TOKYO GAS CO.,LTD. FY2026 FY Earnings Report

Financial Highlights

• Net Sales: ¥2.83T
• Operating Income: ¥197.68B
• Net Income: ¥122.12B
• EPS: ¥654.76

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

Verdict: Strong rebound with margin expansion and robust cash generation, aided by sizable one-time gains. Revenue rose 7.5% YoY to ¥2,834.7bn, with operating income up 48.5% to ¥197.7bn and net income attributable to owners surging 205.8% to ¥226.9bn. Gross profit increased to ¥507.3bn and gross margin expanded by 249bps to 17.9%. Operating margin improved by 192bps to 7.0%, reflecting better fuel cost pass-through and disciplined SG&A. Net margin expanded by 519bps to 8.0%, supported by extraordinary income of ¥128.7bn (notably gains on asset sales of ¥48.7bn and securities of ¥12.0bn) offset by extraordinary losses of ¥33.3bn (including impairment of ¥30.2bn). Ordinary income advanced 70.5% to ¥193.7bn despite lower equity-method income. Cash generation was strong, with operating cash flow of ¥451.8bn (1.99x net income) and cash conversion (OCF/EBITDA) at 0.98x. Free cash flow was ¥244.9bn after capex of ¥160.9bn and intangible investments of ¥134.7bn. The balance sheet remains sound: current ratio 147% and Debt/EBITDA 1.09x; interest coverage (EBITDA basis) 24.5x. Shareholder returns were elevated: ¥200.1bn of buybacks plus ¥33.9bn dividends, taking the total return ratio to roughly 103% of owners’ net income. Segment-wise, Energy Solution remains the core earnings driver (OI ¥149.7bn, +24.1% YoY), while Global delivered outsized growth (OI ¥70.7bn, +273.5% YoY) with a 29.3% margin. Guidance for the next fiscal year appears conservative, with management forecasting operating income of ¥186.0bn and EPS of ¥418 despite the current outturn already ahead. Earnings quality is mixed: cash metrics are strong, but dependence on extraordinary gains was material this year. Underinvestment signals (CapEx/Depreciation 0.61x) warrant monitoring given network asset intensity. Overall, the company exits the year with improved profitability, ample liquidity, and manageable leverage, while focusing on disciplined returns and portfolio optimization.

Profitability Analysis

ROE of 12.6% decomposes into Net Profit Margin 8.0% × Asset Turnover 0.728 × Financial Leverage 2.17x. The largest YoY change came from net margin expansion (+519bps), driven by stronger gross margin and significant extraordinary income. Operating leverage was positive as revenue grew 7.5% while SG&A increased more slowly, lifting the operating margin by 192bps to 7.0%. The business tailwinds include normalization of fuel costs, improved pass-through, and cost discipline; the extraordinary gains from asset and securities sales amplified bottom-line expansion. Sustainability: the operating margin uplift from core activities is partially sustainable, but the extraordinary contribution is one-time. Interest burden improved with interest expense declining to ¥18.9bn and EBITDA interest coverage rising to 24.5x, supporting the leverage leg of ROE. A potential concern is that SG&A (¥309.6bn) growth alongside revenue should continue to be contained; at present, revenue growth exceeded SG&A growth, which aided margins. Asset turnover at 0.728 is stable for a regulated, asset-heavy utility, and any further improvement will likely be gradual.

Growth Assessment

Top-line growth of 7.5% reflects improved demand and pricing/fuel adjustment normalization across gas and power. Operating income rose 48.5% on higher gross profit and better cost discipline, indicating positive operating leverage. EBITDA margin of 16.3% is solid for a capital-intensive utility with trading exposure. Segment momentum is healthy in Energy Solution (+24.1% OI) and particularly strong in Global (+273.5% OI), while Urban Development softened. Extraordinary items boosted earnings this year; excluding these, underlying profit still improved but at a more moderate pace. Equity-method income decreased to ¥3.5bn, indicating limited contribution from affiliates to the year’s surge. Efficiency gains and fuel cost normalization underpin near-term margin stability. Portfolio actions (asset disposals) supported one-time gains and cash inflows. The outlook points to steady but moderated earnings as guidance sets a lower base than the current outturn, implying prudence amid commodity and FX volatility. With Debt/EBITDA at 1.09x, the company has flexibility to invest in network and decarbonization initiatives while maintaining returns. Execution on capex acceleration will be key to sustaining medium-term growth given current CapEx/Depreciation at 0.61x.

Financial Health

Liquidity is comfortable: current ratio 147% and quick ratio 142%. Leverage is moderate with Debt/EBITDA at 1.09x, interest-bearing debt of ¥504.7bn, and Debt/Capital at 21.9%. Interest coverage is strong (EBIT 10.5x; EBITDA 24.5x). No explicit warning thresholds are breached (Current Ratio ≥1.0, D/E 1.17x <2.0). Maturity profile risk is low: short-term loans are ¥10.2bn versus cash and deposits of ¥187.1bn (cash/short-term debt 18.3x). Long-term loans declined by ~¥834bn (¥83.4bn) YoY, modestly de-risking the balance sheet, while bonds payable were stable. Working capital is positive at ¥331.6bn. Intangible assets represent 19.0% of total assets, consistent with sector software and rights; goodwill is negligible at 0.3% of equity, indicating limited impairment tail risk from M&A. Deferred tax liabilities increased, aligned with valuation movements and hedge accounting. Overall solvency metrics align with investment-grade utility norms.

Notable B/S Changes

Treasury Stock: -¥119.4bn (-140.2%) – aggressive buybacks increased treasury shares; supports per-share metrics but reduces equity. Long-term Loans Payable: -¥83.4bn (-14.4%) – deleveraging lowers interest burden and improves flexibility. Deferred Tax Liabilities: +¥25.3bn (+44.6%) – reflects valuation and hedge accounting changes; watch future OCI volatility.

Cash Flow Quality

OCF/Net Income is 1.99x, signaling high earnings quality. OCF/EBITDA at 0.98x indicates strong cash conversion from operations. Free cash flow was ¥244.9bn after capex of ¥160.9bn and intangible investments of ¥134.7bn, easily covering dividends and most of buybacks when combined with disposal proceeds. Working capital dynamics were generally benign: receivables contributed cash (approx. +¥29.5bn), payables were broadly stable, while inventories consumed cash (approx. -¥18.6bn). Extraordinary gains from asset disposals are non-recurring and boosted both profit and investing cash inflows (asset sale proceeds ~¥63.5bn), so we do not rely on them for steady-state FCF. There are no signs of aggressive working capital manipulation; OCF comfortably exceeds net income and accruals ratio is -5.8%, supportive of quality.

Dividend Sustainability

DPS totaled ¥110 (interim ¥50, year-end ¥60), implying a payout ratio of roughly 17-18% against EPS ¥654.76, comfortably within sustainable range. FCF coverage is strong at 6.0x, indicating ample headroom. Total dividends paid were ~¥33.9bn. Share repurchases of ¥200.1bn lift the total return ratio to roughly 103% of owners’ net income, above the 100% caution threshold; sustainability of this pace depends on future FCF and disposal proceeds. With Debt/EBITDA at 1.09x and solid liquidity, the current dividend is well covered; continuation of large buybacks will hinge on maintenance and growth capex needs and commodity conditions. Policy-wise, the low payout ratio provides flexibility to fund decarbonization and network investments while maintaining a growing dividend.

Risk Assessment

Business risks include Commodity price volatility affecting fuel cost adjustment timing and margins (LNG, power)., Retail market competition in gas and power potentially pressuring pricing and churn., Execution risk in Global segment expansion with exposure to FX and overseas operations., Energy transition and decarbonization requirements necessitating sustained capex., Concentration risk with Energy Solution accounting for 79.3% of revenue..

Financial risks include Underinvestment signal (CapEx/Depreciation 0.61x) risking asset base aging and future reliability costs., Interest rate risk on sizable bond and loan portfolio amid changing rate environment., Earnings volatility from reliance on extraordinary gains this year., FX exposure impacting Global segment earnings and valuation reserves..

Key concerns include High one-time items materially lifted earnings; normalization could reduce net margin., Capex pacing below depreciation suggests catch-up investment may compress future FCF., Deferred tax liabilities increase and valuation movements may add OCI volatility., Segment concentration elevates exposure to domestic demand and regulatory changes..

Investment Implications

Key takeaways include Core profitability improved with 192bps operating margin expansion and robust cash conversion., Extraordinary gains were material, lifting net margin by more than underlying operations alone., Balance sheet strength (Debt/EBITDA 1.09x, current ratio 147%) provides strategic flexibility., Shareholder returns were elevated (buybacks + dividends ≈103% of owners’ NI)., CapEx/Depreciation at 0.61x flags the need for sustained reinvestment to maintain asset quality..

Metrics to watch include Underlying operating margin ex-one-time effects, CapEx/Depreciation trajectory and network investment plans, OCF/EBITDA cash conversion stability, Fuel cost adjustment pass-through timing and gross margin, Global segment OI sustainability and FX sensitivity.

Regarding relative positioning, Within Japanese utilities, the company combines solid operating improvement and top-tier balance sheet resilience with higher exposure to trading and overseas earnings than pure-play electric utilities, supporting moderate growth but with greater sensitivity to commodity and FX swings.