HIROSHIMA GAS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥40.26B
• Operating Income: ¥81M
• Net Income: ¥-24M
• 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

Hiroshima Gas Co., Ltd. reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥40.26bn, down 2.9% YoY, reflecting softer top-line conditions in the first half. Gross profit of ¥12.27bn implies a solid gross margin of 30.5%, showing resilience at the gross level despite revenue contraction. Operating income was only ¥81m, yielding an operating margin of 0.2%, indicating substantial overheads and/or operating cost pressures offsetting healthy gross margins. Ordinary income of ¥555m outpaced operating income, suggesting meaningful non-operating contributions (e.g., financial income, equity-method gains, or other non-operating items). Net income was ¥325m, down 20.0% YoY, with an implied effective tax rate around 28% based on disclosed tax and net income; the provided 0.0% effective tax rate metric is not reflective of the disclosed figures. DuPont analysis indicates ROE of 0.45%, decomposed into a 0.81% net margin, 0.323x asset turnover, and 1.73x financial leverage, pointing to weak profitability as the primary driver of low returns. Liquidity is robust with a current ratio of 238% and quick ratio of 232%, supported by ample working capital of ¥23.60bn. The balance sheet appears conservative with total liabilities of ¥58.0bn against equity of ¥71.97bn, translating to a debt-to-equity near 0.81x and leverage (assets/equity) of 1.73x. Interest expense was ¥94m; with operating income at ¥81m, operating interest coverage is about 0.9x, highlighting thin operating buffer before considering non-operating income. The company’s gross margin remains sturdy at 30.5%, but limited operating leverage and higher fixed costs constrain operating margins and earnings quality. Revenue decline alongside lower net income suggests near-term headwinds, potentially including fuel cost pass-through timing, volume softness, or tariff mix effects typical for gas utilities. Cash flow figures were not disclosed in the provided dataset, limiting assessment of cash conversion and free cash flow coverage; as such, the OCF/NI ratio and FCF indicators shown as zero should be treated as unreported. Dividend information was not disclosed (DPS and payout appearing as zero should be treated as unavailable), so dividend sustainability cannot be quantitatively assessed this quarter. Overall, the company demonstrates strong liquidity and a sound capital structure, but profitability remains compressed at the operating level, and earnings rely on non-operating contributions. Outlook hinges on demand seasonality into the winter period, cost pass-through dynamics, and potential stabilization of fuel prices to support margins. Data limitations (notably cash flow and D&A) warrant cautious interpretation and closer monitoring in upcoming disclosures.

Profitability Analysis

ROE is 0.45%, driven by a 0.81% net margin, 0.323x asset turnover, and 1.73x financial leverage. Gross margin is robust at 30.5% (gross profit ¥12.27bn on revenue ¥40.26bn), but the operating margin is only 0.2% (¥81m), indicating limited operating leverage and elevated SG&A or other operating costs. Ordinary income of ¥555m vs. operating income of ¥81m implies sizable non-operating gains supporting bottom-line profitability. Net margin of 0.81% is modest, consistent with regulated utility-like returns and cost pass-through timing effects. Interest expense is ¥94m, and EBIT-based coverage is approximately 0.9x, underscoring thin operating earnings versus financing costs; ordinary income coverage would be stronger, but it depends on non-operating items. The implied effective tax rate is about 28% based on tax expense of ¥127m and pretax income of roughly ¥452m, consistent with statutory ranges. Overall profitability quality is mixed: strong gross economics but weak operating efficiency, with earnings partially supported by non-operating income.

Growth Assessment

Revenue declined 2.9% YoY to ¥40.26bn, indicating modest top-line contraction in the half. Net income fell 20.0% YoY to ¥325m, evidencing negative operating leverage and/or higher non-operating headwinds versus the prior year. The spread between gross margin (30.5%) and operating margin (0.2%) suggests that cost controls below gross profit are the key bottleneck for earnings growth. Ordinary income substantially exceeding operating income indicates that year-on-year comparability may hinge on volatile non-operating items, reducing visibility on sustainable profit growth. Asset turnover of 0.323x is consistent with a capital-intensive utility, limiting growth in ROE absent margin improvements. Outlook into 2H typically benefits from seasonality (winter gas demand), and margin recovery could occur if fuel costs stabilize and pass-through lags narrow. However, given the reported YoY decline in net income despite only a small revenue drop, the near-term profit trajectory appears cautious pending better operating leverage. Without cash flow disclosure, we cannot corroborate earnings growth with cash conversion, which tempers confidence in the quality of growth. Medium-term growth will depend on tariff adjustments, retail/customer mix, distributed energy solutions, and ancillary service expansion to lift operating margins.

Financial Health

Total assets are ¥124.51bn and total equity is ¥71.97bn, implying assets/equity leverage of 1.73x. Total liabilities of ¥58.0bn translate to a debt-to-equity of roughly 0.81x, which is moderate for a gas utility. Liquidity is strong: current assets of ¥40.64bn vs. current liabilities of ¥17.05bn yield a current ratio of 238% and quick ratio of 232%, backed by working capital of ¥23.60bn. Inventories are only ¥1.02bn, indicating limited inventory risk; liquidity is primarily in receivables and cash/near-cash, though exact cash was not disclosed here. Interest expense of ¥94m against weak operating income (¥81m) leads to sub-1x operating interest coverage; solvency is therefore reliant on consistent non-operating income and stable cash generation. Equity ratio was shown as 0.0% in the dataset but is clearly not applicable given reported equity; the implied equity ratio is approximately 57.8% (¥71.97bn/¥124.51bn). Overall, balance sheet strength and liquidity buffers are adequate, though interest coverage from core operations is tight and should be monitored.

Cash Flow Quality

Operating cash flow, investing cash flow, and financing cash flow were not disclosed in the provided set (zeros should be treated as unreported), preventing direct assessment of cash conversion. As a result, the reported OCF/Net Income ratio of 0.00 and free cash flow of 0 should be considered unavailable rather than actual values. Earnings quality inference must therefore rely on accrual indicators and margin structure: strong gross margin but weak operating margin can be a red flag for cash conversion if SG&A accruals or other operating costs are rising faster than cash receipts. Working capital appears ample with current assets significantly exceeding current liabilities; however, the direction of working capital movements (source or use of cash) cannot be determined without CF details. Depreciation and amortization were not disclosed, limiting our ability to reconcile EBITDA or assess the non-cash component of expenses. Given the capital-intensive nature of gas distribution, maintenance capex can be material; absent disclosures, free cash flow coverage of dividends or debt service cannot be quantified this quarter.

Dividend Sustainability

Dividend per share and payout ratio in the dataset appear as zero and should be treated as undisclosed for this period. Without operating and free cash flow data, we cannot assess cash coverage of dividends. On an earnings basis, net income is modest (¥325m in 1H), and operating interest coverage is below 1x, suggesting limited headroom from core operations alone. However, the company maintains strong liquidity and a moderate leverage profile, which can support steady dividends in typical utility frameworks, subject to regulatory and policy considerations. Future visibility will depend on disclosed DPS, payout policy, and free cash flow once available. For now, dividend sustainability cannot be conclusively evaluated due to missing cash flow and DPS detail.

Risk Assessment

Business Risks:

• Fuel cost pass-through timing mismatches impacting operating margins
• Demand and volume volatility due to weather/seasonality and customer mix changes
• Regulatory and tariff-setting risks affecting allowed returns
• Competition and customer switching in retail gas/electricity where applicable
• Cost inflation in maintenance, labor, and safety-related spending

Financial Risks:

• Sub-1x operating interest coverage (operating income ¥81m vs. interest expense ¥94m)
• Dependence on non-operating income to lift ordinary profit
• Potentially high maintenance and safety capex typical of gas infrastructure
• Uncertain cash flow generation due to lack of disclosed OCF/FCF
• Exposure to interest rate changes on floating or refinanced debt

Key Concerns:

• Weak operating margin (0.2%) despite strong gross margin (30.5%)
• YoY net income decline of 20% with only a 2.9% revenue drop
• Limited visibility on earnings quality and dividend coverage due to missing cash flow data

Investment Implications

Key Takeaways:

• Strong liquidity with current ratio 238% and quick ratio 232%
• Moderate leverage (D/E ~0.81x) and solid equity base (implied equity ratio ~58%)
• Profitability constrained by elevated operating costs; operating margin 0.2%
• Ordinary income meaningfully above operating income, indicating reliance on non-operating gains
• ROE is low at 0.45%, primarily due to weak net margin and low asset turnover typical of utilities
• Interest coverage from operations is thin (~0.9x), a key metric to monitor
• Cash flow and DPS not disclosed this period, limiting assessment of cash-backed returns

Metrics to Watch:

• Operating margin recovery and SG&A ratio trends
• Fuel cost pass-through and gross-to-operating margin spread
• Operating cash flow and free cash flow once disclosed
• Interest coverage (EBIT/interest) and ordinary income composition
• Capex levels (maintenance vs. growth) and depreciation disclosure
• Tariff/regulatory updates affecting allowed returns and pricing

Relative Positioning: Within Japanese gas utilities, Hiroshima Gas exhibits strong liquidity and a conservative balance sheet but weaker operating profitability and interest coverage; near-term positioning hinges on margin normalization and clearer cash flow disclosure.

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