Avex (7860) FY2026 FY Earnings Report

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Executive Summary

The key highlight for the current period was the return to operating profitability from the operating loss recorded in the previous period, as operating leverage took effect through revenue growth, an improved gross profit margin, and restraint in SG&A expenses. Revenue was ¥1,465.7 hundred million (+11.3% YoY), Operating Income was ¥40.9 hundred million (compared with a loss of ¥18.2 hundred million in the previous year), Ordinary Income was ¥43.3 hundred million (compared with a loss of ¥17.0 hundred million in the previous year), and Net Income was ¥39.8 hundred million (+196.2% YoY). Revenue growth was primarily driven by expansion in the Music Business and Anime & Visual Business, while SG&A expenses remained substantially below the pace of revenue growth, supporting profit improvement. However, Net Income benefited from extraordinary income, including gains on the sale of investment securities, and the improvement in Operating Cash Flow was more gradual than profit growth.

Factors Affecting Performance

【Revenue】Revenue was ¥1,465.7 hundred million, up +11.3% YoY. By segment, the Music Business, which accounted for 82.9% of total revenue, increased +10.1%; the Anime & Visual Business increased +17.7%; and the Overseas Business increased +14.7%, resulting in revenue growth across all segments. The recovery of the core business drove growth in the Music Business, while expanded content sales drove growth in the Anime & Visual Business.

【Profit and Loss】Operating Income was ¥40.9 hundred million, turning around from a loss of ¥18.2 hundred million in the previous year. The gross profit margin improved to 28.5% from 27.2% in the previous year, while SG&A expenses were ¥376.9 hundred million, essentially flat YoY (+0.1%), allowing the benefit of revenue growth to flow directly through to profit. By segment, the Music Business generated ¥34.7 hundred million (compared with a loss of ¥11.8 hundred million in the previous year), while the Anime & Visual Business generated ¥10.6 hundred million (5.0% profit margin), securing a return to profitability and higher earnings. Meanwhile, the Overseas Business continued to post an operating loss of ¥4.7 hundred million. Ordinary Income was ¥43.3 hundred million, including ¥5.0 hundred million in equity-method investment income. Net Income was ¥39.8 hundred million; however, Pre-Tax Income of ¥49.3 hundred million benefited from ¥12.2 hundred million in extraordinary income, including a ¥10.3 hundred million gain on the sale of investment securities. After deducting ¥6.3 hundred million in extraordinary losses, net extraordinary gains were ¥5.9 hundred million. In conclusion, the company achieved both revenue and profit growth.

Segment Analysis

The Music Business (82.9% of revenue composition) generated revenue of ¥121.4 hundred million and Operating Income of ¥34.7 hundred million (2.9% profit margin), representing a significant improvement from the ¥11.8 hundred million loss in the previous period and driving overall company performance. The Anime & Visual Business generated revenue of ¥21.1 hundred million and Operating Income of ¥10.6 hundred million (5.0% profit margin), the highest profit margin among the reported segments. Although the Overseas Business expanded to revenue of ¥39.5 hundred million (+14.7% YoY), it continued to post an operating loss of ¥4.7 hundred million (−11.8% profit margin), indicating that revenue growth has not translated into profitability. Reducing losses in the Overseas Business remains a key challenge for improving consolidated profitability.

Key Financial Metrics

【Profitability】The Operating Income margin was 2.8%, improving by 417bp from −1.4% in the previous year, but it remained below 5%. The Net Income margin was 2.7%, and ROE was 7.5%. 【Cash Quality】Operating Cash Flow (OCF) was ¥20.8 hundred million, and its ratio to Net Income attributable to owners of the parent of ¥35.5 hundred million was only 0.58x. The OCF-to-EBITDA ratio was also 0.38x against EBITDA of ¥55.3 hundred million, indicating that cash conversion has been gradual relative to accounting profit. Accounts receivable increased to ¥256.8 hundred million, and DSO was 64 days, indicating a somewhat longer collection period. 【Investment Efficiency】Capital expenditures of ¥18.0 hundred million exceeded depreciation and amortization of ¥14.4 hundred million, indicating that investment exceeded maintenance and replacement levels. Free Cash Flow was ¥14.1 hundred million. 【Financial Soundness】The Equity Ratio was 47.7%, with total assets of ¥1,107.9 hundred million and net assets of ¥528.9 hundred million, indicating a stable capital base. Cash and deposits were ¥343.1 hundred million, securing short-term payment capacity.

Cash Flow Analysis

Operating Cash Flow was ¥20.8 hundred million, a significant improvement from negative ¥46.8 hundred million in the previous period, but its ratio to Net Income of ¥35.5 hundred million was 0.58x, indicating that cash conversion remained gradual. From a working-capital perspective, accounts receivable and inventories increased by ¥25.3 hundred million and ¥9.3 hundred million, respectively, weighing on Operating Cash Flow, while the increase in advances received and corporate income tax payments of ¥38.0 hundred million also had an impact. Investing Cash Flow was negative ¥6.7 hundred million, with capital expenditures of ¥18.0 hundred million offset by part of the proceeds of more than ¥1710 hundred million from the sale of investment securities. Financing Cash Flow was negative ¥29.1 hundred million, primarily due to dividend payments of ¥21.3 hundred million and other factors. Free Cash Flow was ¥14.1 hundred million, below total dividends of ¥21.3 hundred million, indicating that dividends for the period were not fully covered by Operating Cash Flow generation alone. Although cash and cash equivalents declined from the end of the previous period, the cash and deposits balance of ¥343.1 hundred million was maintained.

Quality of Earnings

While the improvement in earnings for the current period was supported by sustainable operating leverage arising from revenue growth and nearly flat SG&A expenses, temporary factors also contributed to the increase in Net Income. Pre-Tax Income of ¥49.3 hundred million benefited from ¥12.2 hundred million in extraordinary income, including a ¥10.3 hundred million gain on the sale of investment securities. After deducting ¥6.3 hundred million in extraordinary losses, including impairment losses of ¥3.7 hundred million, net extraordinary gains were ¥5.9 hundred million. Ordinary Income of ¥43.3 hundred million exceeded Operating Income of ¥40.9 hundred million due to non-operating income and expenses, including ¥5.0 hundred million in equity-method investment income. Both non-operating income of ¥6.7 hundred million and non-operating expenses of ¥4.3 hundred million were relatively small. Comprehensive Income was ¥45.1 hundred million, and the difference from Net Income of ¥39.8 hundred million was attributable to other comprehensive income, including foreign currency translation adjustments of ¥4.9 hundred million; the divergence was limited. The fact that Operating Cash Flow was only 0.58x Net Income indicates that cash-based earnings power was somewhat weaker than accounting profit.

Earnings Forecast and Guidance

The company’s full-year forecast calls for Operating Income of ¥60.0 hundred million, EPS of ¥75.36, and a dividend of ¥50. Current-period Operating Income of ¥40.9 hundred million represented progress of 68.1% against the full-year forecast, slightly below the standard pace of progress. In terms of Net Income, actual Net Income attributable to owners of the parent of ¥35.5 hundred million exceeded the full-year forecast of ¥32.0 hundred million, representing progress of 111.0%. However, this was boosted by extraordinary income, including gains on the sale of investment securities, and does not directly reflect the degree of achievement on an operating basis. The pace of accumulation of Operating Income will be the key focus going forward.

Shareholder Returns

The annual dividend was ¥50 per share (¥25 interim and ¥25 year-end), doubling from ¥25 in the previous year. Total dividend payments were approximately ¥21.3 hundred million, resulting in a Payout Ratio of approximately 59.8% against Net Income attributable to owners of the parent of ¥35.5 hundred million. No share buybacks were conducted during the period, so the Total Return Ratio was at the same level as the Payout Ratio. Although a Payout Ratio of around 60% is within a sustainable range on an earnings basis, Free Cash Flow of ¥14.1 hundred million was below total dividends of ¥21.3 hundred million, indicating that dividends for the period were not fully funded by Operating Cash Flow alone. Cash and deposits of ¥343.1 hundred million and stable equity supported near-term payment capacity.

Risk Factors

1. Profitability of the Overseas Business: The business continued to operate at a loss, with revenue of ¥39.5 hundred million (+14.7% YoY), an operating loss of ¥4.7 hundred million, and a profit margin of −11.8%. Revenue growth has not translated into profitability, and attention should also be paid to signs of impairment in goodwill of ¥25.4 hundred million, which increased sharply from ¥0.2 hundred million in the previous year.

2. Weakness in Cash Conversion: Operating Cash Flow of ¥20.8 hundred million was only 0.58x Net Income attributable to owners of the parent of ¥35.5 hundred million, and 0.38x EBITDA. Accounts receivable increased to ¥256.8 hundred million and DSO lengthened to 64 days, confirming a delay in cash conversion relative to accounting profit.

3. Business Concentration Risk: The Music Business accounts for 82.9% of revenue, while domestic revenue accounts for more than 90% of total revenue. Consequently, fluctuations in domestic entertainment demand and event operations are likely to have a significant impact on consolidated performance.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Within the industry, both the Operating Income margin and Net Income margin were below the median, placing profitability in the lower tier of the industry.

Growth and Capital Efficiency

The Revenue growth rate was slightly above the industry median, placing growth at a mid-range level within the industry.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. The return to operating profitability was primarily driven by operating leverage resulting from revenue growth and nearly flat SG&A expenses. The return to profitability in the Music Business and higher earnings in the Anime & Visual Business indicate structural improvement, while continued losses in the Overseas Business remain a drag on consolidated profitability.

2. Extraordinary gains and losses, including gains on the sale of investment securities, contributed to Net Income growth. In evaluating the company, greater emphasis should therefore be placed on trends in Operating Income, Ordinary Income, and Operating Cash Flow.

3. The dividend doubled to ¥50 per share and the Payout Ratio was approximately 59.8%; however, the fact that Free Cash Flow was below total dividends warrants attention as an indication of the cash-based support for the dividend.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,078–¥1,138 at ±1% for the cost of equity, and ¥1,104–¥1,109 at ±0.1 for ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burdens, acquisition-related expenses, non-controlling interests, and other factors (Net Income ÷ Operating Income 53%). This value reflects that compression at face value; if the factors are temporary, normalized earnings power may be higher than this.
• Because 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 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings release data. It does not recommend investment in any specific securities. 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.

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