| Metric | This Period | Prior Year Same Period | YoY |
|---|---|---|---|
| Revenue | ¥1184.7B | ¥1047.2B | +13.1% |
| Operating Income | - | - | - |
| Profit Before Tax | ¥139.2B | ¥78.6B | +77.2% |
| Net Income | ¥120.3B | ¥61.7B | +95.1% |
| ROE | 1.3% | 0.7% | - |
2026 Q1 results: Revenue ¥1,184.7B (¥1,047.2B prior year, +¥137.5B +13.1%), Operating Income ¥471.8B (¥397.8B prior year, +¥74.0B +18.6%), Ordinary Income ¥438.4B (¥80.0B prior year, +¥358.4B +448.0%), Profit Before Tax ¥139.2B (¥78.6B prior year, +¥60.6B +77.2%), Net Income ¥120.3B (¥61.7B prior year, +¥58.6B +95.1%). Revenue delivered double-digit growth. High gross margin of 74.5% and efficient SG&A ratio of 34.7% expanded the operating margin to 39.8% (up 1.8pt from 38.0% prior year). Non-operating items included financial income ¥56.8B and equity-method gains ¥10.0B, while other expenses ¥81.0B and impairment losses ¥49.5B compressed Profit Before Tax to ¥139.2B, producing a ¥332.6B reduction from Operating Income at the pre-tax stage. A low effective tax rate of 13.6% and non-operating income boosted Net Income, resulting in roughly a two-fold YoY increase. Operating Cash Flow (OCF) was ¥563.3B (¥74.1B prior year, +660.6%), with trade receivables collection ¥592.1B and inventory reduction ¥22.8B contributing to cash conversion. Free Cash Flow (FCF) was ¥477.1B, maintaining ample liquidity.
[Revenue] Revenue ¥1,184.7B, +13.1% YoY. Cost of sales increased to ¥302.2B (¥245.9B prior year, +22.9%), but revenue expansion outpaced this, yielding gross profit ¥882.5B (¥801.4B prior year, +10.1%). Gross margin was 74.5% (down 2.0pt from 76.5%) but remained high. As a single-segment company (Pharmaceuticals Business), product- and region-level details are not disclosed, but drivers likely include volume growth in specialty product lines and foreign exchange translation effects (foreign operations translation difference +¥37.9B). The rise in cost of sales ratio (25.5% vs 23.5% prior year) may reflect product mix changes or increased manufacturing costs.
[Profitability] SG&A was ¥410.7B (¥403.6B prior year, +1.8%), a modest increase, leading to an SG&A ratio of 34.7% (improved 3.8pt from 38.5%), demonstrating strong operating leverage. R&D expense decreased to ¥271.6B (¥285.6B prior year, -4.9%), lowering R&D-to-sales to 22.9% (27.3% prior year) and temporarily boosting Operating Income. Increased amortization of intangible assets ¥27.8B (¥16.9B prior year) raised costs, but overall Operating Income ¥471.8B (Operating margin 39.8%) rose 18.6% from ¥397.8B. Non-operating items improved significantly with financial income ¥56.8B (¥5.7B prior year) and equity-method investment gains ¥10.0B (¥-9.1B prior year), while financial expenses ¥22.7B (¥1.4B prior year) and other expenses ¥81.0B (¥15.9B prior year) pressured Profit Before Tax. Impairment losses ¥49.5B were recorded and are viewed as temporary. Against Profit Before Tax ¥139.2B, corporate income tax expense was ¥18.9B (effective tax rate 13.6%), resulting in Net Income ¥120.3B, +95.1% YoY. The gap between Ordinary Income and Net Income was small due to light tax burden. In conclusion, a strong quarter of higher revenue and profit.
[Profitability] Gross margin 74.5% reflects a high-value-added product focus; Operating margin 39.8% ranks among the top in the pharmaceutical industry. Net margin 10.2% was compressed from the operating stage due to volatility in non-operating items but improved from 5.9% prior year. ROE 1.3% (annualized approx. 5.2%) is restrained by a very low leverage structure with Equity Ratio 83.7%; improving profit generation against shareholders’ equity ¥8,927.4B is a challenge. ROIC is about 4.6% (Operating Income ¥471.8B ÷ Invested Capital (Total Assets - Non-interest-bearing Liabilities), estimated ~¥1.0T), remaining low.
[Cash Quality] OCF ¥563.3B equals 4.68x Net Income ¥120.3B, indicating very high cash conversion. The accrual ratio (Net Income - OCF) ÷ Total Assets is -4.2%, indicating cash-driven earnings.
[Investment Efficiency] Total asset turnover 0.111 (annualized ~0.44x) is within the pharma industry range but not high. Goodwill ¥1,802.9B and intangible assets ¥1,968.0B monetization are key to medium-term asset efficiency improvement. Capital expenditure ¥122.8B and intangible asset additions ¥17.1B were fully covered by OCF, producing FCF ¥477.1B.
[Financial Health] Equity Ratio 83.7%, debt-to-equity ratio 0.20x, current ratio 318% indicate an extremely sound financial position; interest-bearing debt is limited within disclosed scope. Cash and cash equivalents ¥2,495.2B greatly exceed current liabilities ¥1,446.4B, implying net cash of about ¥2,200B. DSO is approximately 91.9 days (Trade receivables ¥1,208.97B ÷ (Revenue ¥1,184.7B ÷ 90 days)), significantly shortened from ~155.7 days (¥181.2B ÷ (¥1,047.2B ÷ 90 days) prior year), improving the collection cycle.
OCF was ¥563.3B (¥74.1B prior year, +660.6%). Against Profit Before Tax ¥139.2B, depreciation and amortization ¥76.5B and impairment losses ¥49.5B supplemented profit as non-cash items. Working capital drivers included large trade receivables collection (decrease in operating receivables +¥592.1B) as the primary cash source and inventory reduction +¥22.8B. Partially offsetting were increase in operating payables +¥46.3B, decrease in contract liabilities -¥99.8B, and other working capital outflows -¥192.4B. Corporate tax paid ¥56.0B shifted to an outflow from prior year refund -¥5.6B, but overall cash generation remained very strong. Investing Cash Flow was -¥86.2B: capex ¥122.8B and intangible acquisitions ¥17.1B (~¥140B total) were partly offset by proceeds from subsidiary share sales ¥53.6B and sale of investment securities ¥0.2B. FCF was ¥477.1B (OCF ¥563.3B - Investing CF ¥86.2B), comfortably covering dividend payments ¥167.5B and increasing Cash and Cash Equivalents from ¥218.8B at prior period-end to ¥249.5B (+¥307.5B). Foreign exchange translation effect +¥9.4B also supported liquidity. Financing CF was -¥178.9B, driven mainly by dividend payments; share buybacks were ¥0.03B (negligible), and lease repayments ¥11.4B. Accrual ratio -4.2% indicates cash-driven earnings and high earnings quality. Given the seasonality and elimination of prior-period receivable backlogs, monitoring sustainability is necessary, but underlying cash conversion is very healthy.
Net Income ¥120.3B vs Operating Income ¥471.8B to Profit Before Tax ¥139.2B shows a ¥332.6B reduction, indicating volatility in non-operating items affecting earnings quality. Financial income ¥56.8B rose sharply from ¥5.7B prior year and may reflect temporary market or FX tailwinds, limiting its recurring nature. Financial expenses ¥22.7B, other expenses ¥81.0B (¥15.9B prior year), and impairment losses ¥49.5B are likely one-off in nature and compressed pre-tax profit. Effective tax rate 13.6% is low, likely aided by utilization of deferred tax assets and regional mix, but normalization over the full year is expected. OCF ¥563.3B is 4.68x Net Income, and accrual ratio -4.2% supports cash-driven earnings. Large trade receivables collection +¥592.1B may include one-off elements, but core business Operating margin 39.8% and high gross margin 74.5% corroborate the business model’s profitability. Comprehensive Income ¥160.9B exceeded Net Income ¥120.3B due to foreign operations translation difference +¥37.9B, equity-method adjustments +¥2.4B, and financial asset valuation +¥0.3B recorded in OCI. Overall, core business earnings power is strong, but stabilizing non-operating items is key to improving earnings quality.
Full-year forecast: Revenue ¥5,200.0B, Net Income ¥750.0B (YoY +11.9%), EPS ¥143.27, Dividend ¥35. Q1 progress rates: Revenue 22.8% (¥1,184.7B ÷ ¥5,200.0B), Net Income 16.0% (¥120.3B ÷ ¥750.0B); Net Income is behind the standard 25% progress. The significant deterioration in non-operating items in Q1 (Other expenses ¥81.0B, impairment ¥49.5B) substantially compressed Profit Before Tax; normalization of non-operating items in H2, acceleration of pipeline launches, and reallocation of R&D spending are prerequisites for catching up. If Operating margin 39.8% is maintained, full-year Operating Income is expected around ¥2,070B, but it is uncertain if Q1 levels will persist throughout the year. Scenarios assume FX, product mix, and regional seasonality with H2 weighting; progress from Q2 onward is the focal point. Management revised forecasts this quarter but left the dividend forecast unchanged, indicating policy stability.
Dividend payments were ¥167.5B; relative to full-year DPS forecast ¥35, approximately ¥30 worth was paid by Q1. Based on shares outstanding 525.63M shares minus treasury shares 2.15M, the mid-period average shares outstanding are 523.49M; full-year dividend total is estimated at about ¥183.2B, implying a Payout Ratio of about 24% against FY Net Income plan ¥750.0B, a conservative level. FCF ¥477.1B far exceeds dividend payments ¥167.5B, indicating high dividend sustainability. Cash and cash equivalents ¥2,495.2B and a strong balance sheet support stable dividends. Share buybacks were ¥0.03B (negligible), indicating a dividend-focused shareholder return policy. The raise from prior-period DPS ¥30 to current ¥35 demonstrates continued consecutive dividend increases. Total Return Ratio is about 24% based solely on dividends, reflecting a strategy to allocate surplus funds to growth investments and liquidity.
Volatility of non-operating items: This quarter Other expenses ¥81.0B and impairment losses ¥49.5B compressed Operating Income ¥471.8B to Profit Before Tax ¥139.2B, highlighting instability at the non-operating stage. EBT/EBIT ratio 0.295 is well below industry average; although affected by one-off items, future valuation losses or impairments may recur. Sustainability of financial income ¥56.8B is uncertain and can fluctuate with FX and market conditions.
Goodwill and intangible asset impairment risk: Goodwill ¥1,802.9B (20.2% of equity) and intangible assets ¥1,968.0B (18.4% of total assets) are recorded, and this quarter included impairment losses ¥49.5B. Development delays in the pipeline, weak market penetration, or valuation deterioration of foreign subsidiaries due to FX could trigger additional impairments. With ROIC 4.6% at a low level, if earn-out of M&A-related assets does not progress, capital efficiency deterioration and impairment risk may coexist.
Working capital volatility risk: Trade receivables collection +¥592.1B substantially boosted OCF this quarter but may reflect resolution of prior-period collection delays or seasonality. Decrease in contract liabilities -¥99.8B suggests drawdown of deferred revenue; future order and contract trends could worsen working capital and cash flow. Inventory remained at a substantial level ¥652.5B despite a slight decrease; inventory valuation and obsolescence risk require ongoing monitoring.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Net Margin | 10.2% | – | – |
Net margin 10.2% lacks industry median data for relative assessment, but given Operating margin 39.8% is high, it appears non-operating volatility compresses margin at the Net Income stage.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 13.1% | – | – |
Revenue growth +13.1% is likely high within the domestic pharmaceutical sector, driven by expansion of specialty product lines and regional rollout.
※ Source: Company compilation
High core profitability and strong cash generation: Gross margin 74.5% and Operating margin 39.8% place the company among the top in pharmaceuticals. OCF ¥563.3B is 4.68x Net Income, demonstrating extremely high cash conversion. FCF ¥477.1B covers dividends, and Equity Ratio 83.7% underpins solid financial health. Acceleration of receivables collection and inventory compression improved working capital management, confirming strong underlying cash generation.
Volatility in non-operating items and instability in pre-tax profit: Operating Income ¥471.8B reduced to Profit Before Tax ¥139.2B (¥332.6B decline), with Other expenses ¥81.0B and impairment losses ¥49.5B as drivers. Financial income ¥56.8B increase may be temporary due to market/FX and has limited persistence. Full-year Net Income progress 16% is behind schedule; normalization of non-operating items and H2 weighting are required. ROIC 4.6% is low; monetization of goodwill/intangibles and commercialization of the pipeline are key to mid-term invested capital efficiency improvement.
This report is an AI-generated earnings analysis based on XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by our firm based on public financial statements. Investment decisions are your responsibility; please consult a professional advisor as needed.