Towa Pharmaceutical (4553): Preferred share issuance removes financing overhang; ROIC execution key

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Towa Pharmaceutical (4553): Preferred share issuance removes financing overhang; ROIC execution key

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Towa Pharmaceutical (4553)

Preferred share issuance removes

financing overhang; ROIC execution key

Maintain Rating: BUY | PO: 5,300 JPY | Price: 3,840 JPY

21 May 2026

Raises up to ¥20bn via preferred shares Equity

Towa announced after market close on May 21 the issuance of Class A preferred shares

via a third-party allotment to the Development Bank of Japan (DBJ). Proceeds will be Ritsuo Watanabe >>

¥10bn initially and up to ¥20bn in total, with a fixed 4.4% dividend. The structure carries ResearchBofAS JapanAnalyst

no voting rights and no conversion into common shares. Funds are to be used for ritsuo.watanabe@bofa.com

capacity expansion and partnership initiatives to strengthen generic drug supply. Kei Takeuchi >>

Research Analyst

Redemption requests are allowed from 2036, positioning the instrument as long-term BofAS Japan

capital. kei.takeuchi@bofa.com

Avoids negative impact on existing shareholders

We assess the transaction from three angles: (1) reduced financial risk, (2) no dilution, Stock Data

and (3) higher cost of capital. While funding for capacity expansion was clearly called for,

the avoidance of equity issuance with dilution is positive. On the other hand, the cost is Price 3,840 JPY

higher than bank borrowing, leading to a modest earnings drag (low-single-digit billions Price Objective 5,300 JPY

of yen annually, roughly 1% of operating profit). Achieving return on invested capital Date Established 20-May-2026

(ROIC) above 4.4% would evidently be essential, but the structure appears a reasonable Investment Opinion B-1-7

trade-off to preserve shareholder value while maintaining financial flexibility. 52-Week Range 2,764-4,490 JPY