Bottom line
Sawai is Japan's leading generic-drug maker and policy is on its side: minimum-price increases, the 選定療養 surcharge on long-listed brands, and a government push to consolidate a fragmented industry. The stock is not cheap for what it earns: 10.3x the company's FY2027/03 EPS forecast and 11.1x consensus, 1.08x book, ROE 5.9% against an MTP target of ≥10%. Delivery is weak: core OP fell 15.4% in Q1 while the full-year guide needs +19.5%, initial OP guidance has been missed in 4 of the last 5 years, and FCF was −¥15.5bn in FY2026/03 as debt-funded capacity and inventory build continue. The market already discounts a miss (consensus OP 6.1% below guide, 11 broker target cuts and 1 raise since June), so the downside is not obviously mispriced either; a recovery needs proof in the H2 margin first.
The most important missing evidence is the H2 gross-margin bridge: how much of the guided 31.1% H2 gross margin (Q1 29.2%) comes from December 2026 launches versus a fall in write-downs.
Signal panel
Covered by at least 5 brokers (IFIS 業績ニュース); IFIS rating 4.11, consensus target ¥2,216; widely known policy story.
Q1 OP progress 18.2% vs 25.4% seasonal median (−7.1 pts); core OP 21.7% of FY vs 30.7% in FY2026/03 Q1; consensus OP ¥25,544m is 6.1% below guide and fell 4.7% over 3 months.
ROE 5.9% (FY26) below any cost of equity; FCF −¥15.5bn FY26 and −¥13.1bn in Q1; net D/E 0.52 rising; but OCF positive 3/3 years and the generic franchise is policy-protected.
Quarterly deck with volume, capacity and supply-status KPIs (Q1 presentation p.2, p.7); but 2023 GMP violation at Kyushu plant and initial OP guide missed 4/5 years.
Q1 and FY 短信, Q1 presentation and 有報 read; integrated report not read; H2 launch pipeline and 2027 price revision not quantified.
Investment thesis
- The guide is back-end loaded and Q1 went the wrong way. FY2027/03 core OP guide ¥29,600m (+19.5%); H1 ¥14,300m (+3.9%), H2 ¥15,300m (+38.9%). Q1 core OP ¥6,425m (−15.4%) (Q1 presentation p.3, p.11). Q2 must deliver ¥7,875m core, +23% on Q1. Company guidance / inference.
- Margin pressure is real. Q1 gross margin 29.2% vs 31.2% a year earlier: April 2026 price revision, inventory write-downs and scrapped off-spec product, labour and depreciation (Q1 presentation p.2, p.5). Guide assumes 31.4% for the year. Reported fact.
- Volume still grows. Q1 sales volume 4.3bn tablets (+2.7%), production 4.4bn (+13.0%) toward 17.6bn and 18.0bn annual plans; products listed in 2025–2026 offset a 3.8% fall in older products (presentation p.2, p.4). Reported fact.
- Growth is debt-funded. Q1 OCF −¥427m after a ¥7,970m inventory build; capex ¥10,584m; short-term borrowings +¥25.1bn; net D/E 0.43 → 0.52 (Q1 短信 p.4, p.11; presentation p.9). Reported fact.
- Valuation offers no margin of safety for the delivery risk. PER 10.3x guide / 11.1x consensus, PBR 1.08x, yield 3.4%. 東和薬品 trades at 8.4x / 0.99x. Reported fact.
Business and earnings
Sawai sells generic prescription drugs in Japan through the big wholesalers: メディセオ 19.9%, アルフレッサ 18.3%, スズケン 10.5% of FY2026/03 sales (有報 p.28). It wins on scale (~18bn tablets a year), breadth (742 products, 603 shipping normally on 2026-06-30) and supply reliability, now the main criterion as the government pushes consolidation (Q1 短信 p.3–4). Cardiovascular (27%), CNS (16%) and GI (15%) lead volume (presentation p.8). The US business (Upsher-Smith) was sold to Bora on 2024-04-02; Sawai keeps an indemnity for US antitrust MDL suits, carried as a ¥5,952m liability (有報 p.112, note 19). Segment data in the fact sheet stops at FY2023/03 because the group is now one Japanese segment.
FY2026/03 (FY 短信 p.1; 有報 p.30): sales ¥201,676m (+6.7%), core OP ¥24,778m (−3.6%), OP ¥15,894m (+292%). OP includes a ¥4,020m patent settlement and R&D impairments; FY2025/03 OP of ¥4,050m included a ¥16,757m provision for the ナルフラフィン OD patent judgement (有報 p.134). Gross margin fell to 29.2% on the price revision, energy and materials, and inventory write-downs.
Q1 FY2027/03 OP bridge (presentation p.5): gross profit −¥362m net (new launches +, price revision and AG entry −, write-downs −¥988m area), SG&A −¥988m (people, FrontAct consolidation), R&D −¥554m including a ¥525m impairment. 139 products remain on restricted or suspended shipment, up as demand tightened (p.2).
Capacity: Kyushu second-plant step 2 starts December 2026 (+1.5bn tablets); target 25bn tablets of own capacity by FY2030 (p.7). Industry: Sawai and 日医工 agreed in September 2025 to consolidate products (first approval June 2026; Q1 短信 p.4).
Data
| Year | Revenue | OP | NP | OPM |
|---|---|---|---|---|
| 2022/03 | ¥194bn | −¥35.9bn | −¥28.3bn | −19% |
| 2023/03 | ¥200bn | ¥17bn | ¥12.7bn | 8.5% |
| 2024/03 | ¥177bn | ¥18.6bn | ¥13.7bn | 11% |
| 2025/03 | ¥189bn | ¥4bn | ¥12bn | 2.1% |
| 2026/03 | ¥202bn | ¥15.9bn | ¥10.4bn | 7.9% |
| 2027/03E | ¥208bn | ¥27.2bn | ¥18.6bn | 13% |
factsheet.json annual (zaimu_fy_all)
factsheet.json annual
Data
| Segment | Sales | Profit | Margin | Sales YoY |
|---|---|---|---|---|
| 日本 | ¥164bn | ¥16.1bn | 9.8% | −0.1% |
| 米国 | ¥36.6bn | ¥930mn | 2.5% | +22% |
factsheet.json segments
Data
| Quarter | Sales | OP | NP | OPM | OP YoY |
|---|---|---|---|---|---|
| 2024/03 Q2 | ¥53.8bn | ¥6.1bn | ¥4.9bn | 11% | +52% |
| 2024/03 Q3 | ¥29.3bn | ¥6.6bn | ¥5.1bn | 22% | +18% |
| 2024/03 Q4 | ¥40.8bn | ¥1.4bn | ¥194mn | 3.3% | −48% |
| 2025/03 Q1 | ¥44.3bn | ¥6.1bn | ¥15.5bn | 14% | +32% |
| 2025/03 Q2 | ¥43.5bn | ¥5.7bn | ¥3.4bn | 13% | −6.8% |
| 2025/03 Q3 | ¥55.3bn | ¥9.7bn | ¥6.6bn | 18% | +48% |
| 2025/03 Q4 | ¥45.8bn | −¥17.4bn | −¥13.5bn | −38% | −1384% |
| 2026/03 Q1 | ¥49.5bn | ¥7bn | ¥4.9bn | 14% | +15% |
| 2026/03 Q2 | ¥49.3bn | ¥1.6bn | ¥955mn | 3.1% | −73% |
| 2026/03 Q3 | ¥56bn | ¥7.4bn | ¥4.9bn | 13% | −24% |
| 2026/03 Q4 | ¥46.8bn | −¥49mn | −¥311mn | −0.1% | +100% |
| 2027/03 Q1 | ¥51.6bn | ¥5bn | ¥2.4bn | 9.6% | −29% |
factsheet.json quarters (zaimu_4q_all)
Forecast test
- FY2027/03 guidance (2026-05-15, unchanged 2026-08-10): sales ¥208,400m, core OP ¥29,600m, OP ¥27,200m, RP ¥26,000m, NP ¥18,600m, EPS ¥161.08, DPS ¥56 (Q1 短信 p.1, p.5). Company guidance.
- Consensus (IFIS, 2026-10-16): OP ¥25,544m (−6.1% vs guide, −4.7% over 3 months), NP ¥17,264m; FY2028/03 OP ¥27,456m. External estimate.
- Progress: OP 18.2% vs median 25.4% (−7.1 pts); RP −8.0 pts; NP −16.6 pts, partly from a ¥433m loss on the US sale and higher finance costs (fact sheet; Q1 短信 p.12). Sales 24.8% vs 23.9% (+0.9 pts), so the problem is margin, not volume.
- Track record: actual OP vs initial guide FY23 −20.6%, FY24 +23.3%, FY25 −84.4%, FY26 −37.9% (fact sheet). Litigation explains most of FY25 and part of FY26, but FY26 core OP (¥24,778m) also fell short of the initial OP guide (¥25,600m). Reported fact.
- What the H2 guide needs: gross margin 31.1% (Q1 29.2%), R&D −31.4% YoY, and December listings. A 2027 mid-year price revision (April 2027) hits FY2028/03, not this year. Inference.
- Revision probability: downside more likely than upside. A cut at H1 results (~2026-11-13) is plausible; consensus already sits 6% below the guide, so a cut to ~¥25bn OP would be largely priced.
factsheet.json progress (zaimu_4q_acc, act_est_hist_n)
Data
| Year | Initial | Final guidance | Actual | Actual vs initial |
|---|---|---|---|---|
| 2022/03 | ¥26.4bn | −¥35.9bn | −¥35.9bn | −236% |
| 2023/03 | ¥21.4bn | ¥21.4bn | ¥17bn | −21% |
| 2024/03 | ¥15.1bn | ¥18.6bn | ¥18.6bn | +23% |
| 2025/03 | ¥26bn | ¥23.6bn | ¥4bn | −84% |
| 2026/03 | ¥25.6bn | ¥20.9bn | ¥15.9bn | −38% |
factsheet.json guidance.trackRecord
Financial strength and capital allocation
- Balance sheet: equity ratio 48.1% at Q1; net D/E 0.52 (presentation p.9); current ratio 2.48 at FY-end. Debt ¥109.0bn at FY-end, net debt ¥80.0bn (fact sheet), more after Q1 borrowing. No liquidity gate.
- Cash: OCF ¥23.1bn / ¥27.9bn / ¥7.4bn in FY24–FY26; FY26 was hit by the ¥16.9bn litigation payment and inventory +¥7.6bn (有報 p.31). FCF −¥15.5bn FY26. Inventory days ~300. Gates pass.
- Returns: ROE 6.5% / 6.6% / 6.2% / 5.9% FY23–FY26; IFIS ROIC 4.6%. FY26 ROE ≈ NP margin 5.2% × asset turnover 0.56 × leverage 2.02; FY27 guide implies ~10.4% via margin. Targets: Beyond 2027 sales ¥220bn and ROE ≥10% in FY2027/03; Vision 2030 sales ¥310bn and ROE ≥13% (有報 p.8). The FY27 sales guide is already ¥11.6bn short of the MTP. Peers: 東和薬品 ROE 3.0%, 富士製薬 6.5% (Yahoo! Finance, actual).
- Allocation: DPS ¥43.33 → ¥53 → ¥55 → ¥56 guided; payout 34.8% on guide; ¥33bn buyback in FY2025/03 (fact sheet). Policy is "stable and continuous" dividends with DOE considered and opportunistic buybacks against FCF (有報 p.8); with negative FCF a new buyback is unlikely near term. Capex/depreciation 1.16x FY26, rising in Q1.
factsheet.json annual. The 8% line is a common Japan cost-of-equity assumption, not a company figure.
Data
| Year | OCF | ICF | FCF | OCF / NP |
|---|---|---|---|---|
| 2022/03 | ¥34.3bn | −¥30.4bn | ¥3.9bn | -1.21 |
| 2023/03 | ¥13bn | −¥27.1bn | −¥14.1bn | 1.03 |
| 2024/03 | ¥23.1bn | −¥23.1bn | ¥37mn | 1.69 |
| 2025/03 | ¥27.9bn | ¥6.5bn | ¥34.3bn | 2.33 |
| 2026/03 | ¥7.4bn | −¥22.9bn | −¥15.5bn | 0.71 |
factsheet.json annual. FCF here is OCF plus investing cash flow.
Data
| Year | Cash | Debt | Net debt | Equity ratio | Current ratio |
|---|---|---|---|---|---|
| 2022/03 | ¥47.7bn | ¥71.2bn | ¥23.5bn | 54% | 2.28 |
| 2023/03 | ¥33.1bn | ¥77.1bn | ¥44bn | 55% | 2.41 |
| 2024/03 | ¥26.4bn | ¥87.1bn | ¥60.8bn | 56% | 2.56 |
| 2025/03 | ¥38.8bn | ¥95.1bn | ¥56.3bn | 49% | 1.95 |
| 2026/03 | ¥29bn | ¥109bn | ¥80bn | 50% | 2.48 |
factsheet.json balance
factsheet.json returns.dps (zaimu_dps_table)
IR and management credibility
- 2021-04: holding company formed.
- 2023-12: administrative penalty for improper stability testing of テプレノン at the Kyushu plant; remediation programme ongoing (Q1 短信 p.3).
- 2024-04-02: US business sold, a clean exit from a loss-making unit.
- 2024-06: Beyond 2027 MTP and revised Vision 2030 targets.
- 2024-06 onward: supply-status disclosure under MHLW guideline; quarterly volume, capacity and supply KPIs in each deck.
- Credibility gap: initial OP guide missed 4/5 years; FY27 sales guide below the MTP's ¥220bn; no buyback since the US-sale proceeds.
Valuation and scenarios
| Case | FY2027/03 NP / EPS | Multiple | Value per share | Return from today |
|---|---|---|---|---|
| Bull | ¥18.6bn (guide met) / ¥161 | 12.0x PER | ¥1,930 | +16% |
| Base | ¥17.3bn (consensus) / ¥150 | 11.0x PER | ¥1,645 | −1% |
| Bear | ¥14.4bn (core OP flat at ~¥24.5bn) / ¥125 | 10.0x PER, ≈0.8x PBR | ¥1,250 | −25% |
115.5m shares. Add the ¥56 dividend (3.4%). BPS at Q1 ¥1,538 (Q1 短信 p.1).
- Own bands: IFIS 1-year PER band is 10.04x–10.81x (mean 10.42x), so the current 10.64x on consensus says only that the multiple has not moved; PBR 1.08x vs mean 1.06x. Theoretical prices ¥1,631 (PER) and ¥1,638 (PBR). EV/EBITDA 6.3x on forecast.
- Peers (Yahoo! Finance, 2026-10-16, company-forecast PER, actual PBR): 東和薬品 8.4x / 0.99x / yield 2.3%; 富士製薬 21.4x / 0.96x / 2.6%; 日本ケミファ 94x / 0.29x (depressed earnings). Sawai trades at a premium to 東和 for higher ROE and scale.
- What the price implies: ¥1,665 at 11x needs EPS ¥151, i.e. consensus, not the guide. The price already assumes a ~7% miss.
- Why it could be cheap: if FY2028/03 consensus OP ¥27.5bn arrives with the guide's margins, EPS ~¥165 at 11x gives ¥1,815 (+9%), still modest.
Scenario values from the report's scenario table. Prices and consensus target from factsheet.json. A consensus target is an external estimate, not fair value.
factsheet.json valuation (stock_chart_per, stock_chart_pbr)
Bull case
- December 2026 launches and Kyushu step 2 lift H2 gross margin to the guided 31%, and the full-year guide is met.
- Consolidation (日医工 product integration, 1 ingredient ≈ 5 suppliers policy) raises prices and Sawai's share.
- Minimum-price increases at the 2027 revision protect low-price staples.
- A buyback returns once inventory build ends.
Bear case
- Q1 margin trend persists: write-downs, labour and depreciation outrun price; FY OP lands near ¥22–24bn.
- April 2027 mid-year price revision cuts FY2028/03 sales before capacity investments pay.
- US MDL indemnity exceeds the ¥5.95bn liability.
- Another quality incident (2023 precedent) triggers shipment suspensions.
- Net debt keeps rising while ROE stays ~6%.
Catalysts
| Date | Event | Why it matters |
|---|---|---|
| ~2026-11-13 | H1 results | Q2 core OP vs ¥7,875m implied; risk of FY guide cut. |
| 2026-12 | Price listing of new generics; Kyushu step 2 start | Drives the H2 guide (+38.9% core OP). |
| 2026-12 | FY2027 price-revision decision (中間年改定) | Sets FY2028/03 price erosion. |
| ~2027-02 | Q3 results | Q3 is the strongest quarter; last revision window. |
| ~2027-05 | FY results and new MTP | Beyond 2027 ends; new ROE and capital-allocation targets. |
What would change the rating
- Upgrade to Buy if H1 core OP ≥¥14.3bn with Q2 gross margin ≥31%, or if a buyback restarts with FCF turning positive.
- Downgrade to Sell if the FY OP guide is cut below ¥24bn and consensus FY2028/03 OP falls below ¥25bn, or net D/E passes 0.7.
- Thesis invalidated if a new GMP or quality sanction suspends shipments, or the US indemnity is raised materially.
Monitoring
| Indicator | Current | Trigger | Source | Next update |
|---|---|---|---|---|
| OP progress vs seasonal norm | Q1 18.2% vs 25.4% median (−7.1 pts) | H1 <45% of FY OP | 短信 / fact sheet | ~2026-11-13 |
| Consensus OP direction | ¥25,544m, −4.7% over 3m | Falls below ¥24bn | IFIS | weekly |
| Gross margin | Q1 29.2%; FY guide 31.4% | H1 <30% | Presentation | ~2026-11-13 |
| Restricted-shipment products | 139 (2026-06-30) | Rising further | Presentation p.2 | ~2026-11-13 |
| Net D/E | 0.52 (Q1) | >0.7 | Presentation p.9 | ~2026-11-13 |
| US MDL liability | ¥5,952m | Increase | 有報 / 半期 | 2026-11 |
Scorecard
| Factor | Score | Comment |
|---|---|---|
| Business quality | 10 / 15 | No.1 generic maker, policy tailwinds; low returns, price-regulated |
| Earnings momentum | 7 / 20 | Q1 core OP −15.4%, margin down 2.0 pts; volume +2.7% |
| Financial strength | 8 / 15 | Equity ratio 48%, OCF positive; FCF negative, debt rising |
| Capital efficiency and allocation | 4 / 10 | ROE 5.9% vs ≥10% target; dividend growing slowly; no buyback |
| Sentiment and revisions | 5 / 15 | Consensus −4.7% in 3m and below guide; 11 target cuts, 1 raise since June |
| Valuation | 12 / 20 | PER 10–11x, PBR 1.08x, EV/EBITDA 6.3x; premium to 東和 |
| Technical and event confirmation | 2 / 5 | −32% from 52w high, below MA200; above MA25/75 |
| Total | 48 / 100 | Hold band; matches a Hold with medium confidence. |
The report's scorecard table
Fact-sheet flags
Computed by factsheet.mjs. Each flag is a prompt to investigate, not a conclusion.
- amber
progress-behind-rp2027/03 Q1 rp progress 17.1% vs median 25.1% (-8.0 pts): behind seasonal norm - amber
progress-behind-np2027/03 Q1 np progress 13.1% vs median 29.6% (-16.6 pts): behind seasonal norm - amber
fcf-negativeFree cash flow -15,465 in 2026/03 (OCF 7,433, ICF -22,898, capex 18,533) - amber
consensus-falling2027/03 consensus OP changed -4.7% over 3 months to 25,544 - amber
consensus-below-guidance2027/03 consensus OP 25,544 is -6.1% vs company guidance - amber
per-expensiveForward PER 10.64 vs 1-year mean 10.42 (+1σ 10.62), z 1.10: expensive vs own history - info
far-below-52w-highPrice 1,665 is -32.0% from the 52-week high 2,447
Sources and limitations
- 2026-05-15 FY2026/03 決算短信:
data/4887/2026-10-17/filings/2026-03_FY_短信_20260515.pdfp.1, p.5–7. - 2026-06-24 有価証券報告書:
filings/2026-03_FY_有報_20260624.pdfp.8 (MTP targets), p.23 (US risk), p.30–31 (P&L and CF analysis), p.112–113 (MDL liability), p.134 (litigation provision), p.28 (major customers). - 2026-08-10 Q1 FY2027/03 決算短信:
filings/2027-03_Q1_短信_20260810.pdfp.1–5, p.6, p.11–12. - 2026-08-10 Q1 決算説明資料: https://pdf.irpocket.com/C4887/xoA3/tx0r/AAdl/AbWS.pdf p.2–5, p.7–12.
- Broker rating and target changes: snapshot
pages/report_topix.html(2026-05-27 to 2026-10-06). - Peer multiples: https://finance.yahoo.co.jp/quote/4553.T, /4554.T, /4539.T (2026-10-16).
- Industry context: https://toyokeizai.net/articles/-/934603, https://nk.jiho.jp/article/185427 (headlines only; paywalled).
- Kabutan Q1 summary: https://s.kabutan.jp/news/k202608100023/
- Limitations: integrated report (2026-09-19) not read; H2 launch list and 2027 price-revision impact not quantified; peer core margins not compared on matching definitions; H1 results date estimated from last year.
- This is research, not individualised investment advice.