SUZUKEN CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The first quarter of the fiscal year ending March 2027 resulted in higher revenue but lower earnings, with the most important issue being a structural decline in profitability whereby revenue growth failed to translate into earnings growth. Revenue increased to ¥6,289.6B (+6.1% year on year), securing higher sales, but Operating Income declined to ¥41.9B (down 25.0%), Ordinary Income to ¥50.7B (down 12.3%), and Net Income attributable to owners of the parent to ¥33.8B (down 10.6%), with declines across all profit indicators. The primary factor was deterioration in the gross profit margin of the core Pharmaceutical Wholesale Business. In addition to limited growth in gross profit relative to revenue growth, losses in the Digital Business and Regional Medical and Nursing Care Support segments expanded, diluting the company-wide margin.

Factors Affecting Business Performance

【Revenue】Revenue of ¥6,289.6B represented a year-on-year +6.1% increase, led by the core Pharmaceutical Wholesale Business (96.7% of revenue), which grew +6.3%. Logistics (+2.9%) and the Digital Business (+33.3%, small scale) also contributed to revenue growth, while Regional Medical and Nursing Care Support declined by △1.7%, and Other Related Businesses decreased modestly by △2.2%.

【Profit and Loss】Gross profit was ¥433.5B, up +0.2% year on year and virtually flat, while the gross profit margin declined to 6.9% from the previous year. Although SG&A expenses were ¥391.6B (SG&A ratio: 6.2%) and efficiency improvements progressed, these were insufficient to absorb the deterioration in the gross profit margin. Operating Income declined to ¥41.9B (△25.0%), and the Operating Income margin fell to 0.7%. By segment, Operating Income in the Pharmaceutical Wholesale Business was ¥35.3B (△11.0%), reflecting significant margin pressure. Regional Medical and Nursing Care Support posted a loss of △¥2.3B, while the Digital Business also posted a loss of △¥3.3B. Logistics posted Operating Income of ¥9.4B (+24.7%), partially offsetting the declines. Non-operating income included ¥2.8B in dividend income and ¥2.5B in equity-method investment gains, resulting in Ordinary Income of ¥50.7B (△12.3%). Profit Before Tax was ¥51.2B, and Net Income after deducting ¥17.3B in income taxes and other taxes was ¥33.8B (△10.6%). In conclusion, revenue increased while earnings declined.

Segment Analysis

The Pharmaceutical Wholesale Business expanded in scale, with revenue of ¥6,078.2B (96.7% of total revenue, +6.3% year on year), but Operating Income declined to ¥35.3B (△11.0%, margin: 0.6%), indicating continued margin pressure. Logistics generated Operating Income of ¥9.4B (+24.7%, margin: 6.5%) against revenue of ¥144.8B (+2.9%), contributing to earnings growth through its high profitability. Healthcare Product Development recorded revenue of ¥129.3B (+2.1%), but Operating Income declined sharply to ¥2.9B (△65.8%). Regional Medical and Nursing Care Support posted revenue of ¥227.2B (△1.7%) and fell into the red with an Operating Loss of △¥2.3B. The Digital Business also increased revenue to ¥8.1B (+33.3%), but its Operating Loss expanded to △¥3.3B. Based on the new medium-term management plan, segment classifications were changed from Q1, and the company is progressing with a transition toward a function-based management structure centered on fee-based businesses.

Key Financial Indicators

【Profitability】The Operating Income margin was 0.7% and the Net Income margin was 0.5%, both declining from the previous year (Operating Income margin of approximately 0.9%). The company continues to operate with a low-margin structure, with a gross profit margin of 6.9% and an SG&A ratio of 6.2%. ROE remained low at 0.8%. Basic EPS was ¥49.99, down △5.0% from ¥52.63 in the previous year.【Cash Flow Quality】Accounts receivable increased to ¥5,812.4B (+4.9%), inventories to ¥1,541.8B (+6.2%), and accounts payable to ¥7,006.2B (+5.2%), indicating expansion in working capital accompanying revenue growth. Trends in collection and inventory efficiency will determine the quality of earnings going forward.【Investment Efficiency】Goodwill was ¥34.4B, equivalent to only 0.8% of net assets, indicating limited impairment risk. Intangible assets were also relatively small at ¥150.0B.【Financial Soundness】The Equity Ratio was 34.8% (compared with 36.0% in the previous year). Against total assets of ¥11,956.8B and net assets of ¥4,158.9B, current assets of ¥9,181.2B and current liabilities of ¥7,532.6B resulted in a current ratio of approximately 121.9%, securing a minimum level of financial safety.

Cash Flow Analysis

As the cash flow statement has not been disclosed, funding trends can be assessed based on changes in the balance sheet. Cash and deposits increased to ¥1,214.2B, up ¥47.3B (+4.1%) year on year. At the same time, accounts receivable increased by ¥270.5B, inventories by ¥90.4B, and accounts payable by ¥348.6B, indicating an overall expansion in working capital and rising funding needs accompanying revenue growth. Given the settlement structure’s high dependence on accounts payable, and the simultaneous increases in inventory and accounts receivable, cash generation from operating activities is likely to grow more slowly than revenue in the current environment. In terms of capital investment, property, plant and equipment totaled ¥1,386.4B, remaining virtually unchanged from the previous year, suggesting that cash outflows from large-scale investments were limited.

Earnings Quality

The impact of extraordinary gains and losses on current-period earnings was extremely limited, with the earnings structure primarily based on recurring business activities. Extraordinary income of ¥0.7B (gain on the sale of fixed assets: ¥0.2B) and extraordinary losses of ¥0.2B (loss on the disposal and sale of fixed assets: ¥0.2B) were both immaterial, having only a very limited impact on Profit Before Tax of ¥51.2B. Of non-operating income of ¥9.9B, dividend income of ¥2.8B and other non-operating income of ¥3.5B were the main components, while equity-method investment gains of ¥2.5B also made a stable contribution. Comprehensive income was ¥32.2B, slightly below Net Income attributable to owners of the parent of ¥33.8B. The difference was attributable to negative valuation- and pension-related factors, including a △¥1.0B valuation difference on securities and a △¥0.8B adjustment related to retirement benefits. In assessing earnings quality, it is important that the decline in Operating Income was attributable not to temporary factors but to the structural factor of a lower gross profit margin.

Earnings Forecast and Guidance

For the full-year earnings forecast, Revenue of ¥25,630.0B (+3.1% year on year), Operating Income of ¥312.0B (△14.2%), and Ordinary Income of ¥343.0B (△13.7%) are planned. Q1 Revenue of ¥6,289.6B reached 24.5% of the full-year plan, representing generally steady progress. However, Q1 Operating Income of ¥41.9B amounted to only 13.4% of the full-year plan, falling significantly short of the simple one-quarter (25%) benchmark. This reflected the early deterioration in the Q1 gross profit margin and losses recorded by loss-making segments. Achievement of the full-year plan will depend on recovery in the gross profit margin and progress in cost efficiency during the second half of the fiscal year. No revisions were made to the earnings or dividend forecasts during the quarter.

Shareholder Returns

A 2-for-1 stock split is scheduled to take effect on October 1, 2026. Excluding the impact of the split, the forecast annual dividend for the fiscal year ending March 2027 is ¥120 per share (year-end dividend: ¥60). Using the company’s planned EPS of ¥184.81, the Payout Ratio is approximately 65%, indicating that the company’s shareholder return policy remains in place compared with the previous year’s actual dividend (¥50 per share in the same-period data for the previous year). However, the Payout Ratio is relatively high, and given the downward trend in Operating Income and the expansion of working capital, the trend in cash-generating capacity supporting earnings should be monitored.

Risk Factors

1. Margin Pressure Risk: The gross profit margin in the core Pharmaceutical Wholesale Business deteriorated from the previous year, and the Operating Income margin declined to 0.7% (approximately 0.9% in the previous year). If the pricing and rebate environment or product mix continues to change, profitability may deteriorate further.

2. Working Capital Expansion Risk: Working capital has expanded alongside revenue growth, with accounts receivable increasing by ¥270.5B, inventories by ¥90.4B, and accounts payable by ¥348.6B. If collection and inventory efficiency do not improve, cash-generating capacity may continue to lag behind the pace of revenue growth.

3. Risk of Delayed Monetization of New Businesses: Losses in the Digital Business (Operating Loss of △¥3.3B, △631.1% year on year) and Regional Medical and Nursing Care Support (△¥2.3B) have expanded, and the structure in which upfront investment burdens dilute the company-wide margin continues.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (trading)

Profitability and Returns

The company’s profitability is significantly below the industry median and ranks toward the lower end of the industry.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median, indicating that the pace of top-line expansion is relatively high.

※Source: Company research

Key Takeaways from the Results

1. Although Revenue increased by +6.1%, Operating Income declined by △25.0%. A defining feature of these results is that the structural factor of a lower gross profit margin is putting pressure on profitability.

2. The Logistics Business continued to grow, with Operating Income increasing by +24.7%, and is functioning as a source of earnings that offsets margin pressure in the core Pharmaceutical Wholesale Business. Meanwhile, the Digital Business and Regional Medical and Nursing Care Support posted losses, leaving monetization of the new businesses as an outstanding issue.

3. The Operating Income progress rate against the full-year plan was 13.4%, below the Revenue progress rate of 24.5%. Recovery in the gross profit margin and progress in expense efficiency during the second half will be key to achieving the full-year plan.

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). It is not a forecast of the market stock price or a recommendation of any specific investment action.

Sensitivity: ¥4,973–¥5,263 at ±1% for the cost of equity, and ¥5,080–¥5,137 at ±0.1 for ω.

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 discrepancy from the full-year forecast).
• As 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 forecast or guarantee the future stock 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. Industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, with consultation with professionals as necessary.

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