ANA HOLDINGS INC. (shares of preferred stock) FY2027 Q1 Earnings Report

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Executive Summary

The quarter saw higher revenue but lower earnings, with profitability deteriorating as the increase in cost of sales outpaced revenue growth. Revenue expanded to ¥6,727.3B (+22.6% YoY), but cost of sales increased by +29.2%, causing the gross margin to decline to 12.3% (previous year: 16.7%). Operating income was limited to ¥207.8B (-43.5%), while ordinary income was ¥225.1B (-37.3%). Net income attributable to owners of the parent was ¥194.1B (-15.4%), with one-off factors such as a ¥20.5B gain on the sale of investment securities mitigating the decline. While the core Airline Business led growth with revenue up +24.9%, operating income fell -48.7%, indicating a significant deterioration in profitability. The composition of revenue growth therefore highlighted challenges in absorbing costs.

Factors Affecting Earnings

【Revenue】Revenue was ¥6,727.3B, representing an increase of +22.6% YoY. The Airline Business accounted for the overwhelming majority of sales to external customers, with a composition ratio of 90.8%, followed by the Trading Business at 4.7%, the Aviation-Related Business at 2.2%, and the Travel Business at 1.6%. The increase in revenue from the Airline Business is believed to have been primarily driven by improvements in seat capacity and load factors resulting from the recovery in demand. The Aviation-Related Business (+7.4%) and Trading Business (+7.9%) also continued to post revenue growth, while the Travel Business alone recorded a revenue decline of -9.3%.

【Profit and Loss】Cost of sales was ¥5,901.1B, increasing +29.2% YoY, faster than revenue growth (+22.6%), and the gross margin declined by approximately 440bp to 12.3% (previous year: 16.7%). SG&A expenses increased to ¥618.4B (+12.4%), but the SG&A ratio to revenue declined to 9.2% (previous year: 10.0%), indicating that the primary source of cost pressure was at the cost-of-sales level. As a result, operating income was ¥207.8B (-43.5%), and the operating margin declined to 3.1% (previous year: 6.7%). Ordinary income was ¥225.1B (-37.3%), ¥17.3B higher than operating income, supported by an increase in interest income (¥25.2B, +76.6% YoY) and a decrease in interest expense (¥46.7B, -24.9% YoY). A ¥20.5B gain on the sale of investment securities was recorded as extraordinary income, providing a temporary boost to net income. After deducting income taxes and other taxes of ¥47.8B (effective tax rate: 19.5%) and net income attributable to non-controlling interests of ¥3.7B from pretax income of ¥245.6B, net income attributable to owners of the parent was ¥194.1B (-15.4% YoY). Revenue increased while earnings declined.

Segment Analysis

The Airline Business generated revenue of ¥6,208.3B (+24.9% YoY) and accounted for 79.9% of total segment revenue of ¥7,772.1B, making it the core business. However, operating income was ¥181.5B (-48.7% YoY), with a margin of 2.9%, representing the largest deterioration in profitability among the segments. The Aviation-Related Business recorded revenue of ¥926.5B (+7.4%), operating income of ¥49.2B (+54.3%), and a margin of 5.3%, the highest profitability among all segments, and returned to earnings growth. The Trading Business posted revenue of ¥374.6B (+7.9%), operating income of ¥10.7B (-19.8%), and a margin of 2.9%, showing a slight deterioration. The Travel Business recorded a revenue decline to ¥139.3B (-9.3%), but operating income improved to ¥1.4B (+169.3%). The decline in consolidated operating income is almost entirely explained by the deterioration in profitability of the core Airline Business, while improvement in the Aviation-Related Business provided a partial offset.

Key Financial Metrics

【Profitability】The operating margin was 3.1%, down 3.6pt from 6.7% in the same period of the previous year, while the net margin, based on net income attributable to owners of the parent, also declined to 2.9% from 4.2%, a decrease of 1.3pt. The primary factor was the decline in gross margin to 12.3% (previous year: 16.7%), as rising costs pressured profitability. 【Cash Quality】Contract liabilities (advance receipts) increased +9.5% YoY to ¥6,537.0B. On-hand liquidity was substantial, consisting of cash and deposits of ¥5,728.0B plus short-term securities of ¥6,369.7B. 【Investment Efficiency】ROE was 1.4%, which can be decomposed into a net margin of 2.9%, total asset turnover of 0.17x, and financial leverage of 2.79x. With low asset turnover and limited leverage effects, the decline in net margin is pushing down the ROE level. 【Financial Soundness】The equity ratio was 35.9%, down 1.8pt from 37.7% in the same period of the previous year. Although the company carries interest-bearing debt, primarily long-term borrowings of ¥7,924.9B, current assets of ¥18,299.1B exceeded current liabilities of ¥12,376.6B, indicating sufficient short-term liquidity.

Cash Flow Analysis

Cash and deposits were ¥5,728.0B, up +3.6% from ¥5,527.9B in the same period of the previous year, indicating that the company has maintained a substantial cash buffer. Contract liabilities (advance receipts) were ¥6,537.0B, an increase of ¥569B YoY, serving as a leading indicator of demand while also contributing to cash generation from working capital. Meanwhile, treasury stock amounted to ¥1,517.4B, up +49.4% from ¥1,015.6B in the same period of the previous year, making cash outflows related to share repurchases a major factor in capital policy changes. Property, plant and equipment amounted to ¥15,485.9B, increasing from ¥15,267.7B in the same period of the previous year, indicating continuing capital investment, including investment in aircraft and other equipment, as a source of funding demand. The decline in operating profitability and expansion of share repurchases are occurring simultaneously, making it important to monitor the balance between investment, shareholder returns, and on-hand liquidity.

Earnings Quality

The recurring earnings structure consists of operating income of ¥207.8B plus net non-operating income of ¥17.3B (non-operating income of ¥79.7B and non-operating expenses of ¥62.4B), resulting in ordinary income of ¥225.1B. Non-operating income represented only 1.2% of revenue, indicating limited dependence on it for earnings. The ¥20.5B extraordinary income was attributable to gains on the sale of investment securities and represents a one-off factor that should be evaluated separately from recurring earnings power. Income taxes and other taxes were ¥47.8B against pretax income of ¥245.6B, resulting in an effective tax rate of 19.5%; there were no major special factors affecting the tax burden. Meanwhile, comprehensive income was -¥119.8B (-¥124.6B attributable to owners of the parent), creating a significant divergence from net income attributable to owners of the parent of ¥194.1B. This divergence was primarily due to the deterioration in deferred hedge gains and losses, which decreased from ¥895.8B in the same period of the previous year to ¥581.9B (△¥313.9B). The fact that the direction of profit shown on the income statement does not align with changes in comprehensive shareholder value warrants attention when evaluating earnings quality.

Earnings Forecast and Guidance

The Q1 progress rate against the full-year company forecast was 24.3% for revenue (¥6,727.3B/¥27,700.0B), close to the 25% level implied by a simple straight-line progression. In contrast, operating income was 13.9% (¥207.8B/¥1,500.0B) and ordinary income was 16.4% (¥225.1B/¥1,370.0B), indicating relatively slow progress at the earnings level. Net income attributable to owners of the parent had reached 20.2% (¥194.1B) of the full-year forecast of ¥960.0B. The decline in gross margin caused by rising cost of sales was the primary reason for the delay in earnings progress, and achieving the plan will depend on cost control and revenue improvement in the second half of the fiscal year. No revision to the earnings forecast had been made as of the end of the quarter.

Shareholder Returns

The full-year dividend forecast is ¥30 per share, and the payout ratio based on the company’s forecast EPS of ¥209.26 is approximately 14.3%. There was no revision to the dividend forecast as of the end of the quarter. Treasury stock amounted to ¥1,517.4B (48,308 thousand treasury shares against 484,294 thousand issued shares), increasing from ¥1,015.6B in the same period of the previous year. Shareholder returns through share repurchases are also progressing. Separately from common shares, the company has issued bond-type class shares, for which the annual dividend forecast for the fiscal year ending March 2027 is ¥175.00, representing dividend terms different from those of common shares.

Risk Factors

1. Cost absorption capacity accompanying deteriorating profitability: The operating margin was 3.1%, down from 6.7% in the same period of the previous year, while the +29.2% increase in cost of sales exceeded the +22.6% increase in revenue. If costs such as fuel expenses and airport usage fees continue to rise, delays in passing costs through to prices could constrain improvements in profitability.

2. Volatility of comprehensive income: Comprehensive income was -¥119.8B, representing a significant divergence from net income attributable to owners of the parent of ¥194.1B. Deferred hedge gains and losses decreased from ¥895.8B in the same period of the previous year to ¥581.9B, requiring monitoring of the impact of fluctuations in hedge valuations on net assets.

3. Balance between capital policy and financial soundness: The equity ratio was 35.9%, down from 37.7% in the same period of the previous year, while treasury stock increased +49.4% YoY. Interest-bearing debt remained at a high level, centered on long-term borrowings of ¥7,924.9B. Balancing investment and shareholder returns with financial soundness remains a key challenge.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (transport)

Profitability and Returns

Both profitability metrics were below the industry median, indicating that the impact of rising costs was relatively significant compared with peers.

Growth and Capital Efficiency

Revenue growth was substantially above the industry median, with the pace of top-line recovery standing out among peers.

Source: Compiled by the company

Key Takeaways from the Financial Results

1. Structure of higher revenue but lower earnings: Revenue increased +22.6%, while cost of sales increased +29.2%, causing the gross margin to decline by 440bp. The results indicate that cost absorption remains a challenge despite top-line recovery.

2. Profitability gap among segments: Operating income in the core Airline Business deteriorated significantly, declining -48.7%, while the Aviation-Related Business recorded earnings growth of +54.3%, expanding the dispersion in profitability across the business portfolio.

3. Delay in earnings-stage full-year progress: Revenue progress was 24.3%, compared with operating income progress of 13.9% and ordinary income progress of 16.4%, indicating relatively slow progress at the earnings level.

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: ¥2,481–¥2,627 at cost of equity ±1%, and ¥2,546–¥2,557 at ω±0.1.

Notes:

• 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 relative to the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value does not forecast or guarantee future share prices)

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

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