SAN-AI OBBLI (8097) FY2026 Q3 Earnings Report

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Executive Summary

This was a decline in both revenue and earnings, with revenue down 3.2% and Operating Income down 20.0%; deteriorating profitability in the core petroleum-related business pressured consolidated earnings. Revenue was ¥4,595.2B (-3.2% YoY), Operating Income was ¥68.8B (-20.0%), Ordinary Income was ¥77.7B (-17.9%), and Net Income attributable to owners of the parent was ¥61.8B (-5.9%). The smaller decline in Net Income than in Operating Income was attributable to Special Gains, primarily a ¥17.0B gain on the sale of investment securities, which provided support. Underlying earnings momentum was therefore weaker.

Factors Affecting Performance

【Revenue】Consolidated Revenue was ¥4,595.2B, down 3.2% YoY. While the petroleum-related business, which accounted for 85.1% of consolidated revenue, declined to ¥3,912.4B (-3.9%), and the gas-related business declined to ¥407.2B (-5.0%), the aviation-related business increased to ¥126.4B (+16.3%), other businesses increased to ¥52.7B (+23.1%), and the chemicals-related business increased to ¥96.5B (+0.3%). Growth in the expanding segments was insufficient to offset the decline in the larger petroleum-related business.

【Profit and Loss】Operating Income was ¥68.8B (-20.0%). The gross margin declined to 9.1% from approximately 9.2% in the previous year, while SG&A expenses decreased by only 0.7%, insufficient to absorb the decline in gross profit. By segment, profit from the petroleum-related business declined 60.2% to ¥25.0B from ¥62.8B in the previous year, while the aviation-related business increased 57.7% to ¥44.5B and became the largest profit-contributing segment. Ordinary Income was ¥77.7B, including non-operating income such as ¥4.4B in dividend income. Pre-tax Income of ¥93.6B exceeded Ordinary Income by ¥15.9B due to ¥17.1B in Special Gains, including a ¥17.0B gain on the sale of investment securities, supporting Net Income of ¥61.8B. In conclusion, this was a decline in both revenue and earnings, while the narrower decline in Net Income was largely attributable to temporary factors.

Segment Analysis

The petroleum-related business recorded Revenue of ¥3,912.4B (-3.9%) and segment profit of ¥25.0B (-60.2%), representing a significant decline in earnings; its profit margin relative to external revenue was only approximately 0.6%. The chemicals-related business recorded Revenue of ¥96.5B (+0.3%) and profit of ¥9.4B (+9.1%). The gas-related business posted Revenue of ¥407.2B (-5.0%) but increased profit by 53.3% to ¥9.2B. This increase appears to have benefited from a rebound effect following the ¥1,283M impairment loss recognized in the gas-related business in the previous year, including a ¥459M reduction in goodwill. The aviation-related business recorded Revenue of ¥126.4B (+16.3%) and profit of ¥44.5B (+57.7%), performing strongly in both scale and growth rate, with an outstanding profit margin of approximately 35.2%. Other businesses recorded Revenue of ¥52.7B (+23.1%) and profit of ¥7.6B (+21.0%). The ongoing shift in the composition of consolidated profit from the petroleum-related business toward the aviation-related business warrants attention.

Key Financial Indicators

【Profitability】The Operating Income margin declined to 1.5% from 1.8% in the previous year, while the gross margin also remained at a low 9.1%, indicating a business structure in which price and supply-demand fluctuations are likely to be amplified in earnings. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥218.6B, reaching 3.5 times Net Income attributable to owners of the parent and indicating cash generation exceeding accounting profit. However, it also included a certain degree of reliance on cash inflows from working capital, including a ¥25.7B increase in accounts payable and a ¥49.1B increase in other current liabilities. 【Capital Efficiency】Annualized ROE was 7.0%, reflecting a transaction-oriented earnings structure in which a high total asset turnover ratio offsets the low Net Income margin. 【Financial Soundness】The Equity Ratio was 55.5%. With cash and deposits of ¥524.4B and interest-bearing debt of only approximately ¥26.0B, the Company maintains a financial foundation characterized by substantial net cash.

Cash Flow Analysis

Operating Cash Flow (OCF) improved significantly to ¥218.6B from negative ¥32.8B in the same period of the previous year, demonstrating cash generation substantially exceeding after-tax profit. This improvement was driven largely by working capital factors, including a ¥21.3B decrease in inventories, a ¥25.7B increase in accounts payable, and a ¥49.1B increase in other current liabilities; attention should be paid to the inclusion of period-specific factors. Investing Cash Flow involved an outflow of ¥28.2B, primarily due to ¥48.1B in capital expenditures. Free Cash Flow was ¥190.4B, generating ample surplus funds while maintaining an investment level exceeding depreciation and amortization expense of ¥40.0B. Financing Cash Flow involved an outflow of ¥72.0B, mainly due to ¥62.3B in dividend payments and other items. Cash and cash equivalents increased by ¥118.4B from the end of the previous fiscal year, indicating expanded financial capacity.

Earnings Quality

Pre-tax Income was ¥93.6B versus Ordinary Income of ¥77.7B, resulting in a divergence of approximately 20.5%. The primary cause of this divergence was ¥17.1B in Special Gains, mainly the ¥17.0B gain on the sale of investment securities, while Special Losses were limited to ¥1.2B, including ¥0.3B in impairment losses. Accordingly, Net Income attributable to owners of the parent of ¥61.8B included the temporary contribution of gains from asset sales, and recurring earnings power should appropriately be assessed based on Operating Income of ¥68.8B and Ordinary Income of ¥77.7B. Non-operating income of ¥12.3B was small at approximately 0.3% of Revenue, indicating a low degree of reliance on non-operating income. The fact that OCF substantially exceeded Net Income indicates good cash flow quality, although part of this reflects temporary working capital fluctuations.

Earnings Forecast and Guidance

The full-year company forecast is Revenue of ¥6,600.0B, Operating Income of ¥130.0B, Ordinary Income of ¥140.0B, and Net Income of ¥91.0B. The Q3 cumulative progress rates were 69.6% for Revenue, 52.9% for Operating Income, 55.5% for Ordinary Income, and 67.9% for Net Income. Progress toward the Operating Income and Ordinary Income forecasts was substantially below the standard 75% level. Achieving the full-year forecast will require Q4 standalone Operating Income of ¥61.2B and Ordinary Income of ¥62.3B, equivalent to approximately 89% and 80%, respectively, of the nine-month cumulative figures. This will depend on a recovery in profitability in the petroleum-related business and continued earnings growth in the aviation- and gas-related businesses.

Shareholder Returns

The Q2 dividend was ¥50.00 per share, and the full-year dividend forecast remains unchanged at ¥100.00. The forecast Payout Ratio against forecast full-year EPS of ¥146.02 is approximately 68.5%, above 60%. However, dividend coverage relative to Free Cash Flow of ¥190.4B is high, and the Company has sufficient payment capacity based on its current cash-generation ability. The net-cash financial foundation also supports continued dividends, while achievement of the full-year earnings forecast assumes earnings recovery in Q4; progress toward this recovery could affect the funds available for future shareholder returns.

Risk Factors

1. Deterioration in profitability of the petroleum-related business: Segment profit in the petroleum-related business, which accounts for 85.1% of consolidated revenue, declined 60.2% YoY to ¥25.0B. This creates a business structure in which market conditions, supply and demand, and fluctuations in purchase-to-sales price spreads significantly affect consolidated profit.

2. Sensitivity arising from the low-margin structure: Given the low-margin structure, with a gross margin of 9.1% and an Operating Income margin of 1.5%, even small changes in crude oil and petroleum product market conditions, logistics costs, or procurement costs could materially affect the profit margin.

3. Risk of falling short of the full-year earnings plan: Progress rates for Operating Income and Ordinary Income were 52.9% and 55.5%, respectively, substantially below the standard 75% level. This requires a high level of profit generation in Q4 relative to the cumulative results of the first three quarters.

Industry Benchmark (Reference; Company Analysis)

Profitability and Returns

Compared with the industry median, both the Operating Income margin and Net Income margin are positioned in the lower range.

Growth and Capital Efficiency

The Revenue growth rate was substantially below the industry median and also below the lower bound of the IQR.

※Source: Company analysis

Key Takeaways from the Earnings Results

1. Segment profit in the aviation-related business was ¥44.5B (+57.7% YoY), making it the largest profit-contributing segment and increasing its relative importance within the earnings portfolio.

2. Net Income included a temporary contribution of ¥17.0B from gains on the sale of investment securities. Caution is therefore warranted when treating current-period profit as a direct indication of the sustainable earnings power of the core business.

3. OCF of ¥218.6B, Free Cash Flow of ¥190.4B, and the net-cash financial foundation provide financial flexibility despite the issue of delayed progress toward the full-year Operating Income plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,794–¥1,894 at ±1% for the cost of equity, and ¥1,840–¥1,844 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥8.1 per share has been added back to profit (to reflect a non-cash expense and comparability with IFRS companies).
• 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 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 model; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on 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 responsibility, after consulting with a professional as necessary.

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