| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥12378.5B | ¥11881.0B | +4.2% |
| Operating Income | ¥264.3B | ¥280.1B | -5.6% |
| Equity-Method Investment Gains/Losses | - | - | - |
| Ordinary Income | ¥298.1B | ¥316.8B | -5.9% |
| Net Income | ¥220.3B | ¥228.6B | -3.6% |
| ROE | 7.3% | 7.9% | - |
For the fiscal year ending March 2026, Revenue was ¥12378.5B (YoY +¥497.5B +4.2%), Operating Income was ¥264.3B (YoY -¥15.8B -5.6%), Ordinary Income was ¥298.1B (YoY -¥18.7B -5.9%), and Net Income was ¥220.3B (YoY -¥8.3B -3.6%). The company recorded revenue growth but profit decline. Revenue increased for the third consecutive year, but higher cost of goods sold and an increase in selling, general and administrative expenses (SG&A) (+8.1%) outpaced gross profit growth (+3.8%), causing gross margin expansion to lag and compressing operating margin from 2.4% to 2.1% (down 0.3pt). At the ordinary income level, non-operating income of ¥34.4B, including dividend income received of ¥5.7B, and special gains of ¥23.8B including gains on sale of investment securities of ¥19.1B provided support, so the final decline in Net Income was relatively restrained versus the operating-stage decline. Equity increased to ¥3017.4B and the Equity Ratio remained solid at 56.7%. Operating Cash Flow (OCF) was ¥249.3B (YoY +20.6%), exceeding Net Income, and Free Cash Flow (FCF) was ¥245.3B, indicating ample cash generation. Note that following a TOB by parent company Medipal Holdings and planned delisting, earnings forecasts and dividend forecasts for the next fiscal year are not disclosed.
[Revenue] Revenue was ¥12378.5B (YoY +4.2%), maintaining growth. Geographic disclosure is omitted as over 90% of sales are to non-domestic customers, but domestic wholesale of pharmaceuticals, cosmetics, and daily necessities remained firm. Gross profit was ¥923.2B (+3.8%) and gross margin was 7.5%, virtually unchanged from 7.5% last year (a slight decline of approximately 0.03pt), suggesting that price pass-through was limited due to product mix and competitive pressure. Gross profit growth of +3.8% slightly lagged Revenue growth of +4.2%, indicating that Revenue expansion did not necessarily translate into margin improvement.
[Profitability] Operating Income was ¥264.3B (YoY -5.6%). SG&A was ¥658.9B (+8.1%), increasing well above gross profit growth (+3.8%), with personnel-related costs leading the rise: salaries and allowances ¥203.1B (+6.2%), depreciation ¥40.4B (-0.6%), and retirement benefit expenses ¥7.5B (-3.6%). SG&A ratio worsened by 0.2pt to 5.3% (prior year 5.1%), and operating margin narrowed by 0.3pt to 2.1% (prior year 2.4%). Ordinary Income was ¥298.1B (-5.9%); non-operating income ¥34.4B (prior year ¥38.4B), including dividend income received ¥5.7B, declined YoY and only partially offset operating profit decline. Net special items were a net gain of ¥19.5B (prior year ¥10.0B), supported by gains on sale of investment securities ¥19.1B and insurance income ¥4.8B, while losses included impairment of investment securities valuation ¥2.1B and impairment losses ¥1.0B. Profit before tax was ¥317.6B (prior year ¥326.9B), a slight decline; after deducting income taxes of ¥97.3B (prior year ¥98.2B), Net Income was ¥220.3B (-3.6%). In conclusion, the company experienced revenue growth with profit decline, and converting Revenue growth into profit growth will require SG&A containment and margin improvement.
[Profitability] ROE was 7.3% (prior year 8.1%), down from the prior year but roughly maintaining a three-year average around 7.6%. Operating margin was 2.1% (prior year 2.4%) and Net Margin was 1.8% (prior year 1.9%), showing an overall compression in margins; SG&A inflation layered on the inherently low-margin structure of wholesale operations. Gross margin on Revenue remained stable at 7.5%, but the SG&A ratio rose to 5.3% (prior year 5.1%), pressuring operating margin. ROA (on an ordinary income basis) was 4.1%, down from 6.3% the prior year; total asset turnover was stable at 2.3x, with margin decline being the primary driver. [Cash Quality] OCF was ¥249.3B, 1.13x Net Income ¥220.3B, a healthy level, and cash generation including depreciation of ¥63.6B is sound. OCF/EBITDA ratio was approximately 0.76x, affected by working capital increases (Accounts Receivable outflow +¥110.0B, Accounts Payable inflow +¥62.1B), leaving the ratio somewhat low. The accrual ratio was approximately -0.5%, negative, indicating earnings are well backed by cash. [Investment Efficiency] Capital expenditure was ¥20.8B, representing a ratio to depreciation of 0.33x (depreciation ¥63.6B), a low level; tangible fixed assets decreased by ¥36.6B year-on-year to ¥1092.8B. While capex restraint boosts short-term FCF, returning to appropriate investment levels is necessary to sustain logistics efficiency and network competitiveness medium-to-long term. Total asset turnover at 2.3x is unchanged YoY; inventory turnover is about 22.8x (inventory ¥541.8B / Cost of Goods Sold ¥11455.2B × 365 days ≈ 17 days), indicating continued efficient inventory management. Days Sales Outstanding (DSO) is about 67 days, about 3 days longer YoY, indicating room to improve collection efficiency. [Financial Soundness] Equity Ratio was 56.7% (prior year 56.7%), current ratio 178.7%, quick ratio 153.9%—liquidity is very ample. D/E ratio is 0.76x and interest coverage is 3,775x (Operating Income ¥264.3B / interest expense ¥0.1B), indicating very strong ability to meet obligations and practically negligible interest-bearing debt. Cash and deposits increased to ¥832.8B (YoY +19.1%), providing ample coverage for short-term liabilities of ¥2184.9B.
OCF was ¥249.3B (YoY +20.6%), exceeding Net Income ¥220.3B by ¥29.0B, demonstrating healthy cash generation. Subtotal OCF (before working capital changes) was ¥334.0B; profit base after adjustments for non-cash expenses, including depreciation ¥63.6B, was solid. Working capital movements included an increase in Accounts Receivable of ¥110.0B (DSO approximately +3 days) which was a cash outflow, offset partially by inventory decrease ¥5.3B and Accounts Payable increase ¥62.1B, resulting in net cash absorption of about ¥42.6B. After cash taxes paid of ¥95.1B, OCF was ¥249.3B. Investing Cash Flow was -¥4.0B, a small outflow: capital expenditure ¥20.8B was offset by proceeds from sales of investment securities ¥27.4B and proceeds from sale of fixed assets ¥0.8B, producing near net balance. Consequently, FCF was a very robust ¥245.3B. Financing Cash Flow was -¥111.6B, mainly dividend payments ¥68.9B and share buybacks ¥41.2B, total shareholder returns ¥110.1B, which are fully coverable by FCF. Lease liability repayments of ¥1.4B were minor and financial burden limited. Cash and cash equivalents increased ¥133.7B to an ending balance of ¥832.8B. Due to working capital increases, OCF/EBITDA ratio remained modest at 0.76x, but improved AR collection could drive better metrics. Overall, OCF generation is solid and with restrained investment and abundant FCF the company maintains a financial profile capable of comfortably executing total shareholder returns.
Quality of earnings is generally good. Operating Income ¥264.3B was generated by recurring business activities; dividend income received ¥5.7B of non-operating income ¥34.4B is presumed to be recurring from affiliates, etc. Special gains of ¥23.8B (gains on sale of investment securities ¥19.1B, insurance income ¥4.8B, etc.) are one-off factors and comprise about 7.5% of Profit before tax ¥317.6B. While Operating Income was reduced by SG&A inflation, contribution from special items relatively limited the final decline. OCF was ¥249.3B, 1.13x Net Income ¥220.3B, indicating earnings are well backed by cash. The accrual ratio was approximately -0.5%, suggesting limited concern about accounting earnings adjustments. However, OCF/EBITDA ratio of 0.76x was affected by working capital increases (Accounts Receivable outflow +¥110.0B), leaving room to improve cash conversion. The difference between Ordinary Income ¥298.1B and Net Income ¥220.3B is explained by income taxes ¥97.3B and net special items ¥19.5B, and divergence with comprehensive income likely driven mainly by changes in valuation differences on securities. Overall, the recurring earnings base is solid, but partial reliance on special gains and the need to improve working capital management are future challenges.
Dividends for the period were ¥57 at Q2-end and ¥63 at fiscal year-end, totaling annual dividend ¥120, with a payout ratio of 33.8% (total dividends ¥68.9B / Net Income ¥220.3B), a sustainable level. Dividend coverage relative to FCF ¥245.3B is approximately 3.6x, ample. Share buybacks amounted to ¥41.2B, and combined with dividends the Total Return Ratio was 50.0% (total shareholder returns ¥110.1B / Net Income ¥220.3B), indicating an active shareholder return stance. Even after funding total returns from FCF, roughly ¥135B of headroom remained, showing substantial financial flexibility. Note that due to the TOB by parent company Medipal Holdings and planned delisting, dividends for the fiscal year ending March 2027 have been resolved as nil (¥0) for both Q2-end and fiscal year-end. The prior shareholder return policy will shift to be dependent on group policy going forward, so it should be considered separate from standalone recurring dividend assessment. Historical dividends showed a trend of consecutive increases, but this continuity is expected to be interrupted by the current event.
SG&A inflation and operating leverage reversal risk: SG&A was ¥658.9B (YoY +8.1%), increasing well above gross profit growth (+3.8%) and compressing operating margin by 0.3pt to 2.1%. Rising fixed costs driven primarily by higher personnel expenses (salaries and allowances +6.2%) persist, creating a structure where Revenue growth does not automatically translate into margin improvement. An operating margin of 2.1% is low even for wholesale, making resilience to external cost shocks (logistics cost spikes, minimum wage increases, etc.) limited. Continued upward trend in SG&A ratio would exert further downward pressure on profits.
Accounts Receivable increase and collection efficiency deterioration risk: Accounts Receivable increased to ¥2257.7B (YoY +6.2%), with DSO around 67 days (about +3 days YoY). Looser credit terms or prolonged collection cycles accompanying Revenue growth suggest greater working capital lock-up. Outflow from AR increase was ¥110.0B against subtotal OCF ¥334.0B, leaving OCF/EBITDA at 0.76x. There is a risk of higher bad debt losses and deteriorating cash efficiency if counterparties’ credit quality weakens or the economic environment worsens.
Reduced investment and medium-to-long-term competitiveness risk: Capital expenditure of ¥20.8B is just 0.33x depreciation ¥63.6B and extremely low; tangible fixed assets decreased -3.2% YoY. While this supports ample short-term FCF, deferred updates to logistics hubs, automation, and digital investments could erode medium-to-long-term cost efficiency and service competitiveness. R&D expenditure is also minimal at ¥0.2B (0.0% of Revenue), raising concerns about delays in differentiation and solution development.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 2.1% | 3.4% (1.4%–5.0%) | -1.2pt |
| Net Margin | 1.8% | 2.3% (1.0%–4.6%) | -0.5pt |
| Both Operating Margin and Net Margin are below industry medians, indicating a lower-margin structure even within wholesale. |
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 4.2% | 5.9% (0.4%–10.7%) | -1.7pt |
| Revenue growth is slightly below the industry median, indicating more subdued growth momentum relative to peers. |
※ Source: Company compilation
Sustainability of operating margin improvement: Operating margin deteriorated 0.3pt to 2.1% (prior year 2.4%), and the structure of SG&A growth (+8.1%) far outpacing gross profit growth (+3.8%) has become entrenched. SG&A ratio rose to 5.3%; in an environment of continued personnel and fixed-cost inflation, without price pass-through or mix improvement, a trend toward lower margins is a concern. In future results, controlling the growth rate of SG&A and stabilizing gross margin will be key to margin recovery.
Working capital management and capital efficiency: Accounts Receivable increased by ¥110.0B YoY with DSO approximately 67 days, and OCF/EBITDA at 0.76x highlights the burden of working capital. While OCF generation is solid, shortening DSO to below 60 days through strengthened collections could materially increase OCF and improve OCF/EBITDA. Tightening credit management and shortening collection cycles are important levers for improving capital efficiency and reducing credit costs.
Investment levels and medium-to-long-term competitiveness: Capex/depreciation ratio at 0.33x indicates continued investment restraint and tangible fixed assets fell -3.2% YoY. This supports robust short-term FCF but risks deterioration in logistics hub condition and delays in automation/digital investments, weakening medium-to-long-term cost efficiency and service levels relative to competitors. If capex ratio recovers to 0.7x or higher in future results, it would be a positive sign for sustaining competitiveness.
This report is an AI-generated financial analysis document created from XBRL disclosure data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the firm based on public financial statements. Investment decisions are the responsibility of the reader; consult a professional advisor as needed.