OSAKA GAS CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The quarter was characterized by higher revenue but lower earnings, with margin compression in the domestic energy business significantly weighing on operating income. Revenue edged up to ¥4780.1B (+1.5% YoY), while operating income declined to ¥313.1B (-34.3%), ordinary income to ¥502.5B (-15.3%), and net income attributable to owners of the parent to ¥356.8B (-26.5%), with the decline widening at each stage. The primary cause of the earnings decline was the sharp drop in profit from the core domestic energy business, while non-operating income, including equity-method investment income and interest income, provided some mitigation from the ordinary income stage onward.

Factors Affecting Performance

【Revenue】Revenue remained broadly flat at ¥4780.1B (YoY+1.5%). By segment, based on total segment revenue of ¥490,369 million, Domestic Energy accounted for ¥3797.3B (77.4% of the total, YoY-0.6%), while Life & Business Solutions led revenue growth at ¥763.3B (15.6% of the total, YoY+13.4%). Overseas Energy was broadly flat at ¥343.1B (7.0% of the total, YoY+0.6%). Although top-line growth was subdued, growth in non-core businesses supported the portfolio.

【Profit and Loss】Operating income declined to ¥313.1B (YoY-34.3%), and the operating margin fell to 6.5% from 10.1% in the previous year, a decline of 3.6pt. The gross margin also fell to 19.0% from 22.6%, a decline of 3.6pt, while the SG&A ratio remained broadly in line with the previous year at 12.5%. Accordingly, the primary cause of the earnings decline was gross profit contraction resulting from higher cost of sales. By segment, operating income from Domestic Energy plunged to ¥45.7B (YoY-82.2%, 1.2% margin), while Overseas Energy generated ¥163.5B (YoY+1.0%, 47.7% margin), accounting for approximately 60% of total segment profit and supporting consolidated earnings. Ordinary income declined to ¥502.5B (YoY-15.3%), a less severe decrease than operating income, supported by ¥253.6B in non-operating income (5.3% of revenue), including ¥98.5B in equity-method investment income, ¥30.9B in interest income, and ¥27.5B in dividend income. No extraordinary gains or losses were recorded. Net income attributable to owners of the parent was ¥356.8B (YoY-26.5%), with ¥142.2B in income taxes and other taxes resulting in a further divergence from ordinary income. In conclusion, the quarter produced higher revenue but lower earnings.

Segment Analysis

Domestic Energy generated revenue of ¥3797.3B (77.4% of the total, YoY-0.6%), while operating income plunged to ¥45.7B (YoY-82.2%, 1.2% margin). The decline is likely attributable to higher fuel procurement costs and a time lag in reflecting such costs in tariffs. Life & Business Solutions posted higher revenue and earnings, with revenue of ¥763.3B (YoY+13.4%) and operating income of ¥61.2B (YoY+34.0%, 8.0% margin), indicating relatively high profitability. Overseas Energy maintained its high-margin structure, generating operating income of ¥163.5B (YoY+1.0%, 47.7% margin) on revenue of ¥343.1B (YoY+0.6%), and remained a key profit source for the consolidated group, accounting for approximately 60% of total segment profit. The structure whereby profits from Overseas Energy and lifestyle-related businesses offset the margin decline in Domestic Energy has become increasingly clear.

Key Financial Metrics

【Profitability】The operating margin declined to 6.5% from 10.1% in the previous year, while the net profit margin, based on net income attributable to owners of the parent, was 7.5% (¥356.8B/¥4780.1B), and ROE was 1.9% on a quarterly basis; all declined from the previous year. 【Cash Quality】Days sales outstanding (DSO) were 178 days, days inventory outstanding (DIO) were 240 days, and the cash conversion cycle (CCC) was 330 days, indicating that the accumulation of inventory and trade receivables is delaying cash generation. 【Investment Efficiency】Total asset turnover remained limited at 0.137 (quarterly revenue/total assets), indicating limited revenue-generating capacity relative to the asset base. 【Financial Soundness】The equity ratio declined modestly to 53.8% from 55.8% in the previous year. However, with a current ratio of 159.4%, a quick ratio of 116.1%, and interest coverage of 9.69x (operating income of ¥31309 million/interest expense of ¥3230 million), financial capacity over both the short and long term remained robust.

Cash Flow Analysis

As the cash flow statement disclosures are limited in this report, funding trends can be assessed based on changes in the balance sheet. Cash and deposits increased substantially to ¥1786.4B (¥589.8B in the previous year, +¥1196.6B, +202.9%). Meanwhile, bonds payable of ¥4910.1B (¥4910.2B in the previous year) and long-term borrowings of ¥3044.8B (¥3032.0B in the previous year) remained broadly flat. This indicates strengthened liquidity rather than a reduction in interest-bearing debt. Inventories increased to ¥2543.8B (¥2226.8B in the previous year, +14.2%), and, together with DIO of 240 days, suggest inventory accumulation. On the other hand, accounts receivable and bills receivable declined to ¥2334.8B (¥2967.2B in the previous year, -21.3%). Overall, despite lower profitability at the operating level, cash on hand increased substantially, and concerns regarding short-term funding remain limited.

Earnings Quality

No extraordinary gains or losses were recorded during the quarter, and earnings were composed largely of ordinary items. Non-operating income of ¥253.6B (5.3% of revenue) consisted of diverse sources, including ¥30.9B in interest income, ¥27.5B in dividend income, ¥98.5B in equity-method investment income, and ¥96.7B in other income, thereby supporting ordinary income and offsetting the decline in operating income. The gap between ordinary income of ¥502.5B and net income attributable to owners of the parent of ¥356.8B (approximately a 29% decline) was primarily attributable to the ¥142.2B tax burden and remained within the scope of tax-related factors. Comprehensive income was ¥665.0B (¥655.7B attributable to owners of the parent), exceeding net income by ¥298.9B. Other comprehensive income items, including foreign currency translation adjustments of ¥196.6B and valuation differences on securities of ¥64.1B, contributed to the increase. Accordingly, asset valuation fluctuations that cannot be captured solely by net income occurred and should be noted.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year company forecasts (revenue of ¥2170.0B, operating income of ¥150.0B, ordinary income of ¥190.0B, and net income of ¥145.0B) were 22.0% for revenue, 20.9% for operating income, 26.4% for ordinary income, and 24.6% for net income. Compared with a simple seasonal allocation of 25%, operating income progress was somewhat weak, reflecting margin compression in Domestic Energy. Conversely, ordinary income was progressing faster than the seasonal allocation due to contributions from non-operating income, including equity-method investment income. The earnings forecast was revised during the quarter, and the key to achieving the full-year outlook will be the recovery of margins in the Domestic Energy business toward the second half of the fiscal year.

Shareholder Returns

The full-year dividend forecast is ¥65 per share, with no revision to the dividend forecast as of the end of the quarter. The payout ratio against forecast EPS of ¥380.73 is approximately 17.1%, a conservative level relative to earnings. With a robust equity ratio of 53.8% and current ratio of 159.4%, together with cash and deposits increased to ¥1786.4B, material supporting the current dividend level has been secured.

Risk Factors

1. Margin compression risk in the Domestic Energy business: Operating income from Domestic Energy, which accounts for 77.4% of the revenue mix, plunged to ¥45.7B (YoY-82.2%, 1.2% margin). If higher fuel procurement costs and the time lag in reflecting such costs in tariffs continue, the impact on consolidated earnings could be significant.

2. Deterioration in working capital efficiency: DSO of 178 days, DIO of 240 days, and CCC of 330 days indicate long turnover periods. Since inventories increased by +14.2% YoY, cash generation is being delayed.

3. Dependence on non-operating income and equity-method income: Non-operating income reached 5.3% of revenue, with ¥98.5B in equity-method investment income supporting ordinary income. This level of non-operating contribution may fluctuate due to changes in overseas businesses and market conditions.

Industry Benchmark (Reference; Compiled by the Company)

Both the operating margin and net profit margin were below the industry median, placing the company relatively low within the industry in terms of profitability.

Revenue growth also fell substantially below the industry median, placing the company in the lower group within the industry in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Operating income from the Domestic Energy business plunged by -82.2% YoY, pushing the consolidated operating margin down to 6.5% from 10.1% in the previous year. Whether margins in the domestic business normalize will be an important point to monitor when assessing future earnings trends.

2. Overseas Energy generated operating income of ¥163.5B (47.7% margin), accounting for approximately 60% of total segment profit, and its relative importance in the earnings structure has increased. The diversification benefits of the business portfolio supporting consolidated performance can be regarded as a structural characteristic.

3. Working capital turnover periods of DSO 178 days, DIO 240 days, and CCC 330 days, together with the decline in operating income, indicate a slow pace of cash generation. Although cash on hand increased substantially from the previous year, whether working capital can be reduced will be a factor determining future cash-generation capacity.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type, explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥4,740–¥5,025 at ±1% for the cost of equity, and ¥4,877–¥4,881 at ±0.1 for ω.

Notes:

• Because 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 gap 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 / Interest rate reference month: 2026-06 / This value does not predict 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 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 discretion and responsibility, after consulting professionals as necessary.

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