KYORIN Pharmaceutical Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥58.73B
• Operating Income: ¥1.36B
• Net Income: ¥1.49B
• EPS: ¥26.01

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

FY2026 Q2 was a mixed quarter for Kyorin Pharmaceutical: solid top-line growth but margin compression drove a double-digit decline in operating profit, with bottom-line aided by non-operating gains and a clearly strong cash flow performance. Revenue rose 6.5% YoY to 587.31, reflecting resilient demand in the core portfolio. Gross profit reached 248.96 and the gross margin printed at 42.4%, indicating healthy product economics in aggregate. SG&A was 235.32 (40.1% of sales), leaving limited operating leverage and resulting in operating income of 13.63 (−12.0% YoY). Ordinary income came in at 15.82 (−22.8% YoY), with non-operating income of 4.02 (notably 2.65 from dividend income) partially offset by 1.84 in non-operating expenses. Net income increased 19.0% YoY to 14.94, aided by non-operating items and a manageable tax burden (effective tax rate 26.4%). Operating margin declined to 2.32% from an estimated 2.81% a year ago, implying roughly 49 bps of compression as cost growth outpaced sales growth. EBITDA was 36.41, yielding a 6.2% margin, underscoring limited operating scale at current SG&A intensity. Earnings quality was strong: operating cash flow of 61.88 was 4.14x net income, easily covering capex of 18.76. The balance sheet remains conservative with a current ratio of 469.6%, quick ratio of 378.0%, and D/E of 0.36x, leaving ample liquidity and low refinancing risk. Nevertheless, capital efficiency is weak: ROE was 1.1% and ROIC was 0.7%, both below industry norms and clearly below management value-creation thresholds. Profit composition shows meaningful reliance on non-operating income (non-operating income ratio of 26.9% to operating profit), which dampens the quality of ordinary profit. With SG&A at 40% of sales and R&D not disclosed, operating leverage is constrained and raises questions about the pace of margin recovery. Forward-looking, sustaining mid-single-digit revenue growth is positive, but margin repair via SG&A discipline and mix improvement will be key to lift ROIC above the cost of capital. Overall, the quarter signals resilient sales and cash generation but emphasizes the need for cost control and capital efficiency improvement to enhance shareholder returns.

Profitability Analysis

ROE decomposes into Net Profit Margin (2.5%) × Asset Turnover (0.316) × Financial Leverage (1.36x) = 1.1%. The weakest link is the margin component: operating margin at 2.32% and non-operating support were required to achieve the 2.5% net margin. Operating margin compressed by an estimated 49 bps YoY (from ~2.81% to 2.32%), reflecting SG&A intensity (235.32; 40.1% of sales) that outpaced gross profit expansion. Asset turnover of 0.316 is modest for pharma, consistent with a cash-rich balance sheet and substantial inventories and receivables supporting the franchise. Leverage is low at 0.36x D/E, so financial leverage contributes little to ROE uplift—appropriate for risk, but it limits equity returns given current margins. The principal business driver of the YoY change is higher operating costs (commercial spend, possibly R&D within SG&A, and general inflation) relative to revenue growth, alongside ordinary profit sensitivity to non-operating items (notably dividend income of 2.65). This appears partially cyclical and partially structural: cost inflation is likely persistent, while some non-operating items may be one-time or volatile. Concerning trend to flag: SG&A intensity at 40.1% constrains operating leverage; without evidence of SG&A discipline or mix shift, sustained margin expansion will be challenging.

Growth Assessment

Top-line growth was solid at +6.5% YoY to 587.31, indicating resilience in the product base. However, operating income declined 12.0% YoY to 13.63, showing negative operating leverage as costs grew faster than sales. Ordinary income fell 22.8% YoY to 15.82 despite 4.02 in non-operating gains, highlighting limited margin buffers. Net income rose 19.0% YoY to 14.94, benefiting from non-operating items and a stable tax rate, but this mix is lower quality than pure operating profit growth. EBITDA margin at 6.2% is low for branded pharma peers, implying room for cost efficiency and mix improvement. Revenue sustainability looks decent near term, but profitability depends on SG&A control and potential lifecycle management of key products. Non-operating income (notably dividend income) is supportive but not a reliable growth engine. Outlook hinges on cost normalization, product mix (new launches vs. mature franchise), and the impact of future NHI drug price revisions; in the absence of R&D disclosure, pipeline visibility is limited.

Financial Health

Liquidity is very strong: current ratio 469.6% and quick ratio 378.0% indicate substantial buffers; working capital stands at 1,025.77. Solvency is conservative with D/E at 0.36x and interest coverage at 10.90x. No warning triggers: Current Ratio >> 1.0 and D/E well below 2.0. Maturity mismatch risk is low: short-term loans are 21.00 versus cash and deposits of 130.42, plus sizeable receivables (378.16) and inventories (254.23); current assets (1,303.33) comfortably exceed current liabilities (277.56). Long-term loans of 201.35 are manageable given total equity of 1,364.48 and strong liquidity. Off-balance sheet obligations are not disclosed in the provided data; absent explicit commitments (e.g., leases, collaborative R&D milestone obligations), we assume none material, but this is a data limitation.

Cash Flow Quality

Earnings quality is high with OCF of 61.88 at 4.14x net income, indicating strong cash conversion. Using OCF minus reported capex as a proxy, FCF is approximately 43.12, comfortably covering operating needs; however, total investing CF is unreported, so this proxy may understate true investments if there are acquisitions or intangibles. The high OCF/NI ratio (>1.0) suggests no immediate concerns about accrual build; without working capital detail, we cannot diagnose inventory or receivable timing effects, but there is no obvious manipulation signal. Financing CF of -76.12 indicates net outflows (likely debt repayment and/or shareholder returns), which were fundable from internal cash generation. Overall, cash flow supports ongoing operations and modest capital returns.

Dividend Sustainability

Dividend data are largely unreported, but a calculated payout ratio of 228.7% suggests either special/one-off distributions, timing mismatches (e.g., annual dividends compared to half-year earnings), or calculation differences versus consolidated net income. With OCF of 61.88 and proxy FCF of ~43.12, ordinary dividends would be serviceable, but sustained payouts above 100% of earnings are not structurally supported by current ROE/ROIC levels. Visibility on DPS, total dividends paid, and buybacks is lacking; policy commentary (e.g., DOE or payout band) is not disclosed here. Given low capital intensity and strong liquidity, a stable ordinary dividend appears fundable, but increases should be paced with margin recovery and improved ROIC.

Risk Assessment

Business Risks:

• NHI drug price revisions pressuring domestic pricing and margins
• Patent expiry and generic erosion risk on mature products
• R&D execution risk with unreported R&D spend and limited pipeline visibility
• Product mix risk if growth depends on a narrow set of SKUs
• Supply chain and inventory obsolescence risk in pharmaceuticals

Financial Risks:

• Capital efficiency risk: ROIC at 0.7% well below cost of capital
• Profit quality reliance on non-operating income (26.9% of operating income)
• Margin pressure from elevated SG&A (40.1% of sales)
• Potential volatility in ordinary income if dividend/financial income normalizes

Key Concerns:

• Operating margin compressed by ~49 bps YoY to 2.32%
• Ordinary income declined 22.8% YoY despite top-line growth
• Low ROE (1.1%) limits shareholder value creation absent margin or turnover gains
• Data gaps on R&D, detailed SG&A, and investing CF constrain forward view

Investment Implications

Key Takeaways:

• Sales growth is intact (+6.5% YoY), but cost discipline is needed to restore operating leverage
• Operating margin compressed to 2.32%, with SG&A at 40.1% of sales
• Cash generation is strong (OCF/NI 4.14x), supporting liquidity and routine capex
• Balance sheet is robust (current ratio 469.6%, D/E 0.36x), implying low financial risk
• Capital efficiency is weak (ROIC 0.7%, ROE 1.1%); mix improvement and cost actions are key
• Non-operating income meaningfully supports ordinary profit; sustainability is uncertain

Metrics to Watch:

• Operating margin trajectory and SG&A as a percentage of sales
• Gross-to-SG&A spread and evidence of cost containment
• R&D disclosure and pipeline milestones impacting medium-term growth
• Working capital turns (receivables and inventory days) to lift asset turnover
• Non-operating income components (dividend/financial income) and their volatility
• ROIC and ROE progression versus internal targets

Relative Positioning: Within Japanese mid-cap pharma, Kyorin shows healthy liquidity and cash generation but lags on profitability and capital efficiency; its near-term investment case hinges more on margin normalization and pipeline execution than on financial leverage or external gains.

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
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis