Idemitsu Kosan Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

This was the first disclosure following the transition to IFRS, and the key highlight was the sharp turnaround from the previous year's operating loss to significant revenue and profit growth, driven by the normalization of refining margins. Revenue was ¥22717.5B, not ¥2,271.8B (+23.8% YoY), Operating Income was ¥3074.6B (a turnaround from the previous year's ¥-40.4B), Profit Before Tax was ¥3168.9B (+1,376.2%), and Net Income (quarterly profit attributable to owners of the parent) was ¥2175.0B (+696.0%). The primary driver was an improvement in product spreads in the FuelOil segment, with the gross margin also improving substantially to 19.6% (6.2% in the previous year).

Factors Affecting Performance

【Revenue】Revenue was ¥22717.5B, representing a 23.8% YoY increase. By segment, the core FuelOil segment led overall performance with revenue of ¥19240.4B (84.7% of total revenue, +25.9% YoY). Resources (+26.3%) and BasicChemicals・HighPerformanceMaterials (+14.4% each) also recorded revenue growth, while PowerAndRenewableEnergy posted revenue of ¥193.7B (-21.7% YoY), representing a decline.

【Profitability】Operating Income was ¥3074.6B, a turnaround from the previous year's ¥40.4B loss, and the Operating Income margin improved to 13.5% (previous year: -0.2%). The increase in profit was almost entirely concentrated in FuelOil, which generated Operating Income of ¥2938.0B (+1665.7% YoY; 15.3% margin), accounting for approximately 90% of total profit. Meanwhile, HighPerformanceMaterials recorded Operating Income of ¥145.2B (-15.6% YoY), while PowerAndRenewableEnergy remained loss-making at ¥-13.0B. Equity-method investment income increased to ¥139.4B (¥73.5B in the previous year). After deducting income taxes and other taxes of ¥968.0B (effective tax rate: 30.5%) from Profit Before Tax of ¥3168.9B, Net Income was ¥2200.8B, of which ¥2175.0B was attributable to owners of the parent. Revenue and profit both increased, with the primary driver of profit growth being the improvement in FuelOil margins due to market conditions.

Segment Analysis

FuelOil accounted for 84.7% of revenue and approximately 90% of Operating Income, making it the key performance driver. Operating Income recovered sharply to ¥2938.0B (+1665.7% YoY), with a margin of 15.3% (a loss in the previous year). Resources maintained the highest profitability among all segments, with Operating Income of ¥189.1B (+47.0% YoY) and a margin of 28.7%. In contrast, HighPerformanceMaterials recorded lower Operating Income of ¥145.2B (-15.6% YoY), while PowerAndRenewableEnergy posted Operating Income of ¥-13.0B, turning to a loss from a profit of ¥+9.9B in the previous year. Profitability therefore varied across the non-fuel businesses. In addition, beginning in Q1, the functional paving materials business was reclassified from HighPerformanceMaterials to the FuelOil segment; the previous-year comparative figures have been reclassified and presented on the revised basis.

Key Financial Indicators

【Profitability】The Operating Income margin improved substantially to 13.5% (previous year: -0.2%), while the Net Income margin increased to 9.7% (previous year: 1.5%). The gross margin also expanded to 19.6% (previous year: 6.2%), as improvements in crude oil and product spreads lifted the Company's overall margins. 【Cash Quality】Cash and cash equivalents were ¥3776.6B, a slight decrease from the previous year. Inventories were ¥21371.2B (¥13578.4B in the previous year; +57.4%), while trade receivables were ¥11550.9B; both increased in line with revenue growth. 【Investment Efficiency】ROE was 13.1%. Although total asset turnover remained low, the sharp improvement in the Net Income margin contributed to the increase. 【Financial Soundness】The Equity Ratio was 27.2% (27.8% in the previous year), remaining broadly unchanged. Current bonds and borrowings increased to ¥14173.7B (¥9956.5B in the previous year), indicating a greater level of interest-bearing debt.

Cash Flow Analysis

As the disclosure does not include a cash flow statement, funding trends are assessed based on changes in the balance sheet. Cash and cash equivalents were ¥3776.6B, a slight decrease from ¥3818.4B in the same period of the previous year. Meanwhile, inventories increased substantially by +57.4%, from ¥13578.4B in the previous year to ¥21371.2B, suggesting an accumulation of input inventories to support higher sales. Trade receivables were ¥11550.9B, a slight decrease from the previous year, while trade payables increased to ¥14887.3B (¥12886.1B in the previous year), partially easing the funding burden on the payment side. Short-term bonds and borrowings increased to ¥14173.7B, indicating that working capital requirements associated with revenue growth were being funded through short-term financing.

Quality of Earnings

The improvement in earnings for the current period was primarily attributable to market-related factors at the operating level of the FuelOil segment, namely improved product spreads, and no significant extraordinary gains or losses were identified. Non-operating items included interest income of ¥61.8B and equity-method investment income of ¥139.4B; both were small relative to revenue, indicating that earnings were primarily generated by the core business's Operating Income. Income taxes and other taxes of ¥968.0B against Profit Before Tax of ¥3168.9B resulted in an effective tax rate of 30.5%, a normal level. The gap between recurring profit and Net Income was therefore primarily attributable to the tax burden. Comprehensive income was ¥2355.3B (¥2330.7B attributable to owners of the parent), and the difference from Net Income of ¥2200.8B was mainly attributable to foreign exchange factors, including ¥144.7B in foreign currency translation adjustments for foreign operations; the divergence was not substantial. If inventories and trade receivables continue to increase, the lag between reported earnings and cash generation is a point to monitor.

Earnings Forecast and Guidance

The full-year forecast for Net Income attributable to owners of the parent is ¥750B, and the forecast EPS is ¥62. Net Income attributable to owners of the parent for Q1 reached ¥2175.0B, representing approximately 290% of the full-year forecast on a simple calculation. This significant excess suggests that market-related factors in the FuelOil segment, namely the improvement in product spreads, are progressing at a pace exceeding the assumptions underlying the full-year forecast. Neither the earnings forecast nor the dividend forecast was revised during the quarter.

Shareholder Returns

The full-year dividend forecast is ¥36 per share (the previous year disclosed only an interim dividend of ¥18). Based on the Company's forecast Net Income attributable to owners of the parent of ¥750B and approximately 1.21B shares outstanding on an average basis during the period, the forecast Payout Ratio is approximately 58%. Treasury stock at the end of Q1 was ¥286.5B, down from ¥761.5B in the same period of the previous year, indicating a reduction in treasury shares through cancellation, disposal, or other means. However, no new treasury share acquisition policy for Q1 was disclosed.

Risk Factors

1. Fuel oil margin market volatility risk: Approximately 90% of Operating Income depends on the FuelOil segment (Operating Income of ¥2938.0B). If crude oil and product spreads contract, the impact on Company-wide earnings would be significant.

2. Inventory and working capital expansion risk: Inventories increased by +57.4% YoY to ¥21371.2B. If market conditions deteriorate, valuation losses or delays in cash conversion may arise.

3. Increase in interest-bearing debt and leverage: Current bonds and borrowings increased to ¥14173.7B (¥9956.5B in the previous year), while the Equity Ratio remained broadly flat at 27.2%.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company's Operating Income margin and Net Income margin both exceed the industry median and are at or above the upper end of the IQR.

Growth and Capital Efficiency

The Revenue Growth Rate was significantly above the industry median and recorded high growth exceeding the upper end of the IQR.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Sharp improvement in earnings structure: The gross margin improved substantially to 19.6% (previous year: 6.2%) and the Operating Income margin to 13.5% (previous year: -0.2%). The recovery in market conditions in the FuelOil segment driving Company-wide performance was the central fact of the current earnings results.

2. Significant gap versus the full-year forecast: Against the full-year forecast Net Income attributable to owners of the parent of ¥750B, actual Q1 results were ¥2175.0B, resulting in a progress rate of approximately 290%. Whether the forecast will be revised going forward is a key point to monitor.

3. Increase in working capital: Inventories increased substantially by +57.4% YoY, confirming an expansion in input inventories associated with revenue growth. Future inventory levels and trends in interest-bearing debt will be important for assessing funding conditions.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥1,180–¥1,248 at Cost of Equity ±1%; ¥1,208–¥1,217 at ω ±0.1.

Notes:

• Because progress in Net Income versus the full-year forecast (290%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with leading progress tend to exceed forecasts. For businesses with strong seasonality, the adjustment may be excessive).
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end have been used (there is a timing gap versus the full-year forecast).

(Calculation model: Residual Income Model / Interest rate reference month: 2026-07 / This value does not predict or guarantee future share prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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 a professional advisor as necessary.

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