Company Research and Analysis Report
FISCO Ltd.
http://www.fisco.co.jp

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section29-Oct.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

伪伪Made the most progress in the industry in genericpharmaceuticals sales and home medical careservices
Nihon Chouzai Co., Ltd.<3341> (hereinafter, “the Company”) is a leading domestic dispensingpharmacies company that ranks second in sales in the dispensing pharmacy industry. The Nihon
Chouzai Group manufactures generic pharmaceuticals, so one of its characteristics is that it has
a manufacturing function. It additionally has a staffing business for medical practitioners and abusiness for providing information and consulting, and it is developing its operations with a structureof four business departments.
The keys to its growth strategy for its Dispensing Pharmacy business are to expand its networkof pharmacies and to increase the average spend per customer. When developing its pharmacy
network, its basic approach is to adopt a strategy of responding flexibly in terms of the location andthe type of pharmacy to be opened in order to capture demand, while not to reply on M&As but
instead opening them organically. For average spend per customer, it is focusing on increasing salesof generic pharmaceuticals and expanding its home medical care services. Both are policies being
promoted by the government and have the advantage of providing a high number of additional points
for the total number of NHI points, and the Company has made the most progress in this area within
its industry.
The Pharmaceuticals Manufacturing and Sales business recorded a segment operating income forthe first time in FY3/13 and is currently experiencing its second expansion phase. In April 2013, theCompany made a subsidiary of Choseido Pharmaceutical Co., Ltd. and it now handles almost 600
items after totaling the items it itself produces and those it purchases. The Company is currently
focusing its efforts on expanding its production capacity and in addition to constructing a new building
and acquiring a plant in FY3/15, in September 2015 it announced that it would also construct a newplant. The Nihon Chouzai Group plans to greatly increase its production capacity from 4.3 billion
tablets a year at the end of FY3/15 to 15.6 billion tablets a year.
While the percentage of net sales provided by the Medical Practitioners Staffing business is low, it isleveraging its high profit margin to contribute more than 10% of operating income and it is growing
as a business with presence. The Company is also utilizing the top-class status of its dispensing
pharmacies to grow this business into an industry leading position in terms of the number of registeredpharmacists and results. It is also steadily increasing the number of registered practitioners in theareas of doctors, nurses, and co-medical, while the changes in the ways of working in the medical
industry are proving to be a fair wind and there are extremely high expectations for the growthpotential of this business in the medium term.
The Company launched its Information Provision and Consulting business in January 2012 when it
established its subsidiary, Japan Medical Research Institute Co., Ltd. Its business model envisages
the utilization of big data acquired from the Dispensing Pharmacy business and it is expected to growto be the fourth business in the future.
The Company has embarked on a three-year medium-term management plan, with FY3/18 set as
the final year. The plan’s main targets are to increase net sales by 50% and to double operating
income in the final year of the plan compared to the FY3/15 results. At FISCO, we consider that
it is fully possible that it will achieve these targets if it steadily implements the respective priority
measures in each business department.

We encourage readers to review our complete legal statement on “Disclaimer” page.
1

伪伪Check Point• Embarking on the manufacturing of generic pharmaceuticals to realize the “separation ofprescribing and dispensing”• Managing pharmacies to respond flexibly to the government’s requirements for pharmacy
operations• The main targets in its new medium-term management plan are to increase net sales by
50% and double operating income

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼏㼛㼚㼟㼛㼘㼕㼐㼍㼠㼑㼐㻌㼞㼑㼟㼡㼘㼠㼟㻔¥㼙㼚㻕

29-Oct.-15

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Important disclosuresand disclaimers appear
at the end of this document.

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㻝㻟㻜㻘㻜㻠㻝FISCO Ltd. Analyst
Hiroyuki Asakawa

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伪伪Company Outline
Embarking on the manufacturing of generic pharmaceuticals
to realize the “separation of prescribing and dispensing”(1) Company history
The Company was established in 1980 in Sapporo by current President and Representative Director
Hiroshi Mitsuhara. As a qualified pharmacist, President Mitsuhara questioned whether the approachof dispensing in pharmacies by pharmacists the pharmaceuticals prescribed by doctors in hospitals
was best for patients and decided to embark on a pharmacy business with the corporate philosophyof “Realizing the true separation of prescribing and dispensing” as the ideal condition to improvedrug therapy. In 1995, the Company relocated its headquarters to Tokyo and established a foothold
as a nationwide company, and subsequently in 2011, it succeeded in opening a pharmacy in every
prefecture in the country.
In 2000, it established the subsidiary, Nihon Chouzai Pharma Staff Co., Ltd. thereby launching astaffing business for doctors, nurses, pharmacists and other medical practitioners. This company has
steadily expanded its business scope and today, after being integrated with the subsidiary Medical
Resources Co., Ltd. that was established separately in 2006, it undertakes the Company’s Medical
Practitioners Staffing business.

We encourage readers to review our complete legal statement on “Disclaimer” page.
2

■■Company Outline

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section29-Oct.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

In the Company’s history, the establishment of Nihon Generic Co., Ltd. in 2005 was a step of similar
importance to the founding of the Company itself. President Mitsuhara considered that genericpharmaceuticals would play a major role in realizing the “separation of prescribing and dispensing,”
and with the opportunity provided by the enforcement of the revised Pharmaceutical Affairs Act
in 2005 ( currently, the Pharmaceutical and Medical Devices Act), he decided to embark on the
manufacture of generic pharmaceuticals. Nihon Generic struggled for a while after it first began inbusiness, but it increased the number of items it produced and established a production system andin FY3/13, the Pharmaceuticals Manufacturing and Sales business segment recorded an operating
income for the first time. Subsequently, the scope of this business has been further expanded withthe acquisition of Choseido Pharmaceutical in 2013, and also the Kasukabe plant of Teva Pharma
Japan Inc. in 2015.
Company history
March 1980 Established Nihon Chouzai Co., Ltd. in Sapporo to manage dispensing pharmacies
April 1980 Opened the first pharmacy branch
August 1987 Opened a Tokyo branch
January 1994 Opened the Tohoku branch. Established the subsidiary Miyagi Nihon Chouzai Co., Ltd.
April 1995 Relocated the headquarters to Tokyo. Opened a Sapporo branch and a Kyushu branch
March 2000 Changed the corporate name of Miyagi Nihon Chouzai and established Nihon Chouzai
Pharma Staff Co., Ltd.
October 2000 Opened an Osaka branch
September 2004 Listed on the Tokyo Stock Exchange (TSE) Second Section
January 2005 Established Nihon Generic Co., Ltd. as a subsidiary
September 2006 Listing upgraded to the TSE First Section
October 2006 Established Medical Resources Co., Ltd. as a subsidiary
July 2008 Merged Nihon Chouzai Pharma Staff and Medical Resources (with Medical Resources as thesurviving company)
October 2010 Launched the manufacture of generic pharmaceuticals at Nihon Generic’s Tsukuba plant
March 2011 Achieving the opening of a pharmacy in every prefecture in the country
January 2012 Established Japan Medical Research Institute Co., Ltd. as a subsidiary
April 2013 Made a subsidiary of Choseido Pharmaceutical Co., Ltd.
February 2015 Nihon Generic acquired the Kasukabe plant of Teva Pharma Japan Inc.

(2) Business outline
The structure in the Company is for the parent company and consolidated subsidiaries to be
independently responsible for their businesses. As the Information Provision and Consulting businessis included in the Dispensing Pharmacy business segment, the Company discloses information
separately on three business segments; the Dispensing Pharmacy business, the Pharmaceuticals
Manufacturing and Sales business, and the Medical Practitioners Staffing business. Each businesssegment is described in detail below, but in terms of the percentages of net sales they provided in
FY3/15, the Dispensing Pharmacy business provided the overwhelmingly highest percentage, at82.2%. However, the profitability of the Pharmaceuticals Manufacturing and Sales business and the
Medical Practitioners Staffing business exceeds that of the Dispensing Pharmacy business, andin addition as the business segments are closely related, the situation is that each business has asense of presence and importance.
Nihon Chouzai Group’s business development

Source: FY3/15 financial reports briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.
3

■■Company Outline

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㻠㻑
14%

12%
Dispensing Pharmacy business

NIHON CHOUZAICo.,Ltd.

17%

Pharmaceuticals Manufacturing andSales business

3341 Tokyo Stock Exchange First
Section

Medical Practitioners Staffing business71%

29-Oct.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

82%㻱㼤㼠㼑㼞㼚㼍㼘㻦㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㼕㼚㼠㼑㼞㼚㼍㼘㻦㼛㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻌㻌㻔㻲㼅㻟㻛㻝㻡㻌㼞㼑㼟㼡㼘㼠㻕
Source: prepared by FISCO from the Company’s financial results summaryThe percentage of prescriptions dispensed at pharmacies
outside of hospitals is rising and the situation of a complete
separation of prescribing and dispensing is growing closer(3) The business environment in the dispensing pharmacies market
The Company’s main area of business is dispensing pharmacies and the foundation on which it
has established this business is the “separation of prescribing and dispensing.” This refers to theseparation of the tasks of prescribing and dispensing pharmaceuticals, with these tasks being carriedout by doctors and pharmacists respectively. The separation of prescribing and dispensing in Japanbegan in the Meiji era with the enactment of the Pharmaceuticals Act (1889) and after passing throughseveral laws, has arrived at the current law today, of the Pharmaceutical and Medical Devices Act.
The percentage of patients who receive a prescription as outpatients and who are dispensed thepharmaceuticals at a pharmacy outside of a hospital is called the rate of separation of prescribing
and dispensing (also the prescription receipt rate) and in 1997, the Ministry of Health, Labour andWelfare instructed the 37 model national hospitals throughout Japan to achieve a rate of 70% orabove. This spurred-on the further separation of prescribing and dispensing and by fiscal 2012, therate had reached 66.1%, and currently the situation is approaching complete separation.

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Source: prepared by FISCO from the homepage of the Japan Pharmaceutical Association



In Japan, in principle only those facilities that have received permission to operate a business as a

We encourage readers to review our complete legal statement on “Disclaimer” page.
4

■■Company Outline

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section29-Oct.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

pharmacy based on the Pharmaceutical and Medical Devices Act may use the name “pharmacy.”
These facilities will have a pharmacist in resident and be able to dispense pharmaceuticals basedon doctors’ prescriptions from their dispensary. Facilities that do not meet the requirements of having
a pharmacist and a dispensary cannot use the word “pharmacy” in their name, and generally callthemselves “drug stores” or something similar (for example “○○Drugs” or “○○Pharmaceuticals ” ).
But even a drug store can acquire permission to and call itself and operate as a “pharmacy” if
it meets the standards, such as having a pharmacist in residence and a dispensary. The name“dispensing pharmacy” clearly signifies that the facility provides the medical service of dispensing
pharmaceuticals and is not just a drug store.
In the dispensing pharmacies industry, those companies that are expanding their business scope
while focusing on providing the medical service of dispensing pharmaceuticals are competing forthe top positions with those companies that have entered into the dispensing field from the generalretail industry. In addition, there are privately run dispensing pharmacies and all together, there areapproximately 57,000 pharmacies nationwide. As was previously mentioned, the Company began as
a dispensing pharmacy and then expanded its business scope, and currently it is competing for the
top position in net sales in the dispensing pharmacy business with Ain Pharmaciez<9627>, while theGroup ranks second for the number of pharmacies.
When comparing the Company’s business scale and areas with those of its competitors, we seethat those companies that started as specialist dispensing pharmacies, including the Company,
Ain Pharmaciez, and Qol<3034>, constitute around 90% of the dispensing pharmacy business.
However, companies from the general retail industry that operate drug stores and related facilities
are growing their pharmacy networks and expanding their dispensing businesses by opening
dispensing pharmacies within their drug stores, and their presence in the industry is gradually
increasing. Comparing these companies’ net sales per dispensing pharmacy, Nihon Chouzai’s totalof ¥309 million is significantly higher than that any other company, even those of the other dispensing
majors, which are around ¥200 million. Moreover, the figure of Welcia Holdings <3141> is only ¥71
million. This difference is grounded in whether or not dispensing is the company’s main businesses,
so in this sense these figures can be said to be as expected.
The companies specializing in dispensing pharmacies are also working to enter into businesses otherthan dispensing and thereby strengthen their business foundations. In the case of the Company, thiscorresponds to it launching its Pharmaceuticals Manufacturing and Sales business and Medical
Practitioners Staffing business. Also, among its industry peers, there are companies that are entering
into the drug store business, the medical facilities support and consulting business, and the nursing
case business.
Comparison of industry peers
Company name

Code

Dispensing pharmacy business
Number of pharmacies
Net sales
Pharmacies

Point in time(¥mn)

Fiscal period

Nihon Chouzai
Ain Pharmaciez
Qol
Sogo Medical

3341
9627
3034
4775

510
754
538
538

End of 3/15
End of 4/15
End of 3/15
End of 3/15

157,999
169,063103,259
80,660Welcia Holdings

3141

687

End of 2/15

48,482

Cocokara Fine
Kraft

3098
Unlisted

234
469

End of 3/15
End of 9/15

45,967-

Code

Pharmaceuticalmanufacturing

Staffing

Nihon Chouzai

3341

●

●

Ain Pharmaciez

9627

Qol

3034

Sogo Medical

4775

Welcia Holdings

3141

●

Cocokara Fine

3098

●

Kraft

Unlisted

Other businesses
Company nameDS●

Pharmaceuticals
Consulting
wholesales●●●

FY3/15
FY4/15
FY3/15
FY3/15
Refer to theremarks
FY3/15-

Sales
composition
(%)
86.9%
90.0%
90.3%
74.7%

Dispensing
net sales
per pharmacy
(¥mn)

12.7%
13.2%
-

Remarks

The number of pharmacies is “dispensing
309 pharmacies” only and does not include productsales drug stores
The number of pharmacies is the number of224“dispensing pharmacies”
The number of pharmacies includes 37 Lawson
192 stores, 4 Bic Camera stores, and 3 West Japan
Railway stores
150
Due to changes to the fiscal period, FY2/15 (6months) and 2H of FY8/14 were used for the71
total. The number of pharmacies is the numberof “pharmacies/stores handling dispensing.”
The number of pharmacies is the number of196“pharmacies/stores handling dispensing.”
The numbers of pharmacies were researched by
FISCO from the companies’ websites

Note: DS is an abbreviation of “drug store”
Source: prepared by FISCO from each company’s financial results summary and briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.
5

伪伪Nihon Chouzai’s characteristics and strengths
Responding swiftly to the government’s requirements forpharmacy operations

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section29-Oct.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa(1) Dispensing Pharmacy business
The most important point in order to understand the dispensing pharmacy business is that basicallythese pharmacies are national health insurance (NHI) pharmacies incorporated into the healthinsurance system, and their fees (income) are determined by the number of NHI points stipulated
in the health insurance system (which is the basis for calculating income). While to some extent
there is room for them to reduce costs through their own efforts, such as by cutting personnel costs
or system costs, the measures for increasing sales can broadly be divided into the following two.
The first is to increase the number of customers per pharmacy (in many cases this expresses thenumber of dispensed prescriptions that were brought by individual customers, and a pharmacyopening strategy from this viewpoint entails opening hospital-adjacent type, medical mall-type, andfoot-traffic type. The second method is to increase income per prescription. In the health insurance
system, in order to process a prescription the income items are subdivided and the number of points
determined for each respective task. But there is also a system for obtaining a range of additional
points. Currently, the main ways of acquire additional points in the dispensing pharmacy businessare measures for the increased use of generic pharmaceuticals and guidance for management of
in-home medical long-term care (hereinafter, “home medical care services” ).
a) pharmacy strategy
The Company has developed a nationwide network of 523 dispensing pharmacies in 47 prefectures(as of the end of September 2015. It also has 1 product sales specialist store). The first characteristicof the Company’s pharmacy strategy is not to rely on M&As, but instead to expand its networkby opening pharmacies organically. One reason for this is that the Company is confident that theefficiency and profitability of its own pharmacies is higher than those of its industry peers, so it has
not actively tried to acquire the inefficient pharmacies of other companies. Also, one more reason
is thought to be that location is very significant for pharmacies and it is difficult to find a potential
acquisition in an ideal location.

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㻜
㻲㼅㻟㻛㻢

㻲㼅㻟㻛㻣 㻲㼅㻟㻛㻤 㻲㼅㻟㻛㻥 㻲㼅㻟㻛㻝㻜 㻲㼅㻟㻛㻝㻝 㻲㼅㻟㻛㻝㻞 㻲㼅㻟㻛㻝㻟 㻲㼅㻟㻛㻝㻠 㻲㼅㻟㻛㻝㻡㻺㼛㼠㼑㻦㻌㼐㼛㼑㼟㻌㼚㼛㼠㻌㼕㼚㼏㼘㼡㼐㼑㻌㼛㼚㼑㻌㼜㼞㼛㼐㼡㼏㼠㻌㼟㼍㼘㼑㼟㻌㼟㼜㼑㼏㼕㼍㼘㼕㼟㼠㻌㼟㼠㼛㼞㼑㻚
Source: the Company’s FY3/15 financial reports briefing materials

Its strategy for opening pharmacies is a combination of opening hospital-adjacent types (openings
next to large-scale hospitals), medical-mall types (openings within buildings with many clinics andothers pharmacies), and foot-traffic types (openings focused on customer acquisition in places witha lot of foot traffic, rather than the patients of specific medical facilities). This strategy is adopted
not just by the Company, but also by its industry peers. In the Company’s case, in recent years thegrowth rate of the foot-traffic type has been higher than those of the other types of pharmacy. The
Company does not disclose data on the percentages of openings according to pharmacy type, but at
FISCO, we estimate that going forward it will increase its openings of the foot-traffic type.

We encourage readers to review our complete legal statement on “Disclaimer” page.
6

■■Nihon Chouzai’s characteristics and strengths（㻑）㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼠㼔㼑㻌㼞㼍㼠㼑㻌㼛㼒㻌㼕㼚㼏㼞㼑㼍㼟㼑㻌㼕㼚㻌㼜㼔㼍㼞㼙㼍㼏㼥㻌㼍㼢㼑㼞㼍㼓㼑㻌㼟㼍㼘㼑㼟㻌㼍㼏㼏㼛㼞㼐㼕㼚㼓㻌㼠㼛㻌㼜㼔㼍㼞㼙㼍㼏㼥㻌㼠㼥㼜㼑㻴㼛㼟㼜㼕㼠㼍㼘㻙㼍㼐㼖㼍㼏㼑㼚㼠㻌㼠㼥㼜㼑㻞㻜㻜㻚㻜㻹㼑㼐㼕㼏㼍㼘㻙㼙㼍㼘㼘㻌㼠㼥㼜㼑㻲㼛㼛㼠㻙㼠㼞㼍㼒㼒㼕㼏㻌㼠㼥㼜㼑
㻝㻤㻝㻚㻝

㻝㻤㻜㻚㻜

NIHON CHOUZAICo.,Ltd.

㻝㻠㻤㻚㻤

㻝㻢㻜㻚㻜

㻝㻠㻜㻚㻜

3341 Tokyo Stock Exchange First
Section

㻝㻞㻜㻚㻜

㻝㻜㻜㻚㻜

㻝㻜㻟㻚㻠

㻲㼅㻟㻛㻝㻟

㻥㻡㻚㻞㻲㼅㻟㻛㻝㻠

㻝㻜㻠㻚㻡

㻝㻜㻜㻚㻜
㻝㻜㻟㻚㻣

29-Oct.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa㻤㻜㻚㻜㻲㼅㻟㻛㻝㻡

㻺㼛㼠㼑㻦㻌㻵㼚㼐㼑㼤㼑㼐㻌㼣㼕㼠㼔㻌㻲㼅㻟㻛㻝㻟㻌㼟㼑㼠㻌㼍㼟㻌㻝㻜㻜
Source: prepared by FISCO from the Company’s FY3/15 financial reports briefing materialsb) Improvement in the rate of use of generic pharmaceuticals
In order to reduce medical expenses within social security expenses, the Japanese government set
the target of achieving a rate of prescriptions of generic pharmaceuticals relative to total prescriptionsof 80% as quickly as possible in the period up to March 2020 (the denominator is the total of theoriginal pharmaceuticals of the generic pharmaceuticals and the generic pharmaceuticals). In
response to this target, by April 2015 the Company had achieved a rate of 74.4% and moreover istargeting 85% by March 2016.

㼀㼔㼑㻌㼞㼍㼠㼑㻌㼛㼒㻌㼡㼟㼑㻌㼛㼒㻌㼓㼑㼚㼑㼞㼕㼏㻌㼜㼔㼍㼞㼙㼍㼏㼑㼡㼠㼕㼏㼍㼘㼟㻌㻔㼝㼡㼍㼚㼠㼕㼠㼥㻌㼎㼍㼟㼑㼐㻕

（㻑）
㻥㻜㻚㻜

㻤㻡㻚㻜㻌

㻤㻡㻚㻜
㻤㻜㻚㻜

㻣㻠㻚㻠㻌
㻣㻝㻚㻠㻌

㻣㻡㻚㻜
㻣㻜㻚㻜

㻢㻟㻚㻤㻌
㻢㻡㻚㻜

㻢㻜㻚㻜

㻡㻥㻚㻢㻌
㻡㻡㻚㻡㻌

㻡㻡㻚㻜
㻡㻜㻚㻜
㻭㼜㼞㼕㼘
㻞㻜㻝㻟

㻻㼏㼠㼛㼎㼑㼞
㻞㻜㻝㻟

㻹㼍㼞㼏㼔
㻞㻜㻝㻢
㻔㼠㼍㼞㼓㼑㼠㻕
Source: prepared by FISCO from the Company’s FY3/15 financial reports briefing materials



㻭㼜㼞㼕㼘
㻞㻜㻝㻠

㻻㼏㼠㼛㼎㼑㼞
㻞㻜㻝㻠

㻭㼜㼞㼕㼘
㻞㻜㻝㻡



As of the end of March, 2015, the Company had developed a network of 510 pharmacies nationwide,
and within them, 83.7% had acquired generic pharmaceuticals dispensing addition 2 (22 points),
while 10.0% had acquired addition 1(18 points), and only 6.1% had not acquired any additional
points. The Company has a higher percentage of pharmacies that have acquired additional points
than any of its industry peers.

We encourage readers to review our complete legal statement on “Disclaimer” page.
7

■■Nihon Chouzai’s characteristics and strengths

The calculation of additional points in the generic pharmaceuticals dispensing system

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section29-Oct.-15
Source: the Company’s FY3/15 financial reports briefing materials

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Just as the Company encourages use of generic pharmaceuticals, it also applied efforts for home
medical care services. In each pharmacy, when it has established a 24 hour dispensing system and asystem for appropriate pharmaceutical management and compliance guidance for patients at home,the standard dispensing addition is added to the basic dispensing fee at the relevant pharmacy.
Moreover, the fees for each home medical care service, of “Guidance for Management of In-Home
Medical Long-Term Care fees” can be collected as long-term care insurance fees. While there is alimit to the number of times they can be collected, as the targets of the system are special nursing
homes for the elderly and private nursing homes for the elderly, the market is large. Within all of theCompany’s pharmacies, 95.1% (as of August 2015) provide home medical care services and this has
had an effect, with percentage of pharmacies calculated as having the standard dispensing addition
2 increasing to 21.4% of the total.

㻴㼛㼙㼑㻌㼙㼑㼐㼕㼏㼍㼘㻌㼏㼍㼞㼑㻌㼟㼑㼞㼢㼕㼏㼑㼟㻌㼞㼑㼟㼡㼘㼠㼟
（㻑）
㻢㻜㻚㻜

㻺㼡㼙㼎㼑㼞㻌㼛㼒㻌㼔㼛㼙㼑㻌㼙㼑㼐㼕㼏㼍㼘㻌㼏㼍㼞㼑㻌㼟㼑㼞㼢㼕㼏㼑㼟㻌㻛㻌㼔㼛㼙㼑㻌㼙㼑㼐㼕㼏㼍㼘㻌㼏㼍㼞㼑㻌㼓㼡㼕㼐㼍㼚㼏㼑㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕㻔㻝㻘㻜㻜㻜㻕
㻾㼍㼠㼕㼛㻌㼛㼒㻌㼜㼔㼍㼞㼙㼍㼏㼕㼑㼟㻌㼜㼞㼛㼢㼕㼐㼕㼚㼓㻌㼟㼑㼞㼢㼕㼏㼑㼟㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕
㻝㻜㻜
㻡㻡㻚㻟㻌

㻡㻜㻚㻜

㻤㻜

㻠㻜㻚㻜
㻢㻜
㻞㻢㻚㻝㻌

㻟㻜㻚㻜
㻞㻜㻚㻜

㻝㻠㻚㻝㻌

㻝㻢㻚㻞㻌

㻣㻝㻚㻤
㻡㻠㻚㻞

㻝㻜㻚㻝㻌

㻞㻜

㻟㻡㻚㻟

㻝㻜㻚㻜

㻤㻚㻟

㻝㻤㻚㻢

㻲㼕㼟㼏㼍㼘㻌㻞㻜㻝㻜㻲㼕㼟㼏㼍㼘㻌㻞㻜㻝㻝

㻠㻜

㻜㻚㻜

㻜
㻲㼕㼟㼏㼍㼘㻌㻞㻜㻝㻞㻲㼕㼟㼏㼍㼘㻌㻞㻜㻝㻟㻲㼕㼟㼏㼍㼘㻌㻞㻜㻝㻠

Source: the Company’s FY3/15 financial reports briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.
8

■■Nihon Chouzai’s characteristics and strengths

Calculation of the standard dispensing additional points

Calculation conditions

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section29-Oct.-15
Source: the Company’s FY3/15 financial reports briefing materials

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

The current situation is that the focus is being placed on the two areas of generic pharmaceuticals andhome medical care services, but what is important here is the question of how the additional points
are obtained. The additional-points framework is that the “government incentivizes the pharmacies
to carry out the work it requires.” Also, the standards for the additions may change overnight if thesystem or policy were to change, and the problem is the ability to respond, or of to what extent
can a company respond to this sort of institutional change. On these points, at FISCO we consider
that the Company, which is led by management who has demonstrated strong leadership, is in asuperior position. The Company has the highest sales per dispensing pharmacy in the industry, of¥309 million, and while a major factor behind this is thought to be that it has developed its pharmacy
network by mainly targeting in-patients of highly functional hospitals such as university hospitals, weshould also not lose sight of the fact that its pharmacy management has efficiently earned additional
points. We consider this to be the Company’s biggest strength.
Comparison of sales per dispensing pharmacy
Company name

Code

Dispensing pharmacy business
Number of
Net sales
pharmacies
Point inFiscalPharmacies
(¥mn)
time
periodDispensing
net sales
Sales
composition per pharmacy
(¥mn)
(%)

Nihon Chouzai

3341

510

End of
3/15

157,999

FY3/15

86.9%

Ain Pharmaciez

9627

754

End of
4/15

169,063

FY4/1590.0%

103,259

FY3/15

90.3%

80,660FY3/15

74.7%

12.7%

Qol

3034

538

End of
3/15

Sogo Medical

4775

538

End of
3/15

48,482Referto theremarks

Welcia Holdings

3141

687

End of
2/15

Cocokara Fine

3098

234

End of
3/15

45,967

FY3/15

13.2%

Kraft

Unlisted

464

End of
9/15

-

-

-

Source: prepared by FISCO from each company’s financial results summary and briefing materials

Remarks

The number of pharmacies is“dispensing pharmacies” only anddoes not include product-sales
drug stores
The number of pharmacies is the224
number of “dispensing pharmacies”
The number of pharmacies includes 37
192 Lawson stores, 4 Bic Camera stores,and 3 West Japan Railway stores
309

150
Due to changes to the fiscal period,
FY2/15 (6 months) and 2H of
FY8/14 were used for the total. The
71
number of pharmacies is the numberof “pharmacies/stores handling
dispensing.”
The number of pharmacies is the
196 number of “pharmacies/stores
handling dispensing.”
The numbers of pharmacies wereresearched by FISCO from thecompanies’ websitesc) Trends in results in the Dispensing Pharmacy businessIn the Company’s results in its Dispensing Pharmacy business, while net sales have continued totrend upwards, it is not necessarily the case that segment operating income has followed suit. Thisis due to various factors, including the effects of the NHI price revisions carried out once every two
years and the higher costs associated with pharmacy openings. Basically, a newly opened store fully
contributes to results from its second year, so at FISCO we consider that as long as the increase in
the number of pharmacies continues, the long-term trend will be increases in sales and profits, butthat caution is required when forecasting on a single-year basis.

We encourage readers to review our complete legal statement on “Disclaimer” page.
9

■■Nihon Chouzai’s characteristics and strengths

㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼞㼑㼟㼡㼘㼠㼟㻌㼕㼚㻌㼠㼔㼑㻌㻰㼕㼟㼜㼑㼚㼟㼕㼚㼓㻌㻼㼔㼍㼞㼙㼍㼏㼥㻌㼎㼡㼟㼕㼚㼑㼟㼟㻔¥㼙㼚㻕㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕㻝㻡㻣㻘㻥㻥㻥

㻝㻢㻜㻘㻜㻜㻜NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section㻝㻠㻡㻘㻥㻡㻣

㻝㻠㻜㻘㻜㻜㻜

㻝㻞㻟㻘㻡㻠㻥

㻝㻞㻜㻘㻜㻜㻜
㻝㻜㻜㻘㻜㻜㻜

㻥㻟㻘㻤㻜㻝

㻝㻞㻘㻜㻜㻜

㻝㻜㻘㻜㻜㻜

㻡㻤㻘㻝㻡㻣

㻡㻘㻡㻞㻤

㻥㻘㻠㻠㻤

㻤㻘㻜㻜㻜

㻣㻘㻤㻟㻝

㻢㻠㻘㻠㻞㻥

㻠㻜㻘㻜㻜㻜

29-Oct.-15

㻣㻣㻘㻣㻞㻝 㻤㻞㻘㻢㻡㻡㻡㻘㻥㻟㻟㻝㻠㻘㻜㻜㻜

㻝㻟㻝㻘㻜㻡㻞

㻝㻜㻢㻘㻣㻝㻟

㻤㻜㻘㻜㻜㻜

㻢㻜㻘㻜㻜㻜

㻔¥㼙㼚㻕㻿㼑㼓㼙㼑㼚㼠㻌㼛㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕㻝㻤㻜㻘㻜㻜㻜

㻣㻘㻢㻣㻞

㻣㻘㻢㻥㻤

㻢㻘㻜㻜㻜

㻢㻘㻣㻤㻠

㻢㻘㻞㻞㻥

㻠㻘㻜㻜㻜

㻡㻘㻝㻥㻝

㻟㻘㻥㻥㻡

㻞㻘㻜㻜㻜

㻞㻜㻘㻜㻜㻜
㻜㻜㻲㼅㻟㻛㻢 㻲㼅㻟㻛㻣 㻲㼅㻟㻛㻤 㻲㼅㻟㻛㻥 㻲㼅㻟㻛㻝㻜 㻲㼅㻟㻛㻝㻝 㻲㼅㻟㻛㻝㻞 㻲㼅㻟㻛㻝㻟 㻲㼅㻟㻛㻝㻠 㻲㼅㻟㻛㻝㻡

Important disclosuresand disclaimers appear
at the end of this document.



FISCO Ltd. Analyst
Hiroyuki Asakawa

Immediate expansion in the number of approved Nihon
Chouzai Group products

Source: the Company’s financial results summary(2) Pharmaceuticals Manufacturing and Sales business
The Company established Nihon Generic in 2005 and thereby entered into the generic Pharmaceuticals
Manufacturing and Sales business. The important point here is that this business department does
not exist only for vertical integration within the Company. In other words, the subsidiaries in the groupresponsible for pharmaceutical manufacturing, of Nihon Generic and Choseido Pharmaceutical,
have business models of selling the products they produce (and some purchased products) to third
party groups via pharmaceutical wholesalers. In the FY3/15 results, approximately 66.6% of the net
sales of the Pharmaceuticals Manufacturing and Sales business segment were external net sales
and 33.4% were internal (in-Group) transactions.
Initially, Nihon Generic handled products purchased from other companies, but as it established its
own production system, sequentially from FY3/08 it increased the number of products approved andmanufactured in-company. In addition to Nihon Generic, Choseido Pharmaceutical was made into
a subsidiary by the Company in April 2013, which immediately expanded the approved items in the
Nihon Chouzai Group. As of June 2015, it has 576 such items.

㻼㼔㼍㼞㼙㼍㼏㼑㼡㼠㼕㼏㼍㼘㼟㻌㻹㼍㼚㼡㼒㼍㼏㼠㼡㼞㼕㼚㼓㻌㼍㼚㼐㻌㻿㼍㼘㼑㼟㻌㼎㼡㼟㼕㼚㼑㼟㼟㻦㻌㼠㼞㼑㼚㼐㼟㻌㼕㼚㻌㼠㼔㼑㻌㼚㼡㼙㼎㼑㼞㻌㼛㼒㻌㼟㼍㼘㼑㻌㼕㼠㼑㼙㼟㻔㼕㼠㼑㼙㼟㻕
㻣㻜㻜㻸㼕㼏㼑㼚㼟㼑㼐㻌㼕㼠㼑㼙㼟㻺㼕㼔㼛㼚㻌㻯㼔㼛㼡㼦㼍㼕㻌㻳㼞㼛㼡㼜㻌㼍㼜㼜㼞㼛㼢㼑㼐㻌㼕㼠㼑㼙㼟

㻢㻜㻜
㻡㻜㻜
㻠㻜㻜
㻟㻜㻜

㻝㻜㻝
㻥

㻞㻜㻜
㻝㻜㻜

㻥㻥

㻝㻣㻜

㻟㻢㻥

㻞㻝㻜

㻝㻥㻞

㻝㻞㻥

㻤㻜

㻟㻠

㻡㻡

㻞㻝㻠

㻞㻜㻝

㻝㻤㻥

㻲㼅㻟㻛㻤

㻲㼅㻟㻛㻥 㻲㼅㻟㻛㻝㻜 㻲㼅㻟㻛㻝㻝 㻲㼅㻟㻛㻝㻞 㻲㼅㻟㻛㻝㻟 㻲㼅㻟㻛㻝㻠 㻲㼅㻟㻛㻝㻡

㻜

㻜

㻟㻢㻟

㻞㻜㻟

㻞㻟㻥

㻞㻠㻠

㻜
㻲㼅㻟㻛㻢

㻲㼅㻟㻛㻣

㻿㼛㼡㼞㼏㼑㻦㻌㼜㼞㼑㼜㼍㼞㼑㼐㻌㼎㼥㻌㻲㻵㻿㻯㻻㻌㼒㼞㼛㼙㻌㼠㼔㼑㻌㻲㼅㻟㻛㻝㻡㻌㼒㼕㼚㼍㼚㼏㼕㼍㼘㻌㼞㼑㼜㼛㼞㼠㼟㻌㼎㼞㼕㼑㼒㼕㼚㼓㻌㼙㼍㼠㼑㼞㼕㼍㼘㼟

We encourage readers to review our complete legal statement on “Disclaimer” page.
10

■■Nihon Chouzai’s characteristics and strengths

The Company is also accelerating the expansion of its manufacturing bases. Previously, Nihon
Generic had one base, the N building at the Tsukuba plant, but in FY3/15 it completed the S building
at the same plant and moreover purchased the Kasukabe plant from Teva Pharma Japan to establish
a 3 plant structure, in doing so expanding its production capacity from 1 billion tablets to 3.2 billion
tablets per year. Choseido Pharmaceutical has also completed its second plant at its headquarters
and has increased its production capacity from 900 million tablets to 1.1 billion tablets.

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section29-Oct.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Moreover, in September 2015 Nihon Generic announced that it would construct a second plant at
Tsukuba. By March 2018, this newly constructed plant will have an annual production capacity of 10
billion tablets, and the investment amount for the first phase is expected to be approximately 17.2
billion yen in total for the land, buildings, and machinery and equipment. In parallel with this, theproduction capacity of the current Tsukuba plant (the total for the N and S buildings) is being bolsteredand the plan is to increase the total production capacity, including Choseido Pharmaceutical’s portion,
to 15.6 billion tablets per year.
In the background to this sort of strengthening of production capacity is that the government has set thetarget of increasing to above 80% generic pharmaceuticals’ share of all prescribed pharmaceuticals
by the end of fiscal 2020. The Company considers that the growth of the generic pharmaceuticals
market will further accelerate in the next five years compared to its development in the past five years
and intends to firmly capture this rapid market expansion for its corporate earnings.
List of the generic pharmaceuticals manufacturing bases
Production capacity (100mn tablets/year)
End of FY3/18
End of FY3/15(forecast)
Tsukuba plant N building
10
10
36
Tsukuba plant S building
13
Nihon GenericTsukuba second plant
100
Kasukabe plant
99Sub-total
1032145
Headquarters first plant
7
7
7
Headquarters second plant22
Choseido Pharmaceutical
Kawauchi plant22
2Sub-total
9
11
11
Total
19
43
156
Source: prepared by FISCO from the Company’s FY3/15 financial reports briefing materials
Company namePlant name

End of FY3/14

Thanks to the increase in the number of sales items, the enhancement of its manufacturing bases, andthe expansion of external sales, the Company’s Pharmaceuticals Manufacturing and Sales businesssegment recorded a segment operating income for the first time in FY3/13 and subsequently has
maintained profitability. Due to factors including the increase in depreciation costs in conjunction
with the completion of building S at the Tsukuba plant and the amortization of goodwill following
the acquisition of the Kasukabe plant, there were concerns that segment operating income would
come under pressure from FY3/16 onwards. But in the financial statements of Q1 FY3/16, segment
operating income increased 78.7% year on year (y-o-y) to ¥589 million, and at FISCO we consider ithighly likely that these concerns about shrinking profit margins will prove unfounded.

㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼞㼑㼟㼡㼘㼠㼟㻌㼕㼚㻌㼠㼔㼑㻌㻼㼔㼍㼞㼙㼍㼏㼑㼡㼠㼕㼏㼍㼘㼟㻌㻹㼍㼚㼡㼒㼍㼏㼠㼡㼞㼕㼚㼓㻌㼍㼚㼐㻌㻿㼍㼘㼑㼟㻌㼎㼡㼟㼕㼚㼑㼟㼟
㻔¥㼙㼚㻕㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕㻿㼑㼓㼙㼑㼚㼠㻌㼛㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕㻞㻤㻘㻜㻜㻜

㻔¥㼙㼚㻕㻞㻣㻘㻡㻡㻜

㻞㻟㻘㻜㻜㻜

㻞㻘㻥㻜㻜㻝㻤㻘㻜㻜㻜

㻝㻘㻤㻤㻤

㻣㻘㻡㻣㻥

㻤㻘㻜㻜㻜

㻙㻞㻘㻜㻜㻜

㻝㻘㻥㻜㻜㻝㻝㻘㻝㻥㻢

㻝㻟㻘㻜㻜㻜

㻟㻘㻜㻜㻜

㻟㻘㻥㻜㻜

㻞㻟㻘㻝㻥㻞

㻝㻞
㻙㻟㻞㻤

㻣㻡㻞

㻝㻘㻢㻜㻤

㻠㻘㻥㻡㻟

㻟㻘㻣㻥㻢

㻙㻝

㻤㻘㻝㻟㻟
㻞㻟㻟

㻡㻜㻜

㻥㻜㻜
㻙㻝㻜㻜

㻙㻤㻣㻠

㻙㻝㻘㻜㻟㻞

㻙㻠㻠㻡

㻙㻥㻣㻟

㻙㻡㻤㻢

㻙㻣㻘㻜㻜㻜

㻙㻝㻘㻝㻜㻜
㻲㼅㻟㻛㻢 㻲㼅㻟㻛㻣 㻲㼅㻟㻛㻤 㻲㼅㻟㻛㻥 㻲㼅㻟㻛㻝㻜 㻲㼅㻟㻛㻝㻝 㻲㼅㻟㻛㻝㻞 㻲㼅㻟㻛㻝㻟 㻲㼅㻟㻛㻝㻠 㻲㼅㻟㻛㻝㻡㻿㼛㼡㼞㼏㼑㻦㻌㻼㼞㼑㼜㼍㼞㼑㼐㻌㼎㼥㻌㻲㻵㻿㻯㻻㻌㼒㼞㼛㼙㻌㼠㼔㼑㻌㻲㼅㻟㻛㻝㻡㻌㼒㼕㼚㼍㼚㼏㼕㼍㼘㻌㼞㼑㼜㼛㼞㼠㼟㻌㼎㼞㼕㼑㼒㼕㼚㼓㻌㼙㼍㼠㼑㼞㼕㼍㼘㼟

We encourage readers to review our complete legal statement on “Disclaimer” page.
11

■■Nihon Chouzai’s characteristics and strengths

Continuing the keynote of increases in sales and profits(3) Medical Practitioners Staffing business

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section

The Company operates its staffing business for medical practitioners, including doctors, nurses,
and pharmacists, through its consolidated subsidiary Medical Resources. While the percentage ofnet sales provided by this business segment is low at 4% (the FY3/15 result), its operating income
margin is very high compared to the other businesses at 19.3% (FY3/15) while its percentage of
operating income is 12%, and it is growing as a businesses with a sense of presence. Its resultsover the last few years have also trended upwards each fiscal year and it has continued a keynoteof increases in sales and profits.

㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼠㼔㼑㻌㼞㼑㼟㼡㼘㼠㼟㻌㼛㼒㻌㼠㼔㼑㻌㻹㼑㼐㼕㼏㼍㼘㻌㻼㼞㼍㼏㼠㼕㼠㼕㼛㼚㼑㼞㼟㻌㻿㼠㼍㼒㼒㼕㼚㼓㻌㼎㼡㼟㼕㼚㼑㼟㼟

29-Oct.-15㻔¥㼙㼚㻕㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕㻔¥㼙㼚㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕
㻢㻘㻡㻡㻠

㻣㻘㻜㻜㻜
㻢㻘㻜㻜㻜

Important disclosuresand disclaimers appear
at the end of this document.

㻝㻘㻠㻜㻜
㻝㻘㻞㻜㻜

㻡㻘㻜㻠㻢

㻝㻘㻞㻢㻢

㻡㻘㻜㻜㻜

㻝㻘㻜㻜㻜
㻟㻘㻥㻥㻝

㻠㻘㻜㻜㻜
㻟㻘㻜㻜㻜

FISCO Ltd. Analyst
Hiroyuki Asakawa

㻤㻜㻜

㻟㻘㻞㻟㻢
㻞㻘㻞㻟㻣

㻞㻘㻜㻜㻜

㻝㻘㻠㻠㻠
㻝㻤㻣

㻠㻟㻣

㻟㻥㻢
㻞㻢㻞

㻣㻣㻜

㻞㻘㻡㻡㻣

㻝㻘㻢㻣㻠

㻝㻘㻜㻝㻠
㻝㻘㻜㻜㻜

㻞㻘㻟㻡㻝

㻟㻠㻟

㻞㻢㻥

㻠㻡㻜

㻞㻢㻞

㻜

㻢㻜㻜
㻠㻜㻜
㻞㻜㻜

㻜
㻲㼅㻟㻛㻢 㻲㼅㻟㻛㻣 㻲㼅㻟㻛㻤 㻲㼅㻟㻛㻥 㻲㼅㻟㻛㻝㻜 㻲㼅㻟㻛㻝㻝 㻲㼅㻟㻛㻝㻞 㻲㼅㻟㻛㻝㻟 㻲㼅㻟㻛㻝㻠 㻲㼅㻟㻛㻝㻡

Source: the Company’s financial results summaryThere are many companies operating a medical-practitioners staffing business, including those who
specialize in it and those for which it is an additional business. Among them, the positioning of theCompany for the “dispatch of pharmacists” is that it is the industry leader in terms of the numberof registered pharmacists and the results for dispatches and placements. It has also been steadily
improving its results for the number of registered staff and placements of doctors, nurses, and comedical practitioners in its staffing business. The percentages of women in the medical-relatedindustries are high and the tendency is for them to leave work for a while after getting marriedor having children and then to return to work later. As an industry leading dispensing pharmacy
group, the Company is in a position to more easily ascertain the recruitment demand for medical
practitioners and at FISCO we consider that it is highly possible that the trend of increases in sales
and profits in its staffing business will continue in the future.
Trends in the number of placements by job category

Source: FY3/15 financial reports briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.
12

伪伪Medium-term management plan
The main targets in the new medium-term management plan
are to increase net sales by 50% and double operating income

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section(1) Outline of the medium-term management plan
In April 2015, the Company announced its new three year medium term management plan for theperiod FY3/16 to FY3/18. In this plan, based on the corporate philosophy, of “Realizing the true
separation of prescribing and dispensing”, the Company has set the main targets of increasing net
sales by 50% and doubling operating income.
The main targets in the new medium-term management plan

29-Oct.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Corporate philosophy

Maintargets

Realizing the “true separation of prescribing and dispensing”

Net sales

Achieve a 50% increase

Operating income

DoubledOperating income
marginRaise to 4.5%

Corporate
governance

FY3/15: ¥181.8 billion →FY3/18: ¥273.8 billion
FY3/15: ¥6.6 billion→FY3/18: ¥12.2 billion
FY3/15: 3.7%→FY3/18: 4.5%

Improve corporate value by the appropriate practice of the corporate
governance code

Source: prepared by FISCO from the Company’s FY3/15 financial reports briefing materials and press releases(2) Priority measures for each businessIn the current medium-term plan in the section “Nihon Chouzai’s characteristics and strengths,” thecontent of the descriptions of the priority measures for each business overlap in terms of their main
points. In other words, in its Dispensing Pharmacy business, the Company is aiming to promote theuse of generic pharmaceuticals and home medical care services and open pharmacies flexibly andproactively; in the Pharmaceuticals Manufacturing and Sales business, it is targeting expanding sales
items and establishing a system for stable supply; and in its Medical Practitioners Staffing business,
it is aiming to increase the total number of placements per month. By implementing these priority
measures, the plan is to expand these 3 business department and achieve net sales ¥273,800
million and operating income of ¥12,200 million in FY3/18.
The priority measures in each business• Promote home medical care service
Dispensing Pharmacy businessdepartment

Pharmaceuticals Manufacturing andSales business department• Thoroughly promote the use of generic pharmaceuticals• Continue to actively open various types of pharmacies• Establish an attitude of complete acceptance toward the various
institutional reforms• Realize an expansion in business scope exceeding the market
growth rate
• Secure the number of sales items at an industry-leading level• Establish a system for the stable supply of high-quality products

Medical Practitioners Staffing businessdepartment
Information Provision and Consulting
business department* The net sales and other values for the
relevant business department are included in
the Dispensing Pharmacy business• Rapidly achieve annual net sales of ¥10 billion• Increase the total number of placements per month• The development of new products in the data provision business

Source: prepared by FISCO from the Company’s FY3/15 financial reports briefing materials and press releases

We encourage readers to review our complete legal statement on “Disclaimer” page.
13

■■Medium-term management plan

Numerical targets in the medium-term management plan
FY3/15Results

TargetSales
increase

Dispensing Pharmacy business

157,999

217,600

59,601

37.7%

Pharmaceuticals Manufacturing and Sales business

27,55055,70028,150102.4%(¥mn)

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section29-Oct.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

FY3/18

Medical Practitioners Staffing businessRate ofincrease

6,554

14,0007,446

113.6%

Elimination of transactions between segments-10,259-13,500--

Net sales total

181,844273,800

91,956

50.6%

6,647

12,200

5,553

83.5%

Operating income

Source: prepared by FISCO from the Company’s FY3/15 financial reports briefing materials and press releases

伪伪Results trends
All three segments achieved increases in sales and profits in
Q1 FY3/16(1) Q1 FY3/16 financial results
In its financial results for Q1 FY3/16 (April to June 2015) the Company recorded major increases
in both sales and profits and high values in terms of its progress toward achieving the plan targets,of net sales of ¥48,895 million (up 13.4% y-o-y), operating income of ¥2,052 million (up 133.6%),
recurring income of ¥1,896 million (up150.8%), and net income of ¥1,221 million (up 316.9%).
All three segments achieved year-on-year increases in sales and profits. In the mainstay Dispensing
Pharmacy business, in addition to the steady performance of the existing pharmacies, the increasein the number of prescriptions for a drug to treat Hepatitis C that was released in the second half oflast year also contributed to the improved results. In the Pharmaceuticals Manufacturing and Sales
business, sales grew following the increase in demand for generic pharmaceuticals and operating
income also increased significantly despite the rise in depreciation costs. In the Medical Practitioners
Staffing business, the Company has been steadily increasing profits by finding new facilities for theplacement of pharmacists and securing registrations of new staff.
Summary of Q1 FY3/16

Q1

Net sales

Dispensing Pharmacy business
37,546
Pharmaceuticals Manufacturing and
6,506
Sales business
Medical Practitioners Staffing
1,499
business
Before adjustment
45,552Adjusted amount-2,419Net sales total
43,133
Dispensing Pharmacy business
1,190
Pharmaceuticals Manufacturing and330
Sales business
Medical Practitioners Staffing
327
business
Before adjustment
1,847
Adjusted amount-968
Operating income total
878
SG&A expenses
6,248
Ratio of SG&A expenses to net sales
14.5%
Recurring income
756
Net income
293
Source: the Company’s financial results summary(unit: ¥mn)

FY3/16

FY3/15

Operating income

157,999

42,322Rate ofprogress
Q2
cumulative
Q1/Q2
total (E)y-o-ycumulative
total (E)12.7%-

27,550

7,702

18.4%

-

-

-

6,554

2,087

39.2%

-

-

-

192,104-10,259
181,844
7,698

52,112-3,21648,895
2,015

14.4%
13.4%
69.3%

99,739-49.0%-

207,523
-

1,888

589

78.5%

-

-

-

1,266

441

34.9%

-

-

-

10,853-4,205
6,647
25,281
13.9%
6,003
2,778

3,046
-994
2,052
6,706
13.7%
1,896
1,221

64.9%
133.6%
7.3%
150.8%
316.9%

3,650
3,386
1,849

56.2%
56.0%
66.0%

8,200
7,434
3,583

Q1

FY3/15Results

Full year(E)-

We encourage readers to review our complete legal statement on “Disclaimer” page.
14

■■Results trends(2) Outlook for 1H and the full year of FY3/16
Reflecting its strong financial results in Q1, the Company has upwardly revised its forecasts for 1H
FY3/16 (cumulative total for Q1 and Q2). The new forecast for 1H is net sales of ¥99,739 million (up14.1% y-o-y), operating income of ¥3,650 million (up 39.2%), recurring income of ¥3,386 million (up46.1%), and net income of ¥1,849 million (up 59.8%).

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
SectionIn the Q1 results, each business performed strongly from organic growth rather than due to any
special factors, and when considering that no major changes to the business environment havebeen seen on entering Q2, the impression at FISCO is that even the upwardly revised forecasts areconservative and it is highly possible that the 1H results will exceed these revised forecasts.
Details of the revised Q2 forecast and outlook for the full-year results

29-Oct.-15

Q2
Previous forecast

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa(unit: ¥mn)

FY3/16

New forecast

Net sales
97,98099,739Operating income
2,926
3,650
Recurring income
2,553
3,386
Net income
1,195
1,849
Source: prepared by FISCO from the Company’s press releases

Extent of revision
(%)
1.8%
24.7%
32.6%
54.7%

Full year (E)207,523
8,200
7,434
3,583

As was previously explained, the Company’s rate of prescriptions of generic pharmaceuticals is highcompared to its industry peers, but there is still room for it to go even higher and also plenty of roomfor further improvements in home medical care. Also, as the effects of the new pharmacy openings will
increase in 2H, at FISCO we think that the keynote of increasing profits in the Dispensing Pharmacy
business will continue until at least the end of the fiscal year. In the Pharmaceuticals Manufacturing
and Sales business and the Medical Practitioners Staffing business also, it seems highly like thatthe trends in 1H will continue on in 2H. The Company has maintained its initial forecasts for its fullyear results, of net sales of ¥207,523 million (up 14.1% y-o-y), operating income of ¥8,200 million(up 23.4%), recurring income of ¥7,434 million (up 23.8%), and net income of ¥3,583 million (up29.0%). But at FISCO, we believe it is highly likely that it will upwardly revise these forecasts in thenear future.
Income statement and the major indicators(unit: ¥mn)
FY3/16
Q2
Full year
cumulative(E)total (E)99,739207,523
14.1%
14.1%
3,650
8,200
39.2%
23.4%
3.7%
4.0%
3,386
7,434
46.1%
23.8%
1,849
3,583
59.8%
29.0%

FY3/13

FY3/14

FY3/15Full year

Full year

Full year

Q1

139,466
7.2%
21,49415.4%
18,24813.1%
3,245-40.6%
2.3%
2,855-42.2%
184-91.1%

165,347
18.6%
25,623
15.5%
20,878
12.6%
4,744
46.2%
2.9%
4,188
46.7%
1,901
928.4%

181,844
10.0%
31,92917.6%
25,281
13.9%
6,647
40.1%
3.7%
6,003
43.3%
2,778
46.1%

48,895
13.4%
8,759
17.9%
6,706
13.7%
2,052
133.6%
4.2%
1,896
150.8%
1,221
316.9%EPS (¥)
25.67
Dividend per share (¥)
70.00
BPS (¥)
2,034.09
EPS after adjustment for stock-split (¥)
12.84
Dividend per share after adjustment for
35.00
stock-split (¥)
BPS after adjustment for stock-split (¥)
1,017.05
Source: the Company’s financial results summary

262.4870.00
2,181.26
131.24388.9670.00
2,515.19
194.48174.21
87.11

131.9340.00-

255.55
62.00
-

35.00

35.00

-

20.00

42.00

1,090.63

1,257.60---

Net salesy-o-yGross profit
Gross margin
SG&A expenses
Ratio of SG&A expenses to net sales
Operating incomey-o-yOperating income margin
Recurring incomey-o-y
Net income
y-o-y

We encourage readers to review our complete legal statement on “Disclaimer” page.
15

■■Results trends

Consolidated balance sheet

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section29-Oct.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Current assets
Cash and deposits
Accounts receivable
Inventories
Other
Fixed assets
Tangible fixed assets
Intangible fixed assets
Investments, etc.
Total assets
Current liabilities
Accounts payable
Short-term debt, etc.
Other
Fixed liabilities
Long-term debt
Other
Total liabilities
Shareholders' equity
CapitalCapital surplus
Retained earnings
Treasury stock
Total accumulated other comprehensive income
Net assets, total
Total liabilities and net assets
Source: the Company’s financial results summary

FY3/11
28,9207,275
10,8938,831
1,921
43,781
25,465
9,947
8,368
72,70138,39920,091
13,484
4,824
21,522
20,183
1,339
59,921
12,856
3,953
4,754
6,614
-2,464-76
12,78072,701

FY3/1236,543
12,622
12,8688,879
2,174
50,07130,796
9,845
9,429
86,61536,757
21,8848,373
6,500
35,141
33,6101,531
71,89914,562
3,953
4,754
8,233
-2,378153
14,716
86,615

FY3/1343,037
14,583
13,645
12,405
2,404
52,10232,459
9,423
10,21995,14044,702
24,542
14,065
6,095
35,73533,8451,890
80,437
14,353
3,953
4,754
7,915
-2,269349
14,702
95,140FY3/1453,373
15,42917,395
16,396
4,153
63,921
42,123
11,103
10,694
117,295
55,66628,963
18,6398,064
45,77942,165
3,614
101,446
15,845
3,953
4,754
9,310
-2,171
3
15,849117,295(unit: ¥mn)
FY3/1560,096
13,95220,00121,066
5,077
70,044
48,81910,376
10,848130,141
53,47433,392
11,1698,913
59,03153,184
5,847
112,505
17,515
3,953
4,754
11,868-3,059119
17,635130,141

FY3/13
2,885-6,422
5,496
12,554
14,513

FY3/14
6,243-14,510
8,782
14,51315,027(unit: ¥mn)
FY3/15
5,831-8,437
1,422
15,027
13,844

Consolidated cash flow statement

Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Cash and deposits balance at start of fiscal year
Cash and deposits balance at end of fiscal year
Source: the Company’s financial results summary

FY3/11
6,723-8,269
1,109
7,636
7,200

FY3/12
7,127-9,6947,920
7,200
12,554

We encourage readers to review our complete legal statement on “Disclaimer” page.
16

伪伪Returns to shareholders
Increased the dividend by a further ¥4 based on the Q1 results
The Company’s basic approach to shareholder returns is to pay dividends linked to businessperformance while ensuring it maintains the internal reserves necessary for growth.

NIHON CHOUZAICo.,Ltd.
3341 Tokyo Stock Exchange First
Section29-Oct.-15

In FY3/15, the Company paid a dividend per share of ¥70 (interim dividend of ¥35 and year-end
dividend of ¥35). In FY3/16, it has announced that it plans to pay an interim dividend of ¥40 andthen subsequently a dividend of ¥22 at the end of the fiscal year following the two-for-one stock split
carried out on October 1, 2015. This represent an annual divided of ¥84 when adjusted for the stock
split and returned to the same level as the previous fiscal year, so in actuality it constitutes a dividend
increase of ¥14. The Company initially announced that it would provide an annual dividend of ¥80 fora ¥10 increase, but it decided to increase the dividend by an additional ¥4 based on the Q1 results.
So it is matching its actions to its words and is implementing its basic policy of providing returns toshareholders according to profits. So as a company that is highly aware of returns to shareholders,further returns can be expected from it in the future.

Important disclosuresand disclaimers appear
at the end of this document.

㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㻱㻼㻿㻘㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻘㻌㼍㼚㼐㻌㼠㼔㼑㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻱㻼㻿㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕㻔¥㻕㻢㻜㻜㻚㻜㻜FISCO Ltd. Analyst
Hiroyuki Asakawa

㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕

（㻑）
㻟㻜㻜

㻞㻣㻟㻌

㻡㻝㻝㻚㻜㻥

㻡㻜㻜㻚㻜㻜

㻞㻡㻜㻟㻤㻤㻚㻥㻢

㻠㻜㻜㻚㻜㻜
㻞㻥㻜㻚㻥㻞

㻟㻜㻜㻚㻜㻜
㻞㻜㻜㻚㻜㻜
㻝㻜㻜㻚㻜㻜

㻞㻡㻡㻚㻝㻠
㻣㻥㻌㻞㻜㻜㻞㻢㻞㻚㻠㻤

㻝㻡㻜㻝㻥㻞㻚㻞㻡

㻝㻜㻜

㻣㻜㻌
㻤㻠㻚㻜㻜

㻡㻢㻚㻥㻡
㻡㻜㻚㻢㻢
㻠㻜㻚㻜㻜
㻠㻜㻚㻜㻜

㻣㻜㻚㻜㻜
㻣㻜㻚㻜㻜 㻞㻣㻌 㻣㻜㻚㻜㻜
㻣㻜㻚㻜㻜
㻞㻢㻌
㻝㻤㻌
㻡㻜㻚㻜㻜 㻞㻠㻌 㻢㻜㻚㻜㻜 㻞㻠㻌
㻞㻡㻚㻢㻣
㻝㻢㻌

㻲㼅㻟㻛㻤

㻲㼅㻟㻛㻝㻜 㻲㼅㻟㻛㻝㻝 㻲㼅㻟㻛㻝㻞 㻲㼅㻟㻛㻝㻟 㻲㼅㻟㻛㻝㻠 㻲㼅㻟㻛㻝㻡 㻲㼅㻟㻛㻝㻢㻌㻱

㻜㻚㻜㻜

㻡㻜
㻜

㻲㼅㻟㻛㻥

㻺㼛㼠㼑㻦㻌㼠㼔㼑㻌㻯㼛㼙㼜㼍㼚㼥㻌㼕㼙㼜㼘㼑㼙㼑㼚㼠㼑㼐㻌㼍㻌㼠㼣㼛㻙㼒㼛㼞㻙㼛㼚㼑㻌㼟㼠㼛㼏㼗㻌㼟㼜㼘㼕㼠㻌㼛㼚㻌㻻㼏㼠㼛㼎㼑㼞㻌㻝㻘㻌㻞㻜㻝㻡㻘㻌㼎㼡㼠㻌㼠㼔㼑㻌㻱㻼㻿㻌㼍㼚㼐㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㼕㼚㻌㼠㼔㼑㻌㼓㼞㼍㼜㼔㻌㼐㼛㻌㼚㼛㼠㻌㼠㼍㼗㼑㻌㼕㼚㼠㼛㻌㼍㼏㼏㼛㼡㼚㼠㻌㼠㼔㼕㼟㻌㼟㼠㼛㼏㼗㻌㼟㼜㼘㼕㼠㻚㻌
Source: the Company’s financial results summaryWe encourage readers to review our complete legal statement on “Disclaimer” page.
17

Disclaimer
FISCO Ltd. (the terms “FISCO”, “we”, mean FISCO Ltd.) has legal agreements with theTokyo Stock Exchange, the Osaka Exchange,and Nikkei Inc. as to the usage of stock
price and index information. The trademark and value of the “JASDAQ INDEX” are theintellectual properties of the Tokyo Stock Exchange, and therefore all rights to them belong
to the Tokyo Stock Exchange.
This report is based on information that we believe to be reliable, but we do not confirm or
guarantee its accuracy, timeliness,or completeness, or the value of the securities issued bycompanies cited in this report. Regardless of purpose,investors should decide how to use
this report and take full responsibility for such use. We shall not be liable for any result of its
use. We provide this report solely for the purpose of information, not to induce investment
or any other action.
This report was prepared at the request of its subject company using information provided
by the company in interviews, but the entire content of the report, including suppositions andconclusions, is the result of our analysis. The content of this report is based on informationthat was current at the time the report was produced, but this information and the content
of this report are subject to change without prior notice.
All intellectual property rights to this report, including copyrights to its text and data, areheld exclusively by FISCO. Any alteration or processing of the report or duplicationsof the report, without the express written consent of FISCO, is strictly prohibited. Anytransmission, reproduction, distribution or transfer of the report or its duplications is also
strictly prohibited.
The final selection of investments and determination of appropriate prices for investment
transactions are decisions for the recipients of this report.
FISCO Ltd.