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Omega Investment Co., Ltd.

CHUGAI RO (Company note – 1Q update)

Share price (9/2) ¥3,995 Dividend Yield (26/3 CE) 3.8 %
52weeks high/low ¥2,515/4,120 ROE(25/3) 10.7 %
Avg Vol (3 month)  33.1 thou shrs Operating margin (25/3) 7.5 %
Market Cap ¥31.16 bn Beta (5Y Monthly) 0.30
Enterprise Value ¥29.63 bn Shares Outstanding 7.800 mn shrs
PER (26/3 CE) 10.4 X Listed market TSE Prime section
PBR (25/3 act) 1.1 X    
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1Q FY3/2026 saw increased orders, higher sales, and a smaller operating loss, a good start.

◇ 1Q FY3/2026 results highlights: increased orders, higher sales, and a smaller operating loss.

The 1Q FY3/2026 results that CHUGAI RO (hereinafter, the Company) announced on July 25, 2025, got off to a good start relative to the full-year earnings forecast.

Order intake was 11.71 billion yen (up 44% YoY), order backlog was 43.03 billion yen (up 15% YoY), net sales were 6.34 billion yen (up 20% YoY), operating loss was 0.37 billion yen (loss narrowed YoY), and ordinary loss was 0.25 billion yen (loss narrowed YoY). Profit attributable to owners of parent was 0.70 billion yen (turned to profit YoY).

The key points of these results are the following three.

First, the probability of achieving the full-year company forecast has increased. With order intake and order backlog both rising solidly and profit and loss improving through substantial revenue growth and reduced deficit, progress versus the full-year company forecast is generally steady. Although the Company’s results have strong seasonality and tend to accumulate profit in the second half, the fact that performance has been constant from the beginning of the year and profit and loss are improving is a reassuring factor when considering the certainty of the full-year company forecast.

Second, qualitative enrichment of order intake and profit/loss. As an essential strategy of its Medium-Term Management Plan, the Company is promoting the creation of new markets centered on carbon neutrality and enhancing existing products to meet customer needs. These initiatives in the quarter led to orders for large projects in the Plant Engineering Business and new orders in the Development Business. The latter is presumed to be a new product, electric furnace dust recycling equipment for steel, and can be expected to expand in the medium term (see the Company’s press release dated June 16, 2025, “Received an order for ‘electric furnace dust recycling equipment’ from Tokyo Steel Manufacturing Co., Ltd.”). In addition, on the profit and loss front, the gross profit margin improved by four percentage points YoY, primarily as a result of promoting order intake at appropriate prices.

Third, progress in the sale of cross-shareholdings. In the quarter, 1.28 billion yen in extraordinary income was recorded.

 ◇ FY3/2026 earnings forecast:

Although the Company discloses only the full-year forecast, because the first quarter was strong, the initial estimates have been left unchanged.

Net sales are 37.50 billion yen (up 3% YoY), operating profit is 3.00 billion yen (up 9% YoY), ordinary profit is 3.15 billion yen (up 4% YoY), and profit attributable to owners of parent is 2.80 billion yen (down 6% YoY). There are also no changes to net income per share of 387.2 yen and an annual dividend per share of 150 yen.

Stock price trends and points of focus going forward

The Company’s stock price rose to 4,045 yen after the announcement of results for FY3/2025, but then from June moved in the 3,200–3,500 yen range. After the announcement of these first quarter results, using the factors described above as clues, it rose again and marked a high of 3,795 yen.

As a result, the current PBR has reached 1.0 times. However, the forward PER is about 9.6 times, and there is still no sense of overheating.

For the stock price to rise further going forward, it is essential that the positive factors of the first quarter continue into the second quarter and beyond, that the increase in order intake and the underpinning of profit and loss continue, and that, as a result, the probability of achieving the full-year FY3/2026 company forecast increases further. That visibility also emerges regarding the likelihood of achieving the targets for the final year of the current Medium-Term Management Plan (net sales of 41.5 billion yen, operating profit of 3.62 billion yen, and ROE of 10%).

Through interviews with the Company, we have confirmed the Company’s recognition of the business environment, and that no significant changes have been seen so far in the order environment. Therefore, it appears we can continue to expect the results of the creation of new markets centered on carbon neutrality that the Company has been developing to date, and the expansion of sales and improvement of profit through brushing up existing products.

However, in the first quarter, because the automotive industry, a key customer, delayed investment to determine the course of U.S. tariffs, order intake in the Heat Treatment Business decreased 19% YoY. Although such a situation is highly likely to be temporary, there is also a possibility that investment destinations will shift from Japan to overseas, and the Company also needs to connect this to winning orders flexibly.

Based on the above, a certain degree of attention is required for the order environment and the customer trends behind it. We would like to check that investment by the automotive industry is steadily captured, that the impact of NIPPON STEEL CORPORATION’s expansion into North America is turned into a positive, and that there is no significant change in customers’ stance toward carbon neutrality.

Order intake trend

Source: Omega Investment from company materials

Company profile

CHUGAI RO CO., LTD.is Japan’s leading manufacturer of industrial furnaces and industrial burners, whose management philosophy is: “Chugai Ro creates new value through its core of thermal technology, thus contributing to society while realizing the prosperity of the company and the happiness of its employees.” With a track record of developing over 100 types of industrial furnaces, the Company is known as a “department store of industrial furnaces.” Under the slogan “Pioneering the future with thermal technology,” and based on its foundational technologies in thermal technology, engineering capabilities, and advanced technology accumulated since its founding in 1945, the Company provides industrial furnaces and related equipment to the steel, automotive, and information and communications industries. Currently, based on its Management Vision 2026, “Renovate ourselves to develop our future with the technology for carbon neutrality!”, the Company aims to contribute to society and expand corporate value through carbon-neutral technology under its Medium-Term Management Plan (FY2022–FY2026). Attention from the stock market is increasing.

Key financial data

Unit: million yen 2021 2022 2023 2024 2025 2026
CE
Sales 24,717 26,317 27,976 29,283 36,247 37,500
EBIT (Operating Income) 389 1,264 1,310 1,479 2,737 3,000
Pretax Income 527 1,594 1,699 3,129 4,222  
Net Profit Attributable to Owner of Parent 329 1,360 1,231 2,197 2,998 2,800
Cash & Short-Term Investments 7,121 11,130 7,884 10,061 4,392  
Total assets 38,577 38,141 41,178 48,863 48,736  
Total Debt 5,988 3,988 3,988 7,288 5,507  
Net Debt -1,133 -7,142 -3,896 -2,773 1,115  
Total liabilities 16,784 14,928 17,134 21,092 20,125  
Total Shareholders’ Equity 21,681 23,068 23,860 27,570 28,329  
Net Operating Cash Flow 3,300 6,090 -2,500 -891 -3,696  
Capital Expenditure 442 317 240 1,335 798  
Net Investing Cash Flow -551 510 -63 550 654  
Net Financing Cash Flow -4,481 -2,508 -727 2,451 -2,701  
Free Cash Flow 3,036 5,963 -2,688 -2,161 -4,419  
ROA (%) 0.77 3.55 3.10 4.88 6.14  
ROE (%) 1.56 6.08 5.25 8.54 10.73  
EPS (Yen) 42.9 177.2 162.0 293.8 407.6  
BPS (Yen) 2,824.1 3,005.3 3,146.7 3,709.0 3,859.0  
Dividend per Share (Yen) 60.00 70.00 70.00 80.00 150.00  
Shares Outstanding (Million shares) 7.80 7.80 7.80 7.80 7.80  

Share price

Financial data (quarterly basis)

Unit: million yen 2024/3 2025/3 2026/3
  1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
(Income Statement)                  
Sales 4,741 7,868 5,837 10,837 5,280 9,441 7,498 14,028 6,347
Year-on-year 28.4% 33.5% -15.3% -5.7% 11.4% 20.0% 28.5% 29.4% 20.2%
Cost of Goods Sold (COGS) 4,292 6,287 4,905 7,681 4,759 7,521 6,138 10,238 5,464
Gross Income 449 1,581 932 3,156 521 1,920 1,360 3,790 883
Gross Income Margin 9.5% 20.1% 16.0% 29.1% 9.9% 20.3% 18.1% 27.0% 13.9%
SG&A Expense 1,075 1,205 1,121 1,238 1,203 1,160 1,163 1,328 1,254
EBIT (Operating Income) -626 376 -189 1,918 -682 760 197 2,462 -371
Year-on-year -14.6% 817.1% -253.7% 2.1% 8.9% 102.1% -204.2% 28.4% -45.6%
Operating Income Margin -13.2% 4.8% -3.2% 17.7% -12.9% 8.0% 2.6% 17.6% -5.8%
EBITDA -531 474 -58 2,068 -551 902 334 2,604 -253
Pretax Income -440 1,477 189 1,903 50 775 704 2,693 1,032
Consolidated Net Income -291 1,015 101 1,391 -9 544 504 2,033 672
Minority Interest -8 -14 -5 46 2 15 16 41 -31
Net Income ATOP -283 1,030 106 1,344 -12 530 487 1,993 704
Year-on-year -28.0% 751.2% -30.3% -0.5% -95.8% -48.5% 359.4% 48.3%
Net Income Margin -6.0% 13.1% 1.8% 12.4% -0.2% 5.6% 6.5% 14.2% 11.1%
                   
(Balance Sheet)                  
Cash & Short-Term Investments 9,165 9,688 8,640 10,061 6,097 5,567 3,855 4,392 6,071
Total assets 44,558 47,895 46,439 48,863 43,463 45,170 43,667 48,736 46,023
Total Debt 8,184 10,280 8,402 7,288 6,209 7,180 6,687 5,507 6,397
Net Debt -981 592 -238 -2,773 112 1,613 2,832 1,115 326
Total liabilities 20,248 23,133 21,744 21,092 17,079 18,797 17,115 20,125 18,878
Total Sharehjolders’ Equity 24,131 24,591 24,544 27,570 26,178 26,143 26,321 28,329 26,908
                   
(Profitability %)                  
ROA 3.34 5.40 5.29 4.88 5.61 4.23 5.22 6.14 8.30
ROE 5.84 9.68 9.40 8.54 9.82 7.76 9.24 10.73 13.99
(Per-share) Unit: JPY                  
EPS -37.5 137.7 14.3 180.8 -1.6 71.9 66.3 271.5 96.6
BPS 3,204.6 3,307.9 3,301.7 3,709.0 3,565.6 3,561.1 3,585.4 3,859.0 3,717.8
Dividend per Share 0.00 0.00 0.00 80.00 0.00 0.00 0.00 150.00 0.00
Shares Outstanding (million shares) 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80

Financial data (full-year basis)

Unit: million yen 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
(Income Statement)                    
Sales 32,795 31,146 30,829 37,089 38,089 24,717 26,317 27,976 29,283 36,247
Year-on-year 33.6% -5.0% -1.0% 20.3% 2.7% -35.1% 6.5% 6.3% 4.7% 23.8%
Cost of Goods Sold 28,449 26,575 25,795 32,140 32,023 20,282 21,007 22,494 23,448 28,656
Gross Income 4,346 4,571 5,034 4,949 6,066 4,435 5,310 5,482 5,835 7,591
Gross Income Margin 13.3% 14.7% 16.3% 13.3% 15.9% 17.9% 20.2% 19.6% 19.9% 20.9%
SG&A Expense 3,669 3,797 3,853 3,962 4,354 4,046 4,046 4,172 4,356 4,854
EBIT (Operating Income) 677 774 1,181 987 1,712 389 1,264 1,310 1,479 2,737
Year-on-year 180.9% 14.3% 52.6% -16.4% 73.5% -77.3% 224.9% 3.6% 12.9% 85.1%
Operating Income Margin 2.1% 2.5% 3.8% 2.7% 4.5% 1.6% 4.8% 4.7% 5.1% 7.6%
EBITDA 1,037 1,112 1,527 1,378 2,080 749 1,676 1,710 1,953 3,289
Pretax Income 715 967 1,294 1,177 1,701 527 1,594 1,699 3,129 4,222
Consolidated Net Income 572 1,000 905 781 1,158 364 1,429 1,295 2,216 3,072
Minority Interest 27 21 40 26 37 35 69 64 19 74
Net Income ATOP 545 978 864 754 1,120 329 1,360 1,231 2,197 2,998
Year-on-year 79.9% 79.4% -11.7% -12.7% 48.5% -70.6% 313.4% -9.5% 78.5% 36.5%
Net Income Margin 1.7% 3.1% 2.8% 2.0% 2.9% 1.3% 5.2% 4.4% 7.5% 8.3%
                     
(Balance Sheet)                    
Cash & Short-Term Investments 6,923 7,833 6,858 5,169 8,658 7,121 11,130 7,884 10,061 4,392
Total assets 39,665 38,502 41,368 42,731 46,696 38,577 38,141 41,178 48,863 48,736
Total Debt 3,988 3,988 4,010 4,995 9,988 5,988 3,988 3,988 7,288 5,507
Net Debt -2,935 -3,845 -2,848 -174 1,330 -1,133 -7,142 -3,896 -2,773 1,115
Total liabilities 20,300 18,131 20,131 21,774 26,006 16,784 14,928 17,134 21,092 20,125
Total Shareholders’ Equity 19,292 20,295 21,138 20,875 20,589 21,681 23,068 23,860 27,570 28,329
                     
(Cash Flow)                    
Net Operating Cash Flow 1,260 1,033 377 -1,348 -580 3,300 6,090 -2,500 -891 -3,696
Capital Expenditure 290 113 420 456 244 442 317 240 1,335 798
Net Investing Cash Flow -499 402 -837 -478 -442 -551 510 -63 550 654
Net Financing Cash Flow -405 -484 -468 279 4,510 -4,481 -2,508 -727 2,451 -2,701
Free Cash Flow 1,016 933 2 -1,725 -775 3,036 5,963 -2,688 -2,161 -4,419
                     
(Profitability )                    
ROA (%) 1.45 2.50 2.17 1.80 2.51 0.77 3.55 3.10 4.88 6.14
ROE (%) 2.78 4.95 4.18 3.59 5.41 1.56 6.08 5.25 8.54 10.73
Net Margin (%) 1.66 3.14 2.81 2.04 2.94 1.33 5.17 4.40 7.50 8.27
Asset Turn 0.87 0.80 0.77 0.88 0.85 0.58 0.69 0.71 0.65 0.74
Assets/Equity 1.92 1.97 1.93 2.00 2.16 2.02 1.71 1.69 1.75 1.75
(Per-share) Unit: JPY                    
EPS 70.0 125.7 111.0 97.2 145.9 42.9 177.2 162.0 293.8 407.6
BPS 2,478.6 2,607.8 2,716.9 2,718.6 2,681.5 2,824.1 3,005.3 3,146.7 3,709.0 3,859.0
Dividend per Share 60.00 60.00 60.00 60.00 60.00 60.00 70.00 70.00 80.00 150.00
Shares Outstanding (million shares) 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80