Ain Holdings expands network with acquisition of Sakura pharmacy

Ain Holdings will acquire NSSK-WW and NSSK-W, the holding companies of Sakura Pharmacy Group, for approximately JPY59.1bn, according to a Tokyo bourse filing on May 29, 2025. This acquisition will make Sakura Pharmacy Group, with 800 pharmacies, a subsidiary of Ain Holdings, expanding Ain's network to over 2,000 stores and strengthening its position in Japan's healthcare sector.

Ain Holdings Inc., established in 1969 and headquartered in Sapporo City, Japan, is a Japanese company operating in the pharmacy and retail businesses. The company has over 11,400 employees and is listed on Tokyo Stock Exchange.

The company is divided into three business segments. The Pharmacy segment, which includes dispensing pharmacies, the sale of generic drugs, recruitment services for doctors and pharmacists, and consulting for pharmacy management and openings, accounts for 89% of sales in FY 24. The Retail segment, managing cosmetics and drug stores, makes up 8% of total sales. The Others segment, involved in selling cosmetics, food and beverages, and renting buildings, contributes 3% of total sales.

Guidance highlights continued sales growth

Ain Holdings released its Q3 25 results on March 10, 2025, reporting a 13.7% y/y increase in net sales to JPY336.8bn. This was driven by growth at stores opened in the previous year and existing stores in both businesses. However, operating profit fell by 12.2% to JPY12.6bn, with a margin of 3.7%. Net profit dropped 16% y/y to JPY7.4bn.

Looking ahead, the group forecasts net sales for the FY 25 increase 13.4% y/y due to new store openings of dispensing pharmacy business and retail business, as well as supported by the consolidation of Francfranc from FY 24. However, the company forecasts net profit will decrease 12.3% y/y due to increase in costs of human capital and digital transformation investments.

Robust financial performance

Ain Holdings posted a modest net sales CAGR of 10.4% over FY 21-24 to reach JPY400bn in FY 24, driven by opening and relocation of new stores in prime locations. EBIT grew at a higher CAGR of 23.7% to JPY20.3bn, with margins expanding by 147bp to 5.1% in FY 24. Net income increased at a CAGR of 19.4% to reach JPY11.4bn in FY 24.

Net profit led to consistent FCF over the last 3-years (FY 21-24), reaching JPY10.9bn in FY 24 from JPY9.5bn in FY 21. Total debt moderated from JPY12bn as of end-FY 21 to JPY6.7bn as of end-FY 24. This resulted in improved gearing, calculated as Total debt-to-Equity dropping from 10.4% in FY 21 to 5% in FY 24. In addition, ROE also improved from 5.9% to 8.7% in FY 24.

In comparison, Nihon Chouzai Co., Ltd., a local peer, grew with a lower net sales CAGR of 6.9%, reaching JPY340bn in FY 24. EBIT rose at a CAGR of 4.1% to JPY9.1bn in FY 24. Net income declined to JPY2.6bn in FY 24, at a negative CAGR of 10.3%.

Looking ahead, analysts anticipate net sales CAGR of 10.2% over FY 24-27, reaching JPY535.1bn. EBIT is expected to grow at a CAGR of 5.4% to JPY23.9bn, with a margin of 4.5%. Net income is expected to grow at a CAGR of 4.1% to JPY12.9bn. EPS is expected to increase from JPY324.6 in FY 24 to JPY367.3 in FY 27. In comparison, analysts estimate an EBIT CAGR of 1% and a net profit CAGR of 26.7% for Nihon Chouzai.

Attractive P/E valuation

Over the past one year, the company's stock has delivered returns of about negative 3.6%. In comparison, Nihon Chouzai has delivered higher return of approximately 134.6% over the same period.

The stock is currently trading at a P/E of 19x, based on the FY 25 estimated EPS of JPY299.5. This valuation is lower than its three-year historical average P/E of 23x and Nihon Chouzai’s P/E of 32x. In terms of EV/EBIT, Ain Holdings is trading at a multiple of 10.2x, based on the FY 25 estimated EBIT of JPY19.3bn. This multiple is higher than its three-year historical average of 9.5x. However, lower than the Nihon Chouzai’s EV/EBIT multiple of 12.1x.

Ain Holdings is generally liked by two analysts, with one having ‘Outperform’ rating and one having ‘Hold’ rating for an average target price of JPY5,275. However, due to the recent rally in the company’s stock, the target price has already been achieved, suggesting no upside potential. Any correction in the near term could provide a decent opportunity for investors to evaluate the company for investment.

Overall, Ain Holdings' strategic acquisition of Sakura Pharmacy Group is a significant move that will bolster its presence in Japan's healthcare sector, expanding its network to over 2,000 stores. Despite its long-standing establishment since 1969 and diverse operations in pharmacy and retail, the company faces challenges with declining profits amid rising costs. Analysts remain optimistic about future growth, though they caution about potential profit dips due to increased investments.

However, Ain Holdings faces diverse compliance obligations, risking fines and disruptions from health regulation breaches. Dispensing errors pose significant health risks, necessitating stringent accuracy measures. Supply chain disruptions, influenced by global events, can impact medication availability, highlighting dependency on suppliers.