KOA SHOJI HOLDINGS CO.,LTD. Q2 FY2025 earnings call

• Corporate Purpose and Strategy

  • The group's core purpose is to contribute to the stable supply of generic pharmaceuticals, aiming for a society where no one in need of medicine is left behind. It operates as a combined pharmaceutical specialty trading company + differentiated generic pharmaceutical manufacturer to deliver innovation in its business model, positioning itself as the "best partner for generics".
  • Long-term 10-year (through 2030) financial targets are set at 40 billion yen in consolidated revenue and 8 billion yen in operating profit, split equally between the API segment (4 billion yen operating profit) and pharmaceutical segment (4 billion yen operating profit).
  • API segment growth strategy: Focus on sustained growth of existing business, plus expand into new activities including imported finished product sales and in-licensing to transition from an API trading company to a full pharmaceutical specialty trading company.
  • Pharmaceutical segment growth strategy: Leverage three production facilities + the newly completed Zao Warehouse to create synergies: Zao Factory 1 handles small-batch multi-product prefilled syringes and vials; Zao Factory 2 operates as a dedicated prefilled syringe facility for large-batch low-product-variety production; the main factory produces tablets and other injectables.

• Operational Update

  • The 6.5 billion yen Zao Factory 2 construction project is progressing on schedule, with no delays despite heavy winter snow. The factory is scheduled for completion in July 2026, will undergo approximately one year of regulatory testing and approval, and is targeted to begin full operations in July 2027.
  • The group prioritizes quality and compliance: In the prior year, the API segment passed 6 regulatory inspections and 36 customer audits, while the pharmaceutical segment passed 3 regulatory inspections and 8 customer audits, with ongoing rigorous internal quality control and unscheduled cross-group audits.
  • Market tailwinds: Generic drug market share is expanding, and the October 2024 introduction of co-payment for off-patent brand name drugs has driven increased adoption of generics, with growing demand for the group's products in this transition. The stable dialysis patient market (around 340,000 total patients) has high infection mortality rates, leading to strong new guideline recommendations for prefilled syringes for infection prevention, which aligns with the group's planned production expansion.

For the first half of the 2025 June fiscal year, total group revenue reached 12.259 billion yen, a 7.7% increase from the prior year period. 1. API (Active Pharmaceutical Ingredient) Segment: External revenue increased 5.7% year-over-year, operating profit increased 14.1% year-over-year. Growth was driven by expanded sales of recently launched products and resolution of inventory adjustments for certain products that had previously suppressed volumes, growing the segment's overall take volume. 2. Pharmaceutical Product Segment: Revenue increased 10.9% year-over-year, operating profit increased 34.4% year-over-year. Growth was driven by strong sales of contract-manufactured prefilled syringes, plus improved profitability from better production efficiency (improved yield and capacity utilization) and favorable changes in sales product mix.

• Full-year 2025 June fiscal year consolidated earnings guidance remains unchanged from the prior August announcement, with a projected 5.5% year-over-year increase in revenue and 5.4% year-over-year increase in operating profit.
• The full-year 2025 June dividend guidance was upward revised from 13 yen per share to 15 yen per share, consistent with the group's stated policy of annual dividend increases.
• The group reaffirms its commitment to investing in growth areas to drive sustained long-term growth, increase corporate and shareholder value, and maintain a cycle of capital investment, return on investment, and ongoing shareholder returns.

• Required capital expenditures for maintenance and upgrades of the Yokohama Analysis Center (API segment) and the main pharmaceutical factory create ongoing incremental cost pressure that acts as a mild internal headwind.
• Inflation-driven cost increases for the Zao Factory 2 construction project are a potential risk to earnings, but management has stated the project remains within the existing 6.5 billion yen budget to date, with no material impact expected at this time.
• Foreign exchange volatility created a 45 million yen negative impact on operating profit in the first half from foreign exchange losses.
• The generic drug industry faces ongoing pressure to ensure stable supply and maintain sustainable industry structure amid industry consolidation.

Q: Could inflation cause cost overruns on Zao Factory 2 construction that hurt earnings? / A: The total investment budget is 6.5 billion yen, which already accounts for expected inflation-related cost increases. While minor fluctuations are possible, the project has no material unplanned cost increases at this point, and no significant impact on full-year earnings is expected. The construction timeline remains on track for completion in July 2026.

Q: What explains the high profit margin of the API business? / A: The high margin stems from the group's 30+ years of experience in API sourcing and a proven track record of quality reliability that has earned long-term trust from Japanese generic drug makers. The group focuses on specialized products that are difficult for competitors to source, and its combined trading + in-house quality analysis infrastructure reduces costs, enabling sustained high margins.

Q: Is there a plan for a public secondary offering of new shares? / A: The group currently has no plans for a public offering. While capital investment for future growth may require funding, management will consider multiple options, and any future offering would be announced officially before any implementation if approved.

Q: What is the future outlook for injectable products, including new products and exports? / A: The group will continue to launch new generic injectable products aligned with market demand, especially for prefilled syringes aligned with the new infection prevention guidelines for dialysis patients. At this stage, the company is focused on meeting growing domestic Japanese demand, so export expansion is not a near-term priority.