Chubu Electric Power Company (9502) FY2027 Q1 Earnings Report

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Executive Summary

In 2027 fiscal year Q1, revenue increased, but operating income fell into the red, with deterioration in the earnings structure representing the key point of focus. Revenue was ¥8,258.4B, up +3.2% year on year, while Operating Income deteriorated by ¥930B, from a profit of ¥679.3B in the same period of the previous year to a loss of ¥250.6B. Ordinary Income was limited to ¥271.4B, down △74.1% year on year, while Net Income was ¥345.1B, down △59.4%. The primary causes of the deterioration in operating income were weaker profitability in the Miraiz (retail) and Power Grid (transmission and distribution) segments, while JERA’s equity-method investment income of ¥565.4B supported consolidated earnings.

Factors Affecting Earnings

【Revenue】Revenue increased 3.2% year on year to ¥8,258.4B. By segment, Power Grid’s external revenue increased substantially from ¥836.7B to ¥1,386.2B, while Miraiz’s revenue decreased from ¥6,583.1B to ¥6,375.8B. Overall revenue growth was driven by the expansion of Power Grid.

【Profit and Loss】Operating Income fell from a profit of ¥679.3B in the same period of the previous year to a loss of ¥250.6B. In terms of segment Ordinary Income/Loss, Miraiz deteriorated from a profit of ¥514.9B to a loss of ¥246.3B, while Power Grid also deteriorated from a profit of ¥40.4B to a loss of ¥122.0B, with the deterioration in the profitability of both core businesses directly impacting consolidated earnings. Meanwhile, JERA’s segment Ordinary Income increased to ¥579.97B, up +36.7% year on year, and boosted consolidated Ordinary Income of ¥271.4B through equity-method investment income of ¥565.4B. Equity-method investment income accounted for the majority of non-operating income of ¥634.6B, and without this income, the Company would likely have recorded a loss even at the Ordinary Income level. In addition, income taxes and other taxes resulted in a benefit of ¥73.7B, enabling the Company to secure Net Income of ¥345.1B, exceeding Profit Before Tax of ¥271.5B. In conclusion, the Company recorded higher revenue but lower earnings, with its earnings composition characterized by the offsetting of deterioration in its core business (operating income/loss) through equity-method investment income and tax effects.

Segment Analysis

The Ordinary Income/Loss of the reported segments changed substantially from the same period of the previous year. Miraiz deteriorated from a profit of ¥514.9B to a loss of ¥246.3B (△¥761.2B), clearly indicating worsening profitability in the retail business. Power Grid also swung from a profit of ¥40.4B to a loss of ¥122.0B (△¥162.4B), apparently affected by increased transmission and distribution costs and investment burdens. Meanwhile, JERA, an equity-method affiliate, recorded Ordinary Income of ¥579.97B, up +36.7% year on year, becoming the substantive pillar of consolidated earnings. Other segments declined from ¥1,170.9B to ¥592.9B. The shift of the two core segments into the red and the increased reliance on JERA’s earnings characterized the earnings structure for the quarter.

Key Financial Metrics

【Profitability】The Operating Margin was △3.0%, down 1,152bp from 8.5% in the same period of the previous year, while the Ordinary Income Margin also narrowed from 13.1% to 3.3%. The Net Profit Margin declined from 10.7% to 4.3%.【Cash Flow Quality】Equity-method investment income of ¥565.4B accounted for the majority of non-operating income of ¥634.6B, indicating that the quality of consolidated earnings is more dependent on the performance of the investee, JERA, than on operating income/loss.【Investment Efficiency】Annualized ROE was 4.3%, below the generally accepted benchmark of 8%. Given the shift of operating income/loss into the red, the return-generating capability of invested capital, equivalent to ROIC, also appears to have declined.【Financial Soundness】The Equity Ratio was 42.4%. Current assets of ¥12,333.0B and current liabilities of ¥12,290.9B were at nearly the same level, leaving the Current Ratio at approximately 100%. Cash and deposits were ¥2,372.8B, down ¥994.0B from ¥3,366.9B in the same period of the previous year, indicating a reduction in the cash buffer.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, movements in funds can be inferred from changes in the balance sheet. Cash and deposits decreased by ¥994.0B (29.5%), from ¥3,366.9B in the same period of the previous year to ¥2,372.8B. Long-term borrowings increased from ¥19,714.0B to ¥20,303.4B, while bonds decreased from ¥6,967.1B to ¥6,467.1B, indicating a shift in funding sources. The decline in cash levels amid a loss at the operating income level suggests weak cash generation from operating activities, warranting close monitoring of future funding trends.

Earnings Quality

It should be noted that earnings for the quarter were generated not by recurring operating income/loss, but by equity-method investment income and tax effects. While Operating Income was a loss of ¥250.6B, the Company secured Ordinary Income of ¥271.4B, with the difference primarily attributable to equity-method investment income of ¥565.4B. JERA’s segment Ordinary Income of ¥579.97B exceeded consolidated Ordinary Income and was of a scale that made consolidated earnings highly dependent on factors specific to the investee, such as resource prices and electricity market conditions. Furthermore, income taxes and other taxes resulted in a benefit of ¥73.7B (negative effective tax rate), resulting in Net Income of ¥345.1B, exceeding Profit Before Tax of ¥271.5B. Comprehensive Income was ¥567.7B, of which ¥569.5B was attributable to owners of the parent, creating a difference from Net Income of ¥345.1B that reflected, among other items, the ¥343.3B share of OCI of equity-method affiliates. In light of the above, the quality of current-period earnings is dependent more on the contribution of equity-method investment income and temporary tax effects than on sustainable operating-derived earnings power.

Earnings Forecast and Guidance

Against the full-year earnings forecast, the Revenue progress rate was 21.2% (¥825.8B versus the forecast of ¥3,900B), the Ordinary Income progress rate was 14.7% (¥271.4B versus the forecast of ¥1,850B), and the Net Income progress rate was approximately 22.0%. Compared with the standard quarterly progress rate of 25%, Ordinary Income was 10.3pt below the standard, and improving profitability in the two core segments during the second half of the fiscal year will be necessary to achieve the full-year forecast (△36.4% year on year). The Company has not revised either its earnings forecast or dividend forecast.

Shareholder Returns

The full-year dividend forecast is ¥70 per share, an increase from the previous year’s actual dividend of ¥35, and the forecast Payout Ratio based on the full-year Net Income forecast of ¥1,600B is approximately 33.0%. This metric covers dividends only and is distinct from the Total Return Ratio, which includes share buybacks. Although 33.0% is below the generally accepted sustainability benchmark of 60%, profit attributable to owners of the parent for the quarter was ¥352.0B, representing only a portion of the full-year forecast. Accordingly, assessment of the dividend depends on the achievability of full-year earnings.

Risk Factors

1. Risk of Deteriorating Operating Profitability: Miraiz recorded an Ordinary Loss of ¥246.3B, deteriorating from a profit of ¥514.9B in the previous year, while Power Grid also recorded a loss of ¥122.0B, deteriorating from a profit of ¥40.4B in the previous year. Both core segments moved into the red. The causes are believed to include time lags in fuel-cost adjustments and higher transmission and distribution costs.

2. Risk of Reliance on Equity-Method Investment Income (JERA): JERA’s segment Ordinary Income of ¥579.97B exceeds consolidated Ordinary Income of ¥271.4B, creating a structure in which fluctuations in resource prices, wholesale electricity prices, foreign exchange rates, and other factors have a significant impact on consolidated earnings.

3. Financial Soundness and Liquidity Risk: While Operating Income was a loss of ¥250.6B, cash and deposits decreased by ¥994.0B (29.5%) year on year. Current assets and current liabilities were at nearly the same level, limiting short-term financial flexibility.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (utilities)

Profitability and Returns

The Company’s Operating Margin and Net Profit Margin are substantially below the industry median and are relatively low within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate was also below the industry median, indicating that the pace of revenue growth was slower than that of peer companies.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. While Revenue increased +3.2% year on year, Operating Income shifted from a profit of ¥679.3B to a loss of ¥250.6B, indicating that revenue growth and deterioration in core business profitability occurred simultaneously.

2. Of consolidated Ordinary Income of ¥271.4B, equity-method investment income (primarily from JERA) accounted for ¥565.4B, serving as the substantive pillar of consolidated earnings. JERA’s segment Ordinary Income was ¥579.97B, up +36.7% year on year.

3. The Ordinary Income progress rate against the full-year forecast was 14.7%, 10.3pt below the quarterly standard of 25%. Improving the profitability of both the Miraiz and Power Grid segments during the second half of the fiscal year will be a structural focus for achieving the full-year forecast.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,725–¥3,943 at Cost of Equity ±1%, and ¥3,816–¥3,842 at ω±0.1.

Notes:

• Because 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 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 value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast 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 earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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