KYORIN Pharmaceutical Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Although the decline in revenue was limited, the deterioration in gross margin combined with an increased SG&A expense burden, resulting in a substantial decline in operating income of nearly 60% year on year. Revenue was ¥296.5B (-1.9% YoY), operating income was ¥9.6B (-59.3%), ordinary income was ¥12.4B (-52.7%), and net income was ¥8.2B (-60.8%). The gross margin declined by approximately 2.8pt from the previous year to 41.1%, while the SG&A ratio rose by approximately 1.8pt to 37.8%, which were the primary causes of the decline in operating income. At the ordinary income level, non-operating income, including ¥2.9B in dividend income, provided partial support; however, net income was further compressed by the recognition of ¥1.5B in impairment losses on investment securities as an extraordinary loss.

Factors Affecting Earnings

【Revenue】Revenue was ¥296.5B, representing a 1.9% decline from the same period of the previous year. The Company reports a single segment and does not disclose segment-level factors affecting changes; however, while cost of sales increased by 3.0% year on year to ¥174.8B, revenue declined, suggesting that deterioration in the price mix and cost overruns may have pressured gross profit. Gross profit was ¥121.8B (¥132.6B in the previous year), resulting in a gross margin of 41.1%, approximately 2.8pt below the previous year's 43.9%.

【Profit and Loss】SG&A expenses were ¥112.1B (¥108.9B in the previous year, +2.9%), increasing despite the decline in revenue. Consequently, the SG&A ratio rose to 37.8% from 36.0% in the previous year, an increase of approximately 1.8pt. As a result, operating income was ¥9.6B (-59.3%), and the operating margin deteriorated substantially to 3.3% from 7.8% in the previous year. Ordinary income was ¥12.4B (-52.7%), with ¥3.4B in non-operating income, primarily comprising ¥2.9B in dividend income, offsetting part of the decline in operating income. At the net income level, extraordinary losses of ¥1.5B, including ¥1.5B in impairment losses on investment securities, reduced profit before tax. After an effective tax burden of approximately 30.6%, net income was ¥8.2B (-60.8%). The gap between ordinary income and net income reached approximately 33.6%, indicating a significant impact from extraordinary gains and losses. Overall, the results represented declines in both revenue and profit, confirming a structural deterioration in profitability.

Segment Analysis

The Company reports a single segment, and segment-level revenue and profit information has been omitted.

Key Financial Indicators

【Profitability】The operating margin was 3.3%, down approximately 4.6pt from 7.8% in the same period of the previous year, while the net profit margin also deteriorated significantly to 2.8% from 6.9% in the previous year. The decline in gross margin to 41.1% (43.9% in the previous year) coincided with an increase in the SG&A ratio to 37.8% (36.0% in the previous year), with both the cost structure and earnings power acting as downward pressures.【Cash Flow Quality】Comprehensive income was ¥0.3B, substantially below net income of ¥8.2B, primarily because the valuation difference on securities deteriorated to -¥8.2B. Given that the gap between ordinary income and net income was approximately 33.6%, the quality of current-period earnings was strongly affected by extraordinary gains and losses and valuation-related items.【Investment Efficiency】ROE was 0.6%, and capital efficiency remained low, reflecting the small absolute level of net income. Total assets were ¥1886.1B and net assets were ¥1403.0B, both slightly lower than the previous year, indicating a decline in profit without an expansion in the asset base.【Financial Soundness】The equity ratio rose to 74.4% from 72.9% in the previous year, and the financial base remained conservative. Cash and deposits increased to ¥136.7B from ¥118.0B in the previous year, while long-term borrowings were largely flat at ¥203.9B, indicating that financial leverage remained low and stable.

Cash Flow Analysis

As no cash flow statement is disclosed, cash trends are assessed based on changes in the balance sheet during the period. Cash and deposits increased by ¥18.7B to ¥136.7B from ¥118.0B in the same period of the previous year, while accounts receivable and notes receivable declined by ¥69.0B to ¥404.4B from ¥473.4B in the previous year. Accounts payable and notes payable also declined by ¥27.6B to ¥116.8B from ¥144.4B in the previous year. The reduction in accounts receivable may have contributed to the increase in cash balances, although accounts payable also declined simultaneously, indicating cash outflows on the procurement and payment side. Inventories were ¥233.8B, broadly flat compared with ¥238.7B in the previous year, with no significant change in inventory levels. Property, plant and equipment was ¥301.9B and investment securities were ¥174.4B, both lower than in the previous year, suggesting that the recognition of impairment losses and asset reductions contributed to the contraction on the asset side. Long-term borrowings were ¥203.9B, largely in line with the previous year, and no major changes in financing or repayments through financing activities were identified.

Earnings Quality

Current-period profit was primarily affected by a slowdown in core operating performance, and earnings quality has somewhat deteriorated after taking into account the impact of non-operating income and extraordinary gains and losses. Dividend income accounted for ¥2.9B of the ¥3.4B in non-operating income, and remained limited at approximately 1.1% of revenue; therefore, the contribution of external factors to ordinary income was not substantial. Meanwhile, ¥1.5B in extraordinary losses consisted largely of impairment losses on investment securities, which are valuation-related losses not accompanied by cash outflows. As a result, net income was ¥8.2B compared with ordinary income of ¥12.4B, representing a gap of approximately 33.6%. Comprehensive income was ¥0.3B, substantially below net income, primarily because the valuation difference on securities deteriorated. Accordingly, a considerable divergence arose between current-period earnings and other comprehensive income components.

Earnings Forecast and Guidance

Progress against the full-year plan was 24.3% for revenue (¥296.5B/¥1218.0B), which was broadly at a standard level, while progress was 48.2% for operating income (¥9.6B/¥20.0B) and 54.0% for ordinary income (¥12.4B/¥23.0B). Profit indicators therefore showed significantly more front-loaded progress than revenue. This difference may reflect a conservative plan incorporating increases in SG&A expenses and costs in the second half, or the seasonality of expense recognition. No revisions were made to the earnings forecast or dividend forecast during the quarter, and the Company maintained its initial plan. Going forward, trends in the gross margin and SG&A ratio from Q2 onward will be key to assessing the achievability of the full-year plan.

Shareholder Returns

The Company's annual dividend forecast is ¥10.00 per share, down from the previous fiscal year's actual dividend of ¥20. Based on the Company's forecast EPS of ¥26.11, the payout ratio is approximately 38.3% (¥10.00/¥26.11), representing a level sufficiently covered by the profit level for the fiscal year. With cash and deposits of ¥136.7B and an equity ratio of 74.4%, the Company has a strong financial base and sufficient capacity to fund dividends. No revision was made to the dividend forecast during the quarter.

Risk Factors

1. Profitability deterioration risk: The gross margin declined by approximately 2.8pt from the previous year to 41.1%, while the SG&A ratio rose by approximately 1.8pt to 37.8%. As higher costs amid declining revenue reduced the operating margin to 3.3%, further deterioration in earnings power is a concern if improvements in the price mix and cost structure do not progress.

2. Working capital efficiency risk: Accounts receivable of ¥404.4B and inventories of ¥233.8B each represent substantial amounts relative to revenue of ¥296.5B. If inventory and accounts receivable turnover periods lengthen, cash generation may come under pressure.

3. Valuation fluctuation risk for securities: The Company holds ¥174.4B in investment securities and recognized ¥1.5B in impairment losses as an extraordinary loss during the period. The valuation difference on securities was -¥8.2B, weighing on comprehensive income, indicating that market fluctuations have a relatively significant impact on the financial statements.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin were substantially below the industry median, placing the Company's profitability at the lower end of the industry.

Growth and Capital Efficiency

The revenue growth rate was substantially below the industry median, indicating that the stagnation of top-line growth was particularly pronounced compared with peers.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The operating margin of 3.3% was 14.3pt below the industry median of 17.5%. The results indicate weakness in the margin structure, driven by the combination of a lower gross margin and a higher SG&A ratio.

2. Progress against the full-year plan was significantly more front-loaded on the profit side, at 48.2% for operating income and 54.0% for ordinary income versus 24.3% for revenue, suggesting a conservative plan that assumes higher expenses in the second half.

3. Although the financial base is strong, with an equity ratio of 74.4% and cash and deposits of ¥136.7B, ROE of 0.6% and comprehensive income of ¥0.3B indicate low levels of capital efficiency and earnings quality. The recovery trend in profitability will therefore remain a key focus.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed 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: ¥1,840–¥1,946 at cost of equity ±1%, and ¥1,874–¥1,903 at ω±0.1.

Notes:

• Because progress toward forecast full-year net income (55%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with front-loaded progress tend to exceed forecasts; adjustments may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets at the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee future share prices.)

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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, and you should consult a professional as necessary.

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