SHIZUOKA GAS CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

During the six-month period, Revenue was largely flat, while Operating Income declined and Ordinary Income increased due to an improvement in non-operating income and expenses, resulting in differing trends across the stages of the income statement. Revenue was ¥1030.7B (-0.5% YoY), and Operating Income was ¥88.3B (-10.4% YoY), with lower revenue and earnings in the core Gas Business weighing on overall results. Meanwhile, non-operating income and expenses improved due to the elimination of the foreign exchange loss recorded in the previous year and an increase in dividend income, enabling Ordinary Income to increase to ¥99.0B (+6.2% YoY). Consolidated Net Income was ¥69.5B (-4.5% YoY), while Net Income attributable to owners of the parent was ¥65.4B (-2.9% YoY), with the growth rate narrowing from the Ordinary Income level due to the burden of income taxes and other taxes.

Factors Affecting Performance

【Revenue】Revenue was ¥1030.7B, essentially flat at -0.5% YoY. While the core Gas segment declined to ¥782.8B (-5.9% YoY), LPG and Other Energy increased to ¥167.0B (+4.1% YoY), and Other Businesses, including contracted construction, gas equipment sales, and renovations, grew significantly to ¥142.5B (+56.3% YoY), offsetting the decline in Gas revenue. The expansion of non-Gas businesses indicates continued diversification of the business portfolio.

【Income and Expenses】Operating Income declined 10.4% YoY to ¥88.3B, and the Operating Margin decreased by 0.9pt to 8.6% from 9.5% in the previous year. Operating Income in the Gas business declined to ¥89.5B (-13.4% YoY), affected by the allocation of company-wide expenses and the sales mix, while LPG and Other Energy maintained an earnings growth trend, increasing to ¥16.9B (+32.9% YoY). In non-operating income and expenses, the foreign exchange loss recorded in the previous year (¥5.6B) was eliminated, while dividend income of ¥3.3B and equity in earnings of affiliates of ¥1.2B contributed to the improvement, allowing Ordinary Income to increase to ¥99.0B (+6.2% YoY). Consolidated Net Income was ¥69.5B (-4.5% YoY), and Net Income attributable to owners of the parent was ¥65.4B (-2.9% YoY); the narrowing of growth from the Ordinary Income level was attributable to the burden of income taxes and other taxes (effective tax rate of approximately 29.7%). No extraordinary gains or losses were recorded, and the factors behind the increase or decrease in earnings were limited to operating income and expenses and non-operating income and expenses. Overall, the results can be characterized as a mixed performance in which Revenue was nearly flat, Operating Income declined, and Ordinary Income increased, with non-operating factors influencing earnings.

Segment Analysis

The Gas segment reported Revenue of ¥782.8B (-5.9% YoY), Operating Income of ¥89.5B (-13.4% YoY), and a margin of 11.4% (12.4% in the previous year), resulting in lower revenue and earnings. LPG and Other Energy reported Revenue of ¥167.0B (+4.1% YoY), Operating Income of ¥16.9B (+32.9% YoY), and a margin of 10.1% (7.9% in the previous year), achieving higher revenue and earnings and recording the largest increase in segment profit. Other Businesses (contracted construction, gas equipment sales, renovations, leasing, etc.) achieved substantial revenue growth to ¥142.5B (+56.3% YoY), but Operating Income declined to ¥1.3B (-57.8% YoY), and the margin decreased to 0.9% from 3.4% in the previous year, indicating deteriorating profitability despite higher revenue. Adjustments for company-wide expenses and other items against total segment profit were -¥19.3B (‑¥20.6B in the previous year), representing a slight reduction. Gas continued to account for approximately 83% of total segment profit, and the increase in earnings from LPG and Other Energy partially offset the decline in Gas earnings.

Key Financial Indicators

【Profitability】The Operating Margin was 8.6%, down 0.9pt from 9.5% in the previous year. The Gross Profit Margin was 23.7%, essentially flat compared with 23.6% in the previous year. The Net Margin attributable to owners of the parent was 6.3%, a slight decrease from 6.5% in the previous year.【Cash Quality】Operating Cash Flow (OCF) was ¥58.9B, and the OCF/EBITDA ratio was only 43.5% against EBITDA (Operating Income + depreciation) of ¥135.5B. The ratio of Operating Cash Flow to Consolidated Net Income (¥69.5B) was also only 0.85x, indicating that a reversal in working capital movements is weighing on cash generation.【Investment Efficiency】ROE was 4.7%, a level that continues to leave room for improvement in capital efficiency.【Financial Soundness】The Equity Ratio was 72.5% (67.0% in the previous year), and the Current Ratio was 279.6% (current assets of ¥640.7B/current liabilities of ¥229.2B). Total interest-bearing debt was ¥180.9B (short-term borrowings of ¥16.6B, long-term borrowings of ¥113.8B, and bonds of ¥50.5B). Cash and deposits of ¥276.5B exceeded interest-bearing debt, indicating a strong financial foundation.

Cash Flow Analysis

Operating Cash Flow was ¥58.9B, down 68.4% from ¥186.1B in the previous year, representing a significant slowdown in cash-generation capacity. The primary factors were a ¥105.7B decrease in trade payables (accounts payable), a ¥22.5B increase in trade receivables, and higher payments of consumption taxes and other items, reflecting a reversal in working capital movements. These factors substantially reduced Operating Cash Flow before changes in working capital of ¥83.8B. Investing Cash Flow was -¥67.9B. Although the scale of investment decreased from -¥250.7B in the previous year, mainly due to the acquisition of tangible and intangible fixed assets, the company remains in an active investment phase. Financing Cash Flow was -¥48.4B, primarily due to dividend payments and debt repayments. Free Cash Flow (Operating Cash Flow + Investing Cash Flow) was -¥9.0B, as investment continued to exceed depreciation of ¥47.2B. Cash and cash equivalents at the end of the period stood at ¥270.1B, maintaining the strength of the company’s financial foundation.

Quality of Earnings

No extraordinary gains or losses were recorded during the period, and recurring income and expenses constituted the core of earnings. The increase in Ordinary Income was largely attributable to improvements in non-operating income and expenses, including the elimination of the foreign exchange loss recorded in the previous year (¥5.6B), dividend income of ¥3.3B, and equity in earnings of affiliates of ¥1.2B. These items include a nonrecurring component, as they are affected by foreign exchange rates and the performance of investees. Meanwhile, Comprehensive Income was ¥121.3B, substantially exceeding Consolidated Net Income (¥69.5B and ¥65.4B attributable to owners of the parent), due to increases in other comprehensive income (OCI) items, including valuation difference on available-for-sale securities of +¥29.2B, deferred hedge gains or losses of +¥15.2B, and foreign currency translation adjustments of +¥8.2B. These are valuation-based changes that do not directly translate into cash flow, and the divergence from Net Income reflects fluctuations in asset valuations. From a cash perspective, Operating Cash Flow was at a level that did not correspond to Net Income (OCF/EBITDA of 43.5%), making it necessary to monitor working capital trends when evaluating earnings quality.

Earnings Forecast and Guidance

Progress against the full-year plan was 51.2% for Revenue (¥1030.7B/¥2011.3B), 91.8% for Operating Income (¥88.3B/¥96.2B), 95.0% for Ordinary Income (¥99.0B/¥104.2B), and 71.8% for Net Income attributable to owners of the parent (¥65.4B/¥91.1B). Operating Income and Ordinary Income are therefore progressing well above the 50% benchmark typically used for seasonal progress at this stage. The full-year plan itself assumes a 31.6% YoY decline in Operating Income and a 29.4% YoY decline in Ordinary Income, representing a conservative plan that incorporates the burden of investment, renewed expansion of working capital, and the resolution of time lags in fuel cost adjustments during the second half. No revision to the earnings forecast was made during the quarter, while a revision to the dividend forecast was indicated.

Shareholder Returns

The interim dividend was ¥22 per share, an increase from ¥20.5 in the same period of the previous year. The full-year dividend forecast is ¥45, resulting in a Payout Ratio of 37.2% against forecast EPS of ¥120.89. No share buyback was confirmed, and shareholder returns are centered on dividends. Although Free Cash Flow for the period was -¥9.0B, insufficient to cover dividends, the company’s financial foundation—cash and deposits of ¥276.5B and an Equity Ratio of 72.5%—indicates that funds for dividends remain secured for the time being.

Risk Factors

1. Slower cash conversion: Operating Cash Flow was ¥58.9B, down 68.4% YoY, and the OCF/EBITDA ratio was only 43.5%. The primary factor was the substantial ¥105.7B decrease in accounts payable, with the reversal in working capital movements weighing on cash-generation capacity.

2. Concentration of segment earnings: Gas accounted for approximately 83% of total segment profit, and Operating Income in the Gas business declined 13.4% YoY, resulting in an earnings structure with a high degree of dependence on a single segment.

3. Negative Free Cash Flow due to excess investment: Investing Cash Flow was -¥67.9B, as investment continued to exceed depreciation of ¥47.2B, resulting in negative Free Cash Flow of -¥9.0B.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company’s Operating Margin and Net Margin fall within the range of publicly disclosed industry values; comparison data against the median is not currently available.

Growth and Capital Efficiency

The Revenue Growth Rate has remained essentially flat, and further expansion of median data is awaited to establish the Company’s relative position within the industry.

Source: Compiled by the Company

Key Highlights from the Financial Results

1. The Operating Margin declined to 8.6% from 9.5% in the previous year, resulting in lower earnings at the operating level. However, Ordinary Income increased due to improved non-operating income and expenses, making the divergence in direction across the stages of the income statement a notable feature.

2. Progress against the full-year plan was high at 91.8% for Operating Income and 95.0% for Ordinary Income as of the first half, suggesting conservatism in the full-year plan, which assumes YoY declines of 31.6% in Operating Income and 29.4% in Ordinary Income.

3. While financial soundness remains high, with an Equity Ratio of 72.5% and a Current Ratio of 279.6%, cash conversion has slowed, with OCF/EBITDA at 43.5%, making working capital trends in the second half a key area of focus.

Theoretical Stock Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market price or a recommendation of any specific investment action.

Sensitivity: ¥1,746–¥1,846 at ±1% for the cost of equity, and ¥1,790–¥1,798 at ±0.1 for ω.

Notes:

• Because progress of Net Income against the full-year forecast (72%) exceeds the standard level (50%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of forecast tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below Book Value Per Share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value is not intended to predict or guarantee future stock prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

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