Hokuriku Electric Power Company (9505) FY2027 Q1 Earnings Report

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Executive Summary

The Company reported higher revenue but lower earnings for the quarter, with the key takeaway being that revenue growth did not translate into profit growth. Revenue increased to ¥1990.2B (+7.0% YoY), while Operating Income declined to ¥265.9B (△26.7%), Ordinary Income to ¥291.5B (△18.8%), and Net Income attributable to owners of the parent to ¥222.0B (△20.7%). The primary driver of revenue growth was an increase in inter-area and electricity sales revenue to other companies, while the main factors behind the earnings decline were deteriorating profitability in the transmission and distribution business and lower profit margins in the generation and retail business.

Factors Affecting Financial Performance

【Revenue】Revenue increased 7.0% YoY to ¥1990.2B. By segment, the generation and retail business recorded ¥1625.6B (+5.4% YoY), the transmission and distribution business recorded ¥228.7B (+76.7% YoY), and other businesses recorded ¥135.9B (△28.2% YoY). The primary driver of revenue growth was an increase in inter-area and electricity sales revenue to other companies. In the generation and retail business, this revenue increased 64.4% YoY, while in the transmission and distribution business it increased 117.2%. Meanwhile, electricity and power charges, which reflect underlying retail demand, declined 6.1% YoY to ¥1198.1B, indicating that revenue growth depended on the expansion of market-based sales revenue.

【Profit and Loss】Operating Income declined 26.7% YoY to ¥265.9B, while Ordinary Income declined 18.8% to ¥291.5B, resulting in lower earnings despite revenue growth. The Operating Income margin was 13.4%, down 6.1pt from 19.5% in the same period of the previous year. By segment, profit from the generation and retail business declined 10.7% YoY to ¥256.4B, while profit from the transmission and distribution business declined 70.1% to ¥20.8B. Both the core business and the transmission and distribution business posted lower earnings, with deteriorating profitability in the transmission and distribution business being one of the main causes of the decline in overall profitability. Ordinary Income exceeded Operating Income by ¥25.6B, supplemented by ¥8.0B in dividend income and ¥18.5B in equity-method investment gain. Net Income was ¥222.0B, and the effective tax rate against Profit Before Tax of ¥292.8B was approximately 24.0%. In conclusion, the Company reported higher revenue but lower earnings for the quarter.

Segment Analysis

The generation and retail business is the core business and generates the largest segment profit; however, despite revenue of ¥1625.6B (+5.4% YoY), segment profit declined 10.7% to ¥256.4B, resulting in higher revenue but lower earnings. Although revenue in the transmission and distribution business increased sharply to ¥228.7B (+76.7% YoY), segment profit plunged 70.1% to ¥20.8B, making the trend of higher revenue but lower earnings most pronounced in this segment. Other businesses reported lower revenue of ¥135.9B (△28.2% YoY), but segment profit increased to ¥14.9B from ¥3.4B in the same period of the previous year, resulting in lower revenue but higher earnings. The generation and retail business accounts for approximately 82% of total revenue, creating a structure in which its profit trends determine overall Company performance.

Key Financial Indicators

【Profitability】The Operating Income margin was 13.4%, down 6.1pt from 19.5% in the same period of the previous year, while the Net Income margin was 11.2%, down 3.9pt from 15.0%. Profitability deteriorated despite revenue growth, suggesting that the Company has been unable to fully pass on cost increases to prices.【Cash Flow Quality】Ordinary Income exceeded Operating Income by ¥25.6B, with ¥8.0B in dividend income and ¥18.5B in equity-method investment gain serving as the primary supplementary factors. At the same time, non-operating income remained at 2.7% of revenue, indicating that dependence on non-operating income and expenses was not excessive.【Investment Efficiency】Annualized ROE was high at 18.8%; however, it should be noted that the high level of financial leverage, with total assets approximately 3.96 times net assets, offset the decline in the Net Income margin.【Financial Soundness】The Equity Ratio improved to 25.2% from 24.4% in the same period of the previous year. Nevertheless, dependence on liabilities remained high, primarily due to interest-bearing debt, including ¥4897.0B in bonds and ¥4587.6B in long-term borrowings. Short-term borrowings surged from ¥12.6B in the same period of the previous year to ¥525.1B, while cash and deposits declined ¥511.9B YoY.

Cash Flow Analysis

As cash flow statement data for the quarter was not included in the disclosure, cash trends are assessed based on changes in the balance sheet. Cash and deposits stood at ¥1343.0B, down ¥511.9B from ¥1854.8B in the same period of the previous year, while short-term borrowings increased ¥512.5B from ¥12.6B to ¥525.1B, suggesting a shift in the composition of short-term funding toward securing liquidity. Bonds declined ¥400.0B from ¥5297.0B to ¥4897.0B, indicating that some revision of the debt maturity structure was also underway. Accounts receivable increased ¥16.3B, inventories increased ¥14.0B, and accounts payable declined ¥57.6B. These working capital movements were unfavorable for cash generation. Overall, the quarter can be characterized as a period in which funds were secured by reducing cash holdings while increasing short-term debt.

Quality of Earnings

Ordinary Income of ¥291.5B exceeded Operating Income of ¥265.9B by ¥25.6B. This difference primarily comprised recurring items such as ¥8.0B in dividend income and ¥18.5B in equity-method investment gain, and no dependence on temporary extraordinary gains or losses was identified. Non-operating income of ¥53.9B represented 2.7% of revenue, which was not excessive in scale. Comprehensive Income was ¥262.0B, exceeding Net Income of ¥222.0B by ¥40.0B. The difference was primarily attributable to changes in the market prices of other securities, including ¥54.4B in valuation difference on securities, indicating that net assets were increased by factors separate from business earnings. Meanwhile, from a working capital perspective, accounts payable declined while inventories and accounts receivable increased. From an accrual perspective, these changes should be noted as factors that put pressure on the Company’s ability to generate Operating Cash Flow.

Earnings Forecast and Guidance

The full-year forecast calls for revenue of ¥7600.0B, Operating Income of ¥400.0B (△54.3% YoY), and Ordinary Income of ¥350.0B (△58.8% YoY). As of Q1, progress rates were 26.2% for revenue, 66.5% for Operating Income, 83.3% for Ordinary Income, and 88.8% for Net Income, all substantially exceeding the simple one-quarter benchmark of 25%. This indicates that the Company’s plan assumes a significant slowdown in earnings from Q2 onward, and the high Q1 progress rate does not directly imply an upside to the full-year forecast. There were no revisions to either the earnings forecast or the dividend forecast.

Shareholder Returns

The full-year dividend forecast is ¥25.00 per share, and the full-year EPS forecast is ¥119.67, implying a Payout Ratio of 20.9%. This Payout Ratio is calculated using dividends alone in the numerator and does not represent the Total Return Ratio, which includes share repurchases. Q1 Net Income reached 88.8% of the full-year Net Income forecast. However, as noted above, the Company’s plan assumes a slowdown in earnings from Q2 onward; therefore, the capacity to pay the full-year dividend should be assessed together with progress in subsequent quarters.

Risk Factors

1. Risk from fluctuations in fuel and wholesale electricity prices and the timing of recovery: While revenue increased +7.0%, Operating Income declined △26.7%, and the Operating Income margin decreased 6.1pt. The Company may not have been able to fully pass cost fluctuations through to selling prices.

2. Deteriorating profitability in the transmission and distribution business: Revenue in the transmission and distribution business increased +76.7%, while segment profit declined △70.1%, representing the largest divergence between revenue growth and profit trends among the segments.

3. Changes in financial leverage and funding composition: Short-term borrowings increased ¥512.5B YoY, while cash and deposits declined ¥511.9B. The Company has a capital structure with high dependence on liabilities, primarily interest-bearing debt, including a combined ¥9484.6B in bonds and long-term borrowings.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (utilities)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceeded the industry median, placing the Company’s profitability in a relatively favorable position within the industry.

Growth and Capital Efficiency

The revenue growth rate also slightly exceeded the industry median, placing the Company’s revenue growth pace in the middle-to-upper range of the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The Company reported higher revenue but lower earnings for the quarter, with revenue increasing +7.0% while Operating Income declined △26.7%. In terms of the composition of revenue growth, underlying retail demand, including electricity and power charges, declined, while the primary driver was an increase in inter-area and electricity sales revenue to other companies.

2. Q1 profit progress rates against the full-year forecast were high, at 66.5% for Operating Income and 88.8% for Net Income, indicating that the Company’s plan assumes a significant slowdown in earnings from Q2 onward.

3. While the generation and retail business posted higher revenue but lower earnings and the transmission and distribution business posted higher revenue but significantly lower earnings, short-term borrowings increased sharply while cash and deposits declined simultaneously, confirming a change in the funding composition.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,987–¥2,105 at ±1% for the cost of equity, and ¥2,037–¥2,050 at ±0.1 for ω.

Notes:

• Because the progress of Net Income against the full-year forecast (89%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with leading progress tend to outperform forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated at a slightly higher level.

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from 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 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 responsibility, after consulting a professional as necessary.

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