Heiwa Real Estate Q2 FY2027: Operating profit jumps 28%

Heiwa Real Estate posted higher revenue and profit in the first half of FY2027. Revenue was ¥26.551 billion, up 21.7% year on year, operating profit was ¥7.404 billion, up 28.4%, and net income attributable to owners of the parent was ¥4.595 billion, up 5.7%.

• Revenue: Increased by ¥4.731 billion from a year earlier, helped by growth in the real estate business.
• Operating profit: Rose by ¥1.638 billion. The increase in gross profit exceeded the rise in selling, general and administrative expenses.
• Ordinary profit: ¥6.193 billion, up 28.2% year on year. Operating profit growth drove the increase.
• Net income for the first half: ¥4.595 billion, up 5.7%. Gains on sales of investment securities fell to ¥902 million from ¥1.724 billion a year earlier, tempering growth compared with operating profit.

The core business delivered stronger growth in operating profit than in net income. Comprehensive income fell to ¥2.907 billion from ¥8.932 billion a year earlier. Valuation differences on other securities shifted from a gain to a loss, weighing on comprehensive income even as earnings in the income statement increased.

Both main businesses recorded higher revenue and profit. The Building Business posted the faster revenue growth and also made the larger contribution to profit growth.

The Building Business generated revenue of ¥24.175 billion and segment profit of ¥7.177 billion. Both were higher than a year earlier, supporting growth across the group. The earnings report does not detail the factors behind the segment's changes, so contributions from individual properties and other drivers would need to be checked in supplementary materials.

The Asset Management Business recorded revenue of ¥2.375 billion and segment profit of ¥1.450 billion, also increasing year on year. Though smaller than the Building Business, it delivered steady profit growth and remains a source of earnings for the portfolio.

Heiwa Real Estate left its consolidated forecast for FY2027 unchanged. First-half revenue and profit increased, with operating profit reaching about 46.9% of the full-year target.

There was no change from the most recently announced forecast. First-half operating profit was just under half the full-year plan, but second-half results could vary depending on the timing of property handovers and sales of properties held for sale. The company cautioned that its forecast is based on certain assumptions and actual results could differ significantly.

Total assets stood at ¥448.610 billion at the end of September 2026, down ¥3.228 billion from the end of March 2026. The equity ratio edged down to 28.0% from 28.1% at the previous fiscal year-end.

The main reason operating cash flow turned negative was a ¥11.707 billion year-on-year increase in inventories. Growth in properties held for sale tied up funds for future sales, and the smaller outflow from investing activities was not enough to offset the decline in cash and cash equivalents.

The annual dividend forecast is ¥5 above the previous year's actual payout. The year-end dividend is planned to comprise an ordinary dividend of ¥44 and a special dividend of ¥15, continuing the inclusion of a special dividend from the previous year. The company did not announce a large share buyback, and spending on treasury-share purchases during the first half was ¥5 million.

Both main businesses increased profit in the first half, but a buildup in properties held for sale and higher financing costs could affect cash flow and earnings. Based on the figures and assumptions in the earnings report, investors should watch the following:

• Sales of properties held for sale and funding needs: Properties held for sale increased from the previous fiscal year-end, and the rise in inventories weighed on operating cash flow. If the timing or prices of sales fall short of plan, cash recovery and profit recognition could be delayed.
• Higher interest rates and borrowing costs: Interest expense rose to ¥1.558 billion from ¥1.203 billion a year earlier. For a real estate business that uses borrowing, continued rate increases could add pressure on earnings and cash flow.
• Changes in the real estate market: Shifts in property demand and prices, as well as rental conditions, affect property sales and building operations. With the full-year forecast unchanged, progress in second-half sales and earnings will be key to meeting the plan.
• Securities valuation movements: Valuation differences on other securities were negative in the first half, reducing comprehensive income. Investors should also monitor how changes in the value of held assets affect net assets and comprehensive income.