Hokuyaku-Takeyama Holdings Co., Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥148.46B
• Operating Income: ¥910M
• Net Income: ¥1.14B
• EPS: ¥54.44

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 mixed quarter: topline growth continued but operating profitability compressed, with bottom line supported by sizable non-operating and below-ordinary gains. Revenue rose 5.1% YoY to 1,484.62, indicating steady demand in the core wholesale/healthcare distribution businesses. Gross profit reached 103.77, implying a gross margin of 7.0%. SG&A rose to 94.67, taking the SG&A ratio to 6.37% of sales, which tightened operating leverage. Operating income fell 15.6% YoY to 9.10, with operating margin at 0.61% (down roughly 15 bps YoY from about 0.76%). Ordinary income declined 7.1% YoY to 13.04, cushioned by net non-operating gains of 3.95 (non-op income 4.80 less non-op expenses 0.85). Net income, however, increased 29.4% YoY to 11.44, supported by items below operating profit, as profit before tax was 18.17 (implying roughly 5.13 in extraordinary or other gains not detailed). EBITDA was 14.86, for a slim EBITDA margin of about 1.0%, highlighting the structurally low-margin nature of the business. Cash generation was strong: operating cash flow (OCF) was 47.50, equating to OCF/NI of 4.15x, signaling high earnings quality this period. Liquidity is adequate but not abundant, with a current ratio of 123.4% and a quick ratio of 100.5%. The balance sheet shows minimal interest-bearing debt disclosure (long-term loans 0.10), with liabilities largely trade-related (accounts payable 828.47), translating to a total liabilities-to-equity ratio of roughly 1.49x. Capital efficiency remains weak, with DuPont ROE at 1.8% (Net Margin 0.8% × Asset Turnover 0.943 × Leverage 2.49x) and ROIC at 1.4%, both below typical mid-term targets for value creation. Working capital intensity remains high, with receivables of 616.26 and inventories of 207.88, consistent with the distribution model. Dividend sustainability looks reasonable with a calculated payout ratio of 42.7% and ample OCF to cover capex of 12.99; however, full dividend cash data were unreported. Forward-looking, the compression in operating margin and reliance on non-operating/one-time items to lift net profit suggest underlying margin pressure that needs monitoring. Risk factors include ongoing NHI drug price revisions, competitive pricing in medical distribution, and potential reversals in non-operating gains. Overall, while cash flow execution was strong, sustainable improvement hinges on stabilizing gross-to-SG&A spread and improving ROIC.

Profitability Analysis

ROE (1.8%) decomposition: Net Profit Margin 0.8% × Asset Turnover 0.943 × Financial Leverage 2.49x. The component that changed most versus last year is Net Profit Margin at the operating level (operating margin down from ~0.76% to 0.61%), while revenue grew 5.1%, implying negative operating leverage. The business reason is SG&A growth outpacing gross profit expansion: with gross margin at ~7.0%, incremental SG&A (notably personnel costs at 40.61 and other fixed costs) compressed operating profit despite higher sales. Non-operating support (dividend and other income) and likely extraordinary gains lifted profit before tax and net profit, masking the weaker operating core. Sustainability: the operating margin compression is a concern given industry pricing pressure; non-operating and extraordinary items are less recurring and thus less reliable for sustained ROE improvement. Concerning trends: SG&A growth appears to have exceeded operating profit growth (OI down 15.6% despite +5.1% sales), indicating adverse operating leverage; ROIC at 1.4% is below cost of capital benchmarks, signaling inefficient capital deployment.

Growth Assessment

Revenue growth of 5.1% YoY to 1,484.62 is solid for a medical distribution model, likely volume-driven with modest price contribution. However, profit quality at the operating level deteriorated: operating income -15.6% YoY to 9.10 and ordinary income -7.1% to 13.04 underscore cost pressure. Net income +29.4% to 11.44 was boosted by non-operating and below-ordinary items (PBT 18.17 vs OI 9.10), which are unlikely to repeat at the same magnitude. EBITDA margin remains thin at ~1.0%, leaving limited buffer against shocks. Outlook depends on managing SG&A inflation (notably salaries) and preserving gross margin amid procurement and selling price pressure. With strong OCF this half, working capital execution contributed to growth in cash, but revenue sustainability hinges on stable demand from hospitals/clinics and timely collection of receivables.

Financial Health

Liquidity is adequate: current ratio 123.4% and quick ratio 100.5% (no warning threshold breaches). No explicit short-term loans disclosed; current liabilities are dominated by trade payables (828.47), posing a maturity mismatch risk if receivables (616.26) slow, though cash and deposits of 213.83 help bridge. Solvency appears manageable with total liabilities/equity at ~1.49x; interest-bearing debt disclosure is minimal (long-term loans 0.10), indicating low financial leverage in substance. No explicit off-balance sheet obligations were reported in the data provided. Working capital is sizeable (212.25), consistent with the distribution model but ties up capital and depresses ROIC.

Cash Flow Quality

OCF was 47.50 versus net income of 11.44, yielding OCF/NI of 4.15x—well above the 0.8 threshold and indicative of high earnings quality this period. Free cash flow appears positive on an OCF-minus-capex basis (approx. 34.51), suggesting headroom to fund dividends and routine investments, though total investing CF beyond capex was unreported. The strong OCF likely reflects favorable working capital timing (payables vs receivables/inventory), which may not repeat each quarter; monitor for potential reversal. No clear signs of working capital manipulation emerge from the limited data, but reliance on trade payables remains high.

Dividend Sustainability

The calculated payout ratio is 42.7%, within a conservative range (<60%). While total dividends paid were unreported, OCF comfortably covers capex of 12.99, implying implied FCF coverage for dividends is solid this period. With ROE at 1.8% and ROIC at 1.4%, capital return policies should balance shareholder returns with the need to improve capital efficiency. Absent explicit DPS guidance, we assume a stable-to-cautious dividend stance supported by cash generation but contingent on sustaining OCF.

Risk Assessment

Business Risks:

• NHI drug price revisions and persistent pricing pressure in pharmaceutical distribution compressing gross margins
• Rising personnel and logistics costs driving SG&A growth faster than gross profit
• Inventory obsolescence and shrink risk given healthcare product mix and shelf-life constraints
• Customer concentration and hospital purchasing dynamics potentially pressuring terms

Financial Risks:

• High dependence on trade payables (828.47) vs receivables (616.26) may strain liquidity if collections slow
• Low ROIC (1.4%) indicating limited cushion against cost of capital and execution risk
• Earnings reliance on non-operating and below-ordinary gains this period that may not recur

Key Concerns:

• Operating margin compression (~15 bps YoY) despite 5.1% sales growth
• Thin EBITDA margin (~1.0%) leaving limited shock absorption
• Potential reversal of favorable working capital that boosted OCF

Investment Implications

Key Takeaways:

• Topline growth (+5.1% YoY) but weaker operating profitability (OI -15.6% YoY)
• Net profit strength (+29.4% YoY) driven by non-operating/extraordinary items, not core operations
• Cash generation strong (OCF 47.50; OCF/NI 4.15x), supporting capex and dividends
• Capital efficiency remains weak: ROE 1.8%, ROIC 1.4%, pressured by working capital intensity
• Balance sheet risk moderate with low disclosed interest-bearing debt; liquidity adequate but tight vs benchmark

Metrics to Watch:

• Operating margin trajectory and SG&A ratio vs gross margin
• Working capital turns: receivables days, inventory days, and payables days
• Non-operating and extraordinary income contributions to PBT
• ROIC progression toward >5% medium-term
• Cash conversion (OCF/NI) sustainability and FCF after capex

Relative Positioning: Within Japan’s pharmaceutical and medical distribution space, the company exhibits typical low margins but below-peer capital efficiency (ROIC 1.4%) and heightened reliance on non-operating support this half; liquidity is serviceable, and strong OCF provides near-term resilience, but sustained rerating requires structural improvement in operating margin and capital turnover.

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