INPEX CORPORATION FY2026 Q2 Earnings Report

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Executive Summary

INPEX's FY2026 Q2 results secured higher profit through improved margins despite a decline in revenue caused by lower commodity prices. Revenue was ¥10,005.0B, down -4.6% year on year, while operating income was ¥6,187.1B, up +0.3%, and net income attributable to owners of the parent was ¥2,631.5B, up +17.7%. The operating margin remained high at 61.8%, while cost control and an increase in equity-method investment income (¥749.6B) contributed to the increase in net income.

Factors Affecting Results

【Revenue】Revenue was ¥10,005.0B, representing a year-on-year decline of -4.6%. By segment, Other Projects led the overall decline, with revenue of ¥6,592.0B (65.9% of total revenue, YoY -12.0%), while the Ichthys Project generated revenue of ¥2,158.4B (up +17.5%) and Oil and Gas Japan generated ¥1,126.6B (up +6.4%), securing revenue growth and mitigating the overall decline to a certain extent. Differences in production and shipment timing among projects had a significant impact on the revenue mix.

【Profit and Loss】Cost of sales was ¥4,275.8B, compared with ¥4,315.4B in the previous year, remaining broadly flat, while the gross margin was maintained at 57.3%. Selling, general and administrative expenses were contained at ¥625.0B, enabling operating income to increase to ¥6,187.1B, up +0.3%, despite lower revenue. Profit before tax was ¥6,443.5B, down -0.1% and broadly in line with the previous year. However, income taxes and other taxes declined from ¥3,597.9B to ¥359.79B, representing an effective year-on-year decrease of -10.7%, resulting in net income of ¥2,845.6B, up +17.4%. Net income attributable to owners of the parent increased to ¥2,631.5B, up +17.7%. In conclusion, the results represent a decline in revenue but an increase in profit.

Segment Analysis

Other Projects was the largest segment by revenue at ¥6,592.0B (65.9% of total revenue, YoY -12.0%) and was the primary factor behind the decline in company-wide revenue. The Ichthys Project recorded double-digit growth, with revenue of ¥2,158.4B (21.6% of total revenue, YoY +17.5%), helping offset the decline. Oil and Gas Japan remained solid at ¥1,126.6B (11.3% of total revenue, YoY +6.4%). The high concentration of revenue in Other Projects indicates that production and pricing trends for individual projects have a significant impact on company-wide results.

Key Financial Metrics

【Profitability】The operating margin remained high at 61.8%, while the net margin based on net income attributable to owners of the parent expanded to 26.3% from 21.3% in the previous year. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥5,538.9B, approximately 1.95 times net income of ¥2,845.6B, indicating strong cash backing for earnings. Free Cash Flow (FCF) was ¥1,291.8B, comfortably covering the combined ¥682.8B in dividends and share repurchases. 【Capital Efficiency】ROE was 5.3%. The effective tax rate was high at approximately 55.8% relative to profit before tax of ¥6,443.5B, with upstream resource taxation acting as a constraint on ROE. 【Financial Soundness】The equity ratio was 60.8%, slightly down from 61.4% in the previous year. Total assets expanded to ¥83,869.0B, and the financial foundation remained strong.

Cash Flow Analysis

Operating Cash Flow was ¥5,538.9B, a substantial increase of +29.4% year on year, demonstrating cash generation capacity well above net income of ¥2,845.6B. Investing Cash Flow was -¥4,247.0B, of which capital expenditures were limited to ¥117.7B; funding contributions related to equity-method investments and similar items appear to have constituted the main investing activities. Financing Cash Flow was -¥910.2B, with dividend payments of ¥583.0B and share repurchases of ¥99.8B representing the principal cash outflows. As a result, FCF (OCF + Investing Cash Flow) was ¥1,291.8B, providing sufficient capacity to increase retained earnings even after shareholder returns. In terms of working capital, an increase in inventories (-¥207.4B) and a decrease in trade payables (-¥35.7B) were cash outflow factors. Trends in inventory and receivables turnover will be important factors affecting future cash efficiency.

Earnings Quality

The core source of recurring earnings was operating income of ¥6,187.1B. Equity-method income of ¥749.6B accounted for approximately 12% of profit before tax of ¥6,443.5B, providing stable support for consolidated results. Financial income of ¥602.5B exceeded financial expenses of ¥346.2B, resulting in a positive net financial balance. In the bridge from profit before tax to net income, the recognition of income taxes and other taxes of ¥3,597.9B resulted in a high effective tax rate of approximately 55.8%. The structure in which upstream resource taxation, including PRRT, compresses net income remains in place. The fact that OCF exceeds net income indicates strong cash backing for accrual-based earnings. The gap between operating income and net income is primarily attributable to the tax burden structure and is not considered to indicate an issue with the underlying quality of earnings.

Earnings Forecasts and Guidance

Progress against the full-year plan of revenue of ¥19,730.0B and operating income of ¥12,230.0B was 50.7% for revenue and 50.6% for operating income, broadly in line with the standard first-half progress rate of 50%. Net income attributable to owners of the parent was ¥2,631.5B, representing progress of 51.6% against the full-year plan of ¥5,100B. Unless the production and pricing assumptions for the second half are significantly changed, progress can be considered to be in line with the plan. During the current quarter, revisions were made to the earnings and dividend forecasts. Full-year forecast EPS is ¥438.82, and the annual dividend forecast is ¥112.

Shareholder Returns

The Q2 interim dividend of ¥56 has been paid, and the full-year dividend forecast is ¥112. The payout ratio based solely on dividends is approximately 22.2%, calculated by dividing dividend payments of ¥583.0B by net income attributable to owners of the parent of ¥2,631.5B. Including share repurchases of ¥99.8B, the Total Return Ratio is approximately 26.0%, indicating that combined shareholder returns through dividends and share repurchases remain conservative. Coverage of shareholder returns of ¥682.8B by FCF of ¥1,291.8B is approximately 1.9 times, providing ample capacity to fund shareholder returns.

Risk Factors

1. Project concentration risk: Other Projects account for 65.9% of revenue, meaning that production plans, pricing trends, and regulatory changes affecting individual projects may have a significant impact on company-wide results.

2. High tax burden structure: Income taxes and other taxes of ¥3,597.9B were recorded against profit before tax of ¥6,443.5B, resulting in an effective tax rate of approximately 55.8%. The compression of after-tax profit due to upstream resource taxation, including PRRT, is continuing structurally.

3. Commodity price volatility risk: Revenue declined by -4.6% year on year, reflecting a business structure in which fluctuations in crude oil and LNG prices directly affect revenue and gross profit.

Industry Benchmark (For Reference; Company Research)

Profitability and Returns

The company's operating margin and net margin are both at high levels. However, because industry median data has not been sufficiently established, assessment of the company's relative positioning remains limited.

Growth and Capital Efficiency

The revenue growth rate was negative year on year. However, because comparative data against the industry median has not been sufficiently established, further development of data is desirable to assess relative resilience during a decline in commodity prices.

※Source: Company research

Key Takeaways from the Results

1. Profit growth despite lower revenue: Despite revenue declining by -4.6% year on year, operating income increased by +0.3% and net income increased by +17.7%. Cost control and growth in equity-method investment income supported the earnings structure.

2. High tax burden structure: The effective tax rate reached approximately 55.8%, and upstream resource taxation was a factor reducing ROE (5.3%). This structure is expected to remain a recurring characteristic unless there are changes in taxation or the project mix.

3. Strong cash generation and conservative shareholder returns: OCF reached approximately 1.95 times net income, and FCF of ¥1,291.8B comfortably covered the combined ¥682.8B in dividends and share repurchases. The Total Return Ratio was approximately 26.0%, representing a structurally conservative level of shareholder returns and substantial capacity for additional returns.

Theoretical Share Price (For Reference)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson type, with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥4,545–¥4,816 at cost of equity ±1%, and ¥4,670–¥4,688 at ω±0.1.

Notes:

• Net income is significantly compressed relative to operating income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (net income ÷ operating income 42%). This value reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• Net assets as of the quarter-end are used, resulting in a timing difference relative to the full-year forecast.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not predict or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 available earnings data. Investment decisions should be made at your own discretion and responsibility, with consultation with a professional as necessary.

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