Quick View
| Metric | Current Period | Same Period Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥651.1B | ¥828.4B | −21.4% |
| Operating Income | ¥62.0B | ¥167.0B | −62.9% |
| Ordinary Income | ¥57.7B | ¥208.1B | −72.3% |
| Net Income | ¥40.5B | ¥157.4B | −74.3% |
| ROE | 0.6% | 2.4% | - |
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
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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.
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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.
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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
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income Margin | 9.5% | 5.1% (3.1%–9.2%) | +4.5pt |
| Net Profit Margin | 6.2% | 3.6% (1.8%–5.6%) | +2.6pt |
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
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | −21.4% | 4.8% (-7.8%–13.6%) | −26.2pt |
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
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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.
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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.
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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.
| Scenario | Theoretical Share Price |
|---|---|
| bear (bearish) | ¥2,482 |
| base (baseline) | ¥2,595 |
| bull (bullish) | ¥2,634 |
| Calculation Assumption | Value |
|---|---|
| Book Value Per Share (BPS) | ¥2,436 |
| Adjusted Forecast EPS | ¥292.0 |
| Cost of Equity r | 9.77% (10-year government bond 2.77% + equity risk premium 6.00% + size premium 1.00%) |
| Residual Income Persistence Factor ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 17.7% |
| Forecast EPS Confidence Adjustment | ×1.150 (based on the track record of guidance achievement rates among peer companies) |
| implied PBR / PER | 1.07x / 8.9x |
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.)
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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AI Financial Analysis
Executive Summary
FY2027 Q1 performance was weak, with lower sales and a pronounced decline in operating and attributable profit. Revenue fell 21.4% year on year to ¥65.1bn. Operating income declined 62.9% to ¥6.2bn. Ordinary income fell 72.3% to ¥5.8bn, while profit attributable to owners of the parent decreased 79.4% to ¥3.2bn. Gross profit decreased 22.6% to ¥19.6bn. The gross margin was broadly stable at 30.1%, versus approximately 30.6% a year earlier, a contraction of about 50bp. In contrast, the operating margin compressed sharply to 9.5% from 20.2%, a decline of about 1,070bp. This indicates that the earnings deterioration was principally driven by lower revenue volume and negative operating leverage rather than by a major collapse in gross-margin economics. SG&A expenses increased 13.2% to ¥9.5bn despite the sales decline. Unallocated corporate expenses and R&D included in segment adjustments increased to ¥3.9bn from ¥3.3bn, reinforcing the fixed-cost pressure. Japan remained the largest revenue and operating-profit contributor, but its segment profit fell substantially. North America was comparatively resilient and became the largest regional contributor to segment profit. Europe also weakened materially, while the Middle East moved into a segment loss. Non-operating income of ¥2.1bn included ¥0.9bn of foreign-exchange gains, but this did not offset higher non-operating expenses, including ¥1.3bn of derivative valuation loss. Comprehensive income was negative ¥23.8bn despite positive attributable profit, primarily reflecting negative securities valuation effects within OCI. The balance sheet remains conservatively financed, with a 248.0% current ratio, 0.38x debt-to-equity ratio and 8.5% debt-to-capital ratio. Cash and deposits increased 77.3% year on year to ¥96.2bn, strengthening liquidity. The full-year forecast implies a substantial recovery in the remaining nine months, particularly for profit attributable to owners. Management has revised its forecast, making commodity prices, foreign exchange, production volumes, derivative valuation movements and investment-security valuations central variables for the rest of FY2027.
Profitability Analysis
Annualized Q1 DuPont ROE was 2.1%, composed of a 5.0% net profit margin, 0.303x asset turnover and 1.38x financial leverage. The low ROE is primarily a profitability and asset-utilization issue rather than a leverage issue, as the capital structure remains conservative. Annualized asset turnover of 0.303x is modest for the large asset base, including ¥372.6bn of property, plant and equipment and ¥240.9bn of investment securities. Financial leverage of 1.38x is restrained and does not create balance-sheet stress, but it also means returns cannot be enhanced materially through balance-sheet gearing. The largest adverse movement was in operating profitability: operating margin fell to 9.5% from 20.2% in the prior-year quarter. Gross margin only declined by about 50bp to 30.1%, demonstrating that the principal pressure emerged below gross profit. SG&A rose to ¥9.5bn from ¥8.4bn while revenue contracted by ¥17.7bn, evidencing unfavorable operating leverage. The five-factor decomposition shows a 0.561 tax burden, 0.931 interest burden and 9.5% EBIT margin. The interest burden remains healthy because interest coverage is 11.30x, despite interest expense increasing to ¥0.5bn. The quality alert identifies a high tax burden based on the 0.561 tax-burden measure, which reduces profit attributable to owners relative to pre-tax income. On a consolidated income-tax-expense basis, the effective tax rate was 29.8%; the lower tax-burden measure is also affected by non-controlling interests when comparing owners' profit with pre-tax income. The impact is that attributable earnings conversion is weaker than operating and pre-tax profit alone would suggest. ROIC of 3.0%, flagged as below 5%, indicates that the current earnings level is generating a low return on the capital committed to upstream assets and investments. Sustained improvement will require a recovery in operating income and more productive deployment of the sizable investment-security and fixed-asset base.
Growth Assessment
Revenue contraction was broad-based geographically, limiting the evidence of an isolated regional issue. Japan revenue decreased 21.5% year on year to ¥46.7bn, and Japan segment profit fell 75.3% to ¥2.3bn. North America revenue declined only 4.1% to ¥15.6bn, while segment profit decreased a limited 4.6% to ¥6.5bn. North America therefore became the core business by operating-income contribution, generating approximately 64.8% of aggregate segment profit before corporate-cost allocation. Europe revenue declined 55.3% to ¥2.8bn and segment profit fell 56.8% to ¥1.3bn. Middle East revenue declined to ¥0.03bn from ¥0.85bn and the segment recorded a ¥1.1bn loss, versus a ¥0.6bn profit a year earlier. Aggregate segment profit declined 49.5% to ¥10.1bn, while corporate costs increased by ¥0.6bn to ¥3.9bn, resulting in the sharper 62.9% decline in consolidated operating income. The full-year sales forecast is ¥314.0bn, and Q1 revenue represents 20.7% of that target, 4.3 percentage points below the standard 25% Q1 progress rate. Q1 operating income represents 13.5% of the ¥46.0bn full-year forecast, 11.5 percentage points below the standard rate. Q1 ordinary income represents 12.6% of the ¥46.0bn forecast, also 12.4 percentage points below the standard rate. Q1 profit attributable to owners represents only 5.0% of the ¥65.0bn full-year forecast, 20.0 percentage points below the standard rate. The latter target requires a particularly back-end-loaded profit profile, potentially supported by factors outside the Q1 operating run rate. Forecast operating income is expected to increase 18.2% year on year despite forecast revenue declining 7.7%, so forecast delivery requires a meaningful margin recovery. The regional mix, especially the resilience of North America, is supportive, but Japan's earnings normalization and the return of Middle East profitability are important for broader recovery.
Financial Health
Liquidity is strong. Current assets of ¥192.6bn exceeded current liabilities of ¥77.7bn, producing working capital of ¥115.0bn and a current ratio of 248.0%. The quick ratio was similarly robust at 243.1%, supported principally by ¥96.2bn of cash and deposits and ¥43.2bn of trade receivables. There is no current-ratio warning because the ratio is materially above 1.0x. Total liabilities were 27.5% of total assets, while total equity was ¥623.5bn, or 72.5% of assets. Interest-bearing debt was ¥57.8bn and the debt-to-equity ratio was a conservative 0.38x, well below the 2.0x warning threshold. Debt-to-capital of 8.5% also indicates low reliance on debt financing. Long-term loans of ¥57.8bn are modest relative to cash and deposits and current assets, limiting maturity-mismatch risk. Cash and deposits increased by ¥41.9bn, or 77.3% year on year, to ¥96.2bn. This increase provides a larger liquidity buffer against commodity-price volatility and upstream-project funding needs. Accounts payable decreased by ¥1.1bn, or 32.8%, to ¥2.3bn; this reduces supplier-financing support but is immaterial to the overall liquidity profile. Investment securities totaled ¥240.9bn, equal to 28.0% of total assets, and therefore expose reported equity and comprehensive income to market-price movements. Asset retirement obligations were ¥38.0bn, equal to 16.1% of total liabilities. The high ARO ratio alert is material because decommissioning and restoration obligations are a structural feature of upstream petroleum operations and can require substantial long-dated cash outlays. The liability should be monitored alongside production-asset life, field abandonment schedules and any revisions to restoration-cost assumptions.
Notable B/S Changes
Cash and deposits: +¥41.9bn (+77.3%) to ¥96.2bn - materially enhanced liquidity and funding flexibility. Investment securities: -¥33.2bn (-12.1%) to ¥240.9bn - still represents 28.0% of assets and remains a significant source of OCI and equity-market sensitivity. Total liabilities: +¥32.7bn (+16.1%) to ¥236.3bn - the increase is notable in absolute terms, although leverage remains conservative relative to ¥623.5bn of equity. Total equity: -¥35.4bn (-5.4%) to ¥623.5bn - negative comprehensive income, including securities valuation losses, reduced equity despite positive quarterly attributable profit. Accounts payable: -¥1.1bn (-32.8%) to ¥2.3bn - reduced short-term supplier obligations, with limited effect on the overall liquidity profile.
Cash Flow Quality
Dividend Sustainability
The full-year dividend forecast is ¥45.0 per share. Against forecast EPS of ¥253.91, the implied dividend payout ratio is approximately 17.7%, which is conservative and below the 60% sustainability benchmark. The low forecast payout ratio provides substantial earnings headroom even if results fall short of plan. Q1 EPS was ¥12.66, however, so the forecast depends on a substantial improvement in earnings over the remaining three quarters. The strong liquidity position, including ¥96.2bn of cash and deposits, supports financial flexibility for shareholder distributions. Dividend sustainability should nevertheless be assessed primarily against full-year attributable profit realization because the company operates in commodity-sensitive upstream energy markets.
Risk Assessment
Business risks include Commodity-price, production-volume and sales-price risk is high for an upstream energy company; the 21.4% revenue decline and 62.9% operating-income decline demonstrate significant earnings sensitivity., Japan segment profit fell 75.3% to ¥2.3bn, making a recovery in the domestic business a key determinant of group earnings normalization., Europe segment revenue declined 55.3% and Middle East moved to a ¥1.1bn segment loss, highlighting geographic execution and project-performance volatility., North America generated approximately 64.8% of aggregate segment profit before corporate-cost allocation, increasing dependence on one region's operational and market conditions., Asset retirement obligations of ¥38.0bn create industry-specific abandonment, remediation and environmental-cost exposure..
Financial risks include Negative comprehensive income of ¥23.8bn, despite ¥3.2bn of profit attributable to owners, reflects material valuation and translation volatility, including a ¥25.1bn negative valuation difference on securities in OCI., Investment securities of ¥240.9bn represent 28.0% of total assets, leaving equity sensitive to market-value fluctuations., The high tax-burden alert, reflected in a 0.561 tax burden, weakens conversion of pre-tax income to profit attributable to owners., Receivable days of 61 exceed the 60-day alert threshold; the issue is modest but should be monitored for collection discipline and counterparty-credit conditions., Derivative valuation loss of ¥1.3bn in non-operating expenses indicates hedging and market-price volatility can affect earnings outside core operations..
Key concerns include Highest priority: the full-year plan requires Q2-Q4 operating-profit delivery materially above the Q1 run rate, with Q1 operating-income progress of only 13.5% versus a standard 25%., High priority: annualized ROIC of 3.0% and annualized ROE of 2.1% are below customary return thresholds, pointing to weak current capital productivity., High priority: operating margin compressed by approximately 1,070bp as SG&A grew 13.2% despite lower revenue., Medium priority: the large ARO balance requires continued scrutiny of eventual decommissioning cash needs and cost-estimate revisions., Medium priority: market-value volatility in the substantial securities portfolio can continue to pressure comprehensive income and equity..
Investment Implications
Key takeaways include Q1 showed a severe earnings reset, but gross-margin resilience indicates the main issue was lower scale and fixed-cost absorption rather than a wholesale deterioration in unit economics., North America was the most resilient profit contributor, whereas Japan, Europe and the Middle East were the principal sources of regional weakness., The balance sheet is a material stabilizer: liquidity is high and leverage is low., The revised full-year forecast embeds a sharp second-half earnings recovery and should be evaluated against realized operating margins, production trends and non-operating items., Low annualized ROIC and ROE make improvement in capital productivity the central fundamental requirement..
Metrics to watch include Quarterly revenue and operating-margin recovery versus the ¥314.0bn sales and ¥46.0bn operating-income full-year forecasts, Japan segment profit recovery and North America segment-profit resilience, SG&A and unallocated corporate-cost trajectory relative to sales, Commodity-price, foreign-exchange and derivative valuation impacts, Investment-security valuation changes and total comprehensive income, Receivable days and trade-receivable collections, Asset retirement-obligation estimates and decommissioning commitments.
Regarding relative positioning, The company combines a conservative balance sheet and ample liquidity with currently weak capital efficiency. Its 9.5% operating margin remains within a reasonable range on an absolute basis, but the sharp year-on-year margin compression, 3.0% ROIC and 2.1% annualized ROE indicate that operating recovery and asset productivity matter more than balance-sheet repair.