HIROSHIMA GAS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥40.26B
• Operating Income: ¥81M
• Net Income: ¥398M
• EPS: ¥4.74

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A mixed quarter with resilient ordinary income driven by non-operating gains, but weak core operations, thin margins, and sub-1x interest coverage temper the outlook. Revenue declined 2.9% YoY to 402.59, while operating income edged up 3.8% YoY to 0.81, signaling tight cost control but very low operating profitability. Gross profit reached 122.71 for a 30.5% gross margin, but the operating margin remained razor-thin at about 0.20%. Ordinary income surged to 5.55 (+437.5% YoY), lifted by 6.29 of non-operating income, including 1.22 in dividends and 0.08 in interest income. Net income fell 20.0% YoY to 3.25 as tax normalization and likely non-recurring effects weighed, compressing the net margin to 0.81%. Operating margin likely expanded by roughly 1–2 bps YoY (from ~0.19% to ~0.20%) despite lower sales, indicating modest operating leverage. By contrast, ordinary income margin expanded by about 113 bps YoY (to ~1.38%), almost entirely from non-operating sources. Net margin contracted by about 17 bps YoY (from ~0.98% to ~0.81%), reflecting the drop in bottom-line after-tax earnings. Earnings quality is a concern: non-operating income exceeded operating income (non-operating income ratio of 193.5%), and operating profit covers only 95% of interest expense (interest coverage 0.95x). Liquidity is solid with a current ratio of 222% and cash/deposits of 166.63 against current liabilities of 158.20. Leverage is moderate with a D/E ratio of 0.73x and long-term loans of 176.27, but weak operating profitability elevates debt service risk. DuPont ROE is low at 0.5% (NPM 0.8% × AT 0.323 × leverage 1.73x), and ROIC at 0.1% highlights poor capital efficiency. The calculated payout ratio of 253.8% suggests potential dividend strain, though DPS data are unreported and may distort this reading. With cash flow data unreported, we cannot validate cash conversion; this is a key limitation for assessing dividend sustainability. Forward-looking, results will hinge on city-gas volume/temperature trends, fuel cost adjustment timing, LNG price trajectories, and electricity/other peripheral businesses’ contributions. Overall, ordinary income strength masks underlying fragility in core operations; improving operating margin and restoring positive interest coverage are critical to improve resilience.

Profitability Analysis

ROE decomposition: Net profit margin 0.8% × Asset turnover 0.323 × Financial leverage 1.73x = ROE 0.5%. Biggest change: net margin compressed roughly 17 bps YoY; operating margin expanded only ~1–2 bps; leverage appears stable. Business reason: revenue decline (-2.9% YoY) and likely fuel adjustment/volume headwinds constrained operating profit, while non-operating gains temporarily boosted ordinary income but did not sustain net income after taxes/other effects. Sustainability: reliance on non-operating income is not durable; core margin needs structural improvement. Concern: operating profit barely covers interest (0.95x), making profitability fragile even with modest leverage.

Growth Assessment

Top-line declined 2.9% YoY to 402.59, consistent with utility-sector exposure to temperature/volume variability and fuel adjustment pass-throughs. Operating income grew 3.8% to 0.81, implying marginal efficiency gains or mix effects but off a very low base. Ordinary income expanded sharply to 5.55 on non-operating gains, but this growth is not necessarily repeatable. Net income fell 20.0% to 3.25, confirming that the ordinary income spike did not translate into bottom-line growth after tax/other effects. Revenue sustainability depends on city-gas demand elasticity, industrial load, and competitive electricity operations; absent volume growth, structural revenue expansion appears limited. Profit quality is mixed: core operating profit is thin, and dependency on non-operating items (non-operating income > operating income) raises volatility. Outlook: stabilization hinges on fuel procurement costs (LNG), the timing of fuel cost adjustments, and weather-normalized demand into winter; a modest rebound is possible if volumes normalize, but operating margin repair is needed to offset interest burden.

Financial Health

No current ratio warning (222.4%); no D/E warning (0.73x). Maturity mismatch risk is low: current assets 351.90 vs current liabilities 158.20. Interest coverage is a flagged weakness at 0.95x. Off-balance sheet obligations not disclosed.

Cash Flow Quality

OCF/Net Income not calculable; lack of CF disclosure is a key limitation. FCF sustainability for dividends and capex cannot be assessed. Working capital appears ample, but manipulation signs cannot be evaluated without CF detail.

Dividend Sustainability

Calculated payout ratio 253.8% suggests strain, but DPS unreported; treat as indicative, not definitive. Without OCF/FCF, dividend coverage cannot be confirmed. Short-term, liquidity can support distributions; long-term sustainability hinges on operating margin recovery and interest coverage improvement.

Risk Assessment

Business Risks:

• Demand/temperature sensitivity impacting city-gas volumes
• Commodity price risk (LNG) and fuel cost pass-through timing
• Competition in retail energy markets
• Earnings dependence on non-operating items

Financial Risks:

• Sub-1x interest coverage
• Very low ROIC and ROE
• Potential dividend-policy rigidity vs earnings capacity
• Visibility gaps due to unreported cash flow items

Key Concerns:

• Thin operating margin (~0.20%)
• Net income down 20% YoY despite ordinary income spike
• Non-operating income > operating income (193.5%)
• Unreported SG&A, OCF, capex limit analysis

Investment Implications

Key Takeaways:

• Ordinary income strength was non-operating-driven; core operations remain weak
• Interest coverage below 1x is the most pressing financial pressure point
• Liquidity is ample, but capital efficiency is poor (ROIC 0.1%)
• Net margin compressed despite revenue decline and slight operating margin improvement

Metrics to Watch:

• Operating cash flow and free cash flow once disclosed
• Operating margin progression and SG&A trend (when reported)
• Interest coverage recovery to >2x
• Fuel cost adjustment mechanics vs LNG price trends
• City-gas volumes and temperature-normalized demand into winter
• Dividend announcement/DPS guidance to validate payout sustainability

Relative Positioning: Versus larger domestic gas utilities, Hiroshima Gas shows solid liquidity and moderate leverage but materially weaker operating profitability and sub-1x interest coverage, leaving it more exposed to margin and volume shocks until core earnings strengthen.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis