Kyushu Electric Power Company,Incorporated FY2027 Q1 Earnings Report

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Executive Summary

In Q1, the Company recorded higher revenue and higher profit, primarily due to improved profitability in the Power Generation and Retail Electricity Business, with Operating Income and Ordinary Income increasing significantly year on year. Revenue was ¥5,326.9B (+6.9% YoY), Operating Income was ¥834.3B (+34.9%), Ordinary Income was ¥863.5B (+45.9%), and Net Income was ¥612.8B (+30.9%). The Operating Margin improved to 15.7%, up 3.3pt from 12.4% in the same period of the previous year, as normalized fuel-cost conditions and earnings recovery in the Power Generation and Retail Electricity Business drove profit growth. Meanwhile, the Transmission and Distribution Business deteriorated in terms of earnings, resulting in widening disparities in profitability among businesses.

Factors Affecting Business Performance

【Revenue】Revenue was ¥5,326.9B, representing a 6.9% year-on-year increase. The core Power Generation and Retail Electricity Business grew to ¥4,104.6B (77.1% of total revenue, +8.1%), while the Transmission and Distribution Business increased to ¥634.0B (11.9%, +11.8%), driving overall growth. In contrast, the Other Energy Services Business declined to ¥306.5B (5.8%, ▲5.8%), and the ICT Services Business decreased to ¥227.2B (4.3%, ▲6.8%).

【Profit and Loss】Operating Income increased substantially to ¥834.3B (+34.9% YoY), while Ordinary Income rose to ¥863.5B (+45.9%). On a segment-profit basis, the Power Generation and Retail Electricity Business generated ¥749.6B (up ¥257.0B from ¥492.6B in the previous year), accounting for approximately 87% of total Company profit and serving as the primary driver of earnings growth. The ICT Services Business also posted a substantial increase in profit to ¥101.1B (¥24.9B in the previous year), contributing to the strengthening of non-electricity businesses. In contrast, the Transmission and Distribution Business posted a segment loss of ¥34.5B (compared with a profit of ¥17.0B in the previous year), apparently affected by timing differences between regulated revenue recognition and expense recognition. Net Income was ¥612.8B (+30.9%), with the difference from Ordinary Income primarily attributable to the ¥249.2B burden of income taxes and other taxes (effective tax rate: 28.9%). Revenue and profit both increased.

Segment Analysis

The Power Generation and Retail Electricity Business served as the main driver of Company-wide earnings, posting segment profit of ¥749.6B (+¥257.0B YoY), apparently benefiting from normalized fuel-cost conditions. The Transmission and Distribution Business turned to a segment loss of ¥34.5B (compared with a profit of ¥17.0B in the previous year), indicating deteriorating profitability. The ICT Services Business generated ¥101.1B (¥24.9B in the previous year), the Urban Development Business generated ¥10.8B (¥16.3B in the previous year), and the Other Energy Services Business generated ¥15.5B (¥24.8B in the previous year). Growth in the Power Generation and Retail Electricity Business and the ICT Services Business offset declines in the Transmission and Distribution Business and the Other Energy Services Business, contributing to Company-wide profit growth.

Key Financial Indicators

【Profitability】The Operating Margin improved to 15.7%, up 3.3pt from 12.4% in the same period of the previous year, while the Net Profit Margin expanded to 11.5%, up 2.1pt from 9.4% in the previous year. ROE was 4.8% (actual Q1 result, not annualized). 【Cash Quality】Cash and deposits decreased by ¥1,309.5B (▲35.6%) year on year to ¥2,374.0B, while inventories increased by ¥1,313.1B (+24.6%). Trade receivables decreased slightly to ¥2,141.6B (¥2,249.4B in the previous year), and working capital was negative at ▲¥3,293.0B, indicating that improving cash collection efficiency remains a challenge. 【Investment Efficiency】The total asset turnover ratio (quarterly basis) was 0.09x, reflecting the characteristics of an infrastructure-intensive business, while financial leverage of 4.67x (total assets/net assets) forms a structure that supports ROE. 【Financial Soundness】The Equity Ratio improved to 21.4% from 20.5% in the same period of the previous year. However, the Current Ratio and Quick Ratio were 71.6% and 60.2%, respectively, both below 100%. Interest coverage was 8.2x, securing near-term debt-servicing capacity.

Cash Flow Analysis

Because a cash flow statement has not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits decreased by ¥1,309.5B (▲35.6%) to ¥2,374.0B from ¥3,683.5B in the same period of the previous year. While inventories increased by ¥258.9B (+24.6%), accounts payable decreased by ▲¥170.9B, and other current liabilities also decreased by ▲¥1,059.6B, suggesting that deterioration in working capital pressured the cash position. Although Operating Income and Ordinary Income increased substantially, the buildup of inventory and reduction in trade payables apparently weighed on cash generation. The divergence between earnings growth and cash on hand is a point to note when evaluating the quality of cash management. Interest-bearing debt remains high, including long-term borrowings of ¥17,065.2B and bonds of ¥13,997.2B, making continued management of the funding structure important.

Quality of Earnings

Non-operating income was ¥146.9B and non-operating expenses were ¥117.8B, resulting in a net positive contribution of ¥29.2B. This remained below 1% of revenue, limiting its impact on profit and loss. Non-operating income included dividend income of ¥12.8B and equity in earnings of affiliates of ¥38.7B, both of which can be evaluated as recurring rather than one-time income. Interest expenses were ¥101.5B, up +26.4% from ¥80.3B in the previous year, reflecting the high level of interest-bearing debt and the interest-rate environment. Against Ordinary Income of ¥863.5B, Net Income was ¥612.8B, with the difference primarily attributable to the ¥249.2B burden of income taxes and other taxes (effective tax rate: 28.9%); no particular abnormal items were identified. Comprehensive income was ¥635.2B (¥332.5B in the previous year), and the difference from Net Income attributable to owners of the parent of ¥610.98B was limited to approximately ¥22B. This difference was attributable to other comprehensive income items, such as foreign currency translation adjustments and adjustments related to retirement benefits, and does not materially impair earnings quality.

Earnings Forecast and Guidance

Progress against the Full-Year plan was 23.2% for Revenue, 39.7% for Operating Income, 48.0% for Ordinary Income, and 47.0% for Net Income attributable to owners of the parent, substantially exceeding the standard quarterly progress level of 25% on the profit side. Contributing factors such as improved profitability in the Power Generation and Retail Electricity Business and normalized fuel-cost conditions may have been concentrated in Q1, suggesting that profit recognition is weighted toward the first half. The Company has made no revisions to either its earnings forecast or dividend forecast, maintaining its Full-Year plan of Revenue of ¥2,300.0B (+2.3%), Operating Income of ¥210.0B (▲6.6%), and Ordinary Income of ¥180.0B (▲13.1%). Although the Full-Year plan assumes lower profit year on year, the substantial profit growth in Q1 suggests that the plan may be conservative, premised on a reactionary decline in the second half and the fading of temporary factors.

Shareholder Returns

The dividend forecast is ¥50 per share annually, implying a Payout Ratio of approximately 19.0% against forecast EPS of ¥262.7. No revision has been made to the dividend forecast, and the current annual dividend plan of ¥50 remains unchanged. A Payout Ratio of 19% is conservative relative to the level of earnings and is consistent with a policy that prioritizes stable dividends in light of the level of interest-bearing debt and working-capital conditions. No disclosure regarding share repurchases has been identified.

Risk Factors

1. Liquidity and Working Capital Risk: The Current Ratio and Quick Ratio were 71.6% and 60.2%, respectively, both below 100%, while working capital was negative at ▲¥3,293.0B. Cash and deposits decreased by ▲¥1,309.5B (▲35.6%) year on year, requiring monitoring of short-term funding conditions.

2. Interest Rate and Leverage Risk: Financial leverage (total assets/net assets) was 4.67x, and interest-bearing debt remained high, centered on long-term borrowings of ¥17,065.2B and bonds of ¥13,997.2B. Interest expenses increased +26.4% year on year to ¥101.5B. Although interest coverage of 8.2x has been maintained, interest expense is trending higher.

3. Segment Earnings Concentration Risk: The Power Generation and Retail Electricity Business accounted for approximately 87% of segment profit, indicating a high degree of business concentration. The Transmission and Distribution Business turned to a segment loss of ¥34.5B (compared with a profit of ¥17.0B in the previous year), and earnings fluctuations arising from timing differences between regulated revenue recognition and expense recognition are contributing to variability in Company-wide profit.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

In terms of profitability, both the Operating Margin and Net Profit Margin exceeded the industry median, representing relatively high levels within the electric power industry.

Growth and Capital Efficiency

The Revenue Growth Rate was below the industry median, indicating a somewhat slower pace of revenue growth within the industry.

Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Progress against the Full-Year plan was 48.0% for Ordinary Income and 47.0% for Net Income, substantially exceeding the standard quarterly progress level of 25%, suggesting that profit growth factors may have been concentrated in Q1. The Company has not revised its earnings forecast, and the plan may be premised on a reactionary decline in the second half and the fading of temporary factors.

2. By segment, the Power Generation and Retail Electricity Business drove profit growth, while the Transmission and Distribution Business shifted from profit to loss, widening disparities in profitability among businesses.

3. Despite substantial increases in Operating Income and Ordinary Income, cash and deposits decreased significantly year on year. Changes in working capital, including increased inventories and reduced trade payables, have created a divergence between earnings growth and cash generation.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation to undertake any specific investment action.

Sensitivity: ¥2,739–¥2,904 at Cost of Equity ±1%, and ¥2,817–¥2,824 at ω±0.1.

Notes:

• Because Net Income progress against the Full-Year forecast (47%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of plan tend to exceed their forecasts; adjustments may be excessive for businesses with strong seasonality).
• Net assets as of the end of the quarter are used (there is a timing gap relative to 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 predict or guarantee future share prices)

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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. 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 a professional as necessary.

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