MEDIPAL HOLDINGS CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.90T
• Operating Income: ¥25.08B
• Net Income: ¥27.48B
• EPS: ¥106.80

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

Verdict: A mixed FY26 Q2—solid top-line growth and resilient net profit, but operating margin compressed and ROIC remains sub-scale. Revenue rose 4.0% YoY to 18,975.6, while operating income fell 7.7% YoY to 250.8, and ordinary income declined 2.3% YoY to 342.7. Net income edged up 1.7% YoY to 220.9, supported by sizable non-operating gains (109.5) and an apparent step-up in below-ordinary items, with profit before tax at 398.1 surpassing ordinary income by 55.4—suggesting one-off or extraordinary gains. Gross profit was 1,302.8, implying a gross margin of 6.9%, consistent with a low-margin wholesaler profile. Operating margin compressed to 1.32%, down approximately 17 bps from an estimated 1.49% a year ago, as SG&A at 1,052.0 (5.54% of sales) absorbed most of the gross profit increase. Non-operating income (notably dividend income of 16.9 and interest income of 0.9) provided a material profit cushion; non-operating income is large relative to operating income. Cash generation quality was sound: operating cash flow of 255.0 exceeded net profit (OCF/NI 1.15x), indicating reasonable earnings conversion. Liquidity is adequate with a current ratio of 125.8% and quick ratio of 108.3%, though short-term funding discipline remains important given large payables/receivables balances. Capital efficiency is weak: ROE is 2.9% and ROIC is 3.5%, below the 5% warning threshold, underscoring limited value creation versus the cost of capital. The effective tax rate was 31.0%, broadly in line with statutory norms. Leverage appears manageable (D/E 1.49x) and interest coverage extremely strong (4,180x), reflecting limited interest burden. Free cash flow is likely positive after modest capex of 47.3, supporting shareholder returns, alongside share repurchases of 64.2; the calculated payout ratio of 61.5% is on the high side of sustainable. Forward-looking, margin improvement will hinge on cost discipline and product mix, while regulatory headwinds (drug price revisions) and working capital intensity remain ongoing constraints. The elevated contribution from non-operating items and below-ordinary gains raises questions about the repeatability of net income growth. Overall, stability in cash conversion offsets some profitability concerns, but multi-year ROIC uplift is needed to strengthen the equity story.

Profitability Analysis

ROE (2.9%) via DuPont: Net Profit Margin 1.2% × Asset Turnover 0.995 × Financial Leverage 2.49x. The margin component is the weakest link and likely the largest driver of YoY deterioration: operating margin compressed to 1.32% (~17 bps YoY by estimation), despite 4.0% sales growth. Business drivers include persistent pricing pressure from NHI drug price revisions and mix effects in pharmaceuticals distribution, partially offset by scale efficiencies. Non-operating income contributed meaningfully, masking weaker core operating leverage. The margin pressure appears structural in wholesale (low take-rate, pass-through pricing) rather than purely one-off; sustainability of net profit will depend on SG&A control and higher-margin offerings (e.g., specialty pharma, diagnostics, and value-added services). Watch for SG&A growth versus revenue—current SG&A at 5.54% of sales suggests tight cost management is necessary to defend margins.

Growth Assessment

Top-line growth of 4.0% YoY is solid for a mature distributor, likely supported by volume growth and some inflationary effects in pharmaceuticals/medical supplies. Operating profit declined 7.7% YoY, indicating negative operating leverage; rising costs or mix dilution outweighed the gross profit uplift. Ordinary income (-2.3% YoY) fared better than operating profit owing to robust non-operating gains. Net income grew 1.7% YoY, aided by below-ordinary items (PBT > ordinary by 55.4), which may not recur. EBITDA of 336.6 (1.8% margin) underscores a thin-margin profile. With ROIC at 3.5%, the growth currently lacks economic spread; future growth should focus on margin-accretive niches and services to improve returns. Near-term outlook: mid-single-digit revenue growth is plausible, but profit trajectory will be sensitive to drug price revisions, procurement terms, and logistics efficiency. Execution on cost productivity and working capital cycles will determine whether revenue growth translates to profit growth.

Financial Health

Liquidity is adequate: current ratio 125.8% and quick ratio 108.3% (above 1.0 but below a comfortable 1.5x benchmark). No explicit red flag on current ratio (<1.0) or D/E (>2.0); D/E at 1.49x sits at the top end of a conservative range and warrants monitoring. Working capital is sizeable with 8,163.0 receivables and 1,905.0 inventories balanced against 10,022.3 payables; net working capital is positive at 2,811.8, implying manageable maturity mismatch but reliance on timely collections. Interest coverage is extremely strong at 4,180x, reflecting negligible interest expense (0.06) and solid operating earnings. Short-term debt details are unreported; however, the large payables base typical of distribution models emphasizes counterparty and timing risks. Off-balance sheet obligations were not disclosed in the provided data; lease and logistics commitments may exist but are not itemized here.

Cash Flow Quality

Earnings quality is good: OCF/NI at 1.15x indicates healthy conversion. Estimated FCF appears positive using OCF (255.0) minus capex (47.3) = roughly 207.7, though full investing CF is unreported. The financing CF outflow (-159.6), including share repurchases of 64.2, suggests shareholder returns were covered by internal cash generation this period. Working capital appears managed without aggressive pull-forwards; no signs of manipulation are evident from the limited data, though detailed AR/AP days are not provided. Sustainability: provided capex remains modest and OCF tracks NI, free cash flow should cover routine dividends; large strategic investments would require careful capital allocation given low ROIC.

Dividend Sustainability

The calculated payout ratio is 61.5%, slightly above the <60% comfort threshold but likely manageable given positive FCF and minimal interest burden. DPS detail is unreported; inferring implied dividends of ~135.3 (61.5% × NI 220.9) suggests coverage by estimated FCF (~207.7) in this period, with some buffer also funding buybacks (64.2). Future sustainability depends on maintaining OCF/NI ≥1.0 and avoiding margin erosion; any step-up in capex or M&A would tighten coverage given the low ROIC base. Policy outlook likely prioritizes stable/gradual DPS with opportunistic buybacks, contingent on cash generation and inventory/receivables discipline.

Risk Assessment

Business Risks:

• Regulatory pricing pressure (NHI drug price revisions) compressing margins
• Mix shift and competitive intensity in pharmaceutical and medical distribution
• Execution risk in logistics/IT modernization to sustain cost efficiency
• Supplier and customer concentration risk typical of the channel
• Operational risks in nationwide distribution (inventory obsolescence, cold-chain integrity)

Financial Risks:

• Low ROIC (3.5%) below cost of capital, constraining value creation
• High working capital reliance and large receivables exposure
• Leverage near the upper end of conservative (D/E 1.49x), though interest burden is minimal
• Potential dependence on non-operating and one-off gains to support net income

Key Concerns:

• Operating margin compression (~17 bps YoY) despite revenue growth
• Elevated non-operating income contribution to overall profits
• Payout ratio slightly above comfort threshold amid subscale ROIC
• Data gaps on debt maturity profile and extraordinary items limit visibility

Investment Implications

Key Takeaways:

• Core operating performance softened; non-operating items supported bottom line
• Cash conversion is healthy, enabling continued shareholder returns
• Capital efficiency is the main weakness (ROE 2.9%, ROIC 3.5%)
• Liquidity adequate but not abundant; working capital discipline remains central
• Near-term earnings trajectory hinges on cost control and mix improvement

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio
• OCF/NI and working capital turns (AR/AP/inventory days)
• ROIC progression and capex intensity
• Composition of non-operating and extraordinary gains
• Payout ratio versus FCF and buyback outlays

Relative Positioning: Within Japanese healthcare distribution peers, MEDIPAL shows typical low margins and strong cash conversion, but its ROIC is currently below peer leaders; improvements in mix (specialty, services) and logistics efficiency would be needed to close the profitability gap.

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
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