CHUBU SHIRYO (2053) FY2027 Q1 Earnings Report

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Executive Summary

The key takeaway from these results is that, in addition to higher revenue and operating income from the core business, extraordinary income—primarily gains on the sale of property, plant and equipment—significantly boosted net income. Revenue was ¥562.9B (+7.7% YoY), Operating Income was ¥12.3B (+10.6%), and Ordinary Income was ¥16.0B (+19.9%), with all three maintaining a trend of higher revenue and earnings. Net income attributable to owners of the parent surged to ¥34.7B (+236.8%), but this was due to extraordinary income of ¥35.0B, including a ¥31.2B gain on the sale of property, plant and equipment, and does not indicate a change in recurring earnings power.

Factors Affecting Performance

【Revenue】Revenue was ¥562.9B, up +7.7% YoY. The Feed segment remained the core business at ¥498.7B (+4.1%), while the Other segment (livestock equipment, egg sales, etc.) achieved strong growth of ¥64.2B (+47.2%), making a significant contribution to consolidated revenue growth.

【Profit and Loss】The gross margin was 9.5%, improving from approximately 9.3% in the same period of the previous year. However, SG&A expenses expanded by +9.6% YoY, outpacing revenue growth, and the SG&A ratio increased to 7.3%. As a result, the improvement in the Operating Income margin was limited to 2.2% (approximately +0.1 pt YoY). Ordinary Income was ¥16.0B (+19.9%), also supported by ¥1.9B in dividend income and ¥1.1B in foreign exchange gains. Net income surged to ¥34.7B (+236.8%), driven by extraordinary income of ¥35.0B, primarily consisting of the ¥31.2B gain on the sale of property, plant and equipment, resulting in a significant divergence from Ordinary Income. Overall, the Company reported higher revenue and earnings.

Segment Analysis

The Feed segment reported revenue of ¥498.7B (+4.1%) and segment profit of ¥12.7B (+7.6%), with a low-margin structure continuing at a 2.5% profit margin. The Other segment (livestock equipment, egg sales, etc.) recorded revenue of ¥64.2B (+47.2%) and profit of ¥4.6B (+99.1%), showing substantial growth and exceeding the Feed Business with a 7.2% profit margin. The Other Business is making an increasingly significant contribution to consolidated revenue and profit growth, and the sustainability of this high growth will be a key focus going forward.

Key Financial Indicators

【Profitability】The Operating Income margin of 2.2%, gross margin of 9.5%, and Ordinary Income margin of 2.8% all improved slightly from the same period of the previous year. However, the substantial expansion in the Net Income margin to 6.2% (approximately 2.0% in the same period of the previous year) was primarily due to the temporary boost from the gain on the sale of property, plant and equipment.【Cash Flow Quality】Extraordinary income of ¥35.0B, including a ¥31.2B gain on the sale of property, plant and equipment, was recorded against net income attributable to owners of the parent of ¥34.7B, indicating that most of net income depended on non-recurring factors.【Investment Efficiency】Annualized ROE was 18.5%, but excluding the temporary factors described above, recurring capital efficiency remains at a more moderate level.【Financial Soundness】With an Equity Ratio of 68.4%, current assets of ¥701.4B versus current liabilities of ¥233.8B indicate ample liquidity. Interest expense was only ¥0.1B against long-term borrowings of ¥47.6B, indicating a limited interest burden.

Cash Flow Analysis

As the direct disclosure of a statement of cash flows is not included in the available data, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥122.0B from ¥118.3B in the same period of the previous year, indicating an improved cash position. Net assets increased to ¥750.5B (+3.1% YoY), with the recognition of Q1 net income and the recovery of funds through the sale of property, plant and equipment likely contributing to the accumulation of equity. Long-term borrowings decreased 11.0% YoY, indicating progress in reducing interest-bearing debt. Current assets of ¥701.4B were approximately 3.0 times current liabilities of ¥233.8B, maintaining a structure with ample room for short-term funding needs.

Earnings Quality

The quality of earnings for the current period is characterized by a clear separation between recurring and temporary items. Operating Income of ¥12.3B and Ordinary Income of ¥16.0B represent recurring earnings reflecting higher revenue and earnings in the Feed and Other Businesses, whereas net income of ¥34.7B was strongly affected by extraordinary income of ¥35.0B, primarily consisting of the ¥31.2B gain on the sale of property, plant and equipment. Non-operating income consisted of items such as ¥1.9B in dividend income and ¥1.1B in foreign exchange gains. These are ancillary business revenues and do not substitute for the profitability of the core business. Comprehensive income was ¥32.2B, slightly below net income of ¥34.7B, due to factors including a ¥1.5B decrease in valuation difference on securities and a ¥0.8B deterioration in foreign currency translation adjustments. Given the substantial divergence between net income and Ordinary Income, the quality of earnings for the current period is interpreted as having a high dependence on temporary factors.

Earnings Forecast and Guidance

The full-year forecasts are revenue of ¥2,210.0B (+4.3% YoY), Operating Income of ¥59.0B (-10.4%), and Ordinary Income of ¥62.0B (-13.5%). As of Q1, there have been no revisions to the earnings or dividend forecasts. The Q1 revenue progress rate was 25.5%, in line with a standard level, while the Operating Income progress rate was 20.9%, slightly below the revenue progress rate. As the full-year forecast assumes declines in Operating Income and Ordinary Income, Q1 earnings growth does not directly imply full-year earnings growth. Expense trends and changes in raw material and foreign exchange conditions through the second half are expected to determine progress.

Shareholder Returns

The full-year dividend forecast is ¥76.00 per share, with no revision as of the current quarter. Based on the full-year forecast EPS of ¥240.45, the forecast Payout Ratio (dividends only) is 31.6%, a conservative level relative to the earnings forecast. As Q1 net income includes the gain on the sale of property, plant and equipment, it is appropriate to assess dividend capacity based on progress in recurring earnings for the full year. No new data on share repurchases has been disclosed.

Risk Factors

1. Structural low earnings margins: The Feed Business’s gross margin of 9.5% and Operating Income margin of 2.2% are below the industry median of 5.3%, creating a structure in which increases in raw material prices, ocean freight rates, and energy costs can readily pressure earnings.

2. Risk related to the quality of net income: More than 90% of net income attributable to owners of the parent of ¥34.7B was related to extraordinary income, primarily the gain on the sale of property, plant and equipment. When evaluating full-year ROE and earnings levels, it is important to note that temporary factors are not recurring.

3. Risk of earnings offset by cost increases: SG&A expenses increased +9.6% YoY, exceeding the +7.7% revenue growth rate, creating the possibility that the benefits of gross margin improvement may be offset by higher expenses.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (food_beverage)

Profitability and Returns

The Operating Income margin is below the industry median, while the Net Income margin exceeds the industry median, partly due to the impact of extraordinary income.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median and is positioned in the upper range of the IQR.

※Source: Company compilation

Key Takeaways from the Results

1. The core businesses (Feed and Other Businesses) achieved higher revenue and earnings. In particular, the Other Business (livestock equipment, egg sales, etc.) recorded revenue growth of +47.2% and profit growth of +99.1%, increasing its contribution to consolidated growth.

2. Net income of ¥34.7B and annualized ROE of 18.5% were strongly affected by the ¥31.2B gain on the sale of property, plant and equipment. Operating Income and Ordinary Income trends should be used as the basis for evaluating recurring earnings power.

3. While the full-year forecast assumes declines in Operating Income and Ordinary Income, Q1 earnings increased. The progress rate was slightly behind, with revenue at 25.5% versus Operating Income at 20.9%. Expense trends and cost management in the second half will be key to full-year progress.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,567–¥2,717 at ±1% for the cost of equity, and ¥2,640–¥2,641 at ±0.1 for ω.

Notes:

• As net income progress against the full-year forecast (50%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of forecast progress tend to exceed their forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• As 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 / 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, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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