Chuo Gyorui Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥77.00B
• Operating Income: ¥1.84B
• Net Income: ¥1.27B
• EPS: ¥304.04

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Mixed quarter—solid top-line growth but margin compression led to lower operating and bottom-line profits. Revenue rose 5.5% YoY to 769.96, while operating income fell 11.6% YoY to 18.37 and net income declined 15.6% YoY to 12.14. Gross profit was 76.30, implying a gross margin of 9.9%. Operating margin came in at 2.39% versus roughly 2.85% a year ago (about 46 bps compression). Ordinary income decreased 7.0% YoY to 20.87, cushioned by 3.38 in non-operating income—of which dividend income of 2.62 was meaningful. Net profit margin was 1.6%, with an effective tax rate of 37.9%. ROE is calculated at 3.4%, supported more by leverage (2.25x) than by profitability (net margin 1.6%) or efficiency (asset turnover 0.95x). ROIC at 2.3% is below the 5% caution threshold, signaling underwhelming capital efficiency. Liquidity is adequate by current ratio (134%) but soft by quick ratio (79%), reflecting a heavy inventory/receivables mix. Leverage is moderate with debt-to-equity at 1.25x and strong interest coverage of 23.6x, reducing immediate solvency concerns. Earnings quality is difficult to judge as cash flow data are unreported; however, the reliance on dividend income to support ordinary profit is notable. Non-operating gains provided a 13–14% uplift versus operating income, masking some operating softness. Working capital intensity (inventories 140.73 and receivables 132.33) remains a key swing factor for cash generation. The calculated payout ratio is 42.7%, likely sustainable absent cash flow stress, but confirmable only when OCF is disclosed. Forward-looking, procurement cost volatility, energy costs in cold-chain logistics, and seafood price/catch variability may keep margins tight; maintaining gross margin and controlling SG&A will be critical. Overall, the quarter shows resilient sales but weaker operating leverage, and the company’s capital efficiency needs improvement to sustain higher returns.

Profitability Analysis

ROE decomposition: ROE ≈ 3.4% = Net Profit Margin (1.6%) × Asset Turnover (0.952x) × Financial Leverage (2.25x). The most material change versus last year appears to be margin pressure—operating margin compressed from ~2.85% to 2.39% (~46 bps), dragging net margin to 1.6%. Business drivers likely include higher procurement costs for seafood, logistics/energy cost inflation in cold storage and transport, and limited ability to fully pass through costs. Non-operating dividend income (2.62) partly offset operating pressure at the ordinary income level, indicating greater dependence on financial income. Sustainability: Operating margin compression could persist if cost inflation and market conditions remain adverse; dividend income is less controllable and may be volatile, so reliance here is not a stable fix. Watch for SG&A intensity: SG&A/revenue is 7.5%; with revenue up 5.5% but operating profit down 11.6%, SG&A and/or gross margin trends likely outpaced gross profit growth, indicating weaker operating leverage. Overall margin quality is mixed—core operations softened while non-operating items propped up ordinary profit.

Growth Assessment

Revenue growth of 5.5% YoY to 769.96 suggests stable demand or successful price/mix in seafood distribution. Profit declined through the P&L: operating income -11.6% YoY and net income -15.6% YoY, indicating negative operating leverage and/or gross margin pressure. Ordinary income fell a more modest 7.0% YoY due to non-operating support, notably 2.62 in dividends. The sustainability of growth depends on managing procurement pricing, passing through costs, and maintaining throughput volumes. With ROIC at 2.3%, incremental growth currently delivers low returns; focus should be on improving margin and asset turns (inventory velocity, receivables collection) rather than pure scale. Near-term outlook: cautious on margins given commodity and energy volatility; upside if cost pass-through strengthens or procurement normalizes.

Financial Health

Liquidity: Current ratio at 134.3% (above 1.0 but below the 1.5 comfort benchmark) and quick ratio at 79.2% (below 1.0) indicate reliance on inventory to meet short-term obligations—monitor inventory liquidity and aging. Solvency/leverage: Debt-to-equity of 1.25x is moderate; interest coverage is strong at 23.55x (OI/interest), limiting near-term refinancing risk. Balance sheet mix: Cash 67.95, receivables 132.33, and inventories 140.73 against current liabilities 255.33; working capital is positive at 87.64, reducing immediate liquidity stress. Maturity profile: Short-term loans 80.25 are well covered by cash plus receivables; long-term loans 126.92 suggest a balanced tenor. No explicit off-balance sheet obligations disclosed in the provided data. Equity ratio (owners’ equity/total assets) is approximately 44.5%, a healthy capital base.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed; no conclusion on accruals vs cash conversion is possible from this dataset. Given the business model’s working capital intensity (receivables and inventories together 273.06), cash generation can diverge from earnings depending on procurement and seasonality; watch inventory and AR days closely. Free cash flow, capex, and dividends paid are unreported; dividend sustainability from FCF cannot be confirmed. The reliance on non-operating dividend income (2.62) to support ordinary profit introduces variability not directly tied to core cash generation.

Dividend Sustainability

Calculated payout ratio is 42.7%, within a generally sustainable range (<60%). However, with OCF and capex unreported, FCF coverage cannot be confirmed. Balance sheet flexibility is reasonable (equity ratio ~44.5%, net debt estimated around 139.22 after cash), and interest coverage is strong, supporting dividend continuity under base conditions. Key sensitivities are working capital swings and potential declines in non-operating dividend income. Stability improves if operating margin recovers toward prior-year levels and inventory turns remain healthy.

Risk Assessment

Business Risks:

• Seafood price and catch volume volatility impacting procurement costs and availability
• Cold-chain logistics and energy cost inflation pressuring gross margins
• Demand variability due to consumer price sensitivity and foodservice trends
• Product quality/food safety risks inherent in perishable handling
• Supplier concentration or fishery resource sustainability constraints

Financial Risks:

• Quick ratio below 1.0 signals dependence on inventory liquidation for liquidity
• Working capital intensity (high inventories/receivables) can suppress OCF during growth
• Exposure to interest rate increases on short-term loans (80.25)
• Earnings reliance on dividend income (2.62) that may be volatile

Key Concerns:

• ROIC at 2.3% below 5% threshold, indicating weak capital efficiency
• Operating margin compression (~46 bps YoY) despite revenue growth
• Net income decline of 15.6% YoY suggests negative operating leverage
• Unreported cash flow metrics limit visibility on earnings quality and FCF

Investment Implications

Key Takeaways:

• Top-line growth (+5.5% YoY) did not translate into profit growth due to margin pressure
• Ordinary income cushioned by non-operating dividends; core operations softer
• Liquidity adequate but inventory-dependent (quick ratio 0.79x)
• Leverage moderate with strong interest coverage (23.6x)
• Capital efficiency weak (ROIC 2.3%, ROE 3.4%)—need margin and turnover improvements
• Effective tax rate high (37.9%), limiting bottom-line conversion
• Watch working capital discipline to protect cash conversion

Metrics to Watch:

• Gross margin and operating margin trajectory
• SG&A-to-sales ratio and cost control initiatives
• OCF/Net income and free cash flow once disclosed
• Inventory days and receivable days (turnover/aging)
• Non-operating dividend income stability
• Short-term loan levels and interest rate sensitivity

Relative Positioning: Within Japanese seafood distribution/wholesale peers, the company demonstrates steady sales but thinner operating margins and below-par ROIC, offset by a solid capital base and strong interest coverage; improving pricing power, procurement efficiency, and working capital turns are key to closing the profitability gap.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis