CHUGAI RO (Company note – 1Q update)

In 1Q FY3/2027, progress was in line with expectations toward the full-year plan, despite lower order intake.

◇ Highlights of 1Q FY3/2027 results: lower order intake, lower sales, and a narrower operating loss.

The 1Q FY3/2027 results announced by CHUGAI RO (hereinafter, the Company) on July 24, 2026, were broadly in line with expectations versus the full-year earnings forecast.

Order intake was 7.38 billion yen (down 37% YoY), order backlog was 38.98 billion yen (down 9% YoY), net sales were 6.12 billion yen (down 4% YoY), and operating loss was 210 million yen (loss narrowed YoY). Ordinary loss was 110 million yen (loss narrowed YoY). Quarterly net loss attributable to owners of parent was 70 million yen (turned to a loss YoY). The balance sheet showed no major changes.

The key points of these results are the following three.

First, the decline in order intake and order backlog was in line with expectations. Although order intake for the current fiscal year decreased significantly YoY, the Company says there are no signs that the order environment has deteriorated substantially. The decline was largely due to the reactionary impact of large orders received in the same period of the previous fiscal year. Both order intake and order backlog are progressing in line with expectations. Order contents included heat-treatment equipment for the chemical industry in Japan, heat-treatment furnaces for battery materials, hot-air generators, vacuum furnaces for automobiles and other applications, ladle preheating equipment for steel in Japan, and combustion equipment, all areas where the Company can demonstrate its strengths.

Second, operating loss and ordinary loss narrowed in the first quarter, and profit and loss are becoming more level.

Net sales decreased slightly, but the loss narrowed YoY due to appropriate pass-through of increases in labor and raw material prices and progress in business efficiency improvements. Because of the nature of the Company’s business, profits tend to be heavily concentrated in the fourth quarter, but the Company is strengthening profit and loss management to level this as much as possible, which we view positively.

The large YoY decline in quarterly net income attributable to owners of parent was due to the absence of gains on sales of shares recorded in the same period of the previous fiscal year.

Third, there were multiple news releases related to business development.

· April 24, 2026: “Passing the Stage Gate for NEDO’s Green Innovation Fund Project / Decarbonization of Thermal Processes in the Manufacturing Sector”

From April 1, 2026, as a NEDO-subsidized project, the Company started medium-scale demonstration development on technology development for combustion furnaces compatible with ammonia and hydrogen, as well as technology development related to minimizing and increasing the efficiency of the receiving capacity of electric furnaces, which is essential for conversion from combustion furnaces to electric furnaces.

· July 7, 2026: “Signing of a Memorandum of Understanding toward a Business Alliance with Ineeji Co., Ltd. of South Korea”

The aim is to combine the Company’s equipment technologies, such as reheating furnaces and annealing furnaces for steel and nonferrous metals, with Ineeji’s industry-specialized AI technologies, and thereby promote the joint development and global rollout of next-generation industrial furnace packages, or smart furnaces, that improve energy efficiency, stabilize product quality, and standardize and autonomize operations.

· August 5, 2026: “Our Products Were Selected as Advanced Equipment and Systems under the Energy-Saving and Non-Fossil Fuel Conversion Subsidy (Factory and Workplace Type) Program”

Under the subsidy program administered by the Sustainable Open Innovation Initiative, “FY2025 Supplementary Budget Energy-Saving and Non-Fossil Fuel Conversion Subsidy (Factory and Workplace Type),” four products continued to be selected as advanced equipment and systems eligible for subsidies: the HIFALCON™ mass-production-type vacuum carburizing furnace, the Compact Falcon™ small-lot vacuum carburizing equipment, the atmosphere regeneration system, and the tundish preheating equipment equipped with a diffusion-combustion oxygen burner. Two products were newly selected: the variable-flame-length high-efficiency regenerative reheating furnace and the burner combustion system equipped with EBC³™ (Easy & Eco Burner Control System Cube). This supports customers’ introduction of these products.

◇ FY3/2027 earnings forecast: unchanged

The Company discloses only its full-year forecast, and this time it left it unchanged.

Net sales are forecast at 40.30 billion yen (up 8% YoY), operating profit at 3.62 billion yen (up 26% YoY), ordinary profit at 3.72 billion yen (up 20% YoY), and profit attributable to owners of parent at 2.52 billion yen (down 46% YoY). Net income per share of 361.31 yen and annual dividend per share of 180 yen also remain unchanged.

◇ Stock price trends and points of focus going forward

The Company’s stock price broke above the 3,000 yen level, which had served as resistance since the 2010s, in 2024, and has maintained its medium-term upward trend since 2022. However, since February this year, the stock price has struggled to rise, and it has moved back and forth around the time of these results.

The stock price valuation shows no sign of overheating, with a forward PER of 11x, a PBR of 0.94x, and a forward dividend yield of 4.4%. Given the Company’s improved ROE and proactive stance toward establishing a PBR above 1.0x, downside risk appears limited.

Although it is difficult to infer externally the probability of achieving the full-year plan based on the first-quarter results, order intake is progressing within expectations, and the full-year forecast has been left unchanged, so the stock price is waiting for catalysts to move higher.

Based on the above, the key points to watch going forward are the following.

• The probability of achieving the full-year Company forecast for FY3/2027 increases each quarter.
• Orders and initiatives increase in markets of interest that will lead to the next Medium-Term Management Plan. Specifically, we would like to wait for an explanation of the path toward further improvement in ROE under the next Medium-Term Management Plan, through continuing to expand sales of new products and brush up existing products without becoming overly biased toward carbon-neutrality responses, increasing the Company’s presence in areas such as production equipment for next-generation solar cells, all-solid-state batteries, and semiconductor manufacturing equipment, and accelerating expansion into North America, India, and other markets. We also expect improvements in labor productivity and asset efficiency.
• The Company becomes involved in new customer initiatives beyond 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 Management Vision 2026, “Renovate ourselves to develop our future with the technology for carbon neutrality!”, the Company is promoting its Medium-Term Management Plan (FY2022–FY2026). More recently, under Mamoru Sakata, who was appointed as the new president effective April 1, 2026, the Company is formulating a new Medium-Term Management Plan that will start in FY3/2028, and attention is focused on its direction.

Key financial data

Source: Omega Investment from company materials

Share price

Financial data (quarterly basis)

Source: Omega Investment from company materials

Financial data (full-year basis)

Source: Omega Investment from company materials