| Metric | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue | ¥325.2B | ¥324.1B | +0.3% |
| Operating Income | ¥26.5B | ¥29.9B | -11.1% |
| Ordinary Income | ¥58.3B | ¥64.5B | -9.6% |
| Net Income | ¥45.3B | ¥48.6B | -6.8% |
| ROE | 10.4% | 12.1% | - |
For the fiscal year ended March 2026, Revenue was ¥325.2B (YoY +¥1.1B +0.3%), Operating Income was ¥26.5B (YoY -¥3.3B -11.1%), Ordinary Income was ¥58.3B (YoY -¥6.2B -9.6%), and Net Income attributable to owners of the parent was ¥45.7B (YoY -¥3.6B -7.3%). Revenue was essentially flat, but Operating Income declined due to a compression in gross margin in the core CRO Business and an expanded loss in the Translational Research Business. Meanwhile, non-operating income—centered on equity-method investment income of ¥27.8B—supported the ordinary income level, and Net Income maintained a double-digit ROE level.
[Revenue] Revenue of ¥325.2B (YoY +0.3%) reflected a slight decline in the core CRO Business to ¥312.0B (-1.0%) while the U.S. Real Estate Business expanded to ¥1.8B (+301.0%) and the Medipolis Business grew to ¥7.2B (+52.4%). By region, domestic revenue declined to ¥210.8B (-2.1%), while sales to the U.S. increased to ¥85.2B (+33.6%) and to Korea decreased to ¥15.9B (-60.4%). Capturing North American demand progressed, but a decline in Korean projects and weak domestic project activity were the main causes of stagnating revenue.
[Profitability] Cost of sales was ¥162.9B (cost of sales ratio 50.1%), up ¥8.3B YoY, and gross margin deteriorated by 2.4 percentage points to 49.9%. SG&A was ¥135.8B (SG&A ratio 41.8%), down ¥3.9B YoY, but an increase in R&D expenses to ¥24.0B (YoY +8.3%) weighed on results, leading Operating Income to decline 11.1% to ¥26.5B (Operating margin 8.2%). Non-operating income totaled ¥34.8B, led by equity-method investment income of ¥27.8B (YoY -¥7.3B), interest income of ¥2.4B, and foreign exchange gains of ¥1.5B. Ordinary Income was ¥58.3B (Ordinary income margin 17.9%). Pre-tax profit was ¥62.5B, and after recording corporate taxes of ¥17.1B, Net Income was ¥45.7B (Net margin 14.0%). Special income included subsidies of ¥8.0B, while a loss on disposal of fixed assets of ¥4.5B was recorded. In summary: slight revenue increase but declines in Operating Income, Ordinary Income, and Net Income.
The CRO Business recorded Revenue of ¥312.0B (-1.0%) and Segment Profit of ¥69.1B (-4.8%), maintaining a high margin of 22.1%. The Translational Research Business recorded Revenue of ¥1.1B (+94.9%) and a Segment Loss of -¥40.3B (prior year -¥36.8B), with losses widening and upfront investment burdens significantly pressuring consolidated operating profit. The Medipolis Business posted Revenue of ¥7.2B (+52.4%) and a Segment Loss of -¥0.7B (prior year -¥4.2B), showing improved results. The U.S. Real Estate Business recorded Revenue of ¥1.8B (+301.0%) and a Segment Loss of -¥0.01B, reaching near breakeven. Other construction-related businesses recorded Revenue of ¥3.1B and Segment Profit of ¥0.1B. After adjusting corporate expenses of -¥1.7B, consolidated Operating Income was ¥26.5B.
[Profitability] Operating margin 8.2% (prior year 9.2%) worsened by -1.0pt, primarily due to a decline in gross margin to 49.9% and the expanded loss in the Translational Research Business. Net margin 14.0% (prior year 15.1%) declined -1.1pt but remained in double digits supported by equity-method investment income of ¥27.8B. ROE fell to 10.4% (prior year 13.3%) with total asset turnover at 0.31x and financial leverage at 2.42x. [Cash Quality] Operating Cash Flow (OCF) was ¥83.3B, 1.82x Net Income of ¥45.7B, and OCF/Revenue ratio was a high 25.6%. An increase in advances received of ¥37.6B boosted working capital while increases in inventories of ¥24.1B and accounts receivable of ¥6.0B tied up cash. [Capital Efficiency] Total asset turnover declined to 0.31x (prior year 0.35x), and the inventory balance of ¥151.1B is pressuring capital efficiency. [Financial Soundness] Equity Ratio was 41.4% (prior year 43.3%), and interest-bearing debt totaled ¥407.9B (short-term borrowings ¥196.7B + long-term borrowings ¥211.2B), with a D/E ratio of 1.06x. Interest coverage based on Operating Income is 9.05x, indicating interest burden is within an acceptable range. Current ratio is 109.3% and quick ratio 70.9%, securing minimum short-term liquidity but the large short-term borrowings raise refinancing sensitivity.
OCF was ¥83.3B (YoY +18.4%), and pre-working-capital-change OCF was ¥82.6B; increases in advances received of ¥37.6B contributed positively, while increases in inventories of ¥24.1B, accounts receivable of ¥6.0B, and a decrease in trade payables of ¥0.6B constrained cash. Investing Cash Flow was -¥67.9B, led by capital expenditures of -¥51.7B as the company continued to strengthen tangible and intangible fixed assets. Financing Cash Flow was ¥45.1B, with long-term borrowings of ¥100.0B raised, long-term borrowings repayments of -¥94.6B, net increase in short-term borrowings of ¥62.0B, and dividend payments of -¥20.8B. Free Cash Flow was positive at ¥15.4B (OCF ¥83.3B + Investing CF -¥67.9B), but insufficient to cover total capex and dividends of ¥72.5B, so the company relied on external financing. Cash and deposits increased to ¥185.4B (YoY +¥65.0B), adopting a liquidity strategy that increased short-term borrowings while securing on-hand liquidity.
Recurring earnings are centered on CRO Business operating profit of ¥69.1B and equity-method investment income of ¥27.8B. Equity-method investment income accounted for 79.8% of non-operating income and represented 47.7% of Ordinary Income, meaning investee performance volatility is a primary driver of earnings volatility. One-off items included special income of ¥8.8B (¥8.0B of which is subsidies), with limited reproducibility. OCF of ¥83.3B exceeds Net Income of ¥45.7B by 1.82x, indicating good cash backing of profits. The accrual ratio is -3.6%, negative, indicating a small divergence between profit and cash and a generally healthy quality of earnings. The gap between Ordinary Income of ¥58.3B and Net Income of ¥45.7B is mainly explained by corporate taxes of ¥17.1B, and the impact of special losses of ¥4.6B (including loss on disposal of fixed assets of ¥4.5B) is limited.
Full-year guidance for the fiscal year ending March 2027 calls for Revenue ¥380.0B (YoY +16.8%), Operating Income ¥30.0B (YoY +13.0%), Ordinary Income ¥60.0B (YoY +2.9%), and Net Income ¥35.0B (YoY -23.4%). The plan assumes Revenue expands from first-half ¥325.2B to full-year ¥380.0B, implying a second-half add-on of ¥54.8B. Operating Income is projected to increase from first-half ¥26.5B to full-year ¥30.0B (+13.0%), assuming improved utilization in the CRO Business and reduced losses in the Translational Research Business. The planned decline in Net Income reflects a conservative view of non-operating and special income such as equity-method investment income of ¥27.8B and subsidies of ¥8.0B that contributed in the first half. Progress against first-half results is 85.6% for Revenue, 88.3% for Operating Income, and 97.2% for Ordinary Income, indicating relatively low hurdles to achieve full-year targets.
Annual dividend is ¥50 (interim ¥20, year-end ¥30), with a Payout Ratio of 45.6% (dividend ¥50 vs. basic EPS ¥109.69). Dividends total ¥20.8B against Free Cash Flow of ¥15.4B, implying dividend coverage by FCF of 0.74x, below 1x, and part of the dividend funding depended on external financing. Buybacks were effectively none (cash flow statement shows -¥0.0B), and Total Return Ratio equals the payout ratio at 45.6%. If CRO utilization improves and inventories and receivables are compressed shortening CCC, FCF expansion would increase dividend sustainability.
Risk of continued losses in the Translational Research Business: The segment recorded a loss of -¥40.3B this period (prior year -¥36.8B), expanding losses that amount to 152% of consolidated Operating Income of ¥26.5B and heavily pressuring profitability. Heavy upfront R&D investment of ¥24.0B means that if partnership/licensing revenue is not secured or pipeline progress is delayed, losses could persist and impair financial flexibility.
Risk of deteriorating working-capital efficiency and cash squeeze: Inventories rose to ¥151.1B (YoY +¥24.1B) and accounts receivable increased to ¥73.0B (YoY +¥6.6B), expanding working capital. While ample advances received of ¥147.1B support short-term liquidity, prolonged lengthening of inventory days (DIO) and deterioration of the cash conversion cycle (CCC) would reduce free cash generation and increase dependence on external financing.
High leverage and short-term debt concentration risk: Interest-bearing debt is ¥407.9B (short-term borrowings ¥196.7B + long-term borrowings ¥211.2B), with Debt/EBITDA 6.83x and D/E ratio 1.06x, high levels. Short-term borrowings increased significantly YoY by ¥78.9B, and with cash of ¥185.4B versus short-term liabilities of ¥393.3B, the current ratio remains at 109.3%. In a rising-rate environment or if refinancing terms worsen, refinancing costs could increase and financing constraints may emerge.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 8.2% | 8.1% (3.6%–16.0%) | +0.1pt |
| Net Margin | 13.9% | 5.8% (1.2%–11.6%) | +8.1pt |
Operating margin is in line with the industry median, while Net margin exceeds the industry median by +8.1pt due to the contribution of equity-method investment income.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 0.3% | 10.1% (1.7%–20.2%) | -9.8pt |
Revenue growth rate lags the industry median by -9.8pt, indicating weaker growth relative to peers.
※ Source: Company compilation
The feasibility of next-year profit growth hinges on maintaining high profitability in the core CRO Business and successfully reducing losses in the Translational Research Business. The CRO segment margin of 22.1% remains high, and expansion of North American sales is a growth driver. Conversely, the Translational Research Business loss of -¥40.3B is weighing on consolidated operating profit; choices in resource allocation, use of external capital, and early capture of partnership/licensing revenue are key issues.
Despite strong cash generation with OCF of ¥83.3B, working capital has expanded due to inventories of ¥151.1B and accounts receivable of ¥73.0B, and Free Cash Flow of ¥15.4B cannot cover capex of ¥51.7B plus dividends of ¥20.8B. Inventory and receivable compression to shorten CCC is critical to improve capital efficiency and expand FCF. High leverage (Debt/EBITDA 6.83x) and concentration of short-term borrowings of ¥196.7B increase refinancing sensitivity; improving the maturity mix and reducing interest-bearing debt are essential to strengthen financial flexibility.
This report is an AI-generated financial analysis document produced by analyzing XBRL earnings release data. It is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company based on publicly available financial statements. Investment decisions are your responsibility; please consult a professional advisor as needed.