Ai Holdings Corporation FY2026 FY Earnings Report

Quick View

Executive Summary

This earnings period saw substantial revenue growth driven by the rapid expansion of the Information and Communications Business, while net income declined due to the reversal of the gain on negative goodwill recognized in the previous year. Revenue was ¥850.2B (+28.4% YoY), Operating Income was ¥107.6B (+21.1%), and Ordinary Income was ¥125.3B (+39.2%), demonstrating continued expansion in the core business. However, Net Income was limited to ¥119.6B (△43.6% YoY). The previous year's Net Income included a ¥178.8B gain on negative goodwill, and the decline this period was attributable not to deterioration in the core business but to the absence of this one-time factor. The Company also recorded ¥3.92B in extraordinary income, including a ¥3.84B gain on the sale of fixed assets. It should be noted that a substantial portion of Net Income was supported by one-time items.

Factors Affecting Performance

【Revenue】Revenue of ¥850.2B (+28.4% YoY) was driven by the Information and Communications segment, which generated ¥272.9B (+130.8% YoY; 31.9% of total). The Design Business also delivered strong growth, with revenue of ¥74.4B (+33.6% YoY), while Card Equipment and Other Office Equipment generated ¥24.6B (△20.9% YoY) and Information Equipment generated ¥126.8B (△6.1% YoY), both declining. The core Security Equipment Business recorded moderate growth of ¥159.8B (+4.5% YoY).

【Profit and Loss】Operating Income of ¥107.6B (+21.1% YoY) grew less than the 28.4% revenue growth rate, and the gross margin declined to 39.5% from 45.8% in the previous year. The rising contribution of the low-margin Information and Communications Business, with an Operating Income margin of 4.6%, restrained the Company-wide margin, while the SG&A expense ratio improved to 26.8% from 32.4% in the previous year, partially offsetting the decline in profitability. Ordinary Income grew faster than Operating Income, reaching ¥125.3B (+39.2% YoY), supported by ¥8.2B in equity-method investment gains and ¥5.7B in foreign exchange gains. Net Income, however, was ¥119.6B (△43.6% YoY) due to the reversal of the previous year's gain on negative goodwill. In conclusion, the Company achieved revenue growth and growth in Operating Income and Ordinary Income, while Net Income declined due to one-time factors.

Segment Analysis

Security Equipment generated Operating Income of ¥61.9B, accounting for 57.5% of total Company Operating Income, and represented an exceptionally high-margin earnings base with an Operating Income margin of 38.7%. Information and Communications expanded rapidly to revenue of ¥272.9B, representing 31.9% of total revenue, while its Operating Income margin remained at 4.6%, diluting the Company-wide profit margin. The Design Business achieved both strong growth and a 19.9% profit margin, with revenue of ¥74.4B (+33.6% YoY) and Operating Income of ¥14.8B (+214.0% YoY). Card Equipment and Other Office Equipment was the weakest segment, with revenue of ¥24.6B (△20.9% YoY) and Operating Income of ¥3.1B (△62.7% YoY). Measuring Instruments generated revenue of ¥54.4B (+8.8% YoY), while Operating Income declined to ¥7.9B (△4.8% YoY), indicating challenges from rising costs and lower profitability. Going forward, the balance between the increasing contribution of low-margin Information and Communications and the Company-wide margin will be a key focus.

Key Financial Indicators

【Profitability】The Operating Income margin declined to 12.7% from 13.4% in the previous year, while the Net Income margin declined to 14.0% from 32.0%. However, the previous year's Net Income margin included a ¥178.8B gain on negative goodwill, and a simple comparison does not indicate deterioration in the core business. ROE was 10.1%, comprising a Net Income margin of 14.0% × total asset turnover of 0.58x × financial leverage of 1.24x, indicating an earnings structure that is not dependent on leverage.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥108.1B, or 0.91x Net Income of ¥119.6B. However, the accrual ratio was low, and the divergence from accounting profit was limited. Days sales outstanding were approximately 69 days, inventory turnover days were approximately 78 days, and the CCC was approximately 151 days, indicating somewhat noticeable working capital retention.【Investment Efficiency】Capital expenditures were ¥15.2B compared with depreciation and amortization of ¥26.8B, resulting in capital expenditures/depreciation and amortization of 0.57x and indicating a somewhat low level of investment. EBITDA was ¥134.4B, and the EBITDA margin was 15.8%.【Financial Soundness】The Equity Ratio was 80.9%, and cash and deposits reached ¥548.2B. The debt-to-equity ratio remained low, indicating substantial financial capacity.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥108.1B (+41.3% YoY), representing 0.91x Net Income of ¥119.6B and remaining somewhat below profit. Investing Cash Flow was positive at ¥59.1B, including ¥63.5B in proceeds from the sale of fixed assets. However, capital expenditures were limited to ¥15.2B, below depreciation and amortization of ¥26.8B, indicating underinvestment. Financing Cash Flow was negative ¥79.8B, primarily due to dividend payments of ¥58.3B. Free Cash Flow was substantial at ¥167.2B; however, as this includes the one-time inflow from the sale of fixed assets, it is more appropriate to assess recurring Free Cash Flow as ¥92.9B, calculated by deducting capital expenditures from OCF. Even at this level, Free Cash Flow exceeded dividend payments. Cash and deposits increased by ¥97.7B from the end of the previous fiscal year to ¥548.2B, further strengthening liquidity.

Earnings Quality

Ordinary Income of ¥125.3B reflects the core business earnings plus non-operating income, including ¥5.7B in foreign exchange gains and ¥0.9B in dividends received. The difference from Operating Income of ¥107.6B was limited to ¥17.7B. Meanwhile, between Net Income of ¥119.6B and profit before tax of ¥161.5B were extraordinary income of ¥39.2B, including a ¥38.4B gain on the sale of fixed assets, and extraordinary losses of ¥3.0B. These items resulted in a net one-time benefit of ¥36.2B to profit. Consequently, a substantial portion of Net Income was derived from non-recurring items, and Operating Income and Ordinary Income should be used as the basis for period comparisons and evaluations of earnings power. Comprehensive income was ¥146.1B, exceeding Net Income of ¥119.6B, with other comprehensive income items including ¥9.2B in foreign currency translation adjustments and ¥10.7B in adjustments related to retirement benefits. The accrual ratio was low, and no significant divergence between accounting profit and cash flow was observed.

Earnings Forecast and Guidance

Compared with the previous Company plan, actual performance reached 98.9% of planned revenue (actual ¥850.2B / plan ¥860.0B), while Operating Income landed broadly in line with the plan. The next-period plan calls for revenue of ¥860.0B (+1.1% YoY), Operating Income of ¥110.0B (+2.2% YoY), and Ordinary Income of ¥117.0B (△6.7% YoY), indicating a normalization of the growth pace following the sharp growth achieved this period. The planned decline in Ordinary Income is likely primarily attributable to the reversal of non-operating income, including the foreign exchange gains recorded this period. Forecast EPS for the next period is ¥168.94, and the decline from actual EPS of ¥224.08 this period reflects the disappearance of the boost from extraordinary income recorded this period.

Shareholder Returns

The annual dividend was ¥125 per share, comprising an interim dividend of ¥55 and a year-end dividend of ¥70, resulting in a Payout Ratio of 55.8%. Share repurchases were virtually nonexistent (¥0.0B), and the Total Return Ratio remained approximately in line with the Payout Ratio. Dividend payments were ¥58.3B, representing approximately 1.9x coverage by OCF of ¥108.1B, a sufficient level. The next-period dividend forecast is ¥140 per share, an increase of ¥15 per share, and the Payout Ratio against forecast EPS of ¥168.94 is expected to rise to approximately 82.9%. The strong financial base, comprising an Equity Ratio of 80.9% and cash and deposits of ¥548.2B, supports the dividend increase. However, a key focus will be whether OCF can continue to cover dividends steadily after the disappearance of one-time gains.

Risk Factors

1. Rising contribution of low-margin businesses: Information and Communications expanded rapidly to revenue of ¥272.9B (+130.8% YoY), while its Operating Income margin was 4.6%, substantially below the 38.7% margin of Security Equipment. If the contribution of this business continues to expand, it could further reduce the Company-wide Operating Income margin, currently 12.7%, down 70bp from 13.4% in the previous year.

2. Working capital retention: Days sales outstanding were approximately 69 days, inventory turnover days were approximately 78 days, and the cash conversion cycle was approximately 151 days, all above generally accepted benchmarks. Inventories increased by ¥7.8B from the end of the previous fiscal year, increasing the risk of funds being tied up and inventory write-downs during periods of demand fluctuation.

3. Reliance on one-time income and investment levels: Extraordinary income, primarily the ¥38.4B gain on the sale of fixed assets, contributed to Net Income, and the next-period Net Income plan of ¥90.0B represents a decline from actual performance this period. In addition, capital expenditures of ¥15.2B were below depreciation and amortization of ¥26.8B, representing a ratio of 0.57x. The relatively restrained level of renewal and growth investment requires monitoring.

Industry Benchmark (Reference; Company Research)

Industry Benchmark (trading)

Profitability and Returns

The Company's profitability is substantially above the industry median and ranks among the higher performers in the industry.

Growth and Capital Efficiency

Revenue growth also substantially exceeded the industry median, with the expansion of the Information and Communications Business driving high growth within the industry.

※Source: Company research

Key Points from the Earnings Results

1. The results combine growth in the core business, reflected in higher revenue and Operating Income, with a temporary decline in Net Income. Both Operating Income and Ordinary Income achieved double-digit growth, while the decline in Net Income was attributable to the reversal of the ¥178.8B gain on negative goodwill recognized in the previous year and does not indicate deterioration in recurring earnings power.

2. Changes in the business mix represent a structural issue that will determine future profit margins. Low-margin Information and Communications, with an Operating Income margin of 4.6%, has expanded to 31.9% of the revenue mix. Compared with high-margin Security Equipment, with a margin of 38.7% and accounting for 57.5% of Company-wide profit, this indicates a structure in which revenue growth does not necessarily translate directly into growth in profit.

3. Financial soundness is exceptionally strong, with an Equity Ratio of 80.9% and cash and deposits of ¥548.2B. However, the working capital CCC is approximately 151 days and capital expenditures/depreciation and amortization is 0.57x, indicating room for improvement in capital efficiency and investment levels. The allocation policy for abundant cash holdings will be a key focus going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,052–¥2,164 at ±1% for the cost of equity, and ¥2,104–¥2,109 at ±0.1 for ω.

Notes:

• Amortization of goodwill of ¥2.2 per share is added back to profit (to account for a non-cash expense and comparability with IFRS companies).
• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.

（Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / A mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee the future share price）

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

---End of Report---