Sumitomo Chemical & Sumitomo Pharmaceutical

The Core Allegation

Gotham City Research's opinion: Sumi Pharma's FY2025 financial statements are misstated by 116-165 billion JPY. Financial statements will be restated and the Company will face an investigation.

Shares of both Chemical and Pharma are uninvestable, and face 50%-100% downside risk.

The Earnings Inflation

• Sumitomo Pharma FY2025 earnings account for 92% of Sumitomo Chemical FY2025 earnings
• Chemical's FY2025 earnings are inflated by non-recurring sources — removing these reduces its earnings 84%-111%
• Pharma FY2025 earnings are inflated by non-recurring sources — removing these reduces earnings by ~50%
• Pharma FY2025 earnings are inflated by anomalous accounts receivable growth — removing these reduces earnings by an additional 50%

Without these non-recurring and anomalous sources, earnings collapse.

The Receivables Anomaly

Pharma's FY2025 Receivables grew 76% YoY while revenue grew only 14%.

Gotham City Research suspects:

• Channel stuffing
• Aggressive revenue recognition
• Fictitious revenue

The 116 Billion Swiss Shuffle

The centerpiece of the report:

• A March press release announced a 48 billion JPY dividend to Pharma from its Switzerland subsidiary SMPS, weeks before Pharma's 116.4 billion JPY public offering in April
• Yet SMPS paid Pharma's parent company a 164 billion dividend, not 48 billion, according to the notes to the Pharma's parent company 2025FY financial statements
• The 164 billion dividend does not appear on the income statement, even though it is explicitly described as an income statement activity within the 2025FY period
• The 164 billion dividend is a distribution in-kind, in the form of accounts receivables previously held by SMPS
• The 116 billion difference between the two differing dividend figures is not explained and cannot be reconciled to any accounts within the FY2025 Pharma financial statements

The Parent Company Is Loss Making

• The 48 billion dividend represents ~42% of the parent company's net income
• The 164 billion amount represents 143%, implying the parent company is loss making

The True Leverage

Without the manipulated receivables fueling Pharma and Chemical's profits:

• Chemical's FY2025 Leverage is closer to 10x rather than 3x

The Auditor Structure

Although Pharma and Chemical share the same auditor, KPMG AZSA, the Swiss subsidiary's auditor is KPMG. They are separate legal entities with separate auditors — complicating consolidated oversight.

The Manipulation Mechanism

Pharma manipulates receivables to fuel Pharma and Chemical's profits. Without these, earnings collapse, and Chemical's FY2025 Leverage is closer to 10x rather than 3x.