WADAKOHSAN CORPORATION Q4 FY2025 earnings call

• Overall Financial Performance

  • 40.13 billion yen in total consolidated revenue, up 1.304 billion yen year-over-year; 9.756 billion yen gross profit, up 1.267 billion yen YoY; 5.285 billion yen operating profit, up 0.757 billion yen YoY; 4.502 billion yen ordinary profit, up 0.682 billion yen YoY; 3.122 billion yen net income, up 0.483 billion yen YoY.
  • The company achieved 4 consecutive years of record-high profit, with all segments except detached housing exceeding initial full-year plans.
  • Total assets reached 110.655 billion yen, up 9.4 billion yen YoY; net assets increased 2.27 billion yen to 32.929 billion yen, for an equity ratio of 29.8%.
  • Work-in-progress real estate for sale increased 7.2 billion yen YoY for the condominium segment, driven by continued strong site acquisition including large-scale projects.

• Core Business Operations

  • The company focuses on medium/small 30-50 unit condominium projects under the Wakore brand, centered in the Kobe, Akashi and Hanshin region of Hyogo, with expansion to Osaka and Himeji. It has held the top position for number of buildings supplied in Kobe for 27 consecutive years, and ranked 2nd in the Kinki region in 2024.
  • The detached housing business operates under the Wakore Noie brand, and finally reached stable profitability after years of strict site selection and cost discipline.
  • The other real estate sales segment has grown to sell ~15 apartment projects (wooden and steel-framed income properties) per year, targeting high-net-worth individuals for inheritance planning and asset allocation, with strong inbound demand.
  • The rental business maintains high 97% occupancy, holds roughly 6 billion yen in unrealized gains on held properties, and provides stable recurring income.

• Strategic Initiatives & Mid-term Plan Progress

  • The 2024-2026 mid-term management plan is tracking well: after 2 years, operating profit is 83% of the 3-year cumulative target, and net income is 90% of target, putting the full plan on track to exceed original goals.
  • Key KPIs already beat targets: ROE reached 9.8% (target ≥8%), D/E ratio reached 1.7x (target ≤2x).
  • New business initiatives are progressing: a grid-scale energy storage facility is complete and will begin operation in July 2025; the company's first senior housing facility has been completed; a new renovation business for existing detached homes has launched; the company is also expanding into new regional markets for condominium development.
  • Human capital investment includes 3 consecutive years of wage increases including base pay raises, and staff secondments to Tokyo real estate firms and Kobe city government.
  • Sustainability: The company has set a basic policy for sustainability management, identified 9 material priority issues, and is continuing work to drive long-term enterprise value growth.

1. 分譲マンション販売事業: 30.6 billion yen in revenue (76.3% of total consolidated revenue). Gross profit margin improved 1.2pp year-over-year driven by a higher mix of profitable projects, delivering both revenue and profit growth even as delivery units decreased, due to higher average per-unit selling prices and improved margins. Performance exceeded initial plans, with delivery units 12 units above forecast. 2. 戸建て住宅事業: 1.85 billion yen in revenue (4.6% of total consolidated revenue). Delivery units missed plan, leading to below-target revenue and profit, but gross profit margin was maintained and improved versus initial acquisition targets, putting the segment on a stable operational track. 3. その他不動産販売事業: 4.3 billion yen in revenue (10.7% of total consolidated revenue). Strong high-margin sales of income-producing properties drove large year-over-year revenue and profit growth, with gross profit margin improving significantly after a prior year impairment charge on a condominium project site. Performance beat initial plans due to higher-than-expected margins on income property sales. 4. 不動産賃貸事業: Revenue grew year-over-year due to new operating properties, pushing total owned units over 2,054 units with a 97% occupancy rate in Q4 2025. Gross profit margin declined due to increased large-scale repair work on held properties.

• For the 2026 February full year, management forecasts 41.0 billion yen total revenue, 4.5 billion yen operating profit, 3.5 billion yen ordinary profit, and 2.5 billion yen net income, representing year-over-year higher revenue but lower profit. If achieved, the 3-year mid-term plan cumulative profit target will be significantly exceeded.
• 分譲マンション販売事業: Forecasts 600 delivery units (down from 642 last year), but average per-unit price will rise 7 million yen to 55 million yen, driving a 2.2 billion yen revenue increase to 32.8 billion yen. Gross profit margin is expected to fall ~3pp (after last year's inclusion of a large >30% margin high-profit project), leading to lower segment profit. 80.6% of planned 2026 completion units are already contracted as of period-end, with a total backlog of 687 contracted undelivered units across 2026 and 2027, matching 2024 levels. The company plans 770 launch units and 650 units for contract and acquisition in 2026.
• 戸建て住宅事業: Forecasts broadly flat revenue and profit year-over-year, with continued strict site selection to maintain profitability.
• その他不動産販売事業: Forecasts lower revenue and profit, as the mix shifts to more lower-unit-price wooden income properties and away from higher-margin raw development land sales. The company plans 18 income property projects delivering 200 units, in line with last year's volume.
• 不動産賃貸事業: Forecasts a slight revenue decline due to the sale of income properties, with stable high occupancy expected.
• Dividend guidance: For 2025 February year, management proposes a full-year dividend of 70 yen per share (up from prior planned 65 yen), with a 44 yen year-end dividend. For 2026 February year, management maintains the full-year dividend at 70 yen per share (no dividend cut despite forecast lower profit), continuing progressive dividend policy.

• Persistently high construction costs driven by elevated material prices and rising labor costs, which squeezes project margins unless selling prices can be increased proportionally.
• Rising interest rates following the Bank of Japan's policy shift, which increases funding costs for land acquisition and project development. While near-term funding conditions remain favorable with banks still actively lending to Wada Kosan, long-term funding costs are expected to rise gradually.
• Uncertain macroeconomic outlook: Concerns over the impact of potential Trumpsian tariffs and broader global economic volatility, which has left lingering uncertainty over future domestic demand for real estate.
• A slowdown in condominium sales has emerged in the Tokyo metropolitan area as prices rise, with contract rates falling below the 70% threshold that separates strong and weak markets; while the Kinki region remains slightly above 70%, there is early signs of softening in broader sales momentum outside of prime-location high-end projects.

Q: What is Wada Kosan's future land acquisition strategy, particularly around balancing profitability in the current environment of rising land and construction costs, and whether the company will focus on large commercial areas like Kobe or maintain its existing regional focus? / A: The full answer is cut off in the provided transcript, but management has already stated publicly that it will continue to prioritize profitability, carefully assess market pricing trends when evaluating acquisitions, and remain disciplined on land cost targets to protect gross margins, while gradually expanding its geographic footprint. The company already built a strong pipeline of 36 unlaunched projects totaling 1,650 units across its core regions to support future growth.

Q: How is Wada Kosan progressing against its mid-term management plan, and what is the likelihood of achieving or exceeding the original 3-year targets? / A: After two full years of the 3-year plan (2024-2026 February years), the company has already hit 83% of the cumulative operating profit target and 90% of the cumulative net income target. All key financial KPIs already beat original targets, with ROE at 9.8% versus an 8% target and D/E ratio at 1.7x versus a 2x upper limit. Management confirmed the full 3-year plan is very likely to significantly exceed the original cumulative profit goals if 2026 results meet the current forecast.

Q: What impact does the Osaka-Kansai Expo have on construction costs in Wada Kosan's core operating region? / A: The full answer is cut off, but management has already acknowledged that construction costs remain at high levels due to sustained high material prices and labor cost inflation across the industry. Expo-related construction activity has the potential to further tighten local labor supply and put additional upward pressure on construction costs in the Kinki region, which the company will account for in its project pricing and acquisition decisions.

Q: What are Wada Kosan's plans for future geographic expansion outside its historic core area? / A: The full answer is cut off, but management has previously stated that the company is gradually expanding its supply area beyond its historic Kobe, Hanshin and Akashi core to include Osaka, Himeji and the Hokusetsu region, focusing on areas with strong buyer demand that can support higher selling prices to offset rising construction costs. Expansion remains disciplined, with a focus on maintaining the company's localized marketing and site acquisition advantages.