Kyushu Electric Power Company (9508) FY2026 FY Earnings Report

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Executive Summary

Despite a decline in revenue, the Company posted higher earnings for the current period, with profit growth led by improved costs and profitability. Revenue was ¥22472B (-4.7% YoY), Operating Income was ¥2248B (+12.7%), Ordinary Income was ¥2070B (+6.4%), and Net Income attributable to owners of the parent was ¥1545B (+20.0%). The primary causes of the revenue decline were lower revenue from the core Generation and Retail Electricity Business (-7.8% YoY) and a reduction in subsidy income. Meanwhile, improved profitability in fuel and power procurement costs drove a significant +19.2% increase in profit from that business, boosting the Company-wide profit margin.

Factors Affecting Business Performance

【Revenue】Revenue was ¥22472B, down 4.7% YoY. The primary factors were lower revenue from the Generation and Retail Electricity Business (-7.8% YoY; revenue of ¥17014B) and a reduction in subsidies, including the government’s support for reducing electricity and gas charges (other income decreased from ¥1022B in the previous year to ¥720B in the current period). Meanwhile, the Other Energy Services Business (+9.3%), ICT Services Business (+10.6%), and Transmission and Distribution Business (+5.7%) posted higher revenue, with businesses other than electricity sales partially offsetting the decline.

【Profit and Loss】Operating Income was ¥2248B (+12.7% YoY), and the Operating Income margin improved to 10.0% from 8.5% in the previous year, an improvement of approximately 1.5pt. Segment profit in the Generation and Retail Electricity Business increased significantly by 19.2% YoY, supported by improved profitability in fuel costs and wholesale electricity prices. In contrast, segment profit in the Transmission and Distribution Business declined sharply by 68.8% YoY, apparently due to the timing of recovery of regulated revenue and higher costs. Ordinary Income growth was restrained relative to Operating Income growth by a decline in equity-method investment gains (from ¥197B in the previous year to ¥132B in the current period) and a 14.8% increase in interest expense. However, Net Income recorded the highest growth rate at +20.0% YoY, partly because extraordinary losses in the previous period, including ¥77B in impairment losses, did not recur. In conclusion, the Company posted lower revenue but higher earnings.

Segment Analysis

The Generation and Retail Electricity Business recorded revenue of ¥17014B (75.7% of total revenue, -7.8% YoY) and segment profit of ¥1364B (+19.2% YoY; profit margin of 8.0%), indicating improved profitability despite lower revenue. The Transmission and Distribution Business recorded revenue of ¥2697B (+5.7% YoY), while segment profit was ¥83B (-68.8% YoY; profit margin of 3.1%), reflecting a substantial deterioration in profitability. Attention should be paid to the timing of regulated revenue recognition and cost recovery. The Other Energy Services Business recorded revenue of ¥1462B (+9.3% YoY) and segment profit of ¥369B (+11.2% YoY; profit margin of 25.3%), maintaining high profitability. Despite an 8.7% decline in revenue, the Urban Development Business achieved a significant 50.0% increase in profit, with a profit margin of 32.2%. The ICT Services Business recorded revenue of ¥1058B (+10.6% YoY), while profit was almost flat at +0.5% YoY, resulting in a profit margin of 10.0%. The Overseas Business is small in scale, with external revenue of ¥37B, but its segment profit of ¥126B (+42.6% YoY) is based on Ordinary Income and includes equity-method investment gains and other items; therefore, it is not suitable for a simple comparison of operating profitability. It should be noted that all segment profit figures are based on Ordinary Income and differ in definition from consolidated Operating Income.

Key Financial Metrics

【Profitability】The Operating Income margin was 10.0%, improving from 8.5% in the previous year by approximately 1.5pt, while the Net Income margin improved to 6.9% from 5.5% in the previous year. ROE was 12.7% (an approximate figure relative to 12.6% based on Net Income for the current period), representing a favorable level. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥4387B, approximately 2.8 times Net Income attributable to owners of the parent of ¥1545B, indicating strong cash support for accounting earnings. The Company generated OCF exceeding depreciation and amortization expense of ¥2262B, demonstrating robust cash-generation capacity for a capital-intensive business. 【Investment Efficiency】Investing Cash Flow was an outflow of ¥3837B, with approximately 87% of OCF reinvested, securing positive Free Cash Flow of ¥550B. 【Financial Soundness】The Equity Ratio was 20.5%, improving from 17.3% in the previous year. However, the level of interest-bearing debt, comprising long-term borrowings of ¥16891B and bonds of ¥14377B, remains substantial, reflecting the financing structure of a capital-intensive business.

Cash Flow Analysis

OCF was ¥4387B, up 1.6% YoY, maintaining a level substantially above Net Income of ¥1545B. From a working capital perspective, the ¥363B decrease in accounts receivable contributed to cash inflows, while the ¥156B increase in inventories and the ¥169B decrease in accounts payable were sources of cash outflows, indicating fluctuations without a consistent direction. Investing Cash Flow was an outflow of ¥3837B, indicating continued capital investment in generation, transmission and distribution, urban development, and other areas. Free Cash Flow (OCF + Investing Cash Flow) was positive at ¥550B, while Financing Cash Flow was an outflow of ¥577B, with long-term debt repayments of ¥2414B and other items partially offset by new borrowings of ¥2171B, bond issuance of ¥1687B, and other sources. The ability to secure funding for dividends and debt repayment while continuing investment suggests sound circulation of funds.

Quality of Earnings

The earnings growth for the current period includes both a substantive improvement in operating profitability and temporary factors. Extraordinary losses of ¥138B in the previous period, including ¥77B in impairment losses, were eliminated in the current period; accordingly, the 15.1% increase in Profit Before Tax was supported by the reversal of a one-time factor. In non-operating income and expenses, interest expense of ¥344.6B exceeded interest income of ¥50.9B and dividend income of ¥67.7B, reducing Ordinary Income. Equity-method investment gains declined from ¥197B in the previous year to ¥132B in the current period, restraining Ordinary Income growth. Other income, including subsidies, decreased from ¥1022B in the previous year to ¥720B in the current period. This was one factor behind the revenue decline, and attention should be paid to changes in the earnings structure if subsidies are reduced or discontinued in the future. The fact that OCF substantially exceeded Net Income indicates that earnings were supported by cash generation.

Earnings Forecast and Guidance

Compared with the full-year forecast announced by the Company—revenue of ¥23000B, Operating Income of ¥2100B, Ordinary Income of ¥1800B, and a dividend of ¥50—the actual results achieved or exceeded the respective targets. Revenue was ¥22472B versus the forecast of ¥23000B, broadly approximating the forecast level. Operating Income was ¥2248B versus the forecast of ¥2100B, exceeding it, while Ordinary Income was ¥2070B versus the forecast of ¥1800B, also exceeding it. The upside in profit is considered to reflect improved profitability in the Generation and Retail Electricity Business and the reversal of extraordinary losses recorded in the previous period.

Shareholder Returns

The annual dividend totaled ¥50, comprising an interim dividend of ¥25 and a year-end dividend of ¥25, maintaining the same level as the previous year’s total dividend of ¥50 (interim ¥25 and year-end ¥25). The Payout Ratio was 15.9% (Company-disclosed figure), remaining at a conservative level below 60%. Total dividends of approximately ¥236B (based on total dividend payments) were covered by Free Cash Flow of ¥550B, indicating that the current-period dividend was paid within the Company’s post-investment financial capacity. Share repurchases were limited in scale, and shareholder returns centered on dividends.

Risk Factors

1. Concentration of earnings in the core business: The Generation and Retail Electricity Business accounts for 75.7% of revenue, and the Company-wide results are directly sensitive to fuel prices, wholesale electricity prices, demand trends, and regulatory changes. Revenue from this business declined 7.8% YoY, and the earnings structure depends on profitability-related factors for profit improvement.

2. Decline in subsidy income: Other income, including subsidies for support to reduce electricity and gas charges, declined from ¥1022B in the previous year to ¥720B in the current period. The termination or reduction of these programs could affect the Company’s future revenue and earnings composition.

3. Deterioration in Transmission and Distribution Business profitability: While revenue increased 5.7% YoY, segment profit declined 68.8% YoY to ¥83B, and the profit margin fell to 3.1%. The timing of recovery of regulated revenue and trends in cost increases require close monitoring.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (utilities)

Profitability and Returns

Compared with the industry median, both the Operating Income margin and Net Income margin are substantially lower, positioning the Company among the less profitable companies in the industry.

Growth and Capital Efficiency

The Revenue Growth Rate also falls below the industry median, positioning the Company as notable for its declining revenue in an industry primarily characterized by revenue growth.

Source: Company analysis

Key Points in the Financial Results

1. The improvement in the Operating Income margin despite lower revenue—from 8.5% in the previous year to 10.0% in the current period, an improvement of approximately 1.5pt—indicates enhanced operating leverage resulting from improved profitability in fuel and power procurement costs. This represents a point of change toward an earnings growth structure that does not depend on revenue expansion.

2. While OCF reached approximately 2.8 times Net Income and Free Cash Flow of ¥550B was secured, large-scale investment continued, with Investing Cash Flow equivalent to approximately 87% of OCF. As a capital-intensive business, trends in investment scale and the financing structure, including the Equity Ratio of 20.5%, will be important areas to monitor in evaluating future capital policy.

3. The 68.8% decline in segment profit in the Transmission and Distribution Business is notable as a deterioration in profitability within a segment that achieved revenue growth. The recovery of regulated revenue and cost trends will be key areas of focus in future performance evaluation.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,312–¥2,453 at Cost of Equity ±1%, and ¥2,374–¥2,392 at ω ±0.1.

(Calculation model: Residual Income Model (Ohlson-type model with an explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these figures do not constitute a forecast of the market share price or a recommendation of any specific investment action, and do not predict 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. 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 with a professional as necessary.

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