KAKEN PHARMACEUTICAL CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥39.36B
• Operating Income: ¥203M
• Net Income: ¥14.29B
• EPS: ¥26.16

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

Kaken Pharmaceutical (4521) reported FY2026 Q2 consolidated results under JGAAP showing sharp headline deterioration in profits alongside solid liquidity and a very strong balance sheet. Revenue was 39.36 billion yen, down 23.4% YoY, indicating a meaningful top-line contraction likely tied to product mix, competitive pressure, or timing effects (e.g., milestone or supply timing). Operating income plunged to 0.20 billion yen (down roughly 99% YoY), pushing the operating margin to approximately 0.5%, signaling significant deleveraging of SG&A/R&D over a smaller revenue base. Ordinary income of 0.61 billion yen exceeded operating income, implying positive non-operating contributions offsetting weak core profitability. Net income was 0.99 billion yen (down 93.0% YoY), with EPS of 26.16 yen; DuPont-based ROE is a very low 0.67% driven by slim net margin and slow asset turnover. The provided gross profit margin of 86.7% suggests high-value product mix and/or reclassification effects; however, there is inconsistency between cost of sales and the stated gross profit, indicating possible classification or disclosure differences. EBITDA was 1.47 billion yen (3.7% margin), underscoring very limited operating cash earnings relative to revenue in the period. Despite weak earnings, operating cash flow was robust at 23.93 billion yen, producing an OCF/Net Income ratio of 24.1x; this is unusually high and likely reflects favorable working capital movements or timing of receipts. The balance sheet remains a core strength: total equity of 147.80 billion yen against total liabilities of 37.79 billion yen implies low leverage (D/E 0.26x) and ample solvency. Current assets of 111.38 billion yen and current liabilities of 30.35 billion yen produce a very strong current ratio of 366.9% and quick ratio of 337.9%, highlighting substantial liquidity buffers. Working capital stands at 81.02 billion yen, providing operational resilience. Interest expense is minimal (12 million yen) with interest coverage of 16.9x, further supporting low financial risk. Reported effective tax rate appears inconsistent with the income tax line, suggesting timing, one-offs, or deferred tax effects in the period; we rely on provided ratios while acknowledging disclosure limitations. Investing cash flow and cash balance were not disclosed in XBRL (reported as zero), constraining free cash flow assessment; the reported FCF of zero should be treated as “not available” rather than truly zero. Dividend information is also not fully available (DPS and shares outstanding reported as zero), preventing a clean payout analysis; EPS is available, but share-related balance sheet metrics are not. Overall, the quarter shows significant margin compression and profit volatility against a backdrop of excellent liquidity and solvency, and unusually strong operating cash flow that may not be recurring.

Profitability Analysis

ROE_decomposition: Calculated ROE is 0.67% per DuPont. Net profit margin is 2.52%, asset turnover is 0.222x, and financial leverage is 1.20x, indicating ROE is constrained primarily by weak margins and slow asset utilization rather than leverage. Ordinary income exceeding operating income points to reliance on non-operating items to support bottom line. margin_quality: Gross margin is reported at 86.7%, implying high product economics or classification effects; however, it conflicts with the cost of sales figure, so we treat the provided margin as the reference metric while acknowledging disclosure inconsistencies. Operating margin is approximately 0.5% (203 million yen OI on 39.36 billion yen revenue), and EBITDA margin is 3.7%, reflecting heavy operating cost burden and limited operating flexibility this quarter. operating_leverage: A 23.4% revenue decline translated into a roughly 99% drop in operating income, evidencing strong negative operating leverage as fixed costs (notably SG&A/R&D) did not adjust commensurately. This suggests the earnings base is highly sensitive to revenue swings.

Growth Assessment

revenue_sustainability: Revenue contracted 23.4% YoY to 39.36 billion yen. Without segment detail, this likely stems from product lifecycle dynamics, competitive pressure, or timing (e.g., bulk shipments, co-promotion/milestones). Sustainability is uncertain absent visibility into pipeline launches and demand normalization. profit_quality: Ordinary income (607 million yen) above operating income (203 million yen) indicates non-operating support, reducing quality of earnings from a core-operations perspective. The mismatch between gross profit and cost of sales disclosures also clouds margin interpretation. outlook: Near-term profit recovery depends on stabilizing revenue, improved mix, and containment of fixed costs. Given low leverage and ample liquidity, the company has capacity to invest in R&D and promotion; however, visibility is limited without guidance or segment data.

Financial Health

liquidity: Current assets 111.38 billion yen vs current liabilities 30.35 billion yen yields a current ratio of 366.9% and quick ratio of 337.9%, indicating strong near-term liquidity. Working capital is 81.02 billion yen, offering a sizeable buffer. solvency: Total liabilities are 37.79 billion yen against total equity of 147.80 billion yen, giving a debt-to-equity ratio of 0.26x and implying low structural leverage. Interest expense is minimal (12 million yen) with interest coverage of 16.9x, supporting low financial risk. capital_structure: Implied equity ratio (based on non-zero data) is approximately 83% despite the equity ratio field showing 0.0% (not disclosed). The balance sheet appears conservative and resilient.

Cash Flow Quality

earnings_quality: Operating CF of 23.93 billion yen versus net income of 0.99 billion yen (OCF/NI 24.1x) suggests earnings were conservative relative to cash generation, likely due to large favorable working capital changes or timing of cash receipts. This level may not recur. FCF_analysis: Investing CF is reported as zero (undisclosed), and FCF is listed as zero; treat FCF as not available rather than truly zero. Without capex data, true FCF cannot be determined, though OCF provides headroom to fund investment and dividends in principle. working_capital: Strong OCF likely reflects working capital inflow; current assets include 8.81 billion yen of inventories. Detailed movements in receivables/payables/inventory are not provided, limiting granularity.

Dividend Sustainability

payout_ratio_assessment: EPS was 26.16 yen, but DPS is reported as zero (undisclosed). Thus, a payout ratio cannot be reliably calculated for the period; the listed 0.0% payout should be treated as not disclosed. FCF_coverage: With investing cash flows undisclosed, FCF coverage of dividends cannot be assessed. OCF strength suggests potential capacity, but sustainability depends on normalization of working capital and future capex needs. policy_outlook: No explicit dividend policy data provided. Given the conservative balance sheet, the company has flexibility, but near-term distribution decisions likely hinge on earnings recovery and investment requirements.

Risk Assessment

Business Risks:

• Revenue decline of 23.4% YoY highlights demand, competitive, or product lifecycle pressures
• High operating leverage with profits highly sensitive to revenue changes
• Potential price erosion or NHI drug price revisions in Japan
• Pipeline execution and launch timing risk
• Dependence on non-operating items to support ordinary income
• Supply chain or inventory management risks amid changing demand

Financial Risks:

• Earnings volatility despite low leverage
• Large timing-driven working capital swings driving OCF
• Disclosure gaps (investing CF, cash balance, DPS, equity ratio) limiting visibility
• Potential tax timing or one-off effects creating discrepancies between tax expense and reported ratios

Key Concerns:

• Sustainability of the unusually strong operating cash flow
• Recovery path for operating margin from ~0.5%
• Top-line stabilization after a 23.4% decline
• Reliance on non-operating income to bridge weak operations

Investment Implications

Key Takeaways:

• Sharp profit compression with operating income down ~99% YoY and EBITDA margin at 3.7%
• Revenue down 23.4% YoY, pressuring operating leverage
• Ordinary income supported by non-operating items
• ROE of 0.67% driven by low margin and slow asset turnover
• Exceptional OCF (23.93 billion yen) vs net income (0.99 billion yen) likely driven by working capital timing
• Balance sheet strength: D/E 0.26x, ample liquidity with current ratio 366.9%
• Disclosure limitations for investing CF, cash balance, and dividends constrain FCF and payout analysis

Metrics to Watch:

• Revenue trajectory and product mix recovery
• Operating margin and SG&A/R&D intensity
• Non-operating income contributions vs. core profit
• Working capital metrics (receivable days, inventory turnover, payables)
• Capex and investing cash flows to assess true FCF
• Tax expense normalization and deferred tax impacts

Relative Positioning: Versus Japan mid-cap pharma peers, the company exhibits weaker near-term profitability and ROE but superior balance sheet strength and liquidity; cash generation this quarter was strong but appears timing-heavy, so core operating performance lags while financial risk remains low.

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