Quick View
| Metric | Current Period | Same Period of Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥3977.7B | ¥3758.1B | +5.8% |
| Operating Income | ¥24.6B | ¥38.4B | −35.8% |
| Equity-Method Investment Gains (Losses) | - | - | - |
| Ordinary Income | ¥38.1B | ¥44.4B | −14.1% |
| Net Income | ¥23.5B | ¥33.6B | −29.9% |
| ROE | 0.9% | 1.2% | - |
Executive Summary
The Company posted higher revenue but lower earnings for the quarter, as the decline in gross margin, which exceeded the rate of revenue growth, and an increase in extraordinary losses weighed on net income. Revenue was ¥3,977.7B (+5.8% YoY), Operating Income was ¥24.6B (-35.8%), Ordinary Income was ¥38.1B (-14.1%), and Net Income attributable to owners of the parent was ¥23.5B (-29.9%). While the core Pharmaceutical Wholesale Business drove revenue growth, the gross margin declined to 7.4% from 8.0% in the same period of the previous year. In addition, the expansion of intersegment eliminations and corporate expenses, together with the recognition of ¥6.2B in extraordinary losses, resulted in earnings-reducing factors outweighing the benefit of higher revenue.
Factors Affecting Business Performance
【Revenue】Revenue increased 5.8% YoY to ¥3,977.7B. The core Pharmaceutical Wholesale Business, which accounted for 92.9% of the revenue mix, drove overall growth with revenue of ¥3,845.7B (+6.2%). The Dispensing Pharmacy Business secured revenue growth at ¥249.8B (+1.5%), while the Pharmaceutical Manufacturing and Marketing Business recorded revenue of ¥29.5B (+0.2%). Meanwhile, Other Peripheral Businesses posted lower revenue of ¥15.1B (-7.3%).
【Profit and Loss】Operating Income declined 35.8% YoY to ¥24.6B. Gross profit was ¥294.8B, with a gross margin of 7.4%, down 0.6pt from 8.0% in the previous year. Although the SG&A ratio improved to 6.8% from 7.0%, or by 0.2pt, this was insufficient to absorb the deterioration in gross margin. Segment Operating Income was ¥31.1B (-25.2%) for Pharmaceutical Wholesale, ¥1.1B (-38.6%) for Dispensing Pharmacies, ¥0.9B (+85.7%) for Manufacturing and Marketing, and ¥0.5B (-68.9%) for Other Peripheral Businesses. Intersegment eliminations and corporate expenses expanded to -¥8.96B from -¥6.95B in the previous year, further compressing consolidated Operating Income. Supported by ¥14.4B in non-operating income, including ¥4.6B in dividends received, Ordinary Income remained at ¥38.1B (-14.1%). However, the recognition of ¥6.2B in extraordinary losses, compared with ¥2.3B in the previous year, resulted in Profit Before Tax of ¥32.0B, while Net Income attributable to owners of the parent was ¥23.5B (-29.9%). In conclusion, the Company achieved revenue growth but experienced earnings decline.
Segment Analysis
The Pharmaceutical Wholesale Business recorded revenue of ¥3,845.7B (+6.2%) and Operating Income of ¥31.1B (-25.2%), resulting in a profit margin of 0.8%. Although it accounted for the majority of consolidated Operating Income, its profit margin declined. The Dispensing Pharmacy Business posted revenue of ¥249.8B (+1.5%), while Operating Income declined 38.6% to ¥1.1B, reducing its profit margin to 0.5% and making it the segment with the most pronounced deterioration in profitability among the four segments. The Pharmaceutical Manufacturing and Marketing Business improved its Operating Income by 85.7% to ¥0.9B despite revenue of ¥29.5B (+0.2%), securing a profit margin of 3.1%; however, its impact on the consolidated scale remained limited. Other Peripheral Businesses contracted, with revenue of ¥15.1B (-7.3%) and Operating Income of ¥0.5B (-68.9%). The adjustment for intersegment internal transaction eliminations and corporate expenses was -¥8.96B, expanding from -¥6.95B in the previous year. Consequently, consolidated Operating Income was limited to ¥24.6B versus combined segment profit of ¥33.6B.
Key Financial Indicators
【Profitability】The Operating Income margin was 0.6%, down 0.4pt from 1.0% in the same period of the previous year, while the Net Income margin also declined 0.3pt to 0.6% from 0.9%. The gross margin deteriorated by 0.6pt to 7.4% from 8.0%, indicating that the decline in profitability was primarily attributable to an increase in the cost-of-sales ratio.【Cash Quality】Cash and deposits increased by ¥146.98B (+16.8%) from the end of the previous fiscal year to ¥1,020.6B. At the same time, trade receivables increased to ¥3,582.5B (+3.2%), inventories to ¥972.9B (+8.3%), and accounts payable to ¥4,570.7B (+10.3%), indicating continued expansion of working capital.【Investment Efficiency】ROE was 0.9% on a Q1 actual-results basis, with ¥4.6B in dividends received within non-operating income supporting Ordinary Income.【Financial Soundness】The Equity Ratio was 34.4%, down 2.2pt from 36.6% in the same period of the previous year. However, interest-bearing debt remained modest at approximately ¥54B in total short- and long-term debt, and interest coverage based on Operating Income remained high at approximately 117x (¥24.6B Operating Income ÷ ¥0.2B interest expense).
Cash Flow Analysis
Although an individual Cash Flow Statement disclosure is not available, an examination of changes in the Balance Sheet indicates that cash and deposits increased by ¥146.98B (+16.8%) from the end of the previous fiscal year to ¥1,020.6B. Meanwhile, trade receivables increased by ¥111.66B (+3.2%) and inventories by ¥74.63B (+8.3%), indicating that the accumulation of working capital associated with business expansion is increasing funding needs. In contrast, accounts payable increased by ¥428.23B (+10.3%), meaning that the growth in trade payables offset a certain portion of the cash burden resulting from the increase in working capital. Interest-bearing debt remained limited at approximately ¥54B in total short- and long-term debt, suggesting that liquidity is being maintained through internal funds and the use of trade terms rather than financing through borrowings.
Quality of Earnings
Recurring earnings are secured primarily through the core Pharmaceutical Wholesale Business. However, the recognition of ¥6.2B in extraordinary losses, compared with ¥2.3B in the previous year, reduced Profit Before Tax, indicating that the impact of one-time factors increased from the previous year. Non-operating income was ¥14.4B, equivalent to only 0.36% of revenue, and dividends received of ¥4.6B constituted a major component, indicating limited reliance on non-operating income. Comprehensive income was ¥8.5B, substantially below Net Income attributable to owners of the parent of ¥23.5B, mainly due to the deterioration in the valuation difference on other securities to -¥14.7B. This divergence between net income and comprehensive income indicates that changes in the market value of held securities are affecting the accounting quality of earnings.
Earnings Forecast and Guidance
Progress against the full-year Company plan as of Q1 was 24.9% for revenue (¥3,977.7B/¥16,010.0B), 16.7% for Operating Income (¥24.6B/¥148.0B), 23.0% for Ordinary Income (¥38.1B/¥166.0B), and 18.3% for Net Income (¥23.5B/¥129.0B). While revenue was broadly in line with the simple 25% progress benchmark, progress for Operating Income and Net Income was below this level, as the decline in gross margin and recognition of extraordinary losses delayed earnings progress. As of Q1, the Company had not revised either its earnings forecast or dividend forecast.
Shareholder Returns
The Company plans to pay an annual dividend of ¥180.00 per share and had not revised its dividend forecast as of Q1. Based on forecast EPS of ¥197.67 for the full year, the Payout Ratio is high at approximately 91.1% (¥180/¥197.67). There was no mention of share repurchases, and shareholder returns consist solely of dividends. The conservative financial structure, comprising cash on hand of ¥1,020.6B and interest-bearing debt of approximately ¥54B, supports the funding of dividends. However, Q1 progress toward full-year Net Income was only 18.3%, making the realization of full-year earnings an important premise for the future dividend policy.
Risk Factors
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Profitability (Gross Margin) Decline Risk: The gross margin was 7.4%, down 0.6pt from 8.0% in the previous year. The business structure is such that spread contraction in the Pharmaceutical Wholesale Business due to changes in transfer prices and drug prices directly affects profit margins.
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Business Segment Concentration Risk: The Pharmaceutical Wholesale Business accounts for 92.9% of revenue (¥3,845.7B), and its Operating Income declined 25.2% YoY. The high degree of dependence on a single business is therefore a factor contributing to volatility in consolidated earnings.
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Working Capital Increase Risk: Trade receivables increased to ¥3,582.5B (+3.2%) and inventories to ¥972.9B (+8.3%). If funds become tied up at a rate exceeding revenue growth, this could affect capital efficiency.
Industry Benchmark (For Reference; Compiled by the Company)
Industry Benchmark (trading)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income Margin | 0.6% | 4.3% (1.7%–6.9%) | −3.6pt |
| Net Income Margin | 0.6% | 3.8% (1.5%–5.1%) | −3.2pt |
Both the Operating Income margin and Net Income margin are substantially below the industry median, placing profitability at the lower end of the industry.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 5.8% | 3.1% (-0.6%–11.7%) | +2.7pt |
The revenue growth rate exceeds the industry median, indicating that the pace of top-line expansion is relatively high within the industry.
※Source: Compiled by the Company
Key Takeaways from the Earnings Results
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Although revenue increased 5.8%, Operating Income declined 35.8% as the gross margin fell 0.6pt, confirming an earnings structure in which revenue growth does not necessarily translate into earnings growth.
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Due to the recognition of ¥6.2B in extraordinary losses and the deterioration in the valuation difference on other securities (-¥14.7B), Comprehensive Income (¥8.5B) was substantially below Net Income attributable to owners of the parent (¥23.5B). The impact of one-time factors should therefore be considered when evaluating earnings quality.
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Progress against the full-year plan was 24.9% for revenue, versus 16.7% for Operating Income and 18.3% for Net Income, indicating that earnings progress is somewhat delayed. The trend in gross margin in the second half of the fiscal year will be a key determinant of full-year performance.
Theoretical Stock 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 price or a recommendation of any specific investment action.
| Scenario | Theoretical Stock Price |
|---|---|
| bear (bearish) | ¥3,598 |
| base (base case) | ¥3,617 |
| bull (bullish) | ¥3,650 |
| Calculation Assumption | Value |
|---|---|
| Book Value per Share (BPS) | ¥4,073 |
| Adjusted Forecast EPS | ¥204.9 |
| Cost of Equity r | 9.27% (10-year government bond 2.77% + equity risk premium 6.00% + size premium 0.50%) |
| Residual Income Persistence Factor ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 91.1% |
| Forecast EPS Confidence Adjustment | ×1.037 (based on the historical guidance achievement rate of peer companies) |
| implied PBR / PER | 0.89x / 17.6x |
Sensitivity: ¥3,522–¥3,716 for Cost of Equity ±1%; ¥3,603–¥3,626 for ω ±0.1.
Notes:
- Because 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 mismatch with 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 stock price)
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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AI Financial Analysis
Executive Summary
Toho Holdings’ FY2027 Q1 results were mixed: revenue expanded, but a sharp deterioration in pharmaceutical wholesale profitability and a larger extraordinary loss drove material earnings declines. Consolidated revenue increased 5.8% year on year to ¥397.8bn. Operating income fell 35.8% to ¥2.47bn, while profit attributable to owners declined 29.8% to ¥2.36bn. The operating margin compressed by approximately 40bp year on year to 0.6% from 1.0%. Gross margin declined by approximately 59bp to 7.4%, which more than offset a roughly 19bp reduction in the SG&A-to-sales ratio. Gross profit decreased 1.9% to ¥29.48bn despite revenue growth, indicating that the core pressure was gross-profit capture rather than fixed-cost inflation. Ordinary income declined by a milder 14.1% to ¥3.81bn because non-operating income nearly doubled to ¥1.44bn. Dividend income rose to ¥0.46bn from ¥0.38bn and supported ordinary profitability. Pre-tax profit declined 36.5% to ¥3.20bn, reflecting a ¥6.21bn extraordinary loss. The extraordinary-item balance shifted to a net loss of ¥6.14bn from a net gain of ¥5.99bn in the prior-year quarter, materially worsening the conversion from ordinary income to pre-tax income. Net margin was 0.6%, underscoring the structurally thin earnings profile of the wholesale-led business. Annualized ROE was 3.5%, with asset turnover remaining the principal positive factor but insufficient to compensate for the low net margin. Annualized ROIC of 4.3% is below the 5% warning threshold and indicates weak returns on the capital employed in the business. Balance-sheet liquidity remains adequate, with a 125.3% current ratio and a 105.1% quick ratio. Cash and deposits of ¥102.1bn substantially exceed short-term loans of ¥0.55bn. The FY2027 full-year forecast implies a recovery in earnings after Q1, but Q1 operating-profit progress is only 16.7% against the annual plan, below the standard 25% pace. The key issue for subsequent quarters is whether gross-margin pressure in pharmaceutical wholesale can stabilize sufficiently to support the planned full-year operating-income recovery.
Profitability Analysis
The annualized DuPont ROE of 3.5% is decomposed into a 0.6% net profit margin, 2.058x asset turnover, and 2.90x financial leverage. The low net margin is the binding constraint on shareholder returns, while high turnover is consistent with a distribution-oriented pharmaceutical wholesale model. Financial leverage supports reported ROE mechanically, but the balance sheet is not dependent on interest-bearing borrowing: interest-bearing debt was only ¥5.90bn, equivalent to approximately 0.02x equity. The largest adverse movement was in operating profitability: operating income declined 35.8% despite 5.8% revenue growth. Gross profit fell to ¥29.48bn from ¥30.06bn, and gross margin contracted to 7.4% from 8.0%. SG&A increased 3.0% to ¥27.01bn, slower than revenue growth, so SG&A discipline partially mitigated but could not offset the gross-profit decline. Directors’ compensation was broadly stable at ¥10.83bn versus ¥10.70bn, while rent expense increased to ¥2.12bn from ¥2.04bn. The operating margin of 0.6% is below the 5% efficiency benchmark, explicitly confirming the LOW_OPERATING_EFFICIENCY alert; in pharmaceutical wholesaling, low margins are structurally common, but this quarter’s year-on-year compression reduces the earnings cushion against price, reimbursement, and procurement changes. The LOW_GROSS_MARGIN alert likewise reflects the 7.4% gross margin; this is characteristic of high-volume pharmaceutical distribution, but the decline is material because small basis-point changes have an outsized effect on operating profit. The five-factor analysis shows a normal tax burden of 0.737 and an interest burden above 1.0x, with the latter supported by net non-operating income rather than debt stress. Interest coverage was exceptionally strong at 117.38x, reflecting low interest expense of ¥0.21bn. Goodwill amortization was only ¥0.22bn under JGAAP and is immaterial relative to operating income, so JGAAP goodwill accounting is not a meaningful source of the earnings decline.
Growth Assessment
Revenue growth was led by the pharmaceutical wholesale business, whose external sales increased 6.3% year on year to ¥371.39bn. Pharmaceutical wholesale remains the core business by both revenue and segment profit contribution, generating segment profit of ¥3.11bn. However, its segment profit declined 25.2% despite revenue growth, indicating deteriorating unit economics in the group’s principal earnings engine. The wholesale segment margin on reported segment sales declined to approximately 0.8% from 1.1%. Pharmacy operations recorded external sales growth of 1.5% to ¥24.98bn, but segment profit fell 38.6% to ¥1.13bn; its segment margin decreased to approximately 0.5% from 0.7%. Pharmaceutical manufacturing and marketing revenue decreased 58.2% to ¥0.25bn, while segment profit rose to ¥0.91bn from ¥0.49bn. Other peripheral businesses saw external sales decline 8.0% to ¥1.16bn and segment profit fall 68.9% to ¥0.46bn. Aggregate segment profit declined 25.9% to ¥3.36bn, while the negative corporate and consolidation adjustment widened to ¥0.90bn from ¥0.70bn. The full-year plan calls for revenue of ¥1,601.0bn, operating income of ¥14.8bn, ordinary income of ¥16.6bn, and profit attributable to owners of ¥12.9bn. Q1 revenue progress was 24.8%, broadly in line with the standard 25% first-quarter pace. Q1 operating-income progress was 16.7%, 8.3 percentage points below the standard pace, while ordinary-income progress was 23.0% and net-income progress was 18.3%. The forecast therefore requires a substantial improvement in operating profitability after Q1, even though the full-year plan itself anticipates a 10.9% year-on-year decline in operating income. Revenue sustainability depends principally on maintaining wholesale volumes and pricing, but profit sustainability depends on restoring gross-margin capture rather than simply increasing sales.
Financial Health
Liquidity is adequate, with current assets of ¥604.92bn exceeding current liabilities of ¥482.83bn and producing working capital of ¥122.09bn. The current ratio of 125.3% is above 1.0x, so there is no immediate liquidity warning, although it is below the 1.5x level generally viewed as stronger. The quick ratio of 105.1% is above 1.0x, indicating that liquid assets excluding inventories cover current liabilities. Cash and deposits increased ¥14.70bn year on year to ¥102.06bn. Accounts payable increased ¥42.82bn to ¥457.07bn, broadly reflecting the high-volume working-capital structure of pharmaceutical distribution. Receivables increased ¥11.17bn to ¥358.25bn and inventories increased ¥7.46bn to ¥97.29bn. Short-term loans were only ¥0.55bn, and cash covered such debt by 184.56x. Interest-bearing debt totaled ¥5.90bn, including ¥5.35bn of long-term loans, and debt/capital was only 2.2%. The reported D/E ratio was 1.90x, below the explicit 2.0x aggressive-financing warning threshold, while the very low interest-bearing-debt balance and strong interest coverage indicate limited refinancing risk. The maturity profile is favorable because cash and quick assets substantially exceed short-term borrowing. Total equity decreased ¥5.37bn year on year to ¥266.19bn, with retained earnings declining ¥5.93bn and accumulated other comprehensive income declining ¥1.50bn. The equity ratio declined to 34.4% from 36.6%, reducing capital cushioning modestly but remaining supported by the low interest-bearing-debt burden. Goodwill was only ¥0.67bn, or effectively 0.0% of equity and assets, and intangible assets represented 1.1% of total assets; acquisition-related impairment risk is therefore limited.
Notable B/S Changes
Accounts payable: +¥42.82bn (+10.3%) to ¥457.07bn - the largest balance-sheet movement, consistent with increased transaction volume but requiring monitoring alongside collection timing. Total assets: +¥32.46bn (+4.4%) to ¥773.24bn - expansion was concentrated in operating working capital and cash. Cash and deposits: +¥14.70bn (+16.8%) to ¥102.06bn - strengthens immediate liquidity and substantially covers short-term loans. Accounts receivable: +¥11.17bn (+3.2%) to ¥358.25bn - elevated receivable intensity remains important given the 82-day DSO alert. Inventories: +¥7.46bn (+8.3%) to ¥97.29bn - inventory grew faster than sales, increasing working-capital commitment. Current liabilities: +¥40.91bn (+9.3%) to ¥482.83bn - principally reflects trade-payable growth, reducing the current-ratio cushion despite adequate absolute liquidity. Total equity: -¥5.37bn (-2.0%) to ¥266.19bn - the equity ratio declined to 34.4% from 36.6%, modestly reducing capital-buffer capacity. Retained earnings: -¥5.93bn (-2.6%) to ¥224.45bn - lower retained capital increases the importance of restoring profitability while maintaining the planned dividend.
Cash Flow Quality
Dividend Sustainability
The full-year dividend forecast is ¥180 per share, with no dividend revision disclosed. Against forecast EPS of ¥197.67, the implied dividend payout ratio is approximately 91.1%. This is below 100% but above the 60% sustainability benchmark, leaving a limited earnings retention buffer. Based on 64.99 million average shares, the indicated annual cash dividend is approximately ¥11.70bn, compared with forecast profit attributable to owners of ¥12.90bn. The planned distribution is therefore highly dependent on achievement of the full-year earnings forecast. Q1 EPS was ¥36.24, or 18.3% of full-year forecast EPS, which is behind the 25% seasonal reference point. A recovery in quarterly earnings is needed to support the planned dividend through reported annual profit. The absence of a dividend revision signals management’s current intention to maintain the ¥180 per-share plan, but the elevated payout ratio makes gross-margin recovery and ordinary-income delivery central to dividend resilience.
Risk Assessment
Business risks include Pharmaceutical wholesale is the core business, yet segment profit declined 25.2% while sales rose 6.3%; continued pressure on procurement spreads, reimbursement conditions, or selling prices could further compress already thin margins., The 7.4% gross margin and 0.6% operating margin leave limited capacity to absorb wage, logistics, rent, and systems-cost inflation., Pharmacy segment profit declined 38.6% despite 1.5% sales growth, creating a secondary source of earnings volatility., Receivable days of 82 exceed the 60-day alert threshold. Extended collection periods are partly consistent with a wholesale model, but they increase working-capital intensity and exposure to customer-payment timing., The ¥6.21bn extraordinary loss materially reduced pre-tax profit; recurrence of disposal, restructuring, or asset-related losses would weaken earnings visibility..
Financial risks include Annualized ROIC of 4.3% is below the 5% warning threshold. This CAPITAL_EFFICIENCY alert indicates that current returns may not adequately compensate for the capital tied up in distribution assets and working capital., Total equity declined ¥5.37bn year on year and the equity ratio declined 220bp to 34.4%, modestly reducing loss-absorption capacity., The full-year dividend payout ratio implied by the forecast is approximately 91%, which limits flexibility if the earnings recovery embedded in guidance is delayed., Receivables and inventories together account for 58.9% of total assets, making liquidity and capital efficiency sensitive to working-capital management..
Key concerns include Highest priority: gross-margin restoration in pharmaceutical wholesale, because a 59bp group gross-margin decline drove the 35.8% operating-income fall., High priority: achievement of the full-year operating-income plan, as Q1 progress of 16.7% trails the standard 25% pace by 8.3 percentage points., High priority: receivables discipline, as the 82-day DSO alert highlights elevated cash-conversion exposure in a low-margin business., Moderate priority: preservation of the planned dividend, given the approximately 91% forecast payout ratio., Moderate priority: prevention of further extraordinary losses, which widened the gap between ordinary income and pre-tax profit..
Investment Implications
Key takeaways include Revenue momentum was positive at +5.8% year on year, but earnings conversion weakened substantially., The core pharmaceutical wholesale business generated ¥371.39bn of external sales and ¥3.11bn of segment profit, but its profit fell 25.2%., The group’s annualized ROE of 3.5% and annualized ROIC of 4.3% indicate weak capital productivity., Liquidity and debt servicing capacity are strong, supported by ¥102.06bn of cash, minimal short-term borrowing, and 117.38x interest coverage., Full-year guidance requires a meaningful post-Q1 improvement in operating-margin performance..
Metrics to watch include Pharmaceutical wholesale gross margin and segment profit margin, Consolidated operating-margin recovery from 0.6%, Q2 cumulative operating-income progress versus the ¥14.8bn full-year plan, Receivable days and the relationship between receivables growth and sales growth, Inventory levels relative to wholesale sales, Extraordinary losses and their recurrence, Progress toward forecast EPS of ¥197.67 relative to the ¥180 annual dividend.
Regarding relative positioning, The company displays the high turnover, low-margin balance-sheet profile typical of pharmaceutical distribution. Its low interest-bearing debt and strong liquidity are relative strengths, while sub-5% annualized ROIC, an 82-day receivables cycle, and margin compression place profitability and working-capital efficiency at the center of relative performance assessment.