TAIKO PHARMACEUTICAL CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥4.23B
• Operating Income: ¥324M
• Net Income: ¥714M
• EPS: ¥13.33

Income Statement

Balance Sheet

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

FY2025 Q3 was mixed: core operations weakened materially while bottom-line benefited from below-the-line gains and a tax benefit. Revenue fell 7.6% YoY to 42.29, indicating demand softness and/or weaker sell-through, likely in infection-control and OTC categories. Gross profit printed at 27.15 with a high gross margin of 64.2%, but operating income slumped 55.3% YoY to 3.24 as fixed-cost deleverage and elevated SG&A weighed on operating leverage. The operating margin is now 7.7%, implying an approximate 810 bps contraction from an estimated 15.8% in the prior-year period. Ordinary income of 3.25 closely matches operating income, pointing to limited recurring non-operating uplift (non-operating income 0.36 vs expenses 0.57). Profit before tax, however, jumped to 6.73—well above ordinary income—implying around 3.5 of one-time or special gains booked below ordinary income. Net income declined a modest 6.3% YoY to 6.69, cushioned by those special gains and a negative effective tax rate (-6.1%), which partially offset operating weakness. Net margin is 15.8% (vs an estimated ~15.6% last year), so headline profitability looks stable, but it is not reflective of underlying operations. DuPont shows ROE at 8.1% = 15.8% net margin × 0.356 asset turnover × 1.44x leverage; the elevated net margin is likely transitory given the below-the-line support. Liquidity is very strong with a current ratio of 353% and quick ratio of 325%, backed by 37.88 in cash and minimal interest-bearing debt (long-term loans 0.27). Solvency remains conservative with D/E at 0.44x and interest coverage at 54x. Working capital is ample at 58.69, with receivables of 20.20 and inventories of 6.37 comfortably exceeding payables of 3.34. Cash flow disclosure is limited (OCF/FCF not reported), limiting earnings quality validation, although the divergence between operating profit and bottom-line suggests lower quality this quarter. Forward-looking, the company needs to restore operating margin via cost discipline and mix management; absent recurring special gains, earnings could normalize lower. Key watch items are demand recovery in core categories, SG&A control, and any repeat of extraordinary gains or tax effects that could distort comparability.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.1% = Net Profit Margin 15.8% × Asset Turnover 0.356 × Financial Leverage 1.44x. The largest change driver QoQ/YoY is the net profit margin, which stayed superficially resilient due to special gains and a tax benefit, while operating margin contracted sharply (OPM now 7.7%, down ~810 bps YoY by our estimate). Business rationale: revenue declined 7.6% YoY while SG&A remained heavy (19.88; 47% of sales), causing fixed-cost deleverage; below-the-line items (approx. 3.5 in special gains) and a negative tax rate cushioned net profit. Sustainability: the operating margin compression is likely cyclical/mix-driven but requires proactive SG&A and pricing/mix actions; the net margin uplift from one-offs is not sustainable. Concerning trends: SG&A as a percentage of sales (~47%) is elevated; given revenue decline, this implies SG&A growth outpaced revenue or at least did not flex down adequately, pressuring operating leverage.

Growth Assessment

Top-line contracted 7.6% YoY to 42.29, likely reflecting market normalization in infection-control products and competitive intensity in OTC healthcare. Operating income fell 55.3% YoY to 3.24, indicating significant negative operating leverage as costs did not flex with revenue. Ordinary income tracked operating income closely (3.25), underscoring limited recurring non-operating support. Net income declined only 6.3% YoY to 6.69 due to extraordinary/below-ordinary gains (~3.5) and a tax benefit, which are unlikely to recur at the same magnitude. Current operating margin is 7.7%; restoring double-digit OPM will require SG&A discipline and potentially pricing/mix improvements. Asset turnover is 0.356, suggesting relatively modest capital intensity but also slower inventory/receivables turns given the revenue drop. ROE at 8.1% is adequate but inflated by one-time items; normalized ROE would be lower. Outlook hinges on demand stabilization in core OTC brands and rationalization of promotional spending; absent that, earnings growth will be constrained. Management’s medium-term potential lies in cost optimization and portfolio focus to defend the high gross margin (64.2%) while improving operating efficiency.

Financial Health

Liquidity is strong: current ratio 352.9% and quick ratio 325.4% (no warning; comfortably above benchmarks). No maturity mismatch risk is evident—current assets 81.90 far exceed current liabilities 23.21; payables are only 3.34 vs cash 37.88 and receivables 20.20. Solvency is conservative with total liabilities 36.48 vs equity 82.36 (D/E 0.44x); long-term loans are minimal at 0.27. Interest coverage is robust at 54x, reflecting low interest burden. No off-balance sheet obligations were disclosed in the provided data. There is no red flag on Current Ratio (<1.0) or D/E (>2.0). Overall balance sheet quality is high with a net cash position and ample working capital.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported, so OCF/Net Income and FCF cannot be calculated. Given the significant gap between operating income (3.24) and net income (6.69), earnings quality this quarter appears lower, as bottom-line relies on special gains and a tax benefit. Without OCF data, we cannot validate cash conversion; watch for OCF/NI < 0.8 as a potential red flag once disclosed. Dividend and capex cash needs are unknown from the release; however, the strong net cash position provides a buffer. Working capital appears healthy (WC 58.69), with receivables and inventory coverage far exceeding payables; no signs of aggressive working capital pull-forward are evident from the point-in-time balance, but turnover metrics are needed for confirmation.

Dividend Sustainability

Dividend per share and total dividends paid are unreported, so payout and FCF coverage cannot be assessed quantitatively. From a balance sheet standpoint, net cash and strong liquidity support capacity to maintain a dividend, but the sustainability depends on normalized earnings/OCF rather than this quarter’s one-time gains. If future quarters lack special gains and operating margin remains ~8%, distributable profit could be tighter. Policy commentary is not provided; monitor guidance updates, payout policy statements, and full-year OCF and capex to reassess coverage.

Risk Assessment

Business Risks:

• Demand normalization and category headwinds in infection-control/OTC products, pressuring revenue (-7.6% YoY).
• Margin pressure from elevated SG&A (47% of sales) and fixed-cost deleverage.
• Product mix and price competition risks that could erode the high gross margin (64.2%).
• Potential inventory obsolescence if demand remains soft (inventories 6.37).
• Regulatory/quality risks inherent to pharmaceutical/OTC products.

Financial Risks:

• Earnings quality risk as net income is supported by extraordinary gains and a tax benefit this quarter.
• Limited visibility on cash generation due to unreported cash flow statements (OCF/FCF unknown).
• FX exposure not disclosed; any import cost swings could affect gross margin.

Key Concerns:

• Operating margin compression (~-810 bps YoY by our estimate).
• Dependence on below-the-line items to support net profit (PBT 6.73 vs ordinary income 3.25).
• Negative effective tax rate (-6.1%) unlikely to be structural, risking future net income normalization lower.

Investment Implications

Key Takeaways:

• Core profitability weakened sharply; operating income -55.3% YoY with OPM now 7.7%.
• Headline net margin (15.8%) and ROE (8.1%) are buoyed by non-recurring items and a tax benefit.
• Balance sheet strength (current ratio 353%, D/E 0.44x, cash 37.88) provides resilience.
• SG&A intensity at ~47% signals scope and need for cost control to restore operating leverage.
• Asset turnover of 0.356 indicates moderate efficiency; improving turns can support ROE absent leverage.

Metrics to Watch:

• Operating margin trajectory and SG&A ratio in coming quarters.
• Disclosure of extraordinary items bridging ordinary income (3.25) to PBT (6.73).
• OCF/Net Income and FCF once cash flow statements are available.
• Revenue trends in core OTC/infection-control categories and price/mix actions.
• Inventory and receivable turnover to validate working capital health.
• Effective tax rate normalization and guidance on one-off gains.

Relative Positioning: Within Japanese OTC/consumer healthcare peers, the company maintains superior liquidity and low leverage but currently lags on operating momentum and margin stability; restoring cost discipline and defending gross margin are crucial to close the profitability gap with better-executing peers.

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