Why did Kyokuyo (1301) sell to its lowest price since the beginning of the year? Background of the sharp decline in defensive performance and 2027 rebound scenario

[Summary]

Kyokuyo (1301), a major seafood company, significantly increased sales in the fiscal year ending March 2026.

On the other hand, operating income and ordinary income have decreased, and the stock price has adjusted to its lowest level since the beginning of the year.

The market was fed up with

• Profit margin decreased even though sales increased
• Rising raw material prices and production costs
• Deterioration of operating cash flow due to increase in inventory
• Increase in short-term borrowings
• Concerns about achieving the bullish outlook for the fiscal year ending March 2027

It is.

However, Kyokuyo is not just a company that sells fish.

We are a global seafood supply chain company that procures seafood from all over the world, processes it, and distributes it to restaurants, frozen foods, and overseas sales.

In this article, we will summarize the factors behind the sharp decline in the polar ocean, structural changes in the fishing industry, and a reversal scenario for 2027.

Key points of financial results for the fiscal year ending March 2026

First, let's check the full-year financial results announced on May 15, 2026.

Sales increased by double digits.

However, operating profit margin decreased from 3.7% to 3.2%.

In other words, the first impression of the financial results is

Sales increased, but it became difficult to make profits due to rising costs

This is the content.

This led to a heavy share price.

“Contradiction” that troubled the market

What worried investors about this latest financial result was not simply a decline in profits.

Rather, the problem is

Although sales and profits decreased in the fiscal year ending March 2026, the company plans to increase sales, profits, and dividends in the fiscal year ending March 2027.

That's the gap.

The company is forecasting sales of 365 billion yen, operating income of 12 billion yen, and net income of 7.2 billion yen for the fiscal year ending March 2027.

We also plan to increase the dividend from 150 yen to 160 yen.

If this plan is achieved, our business performance will return to the top of the profit range.

On the other hand, the market

• Raw material price
• Weak yen
• Consumers' tendency to save money *Inventory burden
• Upfront costs for overseas factories

I am doubting whether we can really increase profits in this environment.

This doubt is a major reason for the stock price adjustment.

Five structural factors that led to the sharp decline

1. Limits of price pass-through

In the seafood and food industries, raw material prices and production costs continue to rise.

Kyokuyo's financial results report also explains that the harsh business environment continued as consumers became more frugal due to rising prices.

While marine products are close to daily necessities, products such as salmon, shrimp, crab, and tuna tend to be expensive in household budgets.

Therefore, as prices increase,

• Decrease in sales volume
• Migration to cheaper alternatives
• Deterioration in profitability for eating out and delicatessen products

is more likely to occur.

2. High fish prices and inventory burden

What particularly stood out this time was cash flow.

Operating cash flow turned from an income of 5.84 billion yen in the previous fiscal year to an expenditure of 740 million yen in the fiscal year ending March 2026.

The main reason was an increase in inventories.

If you hold inventory when fish prices are high, sales will likely increase, but cash flow will be heavy.

This is the fate of a seafood trading company type business.

3. Increase in borrowings

Cash flow from financing activities was 9.07 billion yen.

In the financial results report, the increase in short-term loans payable was cited as a factor.

It is natural that borrowing will increase as you accumulate inventory and expand your business.

However, investors

Will inventory increase turn into profit or will it worsen capital efficiency?

I will take a hard look at it.

4. Turning seafood prices into a resource business

Seafood is no longer just food.

It is an international commodity that is influenced by ocean temperatures, fishing regulations, fuel costs, feed prices, geopolitics, and exchange rates.

Prices of mackerel, salmon, shrimp, tuna, scallops, etc. fluctuate greatly due to changes in supply and demand.

Even though seafood stocks appear to be defensive, they are actually starting to exhibit volatility similar to resource stocks.

5. Shift funds to growth themes

In the Japanese stock market in 2026, stocks related to AI, semiconductors, defense, electric power, and data centers are likely to take center stage.

On the other hand, seafood and food stocks tend to be seen as ``stable but with weak growth,'' making it difficult for institutional investors to invest in them.

Value stocks like Kyokuyo are likely to be sold due to supply and demand issues if there is even the slightest concern about their performance.

Kyokuyo is more than just a fish store

Kyokuyo is actually a global seafood supply chain company.

The official website describes the company as a comprehensive food company that is ``strong in fish'' and handles everything from procurement, processing, and sales of marine products.

There are four main business structures.

Although the marine products business is a mainstay of sales, it is susceptible to price fluctuations and inventory burdens.

On the other hand, there is structural demand in the fresh food and food businesses, such as eating out, conveyor belt sushi, frozen foods, and prepared foods.

Investors not only view Kyokuyo as a trading company that is influenced by fish prices;

Food infrastructure company that processes and brands marine resources and distributes them domestically and internationally

should be viewed as.

Strengths and weaknesses by segment

Looking at the segment for the fiscal year ending March 2026, there are some bright spots.

Fisheries business

Sales were 195 billion yen, an increase of 15.6% from the previous fiscal year.

On the other hand, operating income was 5.75 billion yen, a decrease of 5.9%.

Although sales increased, raw material supply shortages, lower operating rates at overseas processing plants, and upfront costs associated with starting new plants in the U.S. and Vietnam were a burden.

Fresh food business

Sales and profits increased, with sales of 71.7 billion yen and operating income of 3.85 billion yen.

Sales of tuna-related products, sushi ingredients, and conveyor belt sushi products increased.

This is an area that is likely to benefit from a recovery in inbound tourism and eating out.

Food business

Sales remained almost unchanged at 65.5 billion yen, and operating income increased to 2.53 billion yen.

Although there were some struggles in frozen foods, canned foods and some commercial products supported sales.

In the long term, it is compatible with dual-income households, an aging population, and the growing need for convenient food.

Structural changes in the seafood industry

Changes in the fishing industry itself are also important when analyzing the polar oceans.

Wild fish tend to become rare

Global demand for seafood is expanding.

On the other hand, fishing for wild fish is subject to resource management and marine environment constraints.

In other words, in the long term, wild fish is no longer something that can be obtained cheaply and in large quantities.

Aquaculture will become the main battlefield

FAO says that global fisheries and aquaculture production has reached record highs, with aquatic animal production from aquaculture exceeding fishing for the first time.

This is a major turning point for the seafood industry.

Future growth will be

• Aquaculture
• Feed
• Water quality management *AI feeding
• Traceability
• Freezing/processing technology

may move to.

Kyokuyo also farms bluefin tuna and red sea bream within its own group, and it will be important to shift to a business that not only ``catches'' but also ``raises.''

ESG and traceability

European and American markets place emphasis on sustainable fishing practices and transparency in distribution channels.

In the future, we will not only have the ability to purchase cheaply, but also

The power to supply sustainably, consistently and accountably

becomes the brand value.

Reversal scenario in 2027

There are several conditions for the polar ocean to be reevaluated.

1. Inventory turns into profit

An increase in inventory is a short-term factor that worsens cash flow.

However, if you can sell the purchased inventory at a fair price, it will become a source of future profits.

What you should look at every quarter:

• Increase/decrease in inventories *Gross profit margin
• Operating cash flow
• Changes in borrowings

It is.

2. Growth in fresh food and food service products

If conveyor belt sushi, eating out, and inbound demand recover, this will provide a tailwind for sushi starters and tuna-related products.

Kyokuyo's fresh produce business is already seeing increases in sales and profits, and the focus is on whether this will become a growth driver.

3. Frozen foods and canned foods become profit stabilizers

Fisheries trading is subject to market fluctuations.

On the other hand, frozen foods and canned foods are areas where it is easy to stabilize profit margins through branding and improved processing.

It is important to move from ``buying and selling fish'' to ``processing fish to add value.''

4. Shareholder returns support downside prices

Dividends are expected to be 150 yen for the fiscal year ending March 2026 and 160 yen for the fiscal year ending March 2027.

According to market data as of May 20th, the company's expected dividend yield is in the high 3% range and PBR is around 0.7x.

As a value stock, the company's attitude toward giving back will support its stock price.

5. Expectations for improving PBR by 1 times

PBR in the polar ocean is well below 1x.

As a TSE prime company, expectations remain for improvements in capital efficiency.

However, simply increasing dividends is not enough.

What the market wants to see is

• Stabilization of ROE
• Improved inventory turnover
• Improve profit margin
• Improve cash flow
• Review of business portfolio

It is.

Check items that investors should look at

What is particularly important is whether the company's plan for the fiscal year ending March 2027 is progressing on a quarterly basis.

The first point to check is whether or not the ``achievability of the sales and profit increase plan'' is visible as of 1Q.

Risk

There is room for reversal in the polar ocean, but the risks are also clear.

1. Risk of fish price decline

If fish prices drop while you have inventory purchased at a high price, your profit margin will deteriorate.

2. Risks of both yen depreciation and yen appreciation

A weaker yen raises import costs.

On the other hand, if the yen appreciates, the outlook for overseas sales and foreign currency-denominated profits may change.

Exchange rates are not simply positive or negative, and the impact differs depending on the business.

3. Consumers' tendency to save money

If prices continue to rise, the sales volume of high-priced marine products is likely to decline.

4. Overseas factories/M&A execution risks

While there is room for growth in overseas operations, issues include utilization rates, local costs, and post-acquisition integration.

Summary

Kyokuyo's stock price adjustment is not just a temporary sell-off of defensive stocks.

In the background,

*Commoditization of seafood prices

• High raw material costs and consumers' tendency to save money
• Deterioration of cash flow due to increased inventory
• Increase in borrowings
• Distrust in bullish plan for fiscal year ending March 2027

There is.

On the other hand, there is also material for re-evaluation in the polar ocean.

• Increased sales and profits in the fresh food business
• Demand for sushi ingredients and restaurants
• Processing added value for frozen foods and canned foods
• Room for growth in aquaculture and overseas sales
• Expected to increase dividends and improve PBR below 1x

The biggest question for 2027 is

Will Kyokuyo be redefined from a “low-growth seafood stock” to a “food supply chain company in the era of food security”?

It is.

In the next quarterly results, I would like to see improvements in operating profit margin, inventory, and operating cash flow rather than sales.

Source/Reference

• Kyokuyo Financial Results for the Year Ending March 2026 PDF
• Kyokuyo Financial Report Library
• Kyokuyo Business Development
• Yahoo! Finance Kyokuyo (1301) Stock Price/Indices
• Fisheries Agency Reiwa 6th Fisheries White Paper World Fisheries and Aquaculture Production
• FAO: Global fisheries and aquaculture production reaches a new record high