Shinnihonseiyaku (4931) FY2026 Q2 Earnings Report

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Executive Summary

For the cumulative Q2 of FY2026, revenue increased while profit declined, with the deterioration in the operating margin being the most important point. Revenue was ¥205.2B (+1.2% YoY, +¥2.4B), Operating Income was ¥23.1B (-8.8%, -¥2.2B), Ordinary Income was ¥23.5B (-7.2%, -¥1.8B), and Net Income was ¥16.2B (+73.2%, +¥6.9B). The substantial increase in Net Income was primarily due to the reversal of the ¥7.6B impairment loss recorded in the same period of the previous year and does not indicate an improvement in core earnings power. The increase in SG&A expenses (+2.2%) exceeded sales growth, causing the Operating Income margin to decline to 11.3% from 12.5% in the same period of the previous year.

Factors Affecting Performance

【Revenue】Revenue was ¥205.2B, representing only a slight increase of +1.2% YoY. The Company’s core business is mail-order sales of cosmetics and healthcare-related products; however, segment disclosure has been omitted because the segments are not material. Progress against the full-year Company plan (¥450.0B, +9.4% YoY) was 45.6%, below the standard progress level of 50%, requiring sales in the second half to exceed the first-half results by 19.3%.

【Profit and Loss】Gross profit was ¥164.0B, with a gross margin of 79.9%, down from 80.4% in the same period of the previous year. In addition, SG&A expenses increased by +2.2% YoY to ¥140.9B, exceeding revenue growth (+1.2%) and serving as the primary cause of the decline in the Operating Income margin. Operating Income declined to ¥23.1B (-8.8%), while Ordinary Income declined to ¥23.5B (-7.2%). Meanwhile, Net Income increased 73.2% to ¥16.2B due to the reversal of the ¥7.6B impairment loss recorded in the same period of the previous year; however, no current-period earnings uplift from extraordinary gains or losses has been identified. In conclusion, the current period saw increased revenue but lower profit.

Segment Analysis

The business segments of the Company’s Group are mail-order sales of cosmetics and healthcare-related products, wholesale sales, and overseas sales. However, wholesale sales and overseas sales account for only a minor portion of the total, and segment disclosure has been omitted because the information is not material.

Key Financial Metrics

【Profitability】The Operating Income margin was 11.3%, approximately 1.2pt below 12.5% in the same period of the previous year, while the gross margin also declined to 79.9% from 80.4%. The SG&A ratio increased to 68.7% from 67.9%, confirming deterioration in operating leverage.【Cash Quality】Inventories increased 13.1% YoY to ¥24.1B, significantly exceeding revenue growth (+1.2%). Annualized inventory days were approximately 107 days, a high level requiring monitoring of sell-through and inventory stagnation risks.【Investment Efficiency】Annualized ROE was 13.9%, formed by the combination of a Net Income margin of 7.9%, total asset turnover, and financial leverage of 1.21x. Since the increase in the Net Income margin includes the reversal of the previous year’s impairment loss, it must be distinguished from improvement on an Operating Income basis.【Financial Soundness】The Equity Ratio was 82.5% (80.7% in the previous year), and the Current Ratio was approximately 540%, both high levels. Cash and deposits were ¥177.3B, representing 62.9% of total assets. Total liabilities decreased 9.3% YoY, and a conservative capital structure has been maintained.

Cash Flow Analysis

Although a statement of cash flows has not been disclosed, fund movements can be confirmed from changes in the balance sheet. Cash and deposits were ¥177.3B, down ¥3.9B from ¥181.2B in the same period of the previous year. Meanwhile, inventories increased by ¥2.8B, and retained earnings increased by ¥5.2B YoY to ¥160.7B. Net assets increased by ¥4.2B to ¥232.3B, while liabilities decreased by ¥5.1B to ¥49.4B, indicating that funds were allocated to inventory accumulation within the business and the internal accumulation of net assets. Cash levels cover approximately four times current liabilities, and ample liquidity has been maintained.

Earnings Quality

Pretax Income and Ordinary Income for the current period were both ¥23.5B, with no earnings uplift from extraordinary gains or losses identified. In contrast, the same period of the previous year included an impairment loss of ¥7.6B against Pretax Income of ¥17.75B; therefore, the increase in Net Income (+73.2%) in the current period was primarily driven by a comparison-related uplift from this reversal. Non-operating income was limited to ¥0.9B, or 0.4% of revenue, and non-core income such as dividend income and foreign exchange gains was not large enough to materially distort the assessment of core operations. Comprehensive income was ¥14.4B, below Net Income of ¥16.2B, due to the decline in valuation difference on other securities from ¥3.8B in the same period of the previous year to ¥1.9B. Overall, the quality of earnings in the current period reflects both a recurring weakening of earnings power, as evidenced by the decline in Operating Income, and an apparent improvement in Net Income resulting from a non-recurring factor, namely the reversal of the previous year’s impairment loss.

Earnings Forecast and Guidance

Progress for the first half against the full-year Company plan was 45.6% for revenue, 46.2% for Operating Income, approximately the same level on an Ordinary Income basis, and 47.6% for Net Income, all below the standard progress level of 50%. The second half will require revenue of ¥244.8B (+19.3% versus the first half) and Operating Income of ¥26.9B, implying a required second-half Operating Income margin of 11.0%. Since the required second-half Operating Income margin is slightly below the first-half result of 11.3%, the plan could be achieved without a substantial improvement in profitability. However, accelerating revenue growth and containing the SG&A ratio in the second half remain challenges. No revisions were made to the earnings forecast or dividend forecast during the current quarter.

Shareholder Returns

The dividend at the end of Q2 was ¥0 per share, reflecting a policy of no interim dividend. The full-year dividend forecast is ¥57.0 per share, with annual dividends concentrated at the fiscal year-end. Based on the number of shares after deducting treasury shares, total annual dividends are estimated at approximately ¥12.1B, implying an expected Payout Ratio of approximately 35.5% against the full-year Net Income plan of ¥34.0B. Given the financial base of retained earnings of ¥160.7B and cash and deposits of ¥177.3B, the capacity to pay dividends is substantial. No information regarding share buybacks has been identified.

Risk Factors

1. Rising inventory levels: Inventories were ¥24.1B, up +13.1% YoY, significantly exceeding revenue growth (+1.2%). Annualized inventory days were approximately 107 days, making delays in sell-through and the risk of valuation losses key issues to monitor.

2. Deterioration in operating leverage: SG&A expenses increased +2.2% YoY and exceeded revenue growth, resulting in an approximately 1.2pt decline in the Operating Income margin. The efficiency of advertising and customer acquisition costs in the mail-order business will determine future profitability.

3. Risk of back-half-loaded plan achievement: First-half progress against the full-year revenue and profit plans was below the standard 50% level in all cases (revenue 45.6%, Operating Income 46.2%, Net Income 47.6%), requiring a significant acceleration in revenue growth in the second half.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceed the industry median; however, compared with the top 25% (IQR upper limit of 23.7%), profitability is positioned in the middle range.

Growth and Capital Efficiency

The revenue growth rate is significantly below the industry median, indicating an inferior position within the industry in terms of growth.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The 73.2% increase in Net Income was primarily due to the reversal of the ¥7.6B impairment loss recorded in the same period of the previous year, while Operating Income declined 8.8%. Core earnings power should be evaluated based on trends in Operating Income and the Operating Income margin.

2. The increase in inventories (+13.1%) significantly exceeded revenue growth (+1.2%), making changes in inventory efficiency an item that should be monitored continuously in future earnings results.

3. The financial base, including an Equity Ratio of 82.5% and a Current Ratio of approximately 540%, supports the capacity to execute the full-year dividend forecast of ¥57.0 per share, corresponding to an expected Payout Ratio of approximately 35.5%.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,253–¥1,327 at ±1% for the cost of equity, and ¥1,285–¥1,296 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a time lag between these figures and the full-year forecast).
• Since 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 values based solely on publicly disclosed data; these are not forecasts of market prices or recommendations for specific investment actions, and do 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 release 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, after consulting a professional advisor as necessary.

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