| Metric | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥506.5B | ¥506.4B | +0.0% |
| Operating Income / Operating Profit | ¥36.4B | ¥26.2B | +38.8% |
| Ordinary Income | ¥38.1B | ¥27.1B | +40.9% |
| Net Income / Net Profit | ¥78.1B | ¥15.1B | +416.4% |
| ROE | 14.8% | 2.9% | - |
For the fiscal year ended May 2026, revenue was ¥506.5B (YoY +¥0.7B +0.0%), essentially flat, while Operating Income rose to ¥36.4B (YoY +¥10.2B +38.8%), Ordinary Income to ¥38.1B (YoY +¥11.1B +40.9%), and Net Income attributable to owners of the parent to ¥31.6B (YoY +¥12.5B +65.7%), delivering strong profit growth. Cost of goods sold ratio improved by -2.4pt to 80.5% (prior year 83.0%), lifting gross margin to 19.5%; SG&A ratio rose +0.5pt to 12.4% (prior year 11.9%) but gross margin improvement outweighed SG&A increase, improving Operating Margin by +2.0pt to 7.2% (prior year 5.2%). Extraordinary gains included gain on sale of investment securities ¥3.3B and subsidies ¥2.4B, boosting bottom-line, while extraordinary losses including impairment losses ¥0.7B were also recorded. EPS was ¥107.49 (prior year ¥62.74, +71.3%), and annual dividend was ¥40 (prior year ¥35), implying a payout ratio of 55.8%. Operating Cash Flow was ¥93.8B (YoY +59.0%), 2.97x Net Income, a high level, with inventory reductions and decreases in trade receivables contributing to cash realization.
[Revenue] Revenue of ¥506.5B was up ¥0.7B (+0.0%) YoY, essentially flat. By product, Active Pharmaceutical Ingredients (APIs) were ¥224.8B (prior year ¥228.7B, -1.7%), slightly down, while Formulations were ¥279.8B (prior year ¥275.9B, +1.4%) and Formulations ratio rose to 55.2% (prior year 54.5%). Major customers included Felsen Pharma Co., Ltd. ¥55.97B (prior year ¥52.25B) and Towa Pharmaceutical ¥50.75B, together accounting for roughly ¥107B of sales, increasing customer concentration. Health foods and others were ¥1.8B (prior year ¥1.8B), flat. Geographically, domestic sales account for over 90% of consolidated sales; overseas proportion is limited. The shift toward formulations improved product mix and was a structural driver of gross margin improvement.
[Profit & Loss] Gross profit was ¥99.0B (prior year ¥86.4B, +14.6%), with gross margin improving +2.4pt to 19.5% (prior year 17.1%). The increase in lower-cost formulations and manufacturing efficiency improvements contributed. SG&A was ¥62.6B (prior year ¥60.2B, +4.0%), and SG&A ratio rose +0.5pt to 12.4% (prior year 11.9%), but gross margin gains outpaced SG&A increases, resulting in Operating Income of ¥36.4B (prior year ¥26.2B, +38.8%), and Operating Margin improved +2.0pt to 7.2% (prior year 5.2%). Non-operating income totaled ¥4.2B (dividends received ¥0.7B, foreign exchange gains ¥1.0B, etc.) and non-operating expenses were ¥2.5B (interest expense ¥1.3B, etc.), yielding Ordinary Income of ¥38.1B (prior year ¥27.1B, +40.9%). Extraordinary items were net positive at ¥2.5B (extraordinary gains ¥5.7B (gain on sale of investment securities ¥3.3B, subsidies ¥2.4B) less extraordinary losses ¥3.2B (impairment loss ¥0.7B, loss on disposal of fixed assets ¥0.4B)), bringing Profit Before Tax to ¥40.7B (prior year ¥29.6B, +37.4%). After corporate taxes of ¥9.3B (effective tax rate 22.8%), Net Income for the period was ¥31.4B; adjusting for non-controlling interests loss -¥0.3B results in Net Income attributable to owners of the parent of ¥31.6B (prior year ¥15.1B, +109.3%), approximately doubling. In conclusion, a revenue-stable, profit-growing year driven primarily by a shift to formulations and gross margin improvement.
The reportable segment is the "Pharmaceuticals Business" only; other business segments are immaterial and segment-level operating profit/loss disclosure is not provided.
[Profitability] Operating Margin of 7.2% (prior year 5.2%) improved +2.0pt, driven by Gross Margin improvement to 19.5% (prior year 17.1%) of +2.4pt. SG&A ratio rose to 12.4% (prior year 11.9%) +0.5pt, but gross margin gains exceeded the SG&A increase. ROE was 14.8%, with Net Profit Margin 15.4% (Net Income / Revenue on a sales base is 6.2%, prior year 3.0%), Total Asset Turnover 0.69x, and Financial Leverage 1.38x. ROA (on an Ordinary Income basis) improved to 5.2% (prior year 3.5%) +1.7pt. EBITDA was ¥80.3B (Operating Income ¥36.4B + Depreciation & Amortization ¥43.9B), producing an EBITDA margin of 15.9%, indicating stable cash-generating capability. [Cash Quality] Operating CF / Net Income is high at 2.97x, and the accrual ratio is -8.5%, indicating very high cash realization. OCF/EBITDA ratio is 1.17x, reflecting good cash conversion. Working capital turns: DSO 92 days, DIO 147 days, DPO 37 days, yielding CCC of 193 days—a prolonged cycle, indicating room to improve inventory turns and receivables collection. [Investment Efficiency] Total Asset Turnover is 0.69x, slightly improved YoY; Fixed Asset Turnover is 1.65x (Revenue ¥506.5B ÷ Tangible Fixed Assets ¥306.8B). Capital expenditure was ¥38.2B, below Depreciation & Amortization ¥43.9B, within maintenance capex levels. Intangible assets increased to ¥17.1B (prior year ¥5.3B), +¥11.8B, but represent 2.3% of total assets and impairment risk is low. [Financial Soundness] Equity Ratio improved to 72.2% (prior year 66.7%) +5.5pt, Current Ratio 261.7% (prior year 244.6%), Quick Ratio 219.2% (prior year 204.4%), indicating very robust short-term liquidity. Debt-to-Equity is 0.38x, Debt/EBITDA is 0.47x, both low, and Interest Coverage is 27.98x (EBITDA ¥80.3B ÷ Interest Paid ¥1.3B × 1.44), indicating very strong capacity to service interest. Long-term borrowings were reduced to ¥37.5B (prior year ¥65.7B, -42.9%), lowering financial leverage.
Operating CF was ¥93.8B (prior year ¥59.0B, +59.0%), 2.99x Net Income ¥31.4B, indicating high quality. Operating CF before working capital changes was ¥100.9B; working capital contributed via inventory decrease +¥20.2B and trade receivables decrease +¥13.3B, while decrease in trade payables -¥8.7B was a negative contributor. After corporate tax payments of -¥7.3B, net Operating CF was ¥93.8B, and OCF/EBITDA ratio was 1.17x, indicating good cash conversion. Investing CF was -¥43.9B, driven by capex -¥38.2B and intangible asset acquisitions -¥13.7B (software/rights acquisitions). Proceeds from disposal of fixed assets were -¥0.3B (outflow), sale of investment securities +¥4.5B and acquisitions -¥0.1B net contributed positively. Free Cash Flow was ¥49.9B (Operating CF ¥93.8B + Investing CF -¥43.9B), providing 4.46x coverage of dividends ¥11.2B and indicating ample distributable capacity. Financing CF was -¥62.9B; despite long-term borrowings proceeds +¥60.0B, repayments -¥31.0B, dividend payments -¥11.2B, share buybacks -¥16.3B, and lease liabilities repayments -¥4.4B were executed. As a result, cash and deposits decreased ¥12.5B to an ending balance of ¥9.5B. Including foreign exchange-related cash increase of ¥0.5B, year-end cash of ¥9.5B is 1.3% of total assets and thin, but given high Operating CF and healthy liquidity ratios, funding concerns are limited.
Operating Income ¥36.4B is core business income; non-operating income ¥4.2B (dividends received ¥0.7B, foreign exchange gains ¥1.0B, subsidy income ¥0.2B, etc.) is modest at 0.8% of sales. Non-operating expenses ¥2.5B (interest expense ¥1.3B, fees ¥0.2B, other ¥0.9B) have limited impact on core operations, and Ordinary Income ¥38.1B indicates a stable earnings structure. Extraordinary items were net +¥2.5B (extraordinary gains ¥5.7B, extraordinary losses ¥3.2B), temporarily boosting final profit. The gap between Ordinary Income ¥38.1B and Net Income attributable to owners of the parent ¥31.6B (-17.1%) is consistent with the effective tax rate of 22.8% and non-controlling interests -¥0.3B. Operating CF ¥93.8B / Net Income ¥31.4B = 2.99x and accrual ratio -8.5% indicate very high quality cash realization, aided by inventory and receivables compression. Comprehensive income was ¥36.2B (owners of the parent ¥36.4B, non-controlling interests -¥0.2B); the divergence from Net Income ¥78.1B is due to other comprehensive income cumulative amount +¥4.8B (foreign currency translation adjustments +¥0.3B, valuation difference on available-for-sale securities +¥1.1B, retirement benefit adjustments +¥2.1B, share of OCI of associates +¥1.2B), whereby valuation gains raised equity. Overall, dependence on core business is high and, excluding one-off items, earnings quality is high.
For FY2027 ending May 2027, full-year guidance is Revenue ¥540.0B (YoY +6.6%), Operating Income ¥40.0B (YoY +10.0%), Ordinary Income ¥40.0B (YoY +4.9%), and Net Income attributable to owners of the parent ¥30.0B, with EPS forecast ¥104.37 and annual dividend forecast ¥22.5. The plan assumes continued growth in formulations and increased sales to major customers, targeting +6.6% revenue growth; Operating Margin is expected to improve to 7.4% (this period 7.2%) +0.2pt. Sustained gross margin improvement and cost control are expected to drive Operating Income +10.0%, while Ordinary Income growth of +4.9% lags Operating Income growth due to normalization of non-operating items (e.g., fading foreign exchange gains recorded this period). Due to the drop-off of extraordinary gains, Net Income attributable to owners of the parent is projected at ¥30.0B (this period ¥31.6B, -5.1%), a decline, but core operations are planned to be profitable. Progress rates are Revenue 93.8%, Operating Income 91.0%, Ordinary Income 95.3%, indicating generally steady progress. A 1:2 stock split was implemented on June 1, 2025, and the annual dividend forecast ¥22.5 is on a post-split basis.
Annual dividend is ¥40 (interim ¥20, year-end ¥20), up ¥5 from prior year ¥35 (interim ¥16, year-end ¥19). Payout ratio is 55.8%; with Net Income attributable to owners of the parent ¥31.6B, total dividends amount to approximately ¥11.2B (calculated as ¥40 × shares outstanding at year-end 28,743 thousand shares). Free Cash Flow ¥49.9B vs. dividends ¥11.2B yields an FCF coverage of 4.46x, indicating substantial headroom and high sustainability. Additionally, ¥16.3B in share buybacks were executed, bringing total shareholder returns to ¥27.5B and a Total Return Ratio of 87.0%. Annual dividend forecast for FY2027 is ¥22.5 (post-split basis; pre-split equivalent ¥45), implying a real increase of +12.5%. Based on EPS forecast ¥104.37, the implied payout ratio is about 43%, a conservative level, enabling continued shareholder returns within FCF. Treasury stock increased to ¥1.3B (prior year ¥7.5B) +¥6.2B, and shares outstanding were 28,855 thousand shares (treasury shares 111 thousand shares).
Customer concentration risk: Two major customers (Felsen Pharma ¥55.97B, Towa Pharmaceutical ¥50.75B) account for about 21% of sales; demand fluctuations or procurement policy changes by these customers could directly impact performance. Large customers have high bargaining power, and price pressure (drug price reductions) could depress gross margins.
Low working capital efficiency: DSO 92 days, DIO 147 days, CCC 193 days indicate delayed inventory turnover and receivables collection; working capital reaccumulation could reverse Operating CF. If inventory ¥59.5B (11.7% of sales) and accounts receivable ¥127.9B (25.3% of sales) are not compressed, capital efficiency may deteriorate.
Price and cost pressure: Drug price reductions in the generic pharmaceuticals market and raw material price volatility could pressure the gross margin of 19.5%. SG&A ratio has risen +0.5pt; increases in personnel and quality-related costs could erode operating leverage.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 7.2% | -94.2% (-358.4%–8.6%) | +101.4pt |
| Net Profit Margin | 15.4% | -101.5% (-373.7%–5.9%) | +116.9pt |
The company’s Operating Margin of 7.2% substantially exceeds the pharmaceutical industry median and ranks in the upper tier within the industry. Net Profit Margin of 15.4% (Net Income / Revenue basis) also exceeds the industry median by +116.9pt, indicating very high profitability within the sector.
※ Source: Company compilation
Gross margin improvement due to shift toward formulations and Operating Margin improvement of +2.0pt indicate structural profitability enhancement; continued mix improvement will be a key mid-term driver of profit growth. The company demonstrated resilience by achieving Operating Income +38.8% despite flat revenue.
Operating CF ¥93.8B is 2.97x Net Income and OCF/EBITDA 1.17x, showing very strong cash generation, with inventory and receivables compression contributing to cash realization. FCF ¥49.9B funded dividends, share buybacks, and debt repayments, achieving both balance sheet strengthening and shareholder returns. The 42.9% reduction in long-term borrowings and Debt/EBITDA 0.47x materially improved financial resilience.
Prolonged working capital cycle (DSO 92 days, DIO 147 days, CCC 193 days) presents significant improvement potential; shortening inventory turns and collection cycles will be KPI focus next period. Increased revenue dependence on two major customers and the drop-off of extraordinary gains leading to lower next-period Net Income warrant monitoring.
This report is an earnings analysis document automatically generated by AI analyzing XBRL earnings release data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company based on public financial statements. Investment decisions are your own responsibility; consult professionals as needed before making investment decisions.