CHUBU SHIRYO (2053) FY2026 Q3 Earnings Report

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Executive Summary

Chubu Shiryo’s cumulative Q3 results for the fiscal year ending March 2026 showed a substantial increase in profit, driven by improved gross profit despite essentially flat revenue. Revenue was ¥1,581.2B (+0.4% YoY), remaining almost unchanged, while Operating Income rose substantially to ¥44.2B (+63.4%), Ordinary Income to ¥49.1B (+56.9%), and Net Income to ¥37.3B (+57.0%). The primary driver of the profit increase was an improvement in the raw-material position resulting from enhanced procurement practices, with the gross margin improving by approximately 1.5pt to 10.0% from 8.5% in the same period of the previous year. A gain on the sale of investment securities of ¥3.6B was recorded as extraordinary income, meaning that part of Net Income includes a temporary factor.

Factors Affecting Performance

【Revenue】Revenue was ¥1,581.2B, essentially flat at +0.4% YoY. The core Feed segment recorded ¥1,437.9B, a slight decline of -0.6% YoY; however, sales volume of livestock feed increased to 102.4% YoY, indicating that unit-price factors weighed on revenue. The Other segment (chicken eggs, fertilizers, livestock equipment, etc.) grew 12.5% from the previous year, supporting overall revenue.

【Profit and Loss】Operating Income increased substantially to ¥44.2B (+63.4% YoY). The primary factor was an improvement in the raw-material position, or the cost-reduction effect from enhanced raw-material procurement, which improved the gross margin by +1.5pt YoY to 10.0%. SG&A expenses were ¥113.5B, equivalent to 7.2% of revenue. Although this increased from 6.8% in the previous year, the improvement in gross profit exceeded the increase in expenses, securing higher Operating Income. Ordinary Income was ¥49.1B and Net Income was ¥37.3B, both increasing by +56〜57% YoY. The gap between Ordinary Income and Net Income was small, although extraordinary income, consisting of a ¥3.6B gain on the sale of investment securities, slightly boosted Net Income and should be noted as a temporary factor. In conclusion, the results represent substantial profit growth despite only modest revenue growth—effectively, a slight increase in revenue and a substantial increase in profit.

Segment Analysis

The Feed segment, the core business, recorded revenue of ¥1,437.9B (91.0% of total revenue) and Operating Income of ¥44.7B (+75.4% YoY), representing substantial profit growth. Growth in livestock-feed sales volume (102.4%), the improvement in the raw-material position (a ¥19.9B contribution), and improved profitability in aquatic feed were the main drivers. The Other segment (chicken eggs, fertilizers, livestock equipment, and insurance agency services) recorded revenue of ¥143.3B (9.0% of total revenue), while Operating Income declined to ¥7.9B (-14.3% YoY). The primary factor was the lack of the overseas large-scale livestock-equipment project recorded in the previous fiscal year. Sales of chicken eggs and fertilizers remained solid. Profit growth in the core Feed segment drove overall profit growth and absorbed the decline in the Other segment.

Key Financial Indicators

Profitability: ROE 5.3%, Operating Margin 2.8% (1.7% in the previous year)
Investment efficiency: Equity Ratio 64.8% (66.4% in the previous year)
Financial soundness: Current ratio approximately 257% (current assets ¥689.9B/current liabilities ¥268.3B); interest-bearing debt is small in scale and consists primarily of long-term borrowings of ¥60.1B
Per share: EPS ¥127.20 (¥80.18 in the previous year, +58.6%)

Cash Flow Analysis

Cash and deposits were ¥62.2B, a substantial decrease from ¥119.4B in the previous year. The primary reason for the decline was that increases in accounts receivable (+¥72.3B) and inventories (+¥11.1B) exceeded the increase in accounts payable (+¥45.0B), resulting in a net accumulation of approximately ¥38B in working capital. In addition, investment securities increased by +¥29.5B, creating a cash outflow factor. Share repurchases also progressed by -¥12.4B, contributing to the use of funds. Although profit increased substantially, cash declined, requiring monitoring from a cash-generation perspective.

Earnings Quality

The difference between Ordinary Income of ¥49.1B and Net Income of ¥37.3B was primarily attributable to income taxes and other taxes (¥15.3B); the gap itself is not large and is broadly in line with the tax rate. Meanwhile, Pretax Income of ¥52.6B includes extraordinary income of ¥3.6B (a ¥3.6B gain on the sale of investment securities), making the difference from recurring earning power at the Ordinary Income level clear. Non-operating income of ¥5.4B was approximately 0.3% of revenue and consisted primarily of dividends received of ¥2.5B. Due to the accumulation of working capital, cash backing for profit growth was weak, warranting some caution regarding earnings quality from an accruals perspective.

Earnings Forecast and Guidance

Progress against the full-year forecasts (Revenue of ¥2,120B, Operating Income of ¥52.0B, and Ordinary Income of ¥56.0B) was 74.6% for Revenue, 85.1% for Operating Income, and 87.7% for Ordinary Income. Compared with standard progress of 75% at the Q3 stage, progress for Operating Income and Ordinary Income was ahead of schedule, suggesting that the benefits of the improved raw-material position are progressing above plan. No revisions were made to the earnings forecast or dividend forecast this time.

Shareholder Returns

The annual dividend forecast is ¥60 (an interim dividend of ¥25, including the expected year-end dividend), implying a Payout Ratio of approximately 43.3% based on the company’s forecast EPS of ¥138.65. Against the share-repurchase program limit of 1.15 million shares and ¥1.5B, 750 thousand shares and ¥1.25B had been completed as of the end of Q3. The Total Return Ratio, combining dividends and share repurchases, is therefore above the Payout Ratio.

Catalysts

【Short term】Progress for both Operating Income and Ordinary Income is above the standard level, making raw-material market prices and foreign-exchange trends in Q4 the key factors for achieving the full-year plan.

【Long term】A gain on the transfer of a logistics warehouse in Yokohama City of approximately ¥31B is scheduled to be recorded as extraordinary income in Q1 of the fiscal year ending March 2027. The transfer contract has been executed, with delivery scheduled for April 2026, and efforts to improve asset efficiency are continuing.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (food_beverage)

Profitability and Returns

Both the Operating Margin and Net Margin are below the industry median, placing profitability relatively low within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is also below the industry median, placing the company’s top-line growth among the more moderate levels within the industry.

※Source: Compiled by the Company

Risk Factors

1. Raw-material and foreign-exchange risk: Fluctuations in grain market prices, including corn and soybean meal, as well as USD/JPY exchange-rate movements, affect raw-material costs. During the current period, the improved raw-material position lifted the gross margin by +1.5pt, but this could work in the opposite direction if market conditions reverse.

2. Accumulation of working capital: Increases in accounts receivable of +¥72.3B and inventories of +¥11.1B exceeded the increase in accounts payable of +¥45.0B, resulting in a net increase in working capital of approximately ¥38B and a -47.9% YoY decline in cash and deposits.

3. Livestock-demand volatility risk: Unexpected events such as avian influenza and farm fires, as well as fluctuations in livestock-product prices, may affect feed demand. The per-ton fund contribution under the formula-feed price stabilization scheme remained high at ¥1,840/ton for the fiscal year ending March 2026.

Key Takeaways from the Earnings

1. Although the Operating Margin improved to 2.8% from 1.7% in the previous year, it remained below the industry median of 5.0%. The sustainability of the improved raw-material position will determine future profitability.

2. The ¥3.6B gain on the sale of investment securities included in Net Income is a temporary factor. Recurring earning power should be assessed based on growth in Operating Income and Ordinary Income.

3. The decline in cash and deposits (-47.9%) was attributable to the accumulation of working capital, share repurchases, and the increase in investment securities. A time lag between profit growth and cash generation is observable.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,145〜¥2,268 at Cost of Equity ±1%, and ¥2,197〜¥2,210 at ω±0.1.

Notes:

• Because Net Income progress against the full-year forecast (91%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies running ahead of schedule tend to exceed forecasts; adjustments may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest-rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through integrated analysis of XBRL earnings release data and PDF earnings presentation materials. It does not recommend investment in any specific security. The industry benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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AI Financial Analysis

Executive Summary

Chubu Feed delivered a strong FY2026 Q3 earnings outcome, with profit growth substantially outpacing essentially flat revenue. Cumulative Q3 revenue rose 0.4% year on year to ¥158.12bn. Operating income increased 63.4% to ¥4.42bn. Ordinary income rose 56.9% to ¥4.91bn. Profit attributable to owners of parent increased 57.0% to ¥3.72bn. Gross profit expanded 17.6% to ¥15.77bn despite limited sales growth. The gross margin improved by 146bp year on year to 10.0%, from 8.5%. The operating margin improved by 108bp to 2.8%, from 1.7%. This indicates that the earnings recovery was principally driven by improved gross-profit capture rather than volume-led sales growth. SG&A increased 6.0% to ¥11.35bn, exceeding revenue growth and absorbing part of the gross-profit improvement. Nonetheless, gross profit increased by ¥2.36bn, comfortably above the ¥0.64bn rise in SG&A, producing a ¥1.72bn increase in operating income. Non-operating income of ¥0.54bn included ¥0.26bn of dividend income, supporting ordinary income. Pre-tax profit also included a ¥0.36bn extraordinary gain, almost entirely from the sale of investment securities. Consequently, reported net income contains a modest non-recurring contribution; excluding the after-tax effect of this gain, underlying profit growth remains strong at roughly mid-40% year on year. The balance sheet remains conservatively capitalized, with a 257.2% current ratio, 244.0% quick ratio and 64.7% capital adequacy ratio. However, cash and deposits declined 47.9% year on year to ¥6.22bn while trade receivables and inventories increased. The ¥46.19bn receivables balance equals 42.5% of total assets, and the reported 80-day DSO is a material working-capital monitoring point. FY2026 full-year operating-income guidance of ¥5.20bn appears increasingly achievable, as Q3 cumulative progress is already 85.1%. Full-year net-income progress is 90.8% against the ¥4.10bn forecast, although the securities-sale gain should not be extrapolated. The key forward issue is whether improved procurement pricing and feed-margin conditions can be retained while controlling receivables and SG&A growth.

Profitability Analysis

The reported annualized ROE is 7.0%, decomposed into a 2.4% net profit margin, 1.941x annualized asset turnover and 1.54x financial leverage. The largest positive operating change was margin expansion: the gross margin rose 146bp and the operating margin rose 108bp year on year. This reflects a meaningful improvement in gross profit despite revenue increasing only 0.4%, consistent with improved spread management between selling prices and feed/input costs. The 2.8% EBIT margin remains below the 5% efficiency benchmark and is the principal quality alert for the earnings model. A 10.0% gross margin is also low relative to branded food-and-beverage benchmarks, but is more consistent with a high-throughput, commodity-exposed feed business where raw-material costs dominate the cost base. SG&A grew 6.0% year on year, materially faster than sales, lifting the SG&A-to-sales ratio by approximately 38bp to 7.2%. Operating leverage was still positive because gross profit growth substantially exceeded SG&A growth in absolute yen terms. The annualized ROA is approximately 4.7%, calculated using cumulative Q3 profit annualized by four-thirds and average total assets; this is supported by high asset turnover rather than a high margin. Financial leverage is moderate and is not the driver of ROE. The five-factor DuPont tax burden was 0.707, indicating a normal effective tax outcome, while the 1.190 interest burden reflects net non-operating income rather than debt stress. Interest coverage of 102.9x confirms that financing cost is immaterial to current profitability. Dividend income of ¥0.26bn and equity-method earnings of ¥0.20bn provide supplementary earnings, but operating-income improvement remains the central earnings driver. The ¥0.36bn gain on sale of investment securities lifted profit before tax and should be treated as non-recurring.

Growth Assessment

Revenue growth of 0.4% indicates that the Q3 profit recovery was not driven by a broad-based expansion in reported sales. Gross profit growth of 17.6% and operating-income growth of 63.4% instead demonstrate materially stronger unit economics. The improvement is encouraging because it was visible at the gross-profit level before non-operating and extraordinary items. The sustainability of the recovery depends on the company maintaining procurement-cost discipline and passing through fluctuations in grain, oilseed, freight and currency-linked input costs. Raw materials of ¥8.69bn increased from ¥8.04bn, while finished goods increased 45.9% to ¥3.53bn, indicating greater inventory commitments alongside the margin recovery. Management forecasts FY2026 revenue of ¥212.00bn, and Q3 cumulative progress is 74.6%, broadly in line with the standard 75% seasonal run rate. Operating-income progress is 85.1% versus the ¥5.20bn full-year target, 10.1 percentage points ahead of the standard 75% level. Ordinary-income progress is 87.6% versus the ¥5.60bn forecast, also ahead of the standard pace. Net-income progress is 90.8% versus the ¥4.10bn forecast. The excess profit progress provides scope for forecast outperformance, but the ¥0.36bn securities-sale gain means net-income progress overstates recurring operating momentum to a degree. Full-year guidance embeds 21.4% operating-income growth, below the 63.4% Q3 cumulative pace, suggesting a prudent assumption for the final quarter. The core growth question is whether the gross-margin expansion can offset continuing cost inflation and the higher SG&A run rate.

Financial Health

Liquidity is strong, with current assets of ¥68.99bn against current liabilities of ¥26.83bn and working capital of ¥42.16bn. The current ratio of 257.2% and quick ratio of 244.0% are comfortably above healthy thresholds. Cash and deposits of ¥6.22bn cover the current portion of long-term loans of ¥2.55bn by approximately 2.4x. Trade receivables of ¥46.19bn and inventories of ¥3.53bn provide substantial current-asset coverage, although receivables represent the dominant component of liquidity. Total equity increased ¥2.85bn year on year to ¥70.36bn, and the equity ratio stands at 64.7%. Reported debt-to-equity is 0.54x and debt-to-capital is 7.9%, both consistent with a conservative solvency profile. Long-term loans were ¥6.01bn, while the current portion of long-term loans was ¥2.55bn. Interest expense was only ¥0.43bn and interest coverage was 102.9x, leaving substantial capacity to service debt. Accounts payable increased ¥4.50bn, or 29.5%, to ¥19.74bn, partly financing the year-on-year increase in receivables and inventories. Cash and deposits declined ¥5.73bn, or 47.9%, to ¥6.22bn, and should be assessed together with the increase in working-capital balances and investment securities. Investment securities rose ¥2.95bn, or 42.5%, to ¥9.89bn and account for 9.1% of total assets. The balance sheet carries limited intangible assets, at 0.3% of total assets, and therefore has little exposure to acquisition-related intangible-asset concentration. No maturity mismatch is apparent because current assets substantially exceed current liabilities and near-term debt obligations.

Notable B/S Changes

Treasury stock: increased in absolute value by ¥1.24bn to negative ¥2.18bn (-132.2%) - indicates a meaningful increase in treasury-share holdings and should be considered alongside dividend distributions in evaluating total shareholder returns. Cash and deposits: -¥5.73bn (-47.9%) to ¥6.22bn - cash declined while operating working capital and investment securities increased; liquidity remains strong but cash conversion should be monitored. Finished goods inventories: +¥1.11bn (+45.9%) to ¥3.53bn - reflects greater inventory commitment and heightens exposure to demand, commodity-price and inventory-management risk. Investment securities: +¥2.95bn (+42.5%) to ¥9.89bn - securities now represent 9.1% of total assets; valuation gains supported other comprehensive income, creating market-value sensitivity. Accounts payable: +¥4.50bn (+29.5%) to ¥19.74bn - supplier financing increased and partially offsets higher receivables and inventory funding needs.

Cash Flow Quality

The balance-sheet working-capital profile warrants attention. Trade receivables increased ¥7.23bn year on year to ¥46.19bn, and the reported DSO is 80 days, above the 60-day alert threshold. A high DSO can be normal to some degree in feed distribution and agricultural supply chains with large business customers, but it increases collection, credit and funding sensitivity. Accounts payable increased ¥4.50bn to ¥19.74bn, providing partial supplier financing for the larger receivables balance. Inventories increased ¥1.11bn, or 45.9%, to ¥3.53bn, while raw materials were ¥8.69bn and work in process was ¥0.63bn. The simultaneous rise in receivables and inventories indicates greater capital tied up in the operating cycle. The reduction in cash and deposits to ¥6.22bn reinforces the importance of converting the higher receivable balance into cash on schedule. The company nevertheless retains strong reported liquidity, with quick assets substantially exceeding current liabilities. Earnings include ¥0.36bn of gains on disposals of investment securities and fixed assets, which are not recurring operating cash-generation sources. Higher comprehensive income of ¥5.78bn versus net income of ¥3.72bn was supported by ¥2.04bn of other comprehensive income, including a ¥2.07bn valuation gain on securities; this improves equity but is not operating earnings.

Dividend Sustainability

The Q2 dividend was ¥30.00 per share. Based on the cumulative Q3 calculation provided, the dividend payout ratio was 24.5%, indicating a conservative distribution relative to current-period earnings. The full-year dividend forecast is ¥60.00 per share. Using forecast EPS of ¥138.65, the implied full-year dividend payout ratio is approximately 43.3%, below the 60% sustainability benchmark. Retained earnings were ¥58.25bn, providing a substantial equity buffer for shareholder distributions. Treasury stock increased in absolute value by ¥1.24bn to negative ¥2.18bn, indicating capital returned through share repurchases or treasury-share acquisition activity. Accordingly, total shareholder return should be assessed using a total return ratio rather than the dividend payout ratio alone. The projected dividend is supported by strong Q3 profit progress and a conservative balance sheet. Sustainability will depend on preservation of the higher operating margin and timely collection of receivables, given the decline in cash holdings and expansion in operating working capital.

Risk Assessment

Business risks include Commodity and foreign-exchange exposure: Feed production is exposed to grain, oilseed, energy and logistics costs. The 10.0% gross margin and 2.8% operating margin leave limited room for adverse input-cost movements if selling-price pass-through lags., Low operating efficiency: The 2.8% EBIT margin is below the 5% alert threshold. Although it improved by 108bp year on year, the earnings base remains sensitive to relatively small changes in gross-profit spread or SG&A., Receivable collection and customer-credit risk: DSO of 80 days exceeds the 60-day alert threshold, while trade receivables rose 18.6% to ¥46.19bn. This can increase cash-conversion volatility and exposure to customer payment delays., Inventory and supply-chain risk: Finished goods increased 45.9% to ¥3.53bn, with significant raw-material holdings of ¥8.69bn. Commodity-price declines, demand changes or disruption in agricultural supply could pressure inventory values and margins., Food and feed safety risk: Product-quality incidents, contamination, traceability failures or tighter livestock-feed regulations could result in recalls, customer losses and reputational damage..

Financial risks include Cash balance risk: Cash and deposits fell ¥5.73bn year on year to ¥6.22bn while receivables, inventories and investment securities increased. Strong liquidity ratios mitigate this risk, but operating cash conversion remains important., Market-value risk in investment securities: Investment securities increased 42.5% to ¥9.89bn, and other comprehensive income included a ¥2.07bn valuation gain on securities. A reversal in market values could reduce equity and comprehensive income., Non-recurring profit contribution: The ¥0.36bn extraordinary gain on sales of investment securities and assets supported reported profit before tax, reducing the comparability of headline net-income growth..

Key concerns include Highest priority: Sustain gross-margin gains while managing commodity-cost and pass-through volatility., High priority: Reduce or stabilize the 80-day receivable cycle and monitor whether receivable growth remains above sales growth., Medium priority: Control SG&A, which rose 6.0% despite 0.4% revenue growth., Medium priority: Monitor inventory expansion and the balance between cash deployment, securities holdings and shareholder returns..

Investment Implications

Key takeaways include Q3 earnings showed a strong margin-led recovery: operating income rose 63.4% to ¥4.42bn on revenue growth of only 0.4%., Gross-margin expansion of 146bp was the principal source of improved profitability, while SG&A growth partially offset the benefit., Q3 operating-income progress reached 85.1% of full-year guidance, above the standard 75% progress level., The balance sheet is robust, supported by a 257.2% current ratio, 64.7% capital adequacy ratio and 102.9x interest coverage., The principal operational watchpoint is working capital, particularly ¥46.19bn of receivables and an 80-day DSO., Reported net income benefited from a ¥0.36bn securities-sale gain, so recurring earnings should be evaluated primarily through operating income and gross margin..

Metrics to watch include Gross margin and operating margin, particularly whether the 10.0% and 2.8% Q3 levels can be sustained., Revenue growth versus SG&A growth, after SG&A rose 6.0% year on year., DSO, receivables growth and collection quality., Raw-material and finished-goods inventory levels relative to feed demand and commodity prices., Cash and deposits after the year-on-year decline to ¥6.22bn., Progress versus full-year operating-income guidance of ¥5.20bn and ordinary-income guidance of ¥5.60bn., Changes in investment securities and valuation differences on securities..

Regarding relative positioning, The company combines high asset turnover, conservative capitalization and strong interest coverage with structurally thin margins typical of a commodity-exposed feed operator. Its Q3 margin recovery improves relative earnings quality, but the 2.8% operating margin, 10.0% gross margin and 80-day receivable cycle remain less resilient than those of higher-value-added branded food businesses.