ZERIA PHARMACEUTICAL CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥39.96B
• Operating Income: ¥3.64B
• Net Income: ¥6.13B
• EPS: ¥39.42

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

Zeria Pharmaceutical (4559) reported FY2026 Q2 consolidated results under JGAAP showing top-line softness and significant profit compression, but with strong operating cash generation and a solid balance sheet. Revenue was 39.96 billion yen, declining 5.8% year over year, indicating pressure in the core prescription and/or consumer health segments. Operating income fell 43.6% YoY to 3.64 billion yen, implying elevated operating leverage and/or higher expense intensity in the period. Ordinary income was 2.66 billion yen, below operating income, suggesting non-operating headwinds (e.g., higher interest costs or other non-operating losses). Net income contracted 71.3% YoY to 1.74 billion yen, pointing to additional drag from taxes or one-off items. ROE was 1.89% based on DuPont metrics, driven by a modest net margin of 4.35%, low asset turnover of 0.252x, and moderate financial leverage of 1.73x. Gross profit margin is reported at a high 77.6%, consistent with a pharmaceutical mix, while EBITDA margin stood at 17.6% and operating margin at roughly 9.1%. The sharp drop in operating income versus a mid-single-digit revenue decline highlights cost rigidity and operating deleverage. Cash flow from operations was 8.70 billion yen, about 5.0x net income, indicating robust cash conversion and likely favorable working capital movements. Financing cash flow was an outflow of 5.13 billion yen, implying net debt reduction and/or shareholder returns during the period. Investing cash flow and cash balance figures were not disclosed in this dataset; therefore, free cash flow cannot be reliably derived here despite the strong OCF. The balance sheet is strong: total assets were 158.74 billion yen, liabilities 69.37 billion yen, and equity 91.81 billion yen, implying an equity ratio of roughly 57.9% (despite the equity ratio field being unreported). Liquidity appears adequate, with a current ratio of 127.7% and quick ratio of 111.9%, and working capital of 15.08 billion yen. Interest coverage is comfortable at 15.7x (EBIT basis), and the debt-to-equity ratio is moderate at 0.76x. Dividend data (DPS, payout, FCF coverage) is not disclosed in this set, limiting assessment of capital return policy in this quarter. Overall, the quarter reflects margin pressure and low ROE against a backdrop of strong cash generation and healthy solvency, with data gaps in investing cash flows, cash balances, and dividend details that constrain full evaluation.

Profitability Analysis

roe_decomposition: ROE of 1.89% reflects net profit margin of 4.35%, asset turnover of 0.252x, and financial leverage of 1.73x. The low asset turnover is typical for R&D and brand-driven pharma models with sizable asset bases, while margin compression drove the primary drag on ROE this period. margin_quality: Gross margin is reported at 77.6%, indicative of a high-value product mix, but the decline in operating income (-43.6% YoY) against a 5.8% revenue decline suggests increased SG&A/R&D intensity or adverse mix/pricing. Operating margin is approximately 9.1% (3.641bn/39.96bn), and EBITDA margin is 17.6%, showing material dilution vs prior year given the steep operating income decline. operating_leverage: The steep fall in operating income relative to revenue (-43.6% vs -5.8% YoY) signals high operating leverage and limited cost flexibility in the short term (e.g., fixed personnel, promotion, or R&D costs). Non-operating factors further reduced ordinary income to 2.66bn despite healthy interest coverage, indicating additional non-operating expenses beyond interest.

Growth Assessment

revenue_sustainability: Revenue declined 5.8% YoY to 39.96bn, implying headwinds in core brands or market conditions. Without segment disclosure, durability of the top line is uncertain; however, high gross margins suggest the product mix remains skewed toward value-added Rx/OTC categories. profit_quality: Net income contracted 71.3% YoY to 1.74bn, outpacing revenue decline, reflecting margin compression and potential non-recurring items. The OCF/NI ratio of 5.01 indicates underlying earnings were backed by strong cash conversion, aided by working capital inflows. outlook: Near-term earnings visibility is constrained by the observed operating deleverage and data gaps (no segment or pipeline updates provided here). Stabilization likely hinges on normalizing SG&A/R&D run rates, sustaining premium pricing/mix, and mitigating non-operating losses.

Financial Health

liquidity: Current ratio 127.7% and quick ratio 111.9% indicate adequate short-term liquidity; inventories of 8.59bn appear manageable relative to current assets of 69.53bn. solvency: Total equity of 91.81bn against total assets of 158.74bn implies an equity ratio of ~57.9% (strong), despite the equity ratio field being unreported. Debt-to-equity at 0.76x (proxied by total liabilities/equity) is moderate. capital_structure: Interest coverage at 15.7x (EBIT/interest) denotes comfortable debt service capacity. Financing cash outflow of 5.13bn suggests deleveraging and/or shareholder distributions, but details are not disclosed in this dataset.

Cash Flow Quality

earnings_quality: OCF of 8.70bn versus net income of 1.74bn (OCF/NI = 5.01) signals strong cash realization, likely from working capital releases and non-cash charges (D&A 3.39bn). EBITDA of 7.03bn supports solid cash generation capacity. fcf_analysis: Investing cash flow is unreported here, so FCF cannot be reliably computed despite the headline FCF being listed as 0. The underlying OCF strength suggests capacity to fund maintenance capex, but capex magnitude remains undisclosed. working_capital: Working capital stood at 15.08bn; the OCF strength implies favorable working capital dynamics in the half. Sustainability of this release into subsequent periods is uncertain without inventory and receivables turnover detail.

Dividend Sustainability

payout_ratio_assessment: EPS was 39.42 yen, but payout ratio and DPS are not disclosed in this dataset (fields show 0, which should be treated as unreported). Thus, we cannot compute an accurate earnings payout. fcf_coverage: With investing cash flows unreported, FCF coverage of dividends cannot be assessed here. OCF of 8.70bn provides theoretical capacity for distributions, but actual capex and policy are unknown in this period. policy_outlook: Given the strong balance sheet and OCF, the company likely has flexibility; however, the sharp YoY earnings decline and lack of disclosed DPS suggest caution in assessing near-term dividend trajectory without official guidance.

Risk Assessment

Business Risks:

• Revenue concentration in key Rx/OTC brands and potential generic erosion
• Pricing pressure and NHI drug price revisions in Japan
• R&D execution risk and clinical/regulatory timelines
• Foreign exchange volatility affecting overseas sales or costs
• Supply chain and procurement risks impacting COGS and inventory

Financial Risks:

• Operating deleverage leading to profit volatility
• Potential non-operating losses impacting ordinary income
• Tax rate variability affecting net income
• Refinancing and interest rate risk despite current strong coverage
• Working capital normalization reversing OCF strength

Key Concerns:

• Sharp decline in operating income (-43.6% YoY) on modest revenue contraction (-5.8%)
• Low ROE (1.89%) versus domestic peers
• Data gaps (investing cash flow, cash balance, dividend details) limiting full assessment

Investment Implications

Key Takeaways:

• Top-line down 5.8% YoY with disproportionate profit decline signals elevated cost rigidity
• ROE at 1.89% is weak; core drag comes from margin compression and low asset turnover
• Gross margin remains high at 77.6%, indicating sustained value-added mix
• OCF robust at 8.70bn (5.0x NI), supporting financial flexibility
• Balance sheet solid with ~57.9% equity ratio and interest coverage of 15.7x
• Non-operating items likely weighed on ordinary income
• Limited disclosure on investing cash flows and dividends constrains visibility

Metrics to Watch:

• Revenue growth by segment and contribution from key brands
• SG&A and R&D intensity versus sales to gauge operating leverage
• Ordinary income drivers (FX, investment gains/losses, interest)
• Capex and investing cash flows to assess true FCF
• Tax rate normalization and any one-off items
• Inventory and receivables turnover to monitor cash conversion

Relative Positioning: Within Japan mid-cap pharma, Zeria shows strong balance sheet and cash generation but weaker near-term profitability and ROE versus peers, reflecting higher operating leverage and recent margin pressure.

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
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
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