COSMO ENERGY HOLDINGS (5021) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for Q3 of the fiscal year ending March 2026 showed declines in both revenue and earnings, as deterioration in the operating environment, including crude oil market conditions and foreign exchange rates, weighed on net income. Revenue was ¥2,008.1B (-1.5% YoY), while operating income was ¥878.4B (-0.3% YoY), remaining nearly flat. However, ordinary income was ¥834.9B (-14.4% YoY) and net income was ¥407.7B (-19.4% YoY), with the magnitude of the decline widening progressively. Although the gross profit margin improved, higher SG&A expenses and the shift to foreign exchange losses drove the decline from ordinary income onward.

Factors Affecting Earnings

【Revenue】Revenue was ¥2,008.1B, down 1.5% YoY. While the core Oil Business recorded external revenue of ¥1,715.7B (-2.1% YoY), making it the largest contributor to the revenue decline, the Petrochemical Business generated ¥224.7B (+1.6% YoY), the Oil Exploration and Production Business generated ¥36.7B (+8.8% YoY), and the Renewable Energy Business generated ¥10.8B (+25.6% YoY), securing revenue growth.

【Profit and Loss】The gross profit margin improved to 11.2% from 10.7% in the same period of the previous year. However, SG&A expenses increased to ¥137.99B (+6.9% YoY), substantially exceeding the decline in revenue, and the operating margin remained at 4.4%, roughly in line with the same period of the previous year. At the ordinary income level, foreign exchange gains of ¥5.4B in the same period of the previous year turned into foreign exchange losses of ¥2.1B in the current period, resulting in a deterioration in non-operating income and expenses. Against pretax income of ¥79.57B, income taxes and other taxes amounted to ¥38.8B, resulting in a high effective tax rate of approximately 48.8% and contributing to the contraction in the net profit margin. The Petrochemical Business reduced its segment loss by 67.9% YoY, while the Renewable Energy Business returned to profitability, confirming progress in portfolio diversification. Overall, however, the results are classified as declines in both revenue and earnings.

Segment Analysis

By segment, based on ordinary income, the Oil Business was the largest segment, accounting for 85.4% of the total, with revenue of ¥1,715.7B (-2.1% YoY) and profit of ¥36.93B (-7.9% YoY). The Oil Exploration and Production Business recorded revenue of ¥36.68B (+8.8% YoY) and profit of ¥37.87B (-28.3% YoY). Although it has a highly profitable structure, with a profit margin of 103.2%, the decline in profit was substantial. The Petrochemical Business recorded revenue of ¥224.68B (+1.6% YoY), while profit was negative ¥1.56B, narrowing its loss from negative ¥4.87B in the same period of the previous year. The Renewable Energy Business recorded revenue of ¥10.84B (+25.6% YoY) and profit of ¥0.87B, turning profitable from a loss of ¥0.05B in the same period of the previous year. The decline in profit in the Oil Exploration and Production Business reflects its high sensitivity to resource prices, production volumes, and foreign exchange rates, while the improvement in the Petrochemical and Renewable Energy Businesses indicates diversification of earnings sources.

Key Financial Indicators

【Profitability】The operating margin, ordinary income margin, and net profit margin, based on consolidated net income, were 4.4%, 4.2%, and 2.0%, respectively, all lower than in the same period of the previous year, with the decline particularly pronounced from the ordinary income level onward.【Cash Flow Quality】Net extraordinary losses amounted to ¥3.92B, primarily due to losses on the disposal of fixed assets of ¥6.65B, while impairment losses were limited to ¥0.26B. The effective tax rate was high at approximately 48.8%, indicating a structure in which improvement in pretax income is not readily converted into net income.【Investment Efficiency】Annualized ROE was 7.6%. While it was supported by high asset turnover and financial leverage (total assets of ¥2,193.47B / net assets of ¥719.07B), the net profit margin itself remained low.【Financial Soundness】The equity ratio was 32.8%, while tangible fixed assets of ¥884.80B accounted for 40.3% of total assets, reflecting a capital-intensive business structure.

Cash Flow Analysis

Although explicit data from the cash flow statement are not available, funding trends can be assessed from changes in the balance sheet. Cash and deposits increased to ¥141.85B from ¥126.93B in the same period of the previous year, while short-term borrowings increased by ¥27.21B and long-term borrowings decreased by ¥43.34B. This indicates a change in the funding structure, with greater reliance on short-term funding while reducing long-term debt. Inventories increased by ¥25.30B, primarily due to an increase in finished goods inventories, while accounts receivable also increased by ¥24.65B. The buildup of working capital amid declining revenue warrants attention from the perspective of cash-generation capacity. Tangible fixed assets increased by ¥13.42B, suggesting that capital expenditure continues in this capital-intensive business.

Quality of Earnings

While operating income remained nearly flat during the current period, the deterioration from ordinary income onward was largely attributable to non-recurring and market-linked factors. Non-operating income and expenses shifted from a surplus of ¥9.4B in the same period of the previous year to a deficit of ¥4.4B, primarily because foreign exchange gains of ¥5.4B turned into foreign exchange losses of ¥2.13B. This change should be evaluated separately from the earnings power of the core business. Extraordinary items were centered on losses on the disposal of fixed assets of ¥6.65B, resulting in a net loss of ¥3.92B after investment securities disposal gains of ¥1.01B and gains on the disposal of fixed assets of ¥1.21B. The high tax burden, with an effective tax rate of 48.8%, indicates a structure in which improvement in pretax income is not readily reflected in net income. Accordingly, the impact of tax-related factors should continue to be monitored when assessing earnings quality. Comprehensive income was ¥42.42B, exceeding net income of ¥40.77B, with positive OCI, including valuation differences on securities of ¥1.86B, contributing to the difference. However, this difference is dependent on market fluctuations.

Earnings Forecast and Guidance

Against the full-year forecast of revenue of ¥2,580B, operating income of ¥123B, ordinary income of ¥121B, and EPS of ¥335.72, the cumulative progress rates through Q3 were 77.8% for revenue, 71.4% for operating income, and 69.0% for ordinary income. Revenue slightly exceeded the standard 75% progress benchmark, while operating income and ordinary income fell below it, making a recovery in earnings during Q4 a key challenge. The company has not revised its full-year forecast announced in May 2025 and has explicitly stated that there have been no revisions to either its earnings forecast or dividend forecast.

Shareholder Returns

The dividend at the end of Q2 was ¥150 per share. Without considering the impact of the 2-for-1 stock split effective October 1, 2025, the annual dividend forecast for the fiscal year ending March 2026 is ¥330 (interim dividend of ¥150 and year-end dividend of ¥180). Based on cumulative net income attributable to owners of the parent of ¥34.90B and the full-year forecast of ¥53B, the company appears to maintain a relatively high level of dividends relative to fluctuations in earnings. The payout ratio should be evaluated as a single value using net income and total dividends consistently as the numerator and denominator, respectively. Treasury stock decreased substantially from a deduction of ¥38.67B in the same period of the previous year to ¥1.38B. Changes in capital policy should therefore be monitored separately from dividends. Due to the impact of the stock split, the simple total of annual dividends is not presented.

Risk Factors

1. Dependence on the Oil Business for Earnings: The Oil Business accounts for 85.4% of external revenue and is the largest source of profit on an ordinary income basis. Consequently, fluctuations in crude oil prices and domestic product margins have a significant impact on consolidated results.

2. Increasing Foreign Exchange Sensitivity: Foreign exchange gains of ¥5.44B in the same period of the previous year turned into foreign exchange losses of ¥2.13B in the current period, causing non-operating income and expenses to deteriorate. Foreign exchange risk related to imported crude oil and foreign-currency-denominated financing remains.

3. Considerations Regarding Capital Structure and Financing: Short-term borrowings increased by ¥27.21B, while long-term borrowings decreased by ¥43.34B, shortening the maturity structure of liabilities. Cash and deposits remained at ¥141.85B, making it useful to monitor liquidity trends.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin were below the industry median, indicating relatively low profitability within the industry.

Growth and Capital Efficiency

The revenue growth rate was also below the industry median, with the decline in revenue standing out compared with industry peers.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The gross profit margin improved to 11.2%, but SG&A expenses increased by 6.9%, exceeding the decline in revenue and offsetting the improvement in the operating margin. Changes in fixed costs and strategic investments will determine future margin trends.

2. The decline in ordinary income and below was substantially greater than the decline in operating income, due to the shift to foreign exchange losses and the high tax burden, with an effective tax rate of approximately 48.8%. It is useful to distinguish the earnings power of the core business from the effects of market conditions and tax-related factors.

3. The narrowing loss in the Petrochemical Business and the return to profitability in the Renewable Energy Business indicate diversification of the business portfolio. Meanwhile, the Oil Exploration and Production Business posted a 28.3% decline in profit despite its high profit margin, confirming its high sensitivity to resource prices and production volumes.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,202–¥4,450 for a ±1% change in the cost of equity, and ¥4,322–¥4,325 for a ±0.1 change in ω.

Notes:

• Net income has been substantially compressed relative to operating income due to tax burdens, acquisition-related expenses, and non-controlling interests, among other factors (net income ÷ operating income 43%). This value reflects that compression at face value; if these factors are temporary, the underlying value may be higher.
• 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 are used; there is a time lag relative to the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(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, and 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 with a professional advisor as necessary.

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