TOKYO GAS (9531) FY2026 Q3 Earnings Report

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Executive Summary

Operating income increased by 87.5%, exceeding the 10.6% increase in revenue. In addition to higher revenue and earnings, the results were notable for a temporary boost to net income from extraordinary gains. Revenue was ¥2,396.4B (+10.6% YoY), operating income was ¥1,382.6B (+87.5%), ordinary income was ¥1,333.3B (+105.1%), and net income was ¥1,676.4B (+40220.0% YoY, a substantial growth rate due to the low base of ¥333.8B in the previous year). The primary drivers of earnings growth were operating leverage resulting from the improvement in gross margin (14.6%→17.0%) and SG&A expense growth (+6.4%) remaining below revenue growth (+10.6%). It should be noted that net income benefited from ¥1,215.0B in extraordinary gains, including a ¥482.7B gain on the sale of fixed assets.

Factors Affecting Business Performance

【Revenue】Revenue increased 10.6% YoY to ¥2,396.4B. The increase in revenue appears to have been driven by volume and unit-price factors across the business. Gross profit also increased 28.6% to ¥346.8B (¥269.77B in the previous year), while the gross margin improved by approximately 2.4pt from 14.6% to 17.0%.

【Profit and Loss】Operating income increased substantially to ¥1,382.6B (+87.5% YoY), while ordinary income rose to ¥1,333.3B (+105.1%). SG&A expenses remained limited to ¥208.62B (+6.4% YoY), below the 10.6% revenue growth rate, resulting in operating leverage. Ordinary income was ¥4.92B below operating income because non-operating expenses, including ¥14.71B in interest expenses, exceeded non-operating income. Profit before tax of ¥2,228.6B was ¥895.2B above ordinary income because extraordinary gains of ¥1,215.0B, including a ¥482.7B gain on the sale of fixed assets and a ¥52.1B gain on the sale of investment securities, exceeded extraordinary losses of ¥319.8B, including impairment losses of ¥28.84B. A considerable portion of net income of ¥1,676.4B depended on temporary factors; therefore, operating income and ordinary income should be emphasized when assessing recurring earnings power. In conclusion, the Company achieved higher revenue and earnings.

Key Financial Indicators

【Profitability】The operating margin was 6.8%, improving by approximately 2.8pt from 4.0% in the same period of the previous year, while the net profit margin was 8.2%. The gross margin of 17.0% is at a level susceptible to the impact of energy procurement and sales spreads and should be closely monitored when assessing the sustainability of the improvement in profitability.【Cash Quality】Extraordinary gains of ¥1,215.0B exceeded extraordinary losses of ¥319.8B, and profit before tax was ¥895.2B above ordinary income. The increase in net income (+402.2 times YoY) was heavily dependent on temporary gains from asset sales and differs in nature from the growth in operating income and ordinary income (+87.5% and +105.1%), which reflects recurring earnings power.【Investment Efficiency】ROE (annualized) was 13.3%. Total assets were ¥37,158.0B and net assets were ¥16,855.0B; asset efficiency can also be reviewed from the perspective of total asset turnover.【Financial Soundness】The equity ratio was 45.4%, slightly down from 46.7% in the previous year (equivalent to net assets of ¥18,014.7B / total assets of ¥38,550.9B). Fixed liabilities of ¥13,519.5B, centered on long-term borrowings of ¥5,006.9B and bonds of ¥6,356.3B, constitute the core of the Company’s financing, while cash and deposits amounted to ¥2,456.6B.

Cash Flow Analysis

As detailed data from the statement of cash flows is not included in the disclosed information, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥2,456.6B, nearly unchanged from ¥2,443.9B in the previous year, indicating that liquidity has been maintained at a stable level. Total assets were ¥37,158.0B, down ¥1,392.9B from ¥38,550.9B in the previous year, mainly due to a decrease in fixed assets to ¥27,448.3B from ¥28,079.6B. Net assets were ¥16,855.0B, down ¥1,159.7B from ¥18,014.7B in the previous year. The increase in treasury stock (+¥734.9B YoY) and deterioration in the foreign currency translation adjustment account (a change equivalent to -¥988.9B YoY) were identified as factors reducing capital. The fact that net assets declined despite substantial earnings growth indicates that enhanced shareholder returns and the impact of foreign exchange on comprehensive income affected movements in funds and capital.

Earnings Quality

The current period’s earnings consisted both of an improvement in recurring earnings power through gross margin expansion, in addition to top-line growth, and a temporary boost from extraordinary gains and losses. Growth in operating income and ordinary income (+87.5%, +105.1%) represents recurring improvement reflecting SG&A control and gross margin expansion. In contrast, the sharp increase in net income (+402.2 times YoY) was heavily dependent on ¥1,215.0B in extraordinary gains, including a ¥482.7B gain on the sale of fixed assets and a ¥52.1B gain on the sale of investment securities; impairment losses of ¥28.84B were also recorded. Profit before tax of ¥2,228.6B exceeded ordinary income of ¥1,333.3B by ¥895.2B, with most of this difference attributable to extraordinary gains and losses. Comprehensive income was ¥734.1B, substantially below net income of ¥1,676.4B, primarily due to deterioration in valuation factors resulting from a foreign currency translation adjustment of -¥991.5B. The divergence between net income and comprehensive income indicates that accounting earnings for the period were compressed by market factors such as foreign exchange. Accordingly, operating income and ordinary income are appropriate bases for evaluating earnings quality.

Earnings Forecast and Guidance

The Q3 cumulative progress rates against the full-year Company forecasts were 70.6% for revenue, 74.7% for operating income, 78.0% for ordinary income, and 85.7% for net income. Operating income progress was broadly in line with the standard Q3 progress rate of 75%, indicating performance in line with the plan. Meanwhile, the net income progress rate was 10.7pt above the standard level, primarily due to a temporary boost from extraordinary gains and losses, and does not directly indicate a sustainable full-year upside. The full-year forecasts are revenue of ¥2,890.0B (+9.6% YoY), operating income of ¥1,850.0B (+39.0%), and ordinary income of ¥1,710.0B (+50.5%), with continued revenue and earnings growth expected through the second half.

Shareholder Returns

The Q2 dividend was ¥50.00 per share, while the full-year forecast dividend is ¥100.00 per share. The forecast payout ratio against forecast full-year EPS of ¥560.15 is approximately 17.9%, indicating a limited dividend burden relative to earnings. The payout ratio is an indicator based solely on dividends, and share repurchases should be considered separately. Treasury stock increased by ¥734.9B YoY; calculating the total return ratio, combining dividends and share repurchases, requires period-matched data on the amount of share repurchases.

Risk Factors

1. Earnings-structure sensitivity risk: The gross margin of 17.0% is below the generally favorable level of 20% or higher, and the earnings structure is susceptible to the impact of energy procurement prices, foreign exchange, wholesale electricity prices, and time lags in fuel cost adjustments.

2. Dependence of net income on temporary factors: Net income of ¥1,676.4B benefited from ¥1,215.0B in extraordinary gains, including a ¥482.7B gain on the sale of fixed assets. The high progress rate of 85.7% is largely attributable to extraordinary gains and losses and must be distinguished from an upside in recurring full-year earnings power.

3. Capital and comprehensive-income volatility risk: Net assets decreased by ¥1,159.7B YoY, while the foreign currency translation adjustment changed significantly to -¥991.5B. Comprehensive income of ¥734.1B was substantially below net income, confirming the sensitivity of net assets to market factors such as foreign exchange.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (utilities)

Profitability and Returns

Because industry median data is insufficient, the discussion is limited to positioning in terms of absolute levels.

Growth and Capital Efficiency

Similarly, industry median data is insufficient, and the Company’s relative position within the industry cannot be confirmed.

Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Operating income increased 87.5% YoY to ¥1,382.6B, confirming operating leverage from gross margin improvement (+2.4pt) and relative control of SG&A expenses. The full-year operating income progress rate of 74.7% is broadly consistent with the standard Q3 progress rate.

2. The sharp increase in net income to ¥1,676.4B was heavily dependent on ¥1,215.0B in extraordinary gains, including gains on the sale of fixed assets. The high progress rate of 85.7% reflects temporary factors, as indicated by the financial results.

3. Net assets decreased by ¥1,159.7B YoY, with the increase in treasury stock (+¥734.9B) and deterioration in the foreign currency translation adjustment (-¥991.5B) being the primary drivers of changes in capital. The contraction in net assets despite earnings growth is a structural characteristic identifiable from both capital allocation and foreign exchange perspectives.

Theoretical Share Price (Reference Value)

Sensitivity: ¥5,272–¥5,592 for cost of equity ±1%; ¥5,416–¥5,446 for ω±0.1.

Notes:

• Because net income progress against the full-year forecast (86%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a range of up to +10% (because companies whose progress is ahead of plan tend to exceed forecasts; adjustments may be excessive for businesses with strong seasonality).
• Net assets as of the end of the quarter are used (there is a time lag 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; 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 release 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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