TOHO GAS CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

For Q1 of the fiscal year ending March 2027, the Company recorded declines in both revenue and earnings, with the electric power segment slipping into the red and the gas business experiencing a deterioration in gross margin, significantly reducing operating income. Revenue was ¥1,448.5B (-10.3% year on year), operating income was ¥76.4B (-61.5%), ordinary income was ¥105.7B (-52.0%), and consolidated net income was ¥94.5B (-43.1%; of which net income attributable to owners of the parent was ¥94.2B). The primary factor behind the revenue decline was lower gas selling prices, while the main causes of the earnings decline were the electric power business falling into an operating loss and a sharp decline in the gas business margin. Non-operating income, including dividend income, as well as extraordinary income such as gains on sales of investment securities, supported earnings.

Factors Driving Performance Changes

【Revenue】Revenue was ¥1,448.5B, down -10.3% year on year. While the core gas segment declined substantially to ¥920.5B (-17.5%), leading the contraction in company-wide revenue, LPG and Other Energy increased to ¥259.2B (+10.9%), electric power to ¥201.5B (+2.6%), and Other Businesses to ¥137.2B (+0.9%), with each securing revenue growth.

【Profit and Loss】Gross profit was ¥404.1B, and the gross margin was 27.9%, down 4.6pt from 32.5% in the previous year. The operating margin deteriorated by approximately 7.0pt to 5.3% from 12.3% in the previous year, primarily due to the electric power segment falling into an operating loss of ¥14.3B, compared with an operating profit of ¥11.5B in the previous year, and the decline in the gas segment’s profit margin to 6.2% from approximately 14.5% in the previous year. Ordinary income was ¥105.7B, supported by ¥34.9B in non-operating income, including ¥19.4B in dividend income. In addition, extraordinary income of ¥25.1B, including a ¥20.0B gain on sales of investment securities, increased profit before tax to ¥130.3B; however, these were temporary factors. The primary cause of the divergence between ordinary income and net income was income taxes of ¥35.8B, resulting in net income of ¥94.5B. Overall, the Company recorded declines in both revenue and earnings, with non-recurring investment income partially offsetting the deterioration in the profitability of its core businesses.

Segment Analysis

The gas segment recorded revenue of ¥920.5B (-17.5% year on year) and operating income of ¥57.5B (-64.3%), with a profit margin of 6.2%. Although it made the largest contribution to company-wide profit, its profitability deteriorated substantially. The electric power segment recorded revenue of ¥201.5B (+2.6%) but fell into an operating loss of ¥14.3B (-224.2% year on year), with a profit margin of -7.1%, making it the segment that placed the greatest pressure on company-wide profit. LPG and Other Energy recorded revenue of ¥259.2B (+10.9%) and operating income of ¥12.6B (+128.0%), achieving increases in both revenue and earnings, while its profit margin improved to 4.9%, making it a relatively strong area within the portfolio. Other Businesses, including LNG contract processing and real estate management and leasing, recorded revenue of ¥137.2B (+0.9%) and operating income of ¥16.1B (+0.7%), with a profit margin of 11.7%, remaining broadly flat. Differences in profit margins among the segments are clear, and the electric power segment’s move into the red, combined with the deterioration in gas profitability, was the primary factor behind the 61.5% decline in company-wide operating income.

Key Financial Metrics

【Profitability】The operating margin was 5.3%, substantially below 12.3% in the previous year, while the net profit margin was also below the previous year’s 10.3% at 6.5%. This decline reflects the electric power segment’s shift into the red and the contraction in the gas business’s gross margin to 27.9% from 32.5% in the previous year, indicating that the earning power of the core businesses temporarily weakened.【Cash Quality】Cash and deposits were ¥275.2B, down from ¥430.1B in the previous year, while inventories increased to ¥372.8B from ¥284.7B in the previous year. Meanwhile, accounts receivable and notes receivable declined to ¥654.6B from ¥764.9B, indicating a change in the composition of funds and working capital.【Investment Efficiency】ROE was 1.9%. The substantial equity base relative to net income of ¥94.5B contributed to the low level.【Financial Soundness】The equity ratio remained high at 59.5%. Interest-bearing debt totaled approximately ¥1,528.6B, comprising long-term borrowings of ¥535.6B, bonds of ¥975.0B, and short-term borrowings of ¥18.0B. With current assets of ¥1,649.7B against current liabilities of ¥1,086.3B, the current ratio was approximately 152%, indicating a sound level of short-term payment capacity.

Cash Flow Analysis

As cash flow statement items have not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits were ¥275.2B, a decline of ¥154.9B from ¥430.1B in the previous year. Treasury stock increased to ¥100.2B from ¥25.7B in the previous year, suggesting that share repurchases may have been one factor contributing to the decline in cash on hand. Inventories increased to ¥372.8B from ¥284.7B in the previous year, and the accumulation of fuel and LPG inventories placed pressure on working capital. Meanwhile, accounts receivable and notes receivable declined to ¥654.6B from ¥764.9B, while accounts payable and notes payable also decreased to ¥305.9B from ¥320.6B. Investment securities increased to ¥2,431.1B from ¥2,113.3B in the previous year, suggesting that a portion of funds was directed toward investments in financial assets.

Earnings Quality

Recurring sources of income consisted of operating income of ¥76.4B and non-operating income of ¥34.9B, including dividend income of ¥19.4B. Stable income from financial assets supported ordinary income of ¥105.7B. Meanwhile, extraordinary income of ¥25.1B, including a ¥20.0B gain on sales of investment securities and a ¥3.0B gain on bargain purchase arising from negative goodwill, consists of temporary items with limited recurrence. Accordingly, a certain portion of profit before tax of ¥130.3B was boosted by non-recurring factors. The divergence between ordinary income of ¥105.7B and net income of ¥94.5B was primarily attributable to the recognition of income taxes of ¥35.8B. The effective tax rate was approximately 27.5%, which is not particularly unusual. Comprehensive income was ¥291.2B, exceeding net income by ¥196.7B. This difference was primarily attributable to ¥211.7B in valuation differences on securities, with changes in the market value of the Company’s investment securities expanding the divergence between comprehensive income and net income.

Earnings Forecasts and Guidance

The Q1 progress rates against the full-year forecasts of revenue of ¥6,700.0B, operating income of ¥190.0B, and ordinary income of ¥250.0B were 21.6%, 40.2%, and 42.3%, respectively. While revenue progress was approximately one-quarter of the full-year target, profit progress was relatively high at over 40%. The full-year plan incorporates year-on-year declines of -40.2% in operating income and -34.0% in ordinary income. No revisions were made to the earnings forecasts or dividend forecasts during the quarter.

Shareholder Returns

The dividend forecast for the fiscal year ending March 2027 is ¥11.25 per share, reflecting the 4-for-1 stock split effective April 1, 2026. The ¥45 dividend for the previous fiscal year, ending March 2026, was the actual amount before the split and corresponds to ¥11.25 after the split. Accordingly, the effective dividend level remains unchanged from the previous year. The payout ratio against the Company’s forecast EPS of ¥64.24 is approximately 17.5%. Given the financial base represented by an equity ratio of 59.5%, there appears to be a reasonable capacity to maintain dividends even amid the earnings decline in the current quarter.

Risk Factors

1. Deterioration in the profitability of the electric power business: The electric power segment recorded revenue of ¥201.5B (+2.6% year on year) but fell into an operating loss of ¥14.3B, compared with an operating profit of ¥11.5B in the previous year. The deterioration in spreads and timing lags in fuel cost adjustments are believed to have contributed to the profit margin of -7.1%, placing pressure on company-wide profit.

2. Decline in the gas business profit margin: The core gas segment deteriorated substantially, recording revenue of ¥920.5B (-17.5% year on year), operating income of ¥57.5B (-64.3%), and a profit margin of 6.2%. Lower selling prices and the timing of the reflection of fuel cost adjustments may have affected profitability.

3. Increase in working capital: Inventories increased to ¥372.8B, up +31.0% from ¥284.7B in the previous year. The accumulation of fuel and LPG inventories requires monitoring from a capital efficiency perspective amid declining revenue.

Industry Benchmark (For Reference; Compiled by the Company)

The Company’s profitability metrics were both below the industry median. The electric power segment’s move into the red and the decline in gas profitability resulted in relatively low profitability within the industry.

The revenue growth rate was substantially below the industry median, approaching a level of decline that was unique within the industry.

※Source: Compiled by the Company

Key Points in the Financial Results

1. The earnings decline in the current quarter was attributable to structural factors, namely the electric power segment’s move into the red and the deterioration in the gas business’s gross margin. Ordinary income and net income were supported to a certain extent by non-recurring and financial income items such as gains on sales of investment securities and dividend income, which should be considered when evaluating earnings quality.

2. Progress against the full-year plan was relatively high on the profit side, with revenue at 21.6% versus operating income at 40.2% and ordinary income at 42.3%. The full-year forecasts themselves represent conservative targets that incorporate substantial year-on-year declines in earnings.

3. The dividend remained effectively unchanged at ¥11.25 after adjustment for the stock split. Together with a payout ratio of approximately 17.5% and an equity ratio of 59.5%, the stability of the dividend policy can be confirmed even amid the earnings decline in the current quarter.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥1,192–¥1,263 at ±1% for the cost of equity, and ¥1,221–¥1,230 at ±0.1 for ω.

Notes:

• Because the progress of net income against the full-year forecast (41%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a range of up to +10% (because companies with leading progress tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets at the end of the quarter are used, resulting in 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 future share prices)

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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. 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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AI Financial Analysis

Executive Summary

Toho Gas delivered a weaker FY2027 Q1 operating result, with the decline concentrated in the core gas business and partially cushioned by investment-related income and gains. Revenue fell 10.3% year on year to ¥144.8bn. Operating income declined 61.5% to ¥7.6bn, substantially exceeding the revenue decline and indicating pronounced negative operating leverage. Ordinary income fell 52.0% to ¥10.6bn, while profit attributable to owners decreased 43.3% to ¥9.4bn. The gross margin compressed to 27.9% from 32.5% a year earlier, a 460bp decline. The operating margin contracted to 5.3% from 12.3%, a 702bp decline. Net margin declined to 6.5% from 10.3%, a 378bp contraction, although it remained within the 5-10% benchmark range. Gas segment profit fell 64.3% to ¥5.8bn as external revenue decreased 17.6% to ¥91.0bn, making this the principal driver of consolidated earnings weakness. In contrast, LPG and other energy segment profit more than doubled to ¥12.6bn, while the electric power segment moved to a ¥14.3bn loss despite a 2.7% rise in external revenue. Non-operating income of ¥3.5bn provided meaningful support, led by ¥1.9bn of dividend income. Pre-tax profit also benefited from ¥2.5bn of extraordinary income, including a ¥2.0bn gain on sales of investment securities. Consequently, reported net income includes a material non-recurring contribution and is stronger than the operating trend alone would indicate. Comprehensive income rose to ¥29.1bn, driven primarily by positive valuation effects on securities rather than by operating earnings. The balance sheet remains conservatively positioned, with a 151.9% current ratio, 117.5% quick ratio, 10.0% debt-to-capital ratio, and 19.34x interest coverage. FY2027 guidance implies Q1 progress of 40.2% for operating income and 41.0% for owner-attributable profit, well ahead of the standard 25% seasonal run rate, but the full-year forecast still anticipates a 40.2% decline in operating income. The key forward issue is whether gas-margin normalization and recovery in electric power profitability can offset the Q1 shortfall without continued reliance on securities-related gains.

Profitability Analysis

The reported annualized ROE is 7.6%, which is below the 8% capital-efficiency benchmark and reflects a modest return profile despite the company's strong equity base. The DuPont decomposition is annualized net profit margin of 6.5%, asset turnover of 0.696x, and financial leverage of 1.68x. The principal constraint is low asset turnover, consistent with a capital-intensive regulated gas utility that holds substantial network assets and investment securities. Financial leverage is moderate rather than aggressive, so leverage is not materially amplifying shareholder returns. The quarterly operating margin of 5.3% is 702bp below the prior-year 12.3%, and the gross-margin decline of 460bp indicates that the earnings pressure began above the SG&A line rather than being solely attributable to overhead growth. This gross-profit reduction, from ¥52.5bn to ¥40.4bn, was much larger than the ¥16.6bn revenue decline in proportional terms. The core gas segment generated ¥5.8bn of segment profit, down ¥10.4bn year on year, and was the dominant source of consolidated operating-income deterioration. LPG and other energy improved from ¥5.5bn to ¥12.6bn in segment profit, demonstrating diversification benefits, but its smaller revenue base limits its ability to fully offset gas weakness. Electric power revenue increased to ¥20.1bn, yet segment performance deteriorated from a ¥11.5bn profit to a ¥14.3bn loss, pointing to severe margin or procurement-cost pressure in that business. Ordinary income was supported by dividend income of ¥1.9bn, equivalent to 18.4% of ordinary income. The effective tax rate was 27.5%, producing a normal tax burden factor of 0.723. The extended DuPont interest-burden factor of 1.705x is above 1.0 because pre-tax income included net extraordinary gains, rather than indicating a conventional financing benefit. The ROIC quality alert is material: ROIC of 4.2% is below the 5% warning threshold, suggesting that returns on the substantial operating and investment asset base remain inadequate. A lower ROIC can be relatively common for regulated utility infrastructure with large rate-base assets and defensive earnings characteristics, but the Q1 margin compression makes improvement more urgent. For the investment thesis, the implication is that capital allocation and regulated-return discipline matter as much as revenue growth; sustained ROIC below the cost of capital would constrain value creation.

Growth Assessment

Revenue contracted 10.3% year on year, led by a 17.6% decline in gas segment external revenue to ¥91.0bn. LPG and other energy grew 10.9% to ¥25.5bn, and electric power revenue increased 2.7% to ¥20.1bn, providing partial diversification against lower gas sales. Other businesses declined modestly by 2.2% to ¥82.9bn. Revenue mix is therefore becoming relatively less concentrated in gas, but current earnings growth remains heavily dependent on restoring gas profitability because it remains the largest operating-profit contributor. The full-year revenue forecast is ¥670.0bn, implying a Q1 progress rate of 21.6%, slightly below the standard 25% Q1 pace but not a material deviation. Operating-income progress is 40.2% against the ¥19.0bn forecast, 15.2 percentage points above the standard pace. Ordinary-income progress is 42.3% against the ¥25.0bn forecast, also materially ahead of the standard pace. Owner-attributable profit progress is 41.0% against the ¥23.0bn forecast. The elevated profit progress partly reflects Q1 investment income and extraordinary gains, including the securities-sale gain, and therefore should not be read as purely recurring momentum. Management has not revised either its earnings forecast or dividend forecast. The full-year outlook still calls for 2.9% revenue growth but a 40.2% operating-income decline and a 34.0% ordinary-income decline, indicating that management expects lower underlying profitability despite top-line recovery. Earnings sustainability will depend on fuel-cost pass-through timing, gas demand and volume, and containment of power-business losses.

Financial Health

Liquidity is sound. Current assets of ¥165.0bn exceeded current liabilities of ¥108.6bn, resulting in working capital of ¥56.3bn and a current ratio of 151.9%. The quick ratio of 117.5% indicates that near-term obligations are covered without dependence on inventory liquidation. Short-term loans were only ¥1.8bn, equivalent to 3.3% of reported interest-bearing debt, while cash was ¥27.5bn and covered short-term loans by 15.29x. This structure limits immediate refinancing and maturity-mismatch risk, as current assets exceed current liabilities and short-term borrowing is minimal. Solvency is also conservative, with a reported debt-to-equity ratio of 0.68x and debt-to-capital ratio of 10.0%, both well below warning thresholds. Interest coverage of 19.34x provides a substantial buffer against higher funding costs. Total equity increased ¥180.5bn year on year to ¥4,955.7bn, supported by retained earnings and valuation gains. Cash and deposits fell ¥154.9bn, or 36.0%, to ¥275.2bn, reducing the immediate cash buffer even though liquidity ratios remain healthy. Inventories increased ¥88.1bn, or 31.0%, to ¥372.8bn, which requires monitoring for commodity-cost, demand, and working-capital effects. Receivables decreased ¥110.3bn, partly offsetting the inventory build and limiting the net working-capital burden. Treasury stock increased in negative balance by ¥74.5bn to negative ¥100.2bn, consistent with a material share repurchase or other treasury-share transaction and supportive of per-share equity metrics. Investment securities represent 29.2% of total assets at ¥2,431.1bn, leaving book equity and comprehensive income meaningfully exposed to market-value changes. PPE represents 36.1% of assets, consistent with the capital-intensive utility model, while construction in progress of ¥284.4bn indicates continued infrastructure investment.

Notable B/S Changes

Treasury stock: increased in negative balance by ¥74.5bn to negative ¥100.2bn (-289.2%) - indicates substantial treasury-share accumulation or repurchase activity, supporting per-share metrics but representing a material capital-allocation use. Cash and deposits: decreased ¥154.9bn to ¥275.2bn (-36.0%) - reduces immediately available liquidity, although current and quick ratios remain healthy. Inventories: increased ¥88.1bn to ¥372.8bn (+31.0%) - may reflect energy procurement and price effects; requires monitoring for working-capital and commodity-price exposure. Accumulated other comprehensive income: increased ¥196.7bn to ¥1,599.6bn (+14.0%) - favorable valuation and translation movements materially supported equity and comprehensive income. Investment securities: increased ¥317.8bn to ¥2,431.1bn (+15.0%) - the portfolio remains a significant 29.2% of assets, increasing exposure to market valuation changes.

Cash Flow Quality

Quarterly net income was ¥9.4bn, but cash-flow conversion cannot be assessed from the reported operating cash-flow data. Earnings quality should therefore be evaluated primarily through the composition of accounting profit and balance-sheet movements. Ordinary income received ¥3.5bn of non-operating income support, including ¥1.9bn of dividend income. Profit before tax also included ¥2.5bn of extraordinary income, of which ¥2.0bn was a gain on sales of investment securities, offset by only ¥0.1bn of impairment loss. The securities-sale gain alone represented 21.2% of owner-attributable profit, making reported Q1 profit less representative of recurring operating performance. The increase in inventories of ¥88.1bn is a potential cash-use factor and should be monitored alongside gas and energy procurement conditions. The ¥110.3bn reduction in receivables partly mitigates the inventory-related working-capital pressure. The reduction in cash and deposits to ¥275.2bn is consistent with a quarter in which cash deployment, inventory accumulation, and capital allocation require monitoring. Comprehensive income of ¥29.1bn exceeded net income by ¥19.7bn, principally reflecting other comprehensive income, including favorable securities valuation movements. Such OCI gains strengthen book value but do not substitute for operating cash generation or recurring earnings.

Dividend Sustainability

The FY2027 full-year dividend forecast is ¥22.5 per share following the April 2026 four-for-one stock split. Against forecast EPS of ¥64.24, the implied dividend payout ratio is approximately 35.0%, which is within the 30-50% range generally associated with sustainable utility dividends. The forecast payout ratio leaves a meaningful retained-earnings buffer for infrastructure investment and balance-sheet resilience. Q1 basic EPS was ¥26.19, representing 40.8% of full-year forecast EPS, broadly consistent with the elevated Q1 profit-progress rate. The dividend forecast has not been revised. The conservative liquidity profile, low short-term debt exposure, and strong interest coverage support dividend continuity. However, dividend coverage should be judged against recurring profitability rather than the Q1 securities-sale gain and favorable valuation effects. Continued operating-margin pressure in the gas and electric-power businesses would be the principal risk to the durability of dividend growth rather than to the currently forecast dividend itself.

Risk Assessment

Business risks include Gas business risk: core gas segment revenue fell 17.6% and segment profit fell 64.3%, exposing earnings to demand, fuel procurement, and tariff/pass-through timing., Electric-power profitability risk: the segment recorded a ¥14.3bn loss after a ¥11.5bn profit in the prior-year quarter, indicating material exposure to wholesale power prices, fuel costs, hedging effectiveness, and retail pricing., Commodity and energy-transition risk: LNG and power procurement costs, decarbonization investment requirements, and changing customer demand can affect margins and capital requirements., Investment-market risk: investment securities account for 29.2% of assets, and book equity is sensitive to market valuation movements..

Financial risks include Cash and deposits declined 36.0% year on year to ¥275.2bn, reducing liquidity headroom despite healthy current and quick ratios., Inventories increased 31.0% to ¥372.8bn, creating exposure to commodity-price fluctuations and potential working-capital absorption., Reported Q1 profit includes ¥2.0bn of gain on sales of investment securities, which may not recur., ROIC of 4.2% is below the 5% warning threshold, signaling weak returns relative to the capital deployed in infrastructure and investments..

Key concerns include Highest priority: restoration of gas and electric-power margins, because both businesses drove the substantial operating-income decline., High priority: whether full-year profit progress remains supported by recurring operations rather than non-operating dividends and securities gains., Medium priority: inventory normalization and preservation of cash balances while funding ongoing utility infrastructure investment., Medium priority: sustained ROIC improvement above 5%, particularly given the large fixed-asset and securities base..

Investment Implications

Key takeaways include Q1 operating performance weakened sharply: revenue declined 10.3%, operating income fell 61.5%, and operating margin compressed 702bp to 5.3%., The gas business remains the core business by operating-income contribution, but its ¥10.4bn year-on-year segment-profit decline drove the consolidated shortfall., LPG and other energy showed strong profit growth, but electric power shifted to a material loss and reduced diversification benefits., Reported net income was supported by dividend income and a ¥2.0bn securities-sale gain, reducing comparability with underlying operating earnings., The balance sheet remains a key strength, supported by healthy liquidity, low short-term debt, 10.0% debt-to-capital, and 19.34x interest coverage., Capital efficiency remains the central structural issue, with ROIC at 4.2% and annualized ROE at 7.6%..

Metrics to watch include Gas segment revenue and segment-profit recovery, Electric power segment losses, procurement costs, and pricing conditions, Operating margin relative to the Q1 level of 5.3%, Inventory balance and cash-and-deposit trend, Recurring operating income excluding securities-sale gains, ROIC improvement from 4.2%, Market valuation movements in the ¥2,431.1bn investment-securities portfolio.

Regarding relative positioning, Toho Gas exhibits the balance-sheet resilience typical of a well-capitalized Japanese utility, with strong liquidity and low near-term refinancing risk. Relative performance is currently constrained by a sharp deterioration in core gas profitability, a loss-making electric-power segment, and ROIC below the 5% efficiency threshold. Its substantial investment-securities portfolio provides income and balance-sheet support but also increases sensitivity to market valuations and can obscure underlying operating momentum.