COSMO ENERGY HOLDINGS COMPANY,LIMITED FY2027 Q1 Earnings Report

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Executive Summary

A sharp recovery in the profitability of the Petroleum Business resulted in substantial increases in revenue and earnings, with profit expanding significantly following the low-profitability conditions of the previous year. Revenue was ¥7,615.9B (+17.4% YoY), Operating Income was ¥1,269.2B (+1,489.0% from ¥79.9B in the previous year), and Ordinary Income was ¥1,330.4B (+3,086.7%). Consolidated Net Income was ¥870.4B (a return to profitability from ¥-10.4B in the previous year; of this amount, ¥840.1B was attributable to owners of the parent), while the Operating Income Margin improved substantially to 16.7% from 1.2% in the previous year. The primary driver of the earnings increase was the Petroleum Business segment profit, which turned around from a loss of ¥64.9B in the previous year to ¥1,179.5B, resulting in substantial progress exceeding the full-year plan.

Factors Affecting Performance

【Revenue】Revenue was ¥7,615.9B, up +17.4% YoY. The Petroleum Business, which accounted for 90.4% of the composition, was the largest driver at ¥6,885.8B (+19.6%), while the Petrochemicals Business also contributed to the revenue increase at ¥938.9B (+13.7%). Meanwhile, Oil Exploration and Production declined substantially to ¥160.7B (-45.8%), while Renewable Energy, although small in scale, maintained revenue growth at ¥38.6B (+14.2%).

【Profit and Loss】Operating Income was ¥1,269.2B (¥79.9B in the previous year), and the Gross Profit Margin improved substantially to 22.5% from 8.1% in the previous year, while the SG&A Expense Ratio remained nearly flat at 5.9%; therefore, the improvement in gross profit was the primary driver of earnings growth. Ordinary Income of ¥1,330.4B benefited from non-operating income totaling ¥89.1B, including foreign exchange gains of ¥36.9B and equity-method investment gains of ¥25.8B. However, the increase from Operating Income (+¥61.2B) was limited in scale, indicating that improvement in the core business remained the primary factor. Consolidated Net Income was ¥870.4B, of which ¥840.1B was attributable to owners of the parent; both returned to profitability from losses in the previous year. Revenue and earnings increased.

Segment Analysis

Segment profit (on an Ordinary Income basis) for the Petroleum Business was ¥1,179.5B, accounting for the majority of company-wide profit and representing a substantial turnaround from a loss of ¥64.9B in the previous year. Petrochemicals turned profitable at ¥71.9B (¥-29.4B in the previous year), while Oil Exploration and Production maintained high profitability at ¥76.1B (¥89.2B in the previous year), although its scale contracted somewhat. Renewable Energy was ¥2.8B (¥1.7B in the previous year), and Other was ¥12.5B (¥9.5B in the previous year), both recording increases in profit despite their small scale. Eliminations and adjustments were ¥-12.4B (¥+35.7B in the previous year). In terms of revenue composition, the Petroleum Business accounted for 90.4%, resulting in a structure in which earnings are strongly linked to market conditions and margin trends in that business.

Key Financial Indicators

【Profitability】The Operating Income Margin was 16.7%, improving 15.5pt from 1.2% in the previous year, while the Gross Profit Margin also increased substantially to 22.5% (8.1% in the previous year). The Net Profit Margin was 11.4% based on consolidated Net Income (negative in the previous year), confirming improved cost absorption capacity.【Cash Flow Quality】The primary factors behind the difference between Ordinary Income and consolidated Net Income were income taxes and other taxes of ¥453.4B (effective tax rate of 34.3%) and profit attributable to non-controlling interests of ¥30.3B. The impact of extraordinary gains and losses was limited, at a net ¥-6.6B.【Investment Efficiency】ROE was 10.7%, a substantial improvement from the negative level in the previous year. Total Asset Turnover was 0.30 (quarterly basis), and financial leverage was 3.15x; the improvement in ROE during the quarter was primarily attributable to the sharp recovery in the profit margin.【Financial Soundness】The Equity Ratio was 31.7%, slightly down from 33.5% in the previous year. Total Assets expanded to ¥25,514.7B (¥21,965.6B in the previous year), while Net Assets increased only to ¥8,100.2B (¥7,357.6B in the previous year), indicating that asset growth exceeded growth in net assets.

Cash Flow Analysis

As a statement of cash flows has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥1,305.0B, down -21.3% from ¥1,659.0B in the previous year, suggesting that funds may have been allocated to working capital and investments in excess of cash generation from operating activities. Inventories increased substantially to ¥2,658.2B (¥1,957.4B in the previous year, +35.8%), while accounts payable rose to ¥6,964.3B (¥3,624.9B in the previous year, +92.1%). The buildup of crude oil and product inventories and the expansion of procurement activities are pushing up working capital. Meanwhile, retained earnings accumulated alongside the earnings increase to ¥5,758.2B (¥5,078.6B in the previous year, +13.4%), indicating an improvement in the quality of retained earnings. The simultaneous decline in cash and deposits and sharp increases in accounts payable and inventories indicate that working capital management may become a key cash management focus.

Earnings Quality

A substantial portion of profit for the quarter depended on recurring business activities. Extraordinary gains and losses were limited to extraordinary income of ¥0.3B and extraordinary losses of ¥6.9B, for a net ¥-6.6B, and their impact was minor. Non-operating income of ¥89.1B (1.2% of revenue) consisted of foreign exchange gains of ¥36.9B, equity-method investment gains of ¥25.8B, interest income of ¥9.7B, dividend income of ¥5.3B, and other items. Each was limited in scale, indicating that the source of profit depended primarily on operating activities. Against Ordinary Income of ¥1,330.4B, consolidated Net Income was ¥870.4B; the primary factors behind the difference were income taxes and other taxes of ¥453.4B (effective tax rate of 34.3%) and profit attributable to non-controlling interests of ¥30.3B. Comprehensive Income was ¥904.4B, with the difference from consolidated Net Income of ¥870.4B limited to +3.9%; the impact of valuation items such as valuation difference on available-for-sale securities and foreign currency translation adjustments was limited. On the other hand, the sharp increases in inventories and accounts payable indicate an expansion in accruals, and the potential impact of inventory valuation factors on earnings from the next period onward should be noted.

Earnings Forecast and Guidance

Q1 progress against the full-year plan was 26.5% for Revenue (¥7,615.9B/¥28,700B), 124.4% for Operating Income (¥1,269.2B/¥1,020B), 115.7% for Ordinary Income (¥1,330.4B/¥1,150B), and 190.9% for Net Income (¥840.1B attributable to owners of the parent/¥440B), all representing high levels of progress for a single quarter. The full-year plan itself assumes declines of -29.6% in Operating Income and -22.9% in Ordinary Income YoY, indicating a different direction from the substantial earnings growth recorded in Q1. Neither the earnings forecast nor the dividend forecast had been revised as of the date of this report, and the full-year plan remains unchanged.

Shareholder Returns

The annual dividend forecast is ¥165, and the Payout Ratio based on forecast EPS of ¥277.1 is approximately 59.5%. A 1-for-2 stock split was conducted effective October 1, 2025. While the year-end dividend is an amount calculated based on the post-split number of shares, the annual dividend cannot be simply aggregated; therefore, a simple comparison with the previous year's dividend level is not possible. The fact that Net Income progress as of Q1 substantially exceeds the full-year plan also provides relevant information from the perspective of the funding source for the full-year dividend.

Risk Factors

1. Refining Margin and Inventory Valuation Reversal Risk: The earnings increase for the period was primarily attributable to the sharp improvement in the Gross Profit Margin to 22.5% from 8.1% in the previous year, with Petroleum Business segment profit turning around from a loss of ¥64.9B in the previous year to ¥1,179.5B. A reversal in market conditions or inventory valuations could lead to a rapid decline in the profit margin.

2. Business Concentration Risk: The Petroleum Business accounts for 90.4% of revenue and the majority of segment profit, indicating a high degree of dependence on a single business. The combined segment profit of Petrochemicals, Oil Exploration and Production, and Renewable Energy is limited to approximately one-tenth of that of the Petroleum Business.

3. Working Capital Expansion: Inventories increased sharply by +35.8% YoY, while accounts payable increased by +92.1%; Cash and deposits declined by -21.3% YoY. The Equity Ratio also declined slightly to 31.7% from 33.5% in the previous year, requiring monitoring of working capital management.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income Margin and Net Profit Margin are substantially above the industry median, placing the company in the upper tier of the industry.

Growth and Capital Efficiency

The Revenue Growth Rate also substantially exceeds the industry median, placing the company in the industry's upper group.

※Source: Compiled by the Company

Key Points in the Financial Results

1. The substantial increase in Q1 profit was driven by the sharp recovery in the profitability of the Petroleum Business, with the Gross Profit Margin improving sharply to 22.5% from 8.1% in the previous year. Progress against the full-year plan was substantially above target at 124.4% for Operating Income and 190.9% for Net Income, indicating that the full-year plan has been set at a conservative level incorporating market volatility.

2. The sharp increases in inventories (+35.8%) and accounts payable (+92.1%) indicate an expansion in working capital, while Cash and deposits declined by -21.3%. The Equity Ratio also declined to 31.7% from the previous year, making the acceleration in both assets and liabilities and changes in capital efficiency structural observations to be confirmed in future financial results.

3. The Petroleum Business accounted for 90.4% of revenue, a composition that has not changed substantially from the previous year, indicating that company-wide performance remains strongly linked to market trends in that business.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using the 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 of any specific investment action.

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

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burden, acquisition-related expenses, non-controlling interests, and other factors (Net Income ÷ Operating Income 43%). This value reflects that compression at face value; if the factors are temporary, the underlying earning power 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 end of the quarter are used (there is a timing difference from the full-year forecast).
• Because 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 does not forecast or guarantee the future share price)

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This report is a financial results analysis document automatically generated by AI based on XBRL financial 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 financial results data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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