HOKKAIDO GAS (9534) FY2026 Q3 Earnings Report

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Executive Summary

The company posted higher revenue and higher earnings, with Operating Income and Net Income expanding significantly despite modest revenue growth. The primary factor was improved profitability resulting from a lower cost ratio, which can be viewed positively from the perspective of earnings quality. Revenue was ¥1,147.5B (+3.3% YoY), Operating Income was ¥80.8B (+56.0%), Ordinary Income was ¥82.0B (+54.5%), and Net Income was ¥58.1B (¥37.3B in the previous year). The Operating Income margin improved significantly to 7.0% from 4.7% in the previous year, confirming the high degree of operating leverage. However, the cumulative Q3 progress rate against the full-year company plan was only 52.1% for Operating Income, below the usual seasonal progress rate of approximately 75%; demand and cost trends in Q4 will be key to achieving the plan.

Factors Affecting Earnings

【Revenue】Revenue was ¥1,147.5B, representing a 3.3% YoY increase. By segment, Gas recorded ¥685.9B (59.8% composition ratio), OtherEnergy recorded ¥281.0B (24.5%), and Power recorded ¥201.9B (17.6%). While revenue growth remained modest, profits expanded significantly as described below, indicating that earnings were driven by improved profitability rather than volume growth.

【Profit and Loss】Operating Income was ¥80.8B (+56.0% YoY), while segment profit margins were Gas 10.2%, OtherEnergy 3.4%, and Power 12.3%; the higher-margin Gas and Power businesses drove overall profits. The gross profit margin improved to 31.2% from 28.4% in the previous year, and the decline in the cost ratio appears to have been the central factor behind the earnings increase. Ordinary Income of ¥82.0B only slightly exceeded Operating Income, indicating limited dependence on non-operating income and expenses. Extraordinary Income of ¥4.8B (gain on negative goodwill) and Extraordinary Losses of ¥4.9B were almost offset, and Net Income of ¥58.1B broadly reflects the recurring earnings level. In conclusion, the company achieved higher revenue and higher earnings, with the primary driver of profit growth being improved profitability rather than volume.

Segment Analysis

The Gas segment is the core contributor to overall profit, with Revenue of ¥685.9B (59.8% composition ratio), Operating Income of ¥70.3B, and a profit margin of 10.2%. The Power segment recorded Revenue of ¥201.9B (17.6%), but had the highest profitability among the three segments, with a profit margin of 12.3%. OtherEnergy recorded Revenue of ¥281.0B (24.5%), while its profit margin remained at 3.4%, indicating relatively weak profitability. Overall, the structure is one in which the highly profitable Gas and Power businesses drive profit growth.

Key Financial Indicators

【Profitability】The Operating Income margin was 7.0%, improving from 4.7% in the previous year, while the Net Income margin also rose to 5.0% from 3.4% in the previous year. The gross profit margin was 31.2%, exceeding the previous year’s 28.4%, and the improved cost ratio was the central factor behind enhanced profitability.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥98.8B, or 1.71 times Net Income of ¥58.1B, indicating solid cash backing; however, the OCF/EBITDA ratio remained at an estimated 0.50 times, indicating low cash conversion efficiency from EBITDA.【Investment Efficiency】Annualized ROE was 8.3%, with the improvement in the Net Income margin serving as the primary driver, while the total asset turnover ratio remained relatively low due to the asset-intensive nature of the business.【Financial Soundness】The Equity Ratio was a substantial 48.0%; however, Current Liabilities of ¥470.8B exceeded Current Assets of ¥452.8B, indicating that short-term funding conditions require monitoring.

Cash Flow Analysis

Operating Cash Flow was ¥98.8B, essentially flat at +0.7% compared with the same period of the previous year. An increase in trade receivables of ¥17.3B and a decrease in trade payables of ¥76.8B put downward pressure on OCF through working capital, while income taxes paid of ¥43.6B also acted as a constraint. Investing Cash Flow was an outflow of ¥131.9B, of which capital expenditures accounted for ¥121.3B; as a result, capital expenditures exceeded OCF by ¥22.5B and Free Cash Flow (FCF) was negative ¥33.1B. Financing Cash Flow was an inflow of ¥7.7B, with factors such as a net increase in commercial paper offsetting bond redemptions and debt repayments. Capital expenditures have continued at a level exceeding depreciation and amortization of ¥116.5B, and an investment stance exceeding infrastructure maintenance is the primary cause of the FCF deficit.

Earnings Quality

Net Income of ¥58.1B broadly reflects the recurring earnings level. Extraordinary Income of ¥4.8B (gain on negative goodwill) and Extraordinary Losses of ¥4.9B were almost offset, limiting the impact of temporary factors on total Net Income. Non-operating income of ¥8.2B accounted for only 0.7% of Revenue and included dividend income of ¥2.0B, but was not large enough to materially affect the assessment of core profitability. Comprehensive Income of ¥66.0B was slightly above Net Income of ¥58.1B, primarily due to an ¥8.7B increase in the valuation difference on securities; the divergence between the two was not significant. The fact that OCF was 1.71 times Net Income supports the cash backing of earnings; however, the OCF-to-EBITDA ratio was relatively low, and attention should be paid to the fact that fluctuations in trade receivables and trade payables, as well as tax payments, constrained cash conversion.

Earnings Forecasts and Guidance

The full-year company forecasts are Revenue of ¥1,750.0B (+2.8% YoY), Operating Income of ¥155.0B (+8.2%), and Ordinary Income of ¥155.0B (+7.4%). The cumulative Q3 progress rates were 65.6% for Revenue and 52.1% for Operating Income, with the progress rate based on Ordinary Income also remaining at a similar level, below the seasonal benchmark of 75%. Approximately ¥74.2B in Operating Income will need to be generated in Q4. Although the business characteristics make it relatively likely that expanding winter heating demand will contribute to earnings, the current progress indicates that achieving the plan remains challenging.

Shareholder Returns

The Q2 dividend was ¥11.50 per share, and the full-year company forecast for the annual dividend is ¥23.00. Based on forecast profit attributable to owners of the parent of ¥111.7B, the Payout Ratio is estimated at approximately 18%, indicating that the burden viewed solely in terms of dividends is limited. Meanwhile, cumulative FCF was negative ¥33.1B, and dividends were not fully covered by cash flow generated during the cumulative period. Dividend sustainability will depend on OCF generation capacity and the level of capital expenditures in Q4. As no disclosure regarding share repurchases has been identified, no assessment has been made in terms of the Total Return Ratio.

Risk Factors

1. Short-Term Liquidity: Current Liabilities of ¥470.8B exceeded Current Assets of ¥452.8B, resulting in a current ratio of 96.2%, below 1.0 times. Combined with a significant decrease in trade payables (down 67.8% YoY), short-term funding conditions require monitoring going forward.

2. Risk of Achieving the Full-Year Plan: The cumulative Q3 progress rate for Operating Income was 52.1%, below the seasonal benchmark of 75%. Approximately ¥74.2B in Operating Income must be generated in Q4, and fuel procurement prices and winter temperatures and demand trends will determine whether the plan can be achieved.

3. Cash Conversion Efficiency: While OCF was 1.71 times Net Income, indicating solid cash backing, capital expenditures exceeded OCF and FCF was negative ¥33.1B. During a period of continued investment, dependence on external funding such as bonds, borrowings, and commercial paper may increase.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (utilities)

Profitability and Returns

The company’s Operating Income margin and Net Income margin have been improving from the previous year, but comparative data against the industry median is currently limited.

Growth and Capital Efficiency

The Revenue growth rate indicates solid revenue growth, but is moderate compared with the profit growth rate (+56.0%); the structure is one in which earnings growth depends on improved profitability.

※Source: Company compilation

Key Takeaways from the Earnings Results

1. Revenue increased 3.3%, while Operating Income increased 56.0%; improvements in the gross profit margin and Operating Income margin were the central features of the current-period results. The profit growth rate substantially exceeding the revenue growth rate indicates that improved cost ratios, rather than volume growth, made the primary contribution.

2. OCF/Net Income was 1.71 times, confirming the cash backing of earnings; however, capital expenditures exceeded OCF and FCF was negative ¥33.1B. The balance between cash conversion efficiency and the investment burden remains an area for ongoing observation.

3. The Operating Income progress rate against the full-year company plan was only 52.1%, below the usual seasonal progress rate. Demand and cost trends in Q4 will be important variables in achieving the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,134–¥1,202 at ±1% in the cost of equity, and ¥1,164–¥1,171 at ±0.1 in ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• As 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 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 with a professional as necessary.

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