ZERIA PHARMACEUTICAL (4559) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results through Q3 recorded decreases in both revenue and earnings, with the expansion of foreign exchange losses, in particular, amplifying the deterioration in profitability as the most important point. Revenue was ¥6.408B (△1.1% YoY), Operating Income was ¥0.857B (△16.4%), Ordinary Income was ¥0.729B (△31.7%), and Net Income was ¥0.548B (△32.5%). In addition to the deterioration in core operating margins due to a lower gross margin and higher SG&A ratio, foreign exchange losses of ¥0.128B (compared with foreign exchange gains of ¥0.030B in the previous year) significantly reduced non-operating income and expenses, thereby amplifying the declines in Ordinary Income and Net Income.

Factors Affecting Performance

【Revenue】Revenue was ¥6.408B, down 1.1% YoY. By segment, Ethical Drug (prescription pharmaceuticals) accounted for ¥4.240B, or 66.2% of total revenue, while Consumer Health Care accounted for ¥2.156B, or 33.8%. Cost of sales increased 1.4% YoY to ¥1.755B, and because costs increased despite the decline in revenue, the gross margin decreased 68bp to 72.6% (73.3% in the previous year).

【Profit and Loss】Operating Income was ¥0.857B (△16.4% YoY), and the Operating Income margin declined 245bp to 13.4% (15.8% in the previous year). SG&A expenses were ¥3.797B, up 2.0% YoY, and expanded at a faster pace than the decline in revenue, which was the primary cause of margin deterioration. Ordinary Income was ¥0.729B (△31.7% YoY), with foreign exchange losses of ¥0.128B (compared with foreign exchange gains of ¥0.030B in the previous year) being the primary factor, resulting in a decline greater than that of Operating Income. Extraordinary gains and losses were largely offset and immaterial. Net Income was ¥0.548B (△32.5% YoY). In conclusion, the Company recorded decreases in both revenue and earnings, with foreign exchange losses amplifying the deterioration caused by the contraction in core operating margins.

Segment Analysis

Ethical Drug (prescription pharmaceuticals) reported Revenue of ¥4.240B, Operating Income of ¥0.795B, and a margin of 18.8%. Consumer Health Care reported Revenue of ¥2.156B, Operating Income of ¥0.518B, and a margin of 24.0%; Consumer Health Care therefore had the higher profitability of the two segments. While Ethical Drug is the core business, accounting for 66.2% of the revenue mix, Consumer Health Care has the higher margin, meaning that changes in the business mix could affect the Company-wide profit margin.

Key Financial Metrics

【Profitability】The Operating Income margin declined 245bp to 13.4% (15.8% in the previous year), while the Net Income margin declined 403bp to 8.6% (12.7% in the previous year). The gross margin was 72.6% (73.3% in the previous year), and the SG&A ratio was 59.2% (57.5% in the previous year); the relative increase in SG&A expenses was the primary cause of the deterioration in the Operating Income margin.【Cash Flow Quality】Cash and deposits were ¥2.415B, accounts receivable were ¥2.924B, and inventories were ¥1.174B. Inventories increased 36.6% YoY, and the increase in inventories amid declining revenue requires monitoring from the perspective of working capital efficiency.【Investment Efficiency】ROE (annualized) was 7.6%, and capital efficiency declined from the previous year, primarily due to the lower Net Income margin. Total assets increased 4.4% YoY to ¥16.622B, while Revenue declined, indicating room for improvement in asset turnover efficiency.【Financial Soundness】The Equity Ratio improved to 57.9% (56.3% in the previous year). While long-term borrowings declined to ¥0.437B, short-term borrowings constitute the main component, indicating a trend toward shorter-term debt maturities.

Cash Flow Analysis

As no cash flow statement has been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥2.415B, a slight increase from ¥2.359B in the same period of the previous year. Meanwhile, accounts receivable increased to ¥2.924B (¥2.674B in the previous year), and inventories increased to ¥1.174B (¥0.859B in the previous year, +36.6%), confirming an accumulation of working capital despite declining Revenue. Accounts payable also increased to ¥0.518B (¥0.397B in the previous year, +30.4%), with the expansion of trade payables partially offsetting the working capital burden. Long-term borrowings decreased to ¥0.437B (¥0.687B in the previous year), while short-term borrowings totaled ¥3.653B and accounted for the majority of borrowings, indicating an increasing reliance on short-term borrowings in the funding structure. Net assets expanded 7.1% YoY to ¥9.618B, with accumulated retained earnings and an increase in comprehensive income strengthening the capital base.

Quality of Earnings

The decline in Ordinary Income and Net Income was characterized by the divergence resulting from the decline in Operating Income (core business factors), compounded by the largely temporary non-operating factor of ¥0.128B in foreign exchange losses. As the Company recorded foreign exchange gains of ¥0.030B in the same period of the previous year, fluctuations in foreign exchange alone generated an approximately ¥0.158B downward impact on Ordinary Income. Both extraordinary gains and extraordinary losses were minimal, limiting their impact on Net Income. Comprehensive Income was ¥0.850B, up +14.9% YoY, representing a significant divergence from Net Income of ¥0.548B. This was because foreign currency translation adjustments of ¥0.302B provided an upward contribution. It is therefore important to note the qualitative difference between Net Income, which reflects business conditions, and Comprehensive Income, which includes asset valuation and foreign currency translation effects.

Earnings Forecasts and Guidance

The full-year Company forecast calls for Revenue of ¥9.000B (+3.1% YoY), Operating Income of ¥1.200B (△1.6%), and Ordinary Income of ¥1.200B (△6.5%). Cumulative progress rates are 71.2% for Revenue, 71.4% for Operating Income, 60.7% for Ordinary Income, and 58.5% for Net Income (against the forecast of ¥0.950B), all below the standard progress benchmark of 75%. In particular, the lag in progress toward the Ordinary Income and Net Income forecasts was primarily attributable to the deterioration in non-operating income and expenses, centered on foreign exchange losses. To achieve the full-year forecast, stabilization of foreign exchange trends, in addition to a recovery in core operations in Q4, will be the key focus.

Shareholder Returns

The Q2 dividend was ¥24.00 per share, and the full-year dividend forecast, including the year-end dividend forecast, is ¥48.00 per share. Based on the full-year Net Income forecast of ¥0.950B and the average number of shares outstanding during the period of 44.08 million shares, the forecast Payout Ratio is approximately 22.3%, indicating that the dividend burden relative to earnings is comparatively low. No data concerning share buybacks has been identified at this time.

Risk Factors

1. Foreign Exchange Risk: Foreign exchange gains of ¥0.030B in the same period of the previous year turned into foreign exchange losses of ¥0.128B in the current period, amplifying the 31.7% YoY decline in Ordinary Income. The Company’s structure is such that fluctuations in non-operating income and expenses can significantly affect the achievement of the full-year earnings forecast.

2. Deterioration in Working Capital Efficiency: Inventories increased 36.6% YoY to ¥1.174B, while accounts receivable were ¥2.924B; both increased during a period of declining Revenue. As inventory levels and the collection status of accounts receivable affect cash efficiency, continued monitoring is required.

3. Shortening of Debt Maturities: Long-term borrowings decreased 36.4% YoY to ¥0.437B, while short-term borrowings account for the majority of interest-bearing debt. This structure has a high reliance on short-term funding and is therefore comparatively sensitive to changes in the funding environment.

Industry Benchmark (Reference; Prepared by the Company)

Industry Benchmark (pharma)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin both remain positive and are substantially above the industry median, which includes loss-making companies.

Growth and Capital Efficiency

Although the Revenue growth rate was negative YoY, the decline was smaller than the negative industry median, indicating a comparatively resilient level.

※Source: Prepared by the Company

Key Points from the Earnings Results

1. The Operating Income margin remained positive at 13.4%, but declined 245bp YoY. The simultaneous decline in the gross margin and increase in the SG&A ratio are notable as changes in the earnings structure.

2. The declines in Ordinary Income and Net Income exceeded the decline in Operating Income, reflecting the significant impact of the non-operating factor of ¥0.128B in foreign exchange losses. Stabilization of foreign exchange trends will be an important variable in achieving the full-year forecast.

3. Working capital is expanding alongside increases in inventories and accounts receivable, while reliance on short-term borrowings is also rising. Both cash efficiency and the funding structure will therefore be key areas for future monitoring.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,178–¥2,308 at ±1% for the cost of equity, and ¥2,240–¥2,244 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a time difference relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific issue. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with professionals as necessary.

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