TOHO HOLDINGS CO.,LTD. FY2026 FY Earnings Report

Financial Highlights

• Net Sales: ¥1.55T
• Operating Income: ¥16.60B
• Net Income: ¥14.50B
• EPS: ¥271.18

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

FY2026 results show resilient top-line growth but margin compression and heavier reliance on extraordinary gains; overall, the quarter (full-year) was mixed with solid cash generation. Revenue rose 2.3% YoY to 1,553.36bn yen, while operating income declined 12.3% YoY to 16.60bn yen. Gross profit increased slightly to 122.42bn yen, but SG&A grew to 105.82bn yen, outpacing revenue growth. Ordinary income fell 19.7% YoY to 16.63bn yen, pressured by equity-method losses of 1.94bn yen. Profit before tax was lifted by 11.62bn yen of extraordinary gains (notably 9.49bn yen from sales of investment securities), resulting in net income of 17.33bn yen (-12.7% YoY). Gross margin compressed by roughly 13 bps YoY to 7.9%. Operating margin compressed by about 18 bps YoY to 1.07%. Net margin compressed by around 19 bps YoY to 1.12%. Earnings quality is mixed: operating cash flow of 19.24bn yen exceeded net income (OCF/NI 1.11x), yet cash conversion against EBITDA was 0.85x, just below the 0.9x high-quality benchmark. Free cash flow of 20.07bn yen comfortably covered dividends and supported share repurchases. The balance sheet remains conservative with net cash, Debt/EBITDA of 0.24x, and substantial payable-backed working capital. Segmentally, Medical Products Retail remains the core earnings driver (92.6% of sales; margin 1.1%) but saw profit contraction, while Dispensing Pharmacy improved profit with a 64% YoY rise. Receivable days are elevated (DSO 81), reflecting industry structure and credit terms, which warrants ongoing monitoring. Guidance implies cautious profitability in the coming year: revenue growth to 1,601.0bn yen but operating income guided down to 14.8bn yen and DPS to 90 yen, signaling normalization after one-off gains. Overall, stable cash flows and a strong balance sheet offset thin margins, but sustained margin improvement will be critical to raise ROE from 6.4%.

Profitability Analysis

ROE (6.4%) = Net Profit Margin (1.1%) × Asset Turnover (2.097x) × Financial Leverage (2.73x). The primary drag YoY was margin: operating margin fell ~18 bps to 1.07%, and net margin fell ~19 bps to 1.12% despite extraordinary gains supporting the bottom line. Business drivers included equity-method losses (-1.94bn yen) and SG&A growth (up ~3.0% YoY) outpacing revenue growth (+2.3%), compressing operating leverage in the core wholesale business. This pressure is structurally linked to drug price revisions and competitive pricing in pharmaceutical distribution, partially mitigated by pharmacy earnings improvement. Sustainability: margin headwinds in wholesale are likely to persist, while pharmacy efficiency gains are incremental; extraordinary gains are non-recurring by nature. Concerning trend: SG&A growth outpacing revenue suggests continued cost discipline is needed to stabilize operating margin.

Growth Assessment

Revenue grew 2.3% YoY to 1,553.36bn yen, driven by volume and mix in Medical Products Retail and steady growth in Dispensing Pharmacy (+5.2% YoY). Operating income declined 12.3% to 16.60bn yen as cost inflation and pricing pressure outstripped gross profit growth. Ordinary income decreased 19.7% on equity-method losses. Net income declined 12.7% despite 11.62bn yen of extraordinary income, highlighting limited underlying earnings momentum. EBITDA was 22.66bn yen, with an EBITDA margin of 1.5%, underscoring structurally thin profitability. Outlook: management’s guidance points to modest top-line expansion to 1,601.0bn yen but a reduction in operating income to 14.8bn yen, implying continued margin pressure. Execution focus areas include SG&A control, working capital discipline in receivables, and margin management in wholesale while scaling higher-margin pharmacy and related services.

Financial Health

Liquidity is sound: current ratio 129.2% and quick ratio 108.9% exceed minimum benchmarks, with no warning triggers (current ratio not below 1.0). Capital structure is conservative: interest-bearing debt is 5.36bn yen versus cash and deposits of 87.36bn yen, resulting in a net cash position; Debt/EBITDA is 0.24x and interest coverage is robust (EBITDA-based 404.6x). There is no leverage warning (D/E well below 2.0 on a net basis). Maturity profile risk is low: short-term loans are only 0.80bn yen, dwarfed by liquid assets, and accounts payable (414.24bn yen) are well supported by receivables (345.49bn yen) and inventories (89.82bn yen). Balance sheet quality is bolstered by limited goodwill (0.89bn yen) and manageable intangibles (8.08bn yen).

Notable B/S Changes

Goodwill: -1.04bn (-53.9%) - Reduction due to amortization and minor impairment, lowering future impairment risk and improving balance sheet quality. Short-term Loans: -0.42bn (-34.4%) - Further de-leveraging of short-term borrowings, reinforcing liquidity strength. Intangible Assets: +1.99bn (+32.7%) - Increased software and related investments, supporting digital and operational capabilities; monitor amortization impact on SG&A.

Cash Flow Quality

OCF of 19.24bn yen exceeds net income of 17.33bn yen (OCF/NI 1.11x), indicating acceptable earnings quality. Cash conversion (OCF/EBITDA) at 0.85x is slightly below the 0.9x benchmark, reflecting working capital dynamics: receivables outflow (-14.01bn yen) was more than offset by an increase in trade payables (+15.76bn yen) and modest inventory release (+1.38bn yen). Free cash flow was 20.07bn yen, supported by disciplined capex (6.22bn yen; CapEx/Depreciation ~1.03x). One-time gains (sale of investment securities, assets) boosted accounting profit but had limited direct impact on OCF after adjustments; underlying cash generation remains adequate.

Dividend Sustainability

Total DPS was 165 yen (45 yen interim, 120 yen year-end). The payout ratio is estimated at 69.5%, slightly above the 60% sustainability benchmark but supported by free cash flow with 1.67x FCF coverage. Share repurchases totaled 10.00bn yen alongside cash dividends of 5.45bn yen, implying a total return ratio of roughly 77% of FCF, within a sustainable range. Guidance indicates DPS of 90 yen, signaling normalization following a year with sizable non-recurring gains; coverage appears comfortable under guided earnings given the net cash balance and modest capex outlook.

Risk Assessment

Business risks include Margin compression in pharmaceutical wholesale due to drug price revisions and competitive pricing, Concentration risk: Medical Products Retail accounts for 92.6% of revenue, Equity-method losses (-1.94bn yen) indicate volatility in affiliates’ performance, Execution risk in SG&A control as costs grew faster than revenue.

Financial risks include Elevated receivable days (DSO 81) increase credit and collection risk, Working capital dependence on large trade payables could pressure cash if supplier terms tighten.

Key concerns include Low operating efficiency (EBIT margin 1.1%) limits resilience to shocks, Low gross margin (7.9%) constrains operating leverage and profit scalability, Earnings reliance on extraordinary gains this year masks weaker underlying ordinary income.

Investment Implications

Key takeaways include Top-line growth (+2.3%) with operating margin compression (~18 bps) points to cost and pricing pressure in core wholesale, OCF/NI 1.11x and FCF 20.07bn yen support shareholder returns despite thin margins, Net cash balance and minimal leverage de-risk the balance sheet, Extraordinary gains (11.62bn yen) materially boosted PBT; underlying earnings softer, Guidance implies higher sales but lower operating profit and a reduced DPS, signaling prudent stance.

Metrics to watch include Operating margin trajectory in Medical Products Retail, Receivable days (targeting reduction from 81 days), Equity-method income recovery, SG&A growth vs revenue growth, Cash conversion (OCF/EBITDA) toward or above 0.9x.

Regarding relative positioning, Among domestic pharma distributors, Toho HD exhibits typical low margins but stands out with a conservative balance sheet (net cash) and solid cash generation; near-term profitability is guided cautiously relative to peers aiming for margin stabilization.