TSUMURA & CO. FY2027 Q1 Earnings Report

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Executive Summary

In Q1 FY2027, the Company secured revenue growth in its single Pharmaceutical Business segment. However, operating income was sluggish due to a decline in the gross profit margin, while ordinary income and net income increased substantially, driven by foreign exchange gains. Revenue was ¥4.970B (+15.3% YoY), while operating income remained at ¥0.788B (+2.1%). In contrast, ordinary income increased significantly to ¥0.975B (+57.8%), and net income attributable to owners of the parent rose substantially to ¥0.646B (+47.8%). The operating margin declined to 15.9% from 17.9% in the previous year, whereas the ordinary income margin improved to 19.6% from 14.3%. This difference was primarily attributable to non-operating income of ¥0.248B, including foreign exchange gains of ¥0.214B. EPS was ¥86.63, compared with ¥58.16 in the previous year.

Factors Affecting Performance

【Revenue】Revenue was ¥4.970B, up ¥0.660B, or +15.3%, from ¥4.309B in the same period of the previous year. The Company operates a single segment consisting solely of its Pharmaceutical Business, and no business-level breakdown is disclosed. However, cost of sales increased to ¥2.711B (+20.1%), exceeding the rate of revenue growth, indicating that the revenue increase was accompanied by higher costs.

【Profit and Loss】Gross profit was ¥2.260B, and the gross profit margin declined to 45.5% from 47.6% in the previous year, a decrease of 2.1pt. SG&A expenses were ¥1.472B (+15.0%), increasing at approximately the same rate as revenue, indicating that cost controls were maintained. However, due to the deterioration in the gross profit margin, operating income increased only 2.1% to ¥0.788B, substantially below the revenue growth rate. Meanwhile, non-operating income of ¥0.248B, including foreign exchange gains of ¥0.214B and dividend income of ¥0.013B, boosted ordinary income, which increased significantly by 57.8% to ¥0.975B. Extraordinary items were limited, consisting of extraordinary income of ¥0.002B and extraordinary losses of ¥0.001B, and therefore had a limited impact on the bottom line. Net income attributable to owners of the parent was ¥0.646B (+47.8%). In conclusion, although operating income increased only marginally, ordinary income and net income rose substantially due to foreign exchange gains, a non-operating factor. This was a case of revenue and profit growth, but attention is warranted because the quality of earnings growth is highly dependent on foreign exchange factors.

Key Financial Indicators

【Profitability】The gross profit margin declined to 45.5% from 47.6% in the previous year, and the operating margin declined to 15.9% from 17.9%. In contrast, the ordinary income margin improved to 19.6% from 14.3%, while the net profit margin, based on income attributable to owners of the parent, improved to 13.0% from 10.1%. Non-operating foreign exchange gains were a factor supporting the profitability indicators.【Cash Flow Quality】Operating cash flow (OCF) was -¥0.444B, representing a significant divergence from net income attributable to owners of the parent of ¥0.646B. This was primarily due to a reversal in working capital caused by increases in trade receivables and inventories and a decrease in trade payables, indicating a delay in converting earnings into cash.【Investment Efficiency】ROE was 1.8%. The Company was in an active investment phase, with capital expenditures reaching approximately 2.9 times depreciation. Although the EBITDA margin remained high at 22.8%, improvements in asset efficiency are still in progress.【Financial Soundness】The equity ratio remained at a solid 62.9%. However, short-term borrowings increased sharply to ¥1.579B from ¥0.333B in the previous year, indicating a shortening of the funding structure. Cash and deposits of ¥7.728B substantially exceeded current liabilities of ¥10.002B, and there is little concern regarding the Company’s ability to meet near-term payments.

Cash Flow Analysis

Operating cash flow was -¥0.444B, widening from -¥0.117B in the previous year, while free cash flow was -¥1.522B. The deterioration in OCF resulted from a reversal in working capital due to increases in trade receivables (-¥0.327B) and inventories (-¥0.287B), a decrease in trade payables (-¥0.414B), and corporate income tax payments (-¥0.484B). Investing cash flow was -¥1.077B, primarily reflecting capital expenditures of ¥0.993B, indicating that aggressive investment continues. Financing cash flow was +¥0.661B, with an increase in short-term borrowings (+¥1.247B) compensating for the funding shortfall, while the balance of bonds declined as redemptions progressed. The Company’s cash generation from operating activities was insufficient to cover investment and dividend payments, resulting in reliance on short-term funding. The normalization of working capital from the next period onward will determine the quality of the Company’s liquidity management.

Quality of Earnings

Against operating income of ¥0.788B, the recurring source of earnings, non-operating income was ¥0.248B, equivalent to approximately 5.0% of revenue. However, the majority of this amount, ¥0.214B, consisted of foreign exchange gains, a highly temporary item. Extraordinary items were minimal, consisting of extraordinary income of ¥0.002B and extraordinary losses of ¥0.001B, and had a limited impact on net income. The effective tax rate was approximately 31.1%, calculated as corporate income taxes of ¥0.304B divided by profit before tax of ¥0.976B, a normal level. Meanwhile, OCF of -¥0.444B was substantially below net income attributable to owners of the parent of ¥0.646B. As accruals increased due to growth in trade receivables and inventories, a relatively large portion of current-period net income was not supported by cash flow.

Earnings Forecast and Guidance

Q1 progress against the full-year forecast was 23.3% for revenue (¥4.970B / ¥21.360B), 21.0% for operating income (¥0.788B / ¥3.750B), 27.5% for ordinary income (¥0.975B / ¥3.550B), and 24.6% for net income (¥0.646B / ¥2.620B). Operating income progress was slightly below the simple proportional benchmark of 25%, while ordinary income was ahead of schedule due to the recognition of foreign exchange gains. Full-year ordinary income is forecast to decline 11.3% YoY. Since the substantial increase in ordinary income as of Q1 reflects the foreign exchange environment during the first half, progress is expected to normalize over the full year. There were no revisions to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The full-year dividend forecast is ¥158.00 per share, implying a payout ratio of approximately 45.0% based on projected full-year EPS of ¥351.46. There was no revision to the dividend forecast for the quarter, and the existing shareholder return policy remains in place. No share repurchases were identified based on the current-period data, and it is appropriate to evaluate shareholder returns primarily on the basis of the payout ratio. Since free cash flow was negative in Q1, dividends could not be fully funded by operating cash flow on a quarterly basis. However, the assessment of the sustainability of shareholder returns could change if working capital normalizes on a full-year basis.

Risk Factors

1. Decline in gross profit margin: The gross profit margin declined to 45.5% from 47.6% in the previous year, while costs of ¥2.711B increased by +20.1%, exceeding revenue growth of +15.3%. Rising costs caused operating income growth of +2.1% to diverge substantially from the revenue growth rate.

2. Increasing dependence on foreign exchange: The 57.8% increase in ordinary income was significantly supported by non-operating income of ¥0.248B, the majority of which consisted of foreign exchange gains of ¥0.214B. This item is temporary in nature and could reverse due to market fluctuations.

3. Reversal in working capital and increase in short-term funding: Trade receivables and inventories increased by a combined ¥0.614B, while trade payables decreased by ¥0.414B, resulting in OCF of -¥0.444B. This funding shortfall was offset by an increase in short-term borrowings (+¥1.247B, +374%), increasing dependence on short-term funding.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (pharma)

Profitability and Returns

The operating margin is slightly below the industry median, while the net profit margin is substantially above the industry median.

Growth and Capital Efficiency

The revenue growth rate exceeded the industry median and was close to the upper end of the IQR, indicating strong growth.

Source: Compiled by the Company

Key Points from the Earnings Results

1. While the top line grew +15.3% YoY, exceeding the industry average, the decline in the gross profit margin of 2.1pt limited operating income growth to +2.1%. The quality of revenue growth and trends in cost control will therefore be key points to monitor.

2. The substantial increases in ordinary income and net income were significantly supported by foreign exchange gains of ¥0.214B. As the profit growth was driven by non-operating factors, it should be evaluated separately from trends in operating income.

3. OCF was -¥0.444B and free cash flow was -¥1.522B. The reversal in working capital—consisting of increases in trade receivables and inventories and a decrease in trade payables—raised funding requirements, while short-term borrowings surged +374% YoY. The pace of working capital normalization is a structural observation point that will determine future liquidity trends.

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

Sensitivity: ¥4,738–¥5,012 at ±1% for the cost of equity, and ¥4,864–¥4,876 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥14.5 per share is added back to earnings (due to its non-cash nature and to facilitate comparability with IFRS companies).
• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used; there is a timing difference relative to the full-year forecast.
• Since net assets include non-controlling interests, the theoretical value may be calculated at a somewhat elevated level.

(Model: Residual Income Model / Interest Rate Base Month: 2026-07 / This value does not forecast or guarantee future share prices)

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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 available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional advisor where necessary.

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