Shikoku Electric Power Company (9507) FY2027 Q1 Earnings Report

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Executive Summary

Shikoku Electric Power reported higher revenue and profits in FY2027 Q1, with improvements in non-operating income and the tax burden driving a substantial increase in net income. Revenue was ¥1822.5B (+3.8% YoY), Operating Income was ¥235.1B (+3.8%), Ordinary Income was ¥269.7B (+19.0%), and Net Income was ¥197.9B (+28.9%). Although Operating Income growth remained almost in line with revenue growth, the increase in equity-method investment income and the lower corporate tax burden from the Ordinary Income stage onward led to progressively higher profit growth rates. Higher profits in the Generation and Retail Electricity Business and reduced losses in the Transmission and Distribution Business supported overall company performance.

Factors Affecting Performance

【Revenue】Revenue was ¥1822.5B, representing a 3.8% YoY increase. By segment, the Generation and Retail Electricity Business remained the core business at ¥1399.2B (+3.0%), while the Transmission and Distribution Business at ¥185.9B (+4.3%) and the Energy Business at ¥64.2B (+14.0%) achieved strong growth. The Information and Communications Business at ¥101.0B (+1.4%) showed limited growth.

【Profit and Loss】Operating Income was ¥235.1B (+3.8%), remaining almost in line with revenue growth, indicating limited improvement in operating profitability itself. In contrast, Ordinary Income increased substantially more than Operating Income, reaching ¥269.7B (+19.0%), mainly due to an increase in equity-method investment income to ¥24.9B (¥6.7B in the previous year). Net Income increased further, reaching ¥197.9B (+28.9%), supported by a lower effective tax rate (corporate income taxes and other taxes of ¥69.2B). By segment, Ordinary Income in the Generation and Retail Electricity Business increased to ¥211.5B (+14.0%), while losses in the Transmission and Distribution Business narrowed from ¥12.3B to ¥5.2B. Although the Information and Communications Business posted higher revenue, Ordinary Income declined to ¥28.9B (-1.6%), indicating varying profitability trends in non-electricity businesses. In conclusion, the company reported higher revenue and profits.

Segment Analysis

The Generation and Retail Electricity Business is the core business, generating segment profit of ¥211.5B and accounting for 78.4% of the total. Against external-customer revenue of ¥1399.2B (+3.0%), it secured a high profit margin of 15.1%. The Transmission and Distribution Business posted revenue of ¥185.9B (+4.3%) and a loss of ¥5.2B (a loss of ¥12.3B in the previous year); although the deficit narrowed, the business remained loss-making and has a structure susceptible to the impact of wheeling revenues and grid investment. The Information and Communications Business posted revenue of ¥101.0B (+1.4%) and profit of ¥28.9B (-1.6%), representing a decline in profit. The Energy Business achieved both high growth and high profitability, with revenue of ¥64.2B (+14.0%) and profit of ¥19.5B (+43.7%). The Construction and Engineering Business posted higher revenue and profit, with revenue of ¥44.3B (+4.7%) and profit of ¥5.5B (+27.1%). In absolute terms, profit remains highly dependent on the Generation and Retail Electricity Business, while diversified earnings from non-electricity businesses remain relatively small.

Key Financial Indicators

【Profitability】The Operating Income Margin was 12.9%, almost unchanged from 12.9% in the same period of the previous year, while the Net Profit Margin improved by 2.2pt from 8.7% to 10.9%. The Ordinary Income Margin was 14.8%, up 1.9pt from 12.9% in the same period of the previous year, with improved non-operating income and expenses serving as the primary driver of the higher profit margin.【Cash Quality】Equity-method investment income of ¥24.9B was a major component of non-operating income of ¥55.4B, equivalent to 9.2% of Ordinary Income. Net Income of ¥197.9B relative to Profit Before Tax of ¥267.1B represented 74.1%, and the effective tax rate declined from the previous year.【Investment Efficiency】Annualized ROE was 16.1%, composed of a 10.9% Net Profit Margin, total asset turnover of 0.42x, and financial leverage of 3.51x, with leverage making a significant contribution. The ratio of fixed assets to total assets was high at 83.3%, reflecting the characteristics of a capital-intensive business.【Financial Soundness】The Equity Ratio improved to 28.5% from 27.4% in the same period of the previous year. However, the Current Ratio was 96.3%, below 100%, with current liabilities of ¥2994.6B exceeding current assets of ¥2885.2B. Cash and deposits were ¥519.8B, down 33.9% from ¥786.0B in the same period of the previous year, indicating a decline in short-term financial capacity.

Cash Flow Analysis

Because cash flow statement data was not disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥519.8B, down ¥266.3B from ¥786.0B in the same period of the previous year. At the same time, long-term borrowings declined to ¥4149.0B (down ¥494.0B from ¥4643.0B in the previous year), while bonds declined to ¥3545.0B (down ¥525.0B from ¥4070.0B in the previous year). Although long-term interest-bearing debt was reduced, cash also declined, suggesting that funds were allocated to debt repayment, capital expenditures, or a transfer to current liabilities, which represent short-term funding, of ¥2994.6B (+¥777.2B YoY). The simultaneous increase in current liabilities and decline in cash suggests that the funding structure may have become more short-term in nature, which should be noted as a change in the financing structure.

Earnings Quality

Ordinary Income of ¥269.7B exceeded Operating Income of ¥235.1B by ¥34.6B, with the difference attributable to non-operating income and expenses. Non-operating income of ¥55.4B was equivalent to 3.0% of revenue, with equity-method investment income of ¥24.9B as its primary component. This represents income that is not necessarily recurring, accounting for 9.2% of Ordinary Income. Interest expense of ¥20.2B accounted for the majority of non-operating expenses of ¥20.8B, increasing 17.7% YoY. Net Income of ¥197.9B relative to Profit Before Tax of ¥267.1B represented 74.1%, while the burden from corporate income taxes and other taxes of ¥69.2B declined from the previous year, contributing to the higher net income growth rate. The divergence between Ordinary Income and Net Income was primarily attributable to the level of corporate income taxes and other taxes, rather than to one-time extraordinary gains or losses. Accordingly, the increase in profit during the period depended substantially more on non-operating factors—namely, higher equity-method investment income and a lower tax burden—than on improved underlying operating performance.

Earnings Outlook and Guidance

Q1 progress against the Full-Year forecast was 19.7% for revenue (below the standard 25%), 63.5% for Operating Income, 67.4% for Ordinary Income, and 65.8% for Net Income, with profit progress substantially outpacing revenue progress. Against a Full-Year revenue forecast of ¥9250.0B (+21.4%), the company forecasts Operating Income of ¥370.0B (-45.5%) and Ordinary Income of ¥400.0B (-41.1%), assuming a substantial decline in profitability in the second half despite higher revenue. The time lag in fuel cost adjustments, power-source operating conditions, and fluctuations in fuel and wholesale electricity market prices may affect second-half performance. There were no revisions to the earnings or dividend forecasts.

Shareholder Returns

The Full-Year dividend forecast is ¥55.0 per share. Based on the weighted-average number of shares outstanding during the period of 204,372,587 shares, the annual dividend payout is estimated at ¥112.4B. The forecast Payout Ratio against the Full-Year Net Income forecast of ¥300.0B is approximately 37.5%, within a generally stable dividend range. The dividend per share in the same period of the previous year was ¥25, but this represented the interim dividend paid, so a simple comparison of the Full-Year dividend increase or decrease cannot be made. Q1 Net Income of ¥197.9B reached 65.8% of the Full-Year forecast, but because the Full-Year plan itself assumes a decline in profit in the second half, Q1 performance alone cannot be used to conclude that dividend capacity has expanded. Given the decline in cash and deposits and the Current Ratio of 96.3%, dividend sustainability will depend not only on the level of profit but also on financing and capital expenditure trends.

Risk Factors

1. Liquidity Risk: The Current Ratio was 96.3%, and current liabilities of ¥2994.6B exceeded current assets of ¥2885.2B, resulting in negative working capital of ¥109.4B. Cash and deposits declined 33.9% YoY to ¥519.8B, indicating a decline in short-term financial capacity.

2. Leverage and Rising Interest Rate Risk: Interest-bearing debt consists of long-term borrowings of ¥4149.0B and bonds of ¥3545.0B, while interest expense increased 17.7% YoY to ¥20.2B. Although the Equity Ratio improved to 28.5%, dependence on debt remains high, and higher financing costs in a rising interest rate environment could weigh on Ordinary Income.

3. Assumption of Lower Second-Half Profit in the Full-Year Plan: Q1 progress ratios for Operating Income and Ordinary Income were high at 63.5% and 67.4%, respectively, but the Full-Year forecast assumes YoY declines of -45.5% in Operating Income and -41.1% in Ordinary Income. The validity of this assumption depends on structural factors including the time lag in the fuel cost adjustment system, power-source operating conditions, and trends in wholesale electricity market prices.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

The company's profitability indicators exceed the industry median and are relatively favorable within the electric power industry.

Growth and Capital Efficiency

The revenue growth rate is below the industry median, indicating that top-line growth is relatively moderate despite the company's profitability advantage.

※Source: Compiled by the company

Key Points from the Financial Results

1. The increase in profit during the period depended substantially more on non-operating factors—namely, higher equity-method investment income and a lower effective tax rate—than on an improvement in the Operating Income Margin, which was almost unchanged YoY. The fact that profit growth rates at the Ordinary Income and Net Income levels substantially exceeded Operating Income growth is an important point to assess when evaluating the sustainability of the earnings increase.

2. Despite high Q1 progress against the Full-Year company plan, at 63.5% for Operating Income and 67.4% for Ordinary Income, the plan assumes a substantial decline in profit in the second half. The time lag in fuel cost adjustments and power-source operating conditions are structural factors that could determine the validity of the plan's assumptions.

3. Cash and deposits declined 33.9% YoY, and the Current Ratio fell below 100% to 96.3%, while long-term borrowings and bonds were reduced. The funding structure may have become more short-term in nature, making the monitoring of financing trends a useful area of focus.

Theoretical Share Price (Reference Value)

Sensitivity: 2,173円〜2,300円 at a ±1% change in the Cost of Equity, and 2,229円〜2,239円 at a ±0.1 change in ω.

Notes:

• Because the progress of Net Income against the Full-Year forecast (66%) exceeds the standard (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to exceed forecasts; in businesses with strong seasonality, the adjustment may be excessive).
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the end of the quarter are used (there is a timing difference from the Full-Year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

（Valuation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it 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 through analysis of 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 discretion and responsibility, after consulting with a professional as necessary.

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