WAKAMOTO PHARMACEUTICAL CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.38B
• Operating Income: ¥-195M
• Net Income: ¥-134M
• EPS: ¥-3.86

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

Verdict: FY2026 Q2 shows solid topline momentum but continued operating losses, with cash generation providing a cushion. Revenue rose 14.9% YoY to 43.82, indicating demand recovery or improved sales execution. Gross profit was 17.68, translating to a 40.3% gross margin, but SG&A of 20.45 exceeded gross profit, driving operating income to -1.95. Ordinary income was -1.75 as non-operating income of 0.32 (mainly dividends of 0.26) partially offset non-operating expenses of 0.12. Net income improved to -1.34 (+210.4% YoY), supported by a tax benefit of 1.18 (effective tax rate 45.4% on negative PBT). Despite the loss, operating cash flow was positive at 2.83, implying favorable working capital movements and non-cash charges (D&A 2.06). Estimated free cash flow is about 0.81 after capex of 2.02, indicating capex discipline and basic self-funding capacity. Liquidity is very strong with a current ratio of 437.8% and cash and deposits of 29.55 against current liabilities of 20.35. Leverage remains conservative (D/E 0.29x; short-term loans 1.00), reducing refinancing risk. ROE is -1.2% driven by a negative profit margin (-3.1%) and low asset turnover (0.295), while leverage is modest at 1.28x. Margin comparison vs last year is not disclosed; therefore, bps expansion/compression cannot be quantified. Earnings quality headline flag (OCF/NI -2.11) is a function of negative net income and positive OCF; in context it reflects cash resilience rather than poor quality this quarter. The EBITDA margin is near breakeven (0.3%), underscoring operating leverage if revenue growth continues and SG&A is contained. Investment securities of 18.48 add valuation volatility to non-operating items via dividends and potential gains/losses. Forward-looking, sustaining revenue growth and improving SG&A efficiency are critical to return to operating profitability and lift ROIC (currently -1.2%). With ample liquidity and low leverage, the company has runway to execute, but structural profitability must improve to support any stable dividend policy.

Profitability Analysis

ROE decomposition: ROE (-1.2%) = Net Profit Margin (-3.1%) × Asset Turnover (0.295) × Financial Leverage (1.28x). The dominant drag is the negative net margin, as gross margin (40.3%) is decent but SG&A (20.45) exceeded gross profit, yielding operating loss (-1.95). Asset turnover is low at 0.295 (on reported assets of 148.77 vs sales 43.82, likely half-year), reflecting subscale operations and potentially elevated idle assets/inventory typical for small-cap pharma. Financial leverage is modest at 1.28x, providing limited ROE amplification (positive or negative). The most material change driver versus a normalized profitable profile is margin pressure at the operating level; SG&A intensity is the proximate cause. Business reason: sales growth (+14.9%) likely required higher commercial spend and fixed cost absorption remains weak at current scale; D&A (2.06) further weighs on EBIT. Sustainability: without SG&A realignment or continued revenue growth, operating losses may persist; however, proximity to EBITDA breakeven suggests operating leverage potential if top line continues growing. Concerning trends: SG&A exceeded gross profit in the period; we lack YoY SG&A to confirm whether SG&A growth outpaced revenue, but the absolute SG&A burden is a red flag. Non-operating reliance (dividend income 0.26) modestly cushions losses but is not a core earnings driver.

Growth Assessment

Revenue growth of 14.9% YoY to 43.82 indicates improving momentum, but current scale does not yet cover the fixed cost base. Gross margin at 40.3% is respectable for a pharma/nutraceutical profile, suggesting pricing and mix are stable. Operating income remained negative (-1.95) due to SG&A intensity; near-breakeven EBITDA (0.11) suggests incremental revenue could translate to profit if SG&A is contained. Ordinary loss (-1.75) narrowed with dividend income; however, this is non-core and not a sustainable growth lever. Net loss improved to -1.34 aided by a tax benefit, which is not repeatable to the same degree once profitability returns. Outlook hinges on converting sales growth into operating leverage: key is SG&A discipline and inventory/receivables management to avoid working capital drag as sales expand. No segment or product breakdown is provided; thus, sustainability of growth by franchise cannot be verified. Capex of 2.02 appears manageable, implying growth is not capex-intensive near-term. With low leverage and strong liquidity, the company can support commercial execution, but structural ROIC improvement from -1.2% is necessary to create value.

Financial Health

Liquidity is strong: current ratio 437.8% and quick ratio 341.3% comfortably exceed benchmarks; no warning (both >> 1.0). Cash and deposits 29.55 plus receivables 25.77 and inventories 19.64 cover current liabilities of 20.35 with a wide margin; no maturity mismatch risk evident. Solvency is conservative: D/E 0.29x; short-term loans 1.00 and noncurrent liabilities 13.58 against equity 115.88. Interest-bearing debt details are limited, but low reported borrowings and ample working capital (68.73) reduce refinancing risk. There are no explicit off-balance sheet obligations disclosed in the data. Investment securities of 18.48 introduce market valuation sensitivity on the balance sheet but do not impair liquidity. No thresholds breached: Current Ratio well above 1.0; D/E well below 2.0.

Cash Flow Quality

OCF was 2.83 versus net income of -1.34, yielding an OCF/NI ratio of -2.11, which mechanically flags under the rule but here reflects positive cash generation despite accounting loss. Positive OCF likely stems from non-cash D&A (2.06) and favorable working capital (details not disclosed). Estimated FCF of 0.81 (OCF 2.83 minus capex 2.02) suggests the core business and maintenance capex are currently self-funded. Financing CF was -1.04, likely reflecting dividend and/or debt service, but specific dividend cash out is not disclosed. Earnings-to-cash divergence is acceptable in this quarter given non-cash charges and possible tax effects; persistent reliance on working capital releases would be lower quality, but we lack line-item WC detail to confirm. No clear signs of working capital manipulation can be inferred from the limited disclosure.

Dividend Sustainability

Dividend data are unreported; payout ratios are not reliably calculable given negative net income and missing dividend cash flow disclosure. Financing CF of -1.04 may include dividends, but attribution is unclear. With estimated FCF at 0.81 and strong cash on hand (29.55), modest dividends could be covered near-term if paid; however, sustainability depends on restoring operating profitability. Retained earnings of 46.72 provide balance sheet capacity, but policy prudence is expected while ROIC is negative (-1.2%). Without explicit DPS guidance, the outlook is uncertain; a conservative stance until EBIT turns positive would align with fundamentals.

Risk Assessment

Business Risks:

• Operating loss despite double-digit revenue growth, indicating subscale and cost absorption risk
• High SG&A burden relative to gross profit, limiting operating leverage
• Product and portfolio concentration risk typical of small-cap pharma (no breakdown disclosed)
• Pricing pressure and NHI drug price revisions in Japan impacting margins
• Inventory obsolescence risk given inventories of 19.64 without turnover disclosure

Financial Risks:

• Negative ROE (-1.2%) and ROIC (-1.2%) indicating value dilution risk if losses persist
• Earnings volatility from investment securities (18.48) affecting non-operating results
• Potential sensitivity to tax normalization once losses narrow (reduced tax benefits)
• Low asset turnover (0.295) implying capital inefficiency

Key Concerns:

• Path to positive operating income is not yet visible from disclosed data
• Dependence on non-operating dividend income (0.26) to cushion ordinary loss
• Limited disclosure granularity (no SG&A breakdown, no segment data) constrains diagnostics
• OCF positive while NI negative; sustainability depends on continued working capital discipline

Investment Implications

Key Takeaways:

• Topline grew 14.9% YoY to 43.82, but operating loss persisted at -1.95
• Gross margin stable at 40.3%, yet SG&A exceeded gross profit
• OCF of 2.83 and estimated FCF of 0.81 provide liquidity support despite losses
• Balance sheet is strong: current ratio 438%, D/E 0.29x, cash 29.55
• ROE and ROIC both negative (-1.2%), highlighting need for profitability inflection

Metrics to Watch:

• SG&A-to-sales ratio and absolute SG&A trajectory
• EBITDA margin progression from 0.3% toward positive territory
• Inventory and receivables turnover (days) to validate OCF sustainability
• Gross margin stability amid pricing pressures
• Capex levels versus OCF to maintain positive FCF

Relative Positioning: Compared with domestic small-cap pharma peers, the company exhibits strong liquidity and low leverage but weaker operating profitability and capital efficiency, with EBITDA near breakeven and ROIC negative; an inflection requires SG&A containment and sustained revenue growth.

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