| Metric | Current Period | Prior Year Same Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥1169.5B | ¥1051.6B | +11.2% |
| Operating Income / Operating Profit | ¥101.5B | ¥81.3B | +24.9% |
| Ordinary Income | ¥112.0B | ¥80.7B | +38.8% |
| Net Income / Net Profit | ¥65.6B | ¥53.8B | +21.8% |
| ROE | 4.7% | 4.1% | - |
For the cumulative results to Q2 of the fiscal year ending March 2026, Revenue was ¥1,169.5B (¥+117.9B YoY +11.2%), Operating Income was ¥101.5B (¥+20.2B YoY +24.9%), Ordinary Income was ¥112.0B (¥+31.3B YoY +38.8%), and Net Income was ¥65.6B (¥+11.7B YoY +21.8%), achieving both revenue and profit growth. Operating margin improved by 1.0pt to 8.7% (prior year 7.7%). The fact that Ordinary Income grew faster than Operating Income was contributed to by the equity-method investment gain turning positive (prior year -¥6.2B → current period +¥7.9B) and an increase in non-operating income (prior year ¥5.9B → current period ¥15.1B). EPS rose substantially to ¥222.96 (prior year ¥160.36, +39.0%), and the dividend is maintained at ¥80 per annum (¥40 year-end) same as prior year.
[Revenue] Revenue was ¥1,169.5B (+11.2%), achieving double-digit growth. Sales to major wholesalers expanded: Mediceo Corporation ¥281.6B, Alfresa Corporation ¥180.8B, Suzuken Co., Ltd. ¥172.5B, Toho Pharmaceutical Co., Ltd. ¥103.3B — the top four customers account for approximately 63% of sales. By region, domestic sales account for over 90%, indicating a focus on the domestic pharmaceutical market. Gross margin declined by 3.1pt to 48.1% (prior year 51.2%), suggesting impacts from product mix changes and rising costs.
[Profitability] Gross profit was ¥562.6B (gross margin 48.1%), and SG&A was ¥461.1B (SG&A ratio 39.4%, improved 4.0pt from 43.4% prior year), reflecting efficiency gains. As a result, Operating Income rose +24.9% to ¥101.5B (Operating margin 8.7%), demonstrating operating leverage that significantly outpaced sales growth. At the ordinary profit level, equity-method investment income turned to a gain of ¥7.9B (prior year -¥6.2B), and increases in dividend income ¥4.5B and interest income ¥1.1B expanded non-operating income to ¥15.1B. After subtracting non-operating expenses of ¥4.7B including foreign exchange losses ¥2.4B and commission fees ¥1.2B, Ordinary Income reached ¥112.0B (+38.8%). Extraordinary items were minor (extraordinary gains ¥0.5B, extraordinary losses ¥0.8B). Pre-tax income of ¥111.7B less income taxes of ¥32.7B yielded Net Income of ¥65.6B (+21.8%). In summary, the company achieved revenue and profit growth with double-digit growth across profit stages from operating level and above.
[Profitability] Operating margin improved to 8.7% (up +1.0pt from 7.7% prior year), and Net margin rose to 5.6% (prior year 5.1%), indicating improved profitability. Gross margin at 48.1% declined 3.1pt from 51.2% prior year, but a 4.0pt improvement in SG&A ratio to 39.4% (prior year 43.4%) realized improvements at the operating level. ROE was 4.7%, slightly up from 4.4% prior year, as net income growth exceeded equity growth. ROA (on an Ordinary Income basis) improved to 6.5% (prior year 5.1%). [Cash Quality] Operating Cash Flow / Net Income stood at -1.12x, indicating quality issues; increases in trade receivables ¥48.6B and inventories ¥28.2B worsened working capital and were drivers of the Operating Cash Flow of -¥73.5B. Approximate EBITDA (adding depreciation ¥29.8B) was ¥131.3B, while Operating CF was -¥73.5B, resulting in OCF/EBITDA of -0.56x and deteriorated cash conversion. [Investment Efficiency] Total asset turnover slightly declined to 0.64x (prior year 0.66x), impacted by build-up of trade receivables ¥365B (prior year ¥316B) and inventory ¥201B (prior year ¥207B). Investment securities surged to ¥392B (prior year ¥150B), up +161%, accounting for 21.5% of total assets. [Financial Soundness] Equity Ratio remained very high at 76.8% (prior year 81.6%), with ample liquidity: Current Ratio 429%, Quick Ratio 357%. Interest-bearing debt consisted only of long-term borrowings ¥100B (prior year zero), resulting in Debt/EBITDA 0.76x and Interest Coverage 182x, indicating sufficient financial capacity. Cash and deposits decreased by ¥170.9B to ¥280.6B (prior year ¥451.5B), but total cash & cash equivalents plus short-term marketable securities amounted to ¥310.5B, so short-term payment ability is not impaired.
Operating CF turned sharply negative to -¥73.5B (prior year +¥93.5B). The subtotal before working capital changes was -¥54.8B, primarily due to increases in trade receivables -¥48.6B and inventories -¥28.2B, partly offset by increases in trade payables +¥21.2B, increases in other current assets -¥7.1B, and decreases in other current liabilities -¥5.2B — overall cash outflow driven by expansion of receivables and inventory. Payments of income taxes -¥23.5B were also deducted, leading to net cash outflow from operating activities. Investing CF was -¥168.5B (prior year +¥173.5B), driven mainly by purchases of investment securities -¥171.6B and acquisitions of tangible and intangible fixed assets -¥27.0B; an increase in time deposits net +¥120.0B (deposits -¥27B, withdrawals +¥147B) contributed positively, but active portfolio investment resulted in large cash outflows. Free Cash Flow was -¥242.0B (Operating CF -¥73.5B + Investing CF -¥168.5B), and FCF/Net Income was -3.69x, indicating very low conversion of profit to cash. Financing CF was +¥70.3B, with long-term borrowings raised +¥100B covering dividend payments of -¥28.4B. Consequently, cash and cash equivalents declined ¥170.9B from ¥481.5B at the beginning of the period to ¥310.6B at the end.
Overall quality of earnings is generally high: of the non-operating income ¥15.1B, recurring items include dividend income ¥4.5B, interest income ¥1.1B, and equity-method investment income ¥7.9B, while Operating Income of ¥101.5B forms the earnings core. Non-operating expenses ¥4.7B include foreign exchange losses ¥2.4B, which appear to be temporary due to yen appreciation during the period. Extraordinary items were minimal (gains ¥0.5B, losses ¥0.8B), with an investment securities valuation loss of ¥0.7B booked but limited impact on Ordinary Income. Comprehensive income was ¥124.0B, with Other Comprehensive Income of ¥58.4B (valuation differences on available-for-sale securities ¥42.2B, actuarial differences on retirement benefits ¥2.3B, OCI of equity-method affiliates ¥0.4B, etc.) substantially adding to Net Income of ¥65.6B, driven by market valuation gains on held securities. From an accrual perspective, Operating CF trails Net Income by ¥73.5B, and delayed cash realization due to increases in receivables and inventory temporarily suppresses earnings quality. The recurring earnings base remains solid at the operating income level, but improving cash conversion is key to enhancing earnings quality.
Full Year guidance is Revenue ¥1,260.0B (vs prior year +7.7%), Operating Income ¥105.0B (+3.5%), Ordinary Income ¥125.0B (+11.6%), EPS guidance ¥282.09, and dividend guidance ¥42.50. Progress against Q2 cumulative results is high: Revenue 92.8%, Operating Income 96.7%, Ordinary Income 89.6%, and a robust second half is expected. While the assumed Operating Income growth rate is conservative relative to revenue, Ordinary Income is forecast to outpace Operating Income with +11.6% growth, incorporating contributions from equity-method investment gains and dividend/interest income. Payout Ratio is 49.9% (on a full-year forecast basis), somewhat high but sustainable: against forecast Net Income ¥100B the total dividend amount is about ¥15B (¥42.5 × approx. 35.45M shares). To achieve the full-year forecast, about ¥90B of Revenue and ¥3.5B of Operating Income need to be added in the second half; maintaining operating leverage and improving working capital efficiency are key challenges.
Annual dividend is ¥80 (interim ¥40, year-end forecast ¥40), with total dividends about ¥28.4B. Dividend payout ratio relative to Net Income ¥65.6B is about 43.3%, which is reasonable, but given Free Cash Flow of -¥242.0B, the dividends were effectively covered by the long-term borrowing of ¥100B and use of existing cash. No share buybacks have been executed (CF impact -¥0.0B), so shareholder returns are limited to dividends and the Total Return Ratio is equivalent to the Payout Ratio at about 43.3%. Next fiscal year dividend guidance is ¥42.5 (+¥2.5), and relative to EPS guidance ¥282.09 the payout ratio would fall to about 15.1%, but this reflects an assumed full-year Net Income forecast of ¥100B which is substantially higher than current period actuals — in absolute terms the dividend amount is increasing. Dividend policy targets stable dividends, and improvements in Operating CF and increased dividend income from investment securities are expected to support dividend sustainability going forward.
Deterioration of working capital efficiency: build-up of trade receivables ¥365B (prior year ¥316B) and inventories ¥201B (prior year ¥207B) led to Operating CF of -¥73.5B. Prolongation of DSO/DIO extends CCC and reduces cash conversion efficiency. The Free Cash Flow deficit of -¥242B, combined with investment securities purchases, reduced cash by ¥170.9B; if working capital normalization does not progress, recovery of cash generation ability may be delayed in subsequent periods.
Downward trend in gross margin: Gross margin declined to 48.1% from 51.2% prior year (a 3.1pt drop), likely due to product mix changes and rising costs. While SG&A efficiency improvements improved operating margin, continued gross margin deterioration could outstrip SG&A cuts and narrow the room for operating margin improvement. In the domestic pharmaceutical market, reimbursement price revision risks could maintain pricing pressure, further pressuring profitability.
Market risk of investment securities: Investment securities surged to ¥392B (prior year ¥150B), up +161%, representing 21.5% of total assets. In Q2 valuation gains on securities increased valuation differences by ¥42.2B boosting comprehensive income, but market deterioration could produce valuation losses. Increased dependence on non-operating income such as equity-method investment gains ¥7.9B and dividend income ¥4.5B raises sensitivity to investee performance and market price declines, potentially increasing volatility in Ordinary Income.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 8.7% | -94.2% (-358.4%–8.6%) | +102.9pt |
| Net Margin | 5.6% | -101.5% (-373.7%–5.9%) | +107.1pt |
The company’s profitability metrics substantially exceed the industry medians, ranking the company high within the sector for both Operating Margin and Net Margin.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 11.2% | -0.6% (-22.4%–13.3%) | +11.8pt |
Revenue growth rate outperforms the industry median by 11.8pt, indicating higher growth relative to peers.
※Source: Company compilation based on public financial statements
Realization of operating leverage and SG&A efficiency: With Revenue +11.2% and Operating Income +24.9%, operating leverage manifested via a 4.0pt improvement in SG&A ratio. Operating margin of 8.7% substantially exceeds the industry median, reflecting operational improvements that enhanced profitability. Forecast Operating Income growth of +3.5% next fiscal year is conservative, but continued SG&A efficiency will be key to profit growth.
Top priority is restoration of cash conversion: Operating CF -¥73.5B and FCF -¥242B indicate very low cash conversion of profits, with build-up of receivables and inventory pressuring liquidity. Long-term borrowing of ¥100B secured financial flexibility, but without working capital normalization (shortening DSO/DIO and improving CCC), sustaining growth investments and shareholder returns will be difficult. Progress on working capital efficiency will be the focus of performance assessment next fiscal year.
Expansion of investment portfolio and dependence on non-operating income: Investment securities increased +161% to ¥392B, with equity-method investment income ¥7.9B and dividend income ¥4.5B boosting Ordinary Income. While Ordinary Income is forecast to grow +11.6% next fiscal year outpacing Operating Income, increased exposure to investment income volatility and market conditions warrants caution. Dividend guidance ¥42.5 indicates increased dividend payments, but FCF improvements and stabilization of investment income are prerequisites for dividend sustainability.
This report was automatically generated by AI analyzing 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 responsibility; please consult a professional as necessary.