3) Other Real Estate Sales

In other real estate sales, ten properties, including rental apartments and residential land, were sold, resulting in revenue of 2,722 million yen (an increase of 38.1% compared to the same period last year), gross profit of 749 million yen (an increase of 101.3% compared to the same period last year), and a profit margin of 27.5% (an increase of 8.7 points compared to the same period last year). As previously mentioned, the successful sale of income properties at higher prices than planned and the land sale for condominiums contributed to the good results in this segment.

(4) Real Estate Rental Income

In real estate rental income, the company’s focus is on residential properties, which have maintained relatively stable rental levels. While striving to improve occupancy rates, efforts were made to secure stable rental income through the acquisition of new properties and the establishment of an optimal rental real estate portfolio. As a result, during the interim period ending February 2025, real estate rental income was 1,647 million yen (an increase of 3.2% compared to the same period last year), gross profit was 647 million yen (a decrease of 3.5% compared to the same period last year), and the profit margin was 39.3% (a decrease of 2.7 points compared to the same period last year).

(Written by FISCO guest analyst Nozomi Kokushige).