The Kansai Electric Power Company,Incorporated FY2027 Q1 Earnings Report

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Executive Summary

Although revenue increased in Q1 FY2027, operating income and ordinary income declined substantially, while the Company secured net income growth through extraordinary gains associated with the sale of shares in a subsidiary. Accordingly, the results require attention regarding the quality of the earnings structure. Revenue was ¥10,079.6B (+9.8% YoY), operating income was ¥203.7B (-84.2% YoY; operating margin 2.0%), and ordinary income was ¥528.2B (-60.8% YoY; margin 5.2%), indicating significant deterioration in all core earnings indicators. Meanwhile, due to the recognition of extraordinary income, including a ¥1,050.8B gain on the sale of shares in a subsidiary, profit before tax reached ¥1,585.7B, and net income attributable to owners of the parent increased to ¥1,370.6B (+38.2% YoY). The primary factor behind the decline in operating and ordinary income was the sharp decrease in segment profit in the Energy Business (¥365.6B, compared with ¥1,142.2B in the previous year). Thus, the apparent increase in revenue and net income was supported not by core businesses but by temporary factors.

Factors Affecting Business Performance

【Revenue】Consolidated revenue was ¥10,079.6B, representing a 9.8% YoY increase. By segment, based on sales to external customers, the Real Estate Business and the Transmission and Distribution Business grew significantly, by +80.3% and +33.8%, respectively. In contrast, the core Energy Business increased by +4.6%, while the Information and Communications Business remained nearly flat at -0.3%. Based on the segment total, the revenue mix was 67.7% for Energy, 21.0% for Transmission and Distribution, 6.0% for Information and Communications, and 5.3% for Real Estate, indicating that dependence on the Energy Business remains high.

【Profit and Loss】Operating income was ¥203.7B (-84.2% YoY), and the operating margin fell substantially to 2.0% from 14.0% in the previous year. The main factor was the sharp decline in segment profit in the Energy Business (¥365.6B, compared with ¥1,142.2B in the previous year, -68.0%), apparently reflecting fuel procurement costs and differences in the timing of price pass-through. The Transmission and Distribution Business also posted an increased loss (¥△105.0B, compared with ¥△22.5B in the previous year), weighing on core earnings. Ordinary income was ¥528.2B (-60.8% YoY). Although non-operating income of ¥491.3B, comprising foreign exchange gains of ¥120.0B, equity in earnings of affiliates of ¥114.9B, and dividends received of ¥84.3B, provided some support, it was insufficient to offset the decline at the operating level. As a result of recognizing an extraordinary gain of ¥1,050.8B associated with the sale of shares in a subsidiary, profit before tax reached ¥1,585.7B, and net income attributable to owners of the parent was ¥1,370.6B (+38.2% YoY). In conclusion, on a core earnings basis, the Company experienced higher revenue but lower profit, while the increase in net income was primarily driven by a temporary uplift from extraordinary income.

Segment Analysis

The core Energy Business, which accounted for 67.7% of the revenue mix, recorded segment profit of ¥365.6B, a substantial decline from ¥1,142.2B in the previous year, making it the primary cause of the deterioration in company-wide earnings. The Transmission and Distribution Business recorded revenue of ¥262.0B and an increased segment loss of ¥△105.0B, compared with ¥△22.5B in the previous year, highlighting the profitability of regulated revenues as a key issue. The Information and Communications Business remained nearly flat and maintained stable profitability, with segment profit of ¥108.7B (¥116.9B in the previous year, -6.9%). The Real Estate Business recorded a significant increase in segment profit to ¥148.6B (¥56.6B in the previous year, +162.6%), increasing its presence as a source of earnings supporting company-wide profits. It should be noted that, beginning in Q1 of the current fiscal year, the segment classification was revised: the hyperscale data center business was reclassified from Energy to Information and Communications, while the Real Estate Business was established as a separate segment. The figures for the same period of the previous year have also been reclassified under the new segment structure.

Key Financial Indicators

【Profitability】The operating margin declined clearly to 2.0%, approximately 12.0pt below 14.0% in the previous year, while the ordinary income margin fell to 5.2%, approximately 9.4pt below 14.7% in the previous year. In contrast, the net profit margin attributable to owners of the parent improved to 13.6%, approximately 2.8pt above 10.8% in the previous year; however, this improvement resulted from the recognition of extraordinary income and does not reflect core earnings power. 【Cash Quality】Cash and deposits were ¥5,336.8B, down -27.6% from ¥7,374.1B in the same period of the previous year, indicating a contraction in the liquidity cushion. Accounts receivable and notes receivable were ¥4,199.9B, remaining nearly flat from the previous year. 【Investment Efficiency】ROE remained at 3.8%, while the total asset turnover ratio was also low, reflecting a capital-intensive business structure. Given the sharp decline in operating income, there remains room for improvement in capital efficiency. 【Financial Soundness】The equity ratio improved from the same period of the previous year to 36.8%; however, the Company remains highly dependent on long-term funding, with long-term borrowings of ¥22,365.2B and bonds of ¥12,379.4B. Interest expense of ¥125.5B is relatively burdensome compared with operating income of ¥203.7B.

Cash Flow Analysis

Cash and deposits were ¥5,336.8B, down ¥2,037.3B (-27.6%) from ¥7,374.1B in the same period of the previous year, indicating a contraction in the liquidity cushion. Current assets were ¥16,862.6B and current liabilities were ¥16,593.6B, resulting in a current ratio of approximately 101.6%, which is nearly balanced. The quick ratio, excluding inventories, was 81.6%, indicating somewhat limited short-term liquidity. Non-current liabilities remained high at ¥45,237.7B, mainly comprising long-term borrowings and bonds, reflecting a funding structure characterized by substantial ongoing cash requirements, including capital expenditures and dividend payments. The ¥1,050.8B extraordinary gain associated with the sale of shares in a subsidiary could represent a temporary source of cash inflow. However, given the sharp decline in operating income, the core cash-generation capacity of operating activities may be weakening, warranting close monitoring of future cash trends.

Quality of Earnings

The increase in net income attributable to owners of the parent to ¥1,370.6B depended heavily on the recognition of a ¥1,050.8B extraordinary gain associated with the sale of shares in a subsidiary and does not reflect an improvement in recurring earnings power. Non-operating income was ¥491.3B, equivalent to approximately 4.9% of revenue, a relatively high level. Its main components were foreign exchange gains of ¥120.0B, equity in earnings of affiliates of ¥114.9B, and dividends received of ¥84.3B. These items are susceptible to fluctuations in foreign exchange rates and market conditions and are characterized by relatively high non-cash and volatile elements. The gap between ordinary income of ¥528.2B and net income attributable to owners of the parent of ¥1,370.6B exceeded ¥840B, with most of the difference attributable to extraordinary income and differences in tax expense. In light of the above, the increase in profit was highly dependent on one-time factors. Combined with the decline in core earnings power indicated by the 2.0% operating margin, the quality of earnings requires monitoring.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year plan—revenue of ¥45,000.0B, operating income of ¥2,500.0B, ordinary income of ¥2,900.0B, and net income attributable to owners of the parent of ¥3,100.0B—were 22.4% for revenue, 8.1% for operating income, 18.2% for ordinary income, and 44.2% for net income. Compared with the simple quarterly progress benchmark of 25%, revenue, operating income, and ordinary income were all tracking below that pace, with the delay in operating income particularly pronounced. Meanwhile, the high progress rate for net income resulted from the one-time extraordinary gain of ¥1,050.8B, masking the weak progress of core earnings. The full-year plan itself assumes YoY declines of -42.9% in operating income and -44.1% in ordinary income. Since the Q1 decline in operating income of -84.2% is proceeding at a faster pace than these assumptions, recovery in the second half of the fiscal year is a prerequisite for achieving the plan. No revisions have been made to the earnings forecast or dividend forecast.

Shareholder Returns

The full-year dividend forecast is ¥80 per share. Based on forecast EPS of ¥278.23, the payout ratio is approximately 28.8%. Although net income progress as of Q1 was high due to the contribution from extraordinary income, core earnings power supporting the dividend remains weak, as indicated by the decline in the operating margin to 2.0%. Accordingly, when evaluating the payout ratio, it is necessary to confirm the recovery of the earnings base without reliance on extraordinary income. No revision was made to the dividend forecast during the quarter.

Risk Factors

1. Deterioration in Energy Business profitability: Segment profit declined sharply by -68.0% to ¥365.6B from ¥1,142.2B in the previous year. Despite a +4.6% increase in revenue, profitability deteriorated substantially, suggesting the impact of fuel procurement costs and differences in the timing of price pass-through.

2. Expansion of losses in the Transmission and Distribution Business: The segment loss expanded to ¥△105.0B from ¥△22.5B in the previous year. Although revenue increased by +33.8%, this did not translate into profit, requiring monitoring of the profitability of regulated revenues.

3. Contraction of the liquidity cushion and interest burden: Cash and deposits declined by -27.6% YoY to ¥5,336.8B. Interest expense of ¥125.5B is relatively burdensome compared with operating income of ¥203.7B, and interest coverage, based on operating income, remained at approximately 1.6x. Managing the interest burden therefore remains an ongoing issue.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

The operating margin was substantially below the industry median, while the net profit margin exceeded the industry median due to the contribution from extraordinary income.

Growth and Capital Efficiency

The revenue growth rate was nearly in line with the industry median, positioning the Company’s revenue growth at a standard level within the industry.

Source: Compiled by the Company

Key Points from the Financial Results

1. The operating margin declined sharply to 2.0% from 14.0% in the previous year, while the increase in net income was highly dependent on the extraordinary gain of ¥1,050.8B from the sale of shares in a subsidiary. The recovery of core earnings power will be the key focus going forward.

2. Progress rates against the full-year plan were relatively low for Q1 at 22.4% for revenue, 8.1% for operating income, and 18.2% for ordinary income. In contrast, net income reached 44.2%, boosted by extraordinary income, resulting in a significant divergence in progress rates among the various indicators.

3. By segment, the Real Estate Business recorded increased profit, with segment profit rising by ¥92.0B, supporting the diversification of earnings sources. Meanwhile, losses in the Transmission and Distribution Business expanded, resulting in divergent performance across the business portfolio.

Theoretical Share Price (Reference Value)

The following is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade period). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥3,179–¥3,368 at ±1% for the cost of equity, and ¥3,271–¥3,272 at ±0.1 for ω.

Notes:

• Because net income progress against the full-year forecast is 44%, exceeding the standard level of 25%, forecast EPS has been adjusted upward within an upper limit of +10% (because companies tracking ahead of schedule tend to exceed their forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the quarter-end have been used (there is a timing difference from the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated at a somewhat higher level.

(Calculation model: Residual Income Model / Interest Rate Benchmark Month: 2026-06 / This figure 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-release 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 professionals as necessary.

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