Starzen (8043) FY2026 Q3 Earnings Report

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Executive Summary

For the nine months ended Q3, the Company recorded higher revenue but lower operating income, as cost of sales and SG&A expenses increased more than revenue and pressured operating profitability. Revenue was ¥344.12B (+3.0% YoY), while Operating Income was ¥6.96B (-9.3% YoY). Meanwhile, Ordinary Income increased to ¥8.77B (+1.0% YoY), and Net Income rose to ¥6.36B (+5.7% YoY). The increase in lower-line earnings was largely attributable to Equity-Method Investment Income of ¥1.65B and the recognition of extraordinary income, indicating that the profitability of the core business itself has weakened.

Factors Affecting Performance

【Revenue】Revenue increased 3.0% YoY to ¥344.12B. The sole reported segment is the Meat-Related Business, with its integrated operations—from livestock production and fattening through processing, manufacturing, and sales—driving revenue. Progress toward the full-year plan of ¥450.00B was 76.5%, slightly above the standard progress benchmark of 75%.

【Profit and Loss】Operating Income declined 9.3% YoY to ¥6.96B, and the Operating Income Margin decreased to 2.0% from approximately 2.3% in the previous year. Given the thin-margin structure, reflected in a Gross Profit Margin of 9.8%, the growth in cost of sales and SG&A expenses appears to have exceeded revenue growth. Meanwhile, non-operating income and expenses recorded a net gain of ¥1.81B, primarily due to Equity-Method Investment Income of ¥1.65B, while extraordinary income and expenses recorded a net gain of ¥0.36B, primarily due to a gain on step acquisitions of ¥0.38B. These items supported Ordinary Income of ¥8.77B (+1.0% YoY) and Net Income of ¥6.36B (+5.7% YoY). In conclusion, the Company achieved higher revenue but lower operating income, while the increase in Net Income was supported by factors outside the core business.

Segment Analysis

The sole reported segment is the “Meat-Related Business.” Other businesses are not separately disclosed because their disclosure significance is limited. Accordingly, no segment-by-segment change analysis can be performed.

Key Financial Metrics

【Profitability】The Operating Income Margin of 2.0% declined from approximately 2.3% in the same period of the previous year. The Net Profit Margin improved slightly to 1.9% from approximately 1.8% in the previous year, although this was largely attributable to non-operating and extraordinary income and expenses. The Gross Profit Margin of 9.8% reflects the thin-margin structure of the meat-processing and distribution business.【Cash Flow Quality】Equity-Method Investment Income accounted for 18.8% of Ordinary Income, indicating a somewhat high degree of reliance on non-core income.【Investment Efficiency】ROE was 6.8%, as derived from a DuPont decomposition of a 1.9% Net Profit Margin × total asset turnover of 1.705x × financial leverage of 2.16x.【Financial Soundness】The Equity Ratio was 46.3%, down from 51.6% in the previous year. The Current Ratio was 168.8%, the Quick Ratio was 113.3%, and Interest Coverage was 9.75x, indicating that short-term financial resilience is secured. However, the Short-Term Liabilities Ratio of 45.6% remains somewhat high.

Cash Flow Analysis

Although the cash flow statement has not been disclosed, cash trends can be assessed from changes in the balance sheet. Cash and deposits increased to ¥1.749B from ¥1.629B in the previous year, while total assets expanded significantly to ¥201.79B from ¥171.92B. The increase in accounts receivable to ¥4.328B from ¥3.549B, inventories to ¥4.185B from ¥3.880B, and property, plant and equipment to ¥4.151B from ¥3.320B drove the expansion on the asset side. On the liabilities side, short-term borrowings increased to ¥1.988B from ¥0.720B, suggesting that the expansion of working capital and capital expenditures was financed through short-term funding. Net assets increased to ¥93.40B, with accumulated retained earnings supporting shareholders’ equity.

Earnings Quality

The increase in Net Income reflects a structure in which non-operating and extraordinary income and expenses offset the decline in Operating Income; therefore, it should be noted that earnings quality is not driven by the core business. Equity-Method Investment Income of ¥1.65B was the largest component of non-operating income of ¥2.86B, accounting for 18.8% of Ordinary Income of ¥8.77B. Extraordinary income was ¥0.38B, primarily consisting of a ¥0.38B gain on step acquisitions, and is classified as a temporary factor. Of Profit Before Tax of ¥9.13B, only ¥6.96B was derived from Operating Income, with the remainder supported by non-operating and extraordinary items. Accounts receivable and inventories increased alongside the sharp expansion in total assets. From an accrual perspective, earnings growth and working capital expansion are occurring in parallel, necessitating continued monitoring of sustainable cash-generation capacity.

Earnings Forecast and Guidance

Progress toward the full-year Company plan was 76.5% for Revenue, 74.1% for Operating Income, 79.7% for Ordinary Income, and 79.5% for Net Income, with progress in lower-line earnings exceeding that of core operating profit. To achieve the full-year targets, Q4 must generate Revenue of ¥105.88B and Operating Income of ¥2.48B, implying an Operating Income Margin of approximately 2.3%, slightly above the cumulative actual result of 2.0%. While Revenue and Operating Income are generally tracking in line with the plan, improvement in the Operating Income Margin will be key to achieving the targets.

Shareholder Returns

The full-year forecast dividend per share is ¥43.0, and the forecast Payout Ratio based on forecast EPS of ¥139.9 is approximately 30.7%, remaining below the general benchmark of 60%. Compared with the previous year's actual dividend of ¥110 (note the unit before conversion into yen), the Company appears to retain sufficient dividend capacity against the backdrop of earnings growth. As no information regarding share buybacks has been identified, shareholder returns are evaluated solely on the basis of dividends.

Risk Factors

1. Cost Pass-Through Risk: Given the thin-margin structure, with a Gross Profit Margin of 9.8% and an Operating Income Margin of 2.0%, failure to pass increases in meat market prices, feed, and logistics costs on to selling prices could have a significant impact on Operating Income.

2. Concentration of Earnings Sources: Equity-Method Investment Income of ¥1.65B accounts for 18.8% of Ordinary Income. If the performance of investees fluctuates, the income source available to offset a decline in Operating Income may weaken.

3. Reliance on Short-Term Funding: The Short-Term Liabilities Ratio of 45.6% exceeds the 40% benchmark, and short-term borrowings have increased to ¥1.988B. Cash and deposits remain at only 0.88x short-term liabilities, making monitoring of refinancing and maturity management important.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (trading)

Profitability and Returns

Profitability is below the industry median and positioned near the lower bound of the IQR.

Growth and Capital Efficiency

The Revenue Growth Rate is also below the industry median but remains within the IQR range.

※Source: Company compilation

Key Points from the Results

1. While Revenue progress is slightly ahead of the full-year plan, the Operating Income Margin has declined YoY. The fact that revenue growth has not translated into margin improvement is a key point in the results.

2. The fact that progress toward the Ordinary Income and Net Income targets exceeds progress toward the Operating Income target is largely attributable to Equity-Method Investment Income and extraordinary income, including the gain on step acquisitions. The reproducibility of earnings depends on the degree of recovery in core-business profit.

3. Financial soundness indicators, including a Current Ratio of 168.8% and Interest Coverage of 9.75x, remain stable. However, the increase in the Short-Term Liabilities Ratio to 45.6% and the rise in short-term borrowings should be monitored as changes in the funding structure.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,548–¥1,639 at ±1% for the cost of equity, and ¥1,591–¥1,594 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used, resulting in 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 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 predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI based on 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, where necessary, after consulting with a professional advisor.

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AI Financial Analysis

Executive Summary

Starzen delivered modest top-line growth in FY2026 Q3, but operating profitability weakened while below-operating-line gains and a step-acquisition gain supported net income. Revenue rose 3.0% year on year to ¥344.12bn. Gross profit increased 4.4% to ¥33.69bn, exceeding revenue growth and lifting the gross margin by approximately 13bp to 9.8%. However, SG&A expenses rose 8.7% to ¥26.72bn, substantially faster than sales growth. Consequently, operating income declined 9.3% to ¥6.96bn. The operating margin contracted by approximately 28bp year on year to 2.0%. Ordinary income nevertheless increased 1.0% to ¥8.77bn, reflecting a ¥1.65bn contribution from equity-method affiliates and higher non-operating income. Profit attributable to owners rose 5.7% to ¥6.36bn. Net income was also supported by a ¥3.75bn gain on step acquisitions, recorded within extraordinary income. The pre-tax impact of extraordinary items was a net gain of ¥3.56bn, making reported net-profit growth less representative of underlying operating momentum. Comprehensive income grew 29.8% to ¥8.29bn, aided by ¥1.93bn of other comprehensive income, principally valuation gains on securities. The annualized ROE of 9.1% is respectable relative to the company’s low operating margin, but it is assisted by financial leverage and non-operating income. The current ratio of 168.8% and quick ratio of 113.3% indicate sound near-term liquidity. At the same time, short-term borrowings increased sharply, making refinancing execution an important balance-sheet consideration. Q3 progress against full-year guidance is broadly on track across sales and profits, although the full-year operating-income target requires a recovery in the final quarter relative to the Q3 cumulative margin. The principal forward implication is that sustained value creation depends on converting gross-profit improvement into operating leverage while preserving disciplined funding for the enlarged asset base.

Profitability Analysis

The reported annualized ROE of 9.1% decomposes into a 1.9% net profit margin, annualized asset turnover of 2.274x, and financial leverage of 2.16x. The low net margin is the principal structural constraint on returns, whereas high turnover is consistent with a food distribution and processing model. Financial leverage has increased versus an approximate 1.94x asset-to-equity relationship in the prior-year balance sheet, contributing to the current ROE. Gross margin improved to 9.8% from approximately 9.7% a year earlier, indicating that gross-profit generation improved modestly despite a low-margin operating model. The larger adverse movement occurred below gross profit: SG&A rose 8.7%, compared with 3.0% revenue growth, reducing operating income by 9.3%. EBIT margin was 2.0%, below the 5% efficiency benchmark and explicitly signals low operating efficiency. This compression suggests negative operating leverage in the reported period, with overhead, personnel, logistics, integration, or other selling costs not yet fully absorbed by revenue growth. The quality alert on low gross margin is also material: a 9.8% gross margin leaves limited buffer against procurement-cost, livestock-price, logistics-cost, and pricing volatility. Ordinary income exceeded operating income by ¥1.81bn because non-operating income exceeded non-operating expenses, including ¥1.65bn of equity-method earnings. The five-factor tax burden was 0.697, close to a normal level, while the EBT/EBIT ratio of 1.311 reflects the positive net contribution from non-operating and extraordinary items rather than operating-margin strength. Profit attributable to owners benefited from the ¥3.75bn step-acquisition gain, so the 5.7% increase in net income should not be extrapolated as recurring earnings growth. Sustainable profitability improvement therefore requires SG&A growth to normalize below sales growth and the operating margin to recover from 2.0%.

Growth Assessment

Revenue growth of 3.0% to ¥344.12bn demonstrates continued expansion in the core meat-related business, which spans production, processing, manufacturing, and sales. As the group reports one material business segment, earnings diversification across disclosed operating segments is limited. Gross profit grew faster than sales, at 4.4%, which is a constructive sign for pricing and product-mix management. However, operating income fell 9.3%, indicating that the gross-profit improvement has not translated into operating leverage. Equity-method earnings increased to ¥1.65bn from ¥0.97bn in the prior-year period and provided meaningful support to ordinary income. The gain on step acquisitions lifted reported pre-tax and net income but is non-recurring in character. Full-year guidance calls for revenue of ¥450.00bn, operating income of ¥9.40bn, ordinary income of ¥11.00bn, and profit attributable to owners of ¥8.00bn. Q3 cumulative progress is 76.5% for revenue, 74.1% for operating income, 79.7% for ordinary income, and 79.5% for net income, versus a standard 75% progress rate. Revenue and operating-income progress are essentially in line with the seasonal benchmark, while ordinary-income and net-income progress are modestly ahead, aided by non-operating and extraordinary contributions. Achieving the full-year operating target requires ¥2.44bn of fourth-quarter operating income, equivalent to a roughly 2.3% operating margin on implied Q4 revenue of ¥105.88bn. That is modestly above the 2.0% Q3 cumulative operating margin, making cost absorption and gross-margin retention central to the year-end outcome.

Financial Health

Liquidity is healthy on the reported balance sheet, with current assets of ¥127.27bn against current liabilities of ¥75.39bn, producing a current ratio of 168.8%. The quick ratio of 113.3% indicates that near-term obligations are covered even before relying on inventory liquidation. Working capital was positive at ¥51.88bn. Interest-bearing debt totaled ¥43.56bn, comprising ¥19.88bn of short-term loans and ¥23.68bn of long-term loans. Debt-to-equity was 1.16x, above a conservative 1.0x level but materially below the 2.0x aggressive-leverage warning threshold. Debt-to-capital was 31.8%, within the 40% investment-grade benchmark. Interest coverage of 9.75x provides a solid earnings cushion against the current interest burden. The key funding risk is refinancing concentration: 45.6% of interest-bearing debt is short term, above the 40% quality-alert threshold, and cash covers only 0.88x of short-term debt. Short-term loans increased ¥12.68bn year on year to ¥19.88bn, and current portions of long-term loans were ¥10.39bn, increasing dependence on ongoing bank and capital-market access. Accounts payable increased ¥4.41bn to ¥21.41bn, partly financing the increase in operating scale and inventory. Equity rose ¥4.65bn year on year to ¥93.40bn, but total assets expanded by ¥29.87bn, reducing the capital adequacy ratio to 46.3% from 51.6%. Goodwill was only 3.1% of equity and 1.4% of assets, while intangible assets were 3.3% of assets; accordingly, acquisition-related balance-sheet concentration is limited.

Notable B/S Changes

Short-term loans: +¥12.68bn (+175.9%) to ¥19.88bn - materially raises short-term refinancing dependence and drives the 45.6% short-term debt ratio. PPE: +¥8.32bn (+25.1%) to ¥41.51bn - indicates increased capital intensity, including expansion in buildings, land, and other productive assets. Accounts receivable: +¥7.79bn (+22.0%) to ¥43.28bn - increases working-capital funding needs and makes collection discipline important. Accounts payable: +¥4.41bn (+25.9%) to ¥21.41bn - provides partial supplier-credit funding for expanded operating working capital. Intangible assets: +¥2.64bn (+64.4%) to ¥6.73bn - consistent with acquisition-related or systems-related asset additions; still modest at 3.3% of total assets. Treasury stock: increased by ¥15.05bn to a ¥16.05bn contra-equity balance - indicates significant share repurchase activity and reduces reported equity. Inventories: +¥3.05bn (+7.9%) to ¥41.85bn - remains a substantial 20.7% of total assets, increasing exposure to inventory turnover and valuation risk.

Cash Flow Quality

Reported earnings quality should be assessed conservatively because profit growth was materially influenced by a ¥3.75bn gain on step acquisitions. Net income of ¥6.36bn includes a net extraordinary gain of ¥3.56bn after a ¥0.22bn loss on disposal of fixed assets. This means operating earnings and ordinary earnings provide a more representative basis for recurring-profit assessment than net income alone. The operating-income decline to ¥6.96bn contrasts with the increase in net income, underscoring this divergence. Balance-sheet movements also point to meaningful working-capital funding needs: receivables increased ¥7.79bn year on year to ¥43.28bn, inventories increased ¥3.05bn to ¥41.85bn, and advance payments increased ¥2.46bn to ¥14.89bn. The ¥4.41bn increase in trade payables partially offsets these funding requirements. Inventory represents 20.7% of total assets and receivables 21.4%, making inventory turns, receivable collection, and procurement-credit conditions important determinants of cash conversion. Capital investment is also evident in the ¥8.32bn increase in PPE, including higher buildings, land, and other PPE. The increase in intangible assets to ¥6.73bn and the step-acquisition gain reinforce the need to distinguish acquisition-related accounting gains from underlying cash generation. Cash and deposits were ¥17.49bn, down ¥1.20bn year on year despite higher borrowings, which supports close monitoring of cash conversion as the asset base expands.

Dividend Sustainability

The full-year dividend forecast is ¥43.0 per share against forecast EPS of ¥139.9, implying a dividend payout ratio of approximately 30.7%. This is below the 60% sustainability benchmark and leaves a substantial earnings retention buffer. Based on Q3 EPS of ¥111.26, the forecast dividend represents approximately 38.6% of cumulative earnings per share. Retained earnings of ¥65.23bn provide a sizeable accounting buffer for shareholder distributions. Balance-sheet leverage remains manageable at 1.16x debt-to-equity and interest coverage is strong at 9.75x, supporting the capacity to maintain the stated dividend. However, the sharp increase in short-term borrowing and investment in PPE make preservation of operating cash generation important for distribution durability. The increase in treasury stock from ¥1.00bn to ¥16.05bn in contra-equity indicates material capital allocation toward share repurchases during the period. Accordingly, total shareholder return is likely higher than the dividend-only payout ratio, and its sustainability should be judged alongside refinancing needs, investment requirements, and recurring operating-profit recovery. The indicated dividend policy appears supportable on forecast earnings, provided the planned operating-income recovery is achieved and working-capital demands remain controlled.

Risk Assessment

Business risks include Margin risk: the 9.8% gross margin and 2.0% EBIT margin provide limited protection against changes in livestock and meat procurement costs, feed costs, logistics expenses, foreign exchange, or competitive pricing., Operating-leverage risk: SG&A grew 8.7% versus 3.0% revenue growth, and continued cost inflation or insufficient volume growth could prolong operating-margin compression., Food-industry risk: disease outbreaks, food-safety incidents, supply disruptions, and changes in import conditions can disrupt procurement, processing volumes, customer demand, and pricing., Affiliate-income volatility: equity-method earnings of ¥1.65bn made a meaningful contribution to ordinary income, exposing earnings to investee performance..

Financial risks include Refinancing risk is elevated by the 45.6% short-term debt ratio, above the 40% alert threshold, following a ¥12.68bn year-on-year increase in short-term loans., Cash coverage of short-term debt is 0.88x, requiring the group to maintain bank facilities, operating cash conversion, and access to refinancing., Capital intensity increased, with PPE rising ¥8.32bn year on year and total assets rising ¥29.87bn, while the capital adequacy ratio declined to 46.3% from 51.6%., Debt-to-equity of 1.16x is manageable but reduces balance-sheet flexibility relative to a more conservative sub-1.0x capital structure..

Key concerns include Low operating efficiency is the most immediate issue: EBIT margin is 2.0%, below the 5% benchmark, and operating income declined despite revenue growth., Reported net-income growth is not fully recurring because it includes a ¥3.75bn gain on step acquisitions and a ¥3.56bn net extraordinary gain., Receivables, inventories, and advance payments increased by a combined ¥13.30bn year on year, requiring disciplined working-capital management., The core meat-related business is the sole material disclosed reporting segment, concentrating the group’s earnings exposure in one industry value chain..

Investment Implications

Key takeaways include Revenue and gross profit expanded, but SG&A growth outpaced sales and reduced operating income by 9.3%., Annualized ROE of 9.1% is supported by high asset turnover, leverage, equity-method income, and a non-recurring acquisition-related gain rather than a strong operating margin., Liquidity ratios are healthy and interest coverage is robust, but the increased reliance on short-term borrowings heightens refinancing sensitivity., Full-year guidance remains broadly achievable based on Q3 progress, though the implied Q4 operating margin must improve modestly from the Q3 cumulative level., Goodwill and intangible-asset balances are low relative to equity and assets, limiting goodwill-impairment concentration risk..

Metrics to watch include Operating margin and SG&A-to-sales ratio, particularly whether SG&A growth falls below revenue growth, Gross margin resilience against meat procurement, feed, logistics, and pricing conditions, Short-term debt ratio, cash-to-short-term-debt coverage, and refinancing terms, Receivable, inventory, advance-payment, and payable movements as indicators of working-capital discipline, Equity-method earnings contribution and the recurrence of non-operating income, Progress toward the implied ¥2.44bn Q4 operating-income requirement, Scale and funding implications of treasury-stock purchases.

Regarding relative positioning, Starzen exhibits the high turnover and structurally thin margins typical of an integrated domestic meat-processing and distribution model. Its liquidity and interest coverage are stronger than its low operating margin alone would suggest, while goodwill exposure is modest. Relative earnings quality is constrained by reliance on non-operating affiliate income and a material acquisition-related extraordinary gain in the reported period.