Shinnihonseiyaku Co.,Ltd. FY2026 Q3 Earnings Report

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Executive Summary

The distinguishing feature of the current period was the divergent performance of higher revenue, lower operating income, and higher net income. It should be noted that the normalization of impairment losses recorded in the previous year and the lower tax burden boosted net income. Revenue was ¥32.15B (¥30.73B in the previous year, +4.6%), operating income was ¥3.75B (¥3.89B, -3.7%), ordinary income was ¥3.80B (¥3.92B, -2.8%), and net income was ¥2.62B (¥1.88B, +39.3%). The decline in gross margin and increase in the SG&A ratio were the factors behind the decline in operating income, while the increase in net income was largely attributable to the absence of the one-time impairment loss recorded in the previous year.

Factors Affecting Earnings

【Revenue】Revenue was ¥32.15B, representing a year-on-year increase of +4.6%. Segment information is centered on the Cosmetics and Healthcare Direct-to-Consumer Business, and because wholesale and overseas sales account for only a minor proportion, the Company is treated as a single segment for disclosure purposes. The Company has a high degree of concentration in its direct-to-consumer business, creating a structure in which the intensity of advertising investment can readily influence revenue trends.

【Profitability】Gross profit was ¥25.56B, and the gross margin was 79.5%, down -0.8pt year on year. This was attributable to the increase in cost of sales outpacing revenue growth. SG&A expenses were ¥21.81B, or 67.8% of revenue, up +0.2pt year on year, suggesting persistent advertising and customer acquisition costs. As a result, operating income declined to ¥3.75B (-3.7%), while ordinary income declined to ¥3.80B (-2.8%). Meanwhile, net income was ¥2.62B (+39.3%), primarily due to the absence of the ¥0.76B impairment loss recorded in the previous year and the decline in the effective tax rate (approximately 40% in the previous year → approximately 31% in the current period). The increase was therefore driven more by one-time factors than by an improvement in underlying operating performance. In conclusion, the Company recorded higher revenue and lower operating income, while net income increased due to one-time factors.

Segment Analysis

The Company operates businesses involving the direct-to-consumer sale, wholesale sale, and overseas sale of cosmetics and healthcare products. However, because wholesale and overseas sales account for only a minor proportion of total sales, segment-level information is omitted for disclosure purposes. In substance, the high concentration in the direct-to-consumer business is a major factor driving fluctuations in revenue and profit.

Key Financial Indicators

【Profitability】The operating margin was 11.7%, narrowing from approximately 12.6% in the previous year, due to the decline in gross margin (-0.8pt) and increase in the SG&A ratio (+0.2pt). The net margin improved to 8.1% from 6.1% in the previous year, although this includes the impact of the one-time impairment factor recorded in the previous year. 【Cash Quality】Non-operating income was ¥0.11B (interest income of ¥0.02B and foreign exchange gains of ¥0.01B), equivalent to only 0.4% of revenue, indicating that profit was largely driven by operating activities. Inventories increased to ¥2.70B, up +26.7% year on year, and the higher inventory level is tying up working capital. 【Capital Efficiency】ROE was 10.8%, comprising the combination of net margin, total asset turnover, and financial leverage. Total asset turnover was broadly flat, although the increase in inventories could become a downward pressure factor going forward. 【Financial Soundness】The equity ratio remained high at 83.5% (80.7% in the previous year), while liquidity was ample, with current assets of ¥25.23B versus current liabilities of ¥4.25B. Cash and deposits were ¥18.09B, accounting for 62.3% of total assets, and the Company effectively had no interest-bearing debt.

Cash Flow Analysis

Because detailed disclosure of the statement of cash flows is not provided in these financial results, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥18.09B, remaining almost at the same level as ¥18.12B in the previous year, indicating limited cash inflows and outflows. Meanwhile, inventories increased to ¥2.70B, up +26.7% year on year, and accounts payable also increased to ¥0.85B, up +30.6%, suggesting that working capital may be increasingly tied up as a result of inventory accumulation. Income taxes payable declined substantially from ¥0.95B to ¥0.37B, indicating that tax payments reduced current liabilities. Net assets increased to ¥24.24B (¥22.81B in the previous year), with the accumulation of retained earnings supporting the strength of shareholders’ equity. The high cash balance indicates that, even with temporary cash tied up due to the increase in inventories, the Company retains sufficient capacity for dividend payments and business operations.

Quality of Earnings

The quality of current-period profit is relatively sound in that non-operating income was small at 0.4% of revenue, and profit through the ordinary income stage was generally generated by core operating activities. However, the ¥3.80B ordinary income versus ¥2.62B net income reflects one-time and non-structural factors, including the absence of the ¥0.76B impairment loss recorded in the previous year and the decline in the effective tax rate (from approximately 40% in the previous year to approximately 31% in the current period). Accordingly, caution is warranted in interpreting the +39.3% growth in net income as a sustainable signal of improved performance. Comprehensive income was ¥2.45B, slightly below net income of ¥2.62B, due to the deterioration in the valuation difference on other securities (-¥0.19B). The divergence between net income and comprehensive income was limited, indicating that accrual-type effects from fluctuations in asset values were not significant.

Earnings Forecast and Guidance

Progress against the full-year forecast was ¥32.15B/¥45.00B for revenue, representing a progress rate of 71.4%; ¥3.75B/¥5.00B for operating income, or 75.0%; and ¥3.80B/¥5.02B for ordinary income, or 75.7%. While revenue progress was slightly below the standard quarterly progress benchmark of approximately 75%, profit performance remained broadly in line with the plan. The full-year forecast calls for revenue growth of +9.4% year on year and operating income growth of +4.6%, with a reversal from the operating income decline through Q3 planned for Q4. Neither the earnings forecast nor the dividend forecast was revised during the current quarter.

Shareholder Returns

The Company’s full-year dividend forecast is ¥57 per share, implying a payout ratio of approximately 35.5% against forecast EPS of ¥160.37. Based on the weighted-average number of shares during the period of 21,169 thousand shares, the total annual dividend is estimated at approximately ¥1.2B, which is well within the range that can be covered by cash and deposits of ¥18.09B. No disclosure regarding share buybacks was identified, indicating that shareholder returns are centered on dividends.

Risk Factors

1. Inventory growth and obsolescence risk: Inventories increased to ¥2.70B, up +26.7% year on year. If inventory levels continue to rise, the likelihood of future discounted sales or inventory write-downs will increase.

2. Slower operating leverage due to the increase in the SG&A ratio: The SG&A ratio was 67.8%, up +0.2pt year on year. If persistent advertising and customer acquisition costs continue, improvement in the operating margin may remain limited even when revenue increases.

3. Decline in gross margin: The gross margin was 79.5%, down -0.8pt year on year. If the effects of higher costs or promotional discounts continue, they could place pressure on the earnings structure.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s operating margin and net margin both exceeded the industry median, placing its profitability in the upper tier of the industry.

Growth and Capital Efficiency

Revenue growth also exceeded the industry median but did not reach the upper end of the IQR (8.9%), placing the Company’s growth at a mid-to-slightly-upper level within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The results show an asymmetric structure of higher revenue and lower operating income, combined with a substantial increase in net income. Because the increase in net income includes one-time factors from the absence of the previous year’s impairment loss and the lower tax rate, operating income trends are a more representative indicator of underlying performance.

2. Inventories increased significantly by +26.7% year on year, and changes in inventory levels warrant monitoring as a factor that could influence gross margin trends from Q4 onward.

3. Against a strong financial foundation consisting of an equity ratio of 83.5% and cash and deposits of ¥18.09B, the shareholder return policy, with a payout ratio of approximately 35.5%, leaves room for sustainable implementation based on the Company’s cash position.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,285–¥1,361 at ±1% for the cost of equity, and ¥1,318–¥1,329 at ±0.1 for ω.

Notes:

• Net assets as of 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: 2026-07 / This value 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 report 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 with professionals as necessary.

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