Starzen (8043) FY2026 FY Earnings Report

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Executive Summary

The key points of this earnings report are that, despite higher revenue, an increase in selling, general and administrative expenses placed pressure on operating income, while the absence of extraordinary gains recognized in the previous fiscal year resulted in a significant decline in net income. Revenue was ¥4,482.1B (+2.8% YoY), operating income was ¥87.6B (-3.1%), ordinary income was ¥110.3B (+3.4%) due to an increase in equity-method investment gains, and net income was ¥83.4B (-31.6%). The primary reason for the decline in net income was the reversal of the ¥69.3B extraordinary gain recognized in the previous fiscal year, including gains on the sale of fixed assets. This should be evaluated separately from the increase in ordinary income.

Factors Affecting Earnings

【Revenue】Revenue increased 2.8% YoY to ¥4,482.1B. The only reported segment is the Meat-Related Business, and expansion in business scale supported the increase in revenue.

【Profit and Loss】The gross profit margin improved to 9.9% from approximately 9.6% in the previous year. However, SG&A expenses increased 7.8% YoY to ¥354.0B, outpacing revenue growth. As a result, the operating margin declined to 2.0% from approximately 2.1% in the previous year, and operating income decreased 3.1% to ¥87.6B. Ordinary income was maintained at ¥110.3B (+3.4%) as equity-method investment gains increased from ¥14.6B to ¥21.5B (+47.4%). Meanwhile, extraordinary gains declined from ¥69.3B in the previous fiscal year, primarily consisting of gains on the sale of fixed assets, to ¥5.3B in the current fiscal year, resulting in a significant 31.6% decline in net income to ¥83.4B. In conclusion, this was a report of higher revenue but lower earnings, with ordinary income increasing only at the ordinary income stage: the core business experienced a decline in operating income, while the expansion of equity-method investment gains secured an increase in ordinary income.

Key Financial Metrics

【Profitability】The operating margin of 2.0% and net profit margin of 1.9% are both low, while the gross profit margin of 9.9% indicates a business structure that has difficulty absorbing fluctuations in raw material, logistics, and labor costs. ROE was 8.7%, a significant decline from 14.6% in the previous fiscal year. This was primarily due to the decline in the net profit margin resulting from the absence of extraordinary gains, rather than deterioration in asset efficiency (total asset turnover of approximately 2.2x) or leverage (financial leverage of approximately 2.1x). 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥29.5B, only 0.35x net income of ¥83.4B. Increases of ¥53.2B in inventories and ¥45.1B in advances paid tied up cash. 【Investment Efficiency】Investing Cash Flow was an outflow of ¥146.9B, comprising ¥51.8B for the acquisition of shares in subsidiaries and ¥80.0B for the acquisition of fixed assets. Free Cash Flow (FCF) was negative ¥117.5B, indicating that investments could not be funded through internally generated funds. 【Financial Soundness】The equity ratio of 47.4% and current ratio of 183.9% are sound. However, short-term borrowings increased 81.1% YoY and long-term borrowings increased 40.8%, while Debt/EBITDA was approximately 3.25x, a level above the general investment-grade benchmark.

Cash Flow Analysis

OCF was ¥29.5B, improving from negative ¥22.6B in the previous year, but remained only 0.35x net income of ¥83.4B. The ¥53.2B increase in inventories and ¥45.1B increase in advances paid constrained cash generation, while the ¥21.2B increase in accounts payable only partially offset these outflows. Investing Cash Flow was an outflow of ¥146.9B, primarily comprising ¥80.0B for the acquisition of fixed assets and ¥51.8B for the acquisition of shares in subsidiaries, indicating that the company is in an execution phase focused on strengthening its business base and pursuing acquisitions. As investments could not be funded through OCF, FCF was negative ¥117.5B. This shortfall was covered by financing cash flow of ¥133.9B, primarily through ¥220.0B of long-term borrowings. The recovery of investment returns and normalization of working capital will be key focuses of future cash management.

Quality of Earnings

The increase in earnings was limited to the ordinary income stage, and its quality should be assessed separately. The increase in ordinary income was supported by a 47.4% increase in equity-method investment gains from ¥14.6B to ¥21.5B, which accounted for 19.5% of ordinary income. Meanwhile, the significant decline in net income resulted from the reversal of the previous fiscal year’s ¥69.3B extraordinary gain, including gains on the sale of fixed assets and other items, which declined to ¥5.3B in the current fiscal year. This is a temporary factor that should be evaluated separately from the underlying strength of the core business. The accrual ratio is low, suggesting limited concern regarding profit recognition itself. However, the OCF/net income ratio of 0.35x and OCF/EBITDA ratio of 0.23x indicate a notable delay in cash conversion, while expansion in working capital through increases in inventories and advances paid has weakened the cash backing of earnings.

Earnings Forecasts and Guidance

For the fiscal year ending March 2027, the company forecasts revenue of ¥4,700B (+4.9%), operating income of ¥92.0B (+5.0%), ordinary income of ¥114.0B (+3.4%), net income of ¥85.0B (+1.9%), and EPS of ¥148.74. The company’s forecast operating margin is approximately 2.0%, broadly flat compared with the current fiscal year, indicating that significant margin improvement in line with revenue growth has not been incorporated into the plan. The extent to which the increases in working capital and investment burden incurred during the current fiscal year are resolved will be an important condition for achieving this plan.

Shareholder Returns

The annual dividend for the current fiscal year was ¥43.00 per share, resulting in a payout ratio of 29.5% against net income attributable to owners of the parent of ¥83.4B. In addition, the company conducted share repurchases of ¥19.0B, resulting in a Total Return Ratio of approximately 52.2% when dividends and share repurchases are combined. However, FCF was negative ¥117.5B in the current fiscal year, meaning that shareholder returns depended not on operating cash flow but on external financing, including borrowings, and existing liquidity. The forecast dividend for the fiscal year ending March 2027 is ¥50.00 per share, resulting in a forecast payout ratio of approximately 33.6% against the company’s forecast EPS of ¥148.74.

Risk Factors

1. Cost Pass-Through Risk Due to a Low-Margin Structure: Given the low-margin structure, with a gross profit margin of 9.9% and operating margin of 2.0%, failure to pass increases in raw meat and feed prices, logistics expenses, labor costs, and other costs on to selling prices could have a significant impact on operating income.

2. Declining Cash-Generation Capacity: OCF/net income remained at 0.35x, with increases of +¥53.2B in inventories and +¥45.1B in advances paid tying up cash. Against investing cash flow of ¥146.9B, FCF was negative ¥117.5B, increasing reliance on borrowings.

3. Increase in Interest-Bearing Debt and Repayment Management: Short-term borrowings increased 81.1% YoY, while long-term borrowings increased 40.8%. The company has ¥123.6B of long-term borrowings due within one year and ¥50.0B of bonds due for redemption within one year. Debt/EBITDA is approximately 3.25x, and interest coverage of approximately 8.8x based on operating income is secured; however, repayment and refinancing management remain challenges.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (trading)

Profitability and Returns

Profitability is below the industry median, with both operating and net profit margins ranking low within the industry.

Growth and Capital Efficiency

Revenue growth is also below the industry median, indicating that the pace of revenue growth is slower than that of peers.

※Source: Company research

Key Earnings Highlights

1. Ordinary income increased 3.4% YoY, while operating income declined 3.1%. The increase in ordinary income depended on the expansion of equity-method investment gains (+47.4%). Improvement in the core business margin has not been achieved.

2. The 31.6% decline in net income resulted from the absence of the previous fiscal year’s extraordinary gains, including ¥69.3B in gains on the sale of fixed assets and other items. It should be considered separately from the growth in ordinary income.

3. Against investing cash flow of ¥146.9B, OCF remained at only ¥29.5B, resulting in negative FCF of ¥117.5B. Monetization of subsidiary acquisitions and fixed-asset investments, together with the reduction of working capital tied up in inventories and advances paid, will be conditions for restoring future cash-generation capacity.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,605–¥1,699 at ±1% in the cost of equity, and ¥1,650–¥1,651 at ±0.1 in ω.

Notes:

• Amortization of goodwill of ¥0.9 per share has been added back to earnings (for non-cash expense treatment and comparability with IFRS companies).
• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.

(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 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 responsibility, after consulting with a professional as necessary.

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