■Future outlook for Lacto Japan ＜3139＞

1. Earnings forecast for the fiscal year ending 2024/11

The consolidated financial results for the full fiscal year ending 2024/11 were revised upward as of 2024/7/12, and sales are expected to increase 3.6% from the previous fiscal year to 164,000 million yen, ordinary profit up 44.0%, to 4,100 million yen, and net income attributable to parent company shareholders to increase 46.4% to 3,000 million yen, which is a record high of sales and profits. In the second half of the fiscal year, there are concerns about the effects of price increases by dairy industry manufacturers, etc. on consumption, and the effects of the upward trend in raw milk production after 2024/2 on domestic skimmed milk powder inventories, etc., so the plan is slightly conservative compared to the first half, but record high sales and profits are predicted for the full fiscal year. Above all, the functional food ingredients division, where the market is expanding, anticipates sales volume and sales volume of 2 times or more in the first half. Also, due to the effects of intense heat, there is a possibility that an increase in consumption of dairy products such as ice cream and a decrease in raw milk production by cows that are vulnerable to heat will lead to an increase in demand for imported raw materials, but these scenarios are not factored into the plan. The dividend forecast was also revised upward to a 76.0 yen dividend, doubling the 14.0 yen increase from the previous fiscal year forecast at the beginning of the fiscal year to an increase of 28.0 yen.

2. Earnings Forecasts by Business Division

(1) Dairy Ingredients and Cheese Division

Both sales volume and sales volume are expected to fall below the first half in the second half, but full-year sales are expected to be 113,000 million yen, up 1.0% from the previous fiscal year, and sales volume is expected to increase 7.5% from 180,000 tons. Sales increased by 7.4% and sales volume by 4.1% compared to the initial forecast for the fiscal year. There are many inquiries about imported raw materials for both dairy ingredients and cheese, but many sales destinations of dairy ingredients, led by major dairy manufacturers, plan to revise prices for final products such as ice cream and cheese until the beginning of fall, and there are concerns that consumers will refrain from buying them. Also, milk powder products, which are the main products, are on a recovery trend, but they are not as strong as anticipated at the beginning of the fiscal year, and there are concerns about the impact of the upward trend in raw milk production on domestic skimmed milk powder inventories and refraining from purchasing due to rising prices of imported raw materials, etc., so they are conservatively expected to be on par with the first half. Furthermore, demand for fat-based ingredients such as butter is strong and sales are expected to be strong. The Ministry of Agriculture, Forestry and Fisheries announced in 2024/6 that the 2024 government import quota for butter, which is in strong demand, will be added by 4,000 tons from the beginning, to a total of 14,000 tons, and it can be said that bidding opportunities have increased and business opportunities have expanded for the company.

The inventory level of domestically produced skimmed milk powder dropped from 98,000 tons at the end of 2022/3 to 50,000 tons at the end of 2023/11 due to the progress of measures against excess inventory by the public and private sectors, which began in 2022/3, and has remained around 50,000 tons thereafter. However, raw milk production in 2024 (2024/4 to 2025/3) is expected to increase production for the first time in 3 years after production suppression to prepare supply and demand due to the COVID-19 pandemic, and raw milk production from 2024/2 onwards continues to be positive compared to the previous year. Note, the company maintains price competitiveness and inquiries for imported raw materials are strong, but there is an uncertain factor where imported raw material prices will rise, so it is conservatively estimating the second half.

Also, due to the effects of intense heat exceeding expectations, there is a possibility that an increase in consumption of dairy products such as ice cream and a decrease in raw milk production will lead to an increase in demand for imported raw materials.

(2) Meat Food Division

Both sales volume and sales volume are expected to fall below the first half in the second half, but full-year sales are expected to be 20,000 million yen, up 9.5% from the previous fiscal year, and sales volume is expected to increase 6.7% from 30,000 tons. Sales volume remained unchanged against initial forecasts, but sales were raised 20.5% as pork prices rose. Frozen pork and chicken/chicken processed products for processed foods are expected to continue to sell well in the second half, but there are concerns that rising pork prices and rising import prices will cool demand for chilled pork for retail distribution, etc., so the plan is conservative.

(3) Functional Food Ingredients Division

In the same business, the momentum of expansion in the protein market is strong, and we are focusing on sales centered on high-protein raw materials, and in the full fiscal year, sales are expected to increase 27.6% from the previous fiscal year to 5,000 million yen, and sales volume is expected to increase 53.2% from the same period to 4,300 tons.

(4) Asia Business (Dairy Ingredients Sales Division)

In the second half, it was anticipated that sales of raw materials for milk products to Japan and sales of dairy ingredients to local companies would expand. However, since there are concerns about stagnation in consumption due to rising dairy product prices in Japan and a decline in demand for imported preparations due to increased production trends in raw milk production, both sales volume and sales volume are expected to fall below the first half. Full-year sales were 18,500 million yen, down 2.2% from the previous fiscal year, and sales volume was expected to decrease 4.7% from the same period to 35,500 tons, and the initial forecast that both sales volume and sales volume would exceed the previous fiscal year was drastically lowered (sales volume revised downward by 26.0% and sales volume by 34.6% compared to the initial forecast). The decline in exports of skimmed milk powder from Japan in the previous fiscal year and the decline in sales of price-appealing products to some local companies had a big impact. Meanwhile, raw material sales to local Japanese manufacturers are expected to continue to be strong in the second half, and in addition, there are expectations for strengthening the sales system for dairy ingredients sales to Thailand and neighboring countries due to a review of personnel allocation, and expanding sales as sales agents for Oceania dairy manufacturers in Indonesia. Also, since the product mix is improved, an improvement in profit margins is expected.

(5) Asia Business (Cheese Manufacturing and Sales Division)

For the second half, both sales volume and sales volume are planned to exceed the first half, and full-year sales are expected to increase 13.9% from the previous fiscal year to 5,500 million yen, and sales volume is expected to increase 7.7% from 5,200 tons, respectively, but initial forecasts were lowered (sales volume revised downward by 5.2% and sales volume by 16.1% compared to the initial forecast). There has been a steady trend in Singapore and Indonesia for eating out, etc., and sales of natural cheese are expected to progress smoothly. Processed cheese is on a recovery trend, but the decline in demand is expected to be prolonged due to the economic downturn in China. Additionally, sales to processed food manufacturers in Thailand, which were expected to recover, struggled due to the effects of the depreciation of the local currency against the US dollar, and the outlook was revised downward.

(6) Others

Dairy ingredients sold directly by Lacto America in the second half are expected to decrease 12.7% from the previous fiscal year to 932 million yen, and full-year sales are planned to be 2,000 million yen, an increase of 267.1% from the previous fiscal year.

(Written by FISCO Visiting Analyst Matsumoto Akihiro)