Kyushu Electric Power Company (9508) FY2026 Q3 Earnings Report

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Executive Summary

Despite a decline in revenue, Operating Income, Ordinary Income, and Net Income all increased substantially, with improved profitability centered on the power generation and retail business driving consolidated results. Revenue was ¥1,649.3B (-3.8% YoY), Operating Income was ¥216.3B (+45.2% YoY), Ordinary Income was ¥215.4B (+40.1% YoY), and Net Income attributable to owners of the parent was ¥161.1B (+48.0% YoY). Although subsidy income related to the government’s support for reducing customers’ utility cost burden declined from the previous year, the Company secured higher profits, suggesting an improvement in underlying business profitability rather than an effect attributable solely to one-time subsidies.

Factors Affecting Results

【Revenue】Consolidated revenue was ¥1,649.3B, down 3.8% YoY. While the core Power Generation and Retail Business, which accounted for 75.8% of external revenue, declined 7.3%, the Transmission and Distribution Business expanded by +7.9%, the Other Energy Services Business by +7.9%, the Other Energy Services Business by +10.7%, and the ICT Services Business by +12.1%. One factor behind the decline in revenue was the ¥376B decrease in consolidated subsidy income related to the government’s support for reducing customers’ utility cost burden, from ¥780B in the same period of the previous year to ¥405B.

【Profit and Loss】Operating Income was ¥216.3B (+45.2% YoY), Ordinary Income was ¥215.4B (+40.1% YoY), and Net Income was ¥161.1B (+48.0% YoY). Segment profit in the Power Generation and Retail Business increased 74.5% to ¥148.8B despite the decline in subsidies, and its profit margin improved to 11.9%. Meanwhile, segment profit in the Transmission and Distribution Business decreased 25.1%, with wheeling revenue and equipment maintenance costs remaining issues. Non-operating income and expenses amounted to a net expense of only ¥0.9B, resulting in a limited divergence between Operating Income and Ordinary Income. The Company achieved substantial profit growth despite lower revenue, representing a decline in revenue accompanied by an increase in profit.

Segment Analysis

The Power Generation and Retail Business recorded revenue of ¥1,250.9B (75.8% composition ratio, -7.3% YoY) and segment profit of ¥148.8B (+74.5% YoY, 11.9% profit margin). Although revenue declined, its profit margin improved significantly from 6.3% in the previous year. The Transmission and Distribution Business recorded revenue of ¥201.1B (+7.9%) and profit of ¥21.5B (-25.1%, 10.7% profit margin), resulting in higher revenue but lower profit. The Other Energy Services Business recorded revenue of ¥106.9B (+10.7%) and profit of ¥23.6B (+9.2%, 22.1% profit margin), maintaining high profitability. The ICT Services Business recorded revenue of ¥73.6B (+12.1%) and profit of ¥6.0B (+43.8%), achieving higher revenue and higher profit. The Urban Development Business recorded revenue of ¥11.0B (-4.0%) and profit of ¥3.4B (-1.0%, 31.0% profit margin), maintaining a high profit margin. The Overseas Business recorded revenue of ¥2.7B and profit of ¥11.9B, indicating an extremely high profit margin; however, attention is required because it is susceptible to factors such as equity-method investment gains and therefore entails volatility. Segment profit is based on Ordinary Income and differs in definition from consolidated Operating Income.

Key Financial Metrics

【Profitability】The Operating Margin was 13.1%, expanding by 443bp from 8.7% in the same period of the previous year, while the Net Profit Margin also improved by 342bp to 9.8%. ROE was 13.9%, consisting of the product of a 9.8% Net Profit Margin, 0.281x Total Asset Turnover, and 5.06x Financial Leverage, with leverage making a significant contribution.【Cash Flow Quality】Inventories increased 53.5% YoY to ¥137.7B, while accounts payable decreased 27.7% to ¥114.7B; both affected working capital in the direction of cash outflows.【Investment Efficiency】Total Asset Turnover remained at 0.281x, reflecting the asset-intensive nature of the electric power and transmission and distribution infrastructure.【Financial Soundness】The Equity Ratio improved to 19.2% from 17.3% in the previous year, but the Current Ratio was 84.3% and the Debt-to-Equity Ratio was 4.06x, levels requiring monitoring from both short-term liquidity and high-leverage perspectives.

Cash Flow Analysis

Because cash flow statement data were not provided in these financial results, cash movements are analyzed based on changes in the balance sheet. Cash and deposits decreased from ¥362.6B in the same period of the previous year to ¥328.0B, providing 2.62x coverage of short-term borrowings of ¥125.2B. Inventories increased by ¥48.0B, while accounts payable decreased by ¥43.8B; both affected working capital negatively. Meanwhile, retained earnings increased by ¥131.6B, with the accumulation of current-period profit supporting the expansion of net assets. Long-term borrowings decreased by ¥64.0B and bonds decreased by ¥20.7B, respectively, indicating progress in reducing long-term interest-bearing debt, a positive financial development.

Earnings Quality

The increase in current-period profit was realized primarily at the operating level, and because net non-operating income and expenses amounted to only a ¥0.9B expense, improved recurring business profitability was the central driver of profit growth. In the Power Generation and Retail Business, however, subsidy income related to the government’s support for reducing customers’ utility cost burden decreased by ¥31.7B YoY. The fact that profit increased while this temporary subsidy factor was shrinking supports the view that the profitability of the underlying business improved. Non-operating income included dividend income of ¥4.1B, interest income of ¥3.4B, and equity-method investment gain of ¥13.0B, while interest expenses increased 14.4% YoY to ¥25.2B, indicating a moderate increase in the interest burden. Comprehensive income was ¥158.4B, below Net Income of ¥161.1B, with other comprehensive income items such as foreign currency translation adjustments (-¥3.1B) and adjustments related to retirement benefits (-¥3.2B) contributing to the decline. The divergence between Net Income and Comprehensive Income was limited, and no factor significantly impairing earnings quality was identified.

Earnings Forecast and Guidance

Cumulative Q3 results show strong progress against the Company’s Full-Year forecasts. Operating Income was ¥210.0B against a Full-Year forecast of ¥210.0B, representing a progress rate of 103.0%; Ordinary Income was 113.4% against a forecast of ¥190.0B; and Net Income attributable to owners of the parent was 115.0% against a forecast of ¥140.0B. All are progressing at a pace exceeding the Full-Year forecasts. Meanwhile, revenue progress was limited to 73.3% against the Full-Year forecast of ¥2,250.0B. Both the earnings forecasts and dividend forecasts remain unchanged, and conservative assumptions incorporating the effects of fuel and wholesale electricity prices, demand trends, and the tariff adjustment system may have been adopted for Q4.

Shareholder Returns

The Q2 dividend was ¥25.00 per share, and the Company’s Full-Year forecast for annual dividends remains unchanged at ¥50.00. Based on the annual dividend forecast and the Full-Year Net Income forecast of ¥140.0B, the forecast Payout Ratio is approximately 16.9%, indicating that the dividend level is conservative relative to earnings. Cumulative Q3 Net Income attributable to owners of the parent of ¥161.1B has already exceeded the Full-Year forecast, providing substantial earnings coverage for the current dividend forecast. Retained earnings increased 26.5% YoY to ¥627.7B, and dividend capacity has also improved from the perspective of capital accumulation.

Risk Factors

1. Business Concentration Risk: The Power Generation and Retail Business accounts for 75.8% of external revenue, creating a structure in which fluctuations in fuel procurement prices, wholesale electricity prices, and the tariff adjustment system can have a significant impact on consolidated results.

2. Financial Leverage and Liquidity Risk: The Debt-to-Equity Ratio is 4.06x and the Current Ratio is 84.3%, both indicating high leverage and low liquidity. Current liabilities exceed current assets by ¥174.9B, meaning that short-term funding depends on the ability to generate operating cash.

3. Regulatory Dependence and Interest Rate Risk: Subsidy income related to the government’s support for reducing customers’ utility cost burden decreased by ¥37.6B YoY, making the Company susceptible to regulatory changes. In addition, interest expenses increased 14.4% YoY to ¥25.2B. Although the Interest Coverage Ratio of 8.59x is currently healthy, it could decline in a rising interest rate environment.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

Because industry median data have not been prepared, a simple comparison is not possible; however, an Operating Margin of 13.1% is a favorable level for the electric power industry.

Growth and Capital Efficiency

Although revenue declined, the primary cause was the reduction in subsidy income, and it should be noted that this differs in direction from profit growth.

Source: Compiled by the Company

Key Points in the Financial Results

1. While revenue declined, the Operating Margin expanded by 443bp. The fact that profitability improved in the core Power Generation and Retail Business even as subsidies decreased indicates a qualitative change in the earnings structure.

2. Cumulative Q3 Operating Income, Ordinary Income, and Net Income are all progressing above the Company’s Full-Year forecasts, but the earnings forecasts remain unchanged, providing a basis for examining the earnings assumptions for Q4.

3. The Equity Ratio improved to 19.2%, and the accumulation of retained earnings contributed to strengthening the financial foundation. Meanwhile, the Current Ratio of 84.3% and Debt-to-Equity Ratio of 4.06x reflect the asset-intensive structure characteristic of the electric power business, and the high level of financial leverage remains a point for observation.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,630–¥2,789 at Cost of Equity ±1%, and ¥2,701–¥2,718 at ω±0.1.

Notes:

• Because the progress of Net Income against the Full-Year forecast (115%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of forecast tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• 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 (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on 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.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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, with consultation with a professional as necessary.

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