Kyowa Kirin Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

The current period results showed increases in both revenue and profit, with particularly strong growth in net income. Revenue was ¥2,636.3B (¥2,306.5B in the previous year, YoY +14.3%), profit before tax was ¥374.6B (¥219.8B, YoY +70.5%), and net income was ¥306.2B (¥163.2B, YoY +87.6%). The fact that net income growth exceeded profit-before-tax growth was attributable to the decline in the effective tax rate from 25.7% to 18.3%. The gross profit margin improved to 74.8% (73.2% in the previous year), while the SG&A ratio improved to 32.2% (34.5%), indicating that expenses remained restrained relative to top-line growth.

Factors Affecting Performance

【Revenue】Revenue was ¥2,636.3B, representing a YoY increase of +14.3%. As segment-level details are not included in the disclosed data, the analysis is limited to a company-wide basis.

【Profit and Loss】Gross profit was ¥1,972.8B (gross profit margin of 74.8%, +1.6pt from 73.2% in the previous year), SG&A expenses were ¥848.1B (SG&A ratio of 32.2%, improved from 34.5% in the previous year), and R&D expenses were ¥463.2B (an absolute decrease of -11.8% from ¥525.0B in the previous year; 17.6% of revenue versus 22.8% in the previous year), indicating that expenses were relatively restrained amid revenue growth. Other expenses increased significantly to ¥291.4B (¥128.8B in the previous year, +126.4%), which restrained the growth rate of profit before tax. Meanwhile, net financial income turned positive at +¥49.9B (net -¥7.3B in the previous year), as financial income of ¥67.3B exceeded financial expenses of ¥17.4B. Profit before tax was ¥374.6B (+70.5%), income taxes were ¥68.5B, and the effective tax rate declined to 18.3% (25.7% in the previous year), resulting in net income of ¥306.2B (+87.6%). Improvements in the gross profit margin and SG&A ratio, combined with the decline in the effective tax rate, resulted in higher revenue and profit.

Key Financial Indicators

【Profitability】The gross profit margin was 74.8% (73.2% in the previous year), the SG&A ratio was 32.2% (34.5%), and the R&D expense ratio was 17.6% (22.8%; absolute amount down -11.8% YoY), all indicating improvement. The net profit margin was 11.6%, improving by 4.5pt from 7.1% in the previous year, supported by greater efficiency in the expense structure and a lower tax burden.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥813.3B, reaching 2.66 times net income of ¥306.2B, indicating a favorable level of earnings cash conversion.【Investment Efficiency】ROE was 3.3% (3.34% based on period-end equity, equivalent to 1.83% in the previous year), improving from the previous year; however, as this is a six-month result, the annualized figure may differ.【Financial Soundness】The equity ratio was 81.0% (80.6% in the previous year), maintaining a nearly unchanged high level, while cash and deposits accumulated to ¥2,650.8B. Interest-bearing financial liabilities totaled ¥272.1B on a combined current and non-current basis, a limited amount, indicating a conservative capital structure.

Cash Flow Analysis

Operating Cash Flow was ¥813.3B, a substantial YoY increase of +104.2% from ¥398.4B in the previous year, reaching 2.66 times net income of ¥306.2B. Contributing factors included a ¥329.6B decrease in trade receivables, a ¥34.4B decrease in inventories, a ¥33.2B increase in trade payables, and a ¥103.5B increase in provisions, partly offset by a ¥100.2B decrease in contract liabilities. Payments of income taxes increased to ¥54.1B (¥4.8B in the previous year), but the greater improvement in working capital boosted OCF. Investing Cash Flow was -¥175.6B (-¥347.4B in the previous year), primarily comprising capital expenditures of ¥185.5B and acquisitions of intangible assets of ¥35.3B (down from ¥101.2B in the previous year). Financing Cash Flow was -¥187.6B (-¥172.2B in the previous year), mainly due to dividend payments of ¥167.5B, while share repurchases were negligible at ¥0.1B. As a result, free cash flow was ¥637.8B, a level more than sufficient to cover dividends and capital expenditures. Cash and cash equivalents increased to ¥2,650.8B at period-end (¥2,187.7B in the previous year), providing substantial financial flexibility.

Earnings Quality

The improvement in profitability during the current period reflects a combination of recurring factors, namely improvements in the gross profit margin and SG&A ratio, and a factor with a non-recurring element, namely the decline in the effective tax rate. The effective tax rate declined from 25.7% to 18.3%, resulting in net income growth (+87.6%) exceeding profit-before-tax growth (+70.5%). Whether this decline in the tax rate is sustainable or attributable to temporary factors will be an area of focus when evaluating the sustainability of net income growth. In addition, other expenses expanded to ¥291.4B (¥128.8B in the previous year), restraining profit-before-tax growth, and their composition and nature require further assessment. Comprehensive income was ¥394.3B, exceeding net income of ¥306.2B by ¥88.2B, reversing the relationship seen in the previous year, when comprehensive income of ¥62.3B was below net income of ¥163.2B. This difference was primarily attributable to an improvement in foreign currency translation adjustments (from -¥95.2B in the previous year to +¥84.6B in the current period), indicating that the yen translation of overseas assets and liabilities contributed positively. The fact that OCF reached 2.66 times net income suggests that current-period earnings were of high quality and accompanied by cash generation.

Earnings Forecast and Guidance

Progress against the full-year outlook was 50.7% for revenue of ¥2,636.3B against the forecast of ¥5,200.0B, and 40.8% for net income of ¥306.2B against the forecast of ¥750.0B. While revenue was broadly in line with the standard first-half progress level of 50%, net income was somewhat behind schedule, making profit accumulation in the second half a prerequisite for achieving the plan. Whether the lag in net income progress will be eliminated depends on trends in the full-year effective tax rate and non-operating expenses. In the current results, both the earnings forecast and dividend forecast were reported as “No” revisions.

Shareholder Returns

An interim dividend of ¥35 per share was paid. The full-year dividend forecast is ¥70, and the full-year forecast EPS is ¥143.27, implying a payout ratio of 48.9%. Share repurchases were negligible at ¥0.1B, and shareholder returns during the current period were centered on dividends. Dividend payments of ¥167.5B were well below free cash flow of ¥637.8B, indicating that the current dividend level is within the range supported by cash flow.

Risk Factors

1. Increase in non-operating expenses: Other expenses increased to ¥291.4B, up +126.4% from ¥128.8B in the previous year, and restrained profit-before-tax growth (+70.5%) relative to net income growth (+87.6%). The future appearance of profit margins will depend on whether these expenses are temporary or recurring in nature.

2. Effective tax rate fluctuations: The effective tax rate declined from 25.7% to 18.3%, contributing to the increase in net income. Whether this level can be maintained throughout the full year will affect the achievement of the full-year net income progress target (40.8%).

3. Level of goodwill and intangible assets: Goodwill was ¥1,817.2B, equivalent to 19.8% of net assets, while total intangible assets were ¥1,956.3B, equivalent to 17.3% of total assets. Assets arising from M&A account for a certain proportion of the balance sheet, making it meaningful to monitor progress against the earnings plans underlying their valuation.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (pharma)

Profitability and Returns

Due to limited comparison data, the company’s relative position within the industry should be regarded as reference information only.

Growth and Capital Efficiency

Due to limited comparison data, the company’s relative position within the industry should be regarded as reference information only.

Source: Company compilation

Key Points in the Results

1. Net income growth (+87.6%) exceeded profit-before-tax growth (+70.5%), with the difference attributable to the decline in the effective tax rate (25.7%→18.3%). The sustainability of this tax rate will be an important point to verify when assessing the quality of future earnings growth.

2. Operating Cash Flow reached 2.66 times net income, and free cash flow was ample at ¥637.8B. Cash generation exceeding dividends and capital expenditures supports the company’s financial flexibility.

3. Progress against the full-year earnings forecast was somewhat behind for net income at 40.8%, compared with 50.7% for revenue, indicating that profit accumulation in the second half is a prerequisite for achieving the plan.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,689–¥1,786 at cost of equity ±1%, and ¥1,736–¥1,737 at ω±0.1.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings report data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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