The Kansai Electric Power Company (9503) FY2026 FY

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Executive Summary

Although FY2025 recorded declines in revenue and earnings, its most notable feature was that it maintained an operating margin of 10.8%, preserving profitability at approximately the previous year's level. Revenue was ¥4兆566.4B (-6.5% YoY), Operating Income was ¥4,375.6B (-6.7%), and Ordinary Income was ¥5,185.3B (-2.5%). Net Income (net income attributable to owners of the parent; ¥3,800.5B, not ¥380.1B) declined -9.6% YoY, primarily due to the absence of the gain on the sale of shares in a subsidiary (¥614.1B) recorded in the previous year. Consolidated Net Income (including the portion attributable to non-controlling interests) was ¥3,836.2B, down -23.6% YoY; the divergence between the two figures was due to changes in profit or loss attributable to non-controlling interests.

Factors Affecting Performance

【Revenue】Revenue was ¥4兆566.4B, down -6.5% YoY. By segment, the Energy Business accounted for 80.4% of external revenue (¥3兆2,613.9B), forming a structure in which it drives fluctuations in consolidated revenue. The remaining 19.6% consisted of the Transmission and Distribution Business at ¥3,862.2B, the Information and Telecommunications Business at ¥2,222.0B, and the Lifestyle and Business Solutions Business at ¥1,868.3B, providing a certain degree of revenue diversification.

【Profit and Loss】Operating Income was ¥4,375.6B (-6.7% YoY), while the operating margin remained at 10.8%, the same level as the previous year. Ordinary Income was ¥5,185.3B (-2.5%), a smaller decline than Operating Income, supported by non-operating income such as foreign exchange gains of ¥436.9B, share of profit of investments accounted for using the equity method of ¥336.7B, and dividend income of ¥253.5B. Net Income declined by -9.6% on an attributable-to-owners-of-the-parent basis, exceeding the decline in Ordinary Income due to the absence of the previous year's extraordinary gain from the sale of shares in a subsidiary (¥614.1B). In conclusion, the Company recorded declines in both revenue and earnings.

Segment Analysis

Segment profit margins were high in the Information and Telecommunications Business at 21.2% and the Lifestyle and Business Solutions Business at 20.9%, followed by the Transmission and Distribution Business at 16.3%, while the Energy Business, which has a large share of revenue, remained at 11.6%. Since the Energy Business accounts for 80.4% of external revenue, consolidated profit margins are structurally highly correlated with the profitability of this business. The highly regulated Transmission and Distribution Business and the high-profitability Information and Telecommunications and Lifestyle and Business Solutions businesses form a revenue portfolio that mitigates fluctuations in the Energy Business to a certain extent. Note that segment profit is based on Ordinary Income excluding dividends received from consolidated subsidiaries and equity-method affiliates, and therefore has a different definition from consolidated Operating Income.

Key Financial Metrics

【Profitability】The operating margin of 10.8% remained at the same level as the previous year, while the Ordinary Income margin of 12.8% exceeded the operating margin due to non-operating income, including foreign exchange gains, share of profit of investments accounted for using the equity method, and dividend income. ROE was 11.0%, a reasonable level for a capital-intensive electric power and gas business. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥6,523.8B, reaching 1.72 times net income attributable to owners of the parent, indicating strong cash backing for earnings. 【Investment Efficiency】Investment in property, plant and equipment and intangible assets was ¥5,806.8B, reaching 1.72 times depreciation and amortization expense of ¥3,383.4B, with capital investment representing the central use of capital allocation. 【Financial Soundness】The Equity Ratio was 35.5% (an improvement from the equivalent 32.2% level in the previous year), while net assets increased 12.7% YoY to ¥3兆5,027.4B. The Company has a long-term funding structure centered on long-term borrowings of ¥2兆1,717.9B and bonds of ¥1兆3,480.4B. Retained earnings increased 16.3% YoY to ¥2兆2,414.7B, leading the expansion of equity.

Cash Flow Analysis

Operating Cash Flow (OCF) increased 13.4% YoY to ¥6,523.8B, equivalent to 1.72 times net income attributable to owners of the parent. In terms of working capital, the decrease in accounts receivable provided a cash inflow of ¥567.6B, while the increase in inventories of ¥463.7B and decrease in accounts payable of ¥218.6B were sources of cash outflow, largely offsetting one another. Investing Cash Flow was an outflow of ¥5,719.2B, of which the acquisition of fixed assets accounted for ¥5,604.6B, indicating continued large-scale investment in strengthening the transmission and distribution network and addressing power supply requirements. Free Cash Flow, calculated as the difference between Operating Cash Flow and Investing Cash Flow, remained positive at ¥804.6B, with high capital investment largely financed within the range of operating cash flow. Financing Cash Flow was an outflow of ¥2,902.2B, primarily reflecting debt reduction through repayment of long-term borrowings and redemption of bonds. As a result, cash and cash equivalents decreased by ¥2,001.5B YoY.

Earnings Quality

Ordinary Income exceeded Operating Income, with the difference attributable to non-operating income such as foreign exchange gains of ¥436.9B, share of profit of investments accounted for using the equity method of ¥336.7B, and dividend income of ¥253.5B. These items were equivalent to 4.0% of Revenue and supported performance; however, foreign exchange gains are non-recurring in nature and may reverse depending on market conditions. Compared with the previous year, the gain on the sale of shares in a subsidiary of ¥614.1B (extraordinary income) recorded in the previous year did not recur in the current period, causing the decline in Net Income to exceed the decline in Ordinary Income. Operating Cash Flow reached 1.72 times Net Income, and accruals generally trended in a negative direction, indicating good earnings quality from the perspective of cash backing.

Earnings Forecast and Guidance

For the next fiscal year, the Company forecasts Revenue of ¥4兆5,000B (+10.9% compared with the current period), representing an increase in revenue, while forecasting substantial declines in Operating Income to ¥2,500B (-42.9%) and Ordinary Income to ¥2,900B (-44.1%). This combination of higher revenue and substantially lower earnings appears to incorporate increases in costs such as fuel expenses and purchased power costs, time lags in price adjustments, and the disappearance of foreign exchange gains and extraordinary income factors that contributed in the current period. Forecast EPS is ¥278.26, below actual EPS of ¥341.14 for the current period. A key feature is the expected decline in the forecast operating margin to approximately 5.6%, substantially below the current-period actual level of 10.8%.

Shareholder Returns

The annual dividend for the current period was ¥75 per share (¥30 interim and ¥45 year-end), with a Payout Ratio of 22.0%, a conservative level. Total cash dividend payments were ¥668.6B, within the range of Free Cash Flow of ¥804.6B. Share repurchases were minimal at ¥0.6B, and the Total Return Ratio was approximately at the same level as the Payout Ratio. For the next fiscal year, the Company forecasts an increase in the dividend to ¥80 per share. Based on forecast EPS of ¥278.26, the Payout Ratio is expected to be approximately 28.7%; thus, the Company is pursuing stable shareholder returns despite anticipating a decline in earnings.

Risk Factors

1. Concentration of earnings in the Energy Business: The Energy Business accounts for 80.4% of external revenue, creating a structure in which fuel prices, wholesale electricity prices, foreign exchange rates, and the timing of fuel cost adjustments significantly affect consolidated performance.

2. Reliance on non-operating income: Ordinary Income is supported by non-operating income such as foreign exchange gains of ¥436.9B, share of profit of investments accounted for using the equity method of ¥336.7B, and dividend income of ¥253.5B, and therefore includes non-recurring elements that may decline due to changes in market conditions.

3. Forecast of substantial earnings decline in the next fiscal year: Despite forecasting higher revenue, the Company expects declines of -42.9% in Operating Income and -44.1% in Ordinary Income, suggesting earnings normalization from the high profitability level recorded in the current period.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company's profitability is substantially below the industry median and ranks at a low level even within the utilities sector.

Growth and Capital Efficiency

Revenue growth was also below the industry median, with the Company recording a notable decline in revenue compared with its peers during the current period.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The operating margin of 10.8% remained approximately at the previous year's level, and no sharp deterioration in profitability was observed despite the decline in revenue. However, profitability remains relatively low compared with the industry median.

2. Operating Cash Flow reached 1.72 times Net Income, indicating strong cash backing for earnings. Capital investment reached 1.72 times depreciation and amortization expense, indicating continued investment in transmission and distribution and power supply-related infrastructure.

3. Although the Company's forecast for the next fiscal year calls for higher revenue, it anticipates declines of more than 40% in both Operating Income and Ordinary Income. It will therefore be necessary to continue monitoring changes in underlying earnings power excluding non-operating income and extraordinary factors from the current period.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,065–¥3,247 at Cost of Equity ±1%, and ¥3,153–¥3,156 at ω±0.1.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated figures based solely on publicly disclosed data; these figures do not constitute a forecast of the market share price or a recommendation of any specific investment action, and do not predict or guarantee future share prices.)

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This report is an automatically generated earnings analysis document created 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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