Tokyo Electric Power Company Holdings (9501) FY2026 Q3

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Executive Summary

The key point for the cumulative Q3 period is that the Company shifted abruptly from a phase of operating profit growth to a final loss due to a massive extraordinary loss. Revenue was ¥4兆6,121.8億円 (-7.1% YoY), Operating Income was ¥2,584.1億円 (-16.9%), and Ordinary Income was ¥3,475.9億円 (-0.3% YoY, essentially flat). Meanwhile, Net Income attributable to owners of the parent was -6,626.5億円, representing a shift to a loss from ¥2,431.6億円 in the same period of the previous year. The primary cause was the recognition of an extraordinary loss of ¥9,762.3億円. Although earnings power at the ordinary income stage was generally maintained, temporary factors significantly impaired final earnings.

Factors Affecting Results

【Revenue】Revenue was ¥4兆6,121.8億円, down -7.1% YoY. The core EnergyPartnerCompany, which accounts for approximately 77% of external sales, was the primary cause of the decline, with revenue down -9.3%. This included a system-related factor whereby subsidy revenue associated with support for reducing electricity and gas charges decreased from ¥1,371.4億円 to ¥588.2億円. Meanwhile, the regulated network business PowerGridCompany was relatively solid, with Revenue up +0.6% and segment profit up +19.0%. Holdings recorded revenue growth of +40.3%, but this figure is before the elimination of intersegment transactions, so caution is required when making a simple comparison.

【Profit and Loss】Operating Income was ¥2,584.1億円 (-16.9% YoY), and the Operating Margin declined from the previous year to 5.6%. Ordinary Income remained essentially flat at ¥3,475.9億円 (-0.3% YoY), as share of profit of investments accounted for using the equity method increased 54.9%, from ¥942.1億円 to ¥1,459.6億円, offsetting the decline in Operating Income. However, due to an extraordinary loss of ¥9,762.3億円 (a temporary factor), Profit Before Tax was -¥6,288.9億円, resulting in Net Income attributable to owners of the parent of -¥6,626.5億円. The Company recorded lower revenue and lower operating profit, while the extraordinary loss resulted in a final loss; under the classifications of higher-revenue/lower-profit and lower-revenue/lower-profit, this corresponds to lower revenue and lower profit.

Segment Analysis

Segment profit is disclosed on an Ordinary Income basis, and it should be noted that its measurement basis differs from consolidated Operating Income. EnergyPartnerCompany, which accounts for approximately 77% of sales, posted segment profit of ¥1,386.2億円 (-10.3% YoY), recording a decline in profit and having the largest impact on consolidated results. PowerGridCompany recorded segment profit of ¥1,241.1億円 (+19.0%), supporting earnings as a regulated network business. FuelAndPowerCompany posted a significant increase in segment profit to ¥899.9億円 (+77.4%), but external Revenue was only ¥27.7億円, so attention is required given the strong internal transaction and equity-method-related characteristics of its profit structure. RenewablePowerCompany contracted, with Revenue down -42.7% and profit down -10.9%.

Key Financial Indicators

【Profitability】The Operating Margin was 5.6%, down from the previous year, while the Ordinary Income Margin improved to 7.5%. The Net Profit Margin deteriorated significantly from 4.9% in the previous year to negative 14.4%. ROE was negative 21.2%, primarily due to the shift to a loss in the Net Profit Margin. 【Cash Quality】Share of profit of investments accounted for using the equity method represented approximately 42% of Ordinary Income, indicating a profit structure with a high degree of dependence on non-operating and equity-method factors. 【Investment Efficiency】Total asset turnover was 0.308x, reflecting the characteristics of a capital-intensive, large-scale business in which fixed assets account for 85.5% of total assets. 【Financial Soundness】The Equity Ratio declined to 20.8% from 25.1% in the previous year, while the D/E Ratio remained high at 3.80x. The Current Ratio was 49.2%, substantially below 100%, making short-term funding trends a matter requiring monitoring.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is not available, funding trends can be identified from changes in the balance sheet. Cash and deposits decreased by ¥1,545.1億円, from ¥9,363.4億円 to ¥7,818.2億円, and the level of cash coverage relative to current liabilities of ¥4兆4,079.5億円 is limited. Bonds outstanding increased by ¥1,300億円, from ¥3兆2,310億円 to ¥3兆3,610億円, suggesting that the Company proceeded to secure funds through long-term market financing. Meanwhile, short-term borrowings remained high at ¥2兆8,933.8億円, and the short-term liabilities ratio reached 97.5%, indicating a funding structure with a high degree of dependence on refinancing. The ¥6,626.5億円 decrease in retained earnings is consistent with the Net Loss for the period, indicating that the accumulation of funds through retained earnings has not progressed.

Quality of Earnings

Of Ordinary Income of ¥3,475.9億円, share of profit of investments accounted for using the equity method amounted to ¥1,459.6億円, or approximately 42%, indicating a high degree of dependence on earnings sources distinct from the core business’s Operating Income of ¥2,584.1億円. Equity-method income increased 54.9% YoY and supported Ordinary Income, but it is susceptible to the business environment, market conditions, and foreign exchange movements affecting investees; accordingly, caution is required when evaluating its sustainability. The extraordinary loss of ¥9,762.3億円, which was the direct cause of the final loss, is a temporary factor and should be evaluated separately from recurring earnings power on an Ordinary Income basis. In addition, subsidy revenue related to support for reducing electricity and gas charges declined from ¥1,377.5億円 in the previous year to ¥590.0億円. Accordingly, the decline in Revenue includes system-related factors and should not be interpreted solely as a change in demand trends.

Earnings Forecast and Guidance

Against the full-year Company forecast, the Revenue progress rate was 71.4% (forecast: ¥6兆4,620億円), slightly below the standard progress rate of 75% when seasonality is taken into account. Ordinary Income significantly exceeded the forecast, with a progress rate of 125.5% (cumulative Ordinary Income of ¥3,475.9億円 versus the forecast of ¥2,770億円), potentially reflecting an expected slowdown in Ordinary Income in the second half or changes in extraordinary income and losses. The forecast for full-year Net Loss is -¥6,410億円, whereas cumulative Net Loss was -¥6,626.5億円, already exceeding the forecast loss. Neither the earnings forecast nor the dividend forecast has been revised.

Shareholder Returns

Both the Q2 dividend and the full-year dividend forecast are ¥0 per share, and the Company intends to continue paying no dividends. As the Company recorded a quarterly Net Loss attributable to owners of the parent of ¥6,626.5億円, the Payout Ratio is effectively not calculable (no dividend), consistent with a policy prioritizing the preservation of earnings and capital. Treasury shares amounted to ¥83.97億円, slightly down from ¥85.38億円 in the same period of the previous year, and no large-scale share repurchase was conducted.

Risk Factors

1. Liquidity and Funding Risk: The Current Ratio was 49.2%; against Cash and deposits of ¥7,818.2億円, current liabilities reached ¥4兆4,079.5億円, resulting in negative working capital of ¥2兆2,378.9億円. The short-term liabilities ratio, including short-term borrowings of ¥2兆8,933.8億円, was high at 97.5%, indicating a high degree of dependence on refinancing conditions.

2. Financial Leverage and Capital Buffer Risk: The D/E Ratio was 3.80x, and the Equity Ratio declined to 20.8% from 25.1% in the previous year. Net assets decreased 17.6% YoY to ¥3兆1,215.3億円, and the impairment of capital caused by the extraordinary loss has reduced the Company’s ability to absorb future losses.

3. Concentration Risk in the Core Business: EnergyPartnerCompany accounts for approximately 77% of consolidated external Revenue, and profit in this segment declined -10.3% YoY. The profitability of this business is directly affected by the reduction in subsidy revenue, fuel and electricity procurement prices, and fluctuations in supply and demand.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (utilities)

Profitability and Return

Direct comparison is difficult because industry median data has not been sufficiently compiled, but the negative Net Profit Margin is largely attributable to the one-off factor of the extraordinary loss.

Growth and Capital Efficiency

The decline in Revenue includes the system-related factor of reduced subsidy revenue and must be distinguished from a simple decline in demand.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Although Operating Income remained positive at ¥2,584.1億円, it declined -16.9% YoY, while Ordinary Income was nearly flat at ¥3,475.9億円. The fact that share of profit of investments accounted for using the equity method represented approximately 42% of Ordinary Income indicates, based on the financial results data, a structural characteristic of the earnings model: high sensitivity to investee earnings.

2. The extraordinary loss of ¥9,762.3億円 resulted in a Net Loss attributable to owners of the parent of -¥6,626.5億円, while retained earnings declined 52.2% YoY. The Equity Ratio declined from 25.1% to 20.8%, confirming a contraction in the capital buffer.

3. The Power Grid Business recorded Revenue growth of +0.6% and segment profit growth of +19.0%, clearly demonstrating its role as a regulated network business complementing the decline in revenue and profit of the core retail business. The Current Ratio of 49.2% and short-term liabilities ratio of 97.5% warrant attention as monitoring points from a funding perspective.

Theoretical Share Price (Reference Value)

Sensitivity: ¥703–¥740 at Cost of Equity ±1%, and ¥693–¥739 at ω±0.1.

Notes:

• Because forecast ROE is below the Cost of Equity, the theoretical value will be 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 (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share 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 financial results data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q3 earnings were operationally profitable but were overwhelmed by an exceptionally large extraordinary loss, producing a substantial net loss and further weakening capital. Revenue declined 7.1% year on year to ¥4,612.2bn. Operating income fell 16.9% to ¥258.4bn. The operating margin compressed 67bp to 5.60% from 6.27% a year earlier. Ordinary income was broadly flat, down only 0.3% to ¥347.6bn, and the ordinary-income margin increased 51bp to 7.54%. Higher non-operating income, including ¥146.0bn of equity-method earnings, more than offset the ¥52.7bn decline in operating income at the ordinary-income level. Interest expense rose 35.0% to ¥68.9bn and represented 26.7% of operating income. Extraordinary loss expanded to ¥976.2bn from ¥64.8bn in the prior-year period. Consequently, profit before tax swung to a ¥628.9bn loss and profit attributable to owners of the parent was a ¥662.7bn loss, versus a ¥243.2bn profit a year earlier. The attributable net margin was negative 14.37%. Comprehensive income was also negative ¥665.7bn, indicating that the erosion of equity was principally driven by the period loss rather than by OCI movements. Total equity declined ¥664.6bn year on year to ¥3,121.5bn, while retained earnings fell 52.2% to ¥607.5bn. The business mix showed resilience in Power Grid and Fuel & Power segment profit, but this was insufficient to prevent lower consolidated operating earnings. Energy Partner remained the largest revenue contributor but experienced lower revenue and segment profit. The FY2026 full-year revenue forecast implies a modestly weighted final quarter, while Q3 cumulative ordinary income already exceeds the full-year forecast. The full-year forecast still anticipates a ¥641.0bn attributable loss and no dividend, underscoring that recovery in ordinary profitability does not translate into near-term distributable earnings. The central forward issue is whether operating profitability, equity-method income, and funding access can absorb exceptional charges and ongoing balance-sheet demands.

Profitability Analysis

The reported annualized DuPont ROE is negative 28.3%, comprising a negative 14.4% net profit margin, 0.410x asset turnover, and 4.80x financial leverage. The decisive adverse DuPont component is the net margin: the ¥976.2bn extraordinary loss converted a ¥347.6bn ordinary profit into a ¥662.7bn attributable loss. Asset turnover is modest for a capital-intensive utility, while 4.80x financial leverage materially amplifies the effect of losses on equity returns. Operating profitability weakened before extraordinary items, with operating income declining faster than revenue and the operating margin contracting 67bp to 5.60%. That margin remains above the stated 5% concern threshold, but it is below the 8%-plus level generally associated with stronger profitability. Ordinary income held almost flat because non-operating income increased to ¥171.1bn from ¥112.9bn. Equity-method earnings increased 55.0% to ¥146.0bn and were therefore a meaningful support to ordinary earnings; this source should be assessed separately from core utility operating performance. The effective tax rate was negative 5.4%, reflecting the pre-tax loss rather than a normalized tax burden. The reported five-factor interest burden of negative 2.434x is distorted by the extraordinary loss that drove earnings before tax negative; it should not be interpreted as interest expense alone consuming 343% of EBIT. Nevertheless, interest expense increased to ¥68.9bn, and interest coverage of 3.75x is below the 5x strong-coverage benchmark. Fuel & Power segment profit rose 77.4% to ¥90.0bn and Power Grid profit rose 19.0% to ¥124.1bn. Conversely, Holdings segment profit fell 8.9% to ¥119.5bn, Energy Partner fell 10.3% to ¥138.6bn, and Renewable Power fell 10.9% to ¥45.9bn. The operating improvement in selected segments is therefore not yet broad-based enough to offset pressure in the retail-facing Energy Partner business and the exceptional loss at the consolidated level.

Growth Assessment

Revenue contraction was concentrated in Energy Partner, whose external revenue declined 9.3% year on year to ¥3,556.5bn; it nevertheless remains the core business by external revenue contribution. Energy Partner segment profit declined ¥16.0bn to ¥138.6bn, indicating that the lower sales base was accompanied by lower earnings. Holdings external revenue rose 40.3% to ¥123.4bn, but segment profit declined ¥11.7bn to ¥119.5bn. Fuel & Power external revenue was broadly stable at ¥2.8bn while segment profit increased ¥39.3bn to ¥90.0bn. Power Grid external revenue increased 0.6% to ¥891.1bn and segment profit increased ¥19.8bn to ¥124.1bn. Renewable Power external revenue declined 42.7% to ¥38.5bn and segment profit declined ¥5.6bn to ¥45.9bn. Government-funded electricity and gas price-relief revenue recognized outside customer contracts decreased to ¥59.0bn from ¥137.8bn, principally in Energy Partner, which contributed to the reduction in reported revenue. Q3 cumulative revenue represents 71.4% of the ¥6,462.0bn full-year forecast, 3.6 percentage points below the standard 75% Q3 progress rate. Cumulative ordinary income of ¥347.6bn represents 125.5% of the ¥277.0bn full-year forecast, 50.5 percentage points above standard Q3 progress, implying a forecasted ordinary-income loss in Q4 or substantial expected seasonal or exceptional headwinds. Cumulative attributable loss of ¥662.7bn is already 103.4% of the full-year forecast loss of ¥641.0bn. The near-term earnings profile is thus dependent on the scale of additional exceptional charges and on whether core segment profitability remains resilient through Q4.

Financial Health

Liquidity is a material risk. The current ratio is 49.2% and the quick ratio is 45.7%, both well below 1.0x; current assets of ¥2,170.1bn are insufficient to cover current liabilities of ¥4,408.0bn. Working capital is negative ¥2,237.9bn. Cash and deposits of ¥781.8bn cover only 27% of short-term debt, consistent with the 0.27x cash-to-short-term-debt liquidity-stress alert. The reported short-term debt ratio is 97.5%, which creates a substantial maturity mismatch because funding obligations are heavily concentrated in the near term relative to liquid current assets. Short-term loans were ¥2,893.4bn, equal to 19.3% of total assets, while cash declined ¥154.5bn year on year. The reported debt-to-equity ratio of 3.80x is above the 2.0x warning threshold and signals aggressive leverage. Debt-to-capital was 48.7%, below the stated 60% concern threshold but still elevated in the context of negative retained earnings momentum and weak liquidity. Total liabilities increased ¥676.1bn year on year to ¥11,877.0bn, while equity decreased ¥664.6bn to ¥3,121.5bn. Capital adequacy declined to 20.6% from 25.1%. Bonds payable increased ¥130.0bn to ¥3,361.0bn, adding to financial obligations alongside short-term borrowings. Accounts payable declined ¥89.9bn, while inventories increased ¥16.5bn to ¥155.4bn. Net defined-benefit liability was ¥267.3bn and asset-retirement obligations were ¥373.9bn, representing additional long-duration obligations relevant to capital planning. Retained earnings declined ¥662.7bn, or 52.2%, to ¥607.5bn, directly reflecting the attributable loss and reducing the balance-sheet buffer against future volatility. The low current ratio alert is particularly important for a utility because refinancing capacity and continued access to bank and capital-market funding are central to ongoing operations. The high-leverage alert raises sensitivity to interest-rate increases, credit-spread widening, and further exceptional losses.

Notable B/S Changes

Retained earnings: -¥662.7bn (-52.2%) to ¥607.5bn - the Q3 attributable loss directly reduced the accumulated earnings buffer and constrained capital flexibility. Total equity: -¥664.6bn (-17.6%) to ¥3,121.5bn - capital erosion reduced the capital adequacy ratio to 20.6% from 25.1%. Total liabilities: +¥676.1bn (+6.0%) to ¥11,877.0bn - liabilities increased while equity declined, intensifying leverage sensitivity. Noncurrent liabilities: +¥1,009.4bn (+15.6%) to ¥7,468.7bn - the increase adds to long-duration funding obligations. Cash and deposits: -¥154.5bn (-16.5%) to ¥781.8bn - lower liquidity is significant against ¥2,893.4bn of short-term loans. Bonds payable: +¥130.0bn (+4.0%) to ¥3,361.0bn - higher bond funding increases fixed financing obligations. Accounts receivable: -¥76.6bn (-11.5%) to ¥589.5bn - lower receivables reduced current assets and contributed to weaker liquidity coverage.

Cash Flow Quality

Dividend Sustainability

The company reported a ¥0 Q2 dividend per share and forecasts a ¥0 full-year dividend per share. Accordingly, there is no current cash dividend commitment and no dividend payout ratio to assess. The absence of a dividend is consistent with the ¥662.7bn Q3 cumulative attributable loss, the forecast ¥641.0bn full-year attributable loss, and the ¥664.6bn year-on-year reduction in total equity. Retained earnings of ¥607.5bn have been substantially reduced by the period loss. Balance-sheet priorities are therefore capital preservation, management of exceptional charges, and maintenance of refinancing flexibility rather than shareholder distributions. Any future dividend resumption would require sustained profitability after extraordinary items and a stronger capital position.

Risk Assessment

Business risks include Exceptional-loss risk is the highest-impact business issue: the ¥976.2bn extraordinary loss dwarfed ordinary income and caused the ¥662.7bn attributable loss., Retail-energy risk is elevated because Energy Partner, the largest segment by external revenue, recorded a 9.3% revenue decline and a 10.3% segment-profit decline., Government support normalization risk is present because price-relief-related revenue declined ¥78.8bn year on year to ¥59.0bn., Commodity-price, procurement-cost and pass-through timing risk remains intrinsic to the power and gas businesses, particularly for Fuel & Power and Energy Partner., Nuclear-restart, decommissioning, disaster-resilience and regulatory risk remain industry-specific considerations for a Japanese electric utility with a large asset base and asset-retirement obligations of ¥373.9bn..

Financial risks include Liquidity risk is acute: the 49.2% current ratio is below 1.0x, working capital is negative ¥2,237.9bn, and cash covers only 0.27x of short-term debt., Refinancing risk is high because the reported short-term debt ratio is 97.5%; continued lender and capital-market access is critical., Leverage risk is high, with reported D/E of 3.80x and total liabilities representing 79.2% of total assets., Interest-rate risk has increased as interest expense rose to ¥68.9bn from ¥51.1bn and interest coverage is only 3.75x., Capital erosion risk is material because total equity declined ¥664.6bn and capital adequacy fell 4.5 percentage points to 20.6%..

Key concerns include Highest priority: the ability to absorb further exceptional losses without additional material deterioration in equity., Highest priority: refinancing execution given the low liquidity ratios and high short-term debt concentration., High priority: whether Q4 ordinary profitability weakens sufficiently to reconcile cumulative ordinary income of ¥347.6bn with the ¥277.0bn full-year forecast., High priority: sustainability of equity-method earnings, which increased to ¥146.0bn and supported ordinary income., Moderate priority: continued margin pressure in Energy Partner and the degree to which regulated grid earnings can offset retail volatility..

Investment Implications

Key takeaways include Core operations remained profitable, with ¥258.4bn operating income and ¥347.6bn ordinary income in the first nine months., The investment case is dominated by the ¥976.2bn extraordinary loss and its resulting ¥662.7bn attributable loss rather than by the 0.3% year-on-year decline in ordinary income., Power Grid and Fuel & Power improved segment profit, but Energy Partner's lower sales and profit constrained consolidated operating performance., Balance-sheet flexibility weakened as equity fell to ¥3,121.5bn, capital adequacy declined to 20.6%, and reported D/E remained high at 3.80x., No dividend is forecast, aligning capital allocation with capital preservation and financing needs..

Metrics to watch include Magnitude and recurrence of extraordinary losses, Q4 ordinary-income trajectory versus the ¥277.0bn full-year forecast, Current ratio, cash-to-short-term-debt ratio and short-term debt refinancing, Interest expense and interest coverage, Energy Partner revenue and segment-profit recovery, Power Grid and Fuel & Power segment-profit durability, Retained earnings, total equity and capital adequacy ratio, Equity-method earnings contribution.

Regarding relative positioning, Relative to a financially strong regulated utility, the company combines a still-profitable operating base and meaningful grid earnings with materially weaker liquidity, higher leverage, greater exceptional-loss sensitivity and no dividend capacity. Its 5.60% operating margin is above the stated concern threshold but below the benchmark associated with stronger profitability, while the 49.2% current ratio and 3.80x reported D/E place financial flexibility at the center of relative positioning.