TOWA PHARMACEUTICAL CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥130.48B
• Operating Income: ¥10.44B
• Net Income: ¥6.55B
• EPS: ¥166.86

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

Towa Pharmaceutical Co., Ltd. (4553) delivered FY2026 Q2 consolidated results under JGAAP showing steady top-line growth with mixed profitability dynamics. Revenue grew 5.7% year on year to ¥130.5bn, supported by resilient demand in its generics franchise. Gross profit of ¥44.9bn translated to a gross margin of 34.4%, indicating a healthy value capture despite industry pricing pressures. Operating income came in at ¥10.44bn, down 0.7% YoY, implying some margin compression and negative operating leverage in the period. Ordinary income was ¥11.98bn, outpacing operating income due to positive non-operating contributions that more than offset interest expense. Net income rose 25.3% YoY to ¥8.21bn, indicating below-the-line tailwinds and/or normalization of one-off items relative to the prior year. EBITDA was ¥17.83bn, yielding a 13.7% margin; interest coverage was a solid 13.5x, underscoring sound debt service capacity. DuPont ROE was 4.57%, driven by a 6.30% net margin, 0.272x asset turnover, and 2.67x financial leverage. The balance sheet appears conservatively funded with an estimated equity ratio of about 37.4% (equity/total assets), although the reported equity ratio field shows 0.0% due to data not disclosed in that line item. Liquidity is strong: current ratio 281% and quick ratio 230%, supported by sizable working capital of ¥159.4bn. Operating cash flow of ¥8.65bn modestly exceeded net income (OCF/NI of 1.05), suggesting reasonable earnings cash conversion. Investing cash flow and cash balances are not disclosed in this dataset, limiting visibility into capex intensity and free cash flow. Dividend data show a DPS of ¥0 and payout ratio of 0%, but with FCF unreported, coverage cannot be assessed. Overall, the company exhibits solid liquidity and coverage, modest ROE constrained by low asset turnover, and near-term margin pressure at the operating level despite net profit growth. Data gaps around investing cash flows, cash on hand, and share count limit the precision of valuation and per-share analyses. The outlook hinges on pricing discipline, product mix upgrades, and cost control to restore positive operating leverage while maintaining cash conversion.

Profitability Analysis

ROE_decomposition: ROE 4.57% = Net margin 6.30% x Asset turnover 0.272x x Financial leverage 2.67x. The ROE is modest for a pharma manufacturer, constrained primarily by low asset turnover and mid-single-digit net margins. margin_quality: Gross margin at 34.4% is healthy for a domestic generics mix. Operating margin is approximately 8.0% (¥10.44bn / ¥130.48bn), down versus the prior year as operating income fell slightly despite revenue growth. Ordinary income margin is approximately 9.2%, lifted by net non-operating gains (ordinary income exceeds operating income by ~¥1.54bn despite ¥0.78bn interest expense). Net margin is 6.30%, aided by non-operating items and a normalized tax burden. operating_leverage: Revenue grew 5.7% YoY while operating income declined 0.7% YoY, indicating negative operating leverage in the half—likely due to COGS inflation and/or higher SG&A (e.g., energy, logistics, compliance, and quality costs). EBITDA margin of 13.7% provides some cushion, but incremental margins were likely below historical averages this period.

Growth Assessment

revenue_sustainability: Top-line expansion of 5.7% YoY suggests steady volume demand and contribution from portfolio breadth, with possible tailwinds from supply stability and new product launches in the generics segment. profit_quality: Net income increased 25.3% YoY despite flat-to-down operating profit, implying reliance on non-operating items or favorable comparison effects below the operating line. Interest expense of ¥0.78bn is manageable; ordinary profit improvement relative to operating profit indicates positive non-operating contributions. outlook: For the remainder of FY2026, key drivers will include price revisions in the NHI system, product mix upgrades toward higher-value generics, manufacturing efficiency, and raw material cost normalization. Restoring positive operating leverage will be crucial to sustain earnings growth beyond non-operating boosts.

Financial Health

liquidity: Current ratio 281.2% and quick ratio 230.3% reflect strong short-term solvency, supported by ¥247.3bn current assets and ¥87.9bn current liabilities. Working capital stands at ¥159.4bn. solvency: Debt-to-equity of 1.66x and interest coverage of 13.5x indicate manageable leverage and robust serviceability. Estimated equity ratio is approximately 37.4% (¥179.9bn / ¥480.5bn), despite the reported 0.0% field; this points to a balanced capital structure for the sector. capital_structure: Total assets ¥480.5bn funded by ¥299.2bn liabilities and ¥179.9bn equity. Financial leverage of 2.67x supports ROE but leaves limited room for aggressive releveraging without impacting coverage metrics.

Cash Flow Quality

earnings_quality: OCF/Net income of 1.05 indicates reasonable cash realization of earnings, suggesting limited accrual build in the period. FCF_analysis: Free cash flow cannot be determined due to undisclosed investing cash flows and capex (reported as 0 in this dataset). As such, FCF margin and FCF yield cannot be evaluated from the provided data. working_capital: Inventories of ¥44.77bn within ¥247.31bn current assets point to solid buffer levels; however, without period-on-period inventory and receivables turnover data, we cannot assess working capital efficiency trends. The strong quick ratio implies limited reliance on inventory to meet obligations.

Dividend Sustainability

payout_ratio_assessment: Reported DPS is ¥0 with a payout ratio of 0%. Given positive net income, this implies either no interim dividend or a policy choice to retain earnings this period. FCF_coverage: Not assessable, as investing cash flows and capex are undisclosed; therefore, we cannot compute FCF or coverage. policy_outlook: With healthy liquidity and coverage, the company has capacity for dividends; however, management may prioritize investment in capacity, quality, and R&D for product pipeline resilience. Dividend visibility depends on capex needs and the trajectory of operating margins.

Risk Assessment

Business Risks:

• NHI drug price revisions and ongoing deflationary pressure on generic prices in Japan
• Raw material and API cost volatility affecting COGS and gross margins
• Quality control and compliance risks intrinsic to pharmaceutical manufacturing
• Supply chain disruptions impacting active ingredients and packaging materials
• Competitive intensity from domestic and overseas generic players
• Product mix shifts toward lower-margin molecules

Financial Risks:

• Potential compression of operating margins leading to weaker operating leverage
• Exposure to interest rate increases given leverage (Debt-to-equity 1.66x), though coverage is currently strong
• Working capital swings (inventory and receivables) that could dampen operating cash flow
• Limited visibility on capex and investing cash needs due to undisclosed investing cash flows

Key Concerns:

• Negative operating leverage despite revenue growth in the period
• Dependence on non-operating items to lift ordinary and net income
• Data gaps around investing cash flows and cash balances restricting FCF assessment

Investment Implications

Key Takeaways:

• Top-line growth of 5.7% YoY with healthy gross margin of 34.4%
• Operating income declined 0.7% YoY, indicating margin pressure and negative operating leverage
• Net income up 25.3% YoY, aided by non-operating items
• ROE of 4.57% constrained by low asset turnover (0.272x)
• Strong liquidity (current ratio 281%, quick ratio 230%) and solid interest coverage (13.5x)
• FCF not assessable due to undisclosed investing cash flows; dividend currently reported as ¥0

Metrics to Watch:

• Operating margin trajectory and incremental margins versus revenue growth
• Pricing and mix effects post NHI revisions on gross margin
• Capex and investing cash flows to gauge FCF and capital intensity
• Inventory and receivables days to monitor working capital efficiency
• Ordinary versus operating income gap to assess reliance on non-operating items
• Leverage trend and interest coverage amid rate environment

Relative Positioning: Within Japan’s generics space, Towa demonstrates robust liquidity and coverage with moderate leverage and disciplined cost structure, but its ROE remains modest due to low asset turnover and recent operating margin pressure; sustaining revenue growth while restoring positive operating leverage will be key to maintaining an edge versus peers.

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
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