HOKKAIDO GAS CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

While Revenue was almost flat, each profit metric from Operating Income onward declined by more than 40%, resulting in a decrease in both Revenue and profit rather than an increase in Revenue accompanied by lower profit. Revenue was ¥380.4億 (¥383.0億 in the same period last year, YoY-0.7%), Operating Income was ¥34.2億 (¥58.1億, YoY-41.1%), Ordinary Income was ¥35.4億 (¥59.8億, YoY-40.9%), and Net Income attributable to owners of the parent was ¥25.2億 (¥43.0億, YoY-41.5%). The decline in Revenue and profit in the core Gas segment and deteriorating profitability in the Power segment weighed on overall results, with both the gross profit margin and Operating Income margin clearly declining from the previous year.

Factors Affecting Performance

【Revenue】Revenue was ¥380.4億, almost flat at YoY-0.7%. By segment, Gas, the core segment, posted lower Revenue of ¥225.0億 (59.2% of total, YoY-6.9%), while OtherEnergy at ¥103.6億 (YoY+20.8%) and other businesses at ¥9.3億 (YoY+23.0%) recorded higher Revenue, partially offsetting the decline in Gas. Power was ¥63.2億, almost flat at YoY+0.5%.

【Profit and Loss】Operating Income was ¥34.2億 (YoY-41.1%), Ordinary Income was ¥35.4億 (YoY-40.9%), and Net Income was ¥25.2億 (YoY-41.5%), representing declines of approximately 40% in each case. The gross profit margin was 35.6%, down -2.5pt from 38.1% in the previous year, while SG&A expenses increased to ¥14.4億 from ¥11.3億, or YoY+27.9%. This indicates that rising costs compressed profit while Revenue remained almost flat. By segment, Gas posted a significant decline in profit to ¥31.2億 (YoY-36.9%), while Power declined to ¥4.3億 (YoY-58.2%); lower profit margins in both segments were the primary drivers of the overall decline in profit. OtherEnergy increased profit to ¥5.5億 (YoY+9.9%), but its small scale limited its contribution to overall results. Extraordinary income of ¥0.9億 was a temporary factor with a minor impact, and there was no significant divergence from Ordinary Income of ¥35.4億 to Profit Before Tax of ¥36.3億 and then to Net Income of ¥25.2億 after deducting income taxes and other taxes of ¥11.0億. In conclusion, the current quarter was characterized by decreases in both Revenue and profit.

Segment Analysis

The Gas segment posted Revenue of ¥225.0億 (59.2% of total, YoY-6.9%) and Operating Income of ¥31.2億 (YoY-36.9%, margin 13.9%), with lower Revenue and a significant decline in profit in the core segment driving consolidated performance. The Power segment’s Revenue was almost flat at ¥63.2億 (YoY+0.5%), but profitability deteriorated significantly, with Operating Income declining to ¥4.3億 (YoY-58.2%, margin 6.8%); the impact of power procurement costs and market price trends is likely. The OtherEnergy segment secured increases in both Revenue and profit, with Revenue of ¥103.6億 (YoY+20.8%) and Operating Income of ¥5.5億 (YoY+9.9%, margin 5.3%), but its margin remained less than half that of Gas, and its scale was insufficient to offset the declines in Gas and Power. Other businesses, including IT solutions, real estate, and insurance agency services, grew significantly, with Revenue of ¥9.3億 (YoY+23.0%) and Operating Income of ¥0.9億 (YoY+95.7%), but remain small relative to the consolidated total. Adjustments for company-wide expenses and other items expanded from -¥7.1億 in the previous year to -¥7.7億, slightly widening the adjustment from the segment total to consolidated Operating Income.

Key Financial Indicators

【Profitability】The Operating Income margin was 9.0%, down -6.2pt from 15.2% in the previous year, while the Net Income margin was 6.6%, down -4.6pt from 11.2%. The gross profit margin was 35.6%, down -2.5pt from 38.1% in the previous year, confirming a progressive deterioration in profit margins accompanied by rising costs.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥50.1億, approximately 2.0 times Net Income of ¥25.2億, indicating that cash-generating capacity was maintained at a reasonable level relative to profit.【Investment Efficiency】ROE was 2.5%, with the decline in the Operating Income margin being the primary factor suppressing the level of Net Income.【Financial Soundness】The Equity Ratio was 54.9%, improving +4.6pt from 50.3% in the previous year. Total assets contracted to ¥1841.3億 from ¥1982.0億, while net assets increased to ¥1011.6億 from ¥997.1億, indicating that the financial foundation has instead been strengthened amid asset compression.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥50.1億, increasing YoY+28.5% from ¥39.0億 in the previous year and standing at approximately 2.0 times Net Income of ¥25.2億, indicating that cash-generating capacity relative to profit was maintained during the current quarter. In terms of working capital, the decrease in trade receivables generated a cash inflow of ¥80.5億, while the decrease in trade payables resulted in a cash outflow of ¥65.6億, with the two largely offsetting each other. Investing Cash Flow was -¥56.3億, of which capital expenditures accounted for -¥46.7億, indicating that investment continued at a level exceeding depreciation and amortization expense of ¥39.0億. Financing Cash Flow was -¥58.5億, reflecting cash outflows from dividend payments, debt repayments, and other items. As a result, Free Cash Flow (OCF + Investing Cash Flow) was -¥6.2億. Although investment activities were not fully funded by OCF alone during the current quarter, this can be interpreted as the result of front-loaded investment, given that capital expenditures exceeded depreciation and amortization in an active investment phase.

Quality of Earnings

Looking at the recurring earnings structure, non-operating income was ¥2.7億 (including dividend income of ¥0.9億), while non-operating expenses were ¥1.5億 (including interest expenses of ¥0.9億); both were small, and their impact on Ordinary Income of ¥35.4億 was limited. Extraordinary income of ¥0.9億 was also minor, and the divergence between Profit Before Tax of ¥36.3億 and Ordinary Income was primarily attributable to this temporary factor, without materially distorting overall performance. Comprehensive income was ¥25.9億 (¥25.8億 attributable to owners of the parent), and the difference from Net Income of ¥25.2億 was limited to valuation-related items such as valuation differences on other securities of ¥0.5億 and adjustments related to retirement benefits of ¥0.2億; the divergence between the two was small. Accordingly, the decline in profit during the current quarter was not caused by extraordinary gains or losses or temporary accounting factors, but by changes in the recurring earnings structure, namely a decline in the gross profit margin and an increase in SG&A expenses. No significant distortion in the quality of earnings itself is evident.

Earnings Forecast and Guidance

The full-year earnings forecast calls for Revenue of ¥1902.0億 (YoY+9.0%), Operating Income of ¥128.0億 (YoY-22.1%), and Ordinary Income of ¥130.0億 (YoY-21.2%). As of the current quarter, neither the earnings forecast nor the dividend forecast has been revised. Progress rates were 20.0% for Revenue, 26.7% for Operating Income, and 27.2% for Ordinary Income. While profit progress was broadly in line with the standard quarterly level of 25%, Revenue progress was below this level. The full-year forecast anticipates higher Revenue but lower Operating Income, differing from the current quarter’s decreases in both Revenue and profit in terms of the direction of Revenue. Accordingly, sales volume and unit price trends toward the second half of the fiscal year will be the focus in assessing progress.

Shareholder Returns

The full-year dividend forecast is ¥13.5 per share, representing a planned increase from the previous year’s actual dividend of ¥11.5. The Payout Ratio against forecast EPS of ¥106.38 is approximately 12.7%, remaining at a low level and indicating a conservative shareholder return policy relative to fluctuations in profit. No share repurchase has been mentioned, and shareholder returns during the current period are centered on dividends.

Risk Factors

1. Risk of deteriorating profitability due to the time lag in fuel cost adjustments: Operating Income declined YoY-36.9% in Gas and YoY-58.2% in Power, while the gross profit margin also declined to 35.6% from 38.1% in the previous year, or -2.5pt. A time lag between procurement costs and the pass-through of costs to selling prices may be putting pressure on profit margins.

2. Reduced capacity to absorb costs due to rising expenses: SG&A expenses increased to ¥14.4億 from ¥11.3億 in the previous year, or YoY+27.9%, a significant divergence from Revenue of YoY-0.7%. Rising costs while Revenue remained almost flat have been a factor pushing the Operating Income margin down to 9.0% from 15.2% in the previous year.

3. Concentration in the Gas segment: Gas is the core segment, accounting for 59.2% of Revenue. Accordingly, changes in demand trends, regulations, and procurement costs in this segment have a significant impact on consolidated performance.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (utilities)

Profitability and Returns

Both the Operating Income margin and Net Income margin were below the industry median, indicating that profitability was relatively low within the industry.

Growth and Capital Efficiency

The Revenue growth rate was significantly below the industry median, highlighting sluggish growth compared with other companies in the industry that are on a Revenue growth trajectory.

※Source: Company compilation

Key Points from the Earnings Results

1. The Operating Income margin was 9.0%, down -6.2pt from 15.2% in the previous year and below the industry median of 13.4%. Both the decline in the gross profit margin and the increase in SG&A expenses contributed to this result, which should be observed as a change in the earnings structure.

2. Progress against the full-year earnings forecast was 26.7% for Operating Income and 27.2% for Ordinary Income, representing standard levels, while Revenue progress was relatively slow at 20.0%. Sales volume and unit price trends in the second half of the fiscal year will be key to achieving the full-year targets.

3. The Equity Ratio was 54.9%, improving +4.6pt from 50.3% in the previous year, indicating that financial soundness has been maintained even as total assets contracted.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model 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: ¥1,131–¥1,199 at ±1% in the cost of equity, and ¥1,164–¥1,165 at ±0.1 in ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference 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 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 discretion and responsibility, after consulting with a professional as necessary.

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