HOKURIKU GAS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥27.53B
• Operating Income: ¥1.49B
• Net Income: ¥1.18B
• EPS: ¥251.34

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: FY2026 Q2 was a strong rebound quarter, with sharp profit recovery on modest top-line growth and solid cost control. Revenue rose 8.5% YoY to 275.29, while operating income surged 122.7% YoY to 14.90, lifting operating margin to 5.4%. Gross profit reached 115.79, translating to a gross margin of 42.1%, indicating improved spread management versus fuel costs. Ordinary income increased to 16.93 (+108.1% YoY), aided modestly by 2.03 of non-operating income (mainly dividends of 0.80 and interest income of 0.07). Net income jumped to 11.70 (+490.8% YoY), with an effective tax rate of 28.9%, yielding a net margin of 4.2%. While prior-period margin baselines are not disclosed, current operating and net margins imply material YoY expansion in basis points given the scale of profit growth relative to an 8.5% sales increase. Non-operating items contributed roughly 12% of ordinary income (2.03/16.93), but the core driver of the recovery was operating profit. Leverage is very low (calculated equity ratio ~82.4%; liabilities/equity ~0.21x), and interest burden is negligible (interest coverage effectively >20,000x), pointing to a conservative balance sheet. Liquidity is healthy with a current ratio of 159% and cash plus receivables (104.01) comfortably exceeding current liabilities (74.82). ROE is modest at 2.2% (NPM 4.2% × Asset Turnover 0.425 × Leverage 1.21x), reflecting structurally low leverage and utility-like asset intensity. ROIC at 2.2% is below a 5% warning threshold, highlighting capital efficiency constraints typical of regulated gas distribution and elevated intangible/goodwill balances (41.65 and 35.18). Earnings quality cannot be fully assessed due to unreported cash flow figures; OCF/NI and FCF are non-calculable. Dividend affordability appears reasonable with a calculated payout ratio of 32.8%, but FCF coverage is unknown without capex and OCF disclosure. Forward-looking, margin normalization benefits from better procurement spreads and disciplined costs could persist, but exposure to fuel price and tariff adjustment lags remains a key swing factor. With a fortress balance sheet, the company is well-positioned to navigate commodity and demand volatility, though returns are likely capped by regulatory and asset intensity constraints. Monitoring of tariff pass-through timing, fuel costs, and potential goodwill/intangible impairment risk will be important for sustaining earnings. Overall, the quarter demonstrates improved profitability and resilience, tempered by low capital efficiency and incomplete cash flow transparency.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.2% = Net Profit Margin 4.2% × Asset Turnover 0.425 × Financial Leverage 1.21x. The dominant driver of the YoY improvement in profits is the margin component, as revenue grew only 8.5% while operating income more than doubled; leverage and asset turnover are largely stable and structurally low for a gas utility. Net margin uplift likely reflects improved gross spread management (gross margin 42.1%) and tighter operating costs, though SG&A details are unreported. Asset turnover at 0.425 (Revenue 275.29 / Assets 647.01) underscores heavy fixed asset intensity, typical of gas distribution infrastructure. Financial leverage is low (Assets/Equity ~1.21x), which dampens ROE but reduces risk. Business reason: fuel cost normalization and effective tariff/pricing management, alongside minimal interest burden, expanded profits. Sustainability: partial—procurement spreads can normalize favorably, but commodity price swings and tariff adjustment lags can reverse gains; structural low leverage and asset intensity will continue to cap ROE. Watch for any operating deleverage risks if demand weakens; flag that SG&A visibility is limited (unreported), though current signals suggest costs did not outpace revenue.

Growth Assessment

Top-line growth of 8.5% YoY to 275.29 suggests steady demand and/or tariff adjustments, with operating leverage evident as operating income rose 122.7% YoY to 14.90. Ordinary income increased to 16.93 (+108.1% YoY), supported by modest non-operating income (2.03), indicating the recovery is primarily operational rather than one-off financial gains. Net income surged to 11.70 (+490.8% YoY), benefiting from stronger operations and a normalized effective tax rate of 28.9%. Revenue sustainability depends on demand (weather/seasonality, industrial usage) and tariff pass-through mechanisms; visibility is moderate but typical for regulated gas utilities. Profit quality appears improved given spread management at the gross level (42.1% margin), but full validation awaits SG&A and cash flow disclosure. Outlook: cautious optimism—if fuel costs remain benign and tariff adjustments timely, margins can remain above recent troughs; however, adverse commodity moves or lag effects could compress margins. Non-operating income (dividends/interest) is helpful but not a core growth engine.

Financial Health

Liquidity is strong: current ratio 159.4% (119.30 current assets vs 74.82 current liabilities) and quick ratio equivalent due to unreported inventories. Cash and receivables total 104.01, covering current liabilities comfortably; working capital stands at 44.48. Solvency is very conservative: calculated equity ratio ~82.4% (Equity 533.26 / Assets 647.01) and liabilities/equity ~0.21x; reported long-term loans are minimal at 0.86. Interest burden is negligible (interest coverage ~22,576x), reflecting minimal financial debt. No explicit red flags: Current Ratio well above 1.0 and D/E far below 2.0. Maturity mismatch risk appears low given the liquidity cushion; short-term loans are unreported, but overall current resources exceed near-term obligations. Off-balance sheet obligations are not disclosed in the provided data; none can be assessed.

Cash Flow Quality

OCF and FCF are unreported; thus OCF/Net Income and FCF coverage cannot be evaluated. Given the capital-intensive nature of gas utilities, capex can be sizable and may constrain free cash generation in certain periods; without capex and OCF data, sustainability of cash earnings cannot be confirmed. No signs of working capital manipulation can be assessed due to lack of cash flow detail; balance sheet shows receivables of 42.11 and cash of 61.90, which together provide strong liquidity, but timing effects (seasonality, tariff pass-through lags) could influence future OCF. Earnings quality assessment is therefore limited and should be revisited when cash flow statements become available.

Dividend Sustainability

The calculated payout ratio is 32.8%, indicating ample headroom relative to earnings capacity this quarter/half. However, FCF coverage is not calculable due to absent OCF and capex data, which is important given utility capex needs. The strong balance sheet (equity ratio ~82% and minimal debt) provides an additional buffer for dividends under normal conditions. Policy outlook cannot be confirmed from the data provided; if management targets stable/dividend growth typical of utilities, current earnings recovery supports maintainability, but confirmation requires cash flow visibility.

Risk Assessment

Business Risks:

• Commodity/fuel price volatility impacting procurement costs and gross spreads
• Tariff/pass-through timing risk leading to margin compression during lags
• Weather and seasonality affecting residential demand
• Industrial demand sensitivity to regional economic activity
• Potential impairment risk given sizable goodwill (35.18) and intangibles (41.65)
• Regulatory risk in gas pricing frameworks and safety/environmental compliance
• Competition from alternative energy (electricity, heat pumps) and retail choice dynamics

Financial Risks:

• Currency exposure on imported LNG/fuels (if not fully hedged)
• Working capital swings due to fuel cost and receivable timing
• Refinancing risk appears low but remains a consideration despite minimal reported debt
• Interest rate risk limited given light leverage but could affect future financing costs

Key Concerns:

• Low ROIC at 2.2% (<5% threshold) indicating weak capital efficiency
• Incomplete cash flow disclosure preventing validation of earnings quality and dividend FCF coverage
• Reliance on spread management; adverse commodity moves or delayed tariff adjustments could quickly erode margins

Investment Implications

Key Takeaways:

• Earnings rebound: operating income +122.7% YoY on 8.5% revenue growth; operating margin now 5.4%
• Solid gross spread: gross margin 42.1% indicates improved procurement/pricing vs cost
• Conservative balance sheet: equity ratio ~82.4%, liabilities/equity ~0.21x, negligible interest burden
• ROE remains modest at 2.2% due to low leverage and asset intensity
• Non-operating income (2.03) supportive but not the main driver of profits
• Cash flow opacity limits assessment of earnings quality and dividend safety
• Capital efficiency challenge flagged by ROIC 2.2%

Metrics to Watch:

• Operating margin trajectory and gross margin stability
• OCF and capex once disclosed; FCF coverage of dividends
• Fuel cost indices and tariff adjustment timing
• Receivables and cash conversion cycle dynamics
• Any changes in goodwill/intangibles and impairment testing outcomes
• Demand indicators across residential vs industrial customers

Relative Positioning: Versus domestic gas utilities, Hokuriku Gas appears financially conservative with superior balance sheet strength and minimal interest burden, showing near-term margin recovery; however, capital efficiency and ROE are on the low end, and current cash flow disclosure is insufficient to fully validate sustainability.

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