INPEX (1605) FY2026 Q2 Earnings Report

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Executive Summary

The key points of this earnings report are that INPEX secured higher profit despite lower revenue, while maintaining high earnings quality and strong cash-generation capacity. Revenue was ¥1000.5B (-4.6% YoY), Operating Income was ¥618.71B (+0.3%), and Net Income was ¥284.56B (+17.4%; of which ¥263.1B was attributable to owners of the parent, +17.7% YoY). The primary cause of the revenue decline was the -12.0% decrease in the OtherProjects segment, while profit growth in IchthysProject (+24.5%) and an increase in equity-method investment income (+15.1%) boosted overall earnings. Progress against the full-year forecast was 50.7% for Revenue, 50.6% for Operating Income, and 51.6% for profit attributable to owners of the parent, all exceeding the standard 50% benchmark and broadly consistent with the plan.

Factors Affecting Performance

【Revenue】Revenue was ¥1000.5B, representing a 4.6% YoY decline. By segment, OtherProjects, which accounted for 65.9% of the total, was the primary factor, declining 12.0%. In contrast, IchthysProject, with a 21.6% composition ratio, increased 17.5%; OilAndGasJapan, with an 11.3% composition ratio, increased 6.4%; and other businesses increased 27.0%. Within the core resource development business, the decline in revenue from a single project weighed down overall performance.

【Profit and Loss】Operating Income was ¥618.71B (+0.3% YoY), essentially flat. However, the gross profit margin declined to 57.3% from 58.9% in the previous year, while SG&A expenses increased to ¥62.5B (+8.1%) despite the decline in revenue, causing the SG&A ratio to rise to 6.2%. Profit Before Tax was ¥644.35B (-0.1% YoY), remaining flat, whereas Net Income increased 17.4%. This divergence appears to have resulted from the base effect of temporary foreign exchange losses and other factors recorded in the previous year. Equity-method investment income increased to ¥75.0B (+15.1%), contributing to profit growth and accounting for 28.5% of profit attributable to owners of the parent. In conclusion, the Company achieved higher profit without revenue growth—namely, increased profit on lower revenue.

Segment Analysis

IchthysProject is the core earnings contributor, recording revenue of ¥215.8B (+17.5% YoY), profit of ¥173.1B (+24.5%), and a profit margin of 80.2%. OilAndGasJapan posted revenue of ¥112.7B (+6.4%), but profit declined 54.4% to ¥7.88B, resulting in a significant decrease in the profit margin to 7.0%, suggesting deterioration in costs or market conditions. OtherProjects, the largest segment with 65.9% of total revenue, recorded revenue of ¥659.2B (-12.0%), but profit increased 7.8% to ¥77.88B, improving the profit margin to 11.8%. Overall, the Company has a high degree of profit dependence on IchthysProject, while the sharp decline in OilAndGasJapan’s profit margin warrants close monitoring.

Key Financial Indicators

【Profitability】The Operating Income margin improved by approximately 3.0pt to 61.8% from 58.8% in the previous year, while the gross profit margin declined to 57.3% from 58.9%. Accordingly, the improvement at the Operating Income level appears to have been driven more by other operating income and similar items than by the cost structure. The margin for profit attributable to owners of the parent improved by approximately 5.0pt to 26.3% from 21.3%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥553.89B, equivalent to 2.10 times profit attributable to owners of the parent, indicating strong cash support for earnings. 【Investment Efficiency】Annualized ROE was 10.6%, while total asset turnover remained low, reflecting a profitability-led earnings structure characteristic of the large capital investments required in resource development. 【Financial Soundness】The Equity Ratio remained high at 60.8% (61.4% in the previous year), the current ratio was approximately 132%, and EBIT provided approximately 17.9x coverage of financial expenses, indicating a stable financial foundation.

Cash Flow Analysis

Operating Cash Flow was ¥553.89B, a substantial increase of 29.4% YoY, demonstrating cash-generation capacity exceeding twice Net Income. Investing Cash Flow represented an outflow of ¥424.70B, primarily reflecting the impact of managing financial assets, including deposits and withdrawals of time deposits and sales of investment securities; capital expenditures themselves remained limited at ¥11.77B. Financing Cash Flow was an outflow of ¥91.02B, mainly due to shareholder returns, including dividend payments of ¥58.30B and share repurchases of ¥9.98B. Free Cash Flow was positive at ¥129.18B, and total shareholder returns of ¥68.3B were funded within the range of FCF, indicating no strain in capital allocation.

Earnings Quality

Operating Cash Flow reached 2.10 times Net Income, and the accrual ratio was also negative, indicating that current-period earnings were of high quality and supported by cash generation. Equity-method investment income of ¥75.0B accounted for 28.5% of profit attributable to owners of the parent, indicating a high degree of dependence on earnings from non-consolidated investees. This is a structural characteristic that may fluctuate depending on resource prices and the operating conditions of investee companies. Income taxes and other taxes amounted to ¥359.79B, resulting in a high effective tax rate of approximately 55.8% and significantly constraining the conversion of Profit Before Tax into Net Income. This high tax burden appears to reflect the tax and royalty structures specific to resource-producing countries. The divergence between the growth in Profit Before Tax (-0.1%) and the growth in Net Income (+17.4%) is considered primarily attributable to the reversal of temporary foreign exchange-related losses recorded in the previous year.

Earnings Forecast and Guidance

The full-year Company forecast calls for Revenue of ¥1973.0B, Operating Income of ¥1223.0B (+7.7% YoY), EPS of ¥438.82, and dividends of ¥112.00. Q2 cumulative progress was 50.7% for Revenue, 50.6% for Operating Income, and 51.6% for profit attributable to owners of the parent (¥263.1B against the forecast of ¥510.0B). All figures were slightly above the standard 50% benchmark, indicating progress broadly consistent with the plan. During the current quarter, the Company revised its earnings and dividend forecasts. It specifically identified crude oil and natural gas prices, production and sales plans, development schedules, and changes in regulations and tax systems in resource-producing countries as key factors affecting second-half performance.

Shareholder Returns

The dividend for the end of Q2 was ¥56.00 per share, while the full-year forecast dividend is ¥112.00. The Payout Ratio, calculated based solely on dividends and profit attributable to owners of the parent, was 26.8%, substantially below the generally cited sustainability guideline of 60%. Including ¥9.98B in share repurchases, the Total Return Ratio was approximately 26.0% (total returns of ¥68.30B ÷ profit attributable to owners of the parent of ¥263.1B). Coverage of shareholder returns by Free Cash Flow was 1.83x, indicating that returns were funded within the range of operating cash generation.

Risk Factors

1. Resource Price and Production Volatility Risk: A decline in crude oil and natural gas prices could simultaneously pressure selling prices, Operating Income, equity-method investment income, and the recoverable amount of development assets. OilAndGasJapan’s profit margin declined significantly from the previous year (-54.4%), indicating that sensitivity to market conditions and operating factors has already emerged.

2. High Tax Burden Risk: The effective tax rate was high at approximately 55.8%, while Net Income increased 17.4% despite Profit Before Tax declining 0.1%. Changes in the tax and royalty terms of resource-producing countries could directly affect after-tax earnings power.

3. Dependence on Equity-Method Investments: Equity-method investment income of ¥75.0B accounted for 28.5% of profit attributable to owners of the parent. Accordingly, fluctuations in the resource prices, operations, and financial condition of investees could flow through to consolidated earnings.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Operating Income margin of 61.8% is extremely high and indicates the high-margin structure characteristic of the resource development business.

Growth and Capital Efficiency

The Revenue growth rate was negative, indicating that top-line growth is slowing despite the high level of profitability.

※Source: Compiled by the Company

Key Points from the Earnings Report

1. The high profitability and cash-conversion quality reflected in an Operating Income margin of 61.8%, a margin for profit attributable to owners of the parent of 26.3%, and an OCF-to-Net Income ratio of 2.10x are the central characteristics of this earnings report confirmed by the financial data.

2. Q2 cumulative progress against the full-year forecast was in the latter half of the 50% range and broadly consistent with the Company’s plan. However, the fact that the Company revised its earnings and dividend forecasts during the current quarter warrants attention as a potential source of volatility in the second half.

3. The high effective tax rate of 55.8%, the sharp decline in the OilAndGasJapan segment’s profit margin (-54.4%), and the fact that the growth rate of SG&A expenses (+8.1%) exceeded the rate of revenue decline (-4.6%) are important points to consider when evaluating the quality of the earnings structure.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,545–¥4,816 for a ±1% change in the cost of equity, and ¥4,670–¥4,688 for a change of ±0.1 in ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burdens, acquisition-related expenses, minority interests, and other factors (Net Income ÷ Operating Income: 42%). This value reflects that compression at face value; if these factors are temporary, underlying earnings power may be higher.
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / 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, nor does it forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings flash report 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 adviser as necessary.

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