NIPPON GAS (8174) FY2026 FY Earnings Report

Quick View

Executive Summary

For the fiscal year ended March 2026, the company recorded higher revenue and profits, with a sharp increase in profit from the electricity business and improved SG&A efficiency driving up the operating margin. Revenue was ¥208.48B (+4.2% YoY), Operating Income was ¥21.28B (+14.7%), Ordinary Income was ¥21.22B (+14.2%), and Net Income was ¥14.85B (+62.7%; +28.3% on a profit attributable to owners of the parent basis). The operating margin improved by 90bp from 9.3% in the previous year to 10.2%, as the decline in the SG&A ratio more than offset the modest decrease in the gross profit margin. The sharp increase in Net Income also reflects a comparison effect from the reduction in extraordinary losses, primarily losses on the disposal of fixed assets, recorded in the previous fiscal year.

Factors Behind Earnings Changes

【Revenue】Revenue was ¥208.48B, up +4.2% YoY. By segment, the LP Gas Business generated ¥90.83B (+1.9%, 43.6% of total), the Electricity Business generated ¥51.38B (+5.8%, 24.6% of total), and the City Gas Business generated ¥66.27B (+6.3%, 31.8% of total), with the Electricity and City Gas businesses driving growth.

【Profit and Loss】Operating Income was ¥21.28B (+14.7%); against an ¥8.42B increase in revenue, profit increased by ¥2.73B, achieving profit growth exceeding revenue growth. Although the gross profit margin was 36.8%, down approximately 46bp from the previous year, this was offset by SG&A expenses of ¥55.47B, down 1.0% YoY, which resulted in an approximately 140bp decline in the SG&A ratio. Segment profit, on a gross profit basis, showed the largest increase in the Electricity Business at ¥6.61B (+26.5%), making it the primary driver of company-wide profit growth. Ordinary Income was ¥21.22B (+14.2%), remaining at approximately the same level as Operating Income, while net non-operating income and expenses represented only a minor loss of ¥0.06B. Net Income grew at a rate exceeding Ordinary Income, partly due to the reduction in extraordinary losses from ¥1.91B in the previous fiscal year to ¥0.28B in the current fiscal year. In conclusion, the company achieved higher revenue and profits.

Segment Analysis

Segment profit is calculated on a gross profit basis and should be noted as a metric before the deduction of company-wide SG&A expenses. The LP Gas Business recorded revenue of ¥90.83B (+1.9%), profit of ¥50.17B (+0.9%), and a profit margin of 55.2%; while its profitability is the highest, growth is moderate. The City Gas Business recorded revenue of ¥66.27B (+6.3%), profit of ¥19.97B (+1.9%), and a profit margin of 30.1%, with limited margin improvement relative to revenue expansion. The Electricity Business recorded revenue of ¥51.38B (+5.8%), profit of ¥6.61B (+26.5%), and a profit margin of 12.9%. Although it had the lowest profit margin, its profit growth rate was outstanding and it became a major driver of company-wide profit growth. Profit margin and growth rate are inversely correlated, making the potential for improved profitability in the Electricity Business a key focus going forward.

Key Financial Indicators

【Profitability】The Operating Margin was 10.2% (9.3% in the previous year), while the Net Profit Margin was 7.1%. ROE of 22.0% can be decomposed under the DuPont framework into a Net Profit Margin of 7.1% × total asset turnover of 1.27x × financial leverage of 2.42x, supported by both profitability and asset efficiency.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥28.19B, equivalent to 1.90x profit attributable to owners of the parent, while the accrual ratio was negative, indicating cash generation exceeding accounting profit.【Investment Efficiency】Capital expenditures of ¥6.05B were only 0.61x depreciation and amortization of ¥9.96B, suggesting a restrained trend in infrastructure renewal investment.【Financial Soundness】The Equity Ratio was 41.2%, the current ratio was 117.0%, Debt/EBITDA was 1.09x, and interest coverage was 65.1x (based on Operating Income), indicating a low level of debt relative to earnings power.

Cash Flow Analysis

Operating Cash Flow was ¥28.19B, essentially flat at +0.9% YoY but remaining at a high level, demonstrating cash generation substantially exceeding Net Income of ¥14.85B. An increase in accounts receivable was a ¥1.57B use of funds, while a decrease in inventories (+¥0.79B) and an increase in accounts payable (+¥0.48B) provided support. Investing Cash Flow amounted to an outflow of ¥7.16B, mainly reflecting capital expenditures of ¥6.05B, resulting in Free Cash Flow of ¥21.02B. Financing Cash Flow was an outflow of ¥16.68B, mainly due to share repurchases of ¥8.20B and dividend payments, indicating that shareholder returns were implemented within the range of FCF.

Quality of Earnings

Ordinary Income of ¥21.22B was approximately in line with Operating Income of ¥21.28B, with net non-operating income and expenses limited to a loss of ¥0.06B, indicating that most profit was generated by the core business. Non-operating income of ¥0.36B was small at approximately 0.02% of revenue, indicating no dependence on non-operating income. Net extraordinary income and expenses represented a loss of ¥0.12B, mainly comprising a gain on the sale of fixed assets of ¥0.15B and a loss on disposal of ¥0.27B. The significant reduction from extraordinary losses of ¥1.91B in the previous fiscal year boosted the Net Income growth rate; therefore, it should be noted that part of Net Income growth of +62.7% (consolidated) and +28.3% (attributable to owners of the parent) reflects a one-off comparison effect. Since OCF substantially exceeded Net Income and the accrual ratio was also negative, the quality of earnings, supported by cash generation, can be assessed as sound.

Earnings Outlook and Guidance

For the next fiscal year, ending March 2027, the company plans Operating Income of ¥20.00B (-6.0% compared with the current fiscal year), Ordinary Income of ¥20.00B (-5.7%), and EPS of ¥132.27, incorporating a decline from the current fiscal year's results. This appears to assume that the substantial profit growth in the Electricity Business, SG&A efficiency improvements, and the reduction in extraordinary losses during the current fiscal year will partly normalize. Meanwhile, annual dividends are planned to increase to ¥110.0 from ¥103.0 in the current fiscal year. Due to the combination of lower profit and higher dividends, the Payout Ratio is expected to rise further from 75.4% in the current fiscal year.

Shareholder Returns

Annual dividends for the current fiscal year were ¥103.0, resulting in a Payout Ratio of 75.4% (total dividends ÷ Net Income attributable to owners of the parent). Including share repurchases of ¥8.20B, total dividends and share repurchases amounted to ¥19.43B, bringing the Total Return Ratio to approximately 131%. Free Cash Flow of ¥21.02B exceeded total shareholder returns, indicating that shareholder returns during the current fiscal year were implemented within the range of internally generated funds, although the return ratio itself was high. For the next fiscal year, the company plans to increase dividends to ¥110.0. Assuming projected Net Income of ¥14.00B for the next fiscal year, the Payout Ratio is expected to rise to approximately 84%, and the sustainability of shareholder returns will depend on the stability of OCF.

Risk Factors

1. Restrained capital expenditures: Capital expenditures of ¥6.05B were only 0.61x depreciation and amortization of ¥9.96B. If renewal investment remains continuously insufficient in these infrastructure-based businesses, it could affect supply facilities, safety and security quality, and future growth potential.

2. High Total Return Ratio: The Total Return Ratio, including share repurchases in addition to the Payout Ratio of 75.4%, reached approximately 131%. The company plans to increase dividends despite a projected decline in profit next fiscal year, and balancing shareholder returns with investment and financial capacity may become a challenge.

3. Earnings volatility in the Electricity Business: Segment profit in the Electricity Business increased +26.5% YoY and drove company-wide profit growth. However, its profit margin was 12.9%, lower than those of the other businesses, making it relatively more sensitive to changes in wholesale electricity prices and the competitive environment.

Industry Benchmarks (Reference; Company Research)

Industry Benchmarks (retail)

Profitability and Returns

Both profitability indicators are well above the industry median.

Growth and Capital Efficiency

The revenue growth rate was slightly below the industry median, indicating a profile with an advantage in profitability rather than growth.

※Source: Company research

Key Points from the Financial Results

1. The Operating Margin increased by 90bp from 9.3% in the previous year to 10.2%, achieving profit growth exceeding revenue growth. The main drivers were profit expansion in the Electricity Business and improved SG&A efficiency.

2. The capital expenditures/depreciation and amortization ratio was 0.61x, indicating that investment remained below depreciation and amortization. Although this contributed to FCF generation in the short term, the progression of infrastructure renewal investment over the medium to long term warrants monitoring.

3. Shareholder returns were high, with a Payout Ratio of 75.4% and a Total Return Ratio of approximately 131%. The company plans to increase dividends despite projected profit declines next fiscal year. Stability in OCF will be key to the continuation of shareholder returns.

Theoretical Share Price (Reference Value)

Sensitivity: ¥834–¥879 at ±1% for the Cost of Equity, and ¥851–¥863 at ±0.1 for ω.

Note:

• Amortization of goodwill of ¥5.1 per share has been added back to earnings (as a non-cash expense and to facilitate comparability with IFRS companies).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

---

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.

---End of Report---