FUJI OIL (2607) FY2026 Q3 Earnings Report

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Executive Summary

The key feature of the quarter was the return to profitability from the low operating profitability and net loss recorded in the same period of the previous year, driven by higher revenue and a significant increase in operating income. Revenue was ¥5,827.8B (+18.5% YoY), operating income was ¥275.4B (+1,082.8% from ¥23.3B in the previous year), and net income attributable to owners of the parent was ¥163.8B (improving from a ¥16.4B loss in the previous year). The primary factors behind the increase in profit were gross profit improvement resulting from expanded margins in the Vegetable Oils and Fats segment, as well as operating leverage, with the rate of increase in SG&A expenses falling below the rate of revenue growth. Meanwhile, Operating Cash Flow (OCF) was negative ¥89.6B, highlighting the structural concern that cash conversion has not kept pace with the sharp recovery in earnings.

Factors Affecting Performance

【Revenue】Revenue increased 18.5% YoY to ¥5,827.8B. By segment, Vegetable Oils and Fats was the largest and a core business with a revenue of ¥2,017.1B, a composition ratio of 34.6%, and a profit margin of 13.2%. Industrial Chocolate had the largest revenue scale at ¥2,826.5B, representing 48.5% of total revenue, but its profit margin remained at 0.5%. Emulsified and Fermented Ingredients generated ¥733.9B in revenue with a profit margin of 1.9%, while Soy-Related Ingredients generated ¥250.3B and recorded an operating loss of ¥2.3B.

【Profit and Loss】Operating income was ¥275.4B (+1,082.8% from ¥23.3B in the previous year), and the operating margin improved by approximately 4.2pt to 4.7% from approximately 0.5% in the previous year. The gross margin was 14.5% (+3.4pt from 11.1% in the previous year), while the SG&A expense ratio was 9.9% (-0.9pt from 10.8% in the previous year), with both gross profit improvement and SG&A expense control contributing to the result. Financial expenses of ¥62.2B were recorded against profit before tax of ¥228.0B, resulting in a significant reduction from operating income to profit before tax. Net income was ¥166.0B, including ¥163.8B attributable to owners of the parent, confirming a conclusion of higher revenue and higher profit.

Segment Analysis

The Vegetable Oils and Fats segment generated revenue of ¥2,017.1B, operating income of ¥266.4B, and a profit margin of 13.2%, making it the primary earnings source and accounting for the majority of the Company-wide operating income of ¥275.4B. Industrial Chocolate had the largest scale, with revenue of ¥2,826.5B, but operating income remained at ¥13.6B and its profit margin at 0.5%, indicating a significant divergence between scale and profitability. Emulsified and Fermented Ingredients had a profit margin of 1.9%, while Soy-Related Ingredients recorded an operating loss of ¥2.3B, equivalent to a profit margin of -0.9%; the contribution of both businesses to earnings was limited. The Company’s earnings are highly dependent on Vegetable Oils and Fats, and market fluctuations in this business are considered to have a significant impact on overall performance.

Key Financial Metrics

【Profitability】The operating margin of 4.7%, gross margin of 14.5%, and net profit margin of 2.8% all improved from the previous year; however, the absolute level of the 85.5% cost-of-sales ratio increases earnings volatility.【Cash Flow Quality】OCF was negative ¥89.6B, and the OCF/net income ratio was negative 0.55x against net income attributable to owners of the parent of ¥163.8B, indicating that earnings had not yet been converted into cash during the current period. Increases in inventories and accounts receivable were the primary causes.【Investment Efficiency】Annualized ROE was assessed at 9.1%, while ROIC was approximately 5.0%; whether margin improvement leads to a sustained increase in capital efficiency will be an important focus going forward.【Financial Soundness】The Equity Ratio was 35.2%, improving from 34.7% in the previous year. Short-term borrowings accounted for approximately 31% of total assets, indicating a high level of dependence on short-term funding.

Cash Flow Analysis

OCF was negative ¥89.6B. Against positive cash flow from operating activities before changes in working capital of ¥76.8B, an increase in inventories of ¥171.0B, an increase in accounts receivable of ¥156.1B, corporate income taxes paid of ¥113.3B, and interest paid of ¥61.2B absorbed funds, ultimately resulting in negative OCF. An increase in trade payables of ¥70.9B partially offset these outflows, but working capital as a whole continued to absorb cash. Investing Cash Flow was negative ¥411.6B; in addition to capital expenditures of ¥210.4B, M&A-related expenditures, including acquisitions of subsidiaries, expanded investment cash outflows. Free cash flow, calculated as the sum of OCF and Investing Cash Flow, was negative ¥501.2B, resulting in a structure in which the cash shortfall was covered by positive Financing Cash Flow of ¥197.6B, including proceeds from borrowings. Cash and cash equivalents were ¥438.0B, equivalent to only approximately 20% of short-term borrowings of ¥2,136.0B. In the near term, normalization of OCF and the stability of refinancing will be the key funding considerations.

Earnings Quality

The improvement in earnings during the current period was primarily attributable to improved underlying business profitability through a higher gross margin and lower SG&A expense ratio, with no temporary boost from extraordinary gains or losses identified. Outside operating income, financial income of ¥12.0B was recorded against financial expenses of ¥62.2B, creating a structure in which the ¥50.2B difference put pressure on profit before tax. Equity-method income was a minor positive contribution of ¥2.9B. Meanwhile, OCF of negative ¥89.6B diverged significantly from operating income of ¥275.4B, primarily due to increases in working capital, namely inventories and accounts receivable. Accruals—the difference between earnings and cash flow—are considered to have resulted from working capital expansion rather than a deterioration in quality caused by changes in accounting estimates or other factors. However, the increase in cash tied up as revenue grows will be an important observation point in evaluating earnings quality going forward.

Earnings Forecast and Guidance

Progress toward the full-year revenue forecast of ¥7,720.0B was 75.5%, broadly consistent with the standard progress rate of 75% as of Q3. Meanwhile, progress toward the full-year forecast of ¥165.0B in net income attributable to owners of the parent reached 99.2%, significantly exceeding the standard progress rate. This difference indicates that cumulative earnings for the current period have accumulated at a pace exceeding the plan due to the sharp recovery from the low profitability of the same period of the previous year, and may suggest that the full-year forecast is conservative. Against forecast EPS of ¥191.92, cumulative EPS had reached ¥190.47.

Shareholder Returns

The Q2 dividend was ¥26.00 per share, and the Company’s full-year forecast is an annual dividend of ¥52.00. The forecast Payout Ratio, based on forecast full-year profit of ¥165.0B, is approximately 27.1%, below the general sustainability benchmark of 60%. Dividend payments were ¥4.8B and share repurchases were ¥0.4B, resulting in total returns of approximately ¥5.2B and a profit-based Total Return Ratio of approximately 29.7%. However, free cash flow for the current period was negative ¥501.2B. At the current-period OCF level, the cash backing for dividends and shareholder returns was weak, and the sustainability of returns must be evaluated in light of the future normalization of OCF.

Risk Factors

1. Raw Material and Foreign Exchange Sensitivity Risk: The cost-of-sales ratio is high at 85.5%, while the gross margin of 14.5% is below the industry median of 5.0% (on an operating margin basis). If fluctuations in oils and fats, agricultural raw materials, or foreign exchange rates cannot be passed through to prices, the structure is susceptible to significant fluctuations in profit margins.

2. Funding Constraint Risk Associated with Working Capital Expansion: Inventories increased 20.0% YoY to ¥1,929.0B, while accounts receivable increased 22.3% YoY to ¥1,373.2B, reducing OCF by ¥171.0B and ¥156.1B, respectively. If inventories and accounts receivable cannot be reduced, improvement in OCF may be delayed.

3. Dependence on Short-Term Funding Risk: Short-term borrowings were ¥2,136.0B, accounting for approximately 31% of total assets, while cash and cash equivalents of ¥438.0B represented only approximately 20.5% of that amount. The funding structure is susceptible to the impact of changes in the refinancing environment.

Industry Benchmark (For Reference; Company Research)

Profitability and Returns

Within the industry, both the operating margin and net profit margin are positioned slightly below the median.

Growth and Capital Efficiency

The revenue growth rate significantly exceeds the industry median, indicating a high rate of growth within the industry.

※Source: Company research

Key Takeaways from the Earnings Results

1. The operating margin improved by approximately 4.2pt from the previous year to 4.7%, clearly confirming a recovery from the low profitability phase of the same period of the previous year. However, it remains slightly below the industry median of 5.0%.

2. Progress toward the full-year profit forecast was high at 99.2%. Although this includes the impact of the low comparison base in the previous year, it is a characteristic of the earnings data suggesting that the full-year forecast may be conservative.

3. OCF was negative ¥89.6B, and the fact that improved earnings have not translated into cash is observed as a structural characteristic attributable to working capital trends, namely increases in inventories and accounts receivable.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥2,573–¥2,725 at ±1% in the cost of equity, and ¥2,643–¥2,650 at ±0.1 in ω.

Notes:

• Since progress of net income toward the full-year forecast (99%) exceeds the standard level (75%), 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).
• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(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; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)

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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. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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