Shinnihonseiyaku (4931) FY2026 Q1 Earnings Report

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Executive Summary

The Company recorded higher revenue but lower earnings in the quarter, with the increase in SG&A expenses weighing on operating income as the most important point. Revenue increased to ¥106.5B (+1.7% YoY), while operating income declined slightly to ¥15.2B (-0.7% YoY) and ordinary income to ¥15.4B (-0.9% YoY). Meanwhile, net income increased to ¥10.6B (+2.4% YoY), supported by a decline in the effective tax rate. The increase in the SG&A ratio relative to the pace of revenue growth was the primary cause of the decline in margins, while the reduction in the tax burden supported bottom-line earnings.

Factors Affecting Earnings Performance

【Revenue】Revenue increased 1.7% YoY to ¥106.5B. Segment information is not separately disclosed because the business is primarily focused on direct-to-consumer sales of cosmetics and healthcare products, while wholesale and overseas sales account for only a minor proportion. Progress against the full-year company forecast of ¥450.0B (+9.4% YoY) was 23.7%, representing a start slightly below the standard progress rate of 25%.

【Profit and Loss】The cost of sales ratio increased to 20.1% from 19.9% in the same period of the previous year, resulting in a gross margin of 79.9%, approximately 20bp lower. SG&A expenses were ¥69.8B, up 1.9% YoY and exceeding the 1.7% growth in revenue. Consequently, the SG&A ratio increased to 65.6%, and the operating margin declined by approximately 0.3pt YoY to 14.3%. Ordinary income also declined to ¥15.4B, although non-operating income and expenses, including interest income of ¥0.1B and foreign exchange gains of ¥0.1B, provided modest support. Profit before tax and ordinary income were approximately the same, indicating that the impact of extraordinary income and losses was limited. Income taxes were ¥4.8B, and the effective tax rate declined to approximately 31.1% from approximately 33.3% in the previous year. Net income consequently increased to ¥10.6B (+2.4% YoY). In summary, the Company posted higher revenue but lower earnings at the operating and ordinary income levels, while net income increased; the reduction in the tax burden was the factor that lifted bottom-line earnings.

Segment Analysis

The Group’s core business is direct-to-consumer sales of cosmetics and healthcare products. Because wholesale and overseas sales account for only a minor proportion, segment performance information is omitted.

Key Financial Indicators

【Profitability】The operating margin was 14.3% and the net profit margin was 10.0%, both showing only modest changes from the same period of the previous year. The gross margin remained high at 79.9%, reflecting the business structure centered on direct-to-consumer sales.【Cash Quality】Cash and deposits were ¥170.2B, representing 62.2% of total assets. Although they declined by ¥10.99B YoY, inventories increased 12.6% YoY to ¥24.0B.【Investment Efficiency】Annualized ROE was 18.8%. The DuPont decomposition of net profit margin × total asset turnover × financial leverage indicates a structure in which profit margins and asset turnover contribute more than leverage.【Financial Soundness】The equity ratio was 82.6% (82.6%, equivalent to the previous year’s 82.6%), maintaining a conservative capital structure. The current ratio was 561.2% and the debt-to-equity ratio was 0.21x, indicating substantial financial capacity.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, an analysis of funding trends based on changes in the balance sheet indicates that cash and deposits declined by ¥10.99B YoY to ¥170.2B, while inventories increased by ¥2.69B to ¥24.0B. This suggests that a portion of funds was allocated to working capital, particularly inventory accumulation. Accounts receivable were ¥35.6B, with annualized DSO of approximately 31 days, indicating efficient collections. Accounts payable were ¥8.3B, up 27.4% YoY; the expansion of trade payables accompanying the increase in inventory provided partial support for cash management. Nevertheless, annualized DIO was 102 days and annualized CCC reached approximately 97 days, indicating that inventory retention is weighing on capital efficiency. Cash levels were approximately 4.1x current liabilities of ¥41.8B, providing ample short-term liquidity.

Earnings Quality

The quarter’s earnings showed limited dependence on non-operating and extraordinary items, with profit before tax approximately equal to ordinary income at ¥15.4B. Non-operating income was ¥0.7B, consisting of interest income, foreign exchange gains, and other items. As a percentage of revenue, this was small, and the quality of ordinary income was broadly aligned with the trend in operating income. The increase in net income was primarily attributable to the decline in the effective tax rate, from approximately 33.3% to approximately 31.1%; the reduction in the tax burden offset declines in operating and ordinary income. Comprehensive income was ¥8.8B, below net income of ¥10.6B, primarily because valuation differences on available-for-sale securities were negative ¥1.9B. This divergence resulted from changes in the market value of held securities and does not impair the business’s underlying recurring earnings power.

Earnings Forecast and Guidance

Q1 progress against the full-year company forecast was 23.7% for revenue, 30.4% for operating income, 30.7% for ordinary income, and 31.2% for net income, with earnings progress exceeding the standard 25%. However, the full-year forecast operating margin of 11.1% is approximately 3.2pt below the Q1 result of 14.3%, suggesting that the Company’s plan may incorporate increased SG&A expenses and lower profitability toward the second half. Revenue progress of 23.7% represents a somewhat gradual start relative to the full-year forecast of +9.4% YoY growth, making acceleration in subsequent quarters a prerequisite for achieving the plan.

Shareholder Returns

The full-year dividend forecast is ¥57.00 per share, and the forecast EPS is ¥160.37. The forecast dividend payout ratio, based solely on dividends, is calculated at approximately 35.5%. This level is below the generally accepted sustainability guideline of 60%. The estimated annual total dividend based on the average number of shares outstanding during the period is approximately ¥12.1B. Since cash and deposits of ¥170.2B substantially exceed this amount, the balance sheet provides ample capacity for dividend payments. Treasury stock was ¥13.6B, unchanged from the same period of the previous year. The total return ratio, including share repurchases during the period, has not been calculated.

Risk Factors

1. Inventory Turnover Risk: Annualized DIO was 102 days, meeting the guideline for excess inventory of more than 90 days. Inventories increased 12.6% YoY, substantially exceeding the 1.7% growth in revenue. If the divergence from demand continues, gross margins may be pressured through discount sales or inventory write-downs.

2. SG&A Efficiency Risk: SG&A expenses increased 1.9% YoY, exceeding the 1.7% growth in revenue and reducing the operating margin by approximately 0.3pt. In the direct-to-consumer business, the efficiency of customer acquisition and promotional investments will affect future margins.

3. Full-Year Margin Volatility Risk: The full-year forecast operating margin of 11.1% is below the Q1 result of 14.3%. The extent of cost increases and profitability fluctuations toward the second half will be important variables in achieving the full-year plan.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability is well above the industry median and falls within the high-performing range.

Growth and Capital Efficiency

Revenue growth is below the industry median, indicating that the pace of growth is relatively moderate compared with the high level of profitability.

※Source: Compiled by the Company

Key Points from the Financial Results

1. With a gross margin of 79.9%, operating margin of 14.3%, and annualized ROE of 18.8%, profitability is high even compared with the industry. The decline in the effective tax rate is supporting the increase in net income.

2. Inventories increased 12.6% YoY, and annualized DIO reached 102 days. The impact of inventory accumulation exceeding sales growth on future gross margins and capital efficiency will be an important point to monitor.

3. The financial foundation, comprising an equity ratio of 82.6%, current ratio of 561.2%, and debt-to-equity ratio of 0.21x, supports resilience to business fluctuations and flexibility in future capital allocation.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,234–¥1,307 at ±1% for the cost of equity, and ¥1,265–¥1,277 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end have been 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 (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)

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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 discretion and responsibility, after consulting a professional as necessary.

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