MEDIPAL HOLDINGS CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Although revenue increased in Q1, operating income and ordinary income declined, while net income attributable to owners of the parent increased substantially due to extraordinary income, including gains on the sale of investment securities. Revenue was ¥9,895.0B (+4.7% YoY), operating income was ¥133.9B (-4.7%), and ordinary income was ¥179.2B (-1.7%). Net income attributable to owners of the parent was ¥136.5B (+42.3%), boosted by extraordinary income of ¥62.1B, including ¥60.6B in gains on the sale of investment securities. Growth in revenue and earnings from the core wholesale business for prescription pharmaceuticals and related products supported revenue and ordinary income, while deteriorating profitability in the cosmetics and daily necessities wholesale business placed pressure on operating income.

Factors Affecting Results

【Revenue】Revenue was ¥9,895.0B, an increase of +4.7% YoY. By segment, the wholesale business for prescription pharmaceuticals and related products was the largest contributor and the primary growth driver, with revenue of ¥6,305.6B (63.7% of total, +5.1%). The cosmetics and daily necessities and OTC pharmaceutical wholesale business generated revenue of ¥3,269.3B (33.0% of total, +3.4%), while the veterinary pharmaceuticals and food-processing raw materials and related business generated ¥330.9B (3.3% of total, +9.9%). All three segments recorded revenue growth.

【Profit and Loss】Operating income was ¥133.9B, down -4.7% YoY, and the operating margin declined by approximately -13bp to 1.35% (1.49% in the previous year). The primary factor was a decline in the gross margin to 6.64% (6.84% in the previous year), down approximately -20bp. Although the SG&A ratio improved to 5.29% (5.36% in the previous year), this was insufficient to offset the decline. By segment, operating income from the cosmetics and daily necessities business fell significantly to ¥61.3B (-19.5%), offsetting the ¥63.0B (+13.9%) increase in operating income from prescription pharmaceuticals and related products. Ordinary income was ¥179.2B (-1.7%), with non-operating income of ¥54.8B, including ¥8.0B in dividends received and ¥8.9B in equity-method investment gain, narrowing the decline relative to operating income. The recognition of extraordinary income of ¥62.1B, including ¥60.6B in gains on the sale of investment securities, resulted in profit before tax of ¥237.0B (+27.0%) and a substantial increase in net income attributable to owners of the parent to ¥136.5B (+42.3%). The results were contrasting in terms of earnings quality: revenue growth accompanied by earnings declines at the operating and ordinary income levels, versus revenue growth accompanied by earnings growth at the net income level, primarily due to extraordinary income.

Segment Analysis

The wholesale business for prescription pharmaceuticals and related products generated revenue of ¥6,305.6B (63.7% of total, +5.1%), operating income of ¥63.0B (+13.9%), and a 1.0% margin, recording growth in both revenue and earnings and serving as the Company’s core business. The cosmetics and daily necessities and OTC pharmaceutical wholesale business recorded revenue growth to ¥3,269.3B (33.0% of total, +3.4%), but operating income declined to ¥61.3B (-19.5%) and the margin fell to 1.9%, resulting in revenue growth but earnings decline. The veterinary pharmaceuticals and food-processing raw materials and related business generated revenue of ¥330.9B (3.3% of total, +9.9%), operating income of ¥10.7B (+39.8%), and a 3.2% margin. Although small in scale, it demonstrated the highest growth rate and profitability. Among the three segments, the veterinary pharmaceuticals-related business had the highest margin and the largest earnings growth rate, while the decline in earnings from cosmetics and daily necessities was the primary reason for the lack of growth in consolidated operating income.

Key Financial Indicators

【Profitability】The operating margin declined to 1.35% (1.49% in the previous year), while the net profit margin based on net income attributable to owners of the parent improved to 1.38% (1.01% in the previous year). Operating-level margins declined, whereas the final profit margin improved due to the contribution from extraordinary income. 【Cash Flow Quality】Annualized days sales outstanding were approximately 308 days, while inventory turnover days were approximately 77 days, indicating a large absolute level of working capital. Cash and deposits stood at ¥2,899.2B, remaining almost flat compared with the end of the same period of the previous year. 【Investment Efficiency】ROE was 2.0%, basic EPS was ¥66.67 (¥46.17 in the previous year, +44.4%), and BPS was ¥3,174.07. 【Financial Soundness】The equity ratio (owners’ equity/total assets) was 33.5%, the current ratio was 128.5%, and the quick ratio was 110.6%, indicating that short-term payment capacity remained within an acceptable range.

Cash Flow Analysis

Cash and deposits were ¥2,899.2B, almost unchanged from ¥2,890.7B at the end of the same period of the previous year (+¥8.5B). Accounts receivable increased to ¥8,348.6B (+¥271.0B), and inventories increased to ¥1,948.6B (+¥44.6B), resulting in an accumulation of working capital. However, accounts payable also increased to ¥1T205.5B (+¥360.9B), partially offsetting the increase. Investment securities stood at ¥1,940.5B, down -¥184.0B from ¥2,124.6B at the end of the same period of the previous year, consistent with the recognition of ¥60.6B in gains on the sale of investment securities as extraordinary income. Income taxes payable were ¥101.1B, down -¥70.8B from ¥171.9B at the end of the same period of the previous year, placing downward pressure on a portion of current liabilities due to the timing of tax payments. Overall, the accumulation of working capital associated with operating transactions occurred alongside cash generation from the sale of investment securities, keeping the cash and deposits balance approximately flat.

Earnings Quality

Against operating income of ¥133.9B, non-operating income of ¥54.8B, including ¥8.9B in equity-method investment gain and ¥8.0B in dividends received, was regularly added to form ordinary income of ¥179.2B. Non-operating income represented 0.55% of revenue, which was not excessive. However, ¥60.6B of the ¥62.1B in extraordinary income was attributable to the one-time factor of gains on the sale of investment securities, making a significant contribution to profit before tax of ¥237.0B and net income attributable to owners of the parent of ¥136.5B. The increase from ordinary income to profit before tax reached approximately +32%, primarily due to the recognition of extraordinary income. The effective tax rate remained at an approximately standard level of 32.7%. Comprehensive income was ¥58.7B, including ¥45.0B attributable to owners of the parent, substantially below net income attributable to owners of the parent of ¥136.5B. The -¥99.6B change in valuation difference on available-for-sale securities was a factor behind the deterioration in other comprehensive income. The divergence between net income and comprehensive income reflects market-related changes in the fair value of shares held and should be distinguished from the Company’s core earning power for the period.

Earnings Forecast and Guidance

Progress against the Company’s full-year forecast was 25.1% for revenue, 25.0% for operating income, 26.6% for ordinary income, and 31.7% for net income attributable to owners of the parent. Revenue and operating income were broadly in line with the simple quarterly progress benchmark of 25%, while ordinary income was slightly ahead and net income was substantially ahead due to the recognition of gains on the sale of investment securities. The full-year forecast calls for revenue of ¥3T9,440.0B (+3.3%), operating income of ¥535.0B (+0.6%), and ordinary income of ¥675.0B (-10.9%). As of the current quarter, no revisions have been made to the earnings forecast. The annual dividend forecast has also been maintained at ¥88. Since the outperformance in net income progress was largely attributable to a one-time factor, the trajectory of core operating earnings from the second half onward is expected to determine the sustainability of achieving the full-year plan.

Shareholder Returns

The Company’s annual dividend forecast is ¥88 per share, unchanged from the forecast announced on July 14, 2026. The payout ratio against the Company’s forecast EPS of ¥210.06 is approximately 41.9% (¥88/¥210.06), a level that does not represent an excessive burden. The Company holds treasury shares equivalent to 5.2% of issued shares of 215,975 thousand shares (11,277 thousand shares), and no disclosure regarding share repurchases during the current period has been identified. Shareholder returns are primarily composed of dividends.

Risk Factors

1. Decline in gross margin and thin-margin structure: The gross margin declined by approximately -20bp to 6.64% (6.84% in the previous year), while the operating margin remained at 1.35% (1.49% in the previous year). Under a low-margin structure, changes in transaction terms and product mix have a relatively large impact on earnings.

2. Deteriorating profitability in the cosmetics and daily necessities segment: Operating income in this segment was ¥61.3B, down -19.5% YoY, and the margin declined to 1.9%. Since the segment accounts for 45.8% of total operating income of ¥133.9B, changes in its profitability have a significant impact on consolidated earnings.

3. Working capital burden: Annualized days sales outstanding for accounts receivable of ¥8,348.6B reached approximately 308 days, while inventory turnover days were approximately 77 days. Although accounts payable of ¥1T205.5B provides a partial offset, the absolute level of working capital is large relative to cash and deposits of ¥2,899.2B, making trends in capital efficiency a monitoring item.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin were below the industry median, indicating that profitability was relatively low even among wholesale businesses.

Growth and Capital Efficiency

The revenue growth rate exceeded the industry median, indicating that the pace of top-line expansion was relatively fast within the industry.

Source: Compiled by the Company

Key Points in the Financial Results

1. The increase in net income attributable to owners of the parent (+42.3%) was largely attributable to extraordinary income, including ¥60.6B in gains on the sale of investment securities. The fact that operating income and ordinary income were both on a declining trend is an important point when evaluating the quality of the results.

2. By segment, growth in both revenue and earnings in the prescription pharmaceuticals and related products wholesale business contrasted with revenue growth but earnings decline in the cosmetics and daily necessities wholesale business. The gap in margins among the segments (1.0%–3.2%) is having a structural impact on the consolidated profit margin.

3. Full-year progress was ahead of the Company’s forecast at 31.7% on a net income basis. However, considering the one-time nature of extraordinary income, progress based on operating income and ordinary income (25.0% and 26.6%, respectively) is closer to the underlying trend in core earnings.

Theoretical Share Price (For Reference)

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

Sensitivity: ¥2,879–¥3,046 at ±1% for the cost of equity, and ¥2,954–¥2,966 at ±0.1 for ω.

Notes:

• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used; there is a timing difference relative to the full-year forecast.

(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 summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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