Avex Inc. FY2027 Q1 Earnings Report

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Executive Summary

Although a significant increase in profit in the Anime and Video Business supported the Company as a whole, the results represented higher revenue but lower profit, with final profit substantially compressed by lower profit in the core Music Business, the recognition of extraordinary losses, and an increase in the effective tax rate. Revenue was ¥349.3B (+6.7% YoY), Operating Income was ¥12.8B (-12.4%), Ordinary Income was ¥13.7B (-4.7%), and Net Income (consolidated net income for the period) was ¥4.9B (-46.0%). Net income attributable to owners of the parent was ¥4.25B (¥7.61B in the previous year, -44.2% YoY); the recognition of ¥2.6B in extraordinary losses and the increase in the effective tax rate to 55.6% (33.2% in the previous year) were the primary causes of the deterioration in profitability.

Factors Affecting Results

【Revenue】Revenue was ¥349.3B, representing a 6.7% YoY increase. By segment, the Anime and Video Business more than doubled to ¥88.8B (+106.3%), becoming the driver of overall growth, while the Music Business, which accounted for 73.5% of the revenue mix, declined to ¥256.9B (-7.8%). The Overseas Business also contracted to ¥6.3B (-14.2%).

【Profit and Loss】Operating Income was ¥12.8B (-12.4%), and the Operating Income margin declined to 3.7% from 4.5% in the previous year, a decrease of 0.8pt. The gross profit margin declined to 28.7% from 29.5% in the previous year due to an increase in the cost of sales ratio, while the SG&A expense ratio was broadly flat at 25.0%. By segment, the Anime and Video Business improved profitability to ¥11.9B (+19.5x), with a profit margin of 13.4%, whereas the Music Business fell sharply to ¥3.5B (-77.7%), with its profit margin declining to 1.3% (equivalent to 5.6% in the previous year). The Overseas Business recorded an Operating Loss of ¥2.6B, with its deficit expanding. Ordinary Income declined by ¥13.7B (-4.7%), with the decline compressed by improved non-operating income and expenses, including an increase in interest income. However, the recognition of ¥2.6B in extraordinary losses and the increase in the effective tax rate to 55.6% (33.2% in the previous year) weighed on results, causing Net Income to fall to ¥4.9B (-46.0%; ¥4.25B on a basis attributable to owners of the parent, -44.2%). Revenue increased but profit declined.

Segment Analysis

The Anime and Video Business recorded revenue of ¥88.8B (+106.3% YoY), Operating Income of ¥11.9B (+19.5x), and a profit margin of 13.4%, demonstrating the highest profitability among all segments and becoming the largest contributor to profit this fiscal year. The Music Business recorded revenue of ¥256.9B (-7.8%) and Operating Income of ¥3.5B (-77.7%), with its profit margin declining to 1.3% (equivalent to 5.6% in the previous year). Although it remained the core business, accounting for 73.5% of the revenue mix, its profitability deteriorated substantially. The Overseas Business recorded revenue of ¥6.3B (-14.2%) and an Operating Loss of ¥2.6B (¥-1.5B in the previous year), with its deficit expanding and its profit margin reaching -41.6%. The Other Businesses improved on a small scale, recording revenue of ¥1.8B (+7.4%) and Operating Income of ¥0.1B (+275.0%). Changes in the segment mix have clearly created a structure in which increased profit in the Anime and Video Business offsets the decline in the earning power of the Music Business.

Key Financial Indicators

【Profitability】The Operating Income margin was 3.7%, down 0.8pt from 4.5% in the previous year; the Net Income margin (based on consolidated net income for the period) was 1.4%, down 1.4pt from 2.8%; and the gross profit margin was 28.7%, down 0.8pt from 29.5%. Profitability is generally trending downward.【Cash Quality】Accounts receivable and notes receivable declined to ¥202.4B from ¥256.8B in the previous year, while inventories increased 50.0% to ¥19.1B from ¥12.7B, indicating that accumulated work in progress is tying up working capital.【Investment Efficiency】ROE was 0.9%, while total asset turnover remained at a low level.【Financial Soundness】The Equity Ratio improved 0.4pt to 48.2% from 47.7% in the previous year. With cash and deposits of ¥340.1B versus long-term borrowings of ¥6.7B, interest-bearing debt is extremely limited, and the Company continues to maintain a conservative financial structure.

Cash Flow Analysis

Although a cash flow statement has not been disclosed, changes in the balance sheet provide insight into funding trends. Cash and deposits were ¥340.1B, broadly flat at -0.9% from ¥343.1B in the previous year, indicating that liquidity on hand has been stably maintained. Meanwhile, inventories increased 50.0% to ¥19.1B from ¥12.7B, and intangible assets increased 30.1% to ¥64.7B from ¥49.7B, indicating greater capital tied up in content production and IP investment, particularly in the Anime and Video Business. Accounts receivable and notes receivable declined 21.2% to ¥202.4B from ¥256.8B, while accounts payable and notes payable declined 6.2% to ¥26.1B from ¥27.8B. Long-term borrowings remained low at ¥6.7B, suggesting that content investment is primarily funded with cash on hand.

Quality of Earnings

The recurring earnings structure is centered on the core business. Non-operating income and expenses represented net income including interest income of ¥0.4B and dividend income of ¥0.1B, amounting to approximately 0.4% of revenue and remaining small in scale, indicating good quality. However, the recognition of ¥2.6B in extraordinary losses and the significant increase in the effective tax rate to 55.6% (33.2% in the previous year) pressured final profit. Against Ordinary Income of ¥13.7B, Net Income attributable to owners of the parent was limited to ¥4.25B, widening the divergence between the two figures. Comprehensive Income was ¥5.8B (¥5.3B attributable to owners of the parent), slightly exceeding Net Income of ¥4.9B, primarily due to foreign currency translation adjustments of +¥1.3B. The decline in accounts receivable suggests improvement in collections, while the 50.0% increase in inventories indicates an accumulation of work in progress. The pace at which these inventories are converted into revenue will determine the quality of earnings going forward.

Earnings Forecasts and Guidance

The Q1 progress rate against the full-year Operating Income forecast of ¥60.0B was only 21.3% (12.8/60.0), below the 25% level implied by simple quarterly linearity. Against the EPS forecast of ¥75.28, current-period EPS was ¥10.00, representing a progress rate of 13.3%, indicating a more pronounced delay than for Operating Income. This gap was primarily attributable to lower profit in the Music Business, the increase in the effective tax rate, and the recognition of extraordinary losses. A recovery weighted toward the second half of the year is therefore a prerequisite for achieving the plan. The dividend forecast (¥50 per year) and earnings forecast had not been revised as of this quarter.

Shareholder Returns

The Company’s annual dividend forecast remains unchanged at ¥50. The Payout Ratio against forecast EPS of ¥75.28 is 66.4% (¥50/¥75.28), representing a generous level of profit distribution. Given the conservative financial structure of cash and deposits of ¥340.1B and long-term borrowings of ¥6.7B, short- to medium-term payment capacity itself appears sufficient. However, as current-period Operating Income and EPS are progressing somewhat behind plan, the realization of full-year profit and consistency with the shareholder return policy will require monitoring. No disclosure has been made regarding share repurchases.

Risk Factors

1. Declining profitability in the core Music Business: Revenue in the Music Business, which accounts for 73.5% of the revenue mix, declined sharply to ¥256.9B (-7.8% YoY), while Operating Income fell to ¥3.5B (-77.7%), reducing the profit margin to 1.3%. Given its significant impact on overall earnings, the recovery trend warrants close attention.

2. Increase in the effective tax rate and recognition of extraordinary losses: The effective tax rate rose to 55.6%, up 22.4pt from 33.2% in the previous year. Together with the recognition of ¥2.6B in extraordinary losses, this expanded the compression from Ordinary Income of ¥13.7B to Net Income of ¥4.9B (-64.3%).

3. Continued losses in the Overseas Business: Against revenue of ¥6.3B (-14.2% YoY), the Operating Loss expanded to ¥2.6B (¥-1.5B in the previous year), and the profit margin reached -41.6%.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

In terms of profitability, both the Operating Income margin and Net Income margin are substantially below the industry median, placing the Company in the lower group within the industry.

Growth and Capital Efficiency

Although the revenue growth rate is slightly below the industry median, it is positioned around the middle of the IQR range.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The background to the higher revenue but lower profit lies in changes in the business mix. While the Anime and Video Business expanded substantially in both revenue and profit, the core Music Business recorded lower revenue and profit, with the change in the segment mix determining overall profitability.

2. Progress against the full-year plan was 21.3% for Operating Income and 13.3% for EPS, both below the 25% implied by quarterly linearity. Achieving the plan, which is weighted toward the second half of the year, will be the focus going forward.

3. The increases in inventories (+50.0%) and intangible assets (+30.1%) indicate accumulated content and IP investment. The extent to which these assets are monetized going forward is a key structural point of focus.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,092–¥1,153 at ±1% for the cost of equity, and ¥1,118–¥1,124 at ±0.1 for ω.

Notes:

• Due to the tax burden, acquisition-related expenses, non-controlling interests, and other factors, Net Income is substantially compressed relative to Operating Income (Net Income ÷ Operating Income 53%). This value reflects that compression at face value; if the factors are temporary, the underlying earning power may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used; there is a timing difference from the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model used: Residual Income Model / Interest rate reference month: 2026-07 / This value does not predict or guarantee future share prices)

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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 discretion and responsibility, and you should consult a professional as necessary.

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