Kohjin Bio (177A) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 of the fiscal year ending March 2026, the Company posted a decline in revenue and a significant deterioration in profit margins, resulting in “lower revenue and lower profit.” Revenue was ¥37.9B (¥39.2B in the same period of the previous year, YoY -3.4%), Operating Income was ¥3.9B (¥6.8B, YoY -42.6%), Ordinary Income was ¥3.9B (¥7.4B, YoY -48.0%), and Net Income was ¥2.8B (¥5.2B, YoY -45.9%). While the core Tissue Culture Business secured higher revenue and profit, the Microbiology Business fell into the red and the Cell Processing Business also reported lower profit, weighing on company-wide profitability.

Factors Affecting Performance

【Revenue】Revenue was ¥37.9B, down 3.4% year on year. By segment, the Tissue Culture Business secured higher revenue at ¥19.2B (50.7% of total, +13.5% year on year), but the Microbiology Business at ¥10.9B (▲18.8%) and the Cell Processing Business at ¥7.8B (▲13.4%) both reported lower revenue, offsetting the growth of the Tissue Culture Business.

【Profit and Loss】Gross profit was ¥15.2B, with a gross margin of 40.0%, down 3.3pt from 43.3% in the same period of the previous year. SG&A expenses increased 10.2% year on year to ¥11.3B, and the SG&A expense ratio to revenue rose from 26.1% to 29.8%. As a result, the Operating Income margin contracted by 7.0pt, from 17.2% to 10.2%. Ordinary Income declined by 48.0%, further impacted by a decrease in equity-method investment income from ¥0.9B to ¥0.3B. Extraordinary income of ¥0.1B and loss on retirement of fixed assets of ¥0.1B almost offset each other, resulting in a negligible net impact. In addition to lower revenue, increased fixed-cost burden and lower equity-method investment income led to lower revenue and lower profit.

Segment Analysis

The Tissue Culture Business became the core business, generating approximately 90% of total segment profit, with segment profit of ¥7.4B (profit margin of 38.4%, improved from 34.7% in the previous year). The Microbiology Business posted a segment loss of ¥0.2B (turning from a prior-year profit margin of 16.9% into a loss), while the Cell Processing Business posted segment profit of ¥1.0B (profit margin of 12.6%, substantially down from 28.8% in the previous year). Company-wide expenses (administrative expenses not allocated to individual segments) were ¥4.4B, up 9.6% from ¥4.0B in the previous year. After deducting these expenses from total segment profit of ¥8.2B, consolidated Operating Income was ¥3.9B. Profit concentration in the Tissue Culture Business has intensified, while deteriorating profitability in the other two businesses is reducing the diversification of consolidated earnings.

Key Financial Metrics

【Profitability】The Operating Income margin of 10.2% (17.2% in the previous year) and Net Profit margin of 7.4% (13.2% in the previous year) both declined substantially, primarily due to the decline in gross margin from 43.3% to 40.0% and the rise in the SG&A expense ratio from 26.1% to 29.8%.【Cash Quality】Net extraordinary gains and losses were approximately ¥0.02B and immaterial. Net Income of ¥2.8B had limited dependence on one-time gains and losses, with fluctuations in operating and non-operating income and expenses determining earnings quality.【Investment Efficiency】Annualized ROE was 6.3%. Given the high Equity Ratio of 66.0%, financial leverage was restrained at approximately 1.5x, indicating that the level of ROE is primarily determined by the decline in profit margins.【Financial Soundness】The current ratio of 186.0%, quick ratio of 174.4%, and D/E ratio of 0.51x indicate sound financial safety. However, 85.1% of liabilities are concentrated in the short term, and dependence on short-term borrowings of ¥15.0B increases sensitivity to changes in refinancing conditions.

Cash Flow Analysis

In lieu of disclosure of a cash flow statement, an analysis of funding trends based on balance sheet movements shows that cash and deposits were ¥22.7B, down ¥8.8B (28.0%) from ¥31.5B in the same period of the previous year. Meanwhile, short-term borrowings remained flat at ¥15.0B, while long-term borrowings were reduced by ¥1.1B (30.0%) year on year to ¥2.6B. Inventories consisted of raw materials of ¥4.8B, work in process of ¥1.4B, and finished goods of ¥2.8B, with inventory days of 108 days, indicating a relatively high level of funds tied up in inventory. Accounts payable increased 49.2% year on year to ¥2.0B, partially supplementing working capital through the use of trade credit. Property, plant and equipment increased ¥5.1B year on year to ¥37.6B, with investment in buildings and land increasing capital intensity. The decrease in cash balances is consistent with the allocation of funds to inventory and capital investment. However, cash balances remain above short-term borrowings, and no serious near-term liquidity issues are apparent.

Earnings Quality

Of Net Income of ¥2.8B, extraordinary income of ¥0.1B and loss on retirement of fixed assets of ¥0.1B almost offset each other, making the contribution of net one-time factors extremely small. Accordingly, the primary driver of earnings fluctuations was recurring operating performance. Non-operating income was ¥0.5B, with dividends received and other income immaterial, while non-operating expenses were also approximately balanced at ¥0.5B, including interest expenses of ¥0.3B. However, equity-method investment income declined 60% to ¥0.3B from ¥0.9B in the previous year, increasing Ordinary Income volatility through non-operating income and expenses. The persistently high level of inventories (108 inventory days) indicates, from an accrual perspective, that funds are tied up in working capital, warranting attention with respect to the speed of earnings conversion into cash.

Earnings Forecast and Guidance

The full-year company forecast calls for Revenue of ¥49.7B (-4.5% year on year), Operating Income of ¥4.6B (-53.1%), and Ordinary Income of ¥4.7B (-56.1%). Cumulative Q3 progress rates were 76.3% for Revenue, 83.5% for Operating Income, 82.4% for Ordinary Income, and 83.5% for Net Income, exceeding the standard 75% progress benchmark. However, based on the full-year forecast, the Operating Income margin for Q4 is expected to be approximately 6.5%, below the cumulative 10.2%. The strong progress may therefore reflect the conservative nature of the full-year outlook. The Company also revised its earnings and dividend forecasts during the quarter, which is considered to reflect changes in the business environment.

Shareholder Returns

The full-year dividend forecast is ¥10 per share, resulting in a back-end-loaded dividend structure when combined with the Q2 dividend payment of ¥0. The total annual dividend, based on 5.112 million shares outstanding, is approximately ¥0.5B, corresponding to a Payout Ratio of approximately 15.3% against the full-year Net Income forecast of ¥3.35B. As the returns consist solely of dividends and there is no information regarding share repurchases, the measure should be assessed as a Payout Ratio rather than a Total Return Ratio. Although the dividend burden relative to earnings is limited, the 28.0% year-on-year decline in cash and deposits warrants attention as an indicator of the Company’s cash resources serving as the effective source of dividends.

Risk Factors

1. Concentration of the business portfolio: Revenue in the Microbiology Business declined 18.8% year on year, and the business fell into a segment loss of ¥0.2B. The Cell Processing Business also saw its segment profit margin decline from 28.8% to 12.6%, further increasing earnings concentration in the Tissue Culture Business, which accounts for approximately 90% of segment profit.

2. Working capital and short-term liabilities: The short-term liability ratio was 85.1%, indicating that liability maturities are concentrated in the short term. Together with inventory days of 108 days, this presents a challenge in terms of funding efficiency. Cash and deposits of ¥22.7B exceed short-term borrowings of ¥15.0B, but have declined 28.0% year on year, resulting in high sensitivity to changes in refinancing conditions.

3. Fluctuations in non-operating income and expenses: Equity-method investment income declined 60.4% to ¥0.3B from ¥0.9B in the previous year, becoming a factor behind fluctuations in Ordinary Income. Although both non-operating income and expenses were ¥0.5B and relatively small in scale, movements in equity-method investment income are directly linked to Ordinary Income volatility.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Although the Company’s profitability metrics have declined from the previous year, both its Operating Income margin and Net Profit margin remain above the industry median.

Growth and Capital Efficiency

The Revenue growth rate was 6.7pt below the industry median, positioning the Company among those showing a pronounced decline in revenue within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Tissue Culture Business achieved both revenue growth (+13.5%) and an improvement in segment profit margin (34.7%→38.4%), becoming the earnings base generating approximately 90% of total segment profit. However, deteriorating profitability in both the Microbiology and Cell Processing Businesses is weighing on consolidated profitability.

2. The progress rate for profit against the full-year forecast was 83.5%, above the standard level. However, the full-year forecast assumes an Operating Income margin of approximately 6.5% in Q4, down from the cumulative 10.2%, and is based on an expected decline in profitability in the second half.

3. Financially, the Company has high safety levels, with an Equity Ratio of 66.0% and a current ratio of 186.0%. On the other hand, working-capital-related metrics, including a short-term liability ratio of 85.1% and inventory days of 108 days, are key monitoring points going forward alongside a recovery in profitability.

Theoretical Share Price (Reference Value)

Sensitivity: ¥981–¥1,038 at ±1% for the cost of equity, and ¥1,004–¥1,012 at ω±0.1.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference relative to 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 solely from publicly available 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 based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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