ZERIA PHARMACEUTICAL (4559) FY2027 Q1 Earnings Report

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Executive Summary

The most important point is that, although revenue and operating income increased at the operating level, ordinary income and net income declined due to the impact of foreign exchange losses. Revenue was ¥21.45B (+10.1% YoY), and operating income was ¥1.95B (+28.3% YoY), indicating improved profitability in the core business. However, ordinary income was ¥1.43B (-13.8% YoY), while net income was ¥0.89B (-14.5% YoY). The primary factor was a foreign exchange loss of ¥0.64B recorded as a non-operating expense. This represented 33.0% of operating income, offsetting the earnings contribution from the increase in operating income.

Factors Affecting Performance

【Revenue】Revenue was ¥21.45B (+10.1% YoY), with the core Prescription Pharmaceuticals Business, which accounted for 67.0% of revenue, leading company-wide growth with an increase of +13.5% YoY. The Consumer Healthcare Business, which accounted for 32.8% of revenue, also contributed to revenue growth with an increase of +3.6% YoY, although the Prescription Pharmaceuticals Business was the primary growth driver.

【Profit and Loss】Operating income was ¥1.95B (+28.3% YoY), and the operating margin improved to 9.1% from 7.8% in the same period last year. Although the gross margin declined slightly to 71.0% from 71.4% in the prior-year period, SG&A expenses increased at a slower pace than revenue (+7.2%), resulting in an improvement in the SG&A ratio to 61.9% from 63.6% in the prior-year period. This was the primary factor behind the improvement in the operating margin. Meanwhile, ordinary income declined to ¥1.43B (-13.8% YoY) due to the ¥0.64B foreign exchange loss included in non-operating expenses, while net income declined to ¥0.89B (-14.5% YoY). The overall structure was one of higher revenue and operating income in the core business, but lower ordinary income on a consolidated basis, as the improvement at the operating level was offset by deterioration in non-operating income and expenses.

Segment Analysis

The Prescription Pharmaceuticals Business recorded revenue of ¥14.38B (+13.5% YoY), segment income of ¥2.20B (+27.9% YoY), and a margin of 15.3%, making it the core business and accounting for approximately 60% of total segment income. The Consumer Healthcare Business recorded revenue of ¥7.03B (+3.6% YoY), segment income of ¥1.36B (+1.9% YoY), and a margin of 19.4%. Although its margin itself exceeded that of the Prescription Pharmaceuticals Business, profit growth was limited. Both businesses achieved increases in revenue and segment income, but the Prescription Pharmaceuticals Business led company-wide growth.

Key Financial Indicators

【Profitability】The operating margin improved to 9.1% from 7.8% in the same period last year, while the net margin deteriorated to 4.0% from 5.6%, indicating that profitability at the operating level and at the bottom-line level moved in opposite directions. Annualized ROE was 3.3%, and the equity ratio was 62.0%.【Cash Quality】Cash and deposits were ¥27.71B, remaining broadly flat from the previous year, while the ¥0.64B foreign exchange loss recorded as a non-operating expense weighed on ordinary income and net income.【Investment Efficiency】Intangible assets were ¥38.42B, accounting for 22.0% of total assets, while goodwill was ¥2.84B and limited relative to net assets.【Financial Soundness】Current assets of ¥79.78B exceeded current liabilities of ¥51.49B, and no short-term liquidity concerns were identified. However, most interest-bearing debt consists of short-term borrowings, indicating a funding structure weighted toward short-term financing.

Cash Flow Analysis

As detailed disclosure of the cash flow statement is not provided in this report, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥27.71B, nearly unchanged from ¥27.76B in the same period last year, with no significant cash inflows or outflows observed. Total assets were ¥174.68B, down from ¥179.70B in the previous year, while net assets also declined slightly to ¥108.27B from ¥108.60B. Although accounts receivable declined to ¥26.34B from ¥31.41B in the previous year, work in process increased +29.2% YoY, suggesting inventory accumulation associated with increased production and preparations for sales. Overall, the cash position remains stable, but attention should be paid to working capital efficiency in light of changes in the composition of inventory and accounts receivable.

Earnings Quality

The gap between operating income of ¥1.95B and ordinary income of ¥1.43B was primarily attributable to non-operating expenses of ¥0.86B, including a ¥0.64B foreign exchange loss and ¥0.13B in interest expenses. The foreign exchange impact was substantial as a temporary factor. Non-operating income was ¥0.34B, of which dividends received of ¥0.28B constituted the principal component and can be viewed as stable income associated with business activities. Extraordinary income and losses were virtually zero, and fluctuations at the ordinary income level were primarily attributable to the non-operating, non-business factor of foreign exchange. Comprehensive income was ¥0.77B, smaller than net income attributable to owners of the parent of ¥0.89B. Foreign currency translation adjustments of +¥0.51B contributed positively, while valuation differences on securities of -¥0.37B and adjustments related to retirement benefits of -¥0.25B had negative effects, resulting in a divergence between net income and comprehensive income.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥95.00B (+6.6% YoY), operating income of ¥13.00B (+5.1% YoY), and ordinary income of ¥13.00B (+17.7% YoY). As of Q1, there were no revisions to the earnings forecast or dividend forecast. Progress rates were 22.6% for revenue, 15.0% for operating income, 11.0% for ordinary income, and 8.7% for net income, all below the simple one-quarter benchmark of 25%. In particular, the weak progress of operating income, ordinary income, and net income indicates that an improvement in profitability in the second half of the fiscal year will be necessary to achieve the full-year plan. To achieve the full-year operating income forecast of ¥13.00B, ¥11.05B must be generated over the remaining three quarters, requiring an operating margin of approximately 15.0% and a substantial improvement from the 9.1% recorded in Q1.

Shareholder Returns

The full-year dividend forecast is ¥50.00 per share, with no revision as of the current quarter. The dividend for the same period last year was ¥24.00 (interim), so a simple comparison is not possible. However, based on the dividend forecast relative to the full-year forecast EPS of ¥226.86, the payout ratio is expected to be approximately 22%. There is no disclosure regarding share repurchases, and shareholder returns are centered on dividends.

Risk Factors

1. Foreign Exchange Risk: A foreign exchange loss of ¥0.64B was incurred, equivalent to 33.0% of operating income of ¥1.95B. Despite the increase in operating income, ordinary income declined -13.8% and net income declined -14.5%, indicating that foreign exchange fluctuations are increasing the volatility of bottom-line earnings.

2. Business Concentration Risk: The Prescription Pharmaceuticals Business accounts for approximately 60% of total segment income. Consequently, the sales trends of key products, drug price revisions, and the entry of generic products could have a significant impact on company-wide performance.

3. Funding Structure Risk: Short-term borrowings of ¥31.28B account for the majority of interest-bearing debt, while cash and deposits of ¥27.71B are below short-term borrowings. Although the current ratio is 154.9%, within a sound range, sensitivity to changes in refinancing conditions remains.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (pharma)

Profitability and Returns

Both the operating margin and net margin were below the industry median, indicating that profitability was relatively low within the industry.

Growth and Capital Efficiency

The revenue growth rate was slightly above the industry median, indicating that top-line growth was at a standard level within the industry.

※Source: Company analysis

Key Takeaways from the Results

1. In Q1, the operating margin improved year on year, confirming improved profitability in the core business through control of the SG&A ratio. However, ordinary income and net income declined due to the foreign exchange loss. The divergence between performance at the operating level and at the bottom-line level is an important point in evaluating the quality of the results.

2. Progress against the full-year forecast was 22.6% for revenue and 15.0% for operating income, with operating income and subsequent indicators below the standard progress benchmark of 25%. Achieving the full-year plan assumes an improvement in the operating margin in the second half of the fiscal year.

3. The funding structure, in which short-term borrowings account for the majority of interest-bearing debt and cash and deposits are below short-term borrowings, requires ongoing monitoring when evaluating the stability of the company’s funding position.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,404–¥2,547 at ±1% for the cost of equity, and ¥2,473–¥2,474 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from 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 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee a future share price.)

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

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