ZERIA PHARMACEUTICAL CO.,LTD. FY2027 Q1 Earnings Report

Quick View

Executive Summary

Although profitability at the operating level improved due to growth in the Ethical Drug Business, a sharp increase in foreign exchange losses put pressure on non-operating income and expenses, resulting in declines in Ordinary Income and Net Income. Revenue was ¥214.5B (+10.1% YoY), while Operating Income was ¥19.5B (+28.3% YoY; operating margin of 9.1%, an improvement of +1.3pt from 7.8% in the previous year). Meanwhile, Ordinary Income was ¥14.3B (-13.8% YoY), and Net Income attributable to owners of the parent was limited to ¥8.66B (-20.6% YoY). The primary factor was the sharp increase in foreign exchange losses to ¥6.44B from ¥0.33B in the previous year, with deterioration in non-operating income and expenses offsetting the improvement at the operating level.

Factors Affecting Business Performance

【Revenue】Revenue was ¥214.5B, up +10.1% year on year, driven by double-digit growth in the Ethical Drug Business. Ethical Drug generated ¥143.8B (+13.5%, composition ratio 67.0%), while Consumer Healthcare (CHC) generated ¥70.3B (+3.6%, composition ratio 32.8%); the core Ethical Drug Business accounted for most of the revenue increase.

【Profit and Loss】Operating Income was ¥19.5B (+28.3%). Operating leverage was achieved as the +7.2% growth in SG&A expenses was below the +10.1% revenue growth rate, improving the operating margin to 9.1% from 7.8% in the previous year (+1.3pt). The gross margin was 71.0%, essentially flat at -0.4pt from 71.4% in the previous year, indicating that the improvement in profitability was primarily attributable to SG&A expense control. However, foreign exchange losses of ¥6.44B were recorded in non-operating expenses (¥0.33B in the previous year), causing Ordinary Income to decline to ¥14.3B (-13.8%). Net Income attributable to owners of the parent was ¥8.66B (-20.6%), while the effective tax rate rose slightly to 38.2% from 37.6% in the previous year. Overall, the results are classified as higher revenue but lower profit, with the trend of higher profit at the operating level offset at the Ordinary Income and Net Income levels by deterioration in non-operating income and expenses.

Segment Analysis

The Ethical Drug (Prescription Pharmaceuticals) Business generated revenue of ¥143.8B (+13.5%) and segment profit of ¥22.0B (+27.9%), with a profit margin of 15.3%, an improvement of +1.7pt from 13.6% in the previous year. The segment achieved both higher revenue and higher profit, while its margin also improved, making it the primary growth driver for the Company. The CHC (Consumer Healthcare) Business generated revenue of ¥70.3B (+3.6%) and segment profit of ¥13.6B (+1.9%), with a profit margin of 19.4%, down slightly by -0.3pt from 19.7% in the previous year. Although it maintained high profitability, its revenue growth was moderate and its margin declined slightly. Other Businesses, including insurance agency and real estate operations, generated revenue of ¥1.5B and profit of ¥0.5B, with a profit margin of 35.2%; while small in scale, these businesses secured a high profit margin.

Key Financial Indicators

【Profitability】The operating margin improved to 9.1% from 7.8% in the previous year (+1.3pt), while the Net Income margin attributable to owners of the parent declined to 4.0% from 5.6% in the previous year (-1.6pt), indicating divergent profitability trends at the operating and bottom-line levels. ROE (quarterly basis, not annualized) was 0.8%.【Cash Flow Quality】Comprehensive Income was ¥7.69B (¥7.44B attributable to owners of the parent), below Net Income of ¥8.66B. This resulted from valuation differences of -¥3.7B and adjustments related to retirement benefits of -¥2.5B exceeding the positive contribution of +¥5.07B from foreign currency translation adjustments.【Investment Efficiency】Total asset turnover (quarterly) was approximately 0.12x. Goodwill of ¥28.4B represented only 2.6% of net assets, suggesting that impairment risk is limited.【Financial Soundness】The Equity Ratio was 62.0%, up +1.7pt from 60.3% in the previous year. Short-term liquidity was sound, with a current ratio of 154.9% and a quick ratio of 133.3%. However, short-term borrowings accounted for ¥312.8B, or 85.8%, of interest-bearing debt of ¥364.7B; compared with cash of ¥277.1B, this represents only 0.89x, indicating somewhat limited liquidity headroom.

Cash Flow Analysis

As cash flow statement items have not been disclosed, cash flow trends are reviewed based on changes in the balance sheet. Cash and deposits were ¥277.1B, remaining at approximately the same level as the previous year (¥277.6B, -0.2%). Accounts receivable and notes receivable declined by -16.2% to ¥263.4B from ¥314.1B in the previous year, indicating progress in cash collection, while inventories increased slightly to ¥111.5B (+1.5% from ¥109.9B in the previous year). Accounts payable and notes payable increased to ¥57.3B (+17.1% from ¥49.0B in the previous year), suggesting an adjustment in payment terms. On the financing side, short-term borrowings declined by -7.6% to ¥312.8B from ¥338.3B in the previous year, suggesting that cash generated through business activities was partly allocated to reducing interest-bearing debt.

Quality of Earnings

From the perspective of recurring earnings, non-operating income was primarily composed of dividend income of ¥2.8B and had a stable nature, whereas non-operating expenses were mainly foreign exchange losses of ¥6.44B (¥0.33B in the previous year). Thus, highly non-recurring and volatile items became a factor depressing Ordinary Income. Extraordinary gains and losses were virtually absent, with only a loss on disposal of fixed assets of ¥0.03B recorded in the previous year, indicating that the impact of temporary factors was limited. Comprehensive Income was ¥7.69B (¥7.44B attributable to owners of the parent), below Net Income of ¥8.66B. This resulted from negative changes in valuation differences on other securities of -¥3.7B and adjustments related to retirement benefits of -¥2.5B exceeding the positive contribution of +¥5.07B from foreign currency translation adjustments. This divergence reflects changes in the fair value of asset valuations and pension liabilities and can be interpreted as noise separate from the quality of Operating Income, which represents the earning power of business activities themselves. Net Income attributable to non-controlling interests also turned positive at ¥0.19B, compared with a loss of -¥0.56B in the previous year. Accordingly, the difference between the decline in consolidated Net Income (¥8.85B, -14.5%) and Net Income attributable to owners of the parent (¥8.66B, -20.6%) was also attributable to changes in non-controlling interests.

Earnings Forecast and Guidance

The Q1 progress rates against the Full-Year plan were 22.6% for Revenue (¥214.5B/¥950.0B), 15.0% for Operating Income (¥19.5B/¥130.0B), 11.0% for Ordinary Income (¥14.3B/¥130.0B), and 8.7% for Net Income attributable to owners of the parent (¥8.66B/¥100.0B). Compared with simple quarterly equal progress of 25%, progress was below expectations, particularly for profit indicators. The Company made no revisions to either its earnings forecast or dividend forecast on this occasion. The Full-Year Ordinary Income forecast calls for an increase of +17.7% from the previous fiscal year, a different direction from the -13.8% decline recorded in Q1. This confirms that the plan assumes a reduction in the impact of foreign exchange fluctuations and seasonality toward the second half of the year.

Shareholder Returns

The annual dividend forecast remains unchanged at ¥50/share. Based on the approximately 44.079 million average shares outstanding during the period, the estimated annual total dividend is approximately ¥2.20B, implying a Payout Ratio of approximately 22.0% against the Full-Year Net Income forecast of ¥100.0B. The number of treasury shares was unchanged from the same period of the previous year (treasury shares at book value of -¥12.205B, unchanged), and no share repurchases during the quarter were identified. Considering cash on hand of ¥277.1B and an Equity Ratio of 62.0%, this level of Payout Ratio appears to be within an acceptable range relative to the Company’s financial base.

Risk Factors

1. Foreign exchange risk: Foreign exchange losses expanded sharply to ¥6.44B from ¥0.33B in the previous year, becoming the primary factor depressing Ordinary Income. The structure of the business increases bottom-line volatility through fluctuations in non-operating income and expenses.

2. Concentration in short-term liabilities: Short-term borrowings accounted for ¥312.8B, or 85.8% of interest-bearing debt of ¥364.7B, and represented only 0.89x cash of ¥277.1B. This financial structure is susceptible to changes in the interest rate environment and refinancing conditions.

3. Concentration of the business portfolio: The Ethical Drug Business accounts for 67.0% of the revenue mix, creating an earnings structure that is susceptible to institutional changes such as drug price revisions.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Return

Both the operating margin and Net Income margin are below the industry median, indicating that profitability is relatively low among peers.

Growth and Capital Efficiency

The Revenue growth rate is slightly above the industry median, indicating that the pace of revenue growth is at a standard level among peers.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The operating margin improved from 7.8% in the previous year to 9.1%, confirming the emergence of operating leverage through an improved revenue mix in the Ethical Drug Business and restrained SG&A expense growth (+7.2%, below revenue growth of +10.1%).

2. The sharp increase in foreign exchange losses from ¥0.33B in the previous year to ¥6.44B was a factor behind the declines in Ordinary Income and Net Income, creating a structure in which volatility in non-operating income and expenses determines the quality of the overall results.

3. Progress against the Full-Year plan was 15.0% for Operating Income and 8.7% for Net Income, below simple progress of 25%. The Company’s Full-Year plan for +17.7% growth in Ordinary Income assumes a reduction in the impact of foreign exchange fluctuations in the second half of the year, making this a key monitoring point.

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). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,404–¥2,547 at ±1% in the Cost of Equity, and ¥2,473–¥2,474 at ±0.1 in ω.

Notes:

• Net assets as of the end of the quarter 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 / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee future share prices)

---

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. 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 with professionals as necessary.

---End of Report---