Hokuriku Electric Power Company FY2027 Q1 Earnings Report

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Executive Summary

Despite higher revenue, core earnings were compressed, mainly in the Transmission and Distribution Segment, while Ordinary Income and Net Income declined less sharply due to support from non-operating income and expenses. Revenue increased to ¥1,990.2B (+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 (hereinafter the same) to ¥222.0B (-20.7%). The primary drivers of revenue growth were the expansion of external revenue in the Transmission and Distribution Business (+76.8%) and solid growth in Generation and Retailing (+5.4%). However, the segment profit margin of Transmission and Distribution plunged from 53.9% to 9.1%, pushing the Company-wide Operating Income margin down to 13.4% (19.5% in the previous year). Meanwhile, an increase in equity-method investment income and other factors lifted non-operating income and expenses, preventing the declines in Ordinary Income and Net Income from widening to the same extent as the decline in Operating Income.

Factors Driving Performance Changes

【Revenue】Revenue increased to ¥1,990.2B, representing a 7.0% YoY increase. By segment, external revenue from Transmission and Distribution grew substantially to ¥228.7B (11.5% of total revenue, +76.8% YoY), driven by higher wheeling revenue and increased inter-area and electricity sales revenue to other companies. The core Generation and Retailing Business remained solid at ¥1,625.6B (81.7% of total revenue, +5.4%), while Other Businesses contracted to ¥135.9B (6.8% of total revenue, -28.2%).

【Profit and Loss】The Operating Income margin was 13.4%, down -6.1pt from 19.5% in the previous year, resulting in negative operating leverage, with Operating Income declining -26.7% despite higher revenue. On a segment profit basis (using Ordinary Income as the basis), the margin for Transmission and Distribution fell sharply from 53.9% to 9.1%, while that for Generation and Retailing also declined from 18.6% to 15.8%; higher costs and the timing of recognition of regulated revenue appear to have pushed down profit margins. Meanwhile, non-operating income expanded to ¥53.9B (¥21.0B in the previous year), with equity-method investment income of ¥18.5B (¥6.6B) and dividends received of ¥8.0B (¥4.3B) supporting Ordinary Income. As a result, the Ordinary Income margin was 14.7% (19.3% in the previous year), avoiding a decline as steep as that at the operating level. The Net Income margin attributable to owners of the parent was 11.2%, down -3.9pt from 15.0% in the previous year, indicating an overall increase in revenue but a decrease in profit.

Segment Analysis

Generation and Retailing is the core business, accounting for 81.7% of revenue and 87.9% of segment profit (based on Ordinary Income). External revenue for the current period was Generation and Retailing ¥162.6B→¥1,625.6B (+5.4% YoY), Transmission and Distribution ¥22.9B→¥228.7B (+76.8%), and Other Businesses ¥13.6B→¥135.9B (-28.2%). Segment profit was ¥256.4B for Generation and Retailing (-10.7%, 15.8% margin, 18.6% in the previous year), ¥20.8B for Transmission and Distribution (-70.1%, 9.1% margin, 53.9% in the previous year), and ¥14.9B for Other Businesses (+339.4%, 11.0% margin, 1.8% in the previous year). While deteriorating profitability in Transmission and Distribution was the primary cause of the Company-wide margin decline, Other Businesses achieved a substantial improvement in profit margin despite shrinking revenue, highlighting the contrasting earnings trends across segments.

Key Financial Indicators

【Profitability】Revenue increased to ¥1,990.2B (+7.0% YoY), while the Operating Income margin declined to 13.4% (19.5% in the previous year, -6.1pt), the Ordinary Income margin to 14.7% (19.3% in the previous year, -4.6pt), and the Net Income margin to 11.2% (15.0% in the previous year, -3.9pt), indicating lower margins at every profit level.【Cash Flow Quality】Accounts receivable of ¥772.6B represented 38.8% of quarterly revenue, a slight improvement from 40.6% in the previous year. Inventories of ¥358.3B represented 18.0% of revenue (18.5% in the previous year), remaining broadly flat. Meanwhile, non-operating income of ¥53.9B included contributions from outside the core business, such as equity-method investment income of ¥18.5B (¥6.6B in the previous year).【Investment Efficiency】ROE declined to 4.7% (6.2% in the same period of the previous year), primarily due to the contraction in the Net Income margin.【Financial Soundness】The Equity Ratio improved slightly to 25.1% (24.4% in the previous year, +0.7pt), but interest-bearing debt totaled approximately ¥1,050.9B, comprising bonds of ¥489.7B, long-term borrowings of ¥458.8B, short-term borrowings of ¥52.5B, and commercial paper of ¥50.0B. The current ratio remained only slightly above 1x at 102.7%.

Cash Flow Analysis

As cash flow statement data has not been disclosed, an analysis of funding trends based on changes in the balance sheet shows that cash and deposits decreased by -¥51.2B (-27.6%) to ¥134.3B (¥185.5B in the previous year), while short-term borrowings increased by +¥51.2B to ¥52.5B (¥1.3B in the previous year), and commercial paper of ¥50.0B was newly recorded. Regarding long-term financing, bonds declined by -¥40.0B to ¥489.7B (¥529.7B in the previous year), while long-term borrowings increased by +¥7.5B to ¥458.8B (¥451.3B in the previous year). This suggests that some bond redemptions were covered through short-term funding and long-term borrowings. From a working capital perspective, both accounts receivable, at ¥772.6B (¥756.4B in the previous year), and inventories, at ¥358.3B (¥344.3B in the previous year), increased and may have absorbed a portion of funds. The reduction in the cash cushion and increased use of short-term funding indicate that the funding structure became somewhat shorter-term during the period.

Earnings Quality

Ordinary Income of ¥291.5B exceeded Operating Income of ¥265.9B, with the difference attributable to a positive non-operating balance of +¥25.6B. Non-operating income of ¥53.9B (2.7% of revenue) was driven mainly by increases in equity-method investment income of ¥18.5B (¥6.6B in the previous year) and dividends received of ¥8.0B (¥4.3B). These factors, distinct from the earnings power of the core business, lifted Ordinary Income. Non-operating expenses increased to ¥28.3B, including interest expenses of ¥22.9B (¥20.5B in the previous year), indicating a gradual increase in interest burden. No extraordinary gains or losses were recorded in the current period, while the extraordinary gain of ¥18.2B recorded in the previous year fell away. Against pretax income of ¥292.8B, corporate income taxes and other taxes were ¥70.4B (effective tax rate of 24.0%); after deducting Net Income attributable to non-controlling interests of ¥0.5B, Net Income attributable to owners of the parent was ¥222.0B. The divergence arising from the tax rate and non-controlling interests was limited. Comprehensive income was ¥262.0B, exceeding consolidated Net Income of ¥222.5B. Valuation difference on available-for-sale securities of +¥54.4B was a positive factor, while adjustments related to retirement benefits of -¥19.4B were a negative factor.

Earnings Forecast and Guidance

Progress against the Full-Year plan varied by indicator. Revenue of ¥1,990.2B represented progress of 26.2% against the Full-Year forecast of ¥7,600.0B, broadly in line with the quarterly benchmark of 25%. Meanwhile, Operating Income was ¥265.9B (forecast: ¥400.0B), representing progress of 66.5%; Ordinary Income was ¥291.5B (forecast: ¥350.0B), representing progress of 83.3%; and Net Income was ¥222.0B (forecast: ¥250.0B), representing progress of 88.8%. All were substantially ahead of schedule. The Company’s Full-Year plan anticipates significant declines in Operating Income of -54.3% YoY and Ordinary Income of -58.8% YoY. The high progress rates in Q1 appear consistent with a plan that incorporates the leveling of fuel costs and regulated revenue and the reduction of subsidy effects in the second half. No revisions to the earnings forecast or dividend forecast had been announced as of the current quarter.

Shareholder Returns

The annual dividend forecast is ¥12.5 per share, representing a planned increase from the previous year’s actual dividend of ¥10. The Payout Ratio against forecast EPS of ¥119.67 is approximately 10.4%, remaining at a conservative level. The total dividend calculated using the weighted-average number of shares outstanding during the period (208,902 thousand shares) is approximately ¥2.61B, providing ample coverage against forecast Net Income of ¥250.0B. No disclosure regarding share repurchases or other measures had been made, and shareholder returns remain centered on dividends. No revision to the dividend forecast had been announced as of the current quarter.

Risk Factors

1. Core Margin Decline Risk: The Company-wide Operating Income margin declined by -6.1pt from 19.5% in the previous year to 13.4%. By segment, the margin for Transmission and Distribution fell from 53.9% to 9.1%, while that for Generation and Retailing declined from 18.6% to 15.8%. Changes in the cost structure and the timing of recognition of regulated revenue are putting pressure on profitability.

2. Changes in the Funding Structure: Cash and deposits declined by -27.6% to ¥134.3B (¥185.5B in the previous year), while short-term borrowings surged to ¥52.5B (¥1.3B in the previous year), and commercial paper of ¥50.0B was newly recorded. The shift toward a shorter-term composition of interest-bearing debt (approximately ¥1,050.9B in total bonds, short- and long-term borrowings, and commercial paper) warrants monitoring from a liquidity management perspective.

3. Progress Gap Against the Full-Year Earnings Forecast: While revenue progress was 26.2%, progress for Operating Income, Ordinary Income, and Net Income was substantially ahead at 66.5%, 83.3%, and 88.8%, respectively. The Company’s Full-Year plan assumes a significant decline in profit in the second half (Operating Income YoY -54.3%, Ordinary Income YoY -58.8%), and whether actual performance diverges from the plan will require monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

The Operating Income margin is at the same level as the industry median, while the Net Income margin is +1.7pt above the median.

Growth and Capital Efficiency

The revenue growth rate is -3.7pt below the industry median.

※Source: Compiled by the Company

Key Earnings Highlights

1. The sharp decline in the Transmission and Distribution segment’s profit margin from 53.9% to 9.1% was the primary cause of the -6.1pt decline in the Company-wide Operating Income margin (19.5%→13.4%). The timing of recognition of regulated revenue and costs is a factor driving earnings volatility.

2. Net Income progress against the Full-Year forecast was 88.8%, substantially exceeding revenue progress of 26.2%. The earnings data indicate that the Company’s plan incorporates a significant decline in profit in the second half.

3. While the Payout Ratio remains at a conservative level of approximately 10.4%, the funding structure has become somewhat shorter-term due to the decline in cash and deposits and increases in short-term borrowings and commercial paper.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,991–¥2,111 at ±1% for the cost of equity, and ¥2,042–¥2,055 at ±0.1 for ω.

Notes:

• Because Net Income progress against the Full-Year forecast (89%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to exceed 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 gap relative to the Full-Year forecast).
• Because 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 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 release data. It does not recommend investment in any specific security. 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 as necessary.

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