Domestic Energy earnings decline due to the time-lag loss; a turnaround in FY2027-H1 is the focus

FY2027-Q1 consolidated revenue rose 1.5% year on year to ¥478.0 billion, while operating profit fell 34.3% to ¥31.3 billion, ordinary profit fell 15.3% to ¥50.2 billion, and net profit attributable to owners of the parent fell 26.5% to ¥35.6 billion. By segment, Domestic Energy revenue fell 0.6% to ¥379.7 billion and segment profit fell 85.0% to ¥3.9 billion, meaning Domestic Energy accounted for almost all of the company's earnings decline.

The decline in profit was not attributable solely to weaker volumes. In the year-on-year bridge in the earnings presentation, the impact on Domestic Energy ordinary profit was a ¥22.6 billion decline including the time-lag effect, whereas the decline excluding that effect was only ¥0.8 billion. The approximately ¥21.8 billion difference suggests that higher crude oil prices and exchange rates, together with the delay in passing these changes through to selling prices under the fuel cost adjustment mechanism, significantly depressed Q1 profit. The full-year ordinary profit forecast is ¥190.0 billion, or ¥197.0 billion excluding the time-lag effect, making the extent to which this temporary factor diminishes in H1 important.

Demand indicators showed gas supply accounts up 1.0% year on year to 5,174 thousand, while domestic gas sales volume fell 2.3% to 1,489 million m³. The customer base is growing, but sales volume per account may have been affected by temperatures and water temperatures, competition, and more efficient equipment. By contrast, domestic electricity sales volume rose 7.7% to 3,741 million kWh, and low-voltage electricity supply accounts rose 1.3% to 1,960 thousand. A key H1 question is how far higher electricity volumes can offset the decline in gas business profit.

The Q1 earnings presentation did not show progress against the full-year forecast, a detailed standalone Q1 earnings bridge, or the time-lag impact as of H1. Separately disclosing gas sales volume, gas selling prices, Domestic Energy profit including the time-lag effect, and profit excluding it would allow a more accurate assessment of the likelihood of achieving the ¥190.0 billion ordinary profit forecast. In FY2027-H1, the focus is on tracking Domestic Energy profit year on year, volume and price factors for gas and electricity, and whether the full-year outlook is maintained or revised.