Shikoku Electric Power Company,Incorporated FY2027 Q1 Earnings Report

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Executive Summary

Shikoku Electric Power's Q1 of FY2026 recorded increases in both revenue and earnings, with earnings quality improving particularly as Ordinary Income and Net Income both increased by double digits. Revenue was ¥1,822.5B (+3.8% YoY), Operating Income was ¥235.1B (+3.8%), Ordinary Income was ¥269.7B (+19.0%), and Net Income attributable to owners of the parent was ¥197.3B (+29.1%; consolidated Net Income was ¥197.9B, +28.9%). The primary factor contributing to the increase from Operating Income was the expansion of equity-method investment income (¥6.7B → ¥24.9B), resulting in growth rates from the Ordinary Income level onward exceeding that of Operating Income. Progress against the company's full-year plan was 63.5% for Operating Income, 67.4% for Ordinary Income, and 65.8% for Net Income, all high levels for Q1. However, the full-year plan itself calls for higher revenue and a substantial decline in earnings (Operating Income YoY ▲45.5%), making the presence or absence of reversal factors in the second half a key point of focus.

Factors Affecting Results

【Revenue】Revenue was ¥1,822.5B, up +3.8% YoY. By segment (before elimination of intersegment transactions), the Power Generation and Retail Business was the main contributor at ¥1,509.2B (+1.7%, composition ratio 61.8%), followed by the Transmission and Distribution Business at ¥538.9B (+2.4%), the Information and Communications Business at ¥126.5B (-2.0%), the Energy Business at ¥73.2B (+10.5%), the Construction and Engineering Business at ¥100.3B (+4.6%), and Other at ¥92.5B (+15.9%). The Energy Business, Other, and Construction and Engineering Business recorded high growth rates, while the Information and Communications Business was the only segment to post a revenue decline.

【Profit and Loss】Operating Income was ¥235.1B (+3.8%), and the Operating Income margin of 12.9% was essentially unchanged from 12.9% in the same period last year. Ordinary Income was ¥269.7B (+19.0%), significantly exceeding the growth in Operating Income, primarily due to an increase in equity-method investment income (¥24.9B versus ¥6.7B in the same period last year). Non-operating income was ¥55.4B, including dividend income of ¥4.2B and interest income of ¥2.8B, and sufficiently exceeded non-operating expenses of ¥20.8B, including interest expense of ¥20.2B. Net Income attributable to owners of the parent was ¥197.3B (+29.1%), maintaining its earnings growth even after deducting income taxes of ¥69.2B (effective tax rate approximately 25.9%). No extraordinary gains or losses were recorded; in conclusion, both revenue and earnings increased.

Segment Analysis

The Power Generation and Retail Business recorded revenue of ¥1,509.2B (+1.7%) and segment profit of ¥211.5B (¥185.6B in the same period last year, +14.0%), making it both the core business and the largest contributor to earnings growth. The Transmission and Distribution Business recorded revenue of ¥538.9B (+2.4%) and a segment loss of ¥5.2B (a loss of ¥12.3B in the same period last year), indicating a narrowing loss. The Information and Communications Business recorded revenue of ¥126.5B (-2.0%) and profit of ¥28.9B (¥29.4B in the same period last year, -1.6%), representing a slight decline in earnings. The Energy Business posted revenue of ¥73.2B (+10.5%) and profit of ¥19.5B (¥13.6B in the same period last year, +43.7%), representing substantial earnings growth. The Construction and Engineering Business also posted higher revenue of ¥100.3B (+4.6%) and profit of ¥5.5B (¥4.4B in the same period last year, +27.1%). Other businesses recorded revenue of ¥92.5B (+15.9%) and profit of ¥8.5B (¥6.1B in the same period last year, +39.7%). Overall, earnings growth in the Power Generation and Retail Business and Energy Business, along with the narrowing loss in Transmission and Distribution, contributed to the increase in Ordinary Income.

Key Financial Indicators

【Profitability】The Operating Income margin was 12.9%, essentially unchanged from 12.9% in the same period last year (+0.1pt approximately). Meanwhile, the Net Income margin attributable to owners of the parent improved by +2.1pt to 10.8% from 8.7% in the previous year, with improved profitability from the Ordinary Income level onward lifting the Net Income margin.【Cash Flow Quality】Comprehensive Income was ¥195.0B (¥194.4B attributable to owners of the parent), slightly below consolidated Net Income of ¥197.9B. The difference was attributable to valuation-related OCI items such as deferred hedge gains and losses of ▲¥18.2B and adjustments related to retirement benefits of ▲¥8.1B, and does not materially distort the underlying earnings of the business.【Investment Efficiency】ROE was 4.0% (quarterly basis), while the total asset turnover ratio remained low, reflecting the capital-intensive nature of the electric power industry, in which investment in power facilities accounts for a significant proportion of total assets.【Financial Soundness】The Equity Ratio was 28.5%, improving +1.1pt from 27.4% in the same period last year. However, current assets of ¥2,885.2B versus current liabilities of ¥2,994.6B resulted in a current ratio of 96.3%, below 1x, indicating a level at which short-term funding conditions require monitoring.

Cash Flow Analysis

As no statement of cash flows has been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits were ¥519.8B, down ▲33.9% from ¥786.0B in the same period last year, indicating reduced liquidity on hand. Meanwhile, interest-bearing debt was reduced in both long-term borrowings, at ¥4,149.0B (¥4,643.0B in the previous year), and bonds, at ¥3,545.0B (¥4,070.0B in the previous year). Total interest-bearing debt was ¥7,914B, equivalent to approximately 45.9% of total assets. Current liabilities increased +35.0% from the previous year, while non-current liabilities decreased ▲9.9%, suggesting that the liability structure shifted from long-term to short-term. In terms of working capital, both accounts receivable, at ¥787.6B (¥874.9B in the previous year, ▲10.0%), and inventories, at ¥413.3B (¥425.3B in the previous year, ▲2.8%), were trending downward. On a quarterly basis (91 days), the accounts receivable turnover period was approximately 39 days, while the inventory turnover period was equivalent to approximately 220 days.

Earnings Quality

The earnings increase in the current quarter was largely attributable to an improvement in recurring operating profit and loss, with no extraordinary gains or losses recorded. Equity-method investment income of ¥24.9B (¥6.7B in the previous year), which boosted Ordinary Income, was driven by the performance of associated operating companies and is positioned as a recurring source of earnings rather than a temporary factor. Comprehensive Income was ¥195.0B, slightly below Net Income attributable to owners of the parent of ¥197.3B. The difference arose from valuation-related items such as deferred hedge gains and losses of ▲¥18.2B and adjustments related to retirement benefits of ▲¥8.1B. In the conversion from Ordinary Income of ¥269.7B to Net Income attributable to owners of the parent of ¥197.3B, income taxes of ¥69.2B (effective tax rate approximately 25.9%) were the primary deduction, and no unusual factors were observed in terms of the tax burden.

Earnings Forecast and Guidance

Q1 progress against the company's full-year plan (Revenue ¥9,250.0B, Operating Income ¥370.0B, Ordinary Income ¥400.0B, EPS ¥147.00) was 19.7% for Revenue, 63.5% for Operating Income, 67.4% for Ordinary Income, and 65.8% for Net Income attributable to owners of the parent, all substantially exceeding the simple progress benchmark of 25%. At the same time, while the full-year plan anticipates Revenue growth of +21.4% YoY, it forecasts substantial declines of ▲45.5% YoY in Operating Income and ▲41.1% YoY in Ordinary Income, creating a gap between the high Q1 progress and the full-year earnings outlook. No revisions were made to the earnings forecast or dividend forecast during the current quarter.

Shareholder Returns

The company's dividend forecast is ¥55.00 per year, implying a Payout Ratio of approximately 37.4% against forecast EPS of ¥147.00. No revision was made to the dividend forecast during the current quarter, and there was no mention of share repurchases. Given that the full-year Net Income progress rate was high at 65.8% as of Q1, the current dividend plan is at a level consistent with earnings progress at this point in time.

Risk Factors

1. Liquidity and Maturity Structure Risk: Current assets of ¥2,885.2B versus current liabilities of ¥2,994.6B resulted in a current ratio of 96.3%, below 1x. Cash and deposits also declined to ¥519.8B (¥786.0B in the previous year, ▲33.9%), requiring confirmation of short-term funding conditions.

2. Fuel Price and Adjustment Time-Lag Risk: The electric power business is structurally susceptible to the effects of fuel prices and foreign exchange fluctuations due to the fuel cost adjustment system. The Transmission and Distribution Business also recorded a segment loss of ¥5.2B in the current period (a loss of ¥12.3B in the previous year), remaining a factor contributing to earnings volatility.

3. Leverage Risk: Although the Equity Ratio improved to 28.5% (27.4% in the previous year), total interest-bearing debt was ¥7,914B, including long-term borrowings of ¥4,149.0B and bonds of ¥3,545.0B, accounting for approximately 45.9% of total assets. Sensitivity to changes in the interest rate environment should therefore be monitored.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Operating Income margin is slightly below the industry median, while the Net Income margin exceeds the median, indicating that profitability from the Ordinary Income level onward is relatively favorable within the industry.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median, indicating that top-line growth is relatively moderate within the industry.

※Source: Compiled by the Company

Key Points in the Financial Results

1. Although Q1 progress toward the full-year plan was high at 63.5% for Operating Income, 67.4% for Ordinary Income, and 65.8% for Net Income, the full-year company plan anticipates a substantial earnings decline (Operating Income YoY ▲45.5%), and differences in the earnings patterns between the first and second halves can be inferred from the financial results data.

2. Equity-method investment income expanded from ¥6.7B in the previous year to ¥24.9B, serving as the primary reason why the growth rate of Ordinary Income (+19.0%) exceeded that of Operating Income (+3.8%). Whether this source of income will continue to contribute on a recurring basis is a key point in understanding the earnings structure.

3. A decline in cash and deposits (▲33.9%) and a current ratio of 96.3% (below 1x) were observed simultaneously. From the perspective of financial soundness, this contrasts with the improvement in the Equity Ratio (28.5%, compared with 27.4% in the previous year).

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on 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: ¥2,180–¥2,308 at cost of equity ±1%; ¥2,237–¥2,246 at ω±0.1.

Notes:

• Because Net Income progress against the full-year forecast (66%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies whose progress is ahead of plan 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 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.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not forecast or guarantee future share prices)

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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 responsibility, after consulting professionals as necessary.

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