Chubu Electric Power Company,Incorporated FY2027 Q1 Earnings Report

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Executive Summary

Chubu Electric Power secured higher revenue in the quarter under review, but operating income fell into the red, while equity-method investment gains supported bottom-line earnings. Revenue increased to ¥825.84B (+3.2% YoY), maintaining growth; however, operating income declined to ¥-25.06B (¥67.93B in the previous year, -136.9% YoY), resulting in a loss and a significant deterioration in the operating margin to -3.0% from 8.5% in the previous year. Ordinary income was ¥27.14B (-74.1% YoY), while profit attributable to owners of the parent was limited to ¥35.20B (-58.7% YoY). A key feature of the quarter was that non-operating income of ¥63.46B, including equity-method investment gains of ¥56.54B, offset the deterioration in operating results, enabling the company to secure both ordinary and net profits.

Factors Affecting Performance

【Revenue】Revenue increased to ¥825.84B, representing a 3.2% YoY increase. As the segment breakdown was not disclosed in the earnings summary, only the company-wide revenue growth trend can be confirmed.

【Profit and Loss】Operating income fell into the red at ¥-25.06B (¥67.93B in the previous year), and the operating margin deteriorated by approximately 11.5pt to -3.0% from 8.5% in the previous year. Ordinary income was ¥27.14B (-74.1% YoY), with equity-method investment gains of ¥56.54B, accounting for the majority of non-operating income of ¥63.46B, offsetting the operating loss. Interest expense increased by 34.1% to ¥9.20B from ¥6.86B in the previous year, representing the primary factor behind non-operating expenses of ¥11.25B. Profit attributable to owners of the parent was ¥35.20B (-58.7% YoY), resulting in higher revenue but lower earnings.

Key Financial Indicators

【Profitability】The operating margin fell significantly to -3.0% from 8.5% in the previous year, the ordinary income margin to 3.3% from 13.1%, and the net profit margin (on a profit-attributable-to-owners-of-the-parent basis) to 4.3% from 10.7%; ROE was 1.1%. 【Cash Quality】Equity-method investment gains of ¥56.54B were the primary contributor to ordinary income and net income, substantially exceeding the operating loss of ¥-25.06B. As a result, the earnings structure is not closely linked to the core business’s cash-generation capacity. Accounts receivable and notes receivable increased by 8.7% YoY to ¥297.89B, growing faster than revenue (+3.2%). 【Investment Efficiency】Total assets were ¥7,641.98B, essentially unchanged YoY (-0.1%). ROE of 1.1% was supported by equity-method investment gains, suggesting that asset efficiency generated solely by operating activities remains limited. 【Financial Soundness】The equity ratio was 42.4%, broadly unchanged from the previous year. The current ratio was 100.3% and the quick ratio was 72.1%, remaining at minimum levels. Cash and deposits declined by 29.5% YoY to ¥237.28B, and the cash ratio relative to short-term borrowings of ¥276.87B fell to 0.86x.

Cash Flow Analysis

Cash and deposits were ¥237.28B, down ¥99.40B (-29.5%) from ¥336.69B in the same period of the previous year. Meanwhile, long-term borrowings increased to ¥2,030.33B (+¥58.93B, +3.0%), while bonds decreased by ¥50.00B (-7.2%) to ¥646.71B, indicating a change in the composition of long-term funding. As operating results turned negative, accounts receivable and notes receivable increased by 8.7% YoY to ¥297.89B, suggesting that the accumulation of funds in working capital may have contributed to the decline in cash balances. Although funding through long-term borrowings progressed, total cash balances contracted, indicating a somewhat thinner cushion for short-term liquidity management.

Quality of Earnings

Of ordinary income of ¥27.14B, equity-method investment gains of ¥56.54B exceeded core operating results of ¥-25.06B and served as an upward contributor. The quarter’s earnings therefore depended on equity investment income with a strong non-recurring character. Non-operating income of ¥63.46B also included dividend income of ¥1.32B and other non-operating income of ¥5.29B, but equity-method investment gains accounted for the majority. As these gains are linked to the performance of investees and resource prices, their period-to-period comparability is lower than that of operating income. Against pretax income of ¥27.15B, income taxes and other taxes were ¥-7.37B, representing a negative tax burden (a reduction in tax expense) and contributing to consolidated net income of ¥34.51B. Comprehensive income of ¥56.77B exceeded profit attributable to owners of the parent of ¥35.20B by ¥21.57B, with the primary factor behind the divergence being other comprehensive income of equity-method affiliates of ¥34.33B. Overall, it should be noted that the quality of earnings in the quarter was supported more by non-recurring equity-method investment income and a reduced tax burden than by operating performance.

Earnings Forecast and Guidance

The full-year company forecast is revenue of ¥3,900.00B (+10.0% YoY), ordinary income of ¥185.00B (-36.4% YoY), EPS of ¥211.81, and a dividend of ¥35.00; the earnings forecast was revised during the quarter. Q1 progress rates were 21.2% for revenue, 14.7% for ordinary income, and 22.0% for net income (on a profit-attributable-to-owners-of-the-parent basis), indicating that ordinary income is clearly lagging revenue and net income. The delay in ordinary income progress appears to have been affected by the operating loss and the expansion of non-operating expenses due to higher interest expense. While revenue and net income are broadly tracking a standard quarterly accumulation pace, the key focus for ordinary income will be a recovery in profitability in the second half.

Shareholder Returns

The full-year dividend forecast is ¥35.00, and no revision to the dividend forecast was made during the quarter. The payout ratio against the company’s forecast EPS of ¥211.81 is approximately 16.5%, calculated as 35.00/211.81, remaining low on an earnings basis. However, as operating results were negative in the quarter and cash and deposits declined by 29.5% YoY, it remains useful to monitor the full-year recovery in the quality of earnings and cash available as the source of dividends.

Risk Factors

1. Increase in interest burden and decline in interest coverage: Interest expense increased to ¥9.20B (¥6.86B in the previous year, +34.1%), while operating income was negative at ¥-25.06B. EBIT-based interest coverage declined to -2.7x from +9.9x in the previous year.

2. Deterioration in operating profitability: The operating margin deteriorated by approximately 11.5pt to -3.0% from 8.5% in the previous year. Despite a 3.2% increase in revenue, operating results turned negative, indicating a decline in cost absorption capacity.

3. Tightening of working capital and liquidity: Cash and deposits declined by 29.5% YoY to ¥237.28B, while accounts receivable and notes receivable increased by 8.7% to ¥297.89B. With a current ratio of 100.3% and a quick ratio of 72.1%, short-term payment capacity does not have substantial excess room.

Industry Benchmark (Reference—Prepared by the Company)

Industry Benchmark (utilities)

Profitability and Returns

Both the operating margin and net profit margin were below the industry median; in particular, the operating margin was 16.4pt below the median due to the shift into negative territory.

Growth and Capital Efficiency

Revenue growth also fell below the industry median of 10.7%, with the pace of revenue growth remaining moderate within the industry.

Source: Compiled by the Company

Key Points from the Earnings Results

1. In the quarter under review, operating income turned negative at ¥-25.06B, while ordinary income of ¥27.14B and profit attributable to owners of the parent of ¥35.20B were supported by equity-method investment gains of ¥56.54B. The profitability of the core business and the extent of the contribution from equity-method investment gains, which have a strong non-recurring character, are key points to monitor in understanding the future earnings structure.

2. Full-year progress for ordinary income was 14.7%, noticeably behind revenue at 21.2% and net income at 22.0%. The extent to which fuel cost adjustments and tariff revisions are reflected in the second half will be an important factor in assessing achievement of the full-year plan.

3. While cash and deposits declined by 29.5% YoY, long-term borrowings increased by 3.0%. The increase in accounts receivable and notes receivable (+8.7%) exceeded revenue growth (+3.2%), making working capital trends an important point in evaluating future cash-generation capacity.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on 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 share price or a recommendation of any specific investment action.

Sensitivity: ¥3,729–¥3,952 at ±1% for the cost of equity, and ¥3,822–¥3,848 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value does not forecast or guarantee the future share price)

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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 where necessary.

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