KISSEI PHARMACEUTICAL CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Although the Company secured revenue growth in the quarter, its core earning power declined, while the increase in net income was supported by temporary extraordinary gains. Revenue was ¥23.39B (+5.4% year on year), Operating Income was ¥1.09B (-48.0%), and Ordinary Income was ¥2.19B (-25.0%), all trending lower year on year. Meanwhile, consolidated Net Income increased to ¥4.76B (+5.3%; Net Income attributable to owners of the parent was ¥4.72B, +4.5%), securing an increase in earnings. The primary reason for the decline in Operating Income was that SG&A expenses increased 15.2% year on year, exceeding revenue growth (+5.4%). The increase in Net Income resulted from the recognition of ¥4.11B in extraordinary gains, including a ¥4.09B gain on sales of investment securities, representing a divergence from recurring earning power.

Factors Affecting Performance

【Revenue】Revenue was ¥23.39B, representing a 5.4% year-on-year increase. By segment (based on the segment total and composition ratio), the core Pharmaceuticals Business grew to ¥19.46B (+4.2%, composition ratio 79.1%), while the Information Services Business increased to ¥3.57B (+26.9%, composition ratio 14.5%). In contrast, the Construction and Facility Maintenance Business declined to ¥1.30B (-28.3%, composition ratio 5.3%), and the Merchandise Sales Business decreased to ¥0.27B (-8.1%, composition ratio 1.1%). The primary drivers of revenue growth were the strong growth of the Information Services Business and the resilience of the Pharmaceuticals Business, while the contraction of the two non-core businesses partially restrained overall growth.

【Profit and Loss】Operating Income was ¥1.09B (-48.0%), and the Operating Income margin declined to 4.7% from 9.5% in the previous year, a decrease of 4.8pt. While the cost of sales ratio was largely unchanged, SG&A expenses expanded to ¥10.34B (44.2% of revenue, compared with 40.4% in the previous year), making the increase in expenses greater than revenue growth and serving as the primary cause of the earnings decline. By segment, Operating Income in the Pharmaceuticals Business deteriorated significantly to ¥0.62B (-65.5%, margin 3.2%), weighing on company-wide earnings, while the Information Services Business recorded ¥0.30B (+317.8%, margin 8.6%), showing a notable improvement in profitability. Supported by ¥1.12B in non-operating income, including ¥0.68B in dividend income, Ordinary Income stood at ¥2.19B (-25.0%). However, extraordinary gains of ¥4.11B, primarily consisting of a ¥4.09B gain on sales of investment securities, lifted Profit Before Tax to ¥6.29B, resulting in a 5.3% increase in Net Income to ¥4.76B. In conclusion, the Company achieved higher revenue but lower operating and ordinary profit, while Net Income increased due to temporary factors.

Segment Analysis

The most notable feature is the widening profitability gap among segments. The Pharmaceuticals Business was the largest segment, with revenue of ¥19.46B (+4.2%) and a composition ratio of 79.1%, but Operating Income fell to ¥0.62B (-65.5%), and its margin declined sharply to 3.2% from an estimated approximately 9.7% in the previous year. The Information Services Business recorded revenue of ¥3.57B (+26.9%), Operating Income of ¥0.30B (+317.8%), and a margin of 8.6% (2.6% in the previous year), demonstrating progress toward high growth and improved profitability and supporting the company-wide margin. The Construction and Facility Maintenance Business maintained a 7.6% margin despite revenue of ¥1.296B (-28.3%), while the Merchandise Sales Business recorded revenue of ¥0.27B (-8.1%) and approximately zero Operating Income. The decline in the company-wide Operating Income margin was primarily attributable to deteriorating profitability in the Pharmaceuticals Business, which accounts for approximately 80% of the composition, while growth in the Information Services Business partially offset the impact.

Key Financial Metrics

【Profitability】The Operating Income margin was 4.7%, down 4.8pt from 9.5% in the previous year, while the gross margin also declined slightly to 48.9% from 49.9%. 【Cash Quality】Comprehensive Income was ¥3.06B, ¥1.70B below consolidated Net Income of ¥4.76B. This was attributable to fluctuations in other securities valuation, including a -¥1.49B valuation difference on securities and a -¥0.22B adjustment related to retirement benefits. 【Investment Efficiency】ROE was 2.1%. Investment securities accounted for ¥104.58B of total assets of ¥270.24B (38.7% of total assets), and the balance sheet’s heavy weighting toward financial assets has contributed to a persistently low asset turnover ratio. 【Financial Soundness】The Equity Ratio remained high at 85.3% (83.7% in the previous year), while the current ratio was 602.6%. With interest-bearing debt of ¥1.25B versus cash and deposits of ¥30.64B, the Company was in a net cash position, and its interest coverage ratio was 136.9 times, indicating extremely strong debt-servicing capacity.

Cash Flow Analysis

As cash flow statement data are unavailable, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥30.64B (¥29.06B in the previous year, +5.4%), indicating an expansion in liquidity on hand. Current liabilities declined to ¥18.29B (¥21.69B in the previous year, -15.7%), primarily because income taxes payable decreased significantly to ¥1.28B (¥5.01B in the previous year, -74.5%) and the provision for bonuses declined to ¥0.88B (¥2.30B in the previous year, -61.7%). Meanwhile, contract liabilities (advance payments) increased to ¥1.62B (¥0.85B in the previous year, +90.9%), indicating an accumulation of advance payments for future service provision. Current securities declined to ¥22.32B (¥25.37B in the previous year, -12.0%), suggesting that a partial review of the asset composition, including sales of investment securities, may have progressed. Overall, debt reduction and the accumulation of cash on hand progressed in parallel, expanding financial flexibility from the previous year.

Quality of Earnings

When recurring earnings and temporary items are distinguished, the results indicate a high degree of dependence on non-recurring items. Against Operating Income of ¥1.09B, the Company recorded ¥1.12B in non-operating income (4.8% of revenue, primarily ¥0.68B in dividend income) and ¥4.11B in extraordinary gains (including a ¥4.09B gain on sales of investment securities). Consequently, Ordinary Income accounted for only ¥2.19B of Profit Before Tax of ¥6.29B. The effective tax rate was 24.3%, calculated as ¥1.53B in income taxes and other taxes divided by Profit Before Tax of ¥6.29B, broadly in line with the previous year. Comprehensive Income was ¥3.06B, below consolidated Net Income of ¥4.76B, with fluctuations in the fair value of securities creating a divergence from Net Income. The increase in Net Income was highly dependent on the temporary factor of gains on sales of investment securities, and evaluation should focus on the trend in core Operating Income.

Earnings Forecast and Guidance

Progress against the full-year forecast was substantially ahead of the standard quarterly progress rate of 25% for Operating Income and Ordinary Income. Revenue reached 26.4% progress against the full-year forecast of ¥88.70B (the full year is expected to decline 8.9% year on year), Operating Income reached 54.8% against ¥2.00B, Ordinary Income reached 54.6% against ¥4.00B, and Net Income attributable to owners of the parent reached 35.5% against ¥13.30B. The high progress rates for Operating Income and Ordinary Income were largely attributable to the recognition of extraordinary gains, including gains on sales of investment securities. It should therefore be noted that progress on a core Operating Income basis was more moderate. The earnings forecast was revised during the quarter, and the recovery of profitability in the core businesses will be the key issue for achieving the full-year plan.

Shareholder Returns

The full-year dividend forecast is ¥170 per share, including a ¥40 commemorative dividend marking the 80th anniversary of the Company’s founding. The Payout Ratio against forecast EPS of ¥326.97 is 52.0%, calculated as ¥170 ÷ ¥326.97, a level within a generally sustainable range. There was no revision to the dividend forecast during the quarter; only the earnings forecast was revised. Given the Company’s minimal interest-bearing debt and net cash position, its financial foundation for dividend funding is reasonably strong.

Risk Factors

1. Deteriorating profitability in the core Pharmaceuticals Business: The Operating Income margin of the Pharmaceuticals Business was 3.2%, down sharply from an estimated approximately 9.7% in the previous year, while Operating Income was ¥0.62B (-65.5%). As the core business accounts for approximately 79% of the revenue composition, its declining profitability has a significant impact on company-wide earnings.

2. Earnings structure dependent on extraordinary gains: Extraordinary gains accounted for ¥4.11B of Profit Before Tax of ¥6.29B, including a ¥4.09B gain on sales of investment securities, representing a substantial divergence from the recurring earnings level reflected in Ordinary Income of ¥2.19B. This gain was a temporary factor, and if gains of a similar magnitude are not recorded in subsequent periods, earnings could decline sharply on a reversal effect.

3. Contraction of non-core segments: The Construction and Facility Maintenance Business recorded a 28.3% decline in revenue, while the Merchandise Sales Business also recorded an 8.1% decline, indicating that the contraction trend in the two non-core segments is continuing.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

The Operating Income margin was substantially below the industry median, while the Net Income margin exceeded the industry median due to the recognition of extraordinary gains.

Growth and Capital Efficiency

The revenue growth rate was below the industry median, placing the Company somewhat behind its industry peers in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The Operating Income margin fell sharply to 4.7% from 9.5% in the previous year, indicating that the increase in expenses pressured profitability, as SG&A expense growth (+15.2%) exceeded revenue growth (+5.4%).

2. The increase in consolidated Net Income (+5.3%) was largely attributable to extraordinary gains, including a ¥4.09B gain on sales of investment securities. Given that Ordinary Income declined 25.0%, earnings quality remains highly dependent on temporary factors.

3. By segment, the Information Services Business achieved high growth and improved profitability, with revenue up 26.9% and Operating Income up 317.8%. Meanwhile, the core Pharmaceuticals Business recorded higher revenue but a 65.5% decline in Operating Income, indicating divergent performance across the business portfolio.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly available data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥4,208–¥4,448 at ±1% for the cost of equity, and ¥4,288–¥4,350 at ±0.1 for ω.

Notes:

• Normalized EPS calculated from Ordinary Income and other metrics is used to exclude the impact of temporary profit and loss items (the Company’s forecast EPS is ¥327.0).
• Because progress of Net Income against the full-year forecast (36%) exceeds the standard rate (25%), forecast EPS is adjusted upward within a maximum range of +10% (because companies ahead of schedule tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because 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 (there is a timing difference from the full-year forecast).

(Model used: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict 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. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, and after consulting a professional adviser as necessary.

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