Fuso Pharmaceutical Industries,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥31.23B
• Operating Income: ¥1.25B
• Net Income: ¥831M
• EPS: ¥97.40

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

Fuso Pharmaceutical Industries (45380) reported FY2026 Q2 standalone (JGAAP) results showing resilient top-line growth but a sharp profit contraction. Revenue rose 5.0% year over year to ¥31.23bn, while operating income fell 48.8% to ¥1.25bn, indicating substantial margin compression. Gross profit reached ¥8.38bn with a gross margin of 26.8%, but the operating margin deteriorated to 4.0% as costs outpaced revenue growth. Ordinary income was ¥1.13bn, below operating income, reflecting net non-operating expense headwinds, including interest expense of ¥72m. Net income declined 45.8% to ¥0.83bn, resulting in a net margin of 2.66%, which aligns with the provided DuPont net profit margin. EBITDA was ¥2.41bn, translating to a 7.7% EBITDA margin, implying limited operating leverage in the period. DuPont analysis indicates ROE of 2.44%, driven by a 2.66% net margin, 0.366x asset turnover, and 2.51x financial leverage. The decline in profitability despite revenue growth suggests negative operating leverage, likely from input cost inflation, pricing pressure, or elevated selling/administrative expenses. Liquidity metrics are mixed, with a current ratio of 109.5% and a quick ratio of 80.9%, pointing to reliance on inventories (¥12.64bn) to support liquidity. The balance sheet shows total assets of ¥85.43bn, liabilities of ¥48.69bn, and equity of ¥34.01bn, implying moderate leverage (debt-to-equity 1.43x; assets/equity 2.51x). Operating cash flow of ¥0.77bn compares reasonably to net income (OCF/NI 0.93), suggesting earnings are largely cash-backed in the period. Free cash flow is not assessable due to unreported investing cash flows (appearing as zero), which limits capex visibility. Dividend data indicates no payout in the period (DPS and payout ratio shown as zero), but these may be unreported interim values; thus, dividend conclusions should be cautious. Overall, the company exhibited stable demand but material margin pressure, with adequate interest coverage (17.3x) but tighter short-term liquidity indicated by the quick ratio. Several data points (equity ratio, cash balance, investing CF, shares) appear unreported as zeros; analysis focuses on disclosed non-zero items and derived ratios provided. Given the semiannual period, asset turnover and ROE components may be affected by periodization and should be interpreted with care.

Profitability Analysis

ROE decomposes to 2.44% = 2.66% net profit margin × 0.366x asset turnover × 2.51x financial leverage. The net margin of 2.66% is modest for a healthcare manufacturer/supplier and reflects pressure below gross profit, as operating margin is 4.0% (¥1.25bn/¥31.23bn). Gross margin at 26.8% suggests limited pricing headroom or elevated input/utility/logistics costs. The spread between gross margin (26.8%) and operating margin (4.0%) indicates high operating cost intensity; SG&A and other operating costs are absorbing c. 22.8% of sales. EBITDA margin of 7.7% signals constrained operating flexibility; depreciation and amortization (¥1.16bn) are meaningful relative to EBIT, reflecting asset intensity in sterile solutions/medical supply manufacturing. Ordinary income (¥1.13bn) below operating income implies net non-operating burdens (e.g., interest and other items) weighed slightly on profits. Interest coverage at 17.3x remains comfortable, indicating that financing costs are not the primary driver of profit compression. The nearly 50% YoY decline in operating income despite 5% revenue growth reflects negative operating leverage; incremental sales did not cover higher variable and/or fixed costs. Margin quality appears challenged by cost inflation or price revisions; further breakdown of cost of sales and SG&A would clarify, but is not disclosed. Overall profitability is subdued, with ROE anchored more by balance-sheet leverage than by margins or turnover.

Growth Assessment

Top-line growth of 5.0% YoY to ¥31.23bn suggests stable demand in core products, likely hospital-related solutions and pharmaceuticals. However, the sharp declines in operating income (-48.8% YoY) and net income (-45.8% YoY) indicate that revenue growth is not translating to profit growth, highlighting poor operating leverage in this period. The deterioration from gross profit to operating profit underscores cost pressure rather than a revenue shortfall. Net margin at 2.66% is low, and ordinary income below operating income points to additional non-operating drags. Given the semiannual nature of the data (Q2 cumulative), seasonality and one-off items could be factors; however, the magnitude of the decline suggests structural cost pressures. Absent segment disclosure, growth sustainability depends on the company’s ability to restore gross margin or reduce SG&A. The provided asset turnover of 0.366x is low, consistent with working-capital-heavy operations, and may reflect half-year measurement; revenue scalability may be constrained by inventory and capacity requirements. Outlook hinges on raw material and utility cost normalization, possible price revisions, and production efficiency improvements. Without details on pipeline expansion or capacity additions, near-term profit recovery visibility is limited. Revenue growth appears sustainable at a mid-single-digit pace given the defensive end-market, but profit growth will require margin recovery.

Financial Health

Liquidity is adequate but tight: current ratio 109.5% suggests coverage of short-term obligations, while the quick ratio of 80.9% indicates dependence on inventories to meet near-term liabilities. Working capital stands at ¥4.21bn, which is positive but modest relative to current liabilities of ¥44.13bn. Cash and equivalents are unreported (shown as zero), limiting assessment of immediate liquidity buffers. Solvency is reasonable with assets of ¥85.43bn against equity of ¥34.01bn, implying financial leverage of 2.51x and a debt-to-equity ratio of 1.43x. Interest coverage of 17.3x indicates manageable interest burden and headroom under current earnings levels. The equity ratio is shown as 0.0% (unreported), but book equity is disclosed at ¥34.01bn, implying an equity-to-asset ratio around 39.8%. The liability structure is skewed to the short term (current liabilities ¥44.13bn vs total liabilities ¥48.69bn), which heightens refinancing and working capital management needs. Inventory at ¥12.64bn is substantial; efficient inventory turnover is key to liquidity but not disclosed here. Overall, the balance sheet appears moderately leveraged with ample interest coverage, but short-term funding dependence and inventory reliance warrant attention.

Cash Flow Quality

Operating cash flow of ¥0.77bn compares to net income of ¥0.83bn, yielding an OCF/NI ratio of 0.93, which indicates that earnings were largely supported by cash generation in the period. Depreciation and amortization of ¥1.16bn are significant relative to operating income, consistent with asset intensity; this non-cash expense supports OCF durability if profitability stabilizes. Free cash flow cannot be assessed because investing cash flow is shown as zero (likely unreported rather than true zero); thus, capex needs and maintenance spending are unknown. Working capital dynamics are only partially visible: inventories are ¥12.64bn, but changes in receivables/payables are not disclosed; the modest OCF suggests that working capital did not materially unwind earnings into cash. Interest expense (¥72m) is small relative to OCF, supporting cash interest coverage. Given the negative operating leverage in profits, sustaining OCF will depend on cost control and stable collections/payables. Overall earnings quality appears fair based on the OCF/NI ratio, but full FCF quality cannot be concluded without capex data.

Dividend Sustainability

Dividend data show annual DPS and payout ratio as zero, which likely reflects unreported interim figures rather than a definitive policy change. With net income of ¥0.83bn and OCF of ¥0.77bn, the period’s cash generation could theoretically support a modest distribution, but lack of investing CF data prevents FCF coverage assessment (FCF shown as zero due to unreported capex). Historically, dividend sustainability for an asset-intensive manufacturer depends on maintenance capex and working capital needs—both opaque here. The leverage profile (D/E 1.43x) and quick ratio below 1.0 argue for balance sheet prudence until margins recover. In the absence of confirmed DPS and with profits under pressure, a conservative stance on payouts would be consistent with preserving liquidity. Outlook on dividends thus hinges on margin recovery and visibility on capex; policy signals are not provided in the data.

Risk Assessment

Business Risks:

• Cost inflation in raw materials, utilities, and logistics compressing gross margins
• Pricing pressure and reimbursement revisions affecting hospital and medical product pricing
• Negative operating leverage due to high fixed-cost base in sterile/IV solution manufacturing
• Product mix shifts toward lower-margin items
• Quality control and GMP compliance risks inherent in sterile manufacturing
• Supply chain and inventory management risks (expiry/obsolescence)
• Customer concentration in hospital channels

Financial Risks:

• Tight short-term liquidity with quick ratio at 80.9%
• Working-capital intensity and reliance on inventories
• Moderate leverage (D/E 1.43x) increasing sensitivity to earnings volatility
• Potential refinancing needs given high proportion of current liabilities
• Capex requirements not disclosed, creating FCF uncertainty
• Interest rate risk on floating rate debt (mitigated by current interest coverage)

Key Concerns:

• Sharp YoY decline in operating and net income despite revenue growth
• Compressed operating margin at 4.0% indicating cost and/or pricing headwinds
• Limited visibility on capex and free cash flow due to unreported investing CF
• Dependence on inventories to support liquidity (quick ratio <1.0)
• Non-operating headwinds lowering ordinary income below operating income

Investment Implications

Key Takeaways:

• Top-line grew 5.0% YoY to ¥31.23bn, but profits contracted materially (OP -48.8% YoY)
• Margins compressed: gross margin 26.8%, operating margin 4.0%, EBITDA margin 7.7%
• ROE at 2.44% is driven by leverage rather than profitability or turnover
• Liquidity is adequate but inventory-dependent (current ratio 109.5%, quick ratio 80.9%)
• OCF/NI of 0.93 suggests acceptable earnings quality, but FCF is opaque
• Interest coverage remains solid at 17.3x, mitigating immediate solvency concerns

Metrics to Watch:

• Gross margin and operating margin trajectory versus input cost trends
• SG&A ratio and operating leverage as volumes grow
• Inventory turnover days and working capital intensity
• OCF/Net income and conversion of EBITDA to cash
• Capex levels and resulting free cash flow once investing CF is disclosed
• Debt maturity profile, D/E ratio, and interest coverage
• Impact of reimbursement/price revisions on ASPs

Relative Positioning: Relative to domestic hospital-focused pharma suppliers, Fuso exhibits stable revenue but weaker current profitability and tighter liquidity than cash-rich larger peers; leverage is moderate and interest coverage is adequate, but margin recovery is needed to improve returns.

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
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