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Omega Investment Co., Ltd.

Cosmo Bio (Company note – 1Q update)

Coverage
Share price (6/26) ￥1,039 Dividend Yield (24/12 CE) 2.88 %
52weeks high/low ￥1,072/937 ROE(23/12) 5.4 %
Avg Vol (3 month)  7.1 thou shrs Operating margin (23/12) 5.6 %
Market Cap ￥6.28 bn Beta (5Y Monthly) 0.61
Enterprise Value ￥3.24 bn Shares Outstanding 5.834 mn shrs
PER (24/12 CE) 20.3 X Listed market TSE Standard
PBR (23/12 act) 0.71 X    
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Contribute to the advancement of life science by providing research reagents and life science equipment.

◇The company’s results for the first quarter of FY12/2024: Sales increase and profit decrease, but in line with expectations

Cosmo Bio’s 1Q (Jan-Mar) FY12/2024 results, announced after the close of trading on May 9, 2024, showed increased sales and decreased profits. Sales were 2.94 billion yen (+4% YoY), operating profit was 300 million yen (-23% YoY), ordinary profit was 290 million yen (-28% YoY), and net profit attributable to owner of parent company was 230 million yen (-12% YoY).

According to the company, results were in line with expectations. Sales and ordinary profit were 30% and 66% of the company’s full-year forecasts, respectively. It should be noted that the company’s full-year forecasts are for higher sales and lower profits, but the rate of progress is fine.

It should also be noted that under the new President Shibayama’s leadership, the company is progressing in developing its business structure.

◇Forecasts for the FY12/2024: unchanged

The 2Q cumulative and full-year forecasts have not been changed. The assumed exchange rate for the full year is 150 yen to the US dollar.

◇Share price trend and future focus: expect progress in growth strategy and countermeasures for low PBR

The share price has recently started to rise. The following points are worth noting for the share price to get on a full-fledged upward trajectory.

Firstly, what are the future trends in the dollar/yen exchange rate (will the yen stop weakening) and with this, will there be (upward) revisions to the full-year forecast at or after the announcement of the 2Q results? Will foreign exchange risk management methods become more sophisticated?

Secondly, will concrete projects be built up regarding strengthening and expanding the trading company function, developing and expanding the manufacturing function, and globalising the business, as set out in the medium-term growth strategy? As a result, will investors be able to see a path towards a structure that will allow the company to increase sales and profits while structurally reducing foreign exchange risks?

Finally, will there be concrete measures on the medium-term business strategy to improve ROE and the prospects of PBR rising above 1x?

◇Cosmo Bio’s 1Q FY12/2024 results: sales and profits up, but in line with expectations

Cosmo Bio’s 1Q (Jan-Mar) results for FY12/2024, announced after the close of trading on May 9, 2024, showed an increase in sales and a decrease in profit. Sales were 2.94 billion yen (+4% YoY), operating profit was 300 million yen (-23% YoY), ordinary profit was 290 million yen (-28% YoY), and net profit attributable to owner of parent company was 230 million yen (-12% YoY).

In terms of sales, demand from the private sector appears to have been strong. The operating profit margin was 10.3%, down 3.7 percentage points YoY. This was mainly due to higher purchase and delivery costs, as the yen depreciated 9% YoY against the US dollar to 146 yen. As a result, profits decreased despite the increase in sales.

Thus, the company captured demand in 1Q, which is positive. According to the company, its performance was in line with expectations, which is also noteworthy. Progress against the company’s full-year forecasts is in line with expectations, with sales at 30% and ordinary profit at around 66%.

However, the results also reiterate the need to raise added value by strengthening manufacturing, improving labour productivity, and shifting from an import-oriented business structure to one that balances imports and exports in order to fundamentally improve profitability.

As a point of interest other than financial results, it should be pointed out that under the new President Shibayama’s leadership, organisational reforms are underway to promote the medium-term plan. Specifically, as of April 1, 2024, the Human Resources Department, Marketing Department, Product Legal Department and Manufacturing Engineering Department were newly established, and the Sapporo Business Department was abolished and its functions transferred mainly to the Business Development Department and Manufacturing Engineering Department. The aim appears to be to establish a structure to increase exports and to improve the efficiency of in-house product development. This is a serious approach to the company’s business structure management issues mentioned above.

In addition, the contract service matching website Scientist3 (Scientist Cube) is being closely tested during the quarter under review.

For reference, the key measures for the current year are shown below.

Source: Company materials

  JPY, mn, % Net sales  YoY
%		 Oper.
profit		 YoY
%		 Ord.
profit		 YoY
%		 Profit
ATOP		 YoY
%		 EPS
(¥)		 DPS
(¥)
2019/12 7,590 4.5 405 23.5 470 16.5 237 -8.6 40.14 14.00
2020/12 8,092 6.6 752 85.6 817 73.7 674 183.2 113.70 34.00
2021/12 9,231 14.1 1,048 39.4 1,099 34.5 737 9.4 126.94 36.00
2022/12 9,553 3.5 816 -22.2 790 -28.1 517 -29.8 89.13 36.00
2023/12 9,340 -2.2 519 -36.3 653 -17.4 442 -14.4 75.97 30.00
2024/12 (CE) 9,800 4.9 390 -25.0 450 -31.1 310 -30.0 53.12 30.00
2023/12　1Q 2,828 -7.2 400 -30.7 416 -26.2 264 -17.8 45.46 0.00
2024/12　1Q 2,943 4.1 305 -23.8 299 -28.1 230 -12.6 39.56 0.00

　

◇Company forecasts for FY12/2024: unchanged

The 2Q cumulative and full-year forecasts have not been changed. The assumed exchange rate for the full year is 150 yen to the US dollar.

◇Stock price trends and future highlights: expect progress in growth strategies and countermeasures for low PBR

The company’s share price has underperformed the TOPIX over the past year, although it has been slowly rising. The share price has recently increased. This is due to the company’s undervalued PBR of 0.71x, the high rate of progress in 1Q profits against the full-year plan as mentioned above, and the fact that the company is attracting increasing attention as a ‘dementia-related stock’ dealing in dementia products.

Thus, the stock price recovery may have been triggered, but for a full-fledged recovery, the following factors should be noted.

Firstly, what are the future trends in the dollar/yen exchange rate (will the yen stop weakening) and with this, will there be (upward) revisions to the full-year forecast at or after the announcement of the 2Q results? Will foreign exchange risk management methods become more sophisticated?

Secondly, will concrete projects be built up regarding strengthening and expanding the trading company function, developing and expanding the manufacturing function, and globalising the business, as set out in the medium-term growth strategy? As a result, will we see a path towards a structure that will allow the company to increase sales and profits while structurally reducing foreign exchange risks?

Finally, will there be concrete measures on the medium-term business strategy to improve ROE and the prospects of PBR rising above 1x?

President Shibayama is fully aware of the low ROE and PBR issues. We expect the stock market to take a greater interest in future news flows.　

Financial data

Unit: million yen　 2012/12 2013/12 2014/12 2015/12 2016/12 2017/12 2018/12 2019/12 2020/12 2021/12 2022/12 2023/12 2024/12
(Forecast)
[Statements of income]                          
Net sales 7,241 7,050 7,235 7,357 7,427 7,068 7,261 7,590 8,092 9,231 9,553 9,340 9,800
　Year-on-year 0.7% -2.6% 2.6% 1.7% 1.0% -4.8% 2.7% 4.5% 6.6% 14.1% 3.5% -2.2% 4.9%
Cost of sales 4,057 4,429 4,811 4,976 4,655 4,535 4,602 4,710 4,940 5,572 6,112 6,090  
Gross profit 3,184 2,620 2,424 2,380 2,772 2,532 2,659 2,879 3,152 3,658 3,440 3,249  
SG&A expenses 2,386 2,349 2,261 2,180 2,257 2,339 2,330 2,474 2,399 2,609 2,624 2,729  
Operating profit 798 271 162 200 514 193 328 405 752 1,048 816 519 390
　Year-on-year -10.4% -66.0% -40.2% 23.5% 157.0% -62.5% 69.9% 23.5% 85.7% 39.4% -22.2% -36.3% -25.0%
　Operating profit margin 11.0% 3.8% 2.2% 2.7% 6.9% 2.7% 4.5% 5.3% 9.3% 11.4% 8.5% 5.6% 4.0%
Non-operating profit 46 177 128 175 21 208 89 72 71 71 57 136  
Non-operating expenses 43 3 5 2 51 3 13 7 6 20 83 2  
Ordinary Profit 801 444 285 373 483 397 403 470 817 1,099 790 653 450
Extraordinary profit 3 9 46 34 55 8     190        
Extraordinary expenses 30 2 1 0 82 5   81          
Income before income taxes 774 451 330 407 456 400 403 388 1,008 1,099 790 653  
Total income taxes 336 137 131 158 180 148 126 142 307 331 238 191  
net profit attributable to owner of parent 411 313 201 230 254 237 260 237 674 737 517 442 310
　Year-on-year -10.3% -23.8% -35.8% 14.4% 10.4% -6.7% 9.7% -8.8% 184.4% 9.3% -29.9% -14.4% -30.0%
　Net profit ratio 5.7% 4.4% 2.8% 3.1% 3.4% 3.4% 3.6% 3.1% 8.3% 8.0% 5.4% 4.7% 3.2%
[Balance Sheets]                          
Current assets 5,413 5,527 5,234 5,266 5,495 5,143 5,668 5,927 6,756 7,310 7,136 7,102  
　Cash equivalents and short-term securities 2,143 2,036 1,482 1,498 1,948 1,483 2,268 2,516 3,259 3,555 3,036 3,025  
Non-current assets 1,541 2,750 2,927 2,523 2,438 2,982 2,832 2,962 2,883 2,761 3,176 3,770  
　Property, plant and equipment 178 185 213 227 319 690 636 695 636 599 577 572  
　Investments and other assets 1,201 2,456 2,613 2,071 1,842 2,041 1,943 2,068 2,081 1,979 2,428 3,042  
Total assets 6,955 8,277 8,161 7,790 7,934 8,126 8,501 8,890 9,640 10,072 10,313 10,872  
Current liabilities 916 818 1,130 1,017 916 799 945 987 1,226 1,093 1,038 1,123  
　Short-term borrowings 20 20 20 20 20 20 20 20 20 20 20 20  
Non-current liabilities 317 660 497 394 436 488 502 581 552 658 656 722  
Total liabilities 1,234 1,479 1,628 1,412 1,352 1,288 1,448 1,568 1,779 1,752 1,695 1,846  
Total net assets 5,720 6,797 6,532 6,378 6,581 6,838 7,053 7,321 7,861 8,319 8,617 9,026  
Shareholders’ equity 5,230 6,311 6,050 5,951 6,135 6,381 6,581 6,843 7,358 7,787 8,052 8,443  
　Share capital 918 918 918 918 918 918 918 918 918 918 918 918  
　Capital surplus 1,221 1,221 1,221 1,251 1,251 1,251 1,251 1,251 1,251 1,258 1,260 1,261  
　Retained earnings 3,119 3,314 3,397 3,521 3,680 3,812 4,026 4,181 4,761 5,274 5,560 5,805  
　Treasury shares -67 -67 -67 -67 -67 -67 -67 -67 -67 -239 -216 -194  
Valuation and exchange differences 37 924 579 327 352 466 451 558 494 574 530 654  
Total liabilities and net assets 6,955 8,277 8,161 7,790 7,934 8,126 8,501 8,890 9,640 10,072 10,313 10,872  
 (Equity ratio) 75.2% 76.2% 74.1% 76.4% 77.3% 78.5% 77.4% 77.0% 76.3% 77.3% 78.1% 77.7%  
[Statements of cash flows]                          
Cash flow from operating activities 347 126 297 129 573 89 908 549 803 648 284 736  
Cash flow from investing  activities -167 -99 -227 -263 99 -235 -185 -115 42 -145 -291 -758  
Cash flow from financing activities -126 -126 -122 -151 -107 -109 -85 -85 -97 -420 -236 -201  
Net increase in cash and cash equiv. 61 -97 -52 -285 549 -264 684 348 743 95 -218 -210  
Cash and cash equiv. at beginning of period 1,471 1,532 1,435 1,383 1,098 1,648 1,383 2,068 2,416 3,159 3,255 3,036  
Cash and cash equiv. at end of period 1,532 1,435 1,383 1,098 1,648 1,383 2,068 2,416 3,159 3,255 3,036 2,826  
FCF 180 27 70 -134 672 -146 723 434 845 503 -7 -22  

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