ONO PHARMACEUTICAL CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The first quarter was characterized by lower revenue but higher earnings, with Operating Income and Net Income increasing significantly as a result of improved gross margin and cost controls. Revenue was ¥116.16B (¥127.54B in the previous year, YoY -8.9%), Operating Income was ¥30.65B (¥21.99B in the previous year, YoY +39.4%), Profit Before Tax was ¥31.25B (+38.0%), and quarterly Net Income attributable to owners of the parent was ¥24.15B (¥17.67B in the previous year, YoY +36.7%). The primary drivers of the earnings increase were the improvement in gross margin resulting from a reduction in cost of sales (75.3%, up +4.3pt year on year) and greater cost-structure efficiency resulting from absolute declines in SG&A expenses and R&D expenses.

Factors Affecting Business Performance

【Revenue】Revenue was ¥116.16B, representing a YoY decline of -8.9%. As the Company operates a single segment, the Pharmaceutical Business, it does not disclose the factors behind changes by business. However, cost of sales also declined substantially to ¥28.68B (-22.5% year on year), suggesting that changes in product mix affected both revenue and earnings.

【Profit and Loss】Gross profit was ¥87.48B, and the gross margin of 75.3% improved by +4.3pt from 70.98% in the previous year. SG&A expenses declined to ¥23.90B (-23.1%), while R&D expenses decreased to ¥32.40B (-10.6%, 27.9% of revenue). As a result, Operating Income increased to ¥30.65B (+39.4%), and the Operating Margin expanded to 26.4%, up +9.2pt from 17.2% in the previous year. Financial income of ¥1.38B and financial expenses of ¥0.78B were broadly in line with the previous year and had a limited impact on earnings. Profit Before Tax was ¥31.25B (+38.0%), and quarterly Net Income attributable to owners of the parent was ¥24.15B (+36.7%). In conclusion, the current period delivered lower revenue but higher earnings.

Key Financial Indicators

【Profitability】The Operating Margin was 26.4%, improving by +9.2pt from 17.2% in the previous year, while the Net Profit Margin, based on income attributable to owners of the parent, was 20.8%, up +6.9pt from 13.9% in the previous year. The increase in gross margin to 75.3% (71.0% in the previous year), together with reductions in SG&A and R&D expenses, were the two main drivers of improved profitability. 【Cash Flow Quality】Operating Cash Flow (OCF) was only ¥1.05B, and its ratio to Net Income attributable to owners of the parent of ¥24.15B was just 0.04x. 【Investment Efficiency】ROE, calculated as quarterly income attributable to owners of the parent divided by average equity during the period on a quarterly basis, was 2.8%, a slight increase from 2.3% in the same period of the previous year. Total assets were ¥1,084.41B, slightly down from ¥1,065.15B in the previous year, and total asset turnover remained low. 【Financial Soundness】The Equity Ratio was 79.9%, up +3.0pt from 76.9% in the previous year, while cash and cash equivalents stood at ¥219.54B. Current assets of ¥436.55B compared with current liabilities of ¥132.96B resulted in a current ratio of approximately 3.3x, indicating a strong liquidity position.

Cash Flow Analysis

Operating Cash Flow was ¥1.05B, down -68.8% from ¥3.37B in the previous year, and was substantially below Net Income attributable to owners of the parent of ¥24.15B. The primary factors were a sharp increase in income taxes paid to ¥30.24B (¥4.05B in the previous year) and a ¥13.04B decrease in trade and other payables, which weakened working capital. Investing Cash Flow turned positive at ¥3.42B (¥-43.04B in the previous year). In addition to the reversal of the previous year's ¥45.79B investment in the acquisition of intangible assets, proceeds of ¥8.40B from the sale of intangible assets contributed in the current period. Financing Cash Flow was ¥-21.85B, with dividend payments of ¥17.47B and repayment of long-term borrowings of ¥7.50B as the main cash outflows. Free Cash Flow was ¥4.48B, remaining below dividend payments. Cash and cash equivalents decreased by ¥17.50B from ¥237.05B at the beginning of the period to ¥219.54B at the end of the period.

Earnings Quality

The earnings increase in the current period was led by operating activities. Financial income of ¥1.38B and financial expenses of ¥0.78B each represented approximately 1% of revenue, and no temporary items equivalent to extraordinary gains or losses were identified. The bridge from Profit Before Tax of ¥31.25B to Net Income attributable to owners of the parent of ¥24.15B, after deducting income taxes of ¥7.09B (effective tax rate of 22.7%), was at a standard level. However, OCF of ¥1.05B was substantially below Net Income attributable to owners of the parent, resulting in a ratio of 0.04x. The expansion of accruals due to concentrated income tax payments and a decrease in trade payables should be noted when assessing earnings quality. Comprehensive income was ¥34.89B, ¥10.73B above consolidated quarterly income of ¥24.16B. Increases in other comprehensive income, including foreign currency translation adjustments for foreign operations (+¥4.97B, compared with -¥10.51B in the previous year) and changes in the fair value of financial assets (+¥5.79B), boosted equity.

Earnings Forecasts and Guidance

Progress against the full-year company plan of Revenue of ¥455.00B, Operating Income of ¥94.00B, and Net Income of ¥71.00B was 25.5% for Revenue, 32.6% for Operating Income, and 34.0% for Net Income attributable to owners of the parent. Progress for Operating Income and Net Income exceeded the simple progress benchmark of 25% by more than 7pt, indicating that the effects of gross-margin improvement and cost controls are emerging ahead of plan. The Company made no revisions to either its earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The Company's full-year dividend forecast is ¥80 (forecast EPS of ¥151.09), implying a Payout Ratio of approximately 53.0%. Share repurchases during Q1 were negligible, with cash outflows from purchases effectively zero; shareholder returns therefore primarily consisted of dividends. Dividend payments were ¥17.47B, exceeding Q1 Free Cash Flow of ¥4.48B. However, given the financial base of cash and cash equivalents of ¥219.54B and an Equity Ratio of 79.9%, full-year coverage will depend on available cash and the recovery of OCF.

Risk Factors

1. Pipeline and patent-related risks: R&D expenses remained high at ¥32.40B (27.9% of revenue, slightly down from 28.4% in the previous year). The YoY decline of -8.9% in current-period Revenue appears to reflect changes in sales trends for existing products. Changes in product mix resulting from patent expirations and generic-drug entry remain areas requiring continuous monitoring.

2. Temporary decline in cash conversion: OCF was ¥1.05B, with a ratio of 0.04x to Net Income attributable to owners of the parent of ¥24.15B. The primary factors were concentrated income tax payments of ¥30.24B and a ¥13.04B decrease in trade payables, suggesting fluctuations attributable to tax and working-capital timing.

3. Foreign exchange and fluctuations in other comprehensive income: Foreign currency translation adjustments for foreign operations were +¥4.97B in the current period, compared with -¥10.51B in the previous year, indicating a structure in which exchange-rate fluctuations affect equity levels through comprehensive income and other equity components.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (pharma)

Profitability and Returns

Both the Operating Margin and Net Profit Margin were substantially above the industry median, placing the Company's profitability at a high level within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate was substantially below the industry median, placing the Company at a disadvantage within the industry in terms of top-line growth.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Despite lower revenue, the Gross Margin improved by +4.3pt and reductions in SG&A and R&D expenses expanded the Operating Margin from 17.2% to 26.4%. Greater cost-structure efficiency was the primary driver of the earnings increase in the current period.

2. Progress for profit against the full-year plan—32.6% for Operating Income and 34.0% for Net Income—exceeded Revenue progress of 25.5%, indicating that improvements in gross margin and costs are emerging ahead of plan.

3. OCF was only 0.04x Net Income attributable to owners of the parent. Due to concentrated income tax payments and working-capital movements, cash generation in Q1 did not keep pace with the increase in earnings.

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 period). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,781–¥1,883 at ±1% for the Cost of Equity, and ¥1,830–¥1,831 at ±0.1 for ω.

Notes:

• Since forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the end of the quarter are used, resulting in a timing mismatch with 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 based on XBRL earnings-release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional adviser as necessary.

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