K&O Energy Group Inc. Q4 FY2024 earnings call

• 2024 Full Year Financial Results

  • Total revenue fell 4% year-over-year to 92.421 billion yen, driven by lower gas sales prices from falling LNG import costs. Operating profit fell 8.8% to 8.82 billion yen, recurring profit fell 5.6% to 9.83 billion yen, and net profit attributable to parent company shareholders fell 4.6% to 6.167 billion yen. Profit declines came from higher geothermal survey costs, lower profit in other segments, partially offset by strong profit growth in the iodine segment.
  • The balance sheet grew 7.2% year-over-year to 119.447 billion yen in total assets, driven by higher cash/deposits and investment securities. Net equity grew 7% to 99.406 billion yen.

• New Mid-Term Management Plan (Chukei 2027, covering 2025-2027)

  • Strategy is split into three core pillars: Core Business Strategy, Future Business Strategy, and Management Base Strategy.
  • Core Business Strategy: Expand and strengthen the legacy core businesses of Chiba Prefecture natural gas resource development, integrated energy sales (including natural gas, LNG, CNG, propane, and electricity), and iodine production and sales.
  • Future Business Strategy: Develop new growth businesses including renewable energy (existing geothermal, with plans to explore offshore wind power), CCS (carbon capture and storage in partnership with INPEX and Nippon Steel), and domestic forest conservation to build expertise for future carbon credit projects.
  • Management Base Strategy: Strengthen operations through updated human resources strategy, DX and AI adoption, and improved corporate governance.

• Key KPIs and Targets for Chukei 2027

  • Financial target: 7.5 billion yen in recurring profit by 2027. Non-financial targets: 12 decarbonization-related development projects, 1,900 tons/year iodine sales volume, grow total customer accounts to 210,000, 0 major accidents, and 1.5% dividend on equity (DOE) by the end of 2027.

• Capital Allocation and Shareholder Return

  • For 2025-2027, total planned capital allocation is 175 billion yen + α for growth investment (core and future businesses), plus 90 billion yen for resilience investment (aging infrastructure replacement, earthquake preparedness).
  • Introduced progressive dividend policy, targeting 1.5% DOE by 2027 to deliver steadily increasing dividends to shareholders, and maintained the target of sustaining PBR above 1x via ROE and PER improvement.

1. Gas Business: 2024 revenue was 72.147 billion yen, a 4.9% decrease year-over-year, contributing 78.1% of total 2024 consolidated revenue. Sales volume was flat year-over-year, with a slight increase in the Prefectural Gas Network and flat volume in the LNG Network. For 2025, revenue is forecast to decrease 2.8% to 70.1 billion yen, with total sales volume forecast to decrease 3.5% to 906 million cubic meters. 2. Iodine Business: 2024 sales volume was 1,723 tons, a 4.4% increase year-over-year, and 2024 revenue was 13.52 billion yen, a 10.7% increase year-over-year, contributing 14.6% of total 2024 consolidated revenue. Revenue grew on higher yen selling prices from yen depreciation and increased sales volume including end-of-prior-period inventory shipments. For 2025, sales volume is forecast to increase 4.4% to 1,800 tons, with revenue forecast to stay flat year-over-year at 13.6 billion yen. 3. Other Business: 2024 revenue was 6.752 billion yen, a 17.7% decrease year-over-year, contributing 7.3% of total 2024 consolidated revenue. The decline stemmed from a large drop in geothermal well drilling orders after a temporary suspension of geothermal resource survey subsidies. For 2025, revenue is forecast to increase 21.4% to 8.2 billion yen on a recovery in construction orders. Total 2024 consolidated revenue was 92.421 billion yen, a 4% decrease year-over-year.

• 2025 full-year consolidated guidance: Total revenue is forecast to be flat year-over-year at 91.9 billion yen. Operating profit is forecast to fall 12.7% to 7.7 billion yen, recurring profit is forecast to fall 12.5% to 8.6 billion yen, and net profit is forecast to stay flat at 6.2 billion yen (supported by expected special income from relocation compensation).
• 2025 planned capital expenditure is 9.033 billion yen, a more than 30% increase over 2024 actual, driven by delayed 2024 projects, iodine production capacity expansion, aging equipment replacement, and relocation work related to flood control construction.
• The 2025 full-year dividend per share is forecast to be 48 yen, a 6 yen increase from 2024, in line with the new progressive dividend policy and DOE target.
• Iodine export prices are expected to remain at high levels in 2025, though yen-based selling prices will fall due to forecast yen appreciation.

• Gas sales volume in the LNG Network, which makes up 70% of total gas sales volume, is heavily exposed to volatility in the power market, as large volume power generation customers adjust their gas demand based on wholesale power prices. Lower expected sales volume to large industrial customers in 2025 reflects customer forecasts of lower usage, creating downside risk if power market conditions are weaker than expected.
• Iodine prices have tripled over the past 7 years, primarily driven by supply conditions from Chile (the world's largest iodine producer, accounting for ~70% of global output). Management expects current high iodine prices will not sustain long-term and will decline to more stable levels, which will create downward pressure on iodine segment revenue and profit.
• Domestic natural gas production from Chiba Prefecture is structurally declining over time; while new drilling can offset declines, large production growth is not possible, creating long-term moderate downside for the gas business.
• Expansion into new future businesses such as offshore wind power carries inherent project and profitability risk, as the market is still evolving and pricing conditions remain uncertain.

Q: When will the main expanded iodine adsorption equipment enter operation, and what is the expected 2025 production volume? Is total capacity now 1,800 tons per year? / A: The largest expanded iodine adsorption equipment started operation in January 2025. 2025 expected iodine production volume is 1,765 tons; the 1,800 ton 2025 sales volume figure includes potassium iodide (an iodine compound) in addition to pure iodine production. The 1,765 ton production figure already accounts for the capacity expansion. Management does not disclose total nameplate capacity at this time.

Q: What is the expected impact of perovskite solar cell demand on iodine demand and market prices? / A: Perovskite solar cells require iodine as a key raw material, but the technology is still in the early commercialization stage. Near-term demand will not be large enough to tighten global iodine supply. If the technology achieves mass market adoption globally over the long term, it could create meaningful iodine demand growth, but this will take multiple years to impact the Japanese market. Even a 320 ton annual demand from domestic perovskite production would not move the global market, though it would represent meaningful domestic demand.

Q: Iodine prices have tripled over 7 years — what caused this, and what is your outlook? / A: The exact drivers of the price increase are not fully clear. Japanese iodine production (around 25% of global output) has been very stable, so the supply change has come from Chile, which produces ~70% of global iodine. Chilean production conditions are the most likely driver of the current high price. Management believes the current price level is unsustainably high and expects prices will decline and stabilize over the medium term.

Q: Why is 2025 large industrial gas sales volume forecast to decline, even with the recent cold wave? / A: The largest large industrial use of gas is power generation, where demand is directly tied to wholesale power market prices. Lower prices reduce power generation volumes and thus gas demand. The 2025 sales forecast is based on direct customer feedback on their own usage expectations, so the decline reflects customer forecasts of lower demand despite near-term cold weather impacts.