COSMO ENERGY HOLDINGS (5021) FY2027 Q1 Earnings Report

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Executive Summary

The Company reported a recovery in both revenue and earnings this quarter, driven by improved profitability in the Petroleum Business following the low-profitability phase in the same period of the previous year. Revenue was ¥761.59B (+17.4% YoY), Operating Income was ¥126.92B (+1489.0% from ¥7.99B in the previous year), Ordinary Income was ¥133.04B (+3086.7% from ¥4.18B in the previous year), and Net Income was ¥87.04B, compared with a loss of ¥1.04B in the previous year, representing a return to profitability. The primary driver of earnings growth was not a reduction in SG&A expenses but an expansion in the gross profit margin resulting from an improvement in the cost-of-sales ratio, particularly in the Petroleum Business. The Company has maintained its Full-Year earnings forecasts, suggesting that it does not assume that the high profitability recorded this quarter will continue throughout the year.

Factors Affecting Earnings

【Revenue】Revenue was ¥761.59B (+17.4% YoY). The core Petroleum Business generated ¥662.27B (+18.8% YoY), accounting for 87.0% of total revenue and driving overall growth. The Petrochemical Business generated ¥79.79B (+9.3% YoY), the Renewable Energy Business generated ¥3.55B (+6.4% YoY), and Other Businesses generated ¥7.67B (+32.0% YoY), with all of these segments reporting higher revenue. In contrast, the Oil Exploration and Production Business reported lower revenue of ¥8.31B (-9.1% YoY).

【Profit and Loss】Operating Income was ¥126.92B, a substantial increase from ¥7.99B in the previous year, and the Operating Income margin improved significantly to 16.7% from 1.2% in the same period of the previous year. The gross profit margin rose to 22.5% from 8.1%, while SG&A expenses increased only 0.5% YoY to ¥44.66B. Accordingly, the main driver of earnings growth was an improvement in the cost-of-sales ratio, with operating leverage from fixed-cost control also making a certain contribution. By segment, Ordinary Income in the Petroleum Business turned around from a loss of ¥6.49B in the previous year to ¥117.95B, accounting for most of the earnings improvement. The Petrochemical Business also turned around from a loss of ¥2.94B to income of ¥7.19B. Extraordinary losses were ¥0.69B, including an impairment loss of ¥0.08B, and had only a minor impact on Net Income. In conclusion, the Company recorded higher revenue and earnings this quarter, representing a profitability-led recovery in which the earnings growth rate significantly exceeded the revenue growth rate.

Segment Analysis

The Petroleum Business was the core contributor to consolidated earnings, reporting Ordinary Income of ¥117.95B (+1916.0% YoY; margin of 17.8%) and making a substantial recovery from the loss recorded in the previous year. The Petrochemical Business recovered to ¥7.19B (+344.3% YoY; margin of 9.0%). The Oil Exploration and Production Business was the only segment to report lower earnings, at ¥7.61B (-14.7% YoY). Although its margin was high at 91.5%, its scale was small. The Renewable Energy Business generated ¥0.28B (+68.3% YoY), while Other Businesses generated ¥1.25B (+31.6% YoY); their contributions to consolidated earnings were limited. Earnings are highly concentrated in the Petroleum Business, creating a structure in which fluctuations in market conditions and inventory valuation in that business have a significant impact on consolidated performance.

Key Financial Indicators

【Profitability】The Operating Income margin improved significantly to 16.7% from 1.2% in the same period of the previous year, while the gross profit margin also increased to 22.5% from 8.1%. The Net Income margin was approximately 11.0%–11.4%, representing a return to profitability from the negative margin recorded in the same period of the previous year.【Cash Flow Quality】Comprehensive Income was ¥90.44B, slightly exceeding Net Income of ¥87.04B. Foreign currency translation adjustments and the share of OCI of equity-method affiliates contributed to the increase, and the small divergence between the two indicates that earnings quality is generally stable.【Investment Efficiency】Annualized ROE was high at 43.0%, supported by both the sharp rebound in the Net Income margin and financial leverage.【Financial Soundness】The Equity Ratio was 31.7%, down from 33.5% in the previous year. Accounts payable increased 92.1% YoY, while inventories increased 35.8%, indicating an expansion in working capital and rising short-term funding requirements.

Cash Flow Analysis

As this report does not include detailed data from the statement of cash flows, funding trends are assessed based on changes in the balance sheet. Total assets increased by ¥355.1B (+16.2%) from the previous year, while cash and deposits declined to ¥130.50B from ¥165.90B in the previous year. Meanwhile, inventories increased by ¥70.08B (+35.8%), and accounts payable increased by ¥333.9B (+92.1%). The procurement of raw materials and inventory buildup accompanying revenue growth appear to have expanded working capital and absorbed funds. Retained earnings increased by ¥67.95B, and the retention of current-period earnings strengthened the capital base. At the same time, the decline in cash and deposits is consistent with increased working capital requirements.

Earnings Quality

The improvement in earnings this quarter was primarily attributable to an improvement in the cost-of-sales ratio in the core business, while the impact of temporary factors was limited. Extraordinary income was ¥0.03B and extraordinary losses were ¥0.69B, including an impairment loss of ¥0.08B; both had only a minor impact on Net Income. Non-operating income was ¥8.91B, including a foreign exchange gain of ¥3.69B, which represented 2.9% of Operating Income of ¥126.92B and provided a certain degree of upward support. This effect could diminish if the yen moves toward appreciation. The difference between Comprehensive Income of ¥90.44B and Net Income of ¥87.04B was approximately ¥3.4B, attributable to foreign currency translation adjustments and the share of OCI of equity-method affiliates, among other factors; no significant accrual-related factors were observed. Overall, earnings quality was driven by the core business, although attention should be paid to the high sensitivity to market factors, including petroleum product margins and inventory valuation.

Earnings Forecasts and Guidance

The Full-Year forecasts remain unchanged at Revenue of ¥2,870B (+7.2% YoY), Operating Income of ¥102B (-29.6% YoY), and Ordinary Income of ¥115B (-22.9% YoY). The progress rate for the quarter was approximately 26.5% for Revenue, a standard level, while Operating Income and Ordinary Income reached 124.4% and 115.7%, respectively, substantially exceeding a simple one-quarter progress rate. The fact that the Company has maintained its Full-Year forecasts suggests that the high profitability recorded this quarter includes temporary factors such as market conditions and inventory valuation, and that the Company does not assume that profitability will continue at the same level throughout the year.

Shareholder Returns

The Full-Year dividend forecast is ¥165 per share, implying a forecast Payout Ratio of approximately 59.5% based on the Full-Year forecast EPS of ¥277.10. EPS for the current quarter was ¥529.05, compared with -¥12.33 in the previous year, exceeding the Full-Year forecast; however, the Company has not revised its Full-Year earnings or dividend forecasts. A 2-for-1 stock split was implemented effective October 1, 2025, and a simple comparison of annual dividends is not presented because of the impact of the split.

Risk Factors

1. Business concentration risk: The Petroleum Business accounts for the majority of segment earnings (¥117.95B), resulting in a high concentration of consolidated earnings. Fluctuations in petroleum product margins, crude oil prices, and inventory valuation can have a significant impact on consolidated performance.

2. Inventory and working capital risk: Inventories increased 35.8% YoY to ¥265.82B, while accounts payable increased 92.1% to ¥696.43B. Fluctuations in raw material and product prices could lead to inventory valuation losses and a sharp increase in working capital requirements.

3. Financial leverage and short-term funding risk: The Equity Ratio is 31.7%, and the Company has a high degree of reliance on short-term borrowings and commercial paper. Changes in the interest-rate environment and credit spreads could affect funding costs.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company's Operating Income margin and Net Income margin significantly exceed the industry median, placing its profitability among the top tier of the industry.

Growth and Capital Efficiency

The Company's Revenue growth rate also significantly exceeds the industry median, placing it among the industry's top performers in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Operating Income of ¥126.92B for the quarter has already exceeded the Full-Year Company forecast of ¥102B, resulting in a progress rate of 124.4%. The fact that the Company has maintained its forecast suggests that the high profitability recorded this quarter may incorporate reversal risks related to market conditions, inventory valuation, and other factors.

2. The primary driver of earnings growth was not a reduction in SG&A expenses but a sharp recovery in the gross profit margin, from 8.1% to 22.5%. The turnaround in the profitability of the Petroleum Business led consolidated performance. This structure also implies high sensitivity to market fluctuations.

3. The substantial increases in inventories and accounts payable indicate rising working capital requirements accompanying revenue growth and will be key areas for monitoring future cash flow trends.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,554–¥4,813 at ±1% for the Cost of Equity, and ¥4,667–¥4,690 at ±0.1 for ω.

Notes:

• Net Income is significantly 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, underlying earnings power may be higher.
• As 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, resulting in a timing gap relative to the Full-Year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(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. It is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)

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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 responsibility, after consulting with a professional as necessary.

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