Japan Petroleum Exploration Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

The first quarter of the fiscal year ending March 2027 recorded lower revenue and lower profit, with the increase in the SG&A ratio and higher non-operating expenses being the primary factors compressing profit. Revenue was ¥651.1B (-21.4% YoY), Operating Income was ¥62.0B (-62.9%), Ordinary Income was ¥57.7B (-72.3%), and Net Income attributable to owners of the parent was ¥32.4B (-79.4%). The decline in revenue was led by lower sales in the Japan and Europe segments. Although the deterioration in the gross margin was limited, the SG&A ratio increased to 14.5% (10.1% in the previous year), causing the Operating Income margin to contract to 9.5% (20.2% in the previous year).

Factors Affecting Performance

【Revenue】Revenue was ¥651.1B, down -21.4% YoY. By segment, Japan weighed on overall performance with revenue of ¥466.6B (71.7% of total, YoY-21.5%), while Europe also declined significantly to ¥27.9B (4.3% of total, YoY-55.3%). In contrast, NorthAmerica remained relatively resilient at ¥156.3B (24.0% of total, YoY-4.1%); although it ranked second in terms of revenue composition, its rate of decline was the smallest. MiddleEast contracted to ¥0.3B (YoY-96.3%), nearly disappearing from the revenue base.

【Profit and Loss】The gross margin was 30.1%, deteriorating by only 0.5pt from 30.6% in the previous year. However, the SG&A ratio rose by 4.4pt to 14.5% (10.1% in the previous year), causing the Operating Income margin to contract by 10.6pt from 20.2% to 9.5%. In non-operating items, foreign exchange gains of ¥9.2B and equity in earnings of affiliates of ¥3.1B contributed positively, while derivative valuation losses of ¥13.0B and interest expenses of ¥5.5B weighed on earnings. As total non-operating expenses of ¥25.4B exceeded total non-operating income of ¥21.1B, Ordinary Income declined 72.3% to ¥57.7B (Ordinary Income margin of 8.9%, compared with 25.1% in the previous year). Extraordinary income and losses were negligible. Against Profit Before Tax of ¥57.7B, corporate income taxes of ¥17.2B (effective tax rate of 29.8%) were recognized. After deducting Net Income attributable to non-controlling interests of ¥8.1B, Net Income attributable to owners of the parent was ¥32.4B (net profit margin of 5.0%, compared with 19.0% in the previous year). Both revenue and profit declined.

Segment Analysis

NorthAmerica was the largest earnings contributor, with segment profit of ¥65.5B (profit margin of 41.9%, YoY-4.6%), and maintained its margin almost fully despite the decline in revenue. Europe generated ¥13.4B (profit margin of 48.0%, YoY-56.8%); despite its high margin, profit was halved in line with the sharp decline in revenue. Although Japan accounted for 71.7% of total revenue, segment profit was limited to ¥23.3B (profit margin of 5.0%, YoY-75.3%), representing a substantial decline in its contribution to company-wide profit compared with the previous year. MiddleEast, where revenue contracted to ¥0.3B, posted an Operating Loss of ¥1.1B. Company-wide expenses (inter-segment adjustments) were -¥39.1B, expanding from -¥33.1B in the previous year. Accordingly, consolidated Operating Income was ¥62.0B, calculated by deducting company-wide expenses from total reported segment profit of ¥101.1B. By geographic composition, maintaining and expanding the proportion of the high-margin NorthAmerica and Europe businesses is structurally linked to improving overall profitability.

Key Financial Indicators

【Profitability】The Operating Income margin was 9.5%, down 10.6pt from 20.2% in the same period of the previous year. The net profit margin, based on Net Income attributable to owners of the parent, also contracted by 14.0pt from 19.0% to 5.0%. While the deterioration in the gross margin was limited to 0.5pt at 30.1%, the SG&A ratio increased from 10.1% to 14.5%. The primary cause of the decline in profitability was insufficient fixed-cost absorption in the face of lower revenue.【Cash Quality】Cash and deposits increased by ¥419.2B (+77.3%) to ¥961.8B from ¥541.8B in the same period of the previous year, resulting in a substantial net cash position exceeding Long-Term Borrowings of ¥577.6B. Accounts receivable increased to ¥431.8B (¥402.8B in the previous year, +7.3%), while Accounts Payable decreased to ¥22.8B (¥34.0B in the previous year, -32.8%), indicating a change in the working capital structure amid declining revenue.【Investment Efficiency】ROE was 0.6%, down from the level calculated based on Net Income for the same period of the previous year (approximately 2.4%), indicating that the deterioration in profitability directly translated into lower capital efficiency.【Financial Soundness】The Equity Ratio was 72.5% (76.4% in the previous year), while the Current Ratio and Quick Ratio were 248.0% and 243.1%, respectively, indicating ample short-term payment capacity. The ratio of Net Assets of ¥6,235.4B to interest-bearing debt (Long-Term Borrowings of ¥577.6B), equivalent to a D/E ratio, was 0.38x. The ratio of Operating Income to interest expenses was 11.3x, indicating that the company’s financial foundation remained generally robust.

Cash Flow Analysis

As cash flow statement items have not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased by ¥419.2B to ¥961.8B from ¥541.8B in the same period of the previous year, suggesting the accumulation of funds through business activities. Accounts receivable increased to ¥431.8B (¥402.8B in the previous year, +7.3%), while inventories remained broadly flat at ¥38.0B (¥38.8B in the previous year, -2.1%). Accounts Payable decreased to ¥22.8B (¥34.0B in the previous year, -32.8%), reflecting a reduction in the scale of purchases and procurement associated with lower revenue. Investment securities declined to ¥2,408.7B from ¥2,740.2B in the previous year, with a decline in fair value due to market fluctuations contributing to the decrease. While the company held Long-Term Borrowings of ¥577.6B, cash and deposits exceeded this amount, indicating substantial financial liquidity and funding flexibility.

Quality of Earnings

Extraordinary income and losses were negligible during the period, and most of the earnings fluctuation can be explained by recurring items in Operating Income and non-operating income and expenses. In non-operating items, foreign exchange gains of ¥9.2B and equity in earnings of affiliates of ¥3.1B contributed positively, while derivative valuation losses of ¥13.0B and interest expenses of ¥5.5B had a negative impact, incorporating volatility linked to market conditions and interest-rate movements. Comprehensive Income was -¥237.5B, creating a substantial divergence from Net Income attributable to owners of the parent of ¥32.4B. This divergence was primarily attributable to valuation differences on securities of -¥251.3B and deferred hedge gains or losses of -¥92.5B, partially offset by foreign currency translation adjustments of +¥61.2B. These items reflect changes in the fair value of held shares and hedging instruments and should be considered separately from Net Income, which reflects the company’s operating earnings power during the period.

Earnings Forecast and Guidance

Against the full-year earnings forecast (Revenue of ¥3,140.0B, Operating Income of ¥460.0B, Ordinary Income of ¥460.0B, EPS of ¥253.91, and DPS of ¥45), progress during the first quarter was 20.7% for Revenue, 13.5% for Operating Income, and 12.5% for Ordinary Income. The company expects full-year Operating Income to increase +18.2%, but the current quarter recorded a YoY decline of -62.9%, with progress below the simple one-quarter benchmark of 25%. The earnings forecast was revised during the quarter, indicating that the full-year assumptions were reviewed from the initial plan at the beginning of the fiscal year. Future progress will depend on the extent to which earnings recover in the second half.

Shareholder Returns

The full-year dividend forecast is ¥45 per share, and no revision was made to the dividend forecast during the quarter. Based on the company’s planned EPS of ¥253.91, the Payout Ratio is approximately 17.7% (¥45/¥253.91). The substantial liquidity position, with cash and deposits of ¥961.8B, could support dividend payments.

Risk Factors

1. Regional concentration of earnings: Japan accounts for 71.7% of total revenue, but its profit margin is limited to 5.0%, creating a substantial profitability gap versus NorthAmerica (profit margin of 41.9%). Changes in the regional mix could have a significant impact on company-wide profitability.

2. Working capital fluctuations: Accounts receivable increased to ¥431.8B (YoY+7.3%), while Accounts Payable decreased to ¥22.8B (YoY-32.8%). Changes in collection and payment terms amid declining revenue could affect liquidity and funding conditions.

3. Fluctuations in securities and hedge valuations: Comprehensive Income was negative at -¥237.5B due to valuation differences on other securities of -¥251.3B and deferred hedge gains or losses of -¥92.5B. Market fluctuations are therefore a factor affecting equity.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and the Net Profit margin exceed the industry median, indicating relatively high profitability within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is substantially below the industry median, and the decline in revenue is particularly pronounced within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Report

1. The increase in the SG&A ratio to 14.5% (10.1% in the previous year) was the primary cause of the contraction in the Operating Income margin. The degree of fixed-cost absorption against declining revenue will be an important indicator for assessing future recovery in profitability.

2. The full-year plan assumes an increase of +18.2% in Operating Income, but first-quarter progress was limited to 13.5%. A significant recovery in profitability will be required to achieve the plan, which is weighted toward the second half.

3. Cash and deposits of ¥961.8B exceed Long-Term Borrowings of ¥577.6B, resulting in a substantial net cash position. Together with an Equity Ratio of 72.5%, this demonstrates the stability of the company’s financial foundation.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥2,521–¥2,673 at ±1% for the Cost of Equity, and ¥2,591–¥2,601 at ±0.1 for ω.

Notes:

• Net Assets as of the quarter-end were used (there is a timing gap relative to the full-year forecast).
• As Net Assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value is not a forecast or guarantee of the future share price.)

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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. The 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, after consulting professionals as necessary.

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