Starzen Company Limited FY2027 Q1 Earnings Report

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Executive Summary

This quarter saw increases in both revenue and profit, along with an improvement in the operating margin, while profit progress was ahead of the full-year plan. Revenue was ¥1191.4B (+9.7% year on year), Operating Income was ¥26.6B (+43.6%), Ordinary Income was ¥37.9B (+48.0%), and Net Income was ¥26.2B (+41.8%). In addition to operating leverage resulting from improved gross margins and restrained selling, general and administrative expenses, non-operating income such as equity-method investment gains and subsidy income contributed to the increase in Ordinary Income.

Factors Affecting Performance

【Revenue】Revenue was ¥1191.4B, representing a year-on-year increase of +9.7%. The only reported segment is the Meat-Related Business, and no geographic or segment-specific breakdown has been disclosed. In addition to volume and pricing measures in existing businesses, contributions from three newly consolidated subsidiaries appear to have supported the increase in revenue.

【Profit and Loss】Operating Income was ¥26.6B (+43.6%), and the operating margin improved to 2.2% from 1.7% in the previous year. While the gross margin improved to 10.0% from 9.5% in the previous year, the SG&A ratio declined to 7.7% from the previous year, restraining expense growth relative to the increase in revenue and producing operating leverage. Ordinary Income was ¥37.9B (+48.0%), supported by ¥16.2B in non-operating income, including ¥7.1B in equity-method investment gains and ¥4.3B in subsidy income. Extraordinary gains of ¥6.3B (gain on sale of investment securities) and extraordinary losses of ¥6.5B were almost fully offsetting, resulting in a limited impact on Net Income. Net Income was ¥26.2B (+41.8%), concluding the quarter with increases in both revenue and profit.

Segment Analysis

The only reported segment is the “Meat-Related Business,” while other businesses are not separately disclosed because their disclosure is not considered material. An analysis of changes by segment cannot be performed.

Key Financial Indicators

【Profitability】Both the operating margin of 2.2% (1.7% in the previous year) and the net profit margin of 2.2% (1.7% in the previous year) improved, aided by the improvement in the gross margin to 10.0% and the decline in the SG&A ratio to 7.7%.【Cash Flow Quality】Inventories increased to ¥546.3B, accumulating at a pace exceeding the revenue growth rate of +9.7%, indicating an impact on asset efficiency.【Investment Efficiency】ROE was 2.7%, primarily due to the improvement in the net profit margin, while total asset turnover remained sluggish due to the increase in inventories.【Financial Soundness】The Equity Ratio declined slightly to 44.8% from 47.4% in the previous year. However, liquidity remains ample, with current assets of ¥1306.8B versus current liabilities of ¥624.7B, while short-term borrowings decreased year on year and a shift toward long-term borrowings progressed.

Cash Flow Analysis

Although no statement of cash flows has been disclosed, an analysis of funding trends based on changes in the balance sheet indicates that cash and deposits were ¥183.6B, maintaining approximately the same level as the previous year, while inventories increased to ¥546.3B, suggesting that working capital absorbed funds. Accounts receivable declined to ¥325.8B, partially offsetting the increase in inventories; however, the fact that inventory growth exceeded revenue growth is a point to note regarding funding efficiency. On the liabilities side, short-term borrowings decreased while long-term borrowings increased, indicating that the funding structure shifted from short term to long term and became more stable.

Quality of Earnings

The increase in profit at the Ordinary Income level was supported by non-operating income such as ¥7.1B in equity-method investment gains and ¥4.3B in subsidy income, which differ in nature from operating income generated by the core business. Extraordinary gains and losses—¥6.3B in gains on the sale of investment securities and ¥6.5B in extraordinary losses—were almost fully offsetting, resulting in a limited impact on Net Income, with no significant boost arising from temporary factors. Comprehensive Income was ¥24.2B, slightly below Net Income of ¥26.2B, due to a deterioration of the valuation difference on securities (-¥5.7B). Improvement in Operating Income (+43.6%) drove the growth in Ordinary Income and Net Income, indicating that earnings quality was generally driven by the core business.

Earnings Forecast and Guidance

The full-year forecasts are revenue of ¥4700.0B (+4.9% year on year), Operating Income of ¥92.0B (+5.0%), and Ordinary Income of ¥114.0B (+3.4%). There was no revision to the earnings forecast during the quarter, although the dividend forecast was revised. As of Q1, progress rates were 25.4% for revenue, 28.9% for Operating Income, and 33.2% for Ordinary Income. Particularly on the profit front, progress exceeded the standard 25% benchmark, indicating a front-loaded trend.

Shareholder Returns

The full-year dividend forecast is ¥52 (¥43 in the previous year), representing an expected dividend increase. The Payout Ratio against the full-year EPS forecast of ¥148.75 is approximately 35.0% (¥52 ÷ ¥148.75), which is a reasonable level. The company holds 1,425 thousand treasury shares.

Risk Factors

1. Increase in inventory levels: Inventories increased to ¥546.3B, with the growth rate from the previous year exceeding the revenue growth rate of +9.7%. Monitoring is required for the risk of valuation losses and discounted sales.

2. Low profitability inherent in the business structure: With a gross margin of 10.0% and an operating margin of 2.2%, absolute profit margins are low, making earnings relatively more sensitive to fluctuations in raw material market prices and procurement costs.

3. Increase in goodwill and intangible assets: Goodwill increased to ¥49.1B as a result of M&A, including three newly consolidated companies. Although it remains low relative to net assets, the realization of future integration benefits will be closely watched from the perspective of impairment risk.

Industry Benchmark (Reference; Prepared by the Company)

Industry Benchmark (trading)

Profitability and Returns

The company’s profitability indicators are below the industry median, reflecting its structurally low-margin business model.

Growth and Capital Efficiency

The revenue growth rate is significantly above the industry median and is close to the upper end of the IQR.

※Source: Prepared by the Company

Key Points from the Earnings Results

1. In addition to increases in revenue and profit, the operating margin improved year on year during the quarter, confirming operating leverage from pricing measures and expense control. Profit progress is also ahead of revenue progress relative to the full-year plan, indicating a front-loaded trend.

2. Inventories are increasing at a pace exceeding revenue growth, resulting in sluggish asset turnover. Inventory trends will be a key area to monitor when evaluating future asset efficiency.

3. The liability structure became more long term due to a decrease in short-term borrowings and an increase in long-term borrowings, improving stability from the perspective of financial soundness. Meanwhile, goodwill increased in connection with M&A, and the realization of future integration benefits will be closely watched.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,602–¥1,696 at ±1% for the cost of equity, and ¥1,647–¥1,649 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 timing difference from the full-year forecast).
• Because 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 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 forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 with a professional adviser as necessary.

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