HOKURIKU GAS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥27.53B
• Operating Income: ¥1.49B
• Net Income: ¥210M
• 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

Hokuriku Gas (95370) delivered a solid FY2026 Q2, with revenue of 27,529,000,000 yen, up 8.5% year on year, indicating healthy topline momentum. Gross profit reached 9,581,155,000 yen, translating to a gross margin of 34.8%, which is robust for a regulated utility and suggests favorable fuel cost dynamics and/or tariff adjustments. Operating income surged to 1,490,000,000 yen, up 122.7% YoY, evidencing strong operating leverage and material margin expansion versus the prior year. Ordinary income was 1,693,000,000 yen, exceeding operating income by 203,000,000 yen, implying net non-operating gains; with interest expense a minimal 72,000 yen, the uplift likely reflects financial income or other non-operating items. Net income rose to 1,170,000,000 yen, up 490.8% YoY, with EPS of 251.34 yen, highlighting significant bottom-line improvement. The net profit margin printed at 4.25%, up sharply given the outsized YoY increase in earnings relative to sales growth. DuPont decomposition shows modest asset turnover of 0.425 and very low financial leverage of 1.21, producing a reported ROE of 2.19%; the low leverage dampens ROE but enhances financial resilience. Based on total assets of 64,701,000,000 yen and total equity of 53,326,000,000 yen, the implied equity ratio is approximately 82.4%, indicating a conservative capital structure (the reported 0.0% equity ratio appears unreported rather than actual). Liquidity is comfortable with a current ratio of 169.5% and working capital of 6,452,644,000 yen. The effective tax rate, inferred from income tax of 144,182,000 yen against ordinary income of 1,693,000,000 yen, is about 8.5%, below Japan’s statutory rate; this could reflect tax credits, loss carryforwards, or timing differences. Interest coverage is extremely high given negligible interest expense, further underlining balance sheet strength. Operating cash flow, investing cash flow, and financing cash flow were not disclosed in the provided data; as such, cash conversion, FCF, and dividend coverage cannot be validated from this release. Dividend and share count data also appear undisclosed (zeros), though EPS implies roughly 4.66 million shares outstanding. Overall, the company exhibits strong YoY profit recovery, improved margins, and low leverage, consistent with a utility benefiting from normalized fuel costs and tariff pass-through. However, the absence of cash flow and dividend disclosures limits assessment of earnings quality and capital returns. Outlook hinges on fuel cost trajectories (LNG and FX), demand trends, and regulatory/tariff mechanics. On balance, fundamentals appear solid with a strong balance sheet, but investors should monitor sustainability of margin gains and cash generation once disclosed.

Profitability Analysis

ROE decomposition (DuPont): Net margin 4.25% x asset turnover 0.425 x financial leverage 1.21 yields ROE of approximately 2.19%, consistent with the reported figure. The main driver of improved profitability this quarter is margin expansion: operating margin is about 5.4% (1,490,000,000 / 27,529,000,000), up sharply YoY given operating income growth of 122.7% on 8.5% revenue growth. Gross margin at 34.8% indicates favorable input cost dynamics relative to sales pricing, likely reflecting normalization of fuel costs and pass-through mechanisms typical in city gas. The delta between ordinary income and operating income (+203,000,000 yen) supports earnings via non-operating items, while interest expense is de minimis (72,000 yen), so financing drag is negligible. The effective tax rate is approximately 8.5% (144,182,000 / 1,693,000,000), providing an additional tailwind at the net income level this period; sustainability of this lower rate is uncertain. Operating leverage was pronounced: a modest 8.5% increase in revenue translated into a more than doubling of operating profit, indicating a favorable cost structure and/or recovery from prior-year headwinds. Asset turnover at 0.425 is modest, typical for a capital-intensive utility, and low financial leverage (assets/equity ≈ 1.21) constrains ROE despite improved margins. Overall, margin quality appears improved, but validation via cash conversion is pending due to undisclosed cash flow data.

Growth Assessment

Revenue grew 8.5% YoY to 27,529,000,000 yen, suggesting steady demand and/or improved unit pricing through tariff mechanisms. Operating income growth of 122.7% indicates substantial margin recovery, likely driven by lower fuel costs relative to tariff adjustments and normalization of the fuel cost adjustment lag. Net income grew 490.8%, signaling additional support from non-operating factors and a low effective tax rate this quarter. Sustainability: revenue growth appears moderate and consistent with stable utility demand, but profitability may be more sensitive to commodity prices (LNG), FX, and weather-driven volumes. Profit quality: the spread between ordinary and operating income is positive but not outsized; with minimal interest expense, non-operating contributions look benign rather than speculative. Outlook: near-term earnings should track fuel cost trends and the pace of tariff revisions; if fuel prices remain stable and volumes hold, current margin levels could be defensible. However, any rebound in LNG prices or sharp JPY depreciation could pressure gross margins with a lag. Regulatory reviews and competitive dynamics in retail gas/electricity remain medium-term variables for growth.

Financial Health

Liquidity is solid: current assets of 15,738,860,000 yen and current liabilities of 9,286,216,000 yen yield a current ratio of 169.5% and working capital of 6,452,644,000 yen. Quick ratio is reported as 169.5%, but inventories were undisclosed (0), so the true quick ratio may be slightly lower; nevertheless, liquidity appears ample. Solvency is strong: total liabilities of 13,039,350,000 yen vs total equity of 53,326,000,000 yen implies a debt-to-equity of ~0.24x and an implied equity ratio of ~82.4% (equity/assets), despite the reported 0.0% (undisclosed). Interest burden is minimal with interest expense of 72,000 yen and very high interest coverage. The capital structure is conservative, providing resilience against commodity and volume volatility and headroom for maintenance capex. No detailed debt maturity profile or cash balance was disclosed, limiting deeper solvency analysis.

Cash Flow Quality

Operating cash flow, investing cash flow, financing cash flow, and cash & equivalents were not disclosed in the provided dataset (zeros indicate unreported). Accordingly, we cannot compute OCF-to-net income, free cash flow, or cash conversion. Earnings quality thus cannot be validated via cash flow this quarter. Working capital appears positive given the current ratio and working capital of 6,452,644,000 yen, but the direction of change in receivables, payables, and fuel inventories is unknown. Given the sector, OCF can be volatile due to fuel cost pass-through and seasonal demand; confirmation of cash realization of the improved margins is a key pending data point. Capex requirements (pipeline maintenance, safety, and growth capex) are also undisclosed here, preventing assessment of recurring FCF.

Dividend Sustainability

Dividend per share and payout ratios were not disclosed (zeros indicate unreported). EPS of 251.34 yen suggests capacity for dividends on a nominal basis, but without OCF/FCF data and actual DPS, payout sustainability cannot be assessed. Coverage of dividends by free cash flow is indeterminable given missing OCF and capex disclosures. Policy outlook cannot be inferred from the provided data; historically, Japanese utilities often target stable dividends, but we refrain from assumptions without company guidance. Once DPS and cash flows are available, key checks will include payout ratio vs net income, FCF coverage, and leverage trajectory.

Risk Assessment

Business Risks:

• Commodity price and FX volatility affecting fuel costs (e.g., LNG priced in USD) and timing of pass-through in tariffs
• Regulatory/tariff revision risk impacting allowed recovery of fuel and network costs
• Weather and seasonal demand fluctuations influencing gas volumes
• Competitive pressures in retail energy markets post-liberalization
• Supply chain and procurement risks for LNG and pipeline gas
• Operational and safety risks related to gas distribution infrastructure
• Regional seismic and natural disaster risk affecting the Hokuriku service area

Financial Risks:

• Potential OCF volatility due to working capital swings from fuel cost adjustments
• Capex intensity for maintenance and safety potentially compressing FCF in certain periods
• Tax rate normalization from a low ~8.5% this quarter could reduce net income
• Asset impairment risk if demand trends weaken or project returns underperform
• Limited disclosed cash data, obscuring short-term liquidity buffers

Key Concerns:

• Sustainability of margin expansion if fuel prices or FX move unfavorably
• Lack of disclosed cash flow and dividend data impedes assessment of earnings quality and capital returns
• Visibility on capex and regulatory backdrop needed to gauge medium-term ROE trajectory

Investment Implications

Key Takeaways:

• Strong YoY profit recovery: operating income +122.7% on revenue +8.5%, indicating powerful operating leverage
• Gross margin at 34.8% and operating margin ~5.4% suggest normalized fuel cost environment
• Conservative balance sheet with implied equity ratio ~82.4% and low debt (D/E ~0.24x)
• Net margin 4.25% and low leverage yield a modest ROE of 2.19%
• Effective tax rate ~8.5% provided a one-off tailwind; sustainability uncertain
• Non-operating gains contributed moderately (+203 million yen) with negligible interest burden
• Cash flow and dividend data not disclosed; confirmation needed to underwrite earnings quality and payouts

Metrics to Watch:

• OCF, capex, and FCF once disclosed to confirm cash conversion of earnings
• Fuel cost trends (LNG benchmarks) and USD/JPY, and the timing of tariff pass-through
• City gas sales volumes and average selling price per m3
• Gross margin and operating margin progression
• Regulatory/tariff updates impacting revenue recovery mechanisms
• Tax rate normalization and drivers of non-operating income
• Debt levels and interest costs as capex cycles evolve

Relative Positioning: Within Japanese city gas utilities, Hokuriku Gas exhibits a conservative capital structure and strong liquidity, with recent profitability benefiting from cost normalization; ROE remains modest due to low leverage, positioning the company as financially resilient but return-constrained absent sustained margin gains or balance sheet optimization.

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