NIPPON GAS (8174) FY2026 Q3 Earnings Report

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Executive Summary

The most important point this fiscal period is the significant 30.3% YoY increase in Operating Income, substantially exceeding the 2.9% revenue growth rate and indicating a marked improvement in profitability. Revenue was ¥1,419.6B (+2.9% YoY), Operating Income was ¥110.1B (+30.3%), Ordinary Income was ¥110.5B (+28.9%), and Net Income was ¥76.4B (+29.5%). Wider margins in the electricity business and improved selling, general and administrative expense efficiency drove the increase in earnings.

Factors Affecting Performance

【Revenue】Revenue increased 2.9% YoY to ¥1,419.6B. Growth in residential LP gas customers and higher electricity sales volumes contributed, while margins in commercial LP gas contracted due to trends in raw material prices.

【Profit and Loss】Operating Income was ¥110.1B (+30.3% YoY), while Ordinary Income was ¥110.5B (+28.9%). The Operating Income margin improved to 7.8% from the same period of the previous year. The primary factors were expanded gross profit in the electricity business, supported positively by fuel price trends, and a ¥17B reduction in SG&A expenses due to more efficient customer acquisition spending compared with the previous fiscal period. The ¥0.8B extraordinary loss, consisting of losses on the disposal of fixed assets, was immaterial and did not impair the recurring nature of earnings. The difference between Ordinary Income and Net Income (¥76.4B) was attributable to the tax burden, with the impact of temporary factors limited. In conclusion, the Company achieved both revenue and earnings growth.

Segment Analysis

By segment, LP gas is the core business and the largest contributor, with gross profit of ¥340B. City gas remained stable, with gross profit of ¥135B (+¥1B compared with the previous fiscal period). The electricity business recorded the highest growth rate, with gross profit increasing to ¥44B (+¥12B compared with the previous fiscal period); margin improvement driven by fuel price trends (¥3.7/kWh, +¥0.8/kWh compared with the previous fiscal period) was the primary factor affecting performance. Energy Uchu is small in scale, with gross profit of ¥1.18B, but is on an upward revenue trend due to the expansion of its safety and construction platform. Overall, while the core LP gas business remained flat, improved margins in the electricity business drove the increase in earnings this fiscal period.

Key Financial Metrics

Profitability: ROE 12.2%, Operating Income margin 7.8% (+approximately 1.6pt YoY)
Cash flow quality: Operating CF/Net Income 1.78x (healthy level), FCF ¥88.0B
Investment efficiency: Capital expenditures/Depreciation and amortization 0.64x (investment restraint phase at below 1.0x)
Financial soundness: Equity Ratio 40.9%, Current Ratio 117.4%

Cash Flow Analysis

Operating CF was ¥135.4B, or 1.78x Net Income, indicating strong cash backing for earnings. Investing CF was ▲¥47.4B, primarily due to ¥47.6B in capital expenditures. Financing CF was ▲¥113.3B, mainly reflecting shareholder returns, including ¥107.1B in dividend payments and ¥34.7B in share repurchases. FCF remained positive at ¥88.0B. Cash generation is assessed as moderately strong relative to standard levels; however, the OCF/EBITDA ratio of 0.74x is below the benchmark of 0.9x, requiring continued monitoring of working capital, including increases in trade receivables, and tax payments.

Earnings Quality

The difference between Ordinary Income of ¥110.5B and Net Income of ¥76.4B was attributable to ¥33.6B in income taxes and other taxes, resulting in an effective tax rate of approximately 30.5%, a standard level. Non-operating income was ¥2.8B, only 0.2% of revenue, indicating limited dependence on interest income and foreign exchange gains. Extraordinary gains and losses represented a small net loss of ¥0.6B, and the recurring nature of earnings is high. Operating CF exceeded Net Income, indicating limited risk of accrual-driven earnings recognition.

Earnings Forecast and Guidance

Cumulative Q3 progress toward the full-year Operating Income forecast of ¥200.0B was 55.1%, while progress toward the ¥200.0B Ordinary Income forecast was 55.3%, approximately 20 percentage points below the standard 75% progress level. The Company maintained its full-year forecasts and is cautiously incorporating the impact of the city gas sliding time lag (▲¥2B) and temperature factors in Q4. Meanwhile, gross profit for the electricity business was revised upward from ¥58B to ¥62B, indicating divergent performance across segments. The Company needs to generate approximately ¥89.9B in Operating Income in Q4, and the delayed progress is viewed as resulting from seasonality, specifically a demand structure weighted toward the second half.

Shareholder Returns

The annual dividend forecast is ¥103.00, and the Payout Ratio based on the full-year Net Income forecast of ¥140.0B is approximately 79.5%. In addition, the Company established a share repurchase program with an upper limit of ¥90B in October 2025 and repurchased ¥34.7B during the current period (approximately 22% progress). The Total Return Ratio, including dividends and share repurchases, is planned at 145% under the Company’s plan. These measures are being implemented as part of capital structure optimization to reduce the Equity Ratio from 48% to 40%.

Catalysts

【Short term】Q4 temperature trends and the impact of the city gas sliding time lag (▲¥2B) will be the key factors in achieving the full-year forecast. 【Long term】As the final year of the three-year plan, attention will focus on progress toward achieving ROE of 22% and Operating Income of ¥200B, as well as the progress of reallocating assets from low-return assets to high-return assets (LP gas and ICT).

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (retail)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin both substantially exceed the industry median, indicating an advantageous level of profitability within the industry.

Growth and Capital Efficiency

The Revenue growth rate is broadly in line with the industry median, placing the Company at an average level in terms of growth.

※Source: Company analysis

Risk Factors

1. Demand seasonality risk: Full-year Operating Income progress stands at only 55.1%, making Q4 temperature trends and sales volumes the primary variables affecting achievement of the full-year target.

2. Investment restraint risk: Capital expenditures/Depreciation and amortization is 0.64x, below 1.0x. In this infrastructure-oriented business, where property, plant and equipment account for 52.1% of total assets, the level of renewal and safety investment requires monitoring.

3. Raw material and fuel price/pass-through risk: The LP gas business assumes CP of US$525/ton and an exchange rate of ¥160/US$, while fluctuations in raw material prices and foreign exchange rates, as well as the city gas sliding time lag (Q4 assumption of ▲¥2B), could affect margins.

Key Points from the Earnings Results

1. The Operating Income margin improved by approximately 1.6pt from the same period of the previous year, confirming structural improvements in profitability through wider electricity business margins and greater SG&A efficiency.

2. The reduction of the Equity Ratio from 48% to 40% as part of capital structure optimization, together with a planned Total Return Ratio of 145%, indicates a policy of strengthening shareholder returns through dividends and share repurchases.

3. Capital expenditures/Depreciation and amortization remained at 0.64x. While this contributes to FCF generation, the level of infrastructure renewal investment will remain an area for continuous monitoring.

Theoretical Share Price (Reference Value)

Sensitivity: ¥796–¥840 at ±1% for the cost of equity, and ¥812–¥825 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥5.4/share has been added back to earnings (due to its non-cash nature and for comparability with IFRS companies).
• Net assets as of the quarter-end have been used (there is a timing difference relative to the full-year forecast).
• As 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 / 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 future share prices.)

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This report is an automatically generated earnings analysis document created by AI through integrated analysis of XBRL earnings summary data and PDF earnings presentation materials. 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 professionals as necessary.

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