AIN HOLDINGS (9627) FY2027 Q1 Earnings Report

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Executive Summary

The results show substantial revenue growth, while profit growth remained limited due to a decline in the gross margin and an increase in financial expenses. Revenue was ¥1771.2B (+33.2% YoY), Operating Income was ¥46.1B (+8.4%), Ordinary Income was ¥39.2B (-8.0%), and Net Income attributable to owners of the parent was ¥19.8B (+2.3%). Strong growth in the core Pharmacy Business drove company-wide revenue, but the Operating Income margin declined from 3.2% in the previous year to 2.6%. In addition, an increase in interest expenses (¥1.1B→¥6.7B) was the primary reason for the decline in Ordinary Income.

Factors Affecting Performance

【Revenue】Revenue increased substantially by +33.2% YoY. By segment, the Pharmacy Business (dispensing pharmacies) generated ¥1512.9B (+39.3%), accounting for 85.4% of consolidated revenue and driving growth, while the Retail Business (drugstores and cosmetics stores) remained at ¥230.2B (+6.7%).

【Profit and Loss】Operating Income increased by 8.4% to ¥46.1B, failing to keep pace with revenue growth, and the Operating Income margin declined from 3.2% in the previous year to 2.6%. The gross margin also declined by approximately 1.8pt from 16.4% to 14.6%, and this could not be fully offset by the improvement in the SG&A expense ratio (13.2%→12.0%). Ordinary Income declined by 8.0% to ¥39.2B due to the increase in interest expenses from ¥1.1B to ¥6.7B. Extraordinary losses of ¥6.9B (including an ¥5.1B impairment loss on investment securities) reduced Profit Before Tax to ¥32.7B as a temporary factor. Net Income was secured at ¥19.8B (+2.3%), partly reflecting the reversal of the relatively heavy tax burden in the previous year. Overall, the company recorded higher revenue and higher Operating Income, but Ordinary Income and Profit Before Tax declined, indicating weak profit conversion relative to revenue growth.

Segment Analysis

The Pharmacy Business recorded revenue of ¥1512.9B (+39.3%) and segment profit (on an Ordinary Income basis) of ¥51.3B (+21.2%), representing higher revenue and profit, although its margin remained low at 3.4%. The Retail Business recorded revenue of ¥230.2B (+6.7%) but profit of ¥28.9B (-0.9%), representing higher revenue but lower profit. Its margin of 12.5% was relatively high, although it declined from the previous year. Company-wide growth is highly dependent on the dispensing pharmacy business, which accounts for 86.8% of revenue.

Key Financial Indicators

【Profitability】The Operating Income margin was 2.6% (3.2% in the previous year), while the Net Income margin was 1.1%, indicating a declining margin trend despite revenue growth. Annualized ROE was 5.0%, and the Equity Ratio was 31.1% (essentially flat from 31.2% in the previous year). 【Cash Flow Quality】Profit Before Tax of ¥32.7B less income taxes of ¥12.9B resulted in Net Income of ¥19.8B, implying an effective tax rate of approximately 39.5%. 【Investment Efficiency】Goodwill of ¥1913.8B reached 121.1% of net assets of ¥1579.9B, while intangible assets (including goodwill) accounted for 40.5% of total assets, making the monetization of assets formed through M&A a key issue. 【Financial Soundness】Current assets of ¥1730.3B compared with current liabilities of ¥1895.3B resulted in a current ratio of 91.3%, below 1x. Interest-bearing debt remained high, including long-term borrowings of ¥1460.4B, resulting in a capital structure with high debt dependence.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is not available, funding trends can be confirmed from changes in the balance sheet. Cash and deposits increased to ¥542.6B from ¥509.3B in the same period of the previous year, while accounts payable increased to ¥1183.7B (¥1138.7B in the previous year), suggesting reliance on funding through working capital. Long-term borrowings changed from ¥1460.4B to ¥1511.1B, and interest-bearing debt as a whole remained high. Cash and deposits were 2.6 times short-term borrowings of ¥205.8B, indicating that short-term repayment funds are secured, while the current ratio of 91.3% remains a level requiring monitoring from a short-term liquidity perspective.

Quality of Earnings

The divergence between Ordinary Income and Net Income resulted from temporary factors, including the increase in interest expenses under non-operating expenses (¥6.7B, compared with ¥1.1B in the previous year) and extraordinary losses of ¥6.9B (including an ¥5.1B impairment loss on investment securities and a ¥0.6B loss on disposal and sale of fixed assets). Comprehensive Income was ¥22.0B, and the difference from Net Income of ¥19.8B was attributable to other comprehensive income items, including valuation differences on securities of ¥2.6B and deferred hedge gains or losses of ¥0.5B. The divergence between Net Income and Comprehensive Income was limited. Non-operating income remained small, including ¥0.2B in dividend income, indicating limited earnings contributions from outside the core business. Earnings quality therefore remains highly dependent on trends in the gross margin and SG&A expense ratio of the core business.

Earnings Forecast and Guidance

The full-year company plan calls for Revenue of ¥7215.0B (+11.4%), Operating Income of ¥325.0B (+8.9%), and Ordinary Income of ¥300.0B (+5.6%). While the Q1 cumulative progress rate for Revenue was 24.5%, within the seasonal range, the progress rate for Operating Income was 14.2%, 10.8pt below the standard 25%. The progress rate for Ordinary Income also remained at approximately 13.1%. Achieving the first-half and second-half profit plans will require stability in the gross margin and normalization of financial expenses and one-time gains or losses. There has been no revision to the earnings forecast.

Shareholder Returns

The full-year dividend forecast remains ¥100 per share, with no revision. Based on forecast EPS of ¥426.74, the forecast Payout Ratio is approximately 23.4%, below the general return guideline of 60%. Given the level of interest-bearing debt and the current ratio of 91.3%, evaluation of shareholder returns should monitor the balance between earnings, debt reduction, and cash-generation capacity.

Risk Factors

1. Business concentration risk: The Pharmacy Business accounts for 86.8% of consolidated revenue, creating a structure in which revisions to dispensing fees and drug prices, the securing of pharmacists, and rising personnel expenses could have a significant impact on company-wide performance.

2. Financial leverage and liquidity: The D/E ratio is 2.22x, the current ratio is 91.3%, and the quick ratio is 65.3%, representing levels around 1x or high leverage in each case. Interest expenses increased from ¥1.1B in the previous year to ¥6.7B, increasing sensitivity to interest-rate fluctuations.

3. Concentration of goodwill and intangible assets: Goodwill of ¥1913.8B reached 121.1% of net assets, while intangible assets accounted for 40.5% of total assets. If acquired companies fail to meet their earnings plans, impairment losses may arise.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

Profitability was below the industry median for both metrics, and the low-margin structure was relatively pronounced within the industry.

Growth and Capital Efficiency

The Revenue growth rate was substantially above the industry median, positioning the company as an outstanding revenue-growth company within the industry.

※Source: Compiled by the Company

Key Points in the Results

1. Revenue growth was an industry-leading +33.2%, while the Operating Income margin remained at 2.6%, below the industry median. The weak ability to convert revenue growth into profit growth is a key point in the results.

2. Goodwill reached 121.1% of net assets and the D/E ratio was also high at 2.22x. Accordingly, the monetization of assets formed through M&A and balance-sheet discipline will remain points for continuous monitoring.

3. Q1 progress against the full-year plan was 24.5% for Revenue, compared with 14.2% for Operating Income and 13.1% for Ordinary Income, indicating underperformance on the profit side. Improvements in the gross margin and trends in financial expenses during the second half will determine full-year results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,414–¥4,677 at ±1% for the Cost of Equity, and ¥4,541–¥4,544 at ±0.1 for ω.

Notes:

• Net Income is significantly compressed relative to Operating Income due to tax burdens, acquisition-related expenses, and non-controlling interests (Net Income ÷ Operating Income 46%). This value reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• Goodwill represents a high percentage of net assets, and the assumptions would change significantly if impairment occurred.
• Net assets at 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.

（Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest-rate reference month: 2026-08 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and 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. 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 professionals as necessary.

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