Alfresa Holdings Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.53T
• Operating Income: ¥16.21B
• Net Income: ¥11.62B
• EPS: ¥63.35

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

FY2026 Q2 was a solid top-line and operating profit quarter with clean cash generation, but net income underperformed due to a higher effective tax burden and slimmer net margin. Revenue rose 5.0% YoY to 15,297.6, while operating income grew 8.1% YoY to 162.1, indicating mild operating leverage. Gross profit reached 1,057.5 with a gross margin of 6.9%, broadly in line with an industry normally constrained by NHI price revisions and tight spreads. Operating margin improved to 1.06% from roughly 1.03% a year ago (about +3 bps), aided by scale benefits and disciplined SG&A. Ordinary income was 174.9 (+7.4% YoY), supported by non-operating income of 18.6 (dividends 10.6, interest 1.6), equivalent to about 16% of operating income. Despite these positives, net income fell 18.1% YoY to 115.2, pushing net margin down to approximately 0.75% from ~0.97% last year (about -22 bps). The effective tax rate was 35.0%, elevated versus a typical high-20s to low-30s range, and was the principal headwind to bottom-line growth this quarter. Cash quality was strong: operating cash flow of 305.6 was 2.65x net income, and interest coverage stood at a very healthy 93x. Liquidity is adequate with a current ratio of 121% and quick ratio of 103%, though below our >150% benchmark for comfort in distribution businesses. Balance sheet leverage screens high on a total-liabilities basis (D/E 2.07x), but interest-bearing debt appears modest (disclosed long-term loans 100) and the leverage largely reflects trade payables typical for wholesalers. ROIC is weak at 3.3%, below the 5% warning threshold, underscoring the need for further mix and efficiency improvements. Capex was 116.2, leaving estimated FCF of roughly 189.3 (OCF minus capex), comfortably positive for now. Dividend payout ratio is calculated at 104.6%, which looks unsustainably high if maintained, though net income volatility and timing effects may be distorting the interim picture. Looking ahead, the key swing factors will be tax normalization, continued operating margin discipline amid NHI price revisions, and working capital efficiency to sustain cash conversion. Overall, execution at the operating level is improving modestly, but structurally low margins and capital efficiency remain constraints on ROE and dividend headroom.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.4% = Net Profit Margin 0.8% × Asset Turnover 1.019 × Financial Leverage 3.07x. The largest change driver versus last year is the net profit margin, which compressed from ~0.97% to 0.75% (-22 bps) despite a slight operating margin expansion. Operating margin improved from 1.03% to 1.06% (+3 bps) as operating income grew faster than revenue (+8.1% vs +5.0%). The margin slippage at the net level is mainly attributable to a higher effective tax rate (35.0%) and limited help from non-operating income, not cost inflation within SG&A. Given the business model’s thin spread economics and regular NHI price revisions, sustained operating margin expansion is challenging; the tax-rate impact, however, appears more cyclical/one-time and could normalize. Asset turnover at ~1.02x is stable and typical for a distributor with large working capital; no major change expected near term. Financial leverage (3.07x) is high on a liabilities basis due to trade payables, not interest-bearing debt; this is structural to the model. Watch for any periods where SG&A growth exceeds revenue growth, as it would quickly erode already thin margins; this quarter, operating leverage was positive.

Growth Assessment

Top-line growth of 5.0% YoY reflects stable demand across ethical drugs and distribution channels; it is consistent with market growth and potential share gains. Operating income grew faster than sales (+8.1% YoY), indicating modest operating leverage likely from procurement scale and expense control. Non-operating income (18.6; dividends 10.6 and interest 1.6) provided incremental lift, but was not sufficient to offset the higher tax drag on net income. Net income declined 18.1% YoY primarily due to the higher effective tax rate (35.0%) and thinner net margin. Growth sustainability will hinge on maintaining gross spread amid NHI price revisions, defending logistics efficiency, and preventing SG&A creep. With ROIC at 3.3%, future growth should prioritize mix, productivity, and capital discipline over pure volume expansion to avoid value-dilution. Near-term outlook: low-single-digit sales growth appears achievable; net-profit trajectory depends on tax normalization and continued cost discipline.

Financial Health

Liquidity is adequate but not abundant: current ratio 121% (>1.0 but <1.5 benchmark) and quick ratio 103.4% indicate a narrow buffer. We do not flag a <1.0 current ratio warning. Solvency: headline D/E at 2.07x triggers a caution flag, but the structure is dominated by trade payables (accounts payable 9,003.5), with disclosed long-term loans at only 100 and interest expense of 1.74, suggesting low financial-debt risk. Interest coverage is very strong at 93.1x. Maturity mismatch: current assets 11,478.7 (cash 1,754.5, receivables 6,809.5, inventories 1,667.0) comfortably exceed current liabilities 9,487.6, and receivables + cash cover the majority of payables, implying manageable rollover risk. No off-balance-sheet obligations were reported in the provided data.

Cash Flow Quality

Earnings quality is strong this quarter: OCF/Net Income is 2.65x (>1.0 benchmark), indicating robust cash conversion. Working capital dynamics are not fully disclosed; however, the wholesaler model typically benefits from favorable DPO vs DSO. Estimated FCF is positive at ~189.3 (OCF 305.6 minus capex 116.2), supporting balance sheet flexibility. We do not observe signs of aggressive working-capital management from the disclosed snapshot, but lack of period-over-period component deltas limits a firmer conclusion. Cash coverage of interest is ample given minimal interest burden.

Dividend Sustainability

The calculated payout ratio is 104.6%, which appears stretched relative to our <60% benchmark. However, we lack reported DPS/total dividends and note that interim payout ratios can be distorted by tax-rate spikes and earnings seasonality. On cash terms, estimated FCF of ~189.3 is positive and would likely cover ordinary dividends under a normalized payout, but sustaining a >100% payout would be imprudent if earnings do not recover. Policy outlook: we expect management to aim for steady dividends, but near-term increases may require clearer visibility on net margin recovery and tax normalization.

Risk Assessment

Business Risks:

• NHI drug price revisions compress gross spreads and pressure margins.
• Logistics cost inflation (fuel, labor, distribution network upgrades) may outpace pricing power.
• Supply disruptions or generic drug shortages can raise inventory costs and service penalties.
• Customer concentration in large hospital chains and pharmacy groups increases pricing pressure.
• Inventory obsolescence risk for short-dated or specialty products.

Financial Risks:

• High reported D/E (2.07x) driven by payables; any tightening of supplier terms would raise liquidity needs.
• Low ROIC (3.3%) indicates weak capital efficiency and potential value dilution if growth is capex- or WC-heavy.
• Net income sensitivity to effective tax rate shifts, which impacted YoY comparatives.
• Reliance on thin margins means small cost variances can materially affect profit.

Key Concerns:

• Net margin compression (~-22 bps YoY) despite higher operating profit.
• Payout ratio calculated at 104.6% raises sustainability questions absent earnings recovery.
• Non-operating income (dividends/interest) accounts for ~16% of operating income, a modest but notable contributor.
• Liquidity buffer is adequate but below our comfort threshold (current ratio 121%).

Investment Implications

Key Takeaways:

• Operating performance improved modestly with margin discipline; cash conversion is strong.
• Net income decline is tax-driven; normalization of the tax rate is the key swing factor for EPS.
• Capital efficiency remains a structural issue (ROIC 3.3%); focus should be on mix, pricing, and WC turns.
• Balance sheet leverage is mostly trade-based, with low interest burden; refinancing risk appears limited.
• Dividend trajectory likely stable rather than expansive until net margins recover.

Metrics to Watch:

• Operating margin and gross spread progression each quarter.
• Effective tax rate vs historical range and guidance.
• Working capital efficiency (DSO, DPO, inventory days) and OCF/NI conversion.
• ROIC trend versus WACC; initiatives to lift returns.
• Payout ratio and alignment with FCF coverage.

Relative Positioning: Within Japanese pharmaceutical wholesalers, Alfresa shows typical thin operating margins with solid cash conversion and trade-payables-driven leverage. Its ROIC is on the low side versus best-in-class peers, and liquidity is adequate but not abundant; sustained improvements in margin discipline and WC management are required to close the gap.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis