FUJI OIL (2607) FY2027 Q1 Earnings Report

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Executive Summary

The most important takeaway is that, despite lower revenue, substantial profit growth was achieved through cost improvements, marking progress in the qualitative transformation of the earnings structure. Revenue declined slightly to ¥1798.1B (-1.1% YoY), while Operating Income rose substantially to ¥89.5B (+90.9%) and Net Income attributable to owners of the parent increased to ¥56.8B (+78.7%). The primary factor was an improvement in the gross margin to 16.7% (12.9% in the previous year) due to a reduction in the cost of sales, with improved earnings in the Industrial Chocolate Business also contributing. Meanwhile, SG&A expenses increased by +7.7% despite the decline in revenue, causing the SG&A ratio to rise to 11.7%.

Factors Affecting Earnings

【Revenue】Revenue was ¥1798.1B, representing a 1.1% decline YoY. While Plant-Based Oils secured higher revenue of ¥718.7B (+13.7%), Processed Soy Ingredients generated ¥90.6B (+6.6%), and Emulsified and Fermented Ingredients generated ¥235.1B (+4.6%), the Industrial Chocolate Business, the largest segment, recorded a significant revenue decline to ¥753.6B (-14.0%), weighing on company-wide revenue.

【Profit and Loss】Operating Income increased substantially to ¥89.5B (+90.9% YoY). The gross margin improved to 16.7% (12.9% in the previous year), and the effect of cost reductions exceeded the increase in SG&A expenses (+7.7%). By segment, Plant-Based Oils was the largest earnings contributor, with Business Profit of ¥83.6B accounting for approximately 87% of the total; however, this profit declined slightly by 5.7% YoY. In contrast, the Industrial Chocolate Business turned from a loss in the same period of the previous year to a profit of ¥4.8B, while Processed Soy Ingredients improved from a loss to a profit of ¥6.9B. Structural improvements across multiple segments drove consolidated profit. Net Income was ¥56.8B (+78.7% YoY), calculated after deducting Income Taxes and Other Taxes of ¥18.9B from Profit Before Tax of ¥75.8B. Overall, the results represented lower revenue but higher earnings.

Segment Analysis

Plant-Based Oils is the core business in terms of both profitability and scale, with revenue of ¥718.7B (+13.7%), Business Profit of ¥83.6B (-5.7%), and a profit margin of 11.6%. The Industrial Chocolate Business has the largest scale, with revenue of ¥753.6B (-14.0%), but Business Profit remained at ¥4.8B, representing a turnaround from a loss of ¥33.0B in the same period of the previous year, and its profitability was low at 0.6%. Emulsified and Fermented Ingredients generated revenue of ¥235.1B (+4.6%) and Business Profit of ¥1.1B, with a profit margin of 0.5%, indicating continued low profitability. Processed Soy Ingredients generated revenue of ¥90.6B (+6.6%) and Business Profit of ¥6.9B, turning profitable from a loss of ¥0.3B in the same period of the previous year, with a profit margin of 7.7%, representing a notable improvement. The disparity between the high profitability of Plant-Based Oils and the low profitability of the other businesses is a defining feature of the consolidated earnings structure.

Key Financial Indicators

【Profitability】The Operating Margin of 5.0% (2.6% in the previous year) and Net Profit Margin of 3.1% (1.7% in the previous year) both improved. However, the gross margin of 16.7% is not high compared with typical levels in the food industry, and the business structure remains susceptible to raw-material and foreign-exchange costs.【Cash Quality】Operating Cash Flow (OCF) was ¥28.9B, and its ratio to Net Income of ¥56.8B was low at approximately 0.5x. A ¥121.4B decrease in trade payables created the difference between profit and cash generation.【Investment Efficiency】Annualized ROE was 9.0%, capital expenditures were ¥63.3B, and Free Cash Flow (FCF) was -¥44.4B, indicating that investment exceeded OCF.【Financial Soundness】The Equity Ratio improved to 38.5% (37.7% in the previous year), but with cash and deposits of ¥433.1B against short-term borrowings of ¥1522.9B, the coverage of short-term liabilities by cash remains limited.

Cash Flow Analysis

OCF was ¥28.9B, turning positive from -¥126.1B in the same period of the previous year. However, it remained approximately 0.5x Net Income of ¥56.8B, indicating a delay in the conversion of earnings into cash. The key factor was a ¥121.4B decrease in trade payables, which offset cash inflows from inventories (+¥30.6B) and trade receivables (+¥41.5B). Investing Cash Flow was -¥73.4B, primarily reflecting capital expenditures of ¥63.3B. FCF, combining OCF and Investing Cash Flow, was negative at -¥44.4B, indicating that investments were not funded by internally generated cash. Financing Cash Flow was an inflow of ¥16.4B, as an increase in short-term borrowings of ¥74.0B and long-term borrowings of ¥15.0B offset repayments of long-term borrowings of ¥177.8B and dividend payments of ¥22.4B. As a result, cash and cash equivalents decreased to ¥433.1B.

Quality of Earnings

The ¥89.5B increase in Operating Income reflected not only the improvement in the gross margin but also the absence of the ¥6.9B impairment loss recognized in the same period of the previous year. Accordingly, part of the profit growth resulted from the elimination of a temporary factor. Financial expenses of ¥20.1B exceeded Financial Income of ¥4.9B, causing Profit Before Tax to fall ¥15.2B below Operating Income. Net Income of ¥56.8B represents Profit Before Tax of ¥75.8B less Income Taxes and Other Taxes of ¥18.9B, with taxes having a relatively significant impact. OCF being below Net Income was attributable to the working-capital factor of lower trade payables, indicating a timing difference between accrual-based earnings and cash generation. Comprehensive Income was ¥112.6B, exceeding Net Income of ¥56.8B. The difference was attributable to valuation changes related to foreign exchange and interest rates, including foreign-operation translation adjustments of ¥37.7B and cash flow hedges of ¥15.5B.

Earnings Forecasts and Guidance

Progress against the full-year revenue forecast of ¥7540.0B was 23.8% in Q1, slightly below the simple benchmark progress rate of 25%. Meanwhile, progress against the full-year forecast for Net Income attributable to owners of the parent of ¥195.0B was 28.6%, exceeding the benchmark. Profit progress exceeding revenue progress reflects the improvement in the gross margin and earnings improvements in Chocolate and Processed Soy Ingredients. There were no revisions to the earnings or dividend forecasts during the quarter, and the plan calling for lower revenue and higher earnings for the full year remains unchanged.

Shareholder Returns

The full-year dividend forecast is ¥62.00 per share (a simple comparison with ¥26 per share in the previous year is difficult on a quarterly basis), and the forecast Payout Ratio based on forecast full-year EPS of ¥226.79 is 27.3%. Dividend payments during Q1 amounted to ¥22.4B, equivalent to approximately 40% of Net Income attributable to owners of the parent of ¥56.8B. However, this compares quarterly dividends with quarterly earnings and must be distinguished from the full-year Payout Ratio. There was no revision to the dividend forecast during the quarter. FCF for the quarter was -¥44.4B, and dividends were not fully supported solely by funds generated from operating activities.

Risk Factors

1. Raw Material, Foreign Exchange, and Price Pass-Through Risk: The gross margin of 16.7% is low compared with typical levels in the food industry. If commodity prices for oils, cocoa, sugar, and other inputs, as well as foreign-exchange fluctuations affecting imported raw materials, cannot be passed through to selling prices, the Operating Margin of 5.0% improved in the current period could come under renewed pressure.

2. Sustainability of the Recovery in the Industrial Chocolate Business: While revenue declined by 14.0%, Business Profit turned from a loss in the same period of the previous year to a profit of ¥4.8B. Because profit improved despite declining revenue, results could become more volatile depending on the recovery in sales volume and trends in raw-material costs.

3. Dependence on Short-Term Financing: Cash and deposits of ¥433.1B represent only approximately 28% of short-term borrowings of ¥1522.9B. OCF also remains low relative to Net Income, at approximately 0.5x, and the status of working-capital monetization will affect the financing structure going forward.

Industry Benchmark (For Reference; Company Research)

Profitability and Returns

Profitability is slightly below the industry median but falls within the IQR and does not represent an extreme underperformance.

Growth and Capital Efficiency

The revenue growth rate is significantly below the industry median and falls below the lower bound of the IQR.

※Source: Company research

Key Takeaways from the Financial Results

1. Despite the 1.1% YoY decline in revenue, the +90.9% increase in Operating Income, primarily due to the improvement in the gross margin, indicates that improvements in the cost structure drove performance. Earnings improvements in the Industrial Chocolate Business and Processed Soy Ingredients also contributed to the diversification of profit sources.

2. OCF turned positive at ¥28.9B, but its ratio to Net Income of ¥56.8B remained approximately 0.5x. The decrease in trade payables was the key factor, and the fact that improved earnings have not sufficiently translated into cash generation warrants attention from a cash-efficiency perspective.

3. Full-year progress was 28.6% on a profit basis, exceeding the standard benchmark, while revenue progress was 23.8%, below the benchmark. Maintaining margins and improving working capital under the lower-revenue plan will be key conditions for achieving the full-year forecasts.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,720–¥2,881 at ±1% for the cost of equity, and ¥2,796–¥2,801 at ±0.1 for ω.

Notes:

• Because 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 time lag relative to the full-year forecast).

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

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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 discretion and responsibility, after consulting a professional adviser where necessary.

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