AIN HOLDINGS (9627) FY2026 Q3 Earnings Report

Quick View

Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, the Company recorded substantial increases in revenue and earnings, primarily due to the consolidation effects of M&A transactions involving Craft, Sakura Pharmacy, and other companies. Profitability improved, with Operating Income growth exceeding revenue growth. Revenue was ¥474.89B (+41.0% YoY), Operating Income was ¥21.24B (+69.2%), Ordinary Income was ¥20.15B (+48.0%), and Net Income was ¥10.23B (+39.4%). The Operating Margin improved to 4.5% from approximately 3.7% in the same period of the previous year; however, the effective tax rate was high at 48.2%, causing Net Income growth to fall below Operating Income growth.

Factors Affecting Performance

【Revenue】Revenue increased +41.0% YoY to ¥474.89B. The Pharmacy Business, which accounted for 85.3% of the revenue mix, increased 42.0%, while the Retail Business, which accounted for 13.0%, increased 42.2%; both were driven by the expansion of the consolidation scope through M&A. In the Pharmacy Business, eight companies, including Craft and Sakura Pharmacy, were consolidated following the acquisition of AIN-AG1 Co., Ltd. In the Retail Business, the contribution from the acquisition of Francfranc in the previous fiscal year has continued.

【Profit and Loss】Operating Income increased +69.2% YoY to ¥21.24B, and the Operating Margin improved by approximately 80bp YoY to 4.5%, indicating progress in absorbing costs against higher revenue. Ordinary Income, however, increased only +48.0% due to non-operating expenses, including ¥1.42B in interest expense, while Net Income growth slowed to +39.4% due to the impact of the 48.2% effective tax rate. Extraordinary income and losses resulted in a net loss of ¥0.39B, including an impairment loss of ¥0.18B, and were limited as a temporary factor. Revenue and earnings increased.

Segment Analysis

The Pharmacy Business is the core business, with revenue of ¥40.495B (+42.0% YoY), segment profit of ¥2.412B (+38.6%), and a 6.0% profit margin, accounting for 80.6% of total reported segment profit. The Retail Business reported revenue of ¥6.156B (+42.2%), segment profit of ¥0.576B (+43.6%), and a 9.4% profit margin, demonstrating higher profitability than the Pharmacy Business. Other Businesses reported revenue of ¥0.837B (+0.4%) and turned profitable from a loss in the same period of the previous year. Adjustments for corporate expenses and other items amounted to ¥0.975B in expenses, reducing aggregate segment profit; improving indirect cost efficiency will therefore be key to improving the consolidated profit margin.

Key Financial Indicators

【Profitability】The Operating Margin was 4.5%, the gross margin was 16.7%, and the Net Profit Margin was 2.1%. Improvements at the operating level have not been sufficiently reflected in Net Income due to the high effective tax burden of 48.2%. 【Cash Flow Quality】Against Operating Income of ¥21.24B, Net Income was limited to ¥10.22B, while interest expense of ¥1.42B and income taxes and other taxes of ¥9.52B reduced the capacity to generate cash from earnings. Accounts payable of ¥12.369B exceeded the combined total of accounts receivable and inventories, indicating a working capital structure utilizing supplier credit. 【Investment Efficiency】ROE was 6.8%, total asset turnover was 0.905x, and financial leverage was 3.47x, indicating that capital efficiency is supported by high leverage. 【Financial Soundness】The Equity Ratio was 28.8%, the current ratio was 92.4%, and the D/E ratio was 2.47x, representing levels requiring monitoring from both liquidity and leverage perspectives. Goodwill of ¥19.862B exceeded net assets of ¥15.117B, resulting in a high goodwill-to-net-assets ratio of 131.4%.

Cash Flow Analysis

Although detailed figures from the cash flow statement are outside the scope of disclosure, the flow of funds can be inferred from balance sheet trends. In connection with M&A, goodwill expanded to ¥19.862B and intangible fixed assets expanded to ¥21.264B, with long-term borrowings accumulating to ¥15.646B to fund these assets. Cash and deposits of ¥5.665B exceeded short-term borrowings of ¥3.077B, indicating that short-term funding needs are secured. The working capital structure, in which accounts payable of ¥12.369B exceeded the combined total of accounts receivable of ¥5.307B and inventories of ¥4.763B, supports cash generation through the utilization of supplier credit. Extraordinary losses included an impairment loss of ¥0.18B and a loss on the disposal and sale of fixed assets of ¥0.39B; however, their impact on Profit Before Tax was limited. Cash movements during the period are primarily explained by M&A investment and financing through long-term borrowings.

Earnings Quality

Beginning with Operating Income of ¥21.24B, the Company's earnings reached Profit Before Tax of ¥19.76B after non-operating expenses, including net expenses of ¥1.09B incorporating ¥1.42B in interest expense, and extraordinary income and losses, representing a net loss of ¥0.39B, including an impairment loss of ¥0.18B. The impact of these temporary factors was limited to approximately 2% of Profit Before Tax. Accordingly, changes in earnings for the period are primarily explained by recurring operating performance. Meanwhile, income taxes and other taxes of ¥9.52B resulted in a high effective tax rate of 48.2%, and the tax burden coefficient of 0.517 restrained the efficiency with which Operating Income improvements translated into Net Income. Comprehensive Income was ¥10.91B, close to Net Income of ¥10.23B. Although it included ¥0.56B in valuation differences on other securities, the divergence was not significant, and no factor that materially distorts earnings quality was identified.

Earnings Forecasts and Guidance

The cumulative Q3 progress rates against the full-year Company plan—Revenue of ¥646.00B, Operating Income of ¥28.30B, and Ordinary Income of ¥26.50B—were 73.5%, 75.1%, and 76.0%, respectively, representing generally standard progress in line with historical seasonality. There were no revisions to the earnings forecast or dividend forecast during the quarter, and the Company's year-on-year plan growth rates for Revenue (+41.4%) and Operating Income (+67.7%) are close to the actual growth rates.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year Company dividend forecast is ¥80 per share. Based on forecast EPS of ¥384.91, the Payout Ratio is approximately 20.8%, keeping the dividend burden relative to earnings below the 60% benchmark. However, given the D/E ratio of 2.47x and the scale of long-term borrowings associated with M&A, the potential for expanding shareholder returns will depend on future debt reduction and progress in integrating the earnings of acquired companies.

Risk Factors

1. Goodwill and Intangible Asset Concentration Risk: Goodwill of ¥19.862B equaled 131.4% of net assets, while intangible fixed assets reached 40.5% of total assets. The increase in goodwill associated with the acquisition of AIN-AG1 was the primary factor, and failure of the acquired businesses to meet their earnings plans could result in impairment losses that materially erode equity capital.

2. Financial Leverage and Liquidity: The D/E ratio was 2.47x, the current ratio was 92.4%, and working capital was negative ¥1.529B. Long-term borrowings of ¥15.646B reflect the burden of financing M&A, and increases in interest expense could pressure Profit Before Tax in an environment of rising interest rates.

3. Lower Earnings Conversion Efficiency Due to the High Tax Burden: The effective tax rate of 48.2% and tax burden coefficient of 0.517 have prevented the improvement in the 4.5% Operating Margin from being sufficiently reflected in the 2.1% Net Profit Margin. Under a business structure with a low gross margin of 16.7%, institutional changes such as revisions to dispensing fees and drug prices could have an amplified impact on profit margins.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

Profitability is above the industry median.

Growth and Capital Efficiency

The Revenue Growth Rate substantially exceeds the industry median, reflecting the consolidation effects of M&A.

※Source: Compiled by the Company

Key Points in the Financial Results

1. Revenue increased +41.0% and Operating Income increased +69.2%, with earnings growth exceeding revenue growth. Operating-level profitability has improved alongside the expansion of scale through M&A. While the Pharmacy Business accounted for 80.6% of reported segment profit, the Retail Business complemented profitability with a 9.4% profit margin, exceeding the Pharmacy Business's 6.0%.

2. Despite the improvement in the Operating Margin to 4.5% (+80bp YoY), the effective tax rate of 48.2% restrained the Net Profit Margin at 2.1%. The normalization of the tax burden will be a key focus for future earnings growth.

3. Goodwill of ¥19.862B has reached a scale exceeding net assets. The establishment of earnings contributions from acquired companies and resilience against goodwill impairment are structural points of focus that will determine future financial soundness.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,170–¥4,420 for ±1% in the Cost of Equity, and ¥4,292–¥4,292 for ±0.1 in ω.

Notes:

• Net Income has been substantially compressed relative to Operating Income due to the tax burden, acquisition-related expenses, and non-controlling interests (Net Income ÷ Operating Income 48%). This value reflects that compression at face value; if these factors are temporary, underlying earnings power may be higher.
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Goodwill represents a high proportion of net assets, and the assumptions would change materially if impairment occurs.
• Net assets as of the end of the quarter are used, resulting in a timing difference from the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

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

---

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 disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional advisor as necessary.

---End of Report---

---

AI Financial Analysis

Executive Summary

AIN Holdings delivered a strong FY2026 Q3 cumulative earnings performance, driven principally by the consolidation of newly acquired pharmacy operations and continued profit growth across its major segments. Revenue increased 41.0% year on year to ¥474.9bn. Operating income rose 69.2% to ¥21.2bn, materially outpacing sales growth. Ordinary income increased 48.0% to ¥20.2bn. Profit attributable to owners increased 38.9% to ¥10.2bn, or ¥291.15 per share. Gross profit expanded 48.7% to ¥79.2bn, and the gross margin improved 90bp year on year to 16.7% from 15.8%. The operating margin expanded 74bp to 4.5% from 3.7%, demonstrating positive operating leverage despite the enlarged cost base. SG&A rose 42.4% to ¥58.0bn, broadly in line with the 41.0% increase in revenue and therefore did not materially dilute the gross-margin improvement. The Pharmacy business remained the core business, generating ¥405.0bn of revenue and ¥24.1bn of segment profit. The Retail business also contributed strongly, with revenue of ¥61.6bn and segment profit of ¥5.8bn. The acquisition-led growth strategy is evident in the consolidation of Craft and Sakura Pharmacy-related entities, which added ¥121.3bn of goodwill during the period. This growth has substantially increased financial leverage, goodwill exposure and the importance of successful post-merger integration. The annualized reported ROE was 9.0%, a reasonable return level but one supported by elevated financial leverage of 3.47x rather than a high net margin. Net margin remained modest at 2.1%, reflecting the inherently low-margin pharmacy and retail mix, increased interest expense, and a 48.2% effective tax rate. Management retained its full-year forecasts, and Q3 cumulative progress is broadly consistent with the annual targets. The central forward implication is that earnings delivery is on track, but the investment case increasingly depends on merger integration, preservation of acquired earnings power, debt reduction capacity, and avoidance of goodwill impairment.

Profitability Analysis

The annualized reported ROE of 9.0% decomposes into a 2.1% net profit margin, 1.206x asset turnover, and 3.47x financial leverage. The low net margin is the primary constraint on shareholder returns, while high financial leverage is the largest positive contributor to the reported ROE. EBIT margin was 4.5%, below the 5% efficiency benchmark, although it improved from approximately 3.7% in the prior-year period as operating income growth exceeded sales growth. Gross margin improved to 16.7% from 15.8%, indicating more favorable gross-profit conversion following the enlarged business base. The Pharmacy segment is the core profit engine, contributing ¥24.1bn of segment profit, or about 80.6% of aggregate segment profit before corporate-cost allocation, with a segment margin of 6.0%. Retail generated ¥5.8bn of segment profit, or about 19.2% of aggregate segment profit, and delivered a higher 9.3% segment margin. Pharmacy revenue grew 42.0% year on year and its segment profit grew 38.6%, while Retail revenue grew 42.2% and segment profit grew 43.6%. The sharp 69.2% increase in consolidated operating income exceeded the growth in aggregate segment profit because the prior period contained a larger reconciliation burden relative to operating income. Corporate and unallocated expenses nevertheless increased to ¥9.7bn from ¥8.5bn, and continued discipline over headquarters, systems and logistics costs remains important. The five-factor DuPont analysis shows a 0.930 interest burden, meaning financing costs reduced EBIT by roughly 7.0% before tax; this remains manageable but has weakened materially as interest expense rose to ¥1.4bn from ¥0.2bn. The 0.517 tax burden is also a material drag on return conversion, corresponding to a 48.2% effective tax rate. Under JGAAP, future amortization of acquisition-related goodwill and other intangibles can constrain operating and net-income growth relative to IFRS peers, making cash generation and post-acquisition earnings realization particularly important.

Growth Assessment

Revenue growth of 41.0% was acquisition-led, with the Pharmacy business increasing revenue by ¥119.7bn and Retail increasing revenue by ¥18.3bn. The consolidation of Craft, Sakura Pharmacy and related entities is the principal source of the enlarged Pharmacy segment and transformed the earnings base during the period. Pharmacy segment profit grew more slowly than segment revenue, suggesting that integration costs, mix, or the initial profitability profile of the acquired businesses may temper near-term margin accretion. Retail segment profit growth slightly exceeded revenue growth, supporting favorable operating leverage in that business. Other business revenue was broadly stable at ¥8.4bn and does not materially influence the consolidated growth profile. Full-year guidance calls for revenue of ¥646.0bn, operating income of ¥28.3bn, ordinary income of ¥26.5bn and profit attributable to owners of ¥13.5bn. Q3 cumulative progress is 73.5% for revenue, 75.1% for operating income, 76.0% for ordinary income and 75.7% for net income, all broadly aligned with the standard 75% Q3 run-rate. The forecast therefore implies a modestly lower Q4 operating margin than the Q3 cumulative margin, which appears prudent given integration expenses, seasonal mix and financing costs. The full-year plan represents 41.4% revenue growth and 67.7% operating-income growth, consistent with continued margin expansion. The quality of growth should be judged by the acquired pharmacy businesses' ability to sustain revenue, retain personnel and customers, and generate profits sufficient to support the purchase accounting asset base. In retail, Francfranc-related consumer demand, merchandising discipline and inventory control remain relevant determinants of earnings durability.

Financial Health

Financial health has weakened following acquisition financing and requires close monitoring. The current ratio is 0.92x, below 1.0x, and working capital is negative ¥15.3bn; this is a liquidity warning because current liabilities of ¥202.4bn exceed current assets of ¥187.1bn. The quick ratio is also low at 0.69x, indicating that liquid current assets excluding inventory do not fully cover short-term obligations. The maturity profile has some mitigating features: cash and deposits of ¥56.7bn cover short-term loans of ¥30.8bn by 1.84x. However, cash does not independently cover total current liabilities, which include ¥123.7bn of trade payables. Interest-bearing debt rose to ¥187.2bn, comprising ¥30.8bn of short-term borrowings and ¥156.5bn of long-term borrowings. Debt-to-equity is 2.47x, above the 2.0x aggressive-leverage threshold, and debt-to-capital is 55.3%, indicating a debt-funded capital structure. Long-term loans increased by ¥130.0bn year on year, while short-term loans increased by ¥18.6bn, consistent with financing for acquisitions and consolidation. Interest coverage of 14.91x remains strong and indicates that current operating earnings can service reported interest expense. Nonetheless, interest expense increased more than eightfold year on year to ¥1.4bn, making future earnings more sensitive to borrowing costs and refinancing conditions. Equity increased only 6.0% year on year to ¥151.2bn, whereas total assets increased 68.3% to ¥525.0bn, reducing the capital adequacy ratio to 28.7% from 45.7%. Goodwill of ¥198.6bn equals 131.4% of equity and 37.8% of total assets, far above the 50% goodwill-to-equity warning threshold. This reflects the ¥121.3bn goodwill addition associated with the acquisition of AIN-AG1 and its pharmacy subsidiaries. Intangible assets represent 40.5% of total assets, an elevated concentration that increases dependence on the economic value of acquired businesses. Asset retirement obligations of ¥6.4bn and a net defined benefit liability of ¥6.3bn are additional balance-sheet obligations to monitor.

Notable B/S Changes

Long-term loans: +¥130.0bn (+491.1%) to ¥156.5bn - substantial acquisition financing has increased leverage and refinancing sensitivity. Short-term loans: +¥18.6bn (+153.2%) to ¥30.8bn - higher short-term borrowings add liquidity-management requirements, although cash covers short-term loans by 1.84x. Goodwill: +¥113.8bn (+134.3%) to ¥198.6bn - primarily reflects the AIN-AG1 acquisition; goodwill now equals 131.4% of equity, elevating impairment risk. Intangible assets: +¥115.0bn (+117.8%) to ¥212.6bn - acquisition-related asset concentration is high at 40.5% of total assets and makes future earnings dependent on acquired-business value retention. Accounts receivable: +¥30.8bn (+138.0%) to ¥53.1bn - growth is consistent with the enlarged sales base but should be monitored for collection efficiency. Cash and deposits: +¥29.8bn (+110.8%) to ¥56.7bn - provides a meaningful liquidity buffer against ¥30.8bn of short-term loans, but does not eliminate the negative working-capital position. Accounts payable: +¥42.8bn (+52.9%) to ¥123.7bn - supplier financing has expanded with business scale and contributes to current liabilities exceeding current assets. Investment securities: +¥1.4bn (+44.3%) to ¥4.7bn - the absolute balance remains small relative to total assets and is not a primary determinant of financial risk.

Cash Flow Quality

Dividend Sustainability

The full-year dividend forecast is ¥80 per share, with no interim Q2 dividend scheduled. Based on forecast EPS of ¥384.91, the implied dividend payout ratio is approximately 20.8%, which is conservative and well below the 60% sustainability benchmark. Forecast dividends imply an aggregate cash requirement of roughly ¥2.8bn based on 35.1 million average shares. Forecast profit attributable to owners of ¥13.5bn provides substantial accounting earnings coverage for the planned dividend. The absence of an interim dividend does not indicate a reduced full-year shareholder-return policy because the company forecasts a year-end dividend. Given the acquisition-driven increase in debt and goodwill, a conservative dividend commitment preserves financial flexibility for interest payments, amortization, integration expenditures and potential debt repayment. Dividend sustainability should ultimately be assessed against post-acquisition cash conversion and free-cash-flow generation as the enlarged group matures.

Risk Assessment

Business risks include Post-merger integration risk is high following the acquisition and consolidation of Craft, Sakura Pharmacy and related entities. The transaction generated ¥121.3bn of new goodwill, making retention of pharmacists, customers, prescription volumes and local operating capabilities critical., Pharmacy reimbursement revisions, drug-price adjustments, dispensing-fee changes and healthcare-policy reforms can affect margins in the core Pharmacy business., The retail operation is exposed to discretionary-consumption conditions, merchandise trends, competition and inventory-management risk, particularly for the Francfranc-related business., Labor-market tightness, especially for pharmacists and store personnel, can raise wage costs and constrain network operations..

Financial risks include Current ratio of 0.92x and negative working capital of ¥15.3bn represent a liquidity warning, as short-term obligations exceed current assets., D/E of 2.47x reflects aggressive debt financing. While interest coverage remains strong at 14.91x, the debt load increases refinancing and interest-rate sensitivity., Interest expense increased to ¥1.4bn from ¥0.2bn, reducing the interest burden to 0.930 and creating a larger drag on ordinary income., Goodwill of ¥198.6bn equals 131.4% of equity. Any deterioration in the acquired businesses' profitability could lead to a material JGAAP impairment charge., Intangible assets equal 40.5% of total assets, creating balance-sheet concentration in nonphysical acquisition-related assets and increasing the importance of maintaining acquired cash flows..

Key concerns include The 48.2% effective tax rate is unusually high, producing a tax burden of 0.517 and materially limiting the conversion of pre-tax profit into net income., The 4.5% EBIT margin remains below the 5% operating-efficiency benchmark despite year-on-year improvement, leaving limited margin protection against reimbursement, wage or procurement pressure., Gross margin of 16.7% remains below the 20% benchmark; although the 90bp improvement is favorable, the business model remains dependent on high volume and expense control., The strongest earnings-growth driver is acquisition consolidation rather than purely organic expansion, which raises the probability and impact of integration execution risk..

Investment Implications

Key takeaways include FY2026 Q3 earnings exceeded the pace of sales growth, with revenue up 41.0%, operating income up 69.2% and operating margin expanding 74bp to 4.5%., Pharmacy is the core business, generating ¥405.0bn of revenue and ¥24.1bn of segment profit, and the newly consolidated pharmacy businesses are central to the enlarged earnings base., Retail is smaller but more profitable on a segment-margin basis, delivering a 9.3% segment margin versus 6.0% in Pharmacy., Full-year forecast progress is broadly on schedule, with Q3 cumulative operating-income progress of 75.1% versus the standard 75% run-rate., The main trade-off for stronger scale and earnings is a materially more leveraged and acquisition-asset-heavy balance sheet..

Metrics to watch include Pharmacy segment margin, acquired-store retention and earnings contribution from Craft and Sakura Pharmacy-related operations, Goodwill impairment indicators, including acquired-business profitability and the relationship between goodwill and equity, Interest-bearing debt, D/E, interest expense and interest coverage, Current ratio, quick ratio, cash balances and working-capital movement, Effective tax rate and net-income conversion from ordinary income, Retail sales momentum, gross margin and inventory discipline, Progress toward the ¥646.0bn revenue, ¥28.3bn operating-income and ¥13.5bn net-income forecasts.

Regarding relative positioning, AIN Holdings combines a large, defensive pharmacy platform with a growing retail exposure, but its financial profile is more acquisition-intensive than a conservatively financed domestic pharmacy peer. Its 9.0% annualized ROE is supported substantially by 3.47x financial leverage, while its 2.1% net margin and 4.5% EBIT margin remain modest. Relative operating positioning is improving through scale and margin expansion, whereas relative balance-sheet risk is elevated because goodwill exceeds equity and D/E exceeds 2.0x.