TOHO GAS CO.,LTD. FY2027 Q1 Earnings Report

Quick View

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)

---

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.

---End of Report---