TAKARA BIO INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥18.79B
• Operating Income: ¥-2.34B
• Net Income: ¥531M
• EPS: ¥-57.40

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Takara Bio (4974) reported FY2026 Q2 consolidated results under JGAAP marked by a sharp deterioration in profitability despite resilient cash generation. Revenue declined 4.9% YoY to ¥18.8bn, while operating income fell to a loss of ¥2.34bn, indicating significant negative operating leverage. The company maintained a very high reported gross margin of 66.2%, suggesting strong pricing power and mix in its life-science reagents and services, but SG&A and/or R&D intensity overwhelmed gross profits. Ordinary income was a ¥2.49bn loss, and net income was a ¥6.91bn loss (EPS: -¥57.40), reflecting additional non-operating/extraordinary items and tax effects. EBITDA was negative ¥0.50bn despite ¥1.84bn of depreciation and amortization, underlining pressure at the operating level. DuPont analysis shows a net margin of -36.77%, asset turnover of 0.143x, and financial leverage of 1.28x, yielding a calculated ROE of -6.73% for the period. Notably, operating cash flow was positive at ¥6.10bn, contrasting with the accounting loss and indicating material non-cash charges and/or working capital inflows. The balance sheet remains conservative with total equity of ¥102.65bn against total liabilities of ¥9.49bn; based on disclosed totals, equity-to-asset ratio approximates 77.9% (the “Equity Ratio” field is unreported). Liquidity appears robust with a current ratio of 808.8% and quick ratio of 713.6%, supported by sizeable working capital of ¥50.55bn. Interest expense is negligible (¥10m) and financial risk is low (D/E 0.09x), though the negative interest coverage reflects operating losses. Dividend distributions are suspended (DPS ¥0), appropriate given losses and the need to prioritize reinvestment and balance sheet strength. The cash flow statement shows net financing outflows of ¥2.15bn, likely debt repayments or lease outflows, while investing cash flow items were not disclosed in this dataset. Asset turnover remains structurally low for the period, consistent with high-capacity, capital-intensive platforms and a soft demand backdrop. Overall, Takara Bio exhibits strong gross margin profile and balance sheet resilience, but profitability headwinds and execution risk must be monitored closely. Data limitations exist where zeros appear (e.g., equity ratio, cash and equivalents, investing CF, shares), which indicate non-disclosure rather than true zero; the analysis relies on available non-zero items.

Profitability Analysis

ROE decomposition (DuPont) indicates profitability is the primary drag: Net margin (-36.77%) x Asset turnover (0.143x) x Financial leverage (1.28x) = ROE of -6.73%. The gross margin of 66.2% is strong for life-science tools/biotech services, but the operating margin is -12.5% (Operating income -¥2.34bn on ¥18.79bn revenue), evidencing negative operating leverage as volumes slipped and fixed costs (R&D/SG&A) remained high. EBITDA of -¥0.50bn shows pressure even after adding back ¥1.84bn D&A, implying that cost structure adjustments are needed to align with demand. Ordinary margin of -13.2% points to modest additional non-operating drags beyond core operations. Interest expense is de minimis (¥10m), so financing structure is not the issue; profitability weakness is operational. The divergence between high gross margin and negative EBITDA suggests elevated R&D, regulatory/commercialization costs, or under-absorption in CDMO/manufacturing. Effective tax is near zero (reported 0.0%; tax line shows a small benefit of -¥104m), with taxes not a meaningful driver. Overall, margin quality at the gross level remains solid, but fixed-cost intensity and likely mix shifts are driving losses.

Growth Assessment

Revenue fell 4.9% YoY to ¥18.79bn, implying soft demand or normalization from elevated prior-year levels in certain product lines/services. Profitability contracted far more than revenue, signaling high operating leverage and/or adverse mix (e.g., lower CDMO utilization, slower high-margin reagent growth, or increased commercialization-related costs). The sizable gap between gross margin and operating margin indicates growth investments and fixed cost commitments outweigh near-term top-line trajectory. The negative EBITDA and operating loss suggest current scale is insufficient to cover operating expenses under the current mix; any recovery in utilization or top-line acceleration would have an outsized impact on profits. Ordinary income and net income losses also reflect non-operating effects, possibly valuation/impairment-related or FX/financial items under JGAAP. Cash generation from operations remains robust relative to accounting earnings, hinting at temporary working capital tailwinds or non-cash charges; sustainability of this cash conversion as growth stabilizes is a key watchpoint. Outlook hinges on demand recovery in tools/reagents, stabilization of CDMO utilization, and cost discipline; with low leverage, the company can weather a slower growth phase, but a return to profitability requires either revenue re-acceleration or cost recalibration.

Financial Health

Liquidity is strong: current ratio 808.8%, quick ratio 713.6%, and working capital of ¥50.55bn, indicating ample near-term coverage of ¥7.13bn current liabilities. Solvency is robust with total liabilities of ¥9.49bn versus equity of ¥102.65bn (implied equity/asset ratio ≈ 77.9% based on totals; the disclosed equity ratio field is unreported). Debt-to-equity is low at 0.09x, and interest burden is negligible (¥10m), minimizing refinancing risk. Interest coverage is negative (-234.2x) due to operating losses, but this reflects income statement weakness rather than balance sheet strain. Total assets amount to ¥131.85bn, suggesting a sizable capital base relative to revenue (low turnover), which can depress returns during periods of underutilization. Overall, the capital structure is conservative and provides a buffer while operational performance is addressed.

Cash Flow Quality

Operating cash flow of ¥6.10bn contrasts with net income of -¥6.91bn, producing an OCF/Net Income ratio of -0.88, which signals opposite-sign cash vs accounting earnings driven by non-cash charges (e.g., D&A ¥1.84bn) and/or favorable working capital movements. EBITDA is negative, so the positive OCF likely reflects sizable working capital inflows (collections, inventory reductions, or payables timing) and non-cash expenses beyond D&A (potential impairments/valuation losses if any). Investing cash flow is undisclosed in this dataset (reported as 0, treated as unreported), so true Free Cash Flow cannot be assessed; the calculated FCF of 0 should not be interpreted as actual. Financing cash flow was an outflow of ¥2.15bn, likely repayments of borrowings or lease liabilities; dividends are zero. Earnings quality is mixed: accounting profitability is weak, but near-term cash conversion is supportive; repeatability of the working capital tailwind is uncertain. Monitoring the durability of OCF once working capital normalizes is critical to assess underlying cash earnings.

Dividend Sustainability

DPS is ¥0.00 and payout ratio is 0.0%, appropriate given the net loss and negative EBITDA. With OCF positive but true FCF unassessable due to undisclosed investing cash flows, dividend capacity cannot be reliably quantified. The strong balance sheet and low leverage could support future distributions once profitability recovers, but current policy prudence is warranted. FCF coverage metric shown as 0.00x reflects non-disclosure rather than actual coverage. In the near term, capital allocation is likely to prioritize operational recovery, utilization improvements, and selective investment over cash returns to shareholders.

Risk Assessment

Business Risks:

• Demand volatility in life-science tools and CDMO services affecting utilization and mix.
• Negative operating leverage due to high fixed cost base and under-absorption.
• Potential delays in regulatory approvals or customer project timelines impacting revenue recognition.
• Product mix shifts away from higher-margin reagents to services or vice versa, pressuring margins.
• Competitive intensity from global life-science tool providers and CDMOs.
• R&D and commercialization execution risk for advanced therapies and novel platforms.

Financial Risks:

• Sustained operating losses driving negative interest coverage despite low leverage.
• Working capital normalization reversing current OCF strength.
• Potential for impairment or non-cash charges impacting net income under JGAAP.
• Currency fluctuations affecting margins and ordinary income.

Key Concerns:

• EBITDA and operating losses despite a 66% gross margin indicate structural cost pressure.
• Low asset turnover (0.143x) depresses returns and heightens reliance on volume recovery.
• Large divergence between OCF and net income raises questions on repeatability of cash conversion.

Investment Implications

Key Takeaways:

• Revenue softness (-4.9% YoY) combined with high fixed costs produced an operating loss of ¥2.34bn and EBITDA of -¥0.50bn.
• Gross margin remains strong at 66.2%, but negative operating leverage is significant.
• Balance sheet is conservative (implied equity ratio ~78%, D/E 0.09x) with ample liquidity.
• Operating cash flow is solid at ¥6.10bn, but sustainability is unclear without investing CF detail.
• ROE is negative (-6.73%) driven by deeply negative net margin, not leverage.

Metrics to Watch:

• CDMO utilization and backlog conversion rates (proxy via revenue growth and operating margin trajectory).
• EBITDA margin recovery and SG&A/R&D efficiency ratios.
• Working capital trends (DSO/DIO/DPO) and OCF sustainability.
• Capital expenditures and investing cash flows to determine true FCF.
• Ordinary income drivers (FX, financial income/expense, one-offs) and impairment risk.

Relative Positioning: Versus domestic life-science tools and biotech-service peers, Takara Bio exhibits superior gross margins and a much stronger balance sheet, but lags on operating profitability and ROE due to underutilization and a heavier fixed-cost base; near-term resilience hinges on cash discipline and utilization recovery.

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