| Metric | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥366.4B | ¥393.7B | -6.9% |
| Operating Income / Operating Profit | ¥-6.6B | ¥13.3B | +207.8% |
| Ordinary Income | ¥16.8B | ¥19.3B | -13.1% |
| Net Income / Net Profit | ¥7.4B | ¥9.2B | -20.1% |
| ROE | 1.0% | 1.3% | - |
For the fiscal year ended March 2026, Revenue was ¥366.4B (YoY -¥27.3B, -6.9%), Operating Income was ¥-6.6B (YoY -¥19.9B, turning to an operating loss), Ordinary Income was ¥16.8B (YoY -¥2.5B, -13.1%), and Net Income attributable to owners of the parent was ¥7.4B (YoY -¥1.8B, -20.1%). A large decline in the Pharmaceuticals segment (-11.0%) and a 512bp deterioration in gross margin drove an operating loss, but non-operating income of ¥23.7B, including securities disposal gains of ¥12.6B, underpinned results and kept the bottom line in the black. Operating Cash Flow was ¥-13.5B (prior year +¥44.3B), worsening significantly; continued aggressive capital expenditure of ¥59.0B led to Free Cash Flow of ¥-48.5B. EPS was ¥26.99 (YoY +21.3%), and the dividend was maintained at ¥30 per share annually (Payout Ratio 111%). The LAL segment posted revenue and profit growth that supported consolidated results, but the Pharmaceuticals operating loss of ¥-16.4B was a drag. Management plans a V-shaped recovery next fiscal year to Revenue ¥418.5B (+14.2%) and Operating Income ¥20.5B.
[Revenue] Revenue was ¥366.4B (YoY -6.9%), a decline. By segment, Pharmaceuticals was ¥244.9B (-11.0%)—a large decrease. Breakdown: Domestic Pharmaceuticals ¥118.7B (-0.4%) essentially flat, Overseas Pharmaceuticals ¥93.7B (-4.4%) slightly down, Pharmaceutical APIs & Contract Manufacturing ¥32.5B (+1.9%) slightly up. The primary cause was royalty income essentially disappearing to ¥0.01B (prior year ¥25.98B). LAL was ¥121.5B (+2.5%) and remained resilient, mitigating the consolidated decline. Revenue composition: Pharmaceuticals 66.8%, LAL 33.2%. Gross profit was ¥159.7B (prior year ¥191.5B) and gross margin fell to 43.6% (prior year 48.7%), a 512bp deterioration, suggesting worsened product mix and cost increases.
[Profitability] SG&A was ¥166.3B (prior year ¥178.2B), reduced by -6.7%, but the revenue decline of -6.9% left SG&A as a share of sales roughly unchanged at 45.4% (prior year 45.2%). R&D was restrained to ¥70.1B (prior year ¥76.4B) but remains high at 19.1% of sales. Worsening gross margin and lower sales reversed operating leverage, resulting in Operating Income of ¥-6.6B (prior year ¥+13.3B). Non-operating income of ¥23.7B (6.5% of sales) supported the ordinary stage; comprised of securities disposal gains ¥12.6B (one-off), dividend income ¥5.0B, foreign exchange gains ¥3.5B, etc. Non-operating expenses were minor at ¥0.3B, yielding Ordinary Income of ¥16.8B (-13.1%). After recording Extraordinary Losses ¥1.7B (impairment losses, etc.), Profit Before Tax was ¥15.1B. Income taxes were ¥0.4B (effective tax rate 2.4%), very low, likely benefiting from utilization of deferred tax assets. Net Income attributable to owners of the parent was ¥7.4B (-20.1%), but EPS rose to ¥26.99 (YoY +21.3%), partly due to a lower weighted average share count (546B shares, YoY -1.5%). In conclusion, deterioration in Pharmaceuticals pushed the company into an operating loss, but non-operating income preserved a final net profit in a declining-revenue, declining-profit fiscal year.
LAL: Revenue ¥121.5B (+2.5%), Operating Income ¥9.8B (+20.5%), Operating Margin 8.0%—stable growth with higher revenue and profit. Pharmaceuticals: Revenue ¥244.9B (-11.0%), Operating Loss ¥-16.4B (prior year +¥5.2B, -412.6%), Operating Margin -6.7%—substantially worse. The Pharmaceuticals loss driver was the sharp decline in royalty income (¥25.98B → ¥0.01B) and gross margin deterioration; profitability fell markedly despite slight declines in domestic and overseas pharmaceutical sales. Stable earnings from LAL limited the consolidated operating loss to ¥-6.6B, but recovery in Pharmaceuticals profitability is key to a full corporate turnaround. Segment assets: Pharmaceuticals ¥694.7B, LAL ¥168.8B; low asset efficiency in Pharmaceuticals (Revenue/Assets = 0.35 turns) is an issue.
[Profitability] Operating margin was -1.8% (prior year +3.4%), turning to an operating loss. Ordinary margin was 4.6% (prior year 4.9%), Net margin 2.0% (prior year 2.3%). ROE 1.0% (prior year 1.7%), ROA 0.9% (prior year 1.1%)—low levels. R&D ratio remains elevated at 19.1% (prior year 19.4%). [Cash Quality] Operating Cash Flow to Net Income ratio was -1.82x; deterioration in working capital (Accounts receivable increase ¥12.7B, Inventory increase ¥10.6B) meant Net Income did not convert to cash. Estimated EBITDA including depreciation ¥19.8B is ¥13.2B, yielding an Operating CF/EBITDA ratio of -1.02x. [Investment Efficiency] Total asset turnover declined to 0.42x (prior year 0.47x). Inventory days (DIO) 199 days, Receivables days (DSO) 84 days, Cash Conversion Cycle (CCC) 265 days—extended. Capital expenditure was ¥59.0B, 2.98x depreciation, and Construction in Progress (CIP) ¥86.6B (38.3% of tangible fixed assets) indicates large pre-operational investments continuing. [Financial Soundness] Equity Ratio 87.2% (prior year 87.3%), Current Ratio 534% (prior year 502%)—very strong. Interest-bearing debt was ¥3.6B (short-term borrowings ¥3.0B, lease liabilities ¥0.6B), effectively debt-free vs. cash and deposits ¥89.4B. Net cash ratio 10.1%.
Operating Cash Flow was ¥-13.5B (prior year +¥44.3B), a significant deterioration. The primary cause: Profit before tax ¥15.1B was offset by working capital deterioration (Accounts receivable +¥12.7B, Inventory +¥10.6B, Accounts payable +¥0.5B). The subtotal of OCF before working capital changes was also negative at ¥-19.2B, and despite non-cash expenses (depreciation ¥19.8B, goodwill amortization ¥1.9B, impairment losses ¥1.7B), pre-tax profits did not convert to cash. Investing Cash Flow was ¥-35.1B—large CAPEX of ¥59.0B continued, partially offset by securities sale/redemption proceeds ¥41.7B. Free Cash Flow was ¥-48.5B (prior year +¥9.0B). Financing Cash Flow was ¥-16.8B, driven mainly by dividend payments ¥-16.4B. Cash and cash equivalents decreased from ¥183.2B at the beginning of the period to ¥120.6B at the end, a decline of ¥-62.6B, reflecting aggressive investment and dividend maintenance. The accumulation of CIP indicates pre-operational assets are idle; delays in commissioning carry impairment risk.
Of Ordinary Income ¥16.8B, Non-operating income ¥23.7B comprised 141%—far exceeding the operating loss of ¥-6.6B. Non-operating income breakdown: Securities disposal gains ¥12.6B (one-off), Dividend income ¥5.0B (semi-recurring), Foreign exchange gains ¥3.5B (market-dependent). Investment income and FX, which lack recurrence, supported earnings quality. Extraordinary loss was small at ¥1.7B, but the operating-stage loss points to structural issues. The accrual ratio ((Net Income - Operating CF) / Total Assets) is 2.4%—low—but because OCF is below Net Income (OCF/NI = -1.82x), cash backing of earnings is weak. Comprehensive Income ¥37.3B vs. Net Income ¥7.4B shows a divergence of +¥29.9B, contributed by Other Securities Valuation Differences ¥16.9B, Foreign Currency Translation Adjustments ¥2.8B, and Retirement Benefit Adjustments ¥2.9B, indicating significant unrealized gains not recognized in the P/L.
FY2027 (ending March 2027) full-year forecast: Revenue ¥418.5B (YoY +14.2%), Operating Income ¥20.5B (Operating margin 4.9%), Ordinary Income ¥42.0B (+150.0%), Net Income attributable to owners of the parent ¥22.5B, EPS ¥41.21, Dividend ¥15. Revenue is expected to increase by ¥52.1B, and Operating Income to improve by ¥27.1B to return to profitability. The sharp increase in Ordinary Income (+150%) assumes continued contribution from non-operating income; reproducibility of securities disposal gains is uncertain. H1 cumulative progress: through Q2 cumulative Revenue ¥183.2B (43.8% of full-year plan), Operating Income ¥-6.6B, implying substantial recovery is required in H2. Dividend forecast ¥15 is half prior year’s ¥30, and Payout Ratio is 36.4% (based on EPS ¥41.21), a conservative normalization considering cash generation. Achieving the full-year plan assumes gross margin improvement from CIP commissioning, continued growth in LAL, recovery in Pharmaceuticals profitability, and improved working capital efficiency.
Annual dividend was ¥30 (interim ¥15, year-end ¥15) totaling ¥16.4B. Relative to Net Income attributable to owners of the parent ¥7.4B, the Payout Ratio was 111%, exceeding profits and funded from retained earnings. Dividend coverage vs. Free Cash Flow was -0.34x (Total dividends / FCF), indicating dividends were not covered by Operating CF and were paid by reducing cash balances. Dividend yield will vary with stock price. Next fiscal year dividend forecast is ¥15 (YoY -50%), a significant cut; Payout Ratio is 36.4% (based on forecast EPS ¥41.21), signaling intent to conserve cash during the investment phase. No share buybacks are planned; shareholder returns focus on dividends. Management intends to maintain stable dividends long-term but prioritizes cash generation recovery and investment payback in the short term.
Deterioration of Pharmaceuticals segment profitability: Operating loss ¥-16.4B (Operating margin -6.7%) and a sharp drop in royalty income (¥25.98B → ¥0.01B) have weakened the core segment’s earnings base. Gross margin at 43.6% (YoY -512bp) and structural issues of product mix deterioration and cost inflation are evident. Pharmaceuticals account for 66.8% of sales, so delayed recovery would materially impair consolidated results. Risks include drug price revisions and price regulation impacts, and time lags until R&D investments (19.1% of sales) yield results.
Working capital inefficiency and weakened cash generation: Accounts receivable ¥84.8B (+17.9%), Inventory ¥41.3B (+21.7%) increased despite declining sales, extending CCC to 265 days and DIO to 199 days. Operating Cash Flow ¥-13.5B and OCF/NI -1.82x show Net Income did not convert to cash. Risks include inventory write-downs from stock stagnation and credit risk from delayed receivable collections. With Payout Ratio 111% and FCF coverage -0.34x, delayed improvement in working capital efficiency would require further drawdowns of cash deposits ¥89.4B.
Delay in large-scale investments and impairment risk: CIP ¥86.6B (38.3% of tangible fixed assets) is high, and aggressive CAPEX ¥59.0B (2.98x depreciation) continues. Prolonged idle pre-operational assets would delay capital recovery and surface impairment tails. Achieving next fiscal year Operating Income ¥20.5B assumes CIP contribution; delays or underperformance post-commissioning create downside risk. Large cash declines (¥-61.9B) amid ongoing investment reduce short-term liquidity cushions.
Profitability & Returns
| Metric | Our Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | -1.8% | -94.2% (-358.4%–8.6%) | +92.4pt |
| Net Margin | 2.0% | -101.5% (-373.7%–5.9%) | +103.5pt |
Within the industry, profitability metrics exceed the median largely because the industry median is skewed by a high proportion of unprofitable firms; in absolute terms the company is operating at a loss and relative advantage is limited.
Growth & Capital Efficiency
| Metric | Our Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | -6.9% | -0.6% (-22.4%–13.3%) | -6.3pt |
Revenue growth underperforms the median, with a relatively large decline among peers.
※ Source: Company compilation
Whether Pharmaceuticals can recover profitability is the primary focal point. The loss of high-value royalty income (¥25.98B → ¥0.01B) and a 512bp decline in gross margin contrast with management’s FY2027 plan assuming Operating Margin of 4.9% in a V-shaped recovery. Quarterly verification is needed for improvements in product mix, price pass-through, and utilization rates. LAL’s stable growth (Operating margin 8.0%, Operating Income +20.5%) is expected to continue, but Pharmaceuticals account for over 60% of consolidated profit potential, so Pharmaceuticals exiting loss-making is critical.
The commissioning timing and earnings contribution of CIP ¥86.6B (38.3% of tangible fixed assets) will be the acid test for investment recovery. CAPEX is roughly three times depreciation and aggressive; the balance between increased depreciation burden and gross margin improvement post-commissioning is key. Delays or poor ramp-up risk impairment and missed plans—monitor plant utilization, production capacity utilization, and ROIC disclosures. Improvements in working capital efficiency (CCC 265 days, DIO 199 days) and returning to positive Operating CF will determine sustainability of maintaining dividends while continuing investments.
Reducing dependence on non-operating income and normalizing dividend policy. Securities disposal gains ¥12.6B (one-off) and foreign exchange gains ¥3.5B (market-dependent) accounted for 142% of Ordinary Income ¥16.8B, a non-sustainable structure; operating profitability is required next fiscal year. Halving the dividend to ¥15 is a corrective measure from Payout Ratio 111% and FCF coverage -0.34x, and is reasonable for cash management during the investment recovery. Medium-term, assuming Operating CF and FCF return to positive, a return to stable dividends in the 30-40% Payout Ratio range could be expected.
This report was automatically generated by AI analyzing XBRL earnings release data. It is not a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by our firm based on public financial statements. Investment decisions are your own responsibility; consult a professional if necessary.