Shikoku Electric Power Company (9507) FY2026 FY Earnings Report

Quick View

Executive Summary

Revenue and earnings declined due to contraction in the core Power Generation and Retail Business and the Transmission and Distribution Business, while profit margins also decreased. Revenue was ¥761.86B (-10.5% YoY), operating income was ¥67.85B (-23.8%), ordinary income was ¥67.89B (-25.9%), and net income attributable to owners of the parent was ¥50.81B (-25.6%). Profit declined by more than the decrease in revenue, indicating a reversal of operating leverage caused by the fixed-cost burden characteristic of the electric power business. The operating margin decreased from 10.5% in the previous year to 8.9%, while ROE of 10.7% remained at a certain level for an asset-intensive business.

Factors Affecting Performance

【Revenue】Revenue was ¥761.86B, down -10.5% YoY. The core Power Generation and Retail Business (76.7% of total revenue) declined by -11.9%, while the Transmission and Distribution Business fell by -16.0%, with fuel cost adjustments and lower electricity sales volumes weighing on company-wide revenue. In contrast, the Information and Communications Business increased by +4.1% and Other Businesses by +26.7%, with non-electricity businesses securing revenue growth and contributing to diversification of revenue sources.

【Profit and Loss】Operating income was ¥67.85B (-23.8% YoY), representing a decline exceeding the rate of revenue contraction. By segment, on an ordinary income basis, the Power Generation and Retail Business recorded ¥34.89B (-15.7% YoY, 6.0% margin), while the Transmission and Distribution Business recorded ¥8.54B (-67.3% YoY, 11.0% margin), both representing substantial declines, with the Transmission and Distribution Business showing the largest decline rate among all segments. In contrast, the Information and Communications Business maintained a high margin, recording ¥11.29B (+6.3% YoY, 27.9% margin). Ordinary income of ¥67.89B was approximately at the same level as operating income, and non-operating income and expenses resulted in only a small net gain of ¥0.04B. Net income of ¥50.80B (-17.7% YoY) declined at a lower rate than the 25.9% decline in ordinary income, with a lower tax burden providing partial mitigation. In conclusion, the company experienced declines in both revenue and earnings.

Segment Analysis

The Power Generation and Retail Business recorded revenue of ¥58.47B (76.7% of total revenue, -11.9% YoY) and profit of ¥34.89B (-15.7% YoY), remaining the core contributor to both revenue and profit. The Transmission and Distribution Business recorded revenue of ¥77.59B (-16.0% YoY) and profit of ¥8.54B (-67.3% YoY, 11.0% margin), showing the largest decline rate among all segments, apparently affected by fluctuations in wheeling revenue and the cost-recovery system. The Information and Communications Business recorded revenue of ¥40.44B (+4.1% YoY) and profit of ¥11.29B (+6.3% YoY, 27.9% margin), achieving both revenue and profit growth while maintaining a high margin. Together with the Energy Business (23.2% profit margin) and the Construction and Engineering Business (21.4% profit margin), the non-electricity businesses supported company-wide earnings. It should be noted that segment profit is measured on an ordinary income basis and therefore differs in measurement basis from consolidated operating income.

Key Financial Indicators

【Profitability】The operating margin was 8.9%, down 1.6pt from 10.5% in the previous year, while the net profit margin was 6.7%, also declining from 8.0% in the previous year, indicating that reverse operating leverage was more pronounced than during periods of revenue growth. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥82.29B, 1.62 times net income of ¥50.80B, indicating strong cash backing for earnings, although OCF declined substantially by -36.6% YoY. 【Investment Efficiency】ROE was 10.7%, and EPS was ¥247.27 (¥332.20 in the previous year, -25.6% YoY). The equity ratio was 27.5%, slightly up from 26.0% in the previous year. 【Financial Soundness】Against total assets of ¥1,734.36B, net assets were ¥477.53B, resulting in an equity ratio of 27.5%. With long-term borrowings of ¥464.30B and bonds of ¥407.00B, the company has a high reliance on long-term funding and utilizes a certain level of leverage as an asset-intensive electric power business.

Cash Flow Analysis

Operating Cash Flow was ¥82.29B, down -36.6% YoY. A decrease in trade receivables of ¥15.14B was a positive factor, while a decrease in trade payables of ¥5.21B and an increase in assets related to retirement benefits were negative factors. Investing Cash Flow represented an outflow of ¥150.01B. Acquisitions of property, plant and equipment and intangible assets totaled ¥124.35B, approximately 2.1 times depreciation and amortization expense of ¥59.40B, indicating that the company is in an investment phase involving facility renewal and grid strengthening. As a result, free cash flow was -¥67.72B, meaning that investments could not be funded through OCF alone. Financing Cash Flow was an inflow of ¥15.38B, with bond issuance and long-term borrowings supplementing the investment shortfall. Cash and deposits were ¥78.60B, a decrease of ¥51.59B YoY, making the balance between investment scale and financing an area of focus going forward.

Earnings Quality

As OCF was 1.62 times net income, current-period earnings can be viewed as high quality and supported by cash generation. Within non-operating income and expenses, interest and dividend income totaled ¥2.26B, while interest expense was higher at ¥7.40B. However, non-operating income of ¥9.03B and non-operating expenses of ¥8.99B were nearly balanced, limiting the net impact. Equity-method investment income of ¥4.94B accounted for approximately 9.7% of net income attributable to owners of the parent and contributed to consolidated earnings, representing a recurring source of income rather than a temporary factor. Comprehensive income was ¥48.62B, below net income of ¥51.00B, primarily due to an adjustment of -¥9.02B related to retirement benefits. This reflects fluctuations in interest rates and pension assets and should be distinguished as a temporary valuation factor.

Earnings Forecast and Guidance

The forecast for the next fiscal year is revenue of ¥925.00B (+21.4% YoY), operating income of ¥37.00B (-45.5%), ordinary income of ¥40.00B (-41.1%), and net income of ¥23.00B (-35.6%). Despite projected revenue growth, the plan anticipates a substantial earnings decline, with the forecast operating margin expected to be approximately 4.0%, significantly below the current-period result of 8.9%. Cost assumptions, including fuel costs, wholesale electricity prices, the tariff adjustment system, and nuclear power plant operating conditions, will be key to achieving the plan.

Shareholder Returns

The annual dividend is ¥50 per share (¥25 for Q2 and ¥25 year-end), resulting in a payout ratio of 20.2%. Share repurchases of ¥3.23B were conducted, bringing the total return ratio, including dividends, to approximately 26.7%. Both were within the range of current-period net income; however, free cash flow was -¥67.72B, and current-period shareholder returns and capital expenditures could not be funded through operating cash flow alone, resulting in reliance on bond issuance and borrowings. For the next fiscal year, an annual dividend of ¥55 is forecast, with the payout ratio expected to be approximately 37.4% against forecast EPS of ¥147.00.

Risk Factors

1. Business concentration risk: The Power Generation and Retail Business accounts for 76.7% of revenue, and the timing of fuel costs, wholesale electricity prices, electricity sales volumes, and fuel cost adjustments materially affects consolidated performance. The next fiscal year's plan assumes operating income of -45.5% against revenue growth of 21.4%, indicating high sensitivity to cost assumptions.

2. Financial leverage: The equity ratio is 27.5%, with long-term borrowings of ¥464.30B and bonds of ¥407.00B, indicating a high reliance on long-term funding. In the current period, FCF was -¥67.72B, and investments and shareholder returns could not be funded through operating cash flow alone, resulting in reliance on debt financing.

3. Earnings volatility in the Transmission and Distribution Business: The Transmission and Distribution Business recorded profit of ¥8.54B, down -67.3% YoY, the largest decline rate among all segments. Fluctuations in wheeling revenue and the cost-recovery system could weigh on company-wide earnings.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (utilities)

Profitability and Returns

The company's profitability indicators are substantially below the industry median, clearly indicating a gap in its earnings structure.

Growth and Capital Efficiency

The revenue growth rate was also below the industry median, placing the company among those with a relatively large revenue decline within the industry during the current period.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. In the current period, operating income declined by -23.8% against a revenue decline of -10.5%, clearly demonstrating reverse operating leverage caused by the fixed-cost structure characteristic of the electric power business. The -67.3% decline in profit at the Transmission and Distribution Business substantially reduced company-wide earnings.

2. OCF was 1.62 times net income, indicating strong cash backing for earnings; however, investments substantially exceeded OCF, resulting in negative FCF of -¥67.72B. Capital expenditures reached approximately 2.1 times depreciation and amortization expense, making the evolution of investment recovery and the balance of financing an area of focus going forward.

3. Despite projected revenue growth of 21.4%, the next fiscal year's plan anticipates operating income of -45.5%, indicating a structure in which revenue growth and earnings growth are not aligned. Trends in fuel costs, wholesale electricity prices, and the tariff adjustment system will be the primary variables in achieving the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,111–¥2,234 at ±1% for the cost of equity, and ¥2,166–¥2,175 at ±0.1 for ω.

Note:

• Because forecast ROE is below the cost of equity, the theoretical value will be below book value per share.

(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 forecast or guarantee future share prices.)

---

This report is an earnings analysis document automatically generated by AI through analysis of 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 professionals as necessary.

---End of Report---