AIN HOLDINGS INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥299.86B
• Operating Income: ¥10.52B
• Net Income: ¥3.20B
• EPS: ¥128.05

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Ain Holdings (TSE:9627) delivered a strong FY2026 Q2, with revenue of 2,998.57 and operating income of 105.17, up 39.6% and 79.1% YoY respectively, indicating clear operating leverage. Net income reached 44.94 (+39.9% YoY), translating to a basic EPS of 128.05 yen. Profit conversion below the operating line was dampened by a high effective tax rate of 52.4% and substantial special items, as ordinary income of 99.13 fell to profit before tax of 67.28, implying sizeable extraordinary losses of roughly 31.85. Margin structure remains thin but improving: gross margin is 10.0%, EBITDA margin 4.7%, and operating margin approximately 3.5%. Cash generation was robust, with operating cash flow (OCF) of 127.29, 2.83x net income, signaling good earnings quality. Implied free cash flow appears positive given capex of 42.66, though FCF was not disclosed in XBRL; on a simple OCF minus capex basis, implied FCF would be about 84.63. The balance sheet shows substantial intangibles (intangible assets 976.21 including goodwill of 847.72), reflecting a consolidation- and acquisition-driven model that elevates impairment risk but supports scale. Leverage, as captured by DuPont financial leverage of 3.54x, is meaningful but supported by strong interest coverage of 125.2x due to low interest expense (0.84). Liquidity is tight with a current ratio of 85.4% and negative working capital of -192.37, typical for pharmacy/retail models reliant on accounts payable financing (payables 808.95 vs receivables 222.95). Debt-to-equity is 1.16x on a total-liability basis; interest-bearing debt detail is partial, but reported short-term and long-term loans total 386.20. DuPont-calculated ROE is 3.1%, constrained by a low net margin of 1.5% and moderate asset turnover of 0.583, despite leverage. The tax rate and extraordinary losses were the main drags on bottom-line translation this quarter. Dividend details were not disclosed, but a calculated payout ratio of 63.1% suggests an active return stance; coverage by implied FCF looks reasonable, though not verifiable due to unreported dividend cash outflow. Overall, the quarter underscores recovery and scale benefits, tempered by thin margins, elevated taxes/special losses, and working-capital-driven liquidity tightness. Given multiple unreported XBRL items (not zeros) and some subtotal gaps, conclusions focus on the disclosed, non-zero datapoints and derived metrics. The near-term outlook hinges on sustaining revenue momentum, normalizing the effective tax rate, limiting extraordinary losses, and maintaining strong OCF.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 1.5% × asset turnover 0.583 × financial leverage 3.54x = ROE 3.1%. Margin quality: gross margin is 10.0%, EBITDA margin 4.7%, operating margin about 3.5%, indicating modest but improving profitability in a low-margin dispensing retail model. Operating leverage is evident: revenue grew 39.6% YoY while operating income rose 79.1% YoY, implying fixed-cost dilution and better cost absorption. Interest burden is minimal (interest expense 0.84) with interest coverage of 125.2x, so financing costs do not pressure margins. Below-operating-line drag: ordinary income of 99.13 fell to PBT of 67.28 due to extraordinary losses (~31.85), and the effective tax rate of 52.4% further compressed net margin. Asset intensity and intangibles (goodwill 847.72, intangibles 976.21) imply lower asset turnover versus pure retail; turnover at 0.583 is moderate for the sector. Net margin improvements will likely depend on normalizing taxes, reducing special losses, and continued SG&A discipline. Overall profitability trend is positive at the operating level, with bottom-line curtailed by non-operating and tax factors.

Growth Assessment

Top-line growth of 39.6% YoY to 2,998.57 reflects strong store network expansion and/or consolidation effects, consistent with elevated goodwill and intangibles. Operating income growth of 79.1% outpaced sales, confirming positive operating leverage and cost controls. Ordinary income grew 56.4% YoY, but extraordinary losses and a high tax rate limited net income growth to 39.9%. Revenue sustainability appears supported by scale, but pharmacy sector headwinds (prescription fee revisions, labor constraints) call for cautious extrapolation. Profit quality is solid at the operating level; OCF/NI of 2.83x indicates earnings are cash-backed. Outlook hinges on maintaining same-store prescription volumes, managing labor and rent within SG&A, and mitigating extraordinary items. If the effective tax rate normalizes closer to statutory levels, net profit growth could outpace operating profit growth. Near-term, we anticipate continued mid- to high-single-digit operating margin improvement opportunities to be limited by structural pricing, but absolute operating profit could continue rising with scale.

Financial Health

Liquidity is tight: current ratio 85.4% and quick ratio 85.4% (inventories not disclosed) with negative working capital of -192.37, driven by high accounts payable (808.95) vs receivables (222.95). This is typical for retail/pharmacy models but leaves less buffer for shocks. Solvency is adequate: debt-to-equity 1.16x (total liabilities to equity); reported loans total 386.20 (short-term 121.51, long-term 264.69). Interest coverage is very strong at 125.2x, indicating low near-term refinancing risk. Financial leverage stands at 3.54x (assets/equity), consistent with an equity ratio in the high-20% range implied by DuPont; exact reported equity ratio is unavailable. Asset base features large intangibles (intangible assets 976.21 including goodwill 847.72), elevating impairment sensitivity and reducing tangible book. Cash and deposits are 268.81, providing some liquidity offset. Overall, the capital structure is manageable with ample interest coverage, but liquidity metrics warrant monitoring.

Cash Flow Quality

Earnings quality is strong with OCF of 127.29 versus net income of 44.94 (OCF/NI 2.83x), indicating robust cash conversion from operations and likely favorable working-capital dynamics. Depreciation and amortization total 37.11, supporting EBITDA of 142.28 and indicating a reasonable non-cash share of earnings. Capex was 42.66 (cash outflow), and while FCF is not disclosed, a simple proxy (OCF - capex) suggests implied FCF of about 84.63, acknowledging that investing CF includes other items not reported. Financing CF was an inflow of 201.35, implying net borrowing or other financing activities supplemented cash; dividend and repurchase cash flows are unreported. Working capital: payables (808.95) significantly exceed receivables (222.95), underpinning OCF but contributing to negative working capital and potential exposure if supplier terms tighten. Overall, cash flow quality is solid, but sustainability depends on stable working-capital support and controlled capex.

Dividend Sustainability

Dividend details (DPS, total dividends paid) are unreported, but the calculated payout ratio is 63.1%, suggesting a relatively high but not excessive distribution policy. With OCF at 127.29 and implied FCF around 84.63 (OCF minus capex), cash generation appears sufficient to cover dividends under typical payout levels, though actual cash dividends are not disclosed. Interest coverage of 125.2x and manageable loan balances support capacity to sustain dividends, contingent on maintaining OCF. Key sensitivities include normalization of the effective tax rate, volatility from extraordinary items, and any increase in capex or M&A outlays. Policy outlook: given the scale business model and retained earnings of 1,016.92, the company likely balances growth investments with shareholder returns; however, lack of DPS disclosure limits precision. FCF coverage cannot be conclusively calculated from the dataset but appears directionally adequate based on implied FCF.

Risk Assessment

Business Risks:

• Prescription fee and drug price revisions in Japan impacting dispensing margins
• Labor cost inflation and pharmacist/staff shortages increasing SG&A pressure
• Competitive intensity in pharmacy/retail, affecting traffic and pricing
• Integration execution risks from acquisitions reflected in high goodwill
• Regulatory and compliance risks in healthcare dispensing operations

Financial Risks:

• High effective tax rate (52.4%) and extraordinary losses compressing net margin
• Liquidity tightness with current ratio at 85.4% and negative working capital of -192.37
• Goodwill (847.72) and intangibles (976.21) heighten impairment risk in downturns
• Dependence on accounts payable financing (payables 808.95) for working capital
• Potential refinancing or interest rate risk on reported loans (386.20) despite strong coverage

Key Concerns:

• Sustainability of operating leverage if revenue growth moderates
• Normalization of tax rate and reduction of extraordinary losses to lift net margins
• Monitoring liquidity buffers given sub-1.0 current ratio
• Impairment sensitivity due to large intangible asset base
• Visibility on dividend cash outflows and capital allocation given unreported items

Investment Implications

Key Takeaways:

• Strong top-line (+39.6%) and operating profit (+79.1%) growth demonstrate operating leverage
• Bottom-line suppressed by high tax rate and extraordinary losses (PBT 67.28 vs ordinary income 99.13)
• Cash generation is solid (OCF/NI 2.83x); implied FCF positive even after capex
• Liquidity is tight (current ratio 85.4%, negative working capital), typical for the model but a monitoring point
• High intangibles/goodwill underpin scale but raise impairment sensitivity
• Leverage is manageable with excellent interest coverage (125.2x)

Metrics to Watch:

• Effective tax rate trajectory and drivers
• Extraordinary gains/losses between ordinary income and PBT
• Same-store prescription volumes and average dispensing unit price
• SG&A ratio trends (particularly personnel costs) and operating margin
• OCF/NI ratio, working-capital movements, and capex cadence
• Goodwill impairment indicators and intangible asset write-downs
• Debt levels and financing cash flows relative to expansion

Relative Positioning: Within Japan’s dispensing pharmacy landscape, Ain appears to leverage scale and M&A to drive growth, producing stronger operating leverage and cash conversion than some peers, albeit with thin structural margins, moderate asset turnover, and elevated goodwill that increase impairment and tax/special-item sensitivity.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis