Nippon Shinyaku Co.,Ltd. FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, Nihon Shinyaku reported Revenue of ¥1707.7B (YoY +¥105.4B +6.6%), Operating Income of ¥355.0B (YoY +¥0.5B +0.1%), Ordinary Income of ¥380.7B (YoY +¥212.9B +126.8%), and Net Income attributable to owners of the parent of ¥297.2B (YoY -¥28.4B -8.7%). Revenue achieved a third consecutive year of growth driven by the Pharmaceutical Business, but Operating Income was essentially flat as increased R&D expenditure (¥367.1B, as % of Revenue 21.5%) and expanded SG&A (¥435.7B, YoY +14.6%) constrained profit growth. Ordinary Income rose substantially due to expanded financial income and foreign exchange gains, but Net Income declined owing to higher income tax expense (¥67.3B, YoY +¥31.6B).

Drivers of Performance

[Revenue] Revenue was steady at ¥1707.7B (YoY +6.6%). The Pharmaceutical Business was the core at ¥1484.8B (YoY +7.1%), consisting of Finished Goods Sales ¥900.6B (YoY +7.3%), Intellectual Property Income ¥494.6B (YoY +8.5%), and Co-promotion Income ¥89.6B (YoY -2.2%). The Functional Foods Business was ¥222.9B (YoY +3.3%), a modest increase. By region, Japan grew double digits to ¥936.7B (YoY +10.9%), Europe ¥564.5B (YoY +5.8%), while the U.S. declined to ¥164.1B (YoY -4.1%). Gross margin remained high at 66.4% but declined 1.7pt from 68.1% a year earlier.

[Profitability] Operating Income was ¥355.0B (YoY +0.1%), a marginal increase. SG&A expanded to ¥435.7B (YoY +14.6%) and R&D to ¥367.1B (YoY +6.9%), with expense growth outpacing revenue growth and limiting Operating Income expansion. Operating margin fell 1.3pt to 20.8% from 22.1% a year earlier. Financial income rose to ¥11.3B (prior ¥8.3B) and other income to ¥30.3B (prior ¥8.7B), driving Ordinary Income to ¥380.7B (YoY +126.8%). Profit Before Tax was ¥364.6B (YoY +0.9%), but income taxes increased to ¥67.3B (effective tax rate 18.5%, up 8.6pt from 9.9%), resulting in Net Income attributable to owners of the parent of ¥297.2B (YoY -8.7%). By segment, Pharmaceuticals posted Operating Income of ¥333.4B (prior ¥335.4B, -0.6%), a slight decrease, while Functional Foods fell substantially to ¥8.6B (prior ¥12.7B, -32.3%), highlighting profitability challenges. Conclusion: revenue up but profit essentially flat.

Segment Analysis

The Pharmaceutical Business recorded Revenue of ¥1484.8B (YoY +7.1%) and Operating Income of ¥333.4B (YoY -0.6%). Revenue increased driven by Finished Goods Sales and Intellectual Property Income, but increased R&D spending produced a slight decline in profit. Segment profit margin remained high at 22.4%. The Functional Foods Business reported Revenue of ¥222.9B (YoY +3.3%) and Operating Income of ¥8.6B (YoY -32.3%), with profitability deteriorating. Segment profit margin fell to 3.8% from 5.9% a year earlier (-2.1pt), as cost increases squeezed profits. The Pharmaceutical Business accounted for 87.0% of Revenue and 97.5% of Operating Income, remaining the company’s earnings pillar.

Key Financial Metrics

[Profitability] Operating margin was 20.8%, down 1.3pt from 22.1% last year, yet remains very high within the industry. Net margin was 17.4%, down 2.9pt from 20.3% a year earlier. ROE was 11.0%, down 2.9pt from 13.9% but well above the pharmaceutical industry median of -19.7%, indicating healthy profitability. Gross margin was 66.4%, high but down 1.7pt from 68.1%, needing monitoring for rising cost trends. R&D expense remained aggressive at 21.5% of Revenue (prior 21.4%). [Cash Quality] Operating Cash Flow (OCF) was ¥272.2B, or 0.92x of Net Income ¥297.2B, generally healthy but down 24.6% YoY. OCF/EBITDA fell to 0.65x from 0.85x, with working capital expansion suppressing cash conversion efficiency. Free Cash Flow was ¥292.0B and comfortably covers dividend payments of ¥83.5B. [Investment Efficiency] Total Asset Turnover was 0.49x (prior 0.56x), indicating room to improve asset efficiency. Inventories rose significantly to ¥515.9B (prior ¥425.0B, +21.4%), making inventory management a priority. [Financial Soundness] Equity Ratio was very high at 84.2% (prior 87.1%), with debt-free operations maintained. Current ratio stood at 434.9%, indicating ample liquidity, and Cash and Cash Equivalents rose to ¥765.9B (prior ¥552.4B, +38.6%).

Cash Flow Analysis

OCF decreased to ¥272.2B (YoY -24.6%). In converting Profit Before Tax of ¥364.6B to cash, increases in inventories (-¥89.7B) and trade receivables (-¥35.8B) were the main detractors, partially offset by an increase in trade payables (+¥74.2B). Income tax payments rose to ¥102.4B (prior ¥81.4B), increasing cash outflows. Investing Cash Flow was a positive ¥19.8B, as proceeds from disposals and redemptions of ¥64.4B exceeded capital expenditures of ¥29.8B. Last year’s substantial negative outflow for intangible asset acquisitions of ¥314.4B was reduced to ¥8.0B this year, suggesting major intellectual property investments have largely completed. Financing Cash Flow was -¥99.3B, primarily reflecting dividend payments of ¥83.5B and lease liability repayments of ¥15.7B. With foreign exchange translation effects of +¥20.7B, Cash and Cash Equivalents increased by ¥213.5B to ¥765.9B at period-end. FCF of ¥292.0B is ample, covering dividends 3.5x. The decline in OCF driven by working capital expansion appears temporary, but inventory and receivables optimization will be key to future cash generation.

Quality of Earnings

Against Operating Income of ¥355.0B, Financial Income of ¥11.3B (0.7% of Revenue) and Other Income of ¥30.3B (1.8% of Revenue) bolstered Ordinary Income. Other Income rose substantially from ¥8.7B last year and may include one-off factors. Financial Income is mainly interest and dividend income and is of a recurring nature. Income taxes of ¥67.3B represent an effective tax rate of 18.5% on Profit Before Tax of ¥364.6B, up 8.6pt from 9.9% a year earlier, with higher tax burden reducing Net Income. OCF of ¥272.2B is 0.92x of Net Income ¥297.2B, generally consistent, but working capital increases (inventories -¥89.7B, receivables -¥35.8B) have emerged on an accrual basis and somewhat lowered cash backing quality. OCF/EBITDA of 0.65x worsened from 0.85x last year, so normalization of working capital is essential to improve earnings quality. Special gains/losses had limited impact, and the company’s recurring earnings structure remains intact.

Forecasts & Guidance

For FY ending March 2027, the company forecasts Revenue ¥2000.0B (YoY +17.1%), Operating Income ¥380.0B (YoY +7.0%), Net Income attributable to owners of the parent ¥303.0B (YoY +1.9%), EPS ¥449.55, and Dividend ¥62.00. At the half-year point, progress rates were Revenue 85.4%, Operating Income 93.4%, and Net Income 98.1%, indicating performance ahead of plan on profitability metrics. The plan assumes double-digit Revenue growth next year but a lower Operating margin of 19.0% (vs. 20.8% this year, -1.8pt), reflecting a conservative assumption incorporating continued increases in R&D spending. The projected Dividend of ¥62 aligns with the current annual dividend of ¥124 (interim ¥62 + year-end ¥62), maintaining a stable dividend policy.

Shareholder Returns

Annual dividend is ¥124 (interim ¥62, year-end ¥62), unchanged from the prior year. With Net Income attributable to owners of the parent of ¥297.2B and EPS ¥441.00, the Payout Ratio is 28.1%, a conservative level. Total dividends amounted to ¥83.5B, and coverage by Free Cash Flow of ¥292.0B is 3.5x, indicating high sustainability. No share buybacks were conducted. While the company currently returns capital through dividends only, ROE of 11.0% and an Equity Ratio of 84.2% provide a strong capital base, leaving room for potential future dividend increases. Next fiscal year’s dividend forecast is ¥62, implying continuation of the same interim and year-end dividend level for the full year.

Risk Factors

1. Working capital expansion risk: Inventories rose to ¥515.9B (YoY +21.4%) and trade receivables to ¥461.6B (YoY +9.1%), contributing to a deterioration in OCF of -24.6% YoY. Continued inventory stagnation or delays in receivables collection could further weaken cash generation and deteriorate capital efficiency.

2. Margin compression risk: Gross margin fell to 66.4% from 68.1% a year earlier, and SG&A increased 14.6% YoY, far outpacing Revenue growth of 6.6%. Continued cost and expense pressures could compress Operating margin (20.8% vs. 22.1% prior) further and lead to ROE decline.

3. Deterioration in Functional Foods profitability: Operating Income for the Functional Foods Business declined significantly to ¥8.6B (prior ¥12.7B, -32.3%), with Operating margin down to 3.8% (prior 5.9%). Failure to improve profitability in this business could hinder overall company profit growth.

Industry Benchmark (Reference — Company Analysis)

Profitability & Returns

Profitability metrics are highly superior within the industry, demonstrating stable profit-generating capability.

Growth & Capital Efficiency

Revenue growth rate exceeds the industry median, indicating a steady growth trend.

※ Source: Company compilation

Earnings Highlights

1. Backed by high profitability and a strong financial position, the company continues R&D investment while maintaining stable profit generation. With ROE 11.0%, Operating margin 20.8%, and Equity Ratio 84.2%, the company has a superior financial profile within the pharmaceutical industry. Management plans for Revenue ¥2000B (+17.1%) and Operating Income ¥380B (+7.0%) next year, indicating significant medium-term growth potential.

2. Working capital expansion has emerged as a short-term issue, with inventories +21.4% and receivables +9.1% leading to OCF down -24.6% YoY. OCF/EBITDA of 0.65x (prior 0.85x) shows declining cash conversion efficiency, and inventory/receivables optimization is essential to improve cash generation. The deterioration in Functional Foods profitability (Operating margin 3.8%, prior 5.9%) also requires structural improvement.

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This report is an earnings analysis document automatically generated by AI 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 the Company based on public financial statements. Investment decisions are your own responsibility; please consult a professional advisor as needed before making any investment decisions.