Quick View
| 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% | - |
Executive Summary
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.
Factors Driving Performance
[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.
Segment Analysis
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.
Key Financial Metrics
[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.
Cash Flow Analysis
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.
Quality of Earnings
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.
Forecasts & Guidance
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.
Shareholder Returns
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 Factors
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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.
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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.
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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.
Industry Benchmark (Reference, Company Compilation)
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
Financial Report Highlights
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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.
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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.