COSMO ENERGY HOLDINGS (5021) FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, the Company reported higher operating income despite lower revenue, driven by improved crude oil margins. Revenue was ¥2 trillion 6,775.8B (-4.4% YoY), operating income was ¥1,447.9B (+12.9% YoY), ordinary income was ¥1,492.5B (-1.0% YoY), and net income attributable to owners of the parent was ¥740.2B (+28.4% YoY). The primary reason for the revenue decline was lower selling prices in the Petroleum Business and Petrochemical Business, while the increase in profit was attributable to an improved gross margin and the absence of structural improvement expenses recorded in the previous year. Despite higher operating income, ordinary income declined slightly because non-operating income decreased due to the reversal of foreign exchange gains recorded in the previous year.

Factors Affecting Performance

【Revenue】Revenue was ¥2 trillion 6,775.8B, down 4.4% YoY. The two core segments posted lower revenue: the Petroleum Business (85.9% of revenue) generated ¥2 trillion 2,987.7B (-4.9% YoY), while the Petrochemical Business generated ¥2,882.8B (-2.9% YoY). Although the Oil Exploration and Production Business (+3.7%) and Renewable Energy Business (+22.6%) posted higher revenue, their smaller scale was insufficient to offset the overall decline.

【Profit and Loss】Operating income was ¥1,447.9B (+12.9% YoY), mainly due to the improvement in the gross margin to 12.5% from 11.0% in the previous year. By segment ordinary income, the Petroleum Business increased substantially to ¥762.6B (+23.4% YoY), while the Petrochemical Business narrowed its loss to ¥30.8B, compared with a loss of ¥50.4B in the previous year. Conversely, the Oil Exploration and Production Business posted ordinary income of ¥652.7B (-20.8% YoY), representing a decline in profit. The increase in operating income was offset by a decrease in non-operating income (-55.7% YoY, mainly due to a reduction in foreign exchange gains), resulting in a slight decline in ordinary income (-1.0%). Net income increased substantially (+28.4%) due to a reduction in extraordinary losses following the absence of the structural improvement expenses recorded in the previous year. In conclusion, the Company achieved lower revenue and higher profit.

Segment Analysis

The Petroleum Business posted revenue of ¥2 trillion 2,987.7B (85.9% of total revenue, -4.9% YoY) and ordinary income of ¥762.6B (+23.4% YoY; profit margin of 3.3%). Improved margins more than offset the decline in sales volume, contributing to higher profit. The Petrochemical Business generated revenue of ¥2,882.8B (10.8% of total revenue, -2.9% YoY) and continued to post an ordinary loss of ¥30.8B, although it showed an improving trend from the ¥50.4B loss recorded in the previous year. The Oil Exploration and Production Business was small in scale, with revenue of ¥452.2B, but generated ordinary income of ¥652.7B and an exceptionally high profit margin of 144.3%. However, profit declined 20.8% YoY, becoming a drag on consolidated earnings. The Renewable Energy Business generated revenue of ¥161.4B (+22.6% YoY) and profit of ¥27.5B (+117.6% YoY), making it a small but high-growth, highly profitable segment.

Key Financial Indicators

【Profitability】The operating margin improved to 5.4% from 4.6% in the previous year, while the net margin improved to 2.8% from 2.1%. ROE was 11.2%, indicating improvement in both profitability and capital efficiency.【Cash Flow Quality】Operating cash flow (OCF) was ¥2,137.4B, approximately 2.9 times net income of ¥740.2B, indicating strong cash backing for earnings. Improved working capital resulting from decreases in inventories and trade receivables contributed to the increase in OCF; it should be noted that this represents a factor specific to the current period that boosted OCF.【Investment Efficiency】Capital expenditures were ¥832.5B, 1.43 times depreciation and amortization of ¥583.5B, indicating that renewal and growth investments exceeded depreciation. Free cash flow was ¥1,290.4B, more than sufficient to cover dividends and share repurchases.【Financial Soundness】The equity ratio was 33.5%, a slight improvement from 32.8% in the previous year. Long-term borrowings decreased 28.1% YoY, indicating progress in deleveraging, while the Company’s reliance on short-term liabilities remains an area requiring continued monitoring.

Cash Flow Analysis

Operating cash flow was ¥2,137.4B, a substantial increase of +55.9% YoY, and significantly exceeded net income of ¥740.2B. The increase was supported by improved working capital, including a decrease in inventories of ¥239.2B and a decrease in trade receivables of ¥259.3B. It should be noted that this includes a cash collection effect specific to the current period. Investing cash flow was an outflow of ¥847.0B, of which capital expenditures accounted for ¥832.5B, indicating continued investment in the renewal and expansion of property, plant and equipment. Financing cash flow was an outflow of ¥819.3B, primarily comprising repayments of long-term borrowings of ¥602.5B, dividend payments of ¥273.3B, and share repurchases of ¥296.9B. The Company achieved both shareholder returns and debt reduction within the range covered by OCF. Consequently, free cash flow was ¥1,290.4B, a substantial improvement from ¥529.1B in the previous year, while cash and cash equivalents increased by ¥468.6B.

Quality of Earnings

Both recurring and temporary factors contributed to the increase in net income for the current period. The increase in operating income was primarily attributable to the improvement in the gross margin, a factor arising from the underlying business and therefore strongly recurring in nature. However, ordinary income declined slightly due to the reduction in foreign exchange gains recorded in the previous year (¥162.1B in the previous year → ¥32.4B in the current period). In extraordinary items, extraordinary income of ¥96.5B, including a gain on the sale of investment securities of ¥66.4B, was offset by extraordinary losses of ¥133.6B, including losses on the disposal and sale of fixed assets, resulting in a net temporary loss factor. Structural improvement expenses of ¥168.6B recorded in the previous year did not recur in the current period, and this absence contributed to the substantial increase in net income (+39.6%). This should be considered a non-recurring comparison effect. OCF significantly exceeded net income, indicating good earnings quality from an accrual perspective, namely the divergence between accrual-based and cash-based accounting.

Earnings Forecasts and Guidance

The Company’s forecast for the next fiscal year (fiscal year ending March 2027) calls for revenue of ¥2 trillion 8,700B (+7.2% YoY), but operating income of ¥1,020B (-29.6% YoY) and ordinary income of ¥1,150B (-22.9% YoY), representing expectations for substantial declines in profit. This suggests that the improvement in petroleum margins achieved in the current period was attributable to temporary market conditions and that the Company assumes normalization going forward. Forecast EPS is ¥277.10, a substantial decline from actual EPS of ¥453.06 in the current period, making the sustainability of the current period’s improvement in profitability a key focus going forward.

Shareholder Returns

Annual dividends are ¥165 per share on an adjusted basis reflecting the impact of the stock split, resulting in a payout ratio of 36.4% relative to net income of ¥740.2B. Including share repurchases of ¥296.9B, the total return ratio is approximately 76.3%; this should be evaluated separately from the payout ratio based solely on dividends. Against free cash flow of ¥1,290.4B, total dividends of ¥267.5B represent coverage of approximately 4.8 times. Coverage remains approximately 2.3 times even when dividends and share repurchases are combined, indicating that current-period shareholder returns were within the range supported by operating cash flow. Assuming next-period forecast net income of ¥440B and the maintenance of dividends at the same level, the payout ratio may increase.

Risk Factors

1. Concentration of revenue in the Petroleum Business: The Petroleum Business accounts for 85.9% of consolidated revenue, creating a business structure in which fluctuations in crude oil prices, product market conditions, and refining margins have a significant impact on performance. A gross margin of 12.5% indicates the thin-margin nature of the business.

2. Earnings volatility in the Oil Exploration and Production Business: The business is highly profitable, generating ordinary income of ¥652.7B against revenue of ¥452.2B, but profit declined 20.8% YoY. Fluctuations in resource prices and production volumes therefore have a significant impact on consolidated profit.

3. Reliance on short-term liabilities: The Company has a high proportion of short-term liabilities, including short-term borrowings of ¥2,514.6B and commercial paper of ¥1,020.0B. Compared with cash and deposits of ¥1,659.0B, this indicates sensitivity to changes in the financing environment.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net margin are below the industry median, indicating that profitability is low compared with the manufacturing industry average.

Growth and Capital Efficiency

The revenue growth rate is substantially below the industry median, and the revenue decline caused by market conditions is particularly pronounced compared with peer companies.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The fact that operating income increased 12.9% while revenue declined 4.4% was primarily attributable to improved gross margins in the Petroleum Business. The results were driven by margin improvement rather than sales volume.

2. The Company’s forecast for the next fiscal year anticipates a 29.6% decline in operating income, suggesting that the improvement in profitability during the current period may have a temporary nature, including market-related factors. The sustainability of petroleum margins will be a key focus going forward.

3. OCF reached approximately 2.9 times net income, and free cash flow was sufficient to cover dividends and share repurchases. However, it should be noted that part of the increase in OCF was attributable to temporary working capital improvement.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,620–¥3,826 at ±1% cost of equity, and ¥3,717–¥3,723 at ω±0.1.

Notes:

• Net income is substantially compressed relative to operating income due to tax expenses, acquisition-related expenses, non-controlling interests, and other factors (net income ÷ operating income 43%). This value reflects that compression at face value; if these factors are temporary, normalized earnings power may be higher than this figure.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest-rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data and is neither a forecast of the market share price nor a recommendation of any specific investment action; it 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. The industry benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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