TOKYO GAS CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The Company posted higher revenue but lower profit in Q1, as the negative impact of the reversal of the large extraordinary gains recorded in the previous year and deteriorating profitability in the core EnergySolution Business outweighed the growth of the overseas and urban business operations, which were sources of profit growth. Revenue was ¥673.44B (+4.0% YoY), Operating Income was ¥55.41B (-11.4%), and Ordinary Income was ¥49.56B (-13.3%). Net income attributable to owners of the parent was ¥35.57B (¥101.73B in the previous year, -65.0%), while consolidated Net Income was ¥37.08B (-63.4%). Taken together, these figures indicate that the primary reason for the decline in profit was the reversal of the decrease in extraordinary gains, including gains on the sale of investment securities, from ¥74.86B in the same period of the previous year to ¥8.34B in the current period. Basic EPS was ¥107.15 (¥282.35 in the previous year).

Factors Affecting Performance

【Revenue】Revenue was ¥673.44B, representing a 4.0% increase YoY, rather than an increase for the fourth consecutive period. By segment, based on figures including intersegment sales, Global grew substantially to ¥75.01B (+29.7%) and Urban to ¥17.61B (+21.4%), while the core EnergySolution Business was essentially flat at ¥571.78B (+0.9%), and Network declined to ¥79.10B (-1.4%). EnergySolution remained the largest segment, accounting for approximately 76.9% of the revenue mix, but growth was driven by Global and Urban.

【Profit and Loss】Operating Income was ¥55.41B (-11.4%). Global posted a significant increase in Operating Income to ¥32.83B (+153.8%), with a profit margin of 43.8%, while Urban increased to ¥4.78B (+32.9%), with a profit margin of 27.1%. However, deteriorating profitability in EnergySolution (¥26.69B, -51.7%, profit margin 4.7%, down from 9.7% in the previous year) and Network (¥0.42B, -71.1%, profit margin 0.5%) offset these gains and pushed down company-wide Operating Income. Non-operating income and expenses comprised income of ¥10.20B and expenses of ¥16.05B, resulting in a net loss of ¥5.85B, slightly worse than the net loss of ¥5.39B in the previous year. Ordinary Income was ¥49.56B (-13.3%). Extraordinary gains were limited to ¥8.34B (¥6.05B in gains on the sale of investment securities and ¥2.29B in gains on the sale of fixed assets), a substantial decrease from ¥74.86B in the previous year. Consequently, profit before tax declined significantly to ¥57.90B (¥132.00B in the previous year), and Net Income attributable to owners of the parent was ¥35.57B (-65.0%). Revenue increased while profit declined.

Segment Analysis

Global recorded the strongest growth among all segments, with revenue of ¥75.01B (+29.7%) and Operating Income of ¥32.83B (+153.8%). Its profit margin also improved substantially from 22.4% in the previous year to 43.8%. Improved profitability in overseas projects appears to have contributed to the results, increasing the segment’s contribution to company-wide profit. Urban continued its stable growth, with revenue of ¥17.61B (+21.4%), Operating Income of ¥4.78B (+32.9%), and a profit margin of 27.1% (24.8% in the previous year). In contrast, EnergySolution was essentially flat in terms of revenue at ¥571.78B (+0.9%), while Operating Income declined to ¥26.69B (-51.7%) and its profit margin halved from 9.7% in the previous year to 4.7%, becoming a drag on company-wide profit. Network also experienced a substantial deterioration in profitability, with revenue of ¥79.10B (-1.4%), Operating Income of ¥0.42B (-71.1%), and a profit margin of 0.5% (1.8% in the previous year). Company-wide expense adjustments narrowed from △¥10.69B in the same period of the previous year to △¥9.32B, reducing the compression of aggregate segment profit compared with the previous year.

Key Financial Indicators

【Profitability】The Operating Income margin was 8.2%, down 1.4pt from 9.7% in the same period of the previous year. The Ordinary Income margin was 7.4%, down 1.5pt from 8.8%, while the Net Income margin, based on income attributable to owners of the parent, was 5.3%, a substantial decline of 10.4pt from 15.7%. The decline in the Net Income margin was primarily due to the reversal of the large extraordinary gains recorded in the previous year. In addition to the decline in operating-level profitability resulting from deteriorating profitability in EnergySolution and Network, the lapse of temporary factors also contributed to the decline.【Cash Flow Quality】Cash and deposits were ¥251.96B, up 34.7% from ¥251.96B at the end of the previous year. Trade receivables were ¥346.59B, down 18.3% from ¥424.10B in the previous year, while inventories increased 15.2% to ¥43.79B. Progress in collecting trade receivables and an increase in accounts payable (¥126.70B, +20.5%) appear to have contributed to cash generation from working capital.【Investment Efficiency】ROE was 2.1%, decomposed into a Net Income margin of 5.3% × total asset turnover of 0.17x × financial leverage of approximately 2.25x. The primary driver of the change was the decline in the Net Income margin. Total asset turnover improved slightly as revenue increased while total assets remained essentially flat (¥3,868.73B versus ¥3,892.27B in the previous year), but its impact on overall ROE was limited.【Financial Soundness】The Equity Ratio was 46.0%, up from approximately 44.1% in the previous year. Total assets declined 0.6% YoY, while net assets were essentially flat at ¥1,778.29B (¥1,796.57B in the previous year). The Company maintained a funding structure centered on long-term financing, including long-term borrowings of ¥500.23B and bonds of ¥670.17B.

Cash Flow Analysis

Since disclosed figures from the statement of cash flows are not included, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥251.96B, up 34.7% from the end of the previous year, while short-term borrowings were ¥7.53B, down 26.5%, indicating increased flexibility in short-term liquidity management. In terms of working capital, trade receivables declined 18.3% to ¥346.59B from ¥424.10B in the previous year, while inventories increased 15.2% to ¥43.79B and accounts payable increased 20.5% to ¥126.70B. Progress in collecting receivables and the use of payment terms are believed to have contributed to the accumulation of cash. On the non-current liabilities side, bonds increased to ¥670.17B (¥641.06B in the previous year), and long-term borrowings increased to ¥500.23B (¥494.41B in the previous year), indicating financial management that continued to secure long-term funding while reducing short-term borrowings. Treasury stock declined substantially to ¥26.51B (¥204.63B in the previous year), suggesting changes in the capital structure through share cancellations and other measures. This is also reflected in the decline in retained earnings to ¥1,273.45B (¥1,455.06B in the previous year, -12.5%).

Quality of Earnings

The ¥8.34B in extraordinary gains recorded in the current period comprised ¥6.05B in gains on the sale of investment securities and ¥2.29B in gains on the sale of fixed assets, both of which are non-recurring items. In the same period of the previous year, the Company also recorded extraordinary gains of ¥74.86B, including substantial gains on sales. As the reversal of these gains was the primary reason for the decline in Net Income in the current period, the year-on-year comparison of Net Income should be evaluated after adjusting for the disappearance of temporary factors. Comprehensive income was ¥51.91B, exceeding Net Income attributable to owners of the parent of ¥35.57B. The difference was primarily attributable to foreign currency translation adjustments of +¥15.89B, reflecting valuation gains on overseas assets due to yen depreciation. This was partially offset by valuation differences on securities of -¥3.41B and adjustments for retirement benefits of -¥3.86B. Non-operating income and expenses included dividend income of ¥1.15B and interest expenses of ¥4.27B. Non-operating expenses increased from the previous year (¥16.05B versus ¥12.84B), and the somewhat higher non-operating expense burden at the Ordinary Income level is a point to note when evaluating earnings quality.

Earnings Forecast and Guidance

The full-year forecast calls for Revenue of ¥294.70B (+4.0% YoY), Operating Income of ¥18.60B (-5.9%), Ordinary Income of ¥17.30B (-10.7%), EPS of ¥418.28, and a dividend of ¥60.00, with no revisions to the forecast for the current quarter. As of Q1, progress rates were 22.9% for Revenue, 29.8% for Operating Income, 28.7% for Ordinary Income, and 25.9% for Net Income attributable to owners of the parent (¥35.57B/¥137.0B), broadly in line with the 25% benchmark for evenly distributed quarterly progress. The full-year forecast itself incorporates lower profit. The fact that progress rates at the Operating Income and Ordinary Income levels exceeded 25% suggests that, excluding the reversal from the previous year, underlying earnings are tracking broadly in line with the plan relative to the full-year forecast.

Shareholder Returns

The full-year dividend forecast is ¥60.00, representing an expected increase from the ¥50 dividend paid in the previous fiscal year. Based on forecast EPS of ¥418.28, the Payout Ratio is approximately 14.3% (¥60/¥418.28), calculated using a single consistent methodology. Treasury stock declined substantially to ¥26.51B (¥204.63B in the previous year), suggesting the implementation of capital policies such as share cancellations; however, the amount of share repurchases itself is not included in the disclosed data. Based on cash and deposits of ¥251.96B and the levels of Operating Income and Ordinary Income, the cash backing for the dividend source can be confirmed.

Risk Factors

1. Deterioration in the profitability of core segments: The Operating Income margin of EnergySolution declined from 9.7% in the previous year to 4.7%, while that of Network declined from 1.8% to 0.5%. The impact appears to include time lags in fuel cost adjustments and the competitive environment. Profitability pressure in the portions of these two segments with high revenue composition ratios—approximately 87.5% on a combined basis—has a high sensitivity to company-wide profit.

2. Segment concentration: EnergySolution accounts for 76.9% of revenue on a reported-figure basis, indicating a high degree of dependence on a single segment. If the segment’s profit margin remains at a low level, the impact on company-wide earnings will be substantial.

3. Dependence on earnings quality and extraordinary gains and losses: Extraordinary gains of ¥74.86B boosted Net Income in the same period of the previous year, but declined to ¥8.34B in the current period. Fluctuations in the size of extraordinary gains and losses are a source of Net Income volatility, and these items need to be distinguished from recurring earnings power.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (Utilities)

Profitability and Returns

Both the Company’s Operating Income margin and Net Income margin are below the industry median, placing its profitability at a relatively low level within the industry.

Growth and Capital Efficiency

Revenue growth is also below the industry median, with the Company’s revenue growth rate remaining at a below-midrange level within the industry.

Source: Compiled by the Company

Key Points from the Financial Results

1. The breakdown of the increase in revenue and decline in profit shows that the high-margin Global and Urban segments drove profit growth, while deteriorating profitability in EnergySolution and Network, which have high revenue composition ratios, more than offset those gains. Changes in the profit mix within the portfolio are a structural factor that will influence the earnings profile going forward.

2. The substantial decline in Net Income (-65.0% on an attributable-to-owners-of-the-parent basis) was primarily due to the reversal of the large extraordinary gains recorded in the same period of the previous year (¥74.86B). Compared with the decline in profit before tax (-56.1%) and the decline in Operating Income (-11.4%), the results indicate that temporary factors had a substantial impact.

3. Full-year progress rates were 29.8% for Operating Income, 28.7% for Ordinary Income, and 25.9% for Net Income attributable to owners of the parent, remaining above or at approximately the benchmark for evenly distributed quarterly progress. No forecast revision was made. Underlying earnings trends, excluding the reversal from the previous year, will be confirmed through progress in subsequent quarters.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly available data using a residual income model (Ohlson-type model with an explicit five-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥5,135–¥5,445 at ±1% for the cost of equity, and ¥5,283–¥5,288 at ±0.1 for ω.

Notes:

• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used; there is a timing difference relative to the full-year forecast.
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not forecast or guarantee the future share price.)

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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, and after consulting a professional as necessary.

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