Quick View
| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥537.9B | ¥560.8B | −4.1% |
| Operating Income / Operating Profit | ¥52.8B | ¥46.2B | +14.2% |
| Ordinary Income | ¥57.6B | ¥47.0B | +22.5% |
| Net Income / Net Profit | ¥38.8B | ¥33.4B | +16.2% |
| ROE | 2.7% | 2.4% | - |
Executive Summary
FY2026 Q1 results: Revenue ¥537.9B (vs prior year -¥22.9B -4.1%), Operating Income ¥52.8B (vs prior year +¥6.6B +14.2%), Ordinary Income ¥57.6B (vs prior year +¥10.6B +22.5%), Quarterly Net Income attributable to owners of the parent ¥36.2B (vs prior year +¥6.2B +20.6%). Results show lower revenue but higher profits; fuel price declines and procurement optimization materially improved gross margins in the Gas and LPG businesses. Gross profit was ¥130.2B (gross margin 24.2%, +3.1pt YoY improvement), and operating margin improved to 9.8% (+1.6pt YoY), indicating higher profitability. Comprehensive income was ¥81.6B (YoY +95.0%), driven by substantial increases in valuation gains on securities (+¥18.0B) and deferred hedge gains/losses (+¥20.8B) reflecting higher financial asset valuation gains.
Drivers of Performance Variation
[Revenue] The Gas Business declined to ¥408.7B (YoY -8.7%), and the decline in the core business drove overall revenue down. While selling prices fell due to lower fuel prices and optimization of the procurement portfolio, LPG & Other Energy was ¥82.5B (YoY -7.9%) and Other businesses outside reportable segments expanded sharply to ¥75.3B (YoY +62.4%). The revenue share of Other businesses rose to 14.0% (prior year 6.9%), indicating greater portfolio diversification. External-customer revenue composition: Gas 74.5%, LPG & Other 15.3%, Other 10.2%.
[Profitability] Despite lower revenue, gross profit increased to ¥130.2B (gross margin 24.2%, +3.1pt YoY). Resolution of fuel cost timing lags and lower procurement costs contributed to spread expansion. Operating Income was ¥52.8B (operating margin 9.8%, +1.6pt YoY). By segment, Gas operating income was ¥51.9B (margin 12.7%, +0.6pt YoY), LPG & Other ¥8.5B (margin 10.3%, +3.6pt YoY), showing improved profitability in major segments. Other businesses outside reportable segments had revenue surge but operating income of ¥0.2B (margin 0.3%, -3.6pt YoY) and substantially worse profitability, likely due to company-wide cost allocation and initial costs for business expansion. Ordinary Income ¥57.6B reflects non-operating income of ¥5.5B (interest income ¥0.1B, equity-method profit/loss ¥0.5B, etc.) less non-operating expenses ¥0.7B (interest expense ¥0.5B, foreign exchange losses ¥0.1B, etc.), so non-operating items were roughly neutral. Income taxes ¥18.8B (effective tax rate 32.7%) and non-controlling interests ¥2.6B were deducted, yielding quarterly Net Income attributable to owners of the parent ¥36.2B (net margin 6.7%, +1.4pt YoY). In conclusion, the decline in revenue but improved profitability structure drove profit growth.
Segment Analysis
Gas Business: Revenue ¥408.7B (-8.7%), Operating Income ¥51.9B (+6.7%), operating margin 12.7%. Revenue decline was mainly due to lower selling prices from reduced fuel prices, but improved gross margin drove higher operating profit. LPG & Other Energy: Revenue ¥82.5B (-7.9%), Operating Income ¥8.5B (+37.4%), operating margin 10.3%; procurement cost improvements and optimized sales mix raised margins by +3.6pt YoY. Other businesses outside reportable segments: Revenue ¥75.3B (+62.4%), Operating Income ¥0.2B (-88.4%), operating margin 0.3%. Expansion in order-based construction, gas equipment sales, renovation, leasing, etc., led to sharp revenue growth but startup costs and company-wide cost allocation significantly compressed margins. Company-wide cost allocation was ¥-7.7B (prior year ¥-10.4B), a reduction that contributed to improving consolidated operating income through head office SG&A efficiency.
Key Financial Metrics
[Profitability] Operating margin 9.8% (prior year 7.6%), Net margin 7.2% (prior year 5.9%) — profitability improved at each level. ROE 2.7% (annualized) remains low due to a strong capital base (Equity Ratio 75.1%), but shows improvement YoY. [Cash Quality] Interest coverage 97.8x (Operating Income ¥52.8B ÷ interest expense ¥0.54B) indicates negligible interest burden. Non-operating income ¥5.5B (1.0% of sales) is small and recurring; majority of profit is generated by core operations. [Investment Efficiency] Total asset turnover 0.28x (annualized 1.12x), ROIC 2.7% (annualized) reflect capital-intensive business characteristics and low efficiency. Inventory turnover days 120 days, receivables turnover days 137 days, CCC 183 days indicate room to improve working capital efficiency. [Financial Soundness] Equity Ratio 75.1% (prior year 70.8%), current ratio 269.8%, quick ratio 253.7% — high stability. Interest-bearing debt ¥126.4B (corporate bonds ¥50.5B, long-term borrowings ¥111.6B, short-term borrowings ¥14.8B), Debt/Equity 0.09x, Debt/Capital 8.1% — conservative leverage. Cash and deposits ¥236.4B and investment securities ¥296.9B provide a large liquidity buffer.
Cash Flow Analysis
Despite higher operating income, inventories rose to ¥38.0B (prior year ¥21.2B, +79.1%), with a sharp increase in fuel and merchandise inventories. Accounts receivable remained high at ¥202.1B (prior year ¥213.6B), while accounts payable fell significantly to ¥83.2B (prior year ¥182.9B, -54.5%), expanding working capital to a 183-day level. As a result, cash and deposits decreased to ¥236.4B (prior year ¥331.6B, -28.7%), and short-term borrowings increased to ¥14.8B (prior year ¥2.3B), apparently to bridge seasonal and fuel procurement timing needs. Tangible fixed assets were ¥619.7B (prior year ¥603.2B) reflecting ongoing CAPEX; intangible fixed assets were ¥248.7B (prior year ¥241.1B) slightly up. Investment securities were ¥296.9B (prior year ¥270.4B), and deferred tax liabilities increased to ¥62.8B (prior year ¥47.8B, +31.4%) alongside higher valuation differences. Of the ¥81.6B comprehensive income, valuation difference on available-for-sale securities +¥18.0B and deferred hedge gains/losses +¥20.8B reveal that the quality of net assets depends significantly on financial asset valuations.
Quality of Earnings
Of Ordinary Income ¥57.6B, non-operating income ¥5.5B (1.0% of revenue) is small and comprises recurring items: interest income ¥0.1B, dividend income ¥0.1B, equity-method investment profit/loss ¥0.5B, foreign exchange gains ¥0.1B, etc. Non-operating expenses ¥0.7B (interest expense ¥0.5B, foreign exchange losses ¥0.1B) are within normal ranges; no evidence of temporary factors inflating profits. No extraordinary gains/losses were recorded. Pre-tax profit ¥57.6B less income taxes ¥18.8B yields Net Income ¥38.8B, primarily generated from core operations. On an accrual basis, rapid inventory accumulation and large reduction in accounts payable have delayed conversion of operating profit into operating cash, suggesting cash outflows from inventory build-up and accelerated payment cycles. The gap between comprehensive income ¥81.6B and net income ¥38.8B is mainly due to Other Comprehensive Income ¥43.0B (valuation difference on available-for-sale securities +¥18.0B, deferred hedge gains/losses +¥20.8B, foreign currency translation adjustments +¥4.6B, etc.), indicating that capital quality is exposed to market fluctuations.
Outlook / Guidance
Full Year / FY forecast: Revenue ¥2,011.3B (flat YoY), Operating Income ¥96.2B (YoY -31.6%), Ordinary Income ¥104.2B (YoY -29.4%). Q1 progress rates: Revenue 26.7% (around the typical 25%), Operating Income 54.9%, Ordinary Income 55.3%, Net Income 42.6% (parent-company-owners basis ¥36.2B ÷ full-year forecast ¥91.1B), indicating profit momentum running about 5pt ahead of plan. Full-year operating profit is planned lower due to gas tariff revisions, but Q1 outperformance occurred because of falling fuel prices and spread improvement. Assuming continued high growth and margin improvement in LPG & Other Energy, the probability of achieving the full-year plan in H2 is high. No revisions to earnings forecasts or dividend forecasts were made this quarter; the company maintains conservative guidance.
Shareholder Returns
Full-year dividend forecast ¥22.00 per share (interim & year-end ¥11.00 each). Payout Ratio vs FY EPS forecast ¥120.89 is 18.2%, which is conservative. Planed dividend is ¥1.5 increase from prior year actual ¥20.5. Q1 EPS was ¥48.03 (prior year ¥39.88, +20.4%), representing 39.7% of the full-year forecast, indicating steady accumulation of profits. With cash and deposits ¥236.4B, investment securities ¥296.9B liquidity buffers, Equity Ratio 75.1%, and Debt/Equity 0.09x conservative leverage, dividend sustainability is high. Total dividends are estimated at approximately ¥1.65B (shares outstanding 75.4 million × ¥22), which is modest relative to Q1 Net Income ¥36.2B; full-year payout ratio around 18% leaves room for flexibility. No share buyback was indicated; shareholder returns are by dividends only.
Risk Factors
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Fuel Price and FX Risk: Of Revenue ¥537.9B, Gas ¥408.7B (76.0% share) and LPG ¥82.5B (15.3% share) indicate high concentration in energy businesses. Increases in LNG/LPG procurement prices and yen depreciation can compress gross margins. Q1 improved gross margin to 24.2% (prior year 21.1%) due to lower fuel costs, but reversals could rapidly erode profitability. Recognition of deferred hedge gains/losses ¥20.9B suggests timing lags in fuel/FX hedges, increasing profit volatility due to delayed tariff pass-through.
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Working Capital Management Risk: Inventories ¥38.0B (+79.1%), accounts payable ¥83.2B (-54.5%) — inventory build-up and shortened payment cycles expanded CCC to 183 days. Receivables days 137 and lengthened collections, cash and deposits fell to ¥236.4B (-28.7%), and short-term borrowings rose to ¥14.8B. While seasonality and advanced fuel procurement timing appear causal, persistent deterioration in working capital efficiency could force trade-offs with growth investments.
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Business Portfolio Concentration Risk: Gas operating income ¥51.9B accounts for 98% of consolidated operating income ¥52.8B, indicating extreme single-segment dependence. Other businesses grew revenue to ¥75.3B (+62.4%) but operating income only ¥0.2B (margin 0.3%), so diversification benefits are still limited. Intensified competition in gas retail or regulatory changes could directly impact the majority of earnings.
Industry Benchmark (reference, company data)
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 9.8% | – | – |
| Net Margin | 7.2% | – | – |
Due to limited reference data, quantitative positioning within the industry is difficult, but Q1 operating margin 9.8% and net margin 7.2% show YoY improvement.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | −4.1% | – | – |
Revenue decline of -4.1% reflects price adjustments from lower fuel prices rather than volume or customer-base contraction.
※Source: Company compilation
Key Points from the Results
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Notable margin improvement despite revenue decline: fuel cost adjustments and spread expansion raised operating margin to 9.8% (prior year 7.6%) and net margin to 7.2% (prior year 5.9%). LPG & Other Energy operating income grew +37.4%, showing high-growth and higher-margin conversion and improved portfolio quality. Q1 profit progress vs full-year plan (Operating 54.9%, Ordinary 55.3%) is about 5pt ahead of a standard pace, raising the probability of achieving conservative guidance.
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Financial soundness is very high: Equity Ratio 75.1%, current ratio 269.8%, Debt/Equity 0.09x, Interest Coverage 97.8x indicate strong resilience to interest rate increases. Liquidity buffers of cash ¥236.4B and investment securities ¥296.9B enable balancing dividends (payout ~18%) and CAPEX. However, ROE 2.7% and ROIC 2.7% show low capital efficiency, and expansion of working capital (CCC 183 days) and delayed cash conversion are challenges. Improving inventory turnover, receivables collection, and optimizing invested capital are key to sustainable value creation.
This report is an earnings analysis document automatically generated by AI analyzing XBRL earnings release data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by our firm based on public financial statements. Investment decisions are your responsibility; consult a professional advisor as needed before making investment decisions.
AI Financial Analysis
Executive Summary
Shizuoka Gas delivered a strong Q1 FY2026 earnings result, with profit growth materially outpacing a modest revenue decline. Consolidated revenue fell 4.1% year on year to ¥53.79bn. Operating income increased 14.2% to ¥5.28bn despite the lower sales base. Ordinary income rose 22.5% to ¥5.76bn. Profit attributable to owners of parent grew 20.6% to ¥3.62bn, equivalent to EPS of ¥48.03. Gross profit increased 10.1% to ¥13.02bn as cost of sales declined 7.9% to ¥40.77bn. The gross margin expanded to 24.2% from 21.1% a year earlier, an improvement of approximately 310 basis points. The operating margin expanded to 9.8% from 8.2%, or roughly 157 basis points. This indicates that lower gas-related revenue was more than offset by improved procurement-cost economics and operating leverage. The Gas segment remained the core business, producing ¥5.19bn of segment profit, or the majority of aggregate segment profit before corporate-cost allocation. LPG and other energy delivered the fastest segment-profit expansion, with profit increasing 37.4% year on year to ¥0.85bn. Other businesses recorded higher revenue but sharply lower segment profit, limiting the benefit from the energy businesses. Non-operating income of ¥0.55bn, including a ¥0.13bn foreign-exchange gain, supported ordinary-income growth. The effective tax rate was 32.7%, resulting in a tax burden of 0.628 and moderating conversion of pre-tax profit into net profit. The annualized DuPont ROE was 10.1%, meeting the threshold for a good return profile and reflecting solid margin performance rather than aggressive balance-sheet leverage. Q1 operating income reached 54.9% of the full-year forecast, substantially ahead of the standard 25% seasonal progress benchmark. Management has not revised its full-year earnings or dividend forecast, implying that the exceptionally strong first-quarter profit level may not be assumed to persist evenly through the year. The principal near-term analytical issue is whether gas-cost conditions, volume trends and the LPG earnings improvement can sustain margins as the fiscal year progresses.
Profitability Analysis
Annualized ROE is 10.1%, decomposed into a 6.7% net profit margin, 1.125x asset turnover and 1.33x financial leverage. The principal driver of profitability is margin strength, as the company generated higher operating and net income on a 4.1% revenue decline. Gross margin rose approximately 310 basis points year on year to 24.2%, while operating margin improved approximately 157 basis points to 9.8%. The smaller expansion in operating margin than gross margin indicates that part of the gross-profit benefit was absorbed by operating expenses, although operating income still increased 14.2%. Financial leverage is modest at 1.33x, so the 10.1% annualized ROE is predominantly supported by operating profitability and asset utilization rather than debt financing. The annualized asset turnover of 1.125x is reasonable for a utility with substantial network and infrastructure assets. The five-factor analysis shows an EBIT margin of 9.8%, a favorable interest burden of 1.091 and a tax burden of 0.628. Interest coverage of 97.8x confirms that finance costs are immaterial relative to operating earnings. The Gas segment's segment margin, measured against segment sales including internal transactions, improved to 12.7% from 10.9%. LPG and other energy improved more sharply to a 10.3% segment margin from 6.9%. Other businesses' segment margin declined to 0.3% from 3.9%, despite revenue growth, and requires monitoring as it includes construction, gas-equipment sales, renovation and leasing activities. The reported operating margin is within the 8%-15% good profitability range, while the 6.7% net margin is also within the good range. The sustainability of the Q1 margin expansion will depend on the timing and effectiveness of fuel-cost pass-through mechanisms, commodity procurement conditions and demand across the gas and LPG businesses.
Growth Assessment
Revenue contraction was concentrated in the core Gas business, where external-customer sales declined 9.1% year on year to ¥40.08bn. LPG and other energy external sales fell 6.6% to ¥7.95bn. In contrast, Other external sales increased 64.9% to ¥5.75bn, providing some revenue diversification. Aggregate segment profit increased 10.5% to ¥6.06bn, demonstrating a pronounced improvement in earnings conversion. Gas segment profit increased 6.7% to ¥5.19bn despite lower sales. LPG and other energy segment profit increased 37.4% to ¥0.85bn, making it the strongest profit-growth contributor. Other segment profit declined 88.4% to ¥0.02bn, indicating that its higher revenue did not translate into proportionate earnings. Corporate-cost allocation improved, with the segment-profit adjustment narrowing to negative ¥0.77bn from negative ¥1.04bn. The Q1 revenue progress rate is 26.7% against the ¥201.13bn full-year forecast, broadly in line with the standard 25% benchmark. Operating-income progress is 54.9% against the ¥9.62bn full-year forecast, 29.9 percentage points above the standard Q1 benchmark. Ordinary-income progress is 55.3% against the ¥10.42bn forecast, 30.3 percentage points above the benchmark. Profit attributable to owners progress is 39.7% against the ¥9.11bn forecast, also ahead of a normal Q1 run rate. The absence of a forecast revision alongside this progress profile suggests management is retaining a conservative view on subsequent-quarter margin normalization or seasonal demand and cost factors. Full-year guidance calls for flat revenue and a 31.6% decline in operating income, making the implied remaining-period operating-income run rate materially below Q1 performance.
Financial Health
The balance sheet is highly liquid and conservatively capitalized. The current ratio is 269.8% and the quick ratio is 253.7%, both substantially above healthy benchmarks. Working capital totals ¥40.06bn. Current assets of ¥63.66bn exceed current liabilities of ¥23.59bn by a wide margin, indicating no apparent short-term maturity mismatch. Cash and deposits of ¥23.64bn cover short-term loans of ¥1.48bn by 15.97x. Interest-bearing debt is ¥12.64bn, comprising ¥1.48bn of short-term loans and ¥11.16bn of long-term loans. The short-term debt ratio is only 11.7%, which limits refinancing pressure. Debt-to-equity is 0.33x and debt-to-capital is 8.1%, both consistent with a conservative solvency profile. Total equity increased ¥4.89bn year on year to ¥143.59bn, while the equity ratio improved to 71.9% from 67.0%. Cash and deposits declined ¥9.53bn, or 28.7%, year on year to ¥23.64bn. Accounts payable declined ¥9.97bn, or 54.5%, to ¥8.32bn, which was a larger absolute movement than the reduction in cash and is consistent with a reduced supplier-financing balance. Inventories increased ¥1.68bn, or 79.0%, to ¥3.80bn; this remains only 2.0% of total assets but should be monitored alongside energy demand and procurement conditions. Short-term loans increased ¥1.25bn to ¥1.48bn, but their low absolute level and strong cash coverage contain the associated liquidity risk. Investment securities account for 15.5% of total assets and accumulated other comprehensive income rose to ¥20.74bn, reflecting meaningful exposure of equity to market-value movements in strategic securities. Intangible assets represent 13.0% of assets, below the 20% concentration benchmark.
Notable B/S Changes
Cash and deposits: -¥9.53bn (-28.7%) to ¥23.64bn — liquidity remains ample, but the decline should be tracked alongside supplier-payment and working-capital movements. Accounts payable: -¥9.97bn (-54.5%) to ¥8.32bn — a substantial reduction in trade payables contributed to lower cash but also reduces short-term supplier-financing dependence. Inventories: +¥1.68bn (+79.0%) to ¥3.80bn — the balance remains modest at 2.0% of assets, but higher energy-related inventory warrants monitoring for demand and procurement effects. Short-term loans: +¥1.25bn (+552.0%) to ¥1.48bn — the percentage increase is large from a low base; absolute refinancing risk remains limited given cash coverage of 15.97x. Investment securities: +¥2.65bn (+9.8%) to ¥29.69bn — securities constitute 15.5% of total assets and increase exposure of equity and comprehensive income to market-value fluctuations. Intangible assets: +¥0.76bn (+3.1%) to ¥24.87bn — intangible assets represent 13.0% of total assets, a balanced level below the concentration benchmark. Long-term loans: +¥0.83bn (+8.1%) to ¥11.16bn — the increase is manageable within a capital structure with debt-to-equity of 0.33x and debt-to-capital of 8.1%.
Cash Flow Quality
Dividend Sustainability
The full-year dividend forecast is ¥44.00 per share. Against forecast EPS of ¥120.89, the implied dividend payout ratio is 36.4%. This is within the 30%-50% range generally associated with stable utility dividend policies and below the 60% sustainability benchmark. Q1 EPS of ¥48.03 already exceeds the forecast full-year dividend per share, although dividend capacity should be assessed against full-year earnings rather than a single quarter. Management has not revised its dividend forecast.
Risk Assessment
Business risks include Fuel and commodity-price movements may affect gas procurement costs and the timing of customer-price pass-through, creating volatility in gross margin., The Gas segment generated lower revenue despite higher profit; a prolonged volume or customer-demand decline could eventually constrain earnings even if unit margins remain favorable., LPG and other energy earnings improved strongly, but this business is exposed to competitive pricing and LPG procurement conditions., Other businesses, including construction, equipment sales, renovation and leasing, recorded an 88.4% decline in segment profit despite revenue growth, indicating execution and project-margin risk., As a regional gas utility, the company remains exposed to natural disasters, supply disruption, infrastructure resilience requirements and energy-transition investment needs..
Financial risks include Cash and deposits fell 28.7% year on year to ¥23.64bn, although liquidity ratios, low short-term debt and cash coverage remain strong., Inventories increased 79.0% to ¥3.80bn; sustained inventory accumulation could pressure liquidity or signal slower demand absorption., Investment securities of ¥29.69bn and accumulated other comprehensive income of ¥20.74bn create sensitivity of equity to financial-market valuations., The effective tax rate increased to 32.7%, which reduced net-income conversion despite strong operating and ordinary-income growth..
Key concerns include Likelihood: medium; impact: high — the key determinant of full-year results is whether Q1's gross-margin expansion can be sustained as commodity costs and regulated or contractual pass-through effects normalize., Likelihood: medium; impact: medium — full-year operating-income guidance implies a much weaker remaining-period earnings run rate than Q1, making seasonality and management assumptions central to expectations., Likelihood: medium; impact: medium — the sharp deterioration in Other segment profitability may offset part of the energy-business earnings momentum if project economics do not recover., Likelihood: low; impact: medium — the balance sheet is strong, but ongoing utility-network investment and decarbonization requirements could raise capital needs over time..
Investment Implications
Key takeaways include Q1 operating income rose 14.2% and profit attributable to owners rose 20.6%, despite a 4.1% decline in revenue., Gross-margin expansion of approximately 310 basis points and operating-margin expansion of approximately 157 basis points were the principal earnings drivers., The core Gas segment remained highly profitable, while LPG and other energy delivered the fastest segment-profit growth., The balance sheet has substantial liquidity, low debt relative to equity and very strong interest-service capacity., Q1 operating-income progress of 54.9% materially exceeds the standard 25% benchmark, while unchanged guidance indicates management expects a less favorable earnings mix in later quarters..
Metrics to watch include Gas sales volumes, customer demand and realized unit margins, Commodity procurement costs and the timing of fuel-cost pass-through, LPG and other energy segment margin after the Q1 improvement to 10.3%, Other segment project profitability and recovery from the Q1 profit decline, Cash balance, inventory levels and accounts-payable movements, Full-year operating-income guidance achievement relative to the Q1 run rate, Investment-security valuation movements and their effect on other comprehensive income.
Regarding relative positioning, Shizuoka Gas exhibits a utility-like financial profile characterized by strong liquidity, low leverage and a forecast dividend payout ratio consistent with stable distributions. Its annualized 10.1% ROE and 9.8% operating margin reflect solid current profitability, while the Q1 result is distinguished by margin-led earnings growth rather than top-line expansion.