SANTEN PHARMACEUTICAL CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥137.88B
• Operating Income: ¥17.91B
• Net Income: ¥13.85B
• EPS: ¥41.76

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Santen Pharmaceutical (TSE:4536) reported FY2026 Q2 consolidated IFRS results showing topline softness and significant profit compression, but with resilient cash generation and a very solid balance sheet. Revenue was 1,378.79, down 5.8% YoY, indicating headwinds in demand, pricing, or geographic mix. Gross profit was 828.97, implying a gross margin of 60.1%, which remains healthy for a specialty ophthalmology franchise. Operating income declined 25.0% YoY to 179.15, pointing to operating deleverage as SG&A and other operating costs did not flex down proportionally with revenue. EBITDA was 269.57 with a margin of 19.6%, showing some cushion from non-cash charges (D&A 90.42) but still reflecting margin pressure. Net income fell 25.7% YoY to 139.40, and EPS (basic) was 41.76 JPY, consistent with average shares of 333.7 million. DuPont analysis yields ROE of 5.1%, with a net margin of 10.1%, asset turnover of 0.354x, and financial leverage of 1.42x, indicating low leverage and moderate profitability as the main drivers. Despite weaker profits, operating cash flow was robust at 283.08 (OCF/NI of 2.03x), underlining good cash conversion. Free cash flow was strong at 238.30, enabling both dividends (61.68) and sizable share repurchases (243.70), although financing cash flow was consequently negative (-322.29). The balance sheet is conservative with total assets of 3,891.37, equity of 2,736.07 (equity ratio 70.6%), and reported debt-to-equity of 0.45x based on total liabilities. Liquidity looks ample with cash and equivalents of 929.97, though current liability details are not disclosed, limiting precision on current and quick ratios. Profitability compression in the quarter appears primarily driven by operating expense rigidity and possibly mix/pricing, rather than deterioration in cash conversion. Capex remained modest at 26.79, below D&A, suggesting limited near-term capital intensity or timing effects. The dividend payout ratio is cited at 88.3%, elevated versus net income trajectory, but covered by FCF (1.94x) this period. Overall, fundamentals reflect a quality franchise under short-term earnings pressure, supported by strong cash flow and a fortress-like balance sheet. Data limitations (several unreported line items such as non-operating details, R&D, and current liabilities) constrain the granularity of margin attribution and liquidity analysis.

Profitability Analysis

ROE_decomposition: ROE is 5.1%, driven by a net profit margin of 10.1%, asset turnover of 0.354x, and financial leverage of 1.42x. The modest leverage indicates ROE is largely a function of operating profitability and efficiency, not balance-sheet gearing. margin_quality: Gross margin stands at 60.1%, indicating sustained pricing/mix strength in core ophthalmic products. Operating margin is approximately 13.0% (179.15 / 1,378.79), down YoY given operating income fell faster than revenue, suggesting SG&A and other operating costs did not adjust proportionally. EBITDA margin of 19.6% shows some resilience from non-cash costs, but overall margin compression is evident. operating_leverage: Revenue declined 5.8% YoY while operating income fell 25.0% YoY, implying negative operating leverage. Fixed cost absorption likely pressured operating profit as top line softened. With D&A at 90.42 and capex modest, the cost base appears partially fixed in the near term, heightening sensitivity of profits to revenue recovery.

Growth Assessment

revenue_sustainability: The 5.8% YoY revenue decline suggests near-term headwinds potentially from pricing pressure, competitive dynamics, or regional demand softness. Without segment or regional disclosure, sustainability of key revenue streams cannot be precisely assessed. profit_quality: Despite lower earnings, cash conversion is strong (OCF/NI 2.03x), indicating accruals are not inflating profits and working capital movements are supportive. The positive total comprehensive income (220.89) above net income also suggests favorable OCI items this period. outlook: Near-term growth hinges on stabilization of revenue and improved cost discipline. If revenue recovers even modestly, operating leverage could work favorably; conversely, persistent pricing/volume pressure would keep operating margins under strain. Assumptions include typical industry factors for Japan-based specialty pharma: NHI price revisions, competitive launches, and FX/mix effects (exact drivers are not disclosed).

Financial Health

liquidity: Cash and equivalents are 929.97, and current assets total 2,243.00. Current liabilities are unreported, preventing calculation of current/quick ratios. However, liquidity appears ample given the large cash balance and positive OCF. solvency: Equity is 2,736.07 (equity ratio 70.6%), with total liabilities of 1,240.96; reported debt-to-equity of 0.45x (total liabilities/equity) indicates low balance sheet risk. Interest coverage is not calculable due to unreported interest expense but appears comfortable given EBITDA and cash position. capital_structure: Financial leverage is modest at 1.42x (assets/equity), consistent with a conservative structure. Shareholder returns were significant via repurchases (243.70) and dividends (61.68), financed by healthy internally generated cash and existing liquidity.

Cash Flow Quality

earnings_quality: OCF/Net income at 2.03x points to high-quality earnings with strong cash realization. Effective tax rate is 21.5%, consistent with a normalized range for the company’s profile. FCF_analysis: FCF is 238.30 despite lower profits, reflecting solid OCF and modest capex (26.79). Capex below D&A (26.79 vs. 90.42) suggests limited capital intensity or timing deferrals; sustained underinvestment would merit monitoring relative to pipeline and manufacturing needs. working_capital: Accounts receivable are 717.59 and inventories 515.90. Working capital efficiency metrics (days sales outstanding, inventory days, payable days) cannot be derived without period flows and COGS details. Nonetheless, OCF strength implies net working capital was a tailwind or at least not a drag this period.

Dividend Sustainability

payout_ratio_assessment: The calculated payout ratio of 88.3% is high relative to declining net income, implying limited headroom if earnings weakness persists. EPS contraction, if sustained, would pressure payout sustainability. FCF_coverage: Dividends are covered by FCF at 1.94x, indicating room to maintain dividends in the near term given current cash generation. The company also executed sizable buybacks (243.70), suggesting confidence in cash flow durability. policy_outlook: While the balance sheet and FCF currently support shareholder returns, prudent policy would align dividends with medium-term earnings visibility. If profitability normalizes, current payout levels appear manageable; if not, rebalancing between buybacks and dividends could be considered. Specific guidance is not disclosed.

Risk Assessment

Business Risks:

• Pricing pressure and reimbursement changes in Japan (NHI price revisions).
• Competitive intensity and generic/biosimilar intrusion in ophthalmology categories.
• Product and geographic concentration risk (limited disclosure on mix).
• Regulatory and approval risks associated with R&D pipeline progression.
• Supply chain and manufacturing quality/compliance risks.
• FX and macroeconomic fluctuations affecting overseas sales and margins.
• Patent expiries and lifecycle management challenges.
• Market access and tender dynamics in key Asian markets.

Financial Risks:

• Earnings volatility leading to elevated payout ratio pressure.
• Potential working capital swings impacting OCF despite current strength.
• Execution risk around continued large buybacks alongside dividends.
• Interest coverage unobservable due to unreported interest expense data.
• Capex running below D&A may imply future catch-up investment needs.

Key Concerns:

• Operating margin compression with negative operating leverage in the period.
• Revenue decline of 5.8% YoY without segment detail to assess persistence.
• High payout ratio (88.3%) amid profit contraction, despite current FCF coverage.

Investment Implications

Key Takeaways:

• Top-line declined 5.8% YoY; operating income fell 25.0% YoY, indicating negative operating leverage.
• Gross margin remains strong at 60.1%, but operating margin compressed to ~13.0%.
• ROE at 5.1% reflects moderate profitability and low leverage.
• Cash generation is robust (OCF/NI 2.03x; FCF 238.30), supporting shareholder returns.
• Balance sheet is conservative with a 70.6% equity ratio and low leverage.
• Substantial buybacks (243.70) and dividends (61.68) were funded largely from internal cash.
• Capex below D&A suggests low current capital intensity; monitor sustainability versus strategic needs.

Metrics to Watch:

• Revenue trajectory by product/region and impact of pricing/mix.
• Operating margin, SG&A ratio, and incremental margin on revenue changes.
• OCF/NI and FCF sustainability; working capital movements (AR and inventory trends).
• R&D progress, pipeline milestones, and launch timing (R&D expenses not disclosed).
• Capex versus D&A and any capacity/quality investments.
• Shareholder return pace (dividends and buybacks) relative to profit trend.
• FX sensitivity and hedging effects on revenue and margins.

Relative Positioning: Versus domestic mid-cap pharma peers, Santen shows stronger balance sheet resilience and cash conversion but currently lower ROE and pressured operating margins due to negative operating leverage; the franchise quality is intact, yet near-term earnings momentum lags while cash returns remain robust.

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